Issues & Insights Vol. 19, CR2: Balancing Strategic Trade Control Implementation with the Broadening Role of Technology and Financial Controls in Foreign Policy

January 31, 2019

The Pacific Forum, National Chengchi University’s Institute of International Relations, and I-Shou University’s Department of Public Policy and Management with support from the Taiwan Coast Guard, Prospect Foundation, Ocean Affairs Council, and the US State Department’s Export Control and Related Border Security Program held their eighth annual strategic trade control (STC) workshop on Nov. 7-8, 2018 in Kaohsiung, Taiwan. Nearly 40 participants from relevant government agencies and nongovernmental organizations attended in their private capacities. Discussions focused on the status of outreach programs in the Asia-Pacific, proliferation finance controls, issues associated with technology controls and transfers, the relationship between foreign policy and nonproliferation goals, and transit/transshipment and port security. Key findings include:

There has been significant progress in establishing comprehensive STC programs in several ASEAN countries. Laos has strong political support at Ministry of Industry and Commerce and plans to have an STC law in place by 2020. Myanmar is well-positioned to make progress in STC, but seems to lack sufficient political will to move things forward. Cambodia Customs is working closely with the World Customs Organization and the UN Office on Drugs and Crime through the Global Shield program to raise awareness. The challenge is now moving from awareness to action.

While there has been significant progress in implementing national STC programs in the Asia-Pacific region, broader nonproliferation measures, including countering proliferation financing and establishing better controls over technology transfers are needed. Southeast Asian countries that have committed to STC are worried about these broader demands. Yet developing countries need to comply with the US/EU control list requirements if they want to integrate into the global supply chain for high-technology goods.

The volume and speed of transit and transshipment represents a practical challenge for many ports in the Asia-Pacific region. The lack of documentation needed for risk assessment and the lack of interface with main transaction parties contribute to the problem.

National STC programs for Southeast Asian countries should be less complicated than they are in the developed economies. Developing countries should be reassured that the target for STC is relatively small, and that STC is concerned with nonproliferation to non-state actors that can disrupt the international system, in line with UN Security Council Resolution 1540.

Numerous programs and projects exist to assist countries with complying with UNSCR 1540 obligations and to develop their STC systems. These include non-governmental organizations such as the US’ Stimson Center and the UK’s VERTIC, and intergovernmental organizations such as the Financial Action Task Force on Money Laundering (FATF), the World Customs Organization (WCO), the International Atomic Energy Agency (IAEA), and the Organisation for the Prohibition of Chemical Weapons (OPCW). Many US agencies also provide or fund outreach, especially the Department of State via its Export Control and Related Border Security (EXBS) program, the Bureau of Industry and Security (BIS) at the Department of Commerce, the Defense Threat Reduction Agency (DTRA) at the Department of Defense, the Department of Justice, the Customs and Border Protection Agency, and the Department of Energy. The European Union, South Korea, and Japan are among others that offer assistance with UNSCR 1540 implementation and/or STC development.

One weakness in STC outreach is the presence of many donors but not enough coordination. Recipients may get the same thing, but the donor countries have different approaches, which can be confusing. Every recipient country is different so training should be adapted to suit the needs of each country. If a recipient country does not have political will, generating interest in an STC outreach program is extremely difficult.

The EU P2P (Partner-to-Partner) Export Control Programme has been actively engaged in all 10 ASEAN countries except Indonesia. Nevertheless, given its size and significant impact on the region’s economy, Indonesia’s involvement in developing comprehensive trade control measures is crucial to the effectiveness of strategic trade controls (STC) in Southeast Asia.

Drafting relevant strategic trade control legislation has been a primary focus for the EU P2P program although it has also assisted with translating the EU control list into local languages.

The United States is changing its approach to STC-related outreach. There will be more coordination among agencies, more flexibility in how funding is allocated, and a threat-prioritized approach rather than focusing on the needs of individual countries. Anticipated changes include more threat-specific and cross-regional outreach; more focus on sanctions and enforcement; and greater emphasis on targeted and tracked outcomes and impacts.

The Korea Strategic Trade Institute (KOSTI) focuses on sharing experience in industry outreach rather than on governmental licensing and enforcement. KOSTI does not have a standardized program, but instead develops tailored programs for individual countries. Partner countries can also give feedback through the program. South Korea’s perspective is that it also stands to learn about STC from partner countries.

The Philippines has partnered with numerous countries and organizations to develop its STC program. Despite the diversity of partners, the Philippines does not perceive significant overlap in the outreach or assistance efforts being provided.

The European Union, the United States, and Northeast Asian countries have enhanced their focus on controlling technology transfers, beyond simply controlling goods and technologies. Advanced countries are (reverting to old practices of) covering more than WMD-related items, using export controls as a way to moderate foreign policy (i.e., influence or restrict relations between countries). This Western approach to STC and export controls affects how people in Southeast Asia view STC. The divergence in approach to STC exposes an underlying difference in interests, where the West is more focused more on security but Southeast Asia is more focused on economics.

The EU dual-use regulation “recast” includes “human security” considerations. Proposed changes also include a broader definition of dual-use items. Some argue that human rights considerations go beyond WMD nonproliferation and that human rights protection through other means is more appropriate than through the EU dual-use regulation.

The nature of emerging technologies is likely to increase the focus on intangible technology transfer (ITT) controls. Controlling ITT is very challenging for national authorities and companies and will only become more difficult with emerging technologies.

A significant change with the US Export Control Reform Act of 2018 (ECRA) is the introduction of export controls for “emerging and foundational technologies.” The Department of Commerce will establish interim and permanent controls on these technologies. This could represent a major shift in controls for exporting new technologies to China and other countries.

Since international criminal and terrorist groups are increasingly using cryptocurrencies, the Office of Foreign Assets Control (OFAC) of the US Department of the Treasury has focused on monitoring them in an effort to prevent them from being used to evade sanctions.

More work is needed to improve coordination between financial regulators and STC implementers. Sharing data from national export licensing and proliferation financing cases would serve as a useful cross-reference to understand the size/scale of the problem in the region.