Balancing the National Interest U.S. National Security Export Controls and Global Economic Competition (1987) / Chapter Skim
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Appendix D: Estimate of Direct Economic Costs Associated with U.S. National Security Controls
Appendix D: Estimate of Direct Economic Costs Associated with U.S. National Security Controls
Pages 254-277
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From page 254... ...
FINAN Quick, Finan & Associates The following is a report submitted to the Panel on the Impact of National Security Controls on International Technology Transfer of the Committee on Science, Engineering, and Public Policy of the National Academy complex. The principal investigator was Dr.
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foreign sales of manufactured products (which includes U.S. exports and products manufactured abroad by U.S.
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From page 256... ...
a judgment that the effects were likely to be second-order in nature. To repeat, the cost estimate we present covers only a subset of the potential economic costs namely, short-term, direct revenue losses and associated employment loss.
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When the distribution of benefits is combined with the distribution of competitive costs, the conclusion emerges that the economic costs of U.S. export controls are greatest for exports of items of low and medium levels of criticality, while U.S.
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From page 258... ...
foreign sales were covered by U.S. export controls in 1985 a value that is at the low end of the range as explained in the annex entitled "Calculation of Economic Costs." It is likely that broadening the scope to include foreign firms would increase severalfold the figure for the economic activity influenced by U.S.
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From page 259... ...
The segment of trade covered by national security controls also must be split into subcategories to reflect the fact that the types of validated licenses used for national security purposes have differential effects on business activity. This breakdown, however, is kept somewhat simplified by showing only two validated license categones: bulk licenses (pnncipally the distribution license)
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This figure summarizes a crucial point regarding the likely distribution of competitive costs and security benefits: As the level of "military" criticality increases, competitive costs fall, 8 while the security benefits of controls increase. To explain this conclusion, several essential concepts useful to characterizing the export control process must first be defined.
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To conclude, security benefits are not uniformly distributed across all levels of criticality but rather are concentrated in the region of highly critical technology and/or products. The relationship between the economic costs associated with export control compliance and level of criticality can now be examined.
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1985 GNP would be $17.1 billion.~3 In evaluating the economic cost estimates presented in Table D-3, it is useful to keep in mind both the framework developed earlier in this report (see the section entitled "Scope of U.S. Foreign Sales Covered By Validated
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From page 266... ...
Licensing") and the qualitative assessment presented in Figure D-6, because, even though only a single overall cost estimate is presented, the costs of export controls vary considerably across the different combinations of level of criticality and destination.
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. (Because many firms using bulk licenses reported they do not take the trouble to reclassify their low-technology items below the AEN level out of the licensing system, this assumption probably overstates the average level of technology supplied under bulk licenses.)
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SOURCE: Based on the sample of individual validated licenses. See Appendix E, "Analysis of the Erects of Export Controls," vol.
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foreign sales by destination for the major product categories associated with use of a U.S. validated license.
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Direct Exports and Foreign Affiliates in 1982a (in billions of dollars) Total Foreign Exports to Exports to Total Destination Shiest AffiliatesC Nonaffiliates Exports Canada 12.6 3.6 3.0 6.6 Other CoCom countries 60.8 4.5 10.6 15.1 Other Western nations 27.1 3.6 14.3 17.9 15 Western countries 6.3 0.6 2.3 2.9 TOTAL 106.8 12.3 30.2 42.5 aAdjusted to a 1985 basis, the total estimate increases from $42.5 billion to $51 billion.
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From page 271... ...
To obtain lost sales estimates for the other destination categories (15 Western countries and other Western nations) , the 10 percent rate of lost sales was scaled relative to the other-CoCom-countries level using the qualitative factors contained in Table D-2.
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From page 272... ...
In West-West trade, most of the economic impact associated with U.S. export controls fell on license-related foreign sales; for trade with the bloc, however, our qualitative assessment suggests that the self-licensed segment was the area for which the value of lost sales was more significant.
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We assumed that the other CoCom countries had only half the proportion of trade covered by license. Because this is a global average, however, it may understate the volume of trade under validated license to the bloc.)
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From page 274... ...
firms would have captured an additional 10 percent of the licensed trade, then the lost sales figure would be $0.1 billion. We used the estimate for the self-licensed segment because, as indicated earlier, the qualitative appraisal is that the economic impact falls mainly on the self-licensed segment.
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Low-criticality items fall within CoCom national discretion (AEN) levels; medium criticality includes all items above the AEN level but below the distribution license level.
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But, although the administrative cost per transaction is high, the total cost, which includes competitive costs, is low in relation to low-level technology items since the number of transactions is only about 15 percent of total licensed transactions. See "Analysis of the Effects of Export Controls," vol.
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From page 277... ...
distribution license trade coverage and $4 billion for trade under other types of bulk licenses. The estimated coverage of $42 to $56 billion for bulk licenses presented in the earlier report to the panel refers to both U.S.
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