[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]








     EXPORT CONTROL REFORM: CHALLENGES FOR SMALL BUSINESS? (PART I)

=======================================================================

                                HEARING

                               before the

             SUBCOMMITTEE ON AGRICULTURE, ENERGY AND TRADE

                                 OF THE

                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED FOURTEENTH CONGRESS

                             SECOND SESSION

                               __________

                              HEARING HELD
                           FEBRUARY 10, 2016

                               __________


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


                                   ______

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            Small Business Committee Document Number 114-041
              Available via the GPO Website: www.fdsys.gov
                   HOUSE COMMITTEE ON SMALL BUSINESS

                      STEVE CHABOT, Ohio, Chairman
                            STEVE KING, Iowa
                      BLAINE LUETKEMEYER, Missouri
                        RICHARD HANNA, New York
                         TIM HUELSKAMP, Kansas
                         CHRIS GIBSON, New York
                          DAVE BRAT, Virginia
             AUMUA AMATA COLEMAN RADEWAGEN, American Samoa
                        STEVE KNIGHT, California
                        CARLOS CURBELO, Florida
                          MIKE BOST, Illinois
                         CRESENT HARDY, Nevada
               NYDIA VELAZQUEZ, New York, Ranking Member
                         YVETTE CLARK, New York
                          JUDY CHU, California
                        JANICE HAHN, California
                     DONALD PAYNE, JR., New Jersey
                          GRACE MENG, New York
                       BRENDA LAWRENCE, Michigan
                       ALMA ADAMS, North Carolina
                      SETH MOULTON, Massachusetts
                           MARK TAKAI, Hawaii

                   Kevin Fitzpatrick, Staff Director
             Emily Murphy, Deputy Staff Director for Policy
            Jan Oliver, Deputy Staff Director for Operation
                      Barry Pineles, Chief Counsel
                  Michael Day, Minority Staff Director
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                            C O N T E N T S

                           OPENING STATEMENTS

                                                                   Page
Hon. Carlos Curbelo..............................................     1
Hon. Brenda Lawrence.............................................     2

                               WITNESSES

Ms. Andrea Appell, Director, BPE Global, San Francisco, CA.......     4
Ms. Jennifer Robertson Ahrens, President, Robertson Forwarding 
  Company, Miami, FL.............................................     6
Mr. Craig T. Ridgley, Vice President and Managing Partner, Trade 
  Compliance Group, Washington, DC...............................     8
Greg Quarles, PhD, Chief Scientist, The Optical Society, 
  Washington, DC.................................................     9

                                APPENDIX

Prepared Statements:
    Ms. Andrea Appell, Director, BPE Global, San Francisco, CA...    20
    Ms. Jennifer Robertson Ahrens, President, Robertson 
      Forwarding Company, Miami, FL..............................    24
    Mr. Craig T. Ridgley, Vice President and Managing Partner, 
      Trade Compliance Group, Washington, DC.....................    26
    Greg Quarles, PhD, Chief Scientist, The Optical Society, 
      Washington, DC.............................................    31
Questions for the Record:
    None.
Answers for the Record:
    None.
Additional Material for the Record:
    None.
 
     EXPORT CONTROL REFORM: CHALLENGES FOR SMALL BUSINESS? (PART I)

                              ----------                              


                      WEDNESDAY, FEBRUARY 10, 2016

                  House of Representatives,
               Committee on Small Business,
     Subcommittee on Agriculture, Energy and Trade,
                                                    Washington, DC.
    The Subcommittee met, pursuant to call, at 10:04 a.m., in 
Room 2360, Rayburn House Office Building, Hon. Carlos Curbelo 
[chairman of the Subcommittee] presiding.
    Present: Representatives Curbelo, Luetkemeyer, Gibson, and 
Lawrence.
    Chairman CURBELO. Good morning. I call this hearing to 
order. Thank you all.
    Thank you all for joining us today for our Subcommittee 
hearing on the Export Control Reform Initiative, ECRI. This is 
part one of a two-part series on the ECRI. Tomorrow, the full 
Committee will hold our second hearing, with administration 
officials, where members will be given an opportunity to use 
what we learn here today. I hope that through this hearing the 
Committee can identify some of the biggest remaining hurdles 
facing small businesses trying to navigate the United States 
export control system.
    The U.S. has a long track record on controlling exports of 
defense materials and products and services that serve both a 
civilian and military purpose, also known as dual-use items. 
The reasons for doing so are sound. Export controls help to 
ensure our national security, aid our diplomatic relations, and 
maintain sustainable economic engagement around the world.
    However, over the years, the U.S. export control structure 
morphed into an onerous and complicated system comprised of 
multiple agencies with differing jurisdictions. Eventually, the 
modernization of manufacturing and technology outpaced the 
export control system's usefulness.
    The export control system's inefficiencies burden American 
businesses. Small businesses, in particular, have been 
discouraged from exporting because the time and resources 
required to navigate the complexities of the export control 
system often appeared to outweigh the benefits.
    So, several years ago, the administration decided to 
undertake a massive overhaul of the export control system. This 
reform was supposed to have helped American small businesses 
make better use of the system. However, experts and 
policymakers alike have observed from the very beginning that 
these businesses would also have the most difficult time 
adapting to the new export control system.
    Now, it is my understanding that, for the most time, the 
ECRI has been met with broad support from America's private 
sector. However, that does not mean that the transition has 
been without its challenges and shortcomings, particularly for 
small businesses. Export control professionals continue to 
stress the importance of effective outreach efforts to small 
businesses, and the harmonization of the export control lists 
is still not complete. Additionally, much work still remains in 
reducing the licensing and paperwork requirements that often 
burden small businesses.
    I look forward to hearing from our small-business 
witnesses, who specialize in exports, about their firsthand 
experience with the new export control system, and from their 
perspective what progress the ECRI is making in the 
simplification of export controls.
    I am also eager to hear from our witnesses about what 
hurdles still exist for small-business exporters and what 
recommendations they might have on how the administration can 
continue to encourage small businesses to navigate the United 
States export control system and engage in international trade. 
After all, 98 percent of all goods-exporting firms are small 
businesses. We must do everything we can to help them succeed, 
because their success ensures the United States will remain the 
leader in international trade in the world.
    Thank you again.
    And now I yield to the ranking member, Mrs. Lawrence, for 
her opening remarks.
    Mrs. LAWRENCE. Thank you, Mr. Chairman.
    I want to thank the witnesses for coming here today.
    The strength of America's small business is unquestionable. 
They drive American exports, with 97 percent of U.S. exporters 
being small and midsize companies. With over 70 percent of the 
world's purchasing powers located outside of the U.S., it makes 
sense for American businesses to sell abroad. However, small 
businesses are responsible for only 30 percent of all export 
revenues. Additionally, more than half of all small-business 
exporters ship goods to just one foreign partner.
    If we are to achieve the goals set forth in the National 
Export Incentive of doubling exports and creating new jobs, we 
must remove existing burdens which constrain the success of our 
small businesses. Those burdens include the overly restrictive 
and sometimes confusing export control system. Additionally, 
the application process is often long and drawn-out, leading 
foreign customers to look outside of the United States for 
products.
    Small firms have been hurt in the past and put in a 
competitive disadvantage. The National Small Business 
Administration survey found that 75 percent of these businesses 
reported difficulties when navigating the system currently in 
place. The administration launched the ECR Initiative to 
minimize those difficulties. In the extent of small exporters, 
this meant involving coordination between the agencies. It also 
meant updating outdated regulations and clarifying licensing 
policies.
    While the ECR Initiative undoubtedly represents a step in 
the right direction, much more must be done to assist our small 
exporters. Breaking down those barriers must be a priority in 
every agency that seeks to provide export assistance to our 
small firms.
    Today's hearing will give us the opportunity to learn 
whether reforms have helped and what more needs to be done to 
further improve the export control system. I would like to 
thank the witnesses again, in advance, and I look forward to 
hearing your testimony.
    I yield back my time.
    Chairman CURBELO. I thank the ranking member.
    If Committee members have an opening statement prepared, I 
ask that they be submitted for the record.
    I would like to take a moment to explain the timing lights 
for you. You will each have 5 minutes to deliver your 
testimony. The light will start out as green. When you have 1 
minute remaining, it will turn yellow. Finally, at the end of 
your 5 minutes, it will turn red. Do the best you can to adhere 
to the time limits.
    Our first witness is Andrea Appell, a director for BPE 
Global in San Francisco, California. She has been working in 
the field of trade compliance since 1997.
    I will go ahead and introduce all the witnesses and then we 
will start with Ms. Appell.
    Our second witness today is Jennifer Robertson-Ahrens, 
president of Robertson Forwarding Company in Miami, Florida, my 
home. She has managed the firm's compliance program, training, 
and implementation since 2001.
    Our third witness is Craig Ridgley, vice president and 
managing partner of the Trade Compliance Group in Washington, 
D.C. There he performs trade compliance assessments with many 
of the export control agencies.
    Now I would like to yield to the distinguished ranking 
member to introduce our final witness.
    Mrs. LAWRENCE. It is my pleasure to introduce Dr. Gregory 
Quarles, the chief scientist of The Optical Society.
    Prior to joining the society, he was the cofounder and 
managing partner of EdgeLight Incorporated, a startup 
enterprise pioneering wearable light therapy. He was also the 
CEO at B.E. Meyers & Co., Inc., a manufacturer of optical 
electronic technology-related products used by defense and law 
enforcement applications.
    Dr. Quarles has been awarded five patents and has been 
recognized with numerous awards, including the Department of 
Navy Exceptional Performance Award.
    Welcome, Dr. Quarles.
    Mr. QUARLES. Thank you.
    Chairman CURBELO. Thank you very much.
    Ms. Appell, you are now recognized for 5 minutes.

  STATEMENTS OF MS. ANDREA APPELL, DIRECTOR, BPE GLOBAL, SAN 
   FRANCISCO, CA; MS. JENNIFER ROBERTSON-AHRENS, PRESIDENT, 
ROBERTSON FORWARDING COMPANY, MIAMI, FL; MR. CRAIG T. RIDGLEY, 
 VICE PRESIDENT AND MANAGING PARTNER, TRADE COMPLIANCE GROUP, 
  WASHINGTON, DC; AND GREG QUARLES, PHD, CHIEF SCIENTIST, THE 
                OPTICAL SOCIETY, WASHINGTON, DC

                   STATEMENT OF ANDREA APPELL

    Ms. APPELL. Mr. Chairman and members of the House 
Committee, thank you for inviting BPE Global to testify before 
you today. My name is Andrea Appell, and I am director at BPE 
Global.
    BPE Global is an 11-year-old San Francisco-based 
professional services firm specializing in export, customs, and 
security compliance. BPE Global is a women-owned and operated 
small business with five employees. BPE Global assists 
exporters in facilitating trade under the Export Administration 
Regulations, the EAR, and the International Traffic in Arms 
Regulations, the ITAR.
    Through BPE Global, I assist companies of all sizes, from 
Fortune 50 companies to small family-owned businesses engaged 
in international trade. In addition, I am extremely active in 
the trade community as a member of the American Association of 
Exporters and Importers, CompTIA, and a number of other trade 
groups, including a 5-year term on the Board of Directors of 
Women in International Trade, northern California, three of 
which as vice president of the organization.
    I thank you again for the opportunity to participate in 
this forum. My testimony will focus on the area of facilitating 
U.S. exports.
    First, I would like to recognize Eric Hirschhorn and Kevin 
Wolf for their leadership in the Export Control Reform. BPE 
Global strongly supports the reform, and we are appreciative of 
the huge undertaking and the accomplishments to date to 
modernize the U.S. export control system.
    It was only a few years ago that an interagency review 
determined that the former system was overcomplicated, 
inefficient, and could not keep pace with the constant 
evolution of technology. Exporters of all sizes, including our 
clients, were losing competitiveness in the global marketplace.
    BPE Global strongly supports the administration's efforts 
to facilitate exports while fulfilling its national security 
mission, and we have participated in many outreach events to 
educate, prepare, and facilitate the transition to Export 
Control Reform.
    The administration is implementing export reform in three 
phases. During Phase I, we reviewed our clients' products and 
provided assessments on the impact of reform on our customers. 
We submitted comments regarding the impact of proposed rules on 
our customers to BIS as part of industry groups. During Phase 
II, we reviewed the export jurisdiction and classification of 
our clients' products. In some instances, this represented tens 
of thousands of items. The creation of a positive list has 
greatly improved our ability to more efficiently classify 
products, software, and technology.
    As of today, we and our clients must understand both the 
ITAR and the EAR and be able to classify items under both the 
U.S. Munitions List, USML, and the Commodity Control List, CCL. 
For our clients who were subject only to the ITAR, some of the 
products have moved to the EAR, and they can now ship under 
expanded license authorizations instead of always having to 
obtain a Department of State license.
    While the movement of products and technology from State to 
Commerce has been advantageous, it has not come without some 
drawbacks related to determining the level of control on a 
product and timeliness related to license requests. When an 
exporter moves from being subject to only the ITAR to a 
business subject to both the EAR and the ITAR, regulatory 
complexity and administrative burden increases. For example, 
under the EAR, exporters must provide information on end users 
and end use that they previously did not have to do under the 
ITAR. Another example is that the audit trail for export 
classifications has been expanded to include the order of 
review and a 600 and 500 series review detail.
    Though a majority of our clients have benefited from the 
reform effort, moving their products to the CCL, a few have 
actually moved from Commerce Department's jurisdiction to State 
Department's jurisdiction.
    To further explain the complexity under the EAR, exporters 
must consult several different sections of the EAR in order to 
determine if the commodity is subject to the EAR, assigned the 
ECCN classification, check if general prohibitions apply, 
identify the reason for control, assess whether or not the 
reason for control triggers a license requirement, and finally, 
determine if a license exception is available.
    The ability to read and interpret multiple sections of said 
regulations requires exporters to be comfortable with legal and 
regulatory language and ultimately become self-taught experts 
on the classification and controls related to the products and 
technologies with which they work. Because mastery of the new 
set of regulations is now incumbent on those same exporters, we 
have found that companies prefer the pain they are most 
familiar with, licensing products under the much more 
straightforward administration of the ITAR.
    So if, during the review of regulatory requirements, an 
exporter determines that a license is required to export the 
commodity, the turnaround time for response from either State 
or BIS delays the export of items, especially when requests are 
volleyed between two agencies and the other agencies they 
consult. Delays are troublesome for companies of all sizes, but 
particularly hard for small businesses to absorb.
    Fulfillment of orders of small businesses is key to their 
survival. If small businesses are unable to meet their 
contracted demands, they face not only a financial risk, but 
the risk of losing the valuable business to another, often 
larger U.S.-based supplier, or potentially to a foreign 
provider.
    Other areas where our clients struggle are with missing, 
incomplete, or contradictory definitions of underlying export 
principles. This work I know is still in progress. The lack of 
clear definitions can create a roadblock for export, which 
results in assigning a classification which is overly 
conservative and accompanied with higher controls.
    BPE Global supports continued outreach by BIS on consulting 
and understanding the EAR to guide businesses through obstacles 
related to exporting, ease the transition from the ITAR to the 
EAR, and encourage competitiveness in the global marketplace.
    Again, I wish to thank BIS for its work on export reform. 
In general, the reform seeks to provide increased 
competitiveness, predictability, and efficiency for the export 
communities. We share these objectives and welcome the 
opportunity to be a partner as the process moves forward.
    Thank you for the opportunity to speak to you today. I 
welcome any questions.
    Chairman CURBELO. Thank you for your testimony.

             STATEMENT OF JENNIFER ROBERTSON-AHRENS

    Now, Ms. Robertson-Ahrens, you are recognized for 5 
minutes.
    Ms. ROBERTSON-AHRENS. Thank you, Chairman and Subcommittee. 
I appreciate the opportunity.
    I am Jennifer Robertson-Ahrens. Robert Forwarding is a very 
typical small business, as many freight forwarders in the 
industry are. Our industry makes up about--85 percent of our 
businesses are small business with about six or seven 
employees, bringing about 2 million a year from maybe two or 
three contractors. The way freight forwarders differentiate 
themselves is in expertise, whether it be by commodity or 
vocation to which they ship back and forth from.
    Robertson Forwarding is unique. In the mid-1990s, we became 
a government contractor working with INL and the U.S. 
Department of State moving aviation parts throughout the world, 
mainly Central and South America. I would believe that we were 
one of the first companies dealing with ITAR-regulated freight 
back in those times. In about 2001 is when I got into the 
industry and started focusing on DDTC regulations and became an 
export compliance officer.
    One of the things that I have noticed with Export Control 
Reform, though I believe the initiative is truly helpful and it 
is a direction that we should be going in, as a DDTC Response 
Team member once said to me, it is like a giant pool where you 
drop a boulder and the ripples are going to be for a while.
    And what I have seen that has happened with us is that it 
is hard to train my staff on ECCNs. When it comes to the ITAR, 
it is very self-explanatory what to do with the DSP-5. When it 
comes to using an ECCN, depending what the classification is 
and depending what country we are going to, it really depends 
on what regulations and what government restrictions you have 
per country. If a shipper does not give us this information 
correctly, we are liable to civil and criminal prosecution for 
improper exports.
    We are noticing that manufacturers and shippers are 
reluctant to self-classify and obtain commodity jurisdictions 
as the supply chain grows and grows and grows between overseas 
manufacturers with shippers in the United States creating 
products and then selling them on to larger companies to then 
fulfill their contractual agreements in foreign countries. We 
are noticing that there is confusion between USML and how they 
relate to their current ECCN classifications; with 
identification of ECCN licensing requirements. It is leaving 
exporters vulnerable to possible export violations due to lack 
of training and a constantly fluctuating process as Export 
Control Reform moves on.
    Contracts and items are sometimes procured 2 years in 
advance. You already identify how you are going to ship them 
from the second that you procure them, the second that you sign 
that contract. As this goes on every 6 or 7 months with the 
evolution, it is changing how we are working, and it is 
delaying our processes. We are seeing some of our customers up 
to $150,000 on small contracts in just delays, fines, 
penalties, improper shipments. We have some legal people here 
who know that if I do something like that, I have to go and get 
a voluntary disclosure. Those things are not cheap, nor are 
they free. So it is quite dramatic what is happening.
    As a freight forwarder, we are under enforcement agencies, 
we are considered the last line of defense for U.S. Border 
Protection, for the Office of Foreign Asset Control, Bureau of 
Industry and Security, TSA, Transportation Security Authority, 
and the Federal Maritime Commission. We have a lot of people to 
answer to. So regulations that are clear and laid out clearly 
towards us make a huge difference on how we are able to execute 
our work.
    One of the other issues that I have noticed coming forward 
is there is a movement of--my staff is a group that usually, in 
the freight forwarding industry, maybe has a bachelor's degree. 
It is a great small-business initiative for hiring people with 
what the government wants. You want more people working. You 
want people coming directly up from the ranks.
    Once this starts to push down between the shipper's 
procurement into classifications, and it comes to us before 
shipping, my staff has been asked by shippers to basically 
classify their commodities for them because of the pushback. 
People are nervous. People are scared. They are throwing it on 
us.
    Some of these items, whether they are EAR or ITAR, are all 
based on algorithms or how they are done by the engineers. It 
is an engineering response. I am not seeing the pushback 
happening to manufacturers and shippers. I am seeing it as the 
last line of defense as my firm. We are the ones who are able 
to be audited quickly. We are the ones with five different 
organizations that can come in at any time and review our audit 
and our documents.
    So what I would like to see is--we have been through this 
before as freight forwarders when TSA came into full force. The 
training, the outreach. CBP needs more training per different 
export region, whether it is Dulles or MIA. They have to play 
by the same rules. They are not. They are leaving it up to the 
different CBP directors to decide how they train their staff. 
it varies very much.
    We also have, where we notice that--sorry, I am off the 
cuff. Well, long story short, when TSA came into play, it was 
every 2 years you received an update, and we all knew when we 
had to get to that update. It wasn't happening so fluidly as it 
is with Export Control Reform. You knew where you were playing. 
You knew where the field was. You knew what you had to get up 
to speed with. So Export Control Reform has been coming down 
the pike for a long time. Its outreach is not. BIS has not been 
nearly as active as it needs to be for freight forwarders and 
exporters in training, offering very few outreach programs.
    I would like to finish my statement by saying I really 
believe that the initiative is correct. I believe the 
initiative is what businesses need. But there has got to be 
another way to encompass training, outreach, communication to 
the hundreds and thousands of small businesses, like my own, 
that need to be able to repair ourselves. Thank you.
    Chairman CURBELO. Thank you, Ms. Robertson-Ahrens. I 
apologize for mispronouncing your name earlier.
    Ms. ROBERTSON-AHRENS. It is okay.
    Chairman CURBELO. And I thank you for going off the cuff. 
We appreciate that.
    Ms. ROBERTSON-AHRENS. I love off the cuff.
    Chairman CURBELO. Now, Mr. Ridgley, you are recognized for 
5 minutes.

                 STATEMENT OF CRAIG T. RIDGLEY

    Mr. RIDGLEY. Mr. Chairman, thank you for this opportunity 
to speak before your Committee and your colleagues on ECR.
    My name is Craig Ridgley, as you pointed out. I am the 
managing partner and vice president of the Trade Compliance 
Group, formerly known as MK Technology, which is the oldest 
trade compliance consulting company in the country. We started 
in D.C. back in the mid-1980s.
    With regard to ECR, it is very much an open question as to 
the impact of ECR as it relates to small businesses or SMEs. We 
don't have a definitive answer, but we would like to pose some 
questions that might lead Congress and the Obama administration 
in the right direction. We also have some modest suggestions 
that would help to ensure that the interests and concerns that 
are at the center of the ongoing reform process are listened 
to.
    We start by asking BIS and DDTC to survey SME exporters, 
ask them which elements of the ECR Initiative have been 
beneficial and which have not. How should the ECR initiative be 
altered to take into account their concerns? Are there any 
recent surveys conducted by companies or business associations 
on the potential impact of reform efforts on SME suppliers and 
vendors?
    SMEs are widely seen as disproportionately disadvantaged by 
the export control system. SMEs could not then and cannot now 
afford large compliance staff or a Washington liaison office. 
Consequently, the overwhelming majority has less access to 
government licensing authorities than those enjoyed by large 
companies.
    Long licensing times and opaque regulations are continuing 
concerns. Further, due to the significant increase in BIS 
classification requests and DDTC commodity jurisdictions, the 
cycle time for those services has now reached the point of near 
irrelevance. It is not useful to wait 8 months for commodity 
jurisdiction. You have to find other ways of doing your 
business. You can't wait 8 months at a time.
    To be sure, the progress has been made in streamlining the 
regulations and increasing the clarity and objectivity of USML. 
For every commodity-related and related software and technology 
that is moved from the USML to the Commerce Control List, the 
exporter no longer has to be concerned about defense services, 
brokering, registration, and registration fees. Also, he can 
now take advantage of a de minimis rule, a less burdensome 
direct product rule, and no purchase order requirement.
    In short, there are some definite advantages derived from 
the ECR Initiative and relative to the USML and the transfer of 
thousands of items from the USML to the CCL.
    With the laudable goal of improving the export control 
system, government agencies have asked a lot of our exporting 
community, including the expenditure of thousands of man-hours 
and millions of dollars for compliance with new classification 
designations. For many companies, including SMEs, they have had 
to learn a whole new compliance language moving from the ITAR 
to the CCL.
    Classification processes, which have heretofore essentially 
been black and white, are now depending upon end use 
information that has traditionally not been relevant to 
classifications and for the SME is now extremely difficult, if 
not impossible, to obtain.
    In some conferences that I have attended, and in training 
sessions that I have conducted, the pain of ECR is almost 
palatable. Significant time and company resources are being 
invested in the cost of transitioned items in the overall 
implementation of the ECR Initiative.
    For example, an SME vendor of minor components may have 
tens of thousands of drawings previously subject to the ITAR. 
Post-ECR, those thousands of drawings must be all reviewed in 
light of the new definition of ``specially designed.'' 
Application of the ``catch and release'' process on those tens 
of thousands of drawings is financially prohibitive and in some 
cases impossible if there is a gap in the original supply 
chain, leading to assumptions and guesswork.
    Additionally, DDTC and BIS should issue guidance on the 
changes needed with regard to the Foreign Military Sales, the 
FMS program, to promote the objectives of the ECR Initiative. 
FMS activity remains under the jurisdiction of the Department 
of State while associated parts and components have been 
transitioned over to the jurisdiction of the Commerce 
Department.
    Guidance is needed as to the conflicting jurisdictional 
authorities. For example, licenses are still required for the 
reexport or transfer of parts and components related to items 
related to decades-old aircraft, such as the C-130.
    Thank you for the opportunity, and I would be glad to 
answer questions.
    Chairman CURBELO. Thank you very much.
    Now we would like to recognize Dr. Quarles for 5 minutes.

                   STATEMENT OF GREG QUARLES

    Mr. QUARLES. Chairman Curbelo and members of the 
Subcommittee, thank you very much for allowing me to testify 
before you today on the challenges that export control poses 
for small businesses.
    As Congresswoman Lawrence stated, my name is Craig Quarles. 
I am chief scientist for The Optical Society here in 
Washington, D.C. I am also a former small-business executive 
for the past 20 years dealing with companies that were working 
with compliance of export controls.
    A little bit about The Optical Society. We are the leading 
professional organization for scientists, engineers, students, 
and entrepreneurs who fuel discoveries, shape real-life 
applications, and accelerate achievements in the science of 
light. This includes development of new medical imaging 
devices, fiber optics, wireless Internet, and spanning medical 
to military lasers. 2016 is our hundredth anniversary for the 
society, with over 19,200 members globally. We also have 250 
corporations that are members, and 90 percent of those are 
small businesses. So we have a good sample set to talk about 
these issues with.
    We find that it is vital that Subcommittees such as yours 
look at how export control is impacting small businesses, 
because we want them to have the same equal footing to compete 
globally. We want them to be able to reach all the consumers 
that you had identified previously so that global competition 
is allowed to be sold and bartered.
    The Optical Society stands ready to partner with the 
Federal Government to assist small businesses to export more 
U.S.-manufactured products abroad.
    So what are some of the major concerns of our constituents 
with The Optical Society? Number one is what all of our other 
panelists have talked about, the export reform changes taking 
place that were launched in 2009. The Department of State is 
amending the International Traffic in Arms Regulations, 
provides the U.S. Munitions List, and especially Category XII, 
which is under scrutiny currently, which implies military 
electronics, military optics, and lasers.
    This would regulate the dual use and sale of optics and 
photonics products that were previously military and security 
almost exclusively, and now a portion of those are going to the 
Commodity Control List. We find that compliance is going to be 
a challenge for the small businesses in The Optical Society 
because of the regulatory complexity of looking at these 
devices and where they sit.
    We are recognizing potential negative impact not only on 
our members, but the industry as a whole, and so we have 
partnered with two other groups, the Semiconductor Industry 
Association and SPIE, in educating our congressional 
delegations about the negative impacts on small business, 
particularly in the optics and photonics industry.
    I have tried to identify three primary concerns, some of 
which have already been echoed today, with the export control 
as it stands. The first one is impact on time to market. Second 
is cost of compliance. And the third is a gap and a need for 
enhanced government export assistance resources, especially for 
the small businesses that don't know how to navigate the 
movement of these two lists.
    Going to point one, to the time to market. We have talked 
to members from The Optical Society, and to get a CCL license, 
it should be a standard 20 days. Some of these companies have 
sold product to the same companies for the past 3 to 4 years, 
same delivery, same product, and it is taking 60 days to get 
licenses currently. Sixty days is a delay that can cost orders 
for these small businesses. Foreign competitors can use this 
seemingly very brief window of time as an opportunity to come 
in, undercut a sale, and win the business from the U.S. 
companies and take them completely out of the loop.
    The cost of compliance is another concern point and one 
that I am very aware of. We have broad support here. A Small 
Business Administration summary previously showed that it is 
really a fixed cost for compliance for small business up to 
from 5 to 500 individuals, but the cost per employee in small 
businesses, according to this report, is 36 percent higher than 
it is for the large companies, and that really puts small 
businesses facing a substantial cost disadvantage when having 
to deal with compliance, regulations, and the fees compared to 
their larger counterparts. Large companies already assume this 
large fixed cost spread out over a large numbers of employees 
and can compete and win these orders and keep small business 
out of the way.
    From my prior experience as the CEO of a company selling 
lasers to the military and homeland security, our cost annually 
was well over $500,000, a half a million a year, for small a 
mom-and-pop business just to stay compliant with CCL and our 
ITAR regulations. That didn't include our Washington support.
    What choices do the business owners have? Spend hundreds of 
thousands of dollars to remain in compliance? Worry about 
fines, worry about potential jail time? These regulations make 
it very costly to compete if you don't have subject matter 
experts onboard.
    Then finally, I think we see a trend for needing to 
strengthen government export assistance, especially for small 
businesses. Regulations are an important part of enabling our 
national security, as the chairman pointed out, and The Optical 
Society fully supports that. We don't want to harm our security 
or limit U.S. competitiveness. However, the government must 
provide resources for our businesses to comply without 
burdensome expenses.
    Surveys for the Small Business Administration, spanning 
2010 to 2013, show the sharp decline in the level of 
interaction between small businesses and the Export Assistance 
Centers that Commerce has. In this timeframe, awareness of the 
centers dropped 20 percent, and the useful resources there 
dropped 50 percent. Does this really make the most effective 
assistance that we can offer a small business? I would say no.
    The Optical Society acknowledges and applauds the cross-
agency coordinated initiatives the administration has set forth 
to assist small businesses, but more needs to be done to 
educate the businesses with export controls. Just as a point of 
view, it is not just small businesses. We do have a large 
number of university professors that are part of The Optical 
Society, and they have to worry about the ITAR, foreign 
graduate students, and now export control from the Commerce 
side.
    So in conclusion, better streamlining of the regulations, 
especially for small businesses, is important and it is making 
progress. We are going down the right path. Faster approvals 
need to be put into place, ways to get licenses and 
exportability more rapidly to compete globally, and then 
finally, looking for ways to have better outreach and education 
to the public as we go to these expanded lists. There is going 
to be chaos and confusion, and the government could do very 
well by stepping in and offering assistance to the export 
compliance officers at universities and with small businesses.
    The Optical Society and our memberships that we represent 
thank you for the opportunity to testify today, and we are 
ready to partner in any way we can, especially on the education 
front. Thank you.
    Chairman CURBELO. Thank you. Thank you, Mr. Quarles.
    And thank you all for your testimony. I know many members 
have other commitments and hearings today, so I am going to 
defer immediately to them, beginning with the ranking member, 
Mrs. Lawrence.
    You are recognized.
    Mrs. LAWRENCE. Thank you so much.
    And thank you, again, for your testimony.
    Dr. Quarles, it seems a common theme of the time that it 
takes to get a license. I think you mentioned 60 days.
    Where do you see the bottleneck? Is it the staff time that 
it takes to process it? Give me a sense of how we can improve 
that. With the licensing happening, you said around 60 days, 
how does that directly impact you as a company?
    Mr. QUARLES. The first part of the question, the 
bottlenecks, as I see it, are really from staff internal trying 
to decide, is this a commerce item, is this ITAR? Especially 
with the division of some of these areas and some of the 
overlaps, we are looking at making sure it goes to the right 
place. If it doesn't go to the right place and comes back with 
questions, that just adds more time onto the licensing portion 
of the request.
    I think it is just manpower in the licensing staffs 
themselves. I think we may get something in within 2 days of 
receiving a request for a quote in the previous company I was 
with, and it is still 60 days before a response ever comes out 
of the government on whether the license is going to be granted 
or if more information is needed.
    I think there is confusion moving forward with where this 
stands, and on the other end, maybe shortage of manpower.
    Your second question about the small-business side, I think 
the costs are just prohibitive.
    Can you refresh me on what the rest of the second question 
was?
    Mrs. LAWRENCE. How does that directly impact you when it 
takes 60 days?
    Mr. QUARLES. Thank you very much. Yes.
    So if it takes 60 days, in most cases, some of these 
technologies are available from most of our allies with NATO, 
from companies scattered all across the NATO countries, and 
they can potentially turn this around in 30 days and make the 
sale. If you are waiting 60 days for a license, you have two 
choices. You either start manufacturing and hope you get the 
license, and if you don't, then you are sitting on product that 
is going to be on the shelf that you have already put labor and 
time into; or you wait to get the license, and by time that 
they may come back and say, sorry, we have already awarded the 
contract to someone else.
    So you are in a predicament either path you take. It is a 
burden on a small business.
    Mrs. LAWRENCE. Thank you.
    Ms. Robertson-Ahrens, one of the main issues that most 
small businesses face when it comes to the ECS is understanding 
exactly what the shipped items are covered, and you outlined 
that, by Federal regulation. You even stated the ripple effect 
that it has on the small business.
    What can be done to make the existing system put small 
businesses on a level playing field by this understanding, 
exactly? Because you have mentioned that sometimes the burden 
is placed on you to define what that is. Can you just dig a 
little deeper on that, please?
    Ms. ROBERTSON-AHRENS. I will give you an example of the 
burden being placed. Everybody in this room is, I think, 
familiar with the DSP-61. It is a license that freight can go--
oh, 73, actually--the license can go--the freight goes out as 
ITAR and it comes back to the United States if it is not sold 
or if it is whatever, however the contract is.
    During Export Control Reform, a lot of the items that went 
out on this DSP-73 coming back into the United States is now 
under an ECCN. Large corporations--I am representing a large 
corporation in this factor--upon importation did not take the 
initiative to assign the ECCNs to the commodity. I cannot bring 
this back into the United States midstream without it moving 
from the ITAR to the EAR, where it applies now.
    As a forwarder, how can this be my responsibility? How can 
you push this down the chain? I have seen it with our large 
manufacturers with some highly technical goods, that things are 
bundled into one USML. But when we have to go and then do the 
licensing--I mean, I will do the AES, which is what we do, it 
is now moving to AES--they don't break down the bundle. You 
have to sit there as a forwarder now and go back to your 
shipper to try to comply. It has added a lot of burden. There 
is quite a bit of back and forth.
    Training, as far as my staff goes, with BIS, AES, and all 
the additional initiatives that are coming forward right now, 
is kind of few and far between. There are some webinars. But 
really, we need outreach. We need people coming to the ports to 
meet with us. It shouldn't cost a crazy amount of money. I have 
seen seminars. They are done by private firms that, I know, 
know no more than I do from the same webinar that I watched 
charging between $500 to $600 per person, and then they are 
going to do it someplace about 4r hours away, and that is the 
only one coming down range.
    If it is a government initiative, and we are private 
citizens, then the government has to take the initiative to 
provide training each port at a rate that is affordable for 
every small business.
    Mrs. LAWRENCE. Thank you.
    My time is up, but thank you so much.
    Chairman CURBELO. I thank the gentlewoman.
    And now I would like to recognize Mr. Luetkemeyer.
    Mr. LUETKEMEYER. I thank the chairman.
    Let me just follow up on your comments, there, Ms. 
Robertson-Ahrens. For clarification, you are talking about a 
company that exports some goods, and then some of those goods 
come back to this country, they either didn't want it, or they 
were--what?
    Ms. ROBERTSON-AHRENS. U.S. defense contractors, aviation 
parts return and repair, sales of U.S. products for the C-130 
and other, F-16s.
    Mr. LUETKEMEYER. So there is a process to get them be 
processed back into this country?
    Ms. ROBERTSON-AHRENS. If they have moved from the ITAR to 
the EAR during this time of Export Control Reform, you do have 
to identify them.
    Mr. LUETKEMEYER. Really? You can't get them out and you 
can't get them in, huh?
    Ms. ROBERTSON-AHRENS. If you get them out, you have to get 
them back in.
    Mr. LUETKEMEYER. Okay. That sounds like the government, 
doesn't it? Wow, only here.
    Interesting discussion also with you, Mr. Quarles. I was 
curious, the cost to comply, you had a half a million dollars 
is what it cost. I know it differs from company to company. But 
have you got an average that it would take for the average 
company? They are probably dealing mostly in the same kind of 
products that I am looking here, it is stuff that is highly 
regulated, it could be military hardware and equipment things 
like that. I am assuming it is all probably in the same 
ballpark.
    Is half a million dollars, is that a normal figure.
    Mr. QUARLES. I think the experience I have in talking to 
our members over the last 2 weeks about this, it has ranged 
anywhere from $150,000 for a few members that are focused on 
one or two products that are going into select markets overseas 
to some of the small businesses that are doing multiple 
licenses with both Commerce and with ITAR spanning 500,000 to 
750,000. It is in that range of a quarter million to three 
quarters of a million dollars for a small business that has got 
over 50 percent of their business in those areas.
    Mr. LUETKEMEYER. What happens when you have a company that 
is working sort of hand in glove with a country overseas for a 
particular product? You still have to go through this process?
    Mr. QUARLES. You still do, because a lot of times what ties 
into that also is if you are working with someone overseas, now 
you have to start looking at these technology assistance 
agreements, TAAs, which are even more burdensome. You have to 
start define specifically what can be said, what can be 
exchanged, what is not technical data, what is technical data 
so you don't get an ITAR violation.
    So it is very difficult. Once you have it in place, it is 
pretty seamless, just waiting on the licenses. But just getting 
those conversations up and going and getting approval for both 
parties to meet and consume product is a costly challenge.
    Mr. LUETKEMEYER. I really understand the concern. I mean, 
you are selling very technical, very unique products that are 
something probably our military is involved with, and it is 
proprietary probably in a lot of instances. So I am looking at 
a list of things here, you look at missiles, explosives, 
vessels, vehicles, aircraft. But it is interesting here, we 
have got firearms, guns, and ammunition that haven't had any 
sort of proposed rule, final rule made. What is the problem 
there?
    Mr. QUARLES. I will defer to one of the others if they 
would like to answer before me.
    Mr. LUETKEMEYER. Mr. Ridgley.
    Mr. RIDGLEY. I think in all honesty it is politics. I use 
that term generally, without----
    Mr. LUETKEMEYER. Well, I appreciate honesty, because that 
is what we need a lot more of around here. Because, to me, you 
are looking at some really sophisticated stuff here. You have 
got missiles, explosives, high-tech vehicles, aircraft, and now 
we are looking at guns, ammunition, and firearms. I mean, there 
are a lot of places in the world that can build a bullet, and 
yet we are not allowing that to be done.
    I am curious as to, if it is politics, I mean, I was 
guessing it was, but I mean, if there is something else there, 
I would like to know what the concerns would be.
    Ms. ROBERTSON-AHRENS. Well, again, as a forwarder and 
importer, I find a lot of people don't understand that one of 
the roles that you play in this game of world trade is about 
trade. And it is about U.S. technology and capabilities being 
copyrighted and taken over by other countries and then them 
making the products themselves. So that, I think we understand 
where the concern is. I guess it is the execution.
    Mr. RIDGLEY. I think it is more fundamental than that. I 
think it is we need a period of time without a Sandy Hook, 
without a San Bernardino, we need a period of time without a 
Paris. We need a less sensitive period of time without 
something related to guns, ammunition, and the other. I think 
that is what is stalling that, those categories, is we just 
need a less sensitive time. That is my belief anyway.
    Mr. LUETKEMEYER. I appreciate that. Thank you.
    My time is up. I yield back.
    Chairman CURBELO. Mr. Gibson, you are recognized for 5 
minutes.
    Mr. GIBSON. Well, thanks, Mr. Chairman and the ranking 
member. Thanks for your leadership.
    Mr. Chairman, also thanks for your thoughtfulness. Indeed, 
I am going to have to leave after this to another hearing. So I 
just to note that as a matter of personal courtesy, I am very 
thankful.
    I actually want to build on the comments by my colleague 
Mr. Luetkemeyer here just for a moment, and say that, clearly, 
exports are a key piece of our economy. In fact, the 
administration in 2011 expressed a goal to double our exports, 
which is something I strongly support. And even though it is 
broader than the purview of this hearing, I guess my first 
question is, does anybody have a sense on where we are on that 
goal?
    Ms. APPELL. Well, thank you.
    I didn't come prepared with any statistics, but I can speak 
from the basis of our clients, that the export reform is 
working, right? It is making things easier. It is facilitating 
exports.
    There are some tweaks that need to be made, and I think 
that is why we are all here. We come from a different 
perspective on what needs to change.
    But it is working. And I think with continued outreach, to 
build upon Ms. Robertson-Ahrens comments, again, I will commend 
BIS for their outreach. They have done a great job of providing 
seminars, being accessible, being ready to answer questions.
    I do look to State to increase in that capacity. For 
certainly our customers, State has been a little bit of a 
closed book, and we look to them, to partner with them, to 
encourage the communication between government and the private 
sector.
    Mr. GIBSON. Well, thank you. And just to follow on here. As 
you know, in the consolidated appropriations bill enacted last 
year with bipartisan support and the President of the United 
States' signature, the Bureau of Industry and Security received 
an additional $10 million over previously enacted funding 
levels. That House report that accompanied the Commerce, 
Justice, Science, and Related Agencies appropriations bill made 
clear that the increased funding was to allow, quote, ``BIS to 
continue its efforts to protect national security while coping 
with an increased workload of export license applications,'' 
that is close quote.
    In part, this funding was provided in anticipation of the 
increased workload expected at BIS in order to move USML 
Categories I, II, III over to BIS. However, despite the fact 
that these funds were provided for in this current fiscal year, 
that transition has not occurred. I mean, that was sort of the 
question that was alluded to here. But I just wanted to put it 
on the record, that that is something that was enacted. I mean, 
we worked together to get that done. So really now it is a 
matter of compliance. It is a matter of law.
    So I don't know if anybody else wants to make an additional 
comment on that.
    Ms. APPELL. May I add a comment?
    Mr. GIBSON. Yes, please.
    Ms. APPELL. I think that is fantastic. I think what also 
could be done that doesn't cost money is when State responds to 
licensing requests, something very simple, an analysis of their 
legal reasoning or even something as simple as your goods may 
be subject to export reform, please see, you know, one, two, 
three sources. I think that would really help the exporters, 
and I think it would be very easy for them to do.
    Mr. GIBSON. Well, I thank the panelists. This is the first 
of two different hearings. Obviously, we are going to get the 
rest of the story here, or at least in terms of the testimony 
later on in the week. But I just want to thank you for what you 
do to try to keep our economy strong, making sure our goods 
move, and essential part, as I said, to a thriving and 
flourishing economy.
    With that, Mr. Chairman, I yield back.
    Chairman CURBELO. Thank you, Mr. Gibson.
    I recognize myself now for questions.
    Our goal here is to make sure that America's small 
businesses are treated fairly and given a shot to succeed, 
well, for many reasons, because small businesses hire a lot of 
people who wouldn't get a job otherwise or would struggle to 
get a job at a larger corporation.
    So what I would like to ask you all of you or anyone who 
would like to answer is, under the ECRI, do you feel that the 
playing field between larger and smaller companies will be 
leveled? I understand that under the existing paradigm, if you 
have a big team of lawyers or compliance officers, you are 
going to be at an advantage. Do you see that being mitigated or 
significantly improved under this new paradigm that is being 
developed?
    Mr. QUARLES. From our perspective at The Optical Society, I 
think that it will be improved. I think we are going to see a 
blip to begin with, with the confusion that is going to cause 
it to be swinging the other way to large business until the new 
rules and regulations are well understood and conveyed to the 
small-business community. I think once that happens, there are 
improvements that are going to be moving into place, and it 
will make it easier across the board. But you have to get past 
that gap and that first initial response to the changes that 
are happening.
    Chairman CURBELO. Sure. Any other thoughts on that?
    Mr. RIDGLEY. Yes. My experience with my small clients is, 
particularly those that were ITAR shops that now have to deal 
with EAR, it really is a struggle for them.
    From a level playing field perspective, maybe in the long 
run it will level out, but right now my business has increased 
dramatically because of ECR. More OF the small businesses are 
coming to me and saying, ``Craig, we need help. I don't 
understand this stuff. Please come do training.'' So on and so 
forth. I am very thankful for ECR for what it has done for my 
consulting practice.
    But as far as IT leveling the playing field for small 
businesses, I don't think it has. I think they are burdened 
with--even EAR shops are burdened with new license exceptions 
that almost make it impossible to do what they need to do.
    STA specifically is a license exception that was created to 
support ECRI. The first 60 percent of STA tells you what you 
can't ship with STA. Even to the A-5 countries, which are our 
closest allies, you can't--I have clients that are in 
aerospace. You can't ship hardly any 9.E technology under STA. 
A lot of my clients in that aerospace field are small business. 
I mean, there are 12-man shops, there are 100-man shops. I 
would like to see how it could level the playing field, but 
right now the big companies have the legal staff, they have the 
compliance people to be able to deal with them, and the small 
shops have to call me. So----
    Ms. APPELL. If I may?
    Chairman CURBELO. Please.
    Ms. APPELL. I would like to sort of echo what Mr. Ridgley 
has said. It used to be under the old system that if it was 
loosely described in the ITAR, it was in the ITAR. And that was 
very easy for an ITAR-focused business, right? They would 
submit their license, a description of the products, and they 
would either to get a license or they wouldn't. It is very 
straightforward.
    Under the new system, just as he is saying, when you move 
over to the EAR, it is a little more flexible, right? You have 
these license exceptions that you can qualify for, like STA. 
And the small businesses, most of them have never looked at the 
EAR if they were an ITAR shop, and navigating that is quite 
difficult. And, again, to sort of add to that cost of 
compliance, right, they don't have the in-house staff. They 
have to look outside to consultants, attorneys, or whoever to 
help them guide that through that process.
    Ms. ROBERTSON-AHRENS. So I can only speak from our 
perspective. Again, it comes down to training, everything that 
is being said pretty much across the board. They are dealing 
from the shipper's side, they are dealing from the 
manufacturer's side. We then end up hitting it down at the 
bottom when you get to you are telling me exactly how to ship. 
If it doesn't gel, if what people are saying doesn't make 
sense, and then CBP also has a different perspective, the 
shipment won't move.
    Right now it just seems too nuanced. Is that the right way 
to say it? It is just seems too nuanced for it to be a really 
smooth supply chain.
    Chairman CURBELO. Thank you.
    Mrs. Lawrence, you are recognized.
    Mrs. LAWRENCE. Just briefly. This will be my last question, 
to Mr. Ridgley.
    Right now, according to the White House, the enhanced 
export enforcement is a critical element of the ECR Initiative, 
which includes the enhanced coordination of all exports by a 
multidepartment enforcement center, and this began in 2012. And 
we know that the Homeland Security and FBI are the enforcers of 
the U.S. export controls.
    So the existing export licensing requirement, which we have 
been told repeatedly has its glitches, for many items to move 
forward we have to balance that with oversight of the 
Department of Homeland Security and the Department of Commerce. 
Is there evidence to suggest that these enhanced enforcement 
measurements have hindered or interfered with the export 
production?
    Mr. RIDGLEY. On the Commerce Department side, no, I don't 
think so. I don't think there is a practical implication there. 
I think that maybe a license takes a little bit longer, maybe a 
week. Six to 8 weeks has been my experience for the past two 
decades. Maybe it is going to 9 weeks now.
    On the State Department side, it is much longer, I don't 
know why, both in terms of licensing and in commodity 
jurisdictions. I had a client who had a gold-plated EMI ring 
that we wanted a commodity jurisdiction for because it was part 
of the International Space Station, at least that is when we 
submitted it. In the interim, the space station went from State 
to Commerce. Finally we got a CJ back that said, well, no it is 
an ECCN now. But that took 8 months to get that CJ back with 
that determination that it was ECCN under the CCL.
    So I think the main impact is all those ITAR people who are 
now lost in the land of EAR, and they are going back to State 
with CJ after CJ after CJ. I think that is where the real 
impact is.
    Mrs. LAWRENCE. Okay. Thank you.
    Chairman CURBELO. Thank you, Mrs. Lawrence.
    And I want to thank all of you for your presence here 
today. It does make a difference. It does matter. It will 
inform our work on this topic. And we work very well together 
on this Committee, and our goal in this case is to make sure 
American small businesses can sell their products abroad so you 
can create more wealth here at home and hire more Americans 
needing jobs.
    I ask unanimous consent that members have 5 legislative 
days to submit statements and supporting materials for the 
record. Without objection, so ordered.
    This hearing is now adjourned.
    [Whereupon, at 11:03 a.m., the Subcommittee was adjourned.]
    
    
    
                            A P P E N D I X

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


                     Congress of the United States


        US House of Representatives Committee on Small Business


    Good Morning, I am Jennifer Robertson-Ahrens the President 
of Robertson Forwarding Company, a 47-year-old African-
American, Woman-Owned, and HubZone firm located in Miami 
Florida's 24th Congressional District.

    I want to thank Chairman Chabot and the Subcommittee on 
Agriculture, Energy, and Trade for allowing me to testify today 
on the effects of Export Control Reform (ECR) on my business.

    It has been a very difficult couple of years for my small 
business which specializes in the importation and exportation 
of aircraft parts and other sensitive military equipment. I 
attribute the difficulties experienced over the last two years 
to a lack of clarity spanning across the exporting industry.

    Issues faced:

           Manufactures and shipper's reluctance to 
        self-classify or obtain a commodity jurisdiction for 
        their product.

           Confusion surrounding previously USML items 
        and how they relate to their current ECCN 
        classification.

           Identification and application of ECCN 
        licensing requirements. Exporters are forced to 
        navigate a confusing regulatory landscaped based on 
        country specificity, end user, and trade agreements. 
        Leaving the export industry vulnerable to possible 
        export violations.

           Delays at US Customs and Border Protection, 
        due to export officers unsure of the requirements for 
        the ECCNs, 600 series products, and the use of export 
        codes per country and end user submitted to them by 
        industry in Electronic Export Information (EEI) 
        filings. CBP's approval of these filings is required 
        for export from the US. For exporters time is a 
        critical component to our performance matrix and delays 
        of any sort is costly.

    Legislators need to appreciate that Freight Forwarders like 
myself are the ``low-hanging fruit'' for multiple enforcement 
agencies.

    Examples of enforcement agencies:

           US Customs and Border Protection

           Office of Foreign Asset Control

           Bureau of Industry and Security

           Transportation Security Agency

           The Federal Maritime Commission

    Regulatory uncertainty and lack of available training 
leaves companies like mine in fear of financial retribution and 
possible criminal indictment for improper export classification 
provided to us by shippers/vendors.

    This year I have witnessed a trend in manufactures and 
shippers who are undoubtedly the US Principle Party of Interest 
pushing licensing of their equipment for export to third 
parties without support for classification.

    Examples:

           DOD contractor customer spent $175,000 in 
        fees due to delays in licensing between 2014-2015

           Licensing at DDTC delayed over 90 days

           Kickback of classifications between DDTC and 
        BIS delays licensing up to three weeks.

    As a US Export Compliance Officer I allocate a significant 
portion of our budget to training in order to keep Robertson 
Forwarding Company staff up to date with the regulations 
effecting my clients' freight. Export Control Reform has been 
on my radar for the last four years. I have trained and 
provided training to folks on the changing landscape throughout 
this time. With all of this said, I still had the most 
challenging and costly years in my professional career due to 
industry insecurity, confused and nervous shippers/
manufactures, and government re4gulatory agencies not 
understanding the regulations resulting in unnecessary delays 
and cost for the industry.

    In closing, I understand the motive of ECR but believe its 
implementation lacked sensitivity to business concerns. I 
believe the implementation of ACE and Export Control Reform 
should have been handled in a similar manner to the 
implementation of the TSA's Indirect Air Carrier Program in the 
90's. There were multiple outreach programs provided at every 
major port, training by community liaisons, and web-based 
manuals. Updates phased in annually with notification of 
upcoming changes as well as implementation grace periods. This 
allowed industry to prepare and adapt to changes through 
training. Training was provided by the regulators themselves, 
allowing them to see how the practical implementation of 
regulations was effecting the industry and this information was 
then used to inform the upcoming annual or bi-annual changes.

    Thank you for this opportunity.

    Jennifer Robertson-Ahrens

    President of Robertson Forwarding Company (d.b.a. RFC 
Logistics)
         Subcommittee on Agriculture, Energy and Trade

               House Committee on Small Business

               2360 Rayburn House Office Building

                       February 10, 2016

                     Export Control Reform:

                 Challenges for Small Business?

                             Part I

                          Testimony of

                      Mr. Craig T. Ridgley

              Vice President and Managing Partner

                     Trade Compliance Group
    Mr. Chairman, I am very pleased to appear before you and 
your colleagues this morning to discuss the ongoing Export 
Control Reform, ECR, Initiative and its impact on small and 
medium sized enterprises, SMEs.

    The Trade Compliance Group, formerly known as MK 
Technology, has been advising large corporations and SMEs 
regarding export control policies and procedures since 1986. We 
offer a comprehensive array of export compliance services and a 
broad range of compliance education and training services 
including custom training programs, instructional videos, and 
online export controls learning programs.

    I am its Vice President and Managing Partner performing 
trade compliance assessments and developing compliance programs 
under the Bureau of Industry and Security Export Administration 
Regulations and the Directorate of Defense Trade Controls 
International Traffic in Arms Regulations. I have experience in 
both managing export control teams in many large companies and 
in advising scores of SMEs struggling to comply with a complex 
regulatory environment.

    It is very much an open question as to the impact the ECR 
Initiative has had on SMEs. We don't have a definitive answer, 
but we would pose some questions that might lead Congress and 
the Obama Administration in the right direction. We also have 
some modest suggestions that would help to ensure that their 
interests and concerns are at the center of the ongoing reform 
process.

    We would start by asking BIS and DDTC to survey SME 
exporters. Ask them which elements of the ECR Initiative have 
been beneficial and which have not been. Has it altered their 
plans to market their goods and services in certain markets and 
regions around the world? How should the ECR Initiative be 
altered to take into account their concerns? Are there any 
recent surveys conducted by companies or business associations 
on the potential impact of the reform effort on SME suppliers 
and vendors?

    In 2010, the Milken Institute and the National Association 
of Manufacturers issued a study entitled, ``Jobs for America: 
Investments and Policies for Economic Growth and 
Competitiveness'' concluding that modernizing U.S. export 
controls could increase exports in high-value areas. By 2019, 
an enhanced regulatory environment could increase GDP by $64 
billion, create 160,000 manufacturing jobs, and heighten total 
employment by 340,000.

    More than five years into the ECR Initiative, your 
Committee should ask the Milken Institute and the National 
Association of Manufacturers to revalidate their study's 
conclusions to see if we are still on track for the GDP and job 
growth projections.

    In 2009, prior to the Administration's announced launch of 
the ECR Initiative, MK Technology, together with the Thales 
Corporation, released its ``Best Practice Project for the 
Export of Controlled Material'' based on interviews with 
corporate officials with export control responsibilities in 
large and small companies. Among its conclusions, it found that 
``Care should be taken to manage the small supplier 
relationship especially in light of the fact that some are not 
well equipped to handle their own export compliance 
responsibilities''. As relevant today as it was then, this 
small supplier role needs close scrutiny with many large 
companies divesting themselves of any compliance advisory or 
training role for their suppliers and sub-contractors.

    SMEs were/are widely seen as disproportionately 
disadvantaged by the export control system. SMEs could not then 
and cannot now afford a large compliance staff or a Washington 
liaison office. Consequently, the overwhelming majority have 
less access to government licensing authorities than those 
enjoyed by large companies. Long licensing times and opaque 
regulations are continuing concerns. Further, due to the 
significant increase in BIS classification requests and DDTC 
commodity jurisdictions, the cycle time for those services has 
now reached the point of irrelevance.

    To deal with these concerns, BIS and DDTC (as well as the 
Treasury Department's Office of Foreign Assets Control) should 
set up a Working Group to determine how exporter services can 
be made more accessible, responsive and user-friendly to SMEs. 
Also, these agencies should take steps to ensure that licensing 
officers and other agency personnel are fully trained regarding 
all SME export issues.

    To be sure much progress has been made in streamlining 
regulations and increasing the clarity and objectivity of the 
U.S. Munitions List, and for every commodity and related 
software and technology that has moved over from the USML to 
the Commerce Control List the exporter no longer has to be 
concerned about defense services, brokering, registration, and 
registration fees. Also he can now take advantage of a de 
minimis rule, a less burdensome direct product rule and no 
purchase order requirements. In short, there are some definite 
advantages derived from the ECR Initiative and the transfer of 
thousands of items from the USML and the CCL.

    While the ECR Initiative has begun to meet the expectations 
of the exporting community more progress needs to be made, its 
specific impact on SMEs has not received the attention it 
deserves. At this stage in the review process, it is time for 
the relevant agencies and industry associations to conduct 
surveys on the impact of the ECR Initiative on SMEs. Are small 
businesses sharing in any related job growth?

    With the laudable goal of improving the export control 
system, government agencies have asked a lot of our exporting 
community including the expenditures of thousands of man hours 
and millions of dollars for compliance with new classification 
designations. For many companies, including many SMEs, they 
have had to learn a whole new compliance language moving from 
the ITAR to the CCL. And classification processes, which have 
been heretofore essentially black and white, are now dependent 
upon end-use information that has traditionally not been 
relevant to classification, and for the SME, is now extremely 
difficult if not impossible for the exporter to obtain.

    In some of the conferences I have attended and the training 
sessions I have conducted the pain of ECR is almost palpable.

    What are the ways to promote the adoption of the regulatory 
changes required under the ECR Initiative? One approach BIS 
should consider is the creation of a `compliant exporter of the 
year award' similar to the exporter of the year awards now in 
place across a number of industry groups. Why not target SMEs 
for recognition particularly in the high tech sectors intended 
to be the beneficiaries of the export control reform process?

    BIS should also consider directing the Regulations and 
Procedures Technical Advisory Committee, RPTAC, to review the 
impact of the recent changes in the Export Administration 
Regulations resulting from the implementation of the ECR 
Initiative. The focus should be on SMEs addressing their export 
competitiveness and as well as any reduced propensity to export 
or manufacture ITAR items.

    With SME participation, the RPTAC could also help to advise 
regulators in developing a new common set of standards where 
the two control lists, the Commerce Control List and the United 
States Munitions List, would be merged into one.

    DDTC's counterpart to the TACs is the Defense Trade 
Advisory Committee, DTAG. It advises the Department in the 
regulation of defense trade helping to reduce unnecessary 
impediments to legitimate exports while supporting defense 
requirements of U.S. friends and allies. In January of 2014, 
the DTAG Export Control Reform Working Group issued a number of 
findings on the progress and the problems associated with the 
reform effort.

    The advisory group members noted that significant time and 
company resources were/are being invested in the cost of 
transitioned items and in the overall implementation of the ECR 
Initiative. They focused on the direct costs tied to industry 
supply chains, procurement and engineering program in learning 
and complying with the new regulations including ongoing 
reclassification and jurisdictional changes. For example, a SME 
vendor of ``minor components'' may have tens of thousands of 
drawings previously subject to the ITAR. Post ECR, those 
thousands of drawings must all be reviewed in light of the new 
definition of ``specially designed''. Application of the 
``catch and release'' process on tens of thousands of drawings 
is financially prohibitive and, in some cases, impossible if 
there is a gap in the original supply chain, leading to 
assumptions and guesswork.

    And they reviewed the indirect costs as well that are tied 
to administering and establishing the processes to support the 
regulatory changes. Specifically, these included employing 
additional staff, diverting existing staff from other tasks, 
making changes in production processes, employing consultants 
or other sources of expertise to assist in the regulatory 
changes, and compiling and storing information required under 
new reporting requirements. They noted that the costs were 
substantial enough to as to negate lower unit costs and to 
blunt their competitive edge.

    Among their other observations: trade compliance programs 
are typically understaffed across a wide spectrum of companies 
and many corporate officials have difficulty finding the time 
to read proposed rules particularly if they are not directly 
related to the company's products and services. In sum, 
industry doesn't have the luxury of not getting it right.

    An expanded and more inclusive Defense Trade Advisory Group 
could make its own recommendations to ensure that they are 
adequate resources at DDTC for taking on new responsibilities, 
including the flexibility to use existing resources, without 
increasing any fees. Taking into account the views of the SMEs, 
the focus should be on fee mitigation. Currently, DDTC 
registration fees range from $2,250 to $2,750 depending on the 
number of license applications or requests for authorizations 
during a 12 month period. SMEs could be considered for some 
kind of fee remediation.

    Both DDTC and BIS should create new SME-dedicated portals 
on their respective websites that would provide useful 
compliance information and templates geared to the needs of the 
small business exporter.

    And DDTC and BIS should issue guidance on the changes 
needed in the Foreign Military Sales, FMS, Program to promote 
the objectives of the ECR Initiative. FMS activity remains 
under the jurisdiction of the Department of State; however, 
associated parts and components have been transitioned over to 
the jurisdiction of the Commerce Department. Guidance is needed 
as to the conflicting jurisdictional authorities and licenses 
are still required for the re-export or transfer of parts, 
components and related items related to decades-old aircraft 
such as the C-130. Many SME aircraft parts and components are 
being disadvantaged by the current licensing requirements.

    Any progress in reducing the licensing burden and in 
simplifying forms and procedures will be especially welcomed by 
SMEs. In this regard DDTC and BIS need to establish a single 
entry portal and a single form for use with electronic 
interface through which all license applications can be 
submitted and redirected to the appropriate agency. Further 
reductions need to be made in the number of licenses for items 
remaining on the U.S. Munitions List, particularly for those 
items being exported to U.S. allies and partners for the 
replacement or repair of parts and components supporting U.S. 
government activities abroad.

    Thank you for your attention and I look forward to 
answering any questions you might have.
                      Dr. Gregory Quarles

                        Chief Scientist

                      The Optical Society

                           Testimony

         Subcommittee on Agriculture, Energy, and Trade

               House Committee on Small Business

                       February 10, 2016

    Chairman Curbelo, Ranking Member Meng, and members of the 
committee, thank you for allowing me to testify before you 
today on the challenges that export control reform poses for 
America's small businesses. My name is Dr. Gregory Quarles, 
Chief Scientist for The Optical Society (OSA). I have also 
served as a CEO and COO of two small businesses and served on 8 
corporate and non-profit boards. Among my research and business 
pursuits has been the development of new optical components and 
laser devices for medical, military and industrial 
applications.

    With 95 percent of the world's consumers living abroad, and 
nearly three quarters of the world's purchasing power being 
leveraged by nations outside the United States, it is vital 
that American small businesses be afforded equal footing to 
compete in the global arena to effectively ensure continued 
growth for the U.S. economy. The Optical Society stands ready 
to partner with the federal government to assist small business 
to export more U.S. manufactured products abroad.

    I will explain the three primary areas of concern impacting 
Small Businesses from Export Control Regulations which 
regulates optics and photonics technologies, such as lasers, 
infrared imaging systems, electro-optic subsystems, optical 
material accessories, and partnerships with global partners 
which might involve the exchange of technical data. These are: 
Impact on time to market for regulated products and components, 
cost of compliance, and the need to enhance government export 
assistance resources, particularly for small businesses.

    The Optical Society is the leading professional 
organization for scientists, engineers, students and 
entrepreneurs who fuel discoveries, shape real-life 
applications and accelerate achievements in the science of 
light. Through world-reowned publications, meetings and 
membership initiatives, OSA provides quality research, 
networking opportunities and dedicated resources for its 
extensive global network of optics and photonics experts. 
Optics and photonics are highly specialized fields of physics 
and engineering known as the ``science of light,'' which makes 
possible everything from life-saving medical imaging devices 
and solar energy to high-speed Internet connections, computer 
chips and Light Emitting Diodes, to lasers for military and 
commercial applications. Globally, optics and photonics annual 
revenues amount to more than $400 billion according to an 
analysis by OSA Industry Development Associates. In short, 
optics and photonics are essential to solving problems, 
enabling innovation, facilitating economic growth and improving 
lives.

    2016 marks an especially important year for The Optical 
Society and optics. It is our 100th anniversary. Originally 
founded in Rochester, New York with 10 scientists from industry 
and academia, OSA now spans 177 countries and brings together 
more than 19,000 individual members and more than 250 U.S. 
corporate members--from global organizations like IBM 
Corporation to manufacturers like Optimax in Rochester, New 
York, or Bechman Coulter, Inc. in Miami, Florida.

    Over 90 percent of The Optical Society's corporate members 
are small businesses that look to OSA to be their voice on 
issues, such as International Traffic in Arms Regulations 
(ITAR) that could adversely affect their ability to sell 
products aboard.

    Related to the small business technology companies that The 
Optical Society represents, we believe that the U.S. government 
needs to conduct more educational outreach to potential 
exporting small business industry sectors on export control 
compliance and licensing requirements. Small companies, start-
up companies--those without in-house in-depth export compliance 
expertise--are often challenged to sell export controlled 
products outside of the United States. U.S. small business 
companies at times due to the expense and complexity of export 
licensing decide against exporting. This issue needs to be 
addressed. The Optical Society is committed to work with the 
U.S. government on this endeavor.

    The Optical Society (OSA) also wants to share with the 
committee the impact of export control on small business, 
related to the pending revisions in the ITAR, U.S. Munitions 
List (USML) Category XII, proposed under the Obama 
Administration's Export Control Reform (ECR) initiative. 
Category XII rules regulate export control compliance for 
optical and photonic-enabled devices. Even though these broad 
ECR changes have been ongoing since 2009, the final category 
for amending, Category XII, was saved for last due to its 
critical nature, overall complexity, and broad impact. 
Recognizing the potential negative impact on not only our 
members but the industry as a whole, we have partnered with two 
other groups, the Semiconductor Industry Association and SPIE, 
in educating Congress about the negative impacts on business 
and the optics industry.

    Category XII revisions cover many of the commercially 
developed and manufactured optical and photonic components, as 
well as the potential impact of changes that extend to the 
three main constituents of The Optical Society, that being 
academia, industry and government researchers. Industry with an 
emphasis on small business and academia will need to be 
educated by government regulating agencies on the final rule 
changes to Category XII.

    I have had the opportunity to speak with several leaders 
from the optics and photonics industry leading up to this 
Subcommittee Hearing. I have found their input to be 
enlightening, and paralleling much of my experience in research 
and development and the production of optical and photonics 
commodities and components. As scientists and business leaders, 
many of us are also familiar with U.S. government export 
control regulations related to selling controlled products 
abroad and the ability to recruit international students for 
research endeavors that may be affected by export control 
regulations. The input shared by these OSA colleagues has been 
a well-defined path of obtaining their graduate degrees and 
opening a start-up or going to work in an industrial lab. Then, 
as they develop products for their customers, they are met with 
the requirement to review multiple export control requirements 
before shipping, which can sometimes lead to canceled sales.

    Allow me to delve more deeply into the first major impact--
compliance causes delays, which can mean lost revenue 
opportunities.

    Generating Revenue/Time to Market:

    Compliance with Export Control regulations for products and 
components that are available from non-U.S. vendors adds time 
to the sales process--making U.S. businesses less competitive 
and impairing U.S. industry growth.

    As all business development managers dealing with overseas 
sales will share, there are three critical components to 
booking a sale: price, lead-time, and ability to deliver (and 
receive an export license if necessary). One of the frustrating 
aspects with developing Intellectual Property and then trying 
to sell a product globally is the uncertainty of export 
licenses being approved and the lead-time involved. Many times 
a company will quote a product to a customer, with the caveat 
that they will deliver in 60 days, IF an export license is 
granted. After speaking with two colleagues in New York that 
routinely sell the same product, multiple times annually to 
repeat customers, the lead time for these licenses is averaging 
between 30-60 days for both Commerce Department Bureau of 
Industry and Security licensing for duel use technology exports 
and the Department of State Directorate of Defense Trade 
Controls on military technology export licensing.

    The result? Foreign competitors can use this seemingly 
brief window of time as an opportunity to undercut a sale and 
win business from U.S. companies--regardless of product quality 
and in some instances price. It may be cliche, but time is 
money and U.S. businesses lose when regulatory compliance 
increases the time to purchase for the buyer.

    When U.S. small businesses are competing with U.S. 
companies that have relocated subsidiaries overseas or with 
foreign entities that are not restricted by U.S. government 
export control regulations, there is a strong probability that 
you cannot even compete for these orders. Many foreign 
corporate competitors advertise products as being ``ITAR-free'' 
or ``non-ITAR'' meaning purchase from a U.S. export control 
regulated company and you will have delay times or 
cancellations in securing your needed product. Many prospective 
buyers from outside of the U.S. will not even ask for a quote 
when they learn about the delay or uncertainty in obtaining an 
export license. U.S. businesses aren't competitive.

    Delay time in securing export control licenses has a 
greater impact on small companies related to generating revenue 
compared to larger established U.S. companies. Delays or loss 
of foreign sales because of export control compliance 
timeliness to secure a license can equate to layoffs and or the 
small business' long-term viability to continue operations 
while foreign corporations to earn higher revenues, and 
subsequently invest these revenues back into their corporate 
research and development programs and creating the opportunity 
for more rapid growth.

    Further, the lack of U.S. growth can affect the research 
enterprise by discouraging bright young scholars from pursing 
science and technology degrees. This leads to a shortage of 
qualified applicants for the high paying, high technology jobs. 
The final part of this negative cycle is that if U.S. companies 
developing these state-of-the-art technologies cannot achieve 
growth in their sales globally due to export control, then 
investment, by individuals or the corporations themselves, will 
diminish, leading to a decreasing opportunity to generate 
technology-based revenues sufficient to sustain operations.

    Cost of U.S. Government Export Control Compliance:

    Compliance is a necessary cost of doing business. However, 
it shouldn't be burdensome for small businesses.

    A study by N.V. Crain and W.M. Crain of Lafayette College 
for the Small Business Administration summarized the compliance 
cost very well--it is essentially a ``fixed-cost'' regardless 
of the size of the company. Their comparisons were for 
companies ranging from five employees to 500 employees Large 
corporations see a lower cost per employee, and the cost per 
employee in small business are 36 per cent higher than those in 
companies greater than 500 employees. Thus, small businesses 
face a substantial cost disadvantage when having to deal with 
export compliance regulations and fees when compared to their 
larger counterparts. The industrial sector of The Optical 
Society membership base is particularly concerned with the loss 
of potential revenue due to limitations to freely sell 
technologies that are sold as dual-use in open markets by many 
of our allies globally.

    I can also speak from my prior experiences as CEO of a 
laser and opto-electronic corporation, which was a small 
business selling products that were export controlled by 
Commerce Department Bureau of Industry and Security licensing 
for duel use technology exports and the Department of State 
Directorate of Defense Trade Controls of USML/ITAR regulated 
licensing. The cost annually for personnel just to manage the 
compliance and export control team, exceeded $500,000 annually. 
This excludes the cost for outside legal counsel and 
consultants for pursuit of problematic Technology Assistance 
Agreements (TAAs) or license challenges. The TAAs are the 
``rules'' for working with international students and 
colleagues on export-controlled products. However, these rules 
limit collaboration and can often create confusion.

    But what choice do business owners have? Spend tens of 
thousands of dollars on experts or risk fines of a million plus 
dollars--or even jail time? Regulations make it costly to 
compete. While discussing the impact of export control, I must 
also weigh in on behalf of the academic community, which makes 
up nearly 60 percent of the membership at The Optical Society. 
Export Control has been put into place to protect only the 
technology, but national security, which should enhance the 
safety and position of the United States globally. However, 
restrictions as such are inconsistent with many mission 
statements for universities. The university experience is 
fundamental to provide a learning environment for all students, 
staff and faculty members where they are afforded the 
opportunity to pursue open inquiries, examine critically, and 
carry out research and teaching in an unrestricted environment. 
In the optics and photonics fields, that can be a challenge if 
a professor feels restricted by export control regulations that 
force them to limit interactions with non-U.S. citizen 
scientists and graduate students, or potentially face the 
threat of personal liability for possible violations.

    Stregthening Government Export Assistance Resources 
(emphasis small business companies):

    Regulations are an important part of ensuring sensitive 
technology does not harm our national security or limit U.S. 
competitiveness. However, the U.S. Government must provide the 
resources for small businesses to comply without burdensome 
expense.

    An evaluation of surveys jointly conducted in 2010 and 2013 
by the National Small Business Association (NSBA) and the Small 
Business Exporters Association (SBEA) indicates a sharp decline 
in the level of interaction U.S. small business exporters had 
with Small Business Administration (SBA) operated Export 
Assistance Centers. The surveys show that between 2010 and 
2013, awareness of SBA Export Assistance Centers among small 
U.S. exporters declined from 18 percent to 15 percent. Fewer 
than one in five businesses are aware of export assistance.

    Furthermore, the surveys found that while in 2010, 26 
percent of small U.S. exporters had taken advantage of a U.S. 
located Export Assistance Center, in 2013, the amount of small 
U.S. exporters claiming to have been advantaged by an 
assistance center fell to a mere 10 percent.

    The Optical Society acknowledges and applauds the cross-
agency coordinated initiatives the Administration has set forth 
to assist small businesses offset the complexities of export 
compliance. While these services demonstrate the government's 
vested interest in supporting U.S. businesses, there remains 
opportunity to ensure resources are made aware and directly 
available to U.S. small businesses.

    Analysis of the impact of Export Control on Small Business 
should also include suggestions for areas where the government 
can assist or provide resources, especially with the proposed 
changes forthcoming. The SBA has already established 103 Export 
Assistance Centers across 48 states. This is a good start, but 
more needs to be done. As shared by The Optical Society 
companies that I spoke with, this is an excellent resource for 
small business to start learning the basic requirements for 
export control compliance. These centers primarily have general 
knowledge in the Department of Commerce regulations.

    However, numerous Optical Society members did reference 
that their local centers would search for Department of State 
and USML/ITAR general experts outside of the Export Assistance 
Center office for referrals. Most of the input stated that 
these employees were good for assisting beginners and novices, 
but detailed challenges were likely beyond their knowledge 
base. In order to engage highly qualified subject matter 
experts, it typically requires that a company create small 
businesses export control department or hire multiple 
consultants to help them navigate the challenges of export 
compliance. Either scenario is expensive and prohibitively so 
for many small businesses that could otherwise export their 
product overseas.

    This is not an inexpensive path, nor is it guaranteed to 
win sales in the global market. It would be useful if those 
responsible for CCL/USML/ITAR regulations would establish and 
employ experts at these EACs to assist small businesses with 
their questions and education as they attempt to navigate the 
export control pathway. This seems to be a deficiency that 
causes some small businesses to shy away from manufacturing 
ITAR-controlled technologies utilizing optics and photonics.

    Finally, with the upcoming export control rule changes to 
be finalized ITAR, U.S. Munitions List (USML) Category XII, we 
can expect massive confusion that will undoubtedly follow these 
rules changes being announced. It would be very proactive for 
the Department of Commerce, State and local Export Assistance 
Centers to start working with their various constituents to 
schedule seminars to highlight the changes, make clear the new 
definitions, and educate both university and industrial 
compliance officers on the nuances of the new regulations, 
There will obviously be an expense associated with this, but 
the investment into being proactive could infuse a confidence 
in these high-tech based small businesses to expand their 
revenues and pursue global sales with less fears and confusion.

    Conclusion:

    As Export Reform takes place, these reforms simplifying the 
regulatory process will allow small businesses and industry to 
comply with negative impact on their competitiveness globally. 
Also, the U.S. Government should strengthen its export 
assistance resources, particularly for small businesses.

    Outreach and education will be required to increase the 
awareness of end-users, manufacturers, and compliance officers, 
and to prevent a drastic rise in export control violations. 
Providing low-cost or free webinars, training, and continuous 
education to compliance officers, at both universities and for 
small businesses likely will help to minimize future 
violations, especially with upcoming changes to the regulating 
licensing requirements for dual use and ITAR/USML compliance. 
The Optical Society is committed to partnering with the federal 
government related to export control education and outreach 
with U.S. industry in the photonics and optics markets.

    On behalf of The Optical Society and the membership that we 
represent, thank you for the opportunity to testify today.

    References:

          (1) Private communications, OSA member survey--with 8 
        CEO's, scientists, business development directors, and 
        export compliance directors at companies that are in 
        the optics and photonics fields.

          (2) Obama Administration ECR Revisions--http://
        www.export.gov/ecr/
        eg--main--047329.asp (October 22, 
        2012)

          (3) Brotherton, S. Beyond reach? How to develop ITAR-
        free systems--http://worldcr.com/wp-content/uploads/
        2012/07/ITAR-download-article.pdf (March 1, 2011)

          (4) U.S. Space Industry ``Deep Dive'' Assessment: 
        Impact of the U.S. Export Controls on the Space 
        Industrial Base--US Dept. of Commerce, Bureau of 
        Industry and Security (2014).

          (5) The Impact of Regulatory Costs on Small Firms, 
        N.V. Crain and W.M. Crain, for the SBA Office of 
        Advocacy, contract # SBAHQ-08-M-0466 (2010).

          (6) The Key Elements of an Effective OFAC Compliance 
        Program, by Export Compliance Solutions (2015): (http:/
        /exportcompliancesolutions.com/blog/2015/12/07/the-key-
        elements-of-an-effective-ofac-compliance-program).

          (7) Holsinger, D. For New Exporters: How ITAR/EAR 
        Could Impact your Business--htpp://content.piers.com/
        blog/itar-for-the-new-exporter (January 24, 2014)

          (8) Dwyer, Morgan, Gwen Gettliffe, Whitney Lohmeyer, 
        Annie Marinan, Erik Stockham, Annalisa Weigel, and 
        Kerri Cahoy ``The Global Impact of ITAR on the For-
        Profit and Non-Profit Space Communities.'' 25th 
        Symposium on Space Policy, Regulations and Economics, 
        IAC-12. International Astronautical Federation, 2012. 
        URI: http://hdl.handle.net/1721.1/80837.

          (9) National Small Business Association (NSBA) and 
        Small Business Exporters Association (SBEA), 2010 Small 
        Business Exporting Survey, 2010, pp. 4 and 7, at http:/
        /www.nsba.biz/docs/
        2010--small--business--
        exporting--survey--001.pdf; and 
        2013 Small Business Exporting Survey, 2013, pp. 5 and 
        6, at http://www.nsba.biz/wp-content/uploads/2013/06/
        Exporting-Survey-2013.pdf

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