James T. Berger (June/July 10)
President Barack Obama's export policy is designed to make U.S. goods more competitive abroad and create jobs in the United States. The ambitious program aims to double exports in the next five years and create two million American jobs. But first, it must overcome trade barriers and create new markets for American-made goods.
Click to hear Obama's speech at the Export-Import Bank.
Obama's new "export regime" coincides with the administration's attempts to jumpstart an economy emerging from recession. A large part of the export program will provide $2 billion in credits for small- to medium-sized businesses, and an initiative to ease restrictions on selling certain American-made goods abroad. Obama will also establish a Cabinet-level panel of experts.
"In a time when millions of Americans are out of work, boosting our exports is a short-term imperative," Obama said at the 2010 annual conference of the Export-Import Bank of the United States. "The world's fastest-growing markets are outside our borders. We need to compete for those customers because other nations are competing for them."
Now the administration must balance the economic needs of the nation's manufacturers with effective controls that protect national security.
Export Policy Roots
Export controls have long been part of U.S. foreign policy. During the first half of the twentieth century, threat of war led to the Trading with the Enemy Act of 1917 and the Neutrality Act of 1935.
In 1940 Congress increased presidential power over the export of military goods and technologies with Public Law 703, An Act to Expedite and Strengthen the National Defense. These laws restricted activities that could have aided America's enemies.
The end of World War II brought a new peacetime philosophy for export policy, but the Iron Curtain and the Cold War created new security threats that tightened peacetime export control measures. The resulting Export Control Act of 1949 included:
• Short supply controls to prevent exporting scarce goods that would negatively affect the U.S. economy.
• Foreign policy controls that allowed the President to promote the nation's foreign policy through anti-terrorism and human rights programs and regional stability.
• National security controls that restricted exports of any products that could aid the militaries of countries that threatened U.S. national security.
The act was routinely renewed through 1965, but was re-examined by the détente era. During this time, trade between the U.S. and Communist countries became more significant and U.S allies started putting pressure on the country to ease its export controls. The 1989 collapse of the Soviet Union marked a dramatic change for American exports because the Cold War threats that previously determined the country's policies perished.
In September1993, the Clinton Administration unveiled its "National Export Strategy." The plan coordinated the promotion of U.S. exports and export financing activities to promote American businesses in the global marketplace. The new strategy anchored Clinton's economic policy.
While past policies addressed national security and foreign policy issues, the Clinton plan equated export promotion with continued economic growth and job creation. Key elements of the policy included:
• The increase of U.S. exports from $700 billion to $1 trillion by 2000.
• The creation of six million new jobs.
• The creation of the Trade Promotion Coordinating Committee (TPCC), a group of 19 governmental agencies chaired by the Secretary of Commerce and encompassing more than 100 export promotion programs.
The emergence of post-9/11 global terrorism influenced President George W. Bush's emphasis on government to monitor control of U.S. goods, services, and technologies that could aid potential enemies. The administration promoted a dual-use strategy that guarded against aiding enemies of the U.S. while permitting competitiveness of American-made goods through a more efficient and transparent export licensing process that enhanced dispute resolution and ensured controls. Bush's policies included:
• Additional financial resources and intelligence support for the timely adjudication of trade licensing.
• Guidelines requiring a 60-day decision process for export license applications.
• An electronic licensing system for submission of defense trade licenses that enabled all agencies to access the same electronic information.
• An update of U.S. controls on exports involving dual- and third-party nationals from NATO and other allied countries.
Four Multilateral Export Control Regimes
Export control policy must maintain national security and prevent the spread of weapons of mass destruction to irresponsible governments. To ensure this, four multilateral export control regimes - or international bodies that nations use to organize their export control systems - have been established. The United States is a member of all four, which include:
Wassenaar Arrangement - Established in 1995, it contributes to regional and international security and stability by promoting transparency and responsibility in transfers of conventional arms and dual-use goods and technologies, thus preventing destabilizing accumulations.
Nuclear Suppliers Group (NSG) - Founded in 1974 in response to India's nuclear weapons test, the NSG seeks to reduce nuclear proliferation by controlling the export and re-transfer of materials that may be used to develop nuclear weapons. It also safeguards and protects existing materials.
Australia Group - Founded in 1985, the Australia Group was established after Iraq's use of chemical weapons in 1984. It helps member countries identify exports that must be controlled to limit the spread of chemical and biological weapons.
Missile Technology Control Regime (MTCR) - Established in 1987, the MTCR focuses on curbing the spread of nuclear weapon delivery systems.
Obama's initiative is a three-phase push to overhaul the U.S. export controls regime within a year by streamlining and consolidating licensing review. The new approach establishes a "single-licensing agency working from a single-export control list coordinating with a single enforcement-coordination agency and using a single information technology system," according to Defense Secretary Robert Gates, who presented the Obama initiative to the nonpartisan group Business Executives for National Security in April.
Gates outlined the Obama proposal and the steps required to implement it. The result would be a "system where higher walls are placed around fewer, more critical items," Gates said. The overhaul would be good for the U.S. industrial base, Gates added, as it would create and sustain foreign allies and control new and evolving technologies.
That month, the Commerce Department released its "Exports Support American Jobs" paper. The report found that 2008 exports supported 10.3 million American jobs, including more than 25 percent of manufacturing jobs. The paper suggested that export policy could reduce unemployment rates.
Promoting exports is a trade policy goal that can win bipartisan support in Congress, Daniel Griswold wrote in an April 27 Washington Times article. "Everybody loves exports, and with good reason," he wrote. "Selling abroad helps U.S. companies ramp up production, lower per-unit costs, and reach new growing markets."
To achieve Obama's goal, exports must grow 15 percent annually, a rate that has only been achieved for one year in the last three decades, Griswold noted. While daunting, Griswold suggested a three-pronged trade initiative:
• Persuade Congress to enact previously negotiated trade agreements with South Korea, Colombia, and Panama - The U.S. International Trade Commission predicts that the Colombia agreement would increase U.S. exports by $1.2 billion a year, and the Korean agreement by $10 billion.
• End the trade embargo with Cuba - When the embargo was lifted on the sale of farm goods, Cuba quickly became one of the top customers of American-made goods in Latin America.
• Quickly resolve outstanding trade disputes against the United States, such as the ban on safety-certified Mexican trucks on U.S. highways - This policy has caused Mexico to impose $2.4 billion of sanctions on U.S. exports.
Effect on Manufacturing
The National Association of Manufacturers (NAM) has embraced Obama's plan. Frank Vargo, NAM vice president for international economic affairs, said in a statement following Gates' address:
"Manufacturers are pleased the Administration is moving forward with changes to modernize the current Cold War-era system. These changes are critical to keeping America secure and competitive globally. We are particularly encouraged by the announcement of a single control list and a unified information technology platform, but we believe the administration must also move forward on near- and medium-term reforms along the way to creating a single agency."
In April, NAM released its "Blueprint for a 21st Century Export Control Regime," which included eight recommendations:
1. Establish a permanent interagency team (similar in structure and composition to the interagency team formed in December 2009) to annually review and assess overall policy objectives and performance of the export control regime.
2. Co-locate technical experts from the Departments of Defense, Commerce, State, and other relevant agencies to create a new unified control list, determine foreign availability, create control charts, and review levels of control.
3. Create a unified control list with two chapters: one for munitions items and the other for dual-use items.
4. Improve multilateral engagement.
5. Create a new licensing system built around a single electronic interface and a broad range of authorizations and exceptions that takes advantage of auditable compliance systems implemented by trusted country partners, exporters, and importers.
6. Review U.S. economic sanctions policy with special attention to unilateral sanctions.
7. Change the trade-control culture and promote unified approaches across licensing agencies that properly balance national security and economic security imperatives.
8. Change the trade control culture and promote unified approaches across licensing agencies that properly balance national security and economic security perspectives.
In June National Security Advisor General James Jones announced a single-entity to administer export controls, a move that NAM lauded.
"The NAM is pleased with today's announcement to create a new single entity to administer export controls and believes this will better equip the United States to protect national security, strengthen the defense industrial base and double exports over the next five years. However, it is critical that the implementation of this new entity include a workable transition plan as well as completion of phases one and two of the Administration's reform initiative," Vargo wrote in a statement.
The plan calls for the creation of new control criteria, licensing processes, and control lists.
Economists name several hurdles that must be overcome, such as undervalued foreign currencies, excessive tariffs and protectionist pressures from trading partners, and intense price competition.
"It's not just a matter of selling what we've got," Robert E. Scott, senior international economist at the Economic Policy Institute, told The New York Times in a March 11 article about Obama's export policy. "We've got to come up with new products and break down barriers in foreign markets."
Ralph C. Bryant, senior fellow at the Brookings Institution, said in the same article that efforts to stimulate exports could prompt other countries to take similar actions. "There is no way that all the countries can increase exports at the same time," he said. "If we do it and everyone else does it, it will be less successful and raise the possibility of friction."