consultation and without adequate consideration of the effectiveness of export sanctions or the long-term cost to U.S. economic well-being. To remedy this situation, in the absence of an international emergency, Congress should require that, prior to the imposition of foreign policy controls, meaningful consultations with the private sector and the Congress must be undertaken to determine the full extent of the costs of these controls to the United States. The Act should prohibit the extension of export controls for foreign policy purposes to foreign companies, including U.S. foreign subsidiaries and the licensees of U.S. corporations. It should prohibit the imposition of foreign policy export controls so as to impair existing contracts, and, above all, it should prohibit the imposition of unilateral export controls, given the futility and costs of such actions. - - One way to achieve these principles would be to require that the President seek specific legislative authority, along the lines of the crime equipment controls, prior to the imposition of any new foreign policy controls. Special legislation such as occurred with the Uganda sanctions in 1978 could give the President clear authority to draw upon the full range of economic interactions, including imports and financial transactions, as well as exports. This would relieve the vital and vulnerable export sector from carrying the brunt of economic sanctions. This would also provide business, labor and other affected groups the full opportunity to express their views to their representatives during the legislative process. It would also produce a solidly based foreign policy initiative, representing a full national statement, not simply a hasty act by the Executive Branch. Another approach toward this same goal would be to provide, in the absence of an international emergency, a forum to give the public an opportunity to consult with the Administration and the Congress prior to Alternatively, the imposition of a foreign policy export control. Rather than requiring 1 specific legislative authority, the Act could require that the Executive Branch receive public comment and submit to the Congress a comprehensive cost/benefit analysis justifying the proposed controls prior to their taking effect. Such controls could expire after a six month period unless renewed following the same rigorous requirements for their imposition. Whatever procedure is ultimately adopted, Congress must not lose sight of the general principles of contract sanctity, the avoidance of extraterritorial applications, and the requirement for multilateral controls, advanced consultations, a rigorous cost/benefit analysis, and assurance that export trade restrictions are imposed only when necessary to achieve a genuinely significant and fundamental foreign policy goal. These principles must be recognized in legislation so that an export control law that defends our international political interests not undermine our competitiveness in international trade and erode our reputation for commercial reliability at a serious cost to U.S. economic well-being. Administrative Procedures and Judicial Review The Department of Commerce should retain the authority to license U.S. exports. While there may be theoretical organizational advantages to the consolidation of export licensing responsibilities within a single independent agency, such as the proposed Office of Strategic Trade, the potential for greater politicization of the control process outweighs any possible advantages. Instead, increased resources should be made available to Commerce and the U.S. Customs Service to improve both the licensing and enforcement processes. Commerce should be provided with explicit authority to mitigate penalties in light of facts and circumstances, such as unintentional violations or voluntary disclosures of violations by exporters. Voluntary cooperation and compliance on the part of business is crucial to an effective control system. Guidelines outlining procedures for the mitigation of penalties and specifying the manner in which the administrative authorities will treat voluntary disclosures would encourage further cooperation on the part of business. One final area that demands consideration is the question of judicial review. There are special reasons to exclude questions of national defense and foreign policy from judicial review. On the other hand, we witnessed last summer, following the extraterritorial application of oil and gas equipment controls, the costs and unintended difficulties created by the lack of judicial review in the export administration process. Judicial review need not retard the export control process. Rather, it can strengthen the integrity of the export control process by providing provision for firms seeking relief from arbitrary and capricious administrative decisions. In this regard, we propose that the Export Administration Act provide exporters a right to appeal to independent or judicial authorities all Department of Commerce administrative decisions, including decisions relating to Commodity Control List classification, statutory procedural requirements and administrative penalties. Conclusion As stressed by the President in this year's State of the Union address, one out of every five jobs in our country depends upon trade. In emphasizing the importance of trade, the President stated that the United States "must strengthen the organization of our trade agencies and make changes in our domestic laws and international trade policy to promote free trade and increased flow of American goods, services and investments." We applaud this "new priority for trade." It is time that we all worked together to restore U.S. leadership in world trade. To this end, it is crucial that we strengthen the reputation of the United States as a reliable supplier and competitve trader operating under a clearly defined and internationally recognized system of export incentives and export controls. This will require, above all, that the United States reassert its position of leadership within the Western Alliance, working with our allies to refine and improve Western trade practices and controls. For the United States, meeting this challenge will require a joint effort on the part of both public and private sectors. In conclusion, we wish to underline the fact that the business community and specifically the Chamber is dedicated to protecting the national security interests of the United States. As we all recognize, a sound domestic economy is an essential part of these national security interests. We wish to work in the spirit of partnership with the Administration and Congress to strengthen this country's national security and economic well-being. We thank you, Mr. Chairman, and the members of this subcommittee for this opportunity. Mr. BONKER. Thank you, Mr. Jenkins. Our last witness, Mr. Richard Roberts, represents the National Foreign Trade Council. STATEMENT OF RICHARD W. ROBERTS, PRESIDENT, NATIONAL FOREIGN TRADE COUNCIL Mr. ROBERTS. My name is Richard Roberts. I am the president of the National Foreign Trade Council. My testimony deals specifically with the foreign policy control provisions of the Export Administration Act and how those provisions might be improved so that the act will better serve the national interest. In that connection the Export Control Promotion Act of 1983, H.R. 1566, to which I will refer later, offers a number of constructive proposals to improve the foreign policy sections of the Export Administration Act. IMPORTANCE OF EXPORTS While the act recites that exports strengthen the U.S. economy, the act is essentially a mechanism for restricting exports for the purpose, among others, of furthering the foreign policy objectives of the United States. Accordingly, the question is not whether exports are being lost, but rather what is the magnitude of the loss and what, if any, are the offsetting foreign policy gains. Exports are even more important to our economy now than they were when the act was passed in 1979. About 1 out of every 5 jobs in the manufacturing industry are export related and approximately 1 out of every 3 acres of U.S. farmland produces for export. In addition, services are a significant and growing factor in the Nation's export trade. As members of this committee are well aware, the present state of the U.S. economy is not healthy due in part to a decline in U.S. exports as a percentage of the world's exports. The Commerce Department has just estimated a record $42.7 billion U.S. trade deficit for 1982 and predicted an increase to $60 billion or more in 1983. Although many factors have contributed to that decline, it is fair to say that export controls have had an increasingly adverse effect on the volume of U.S. exports with a concomitant detrimental effect on jobs and trade balances. COSTS OF EMBARGOES Adverse effects begin with lost sales and canceled contracts amounting to millions and, in some cases, billions of dollars. But the termination of particular sales transactions is only the most visible cost to our economy. Many contracts between American companies and foreign buyers contain long-term arrangements for the supply of spare parts, maintenance services and arrangements for transfers of technology. Repeat orders are another source of future revenues. All these potential exports are also lost when sanctions are imposed. In addition, export controls operate to curtail the many services connnected with the insurance, bank credit, transportation, communications, among others. Still another cost of export controls has been that the United States is increasingly viewed as an unreliable supplier. Foreign customers are increasingly concerned that the U.S. Government will bar performance of contracts by U.S. suppliers. Entire markets may thereby be permanently eroded with grave consequences for overall export performance and domestic employment. In this connection, Mr. Jenkins has referred to the loss of soybean and grain markets resulting from embargoes and Mr. Kahler and Mr. Trowbridge have referred to some of the effects of the pipeline embargo. All are examples of how embargoes have caused lost jobs and lost opportunities for U.S. suppliers. The pipeline sanctions in particular have created doubts abroad about the reliability of supplies from U.S. sources. The burden of sanctions on our economy stands in sharp contrast to the results achieved. In our view, few sanctions have succeeded in bringing about discernable benefit to the country. The benefit of sanctions to the United States are dubious when they are imposed merely to signal moral opprobrium. The asserted foreign policy gains have been counterbalanced by foreign policy losses. Sanctions have generated severe and well-publicized tensions in our foreign relations. We now recognize that foreign policy controls have very significant long-range adverse effects on the U.S. economy and our relations with our allies which are not proportionate to the benefits achieved. RECOMMENDATIONS There is an urgent need to revise the act to promote better balance between foreign policy concerns, on the one hand, and necessity to maintain a strong economy on the other. One, we recommend a strong system of consultation with private enterprise, Congress, and allied nations. Two, foreign availability should be given even greater weight in decisions on application of export controls. Three, the economic impact of proposed sanctions should be thoroughly evaluated before decisions on controls are made. An economic impact analysis of past sanctions should also be mandated. Four, the extraterritorial reach of the act should be limited. Let me briefly discuss each of these recommendations. CONSULTATION Our first recommendation is that the act should strengthen procedures to assure increased breadth and depth of consultation with |