IP: Crypto Jurisdiction

[Dave Farber <farber () central cis upenn edu>]

Date: Mon, 30 Sep 96 11:39:42 EST
From: "Stewart Baker" <sbaker () mail steptoe com>
To: farber () central cis upenn edu




     This is a somewhat longer version of a Journal of Commerce op-ed that I 
     wrote with Peter Lichtenbaum, commenting in advance on the jurisdiction 
     switch that the administration is likely to announce this week.
     
     
     Stewart Baker Op-Ed on Crypto Jurisdiction
     
                The hot export control issue of this month is the transfer of 
     jurisdiction over encryption exports from the State Department to the 
     Commerce Department, which the Administration is expected to announce 
     shortly.


                A jurisdiction transfer may not sound like much, but
companies 
     exporting encryption products should take note.  Transferring
jurisdiction 
     to the Commerce Department could have significant benefits for
encryption 
     exporters, but also presents some important issues that exporters need
to 
     watch.


                First, what are the benefits for exporters?  Is this a major 
     change in Administration policy on encryption exports?  Probably not.
The 
     move isn't intended to decontrol encryption or modify the basic 
     export-control scheme.


                Instead, the benefits are more subtle but nonetheless 
     significant.  One major plus is that encryption exports will no longer
be 
     stymied by U.S. arms embargoes.  Right now, the government classifies 
     encryption as a "defense article" just like bombs and fighter jets.
This 
     is why the State Department controls encryption: it regulates all
exports 
     of defense articles.


                Treating encryption as a military technology means that 
     encryption exports often get caught up in the arms embargo of the
moment.  
      For instance, U.S. exporters have often been unable to get permission
to 
     export encryption to China, because of State Department policy to deny
or 
     delay arms export licenses.  


                By giving the Commerce Department jurisdiction over
encryption, 
     the Administration has quite properly recognized that encryption isn't 
     primarily a military item and shouldn't be subject to embargoes aimed at 
     bombs and fighter jets.  


                Another important benefit is speed and efficiency in handling 
     licenses.  Even the possibility of delay is enough to spook many foreign 
     customers.  Too often, an encryption license delayed is an encryption 
     license denied.  The Commerce Department knows how to run an export 
     control system smoothly and quickly.  In contrast, even after national 
     security issues regarding encryption exports have been resolved, the
State 
     Department has delayed exports by weeks and even months by its internal 
     paperwork and foreign policy reviews.  To be fair, the State Department 
     has too much to do and too few people to do it with.  The Commerce 
     Department has the procedures -- and the staff -- in place to ensure
that 
     U.S. exporters don't face unnecessary delays.


                So there are important reasons to welcome the transfer of 
     encryption authority to the Commerce Department.  But there are some key 
     implementation issues that exporters need to watch as the transfer takes 
     place.


                One such issue is the status of existing encryption export 
     licenses granted by the State Department.  Under existing Commerce 
     Department regulations, preserving these bulk licenses could require 
     exporters to establish an Internal Compliance Program and then apply
for a 
     Special Comprehensive License -- which could be denied even though the 
     State Department had previously issued a license.


                It would be ironic indeed if routine exports were delayed or 
     halted as a result of a move intended to cut red tape.  To avoid this 
     result, the Administration should consider adapting Commerce Department 
     bulk license procedures to allow for the continuation of existing State 
     Department licenses.  As of now, the Administration hasn't said what its 
     plans are.                 


                Another difficult issue is what the role of the FBI and the 
     Justice Department will be in reviewing encryption license
applications.  
     Perhaps fearing that the transfer of encryption to the Commerce
Department 
     would result in more lenient treatment, the Justice Department has
sought 
     a major role in reviewing license applications.  As a result, the
Justice 
     Department is likely to be involved in reviewing future encryption 
     licenses.


                As the Justice Department and the FBI are newcomers to export 
     licensing, there is a risk that they will make mistakes that other
export 
     control agencies have learned to avoid.  In particular, they may 
     overestimate the ability of unilateral U.S. export controls to affect 
     markets outside the United States.  Exporters will have to watch this 
     closely and work hard to educate the Justice Department and the FBI
about 
     what can and can't be accomplished with export controls.


                Another problem may occur as a result of the transfer of 
     encryption controls to the Commerce Department.  The Administration had 
     planned to transfer the controls more or less intact.  But the Commerce 
     Department, unlike the State Department, has established procedures for 
     "foreign availability" reviews. These procedures determine whether the 
     product is so widely available abroad that controls are ineffective and 
     should be lifted.


                Foreign availability reviews are likely to become an issue in 
     the jurisdiction transfer, because the Justice Department, in
particular, 
     fears that exporters could take Commerce Department foreign availability 
     decisions to the courts.  Industry, on the other hand, is eager to make 
     its case that encryption products are available abroad.  Both sides feel 
     strongly about this issue and it is likely to be a continuing point of 
     contention.


                By transferring encryption controls to the Commerce
Department, 
     the Administration can do a good deed for U.S. exporters without 
     sacrificing any important national security or law enforcement
interests.  
     Exporters should welcome this proposal, while remaining vigilant over
its 
     implementation in the months to come.