From April 2, 2010 to Jan. 20, 2017, Eric L. Hirschhorn served as undersecretary of commerce for industry and security and headed the U.S. Commerce Department’s Bureau of Industry and Security (BIS), a federal agency with responsibility for ensuring that the country’s most sensitive commercial technologies do not end up in the hands of adversary nations or terrorist organizations for potential misuse. However, his work in both the private and public sectors within the area of U.S. export control regulations spans four decades and seven presidential administrations. The Adam Smith Project recently sat down with Hirschhorn, who remains active in various Washington, D.C.-based legal and international affairs activities, to discuss the recent evolution of the country’s export controls and where he believes they’re headed.
Q: Your work with U.S. export controls traces its roots to the late 1970s, what I call the height of the Cold War. How did you become involved in this area of trade regulation? And what was the catalyst that drove you to pursue both a private law and public service career that spanned 40 years in export control application?
A: It started serendipitously. I had been counsel to a committee in the House of Representatives. My boss ran for the Senate and was defeated. So I was job hunting in late 1976 and early 1977. And somebody I talked to about job possibilities elsewhere on Capitol Hill said, “Have you thought about joining the new administration, the Carter administration?” I hadn’t, principally because I hadn’t worked in the Carter campaign and had no connections with the new administration. This fellow sent my resume to the Carter transition people and ultimately I was hired to be on the president’s government reorganization staff in the area of national security and international affairs. I worked on a number of reorganizations, one of which was the 1979 reorganization of international trade functions that brought the Foreign Commercial Service and dumping and countervailing duty administration to the Commerce Department and created the U.S. Trade Representative’s office as a permanent statutory establishment.
And in doing that, I had gotten to know the people at Commerce fairly well. I also had done some work on what was to become the Export Administration Act of 1979, because there it included some organizational aspects and I represented OMB (Office of Management and Budget) in the interagency process of reviewing the legislation. And so one thing led to another and I was hired to be the deputy assistant secretary for export administration at Commerce, which I did for about a year and a half in what was then part of the International Trade Administration. (The Bureau of Industry and Security was not a separate bureau until the late 1980s.)
When Jimmy Carter was defeated, I, having had a political appointment, left the government and joined a small international trade firm in Georgetown. There I began practicing with a focus on export controls and economic sanctions. My practice also included a good deal of litigation that did not involve those subjects.
In 1986, the Industry Coalition on Technology Transfer, which was a group of eight trade associations that functioned as sort of a clearinghouse for private sector export control interface with the commerce and state departments, decided to hire a staff rather than just having volunteers. And I was chosen to be ICOTT’s executive secretary, a job that I did as part of my law practice. It put me right in the middle of export controls and provided a great deal of visibility.
In those days, it was much more of a bipolar world from an export control standpoint. The central focus of U.S. controls was about keeping things with military applications away from the Soviet Union. That all changed radically between 1990 and 2010 after the collapse of the Soviet Union. It was no longer a bipolar world, but a multipolar world — one in which not only state actors but non-state actors as well were seeking to acquire and use all kinds of technology to make life difficult for the United States and its friends. A lot of my law practice was helping U.S. companies make sure that their exports were made according to the law and didn’t fall into the wrong hands.
Q: How would you describe the relationship between BIS and the export community before your appointment as undersecretary of the agency in 2010 by the Obama administration? How did your experiences inform what you hoped to accomplish as the agency’s most senior administrator?
A: Among the agencies that regulate exports and economic sanctions, BIS long has had, and justifiably so, the reputation of being the most customer-friendly. I worked very hard to ensure that that remained the case. It doesn’t mean that they’re soft on export controls, but that they’re willing to interact with the business community, to hear out applicants whose license applications have issues and things like that. But if in the final analysis the answer has to be no, BIS always has been able to say, “I’m sorry, you just can't do this.”
Obviously, BIS enforcement agents are different from licensing officers in terms of how they approach their work. They often come on the scene after the horse is out of the barn when it shouldn’t have been, so they sometimes can be a little less friendly.
One thing that I emphasized, perhaps more than had been the case in the past, is that BIS is looking for compliance, not scalps. Compliance. By the same token, that brings me to the kinds of things that I learned in the private sector that I was able to benefit from as undersecretary. One was an appreciation of the fact that most exporters are trying to do the right thing. The regulations are complex. And part of the reason they’re complex is because they’re nuanced.
Another thing that I had seen from my vantage point in the private sector was that BIS always has been understaffed, under-resourced and needed a lot more support than it had been getting from the appropriations process — and from within the executive branch.
A third thing I brought was a realization that in counseling private clients in the 29 years between the time I left Commerce in 1981 and came back in 2010, when there was a close or a difficult case, there was one question that almost always came up: “If this matter goes south, will the government go after individuals?”
From that came my very public insistence that our enforcement agents go after not only companies but also after individuals, because companies don’t do anything as entities. They act through individuals. And it is only a halfway enforcement measure if a salesman still gets his commission and the shareholders, who had no role in the violation, end up having to pay the fine. That’s not enough of a disincentive. But if the salesman loses his export privileges, or is prosecuted individually, that’s a different story, and it was a message that I very much wanted to convey. I conveyed it repeatedly in public. I conveyed it repeatedly to the enforcement agents. I hope it had an effect in terms of improving compliance.
Q: Where previous administrations failed, President Obama early in his office surprised the U.S. export community with an executive order to modernize the nation’s aging export controls. What was your initial reaction to the Export Control Reform Initiative and what were some of the major challenges you faced in reaching the president’s goals? Were you surprised how much of the reform was accomplished before the end of President Obama’s time in office?
A: I was pleased that the effort was going to be made but skeptical as to whether it could succeed. There were others around who were even more skeptical, who said, “Oh, the Defense Department will never allow it,” or, “You’ll never get anybody in the White House to really push it forward,” or, “Capitol Hill will never stand for it. There are staff people and members who will prevent it. You will spend years on it and end up with nothing.” My reaction was, “I’m not going to negotiate against myself. The president has given me an instruction. I’m going to go ahead and I’m not going to assume the presence of some immovable obstacle until I actually hit it.”
I spent a lot of time in my first year meeting with members and staff on the Hill … explaining what we were doing and getting a gratifying degree of support from across the political spectrum. … And that was a help. In the end, the insurmountable obstacles that I had been warned we would run into didn’t appear.
Most of what was ultimately required — and why it took so long — was the grunt work, the day-to-day grunt work, and I have to give credit to Assistant Secretary Kevin Wolf, who sat in those interagency meetings day in and day out. When I got to BIS in April 2010, he already had been there for several months. He had the bit in his teeth on Export Control Reform and I was very happy to have him do it.
It took so long because it’s complicated and you want to do it right — going over the State Department’s Munitions List, trying to figure out which items really and truly had to remain under its tight control and which ones could do with more flexible controls when it came to exports to our friends and allies. And I want to emphasize that this was not for the world at large. This was not for China, this was not for Russia. This was for our closest 36 allies. These were thousands of items that were licensed by the State Department, with a separate license for each purchase order, but that invariably were licensed to these countries. So why go through all that if you’re going to license it in the end anyway? I think that’s why the State and Defense departments were willing to go along. We also had very valuable help from the White House. I had spent some time during my years in the private sector trying to get a series of Democratic and Republican National Security Councils to take a hand in Export Control Reform, but until Mike Froman and Brian Nilsson came along, no one was willing to that. A lot of credit is due to them for keeping everybody’s nose to the grindstone. I’m thrilled that we got as far as we did, and we finished 18 of the 21 U.S. Munitions list categories.
Q: Since you left office before the start of the Trump administration in early 2017, have you continued to monitor U.S. export control modernization, and what advice would you offer the White House, or newly appointed BIS administrators, to ensure export controls are applied with maximum efficiency? How important is it for the nation to complete the Export Control Reform?
A: I’m indeed following what’s going on. I’m pleased to see that there’s been neither an effort nor even an expression of interest on the part of the new administration in undoing Export Control Reform. Indeed, they’re going forward with the three U.S. Munitions List categories that we didn’t complete, as well as with our commitment to review all the categories every year and a half to two years.
As for efficiency, I think the key is adequate funding for BIS. I was able to raise their funding, which was about $74 million a year when I got there, to about $112 million by the time I left. It’s still not sufficient to allow them to do their policy, licensing and enforcement work properly. If you want an efficient system, you have to spend the money for it. This is money that’s well spent in terms of our nation’s economy and security. If you can’t get exports that are acceptable from a national security standpoint licensed and out the door, your foreign competitors are going to beat you to it.
Don’t make people wait two months for a license. By the time I left, BIS was down to about two weeks for a license, even though it had almost doubled its license output, and a lot of things didn’t need a license anymore if they were lower technology and going to friendly countries. I think that’s the key to efficiency at this point, namely getting adequate funding to BIS. They probably need at least another $15 million or $20 million a year to do their job right.
And now BIS has lots of additional responsibilities. They’re suddenly handling thousands of exception applications under the Section 232 aluminum and steel tariff regime. There are proposals to broaden what technologies are controlled to some countries, like China. And that’s going to take more manpower too, and enforcement’s going to need more manpower as well. I would urge adequate funding for all of that.
I think BIS has shown itself to be sufficiently responsible that it could take over the rest of the Munitions List, at least insofar as direct commercial sales are concerned — subject, of course, to robust input from the Defense and State departments and the intelligence community. These other agencies have to be in the picture, but in terms of administering the system, BIS can do it efficiently and fairly. BIS is now issuing many more licenses than it was when I arrived in 2010. It was issuing about 20,000 licenses a year then and now it's issuing about 40,000. And with the addition of the three additional categories that currently are under consideration, the total probably will get close to 50,000. They’re managing it well. And they have shown that they’re quite capable of doing not just an efficient job, but a fair job, a thoughtful job, of handling this work.
Similarly, I think that the export control enforcement work of the [Immigration and Customs Enforcement’s] HSI (Homeland Security Investigations) division, and they do some export control work, should be transferred to BIS. If that were done, the HSI agents who enforce the export control laws, which are complicated, no longer would be subject to sudden diversion to unrelated work. If they were located within BIS, they would — like the existing BIS agent corps — become familiar with the controlled technologies and get in the habit of working closely with the licensing officers.
Q: Years ago you wrote what many refer to as a de facto book on U.S. export controls. You’re now working with your publisher on the newest edition of the Export Control and Embargo Handbook. As a scholar of U.S. export controls, how would you describe that fine line, so to speak, between the necessity for these regulations to ensure national security and potentially hindering the flow of commerce? What worries you most about going from one extreme to the other?
A: I think the good news here is that export controls generally have not been seen as, and in fact have not been, a partisan endeavor. ... In my 40 years of involvement with this area, I don’t think I’ve ever seen an administration go anywhere near one extreme or the other when it comes to export controls. … And I’ve seen seven presidential administrations — Republican and Democratic — since I became involved in the field in the late 1970s.
The decision about what to control begins with the level of sophistication and the military utility of a particular technology. Then you factor in aspects like foreign availability, the civilian uses and things like that. And then when it comes to deciding whether to issue individual licenses, as opposed to deciding what’s going to be controlled, you have to look at the reliability of the end user, the credibility of the stated end use, whether the customer’s home country is reliable and the like.
With regard to my book, the last edition came out in early 2010. There have been a lot of changes since then. I’m hoping, along with my co-authors, one of whom was the legal adviser to the State Department during the Obama administration, to add to the book’s fairly straightforward review of the State, Treasury, Commerce, Energy and Nuclear Regulatory Commission regulations by going beyond what the written rules provide and giving additional practical advice to exporters. To say, for example, “Look, this is the rule. Here’s why it’s there. Here are the kinds of questions that a licensing officer is going to ask herself about your application.” Or, “Here’s the kind of question that an enforcement agent is going to be wondering about.” And to try to add more meat to the bones of the regulations. The third edition already is several hundred pages long, but I think the new fourth edition will be somewhat longer because it’s my hope that it will succeed in conveying more practical, day-to-day advice.
Q: What would you recommend as a best-practices approach to the export community for compliance, interaction with government agencies, lobbying congressional representatives and administration officials to effect changes in export controls?
A: You have to remember that the government has limited resources, and you can’t have successful export controls without cooperation from the private sector. BIS and its sister agencies have worked very hard to reach out to the business community for their help in ensuring that, where we did conclude that something has to be controlled, we do it in a sensible way. We want to get it right. It’s in everybody’s interest for us to get it right.
If I had to choose one aspect of what makes a successful internal program for an exporter, I would say it’s company culture. If there’s one thing I’ve learned over a lot of years in private practice and two stints administering export controls and economic sanctions within the government, it’s the importance of a demonstrated commitment of company leadership to doing it right. You can have a thick, well-written, expensively sourced compliance program, but it’s useless if the culture is, “How much can we get away with?” instead of, “How can we ensure that we do it right?” And corner-cutting is a short-sighted approach because if a company gets caught up in an investigation, the best case is that it’s very disruptive. The worst case is you go to jail or get put out of business or both. And you can say what you want about the ZTE case, but the fact of the matter is that the size of that business did not deter BIS or the Department of Justice from going after them.
I think that in terms of dealing with the regulatory agencies, it’s always a good idea to get to know the regulators and to do that before you have a problem. Even if you never have a problem, it helps to know where they are coming from. And if there is a problem down the road, they already will have a sense of you, as a business that is trying to do it right but may have screwed up, as opposed to a business that thinks the rules are for other people.