[Senate Hearing 106-596] [From the U.S. Government Publishing Office] S. Hrg. 106-596 EXPORT CONTROL IMPLEMENTATION ISSUES WITH RESPECT TO HIGH-PERFORMANCE COMPUTERS ======================================================================= HEARING BEFORE THE COMMITTEE ON GOVERNMENTAL AFFAIRS UNITED STATES SENATE ONE HUNDRED SIXTH CONGRESS SECOND SESSION __________ MAY 26, 2000 __________ Printed for the use of the Committee on Governmental Affairs _______________________________________________________________________ For sale by the Superintendent of Documents, Congressional Sales Office U.S. Government Printing Office, Washington, DC 20402 U.S. GOVERNMENT PRINTING OFFICE 65-171 cc WASHINGTON : 2000 COMMITTEE ON GOVERNMENTAL AFFAIRS FRED THOMPSON, Tennessee, Chairman WILLIAM V. ROTH, Jr., Delaware JOSEPH I. LIEBERMAN, Connecticut TED STEVENS, Alaska CARL LEVIN, Michigan SUSAN M. COLLINS, Maine DANIEL K. AKAKA, Hawaii GEORGE V. VOINOVICH, Ohio RICHARD J. DURBIN, Illinois PETE V. DOMENICI, New Mexico ROBERT G. TORRICELLI, New Jersey THAD COCHRAN, Mississippi MAX CLELAND, Georgia ARLEN SPECTER, Pennsylvania JOHN EDWARDS, North Carolina JUDD GREGG, New Hampshire Hannah S. Sistare, Staff Director and Counsel Christopher A. Ford, Chief Investigative Counsel Mark T. Esper, Professional Staff Member Joyce A. Rechtschaffen, Minority Staff Director and Counsel Laurie Rubenstein, Minority Chief Counsel Darla D. Cassell, Administrative Clerk C O N T E N T S ------ Opening statements: Page Senator Thompson............................................. 1 Senator Lieberman............................................ 3 Prepared statement: Senator Akaka................................................ 39 Witnesses Friday, May 26, 2000 Harold J. Johnson, Associate Director, International Relations and Trade Issues, National Security and International Affairs Division, U.S. General Accounting Office....................... 4 Robert J. Lieberman, Assistant Inspector General for Auditing, Office of the Inspector General, U.S. Department of Defense.... 6 Gary Milhollin, Director, Wisconsin Project on Nuclear Arms Control........................................................ 8 Dan Hoydysh, Co-Chair, Computer Coalition for Responsible Exports 11 Alphabetical List of Witnesses Hoydysh, Dan: Testimony.................................................... 11 Prepared statement........................................... 102 Johnson, Harold J.: Testimony.................................................... 4 Prepared statement with an attachment........................ 40 Lieberman, Robert J.: Testimony.................................................... 6 Prepared statement........................................... 57 Milhollin, Gary: Testimony.................................................... 8 Prepared statement with attachments.......................... 76 Appendix Insert for the Record: Response from Mr. Johnson to Senator Lieberman's Question........................................... 119 Responses to Questions for the Record submitted by Senator Akaka: From Mr. Johnson............................................. 121 From Mr. Milhollin........................................... 122 From Mr. Hoydysh............................................. 123 EXPORT CONTROL IMPLEMENTATION ISSUES WITH RESPECT TO HIGH-PERFORMANCE COMPUTERS ---------- FRIDAY, MAY 26, 2000 U.S. Senate, Committee on Governmental Affairs, Washington, DC. The Committee met, pursuant the notice, at 10:09 a.m., in room SD-342, Dirksen Senate Office Building, Hon. Fred Thompson, Chairman of the Committee, presiding. Present: Senators Thompson and Lieberman. OPENING STATEMENT OF CHAIRMAN THOMPSON Chairman Thompson. The Committee will come to order, please. I welcome everybody to this hearing of the Committee on Governmental Affairs. Today we are holding a hearing on export control implementation issues with respect to high-performance computers. High-performance computers represent a special challenge for our export control regime, because in many ways they are the king of dual-use technologies; that is, technologies that are subject to national security export controls because they are easily usable for important civilian purposes as well as dangerous military purposes. High speed computing, of course, is vital to today's knowledge-based economy. Unfortunately, however, as the Cox Report reminded us, powerful computers are also vital to such things as nuclear weapons development, the design and testing of ballistic missiles and advanced conventional weapons, intelligence analysis, code-breaking, military command and control, and cutting-edge warfare applications, such as computer network attack. This is why high performance computer export control issues are so important. We have to find an appropriate balance between promoting commerce and protecting our national security through export controls. If we get it wrong, however, we either strangle a crucial sector of our information-age economy or we help potential adversaries prepare to defeat our military forces in the field, hold our cities hostage to weapons of mass destruction, or cripple our government and economy through information warfare. The debate over high-performance computer export controls is particularly important in the Senate this year because of two pieces of pending legislation that affect this balance between commerce and security. First is the Banking Committee's proposed reauthorization of the Export Administration Act, which appeared briefly on the Senate floor in March. Of most direct relevance to computer export controls, this bill would have written categories of ``foreign availability'' and ``mass-market'' status into the U.S. export control law. That law would require that any control items meeting these definitions--mass-marketing, foreign availability--be made available for export without a license to essentially anyone in the world. The second pending piece of legislation is a proposal to shorten the current 180-day period which Congress has in order to review administration decisions to decontrol computers at certain performance levels--which are usually measured in terms of MTOPS, or millions of theoretical operations per second. Both pieces of legislation are supported by U.S. computer exporters, but both have also raised serious concerns in the minds of officials concerned with ensuring that our national security export controls really do protect national security. Our discussions today about high-performance computer export controls will help inform the Senate's consideration of this and other legislation. So I hope our discussions will help illuminate a number of subjects today, but there are a few that I think are particularly important. First, is it possible, clearly and objectively, to make the kind of foreign availability and mass- market status determinations that the computer industry wants to make the basis of removing controls on many high-performance computers? Second, according to what criteria have decisions to decontrol high-performance computers been made in the past, and how sound has their analysis been? Third, even if coherent and objective foreign availability and mass-market status determinations are possible, who should make them? Should this be left to the unilateral discretion of the Department of Commerce, or should our national security community, such as the Defense Department, have to agree to decisions to remove export controls of high-performance computers? Fourth, if foreign availability and mass-market status decisions are inherently subjective, and especially if they are left solely in the hands of the Commerce Department, is it wise to reduce the congressional review period for such determinations? At what point would a shortened review period effectively eliminate congressional oversight of these decisions? Fifth, how important are high-performance computer controls to problematic Tier III countries, such as China, to the U.S. computer industry? Does requiring licenses for these sales hurt our industry, given that the major industrialized countries are subject to no high-performance computer licensing requirements and most other countries are subject to restrictions only at much higher levels of computing power? Sixth and finally, what affect would institutionalizing the concepts of foreign availability and mass-market decontrols have upon other controlled technologies? What additional technologies would we have to make available without a license if we wrote these criteria into our export control laws? This Committee has been closely involved with non- proliferation policy and export controls issues for many years. Senator Cochran's Subcommittee has also done excellent work in this field in recent years. I look forward to hearing our testimony from four distinguished witnesses today who can help shed light on these and related export control issues as we continue our Committee's involvement with these important national security matters in the future. Senator Lieberman. OPENING STATEMENT OF SENATOR LIEBERMAN Senator Lieberman. Thanks very much, Mr. Chairman, for calling this hearing today, which is another in a series that we have been holding over the past couple of years on the subject of export controls. As you have indicated, at issue here is how we in the Congress can balance our desire for the high-tech industry to remain healthy and robust against the risks of allowing potential adversaries access to technologies they may use against us. Every time we visit this issue, I am struck, as I know most of us are, by the paradoxes of the age in which we live, which are, I suppose, common to all ages of innovation, but particularly this one, where innovation is occurring so broadly and rapidly. On the one hand, technological innovation has significantly improved our lives, of course, by revolutionizing how we communicate and how we live, speeding up the transaction of business and broadening the information, education and entertain options available to us and our children. Innovations that most of us could not literally have conceived of a generation ago have fundamentally changed our lives, and we are now so immune or so perhaps numbed by the pace of change that the remarkable and stunning very quickly becomes commonplace, even taken for granted. On the other hand, the precise factors that have improved our lives have also exposed us to new dangers, because however great technology's promise for good, the risk that it will be used for harm is also great, and we have seen this powerfully and painfully in the century just concluded. This dichotomy is manifestly apparent with respect to high- performance computers. Levels of performance once powerful enough to qualify a product as a supercomputer now reside on top of our desks, indeed, in our children's PLAY STATIONS. Yet the same power that has transformed our daily lives for the better also has potentially dangerous military applications. So dealing with this paradox in the context of export controls on high-performance computers is particularly complicated and important, because not only does the technology change at head-spinning speeds, it is disseminated at head- spinning speeds. The difficult question before us in Congress this year, posed specifically in the legislation that Senator Thompson referred to, is whether we can find the appropriate balance between economic and technological dynamism and national security. Mr. Chairman, these are extraordinarily important questions. They are of great consequence to our lives, to our living, and to our national security, and I look forward to hearing today's witnesses and talking with them in the hope that we can shed some light on these issues. I should say by way of disclaimer at the outset, protecting one of the witnesses, that I do not now, nor have I, to the best of our knowledge, ever been related to Robert Lieberman. Chairman Thompson. I am sure he appreciates that statement. [Laughter.] Senator Lieberman. He does. I wanted to clear his name here at the outset. He is not accountable for anything I have said or may say here today, but I welcome him and the other witnesses. Chairman Thompson. Well, we welcome all of our witnesses today. We have some excellent ones: Harold Johnson, Associate Director, International Relations and Trade Issues, National Security and International Affairs Division of the GAO. Mr. Johnson, do you have a statement you care to make? TESTIMONY OF HAROLD J. JOHNSON,\1\ ASSOCIATE DIRECTOR, INTERNATIONAL RELATIONS AND TRADE ISSUES, NATIONAL SECURITY AND INTERNATIONAL AFFAIRS DIVISION, U.S. GENERAL ACCOUNTING OFFICE Mr. Johnson. Yes, I do, sir. --------------------------------------------------------------------------- \1\ The prepared statement of Mr. Johnson with an attachment appears in the Appendix on page 40. --------------------------------------------------------------------------- I am pleased to be here today to participate in this hearing. My testimony is based on work that we have completed over the last approximately 3 years. We have issued several reports. We are currently doing some work for the Senate Armed Services Committee. That work is in progress, so for the most part, I will not be discussing that, but will rely on work that we have completed. You have my prepared statement, so I would like to summarize just briefly a few points that are included in that. One deals with our concern that the Executive Branch has not fully assessed the national security risk associated with the export of high-performance computers. Second, I want to talk about how the Executive Branch has determined that export of computers at existing performance levels can no longer be controlled. And, finally, a few observations on post-shipment verification. Both you and Senator Lieberman have mentioned the balance that we attempt to strike between our commercial interests and our national security interests, and I will not comment further on that, although one of the underlying problems that we see in trying to achieve this balance and manage the risks associated with export of high-performance computers is that the Executive Branch really has not clearly articulated the specific national security interest it is trying to protect at various computer performance levels, nor has it stated how countries of concern could benefit from using such computers. We believe that without a clear analysis and explanation of the national security interest in controlling the export of high-performance computers, the U.S. Government really cannot determine what militarily critical computer applications need to be controlled or, second, the most effective way of implementing such export controls. If such an analysis was made, it might lead to a conclusion that the current reliance on MTOPS as the sole measure of computer sensitivity would no longer be appropriate. Indeed, with the rapid changes in computing architecture and the growth of what is called distributed computing, new approaches may be necessary to protect the national security interests in limiting potential adversaries' use of these machines in their research and development programs and in their deployed weapons systems. In this regard, our September, 1998 report had recommended that the Secretary of Defense make such an assessment of the national security threat and proliferation impacts of high- performance computers to countries of national security concern. We thought that, at a minimum, the assessment should state how and at what performance levels countries of concern use computers for military modernization and proliferation activities, and second, what impact such uses have on our national security interests. I would like to point out that a critical analysis of the national security applications of concern may lead to conclusions that are very different regarding the export control levels that are currently in place. Indeed, the Executive Branch may conclude that significant national security concerns involve computer performance levels that are at even higher levels than are currently controlled, but that analysis simply has not been done, so we do not know that. Despite not having done the national security analysis, the Executive Branch has relaxed export controls on computers four times since 1993 because it believed that machines at the previously approved levels had become so widely available on the market that their export was uncontrollable, and we fully acknowledge that the computer technology has grown exponentially. There is no doubt about that. However, it has not been possible for us to adequately assess the administration's justification for relaxing high- performance computer control levels, because the term ``widely available'' and ``uncontrollable,'' used in explaining the policy change, has not been defined. Commerce has recently defined controllability, and that definition includes the criterion of volume of sales. Nonetheless, the Executive Branch has relaxed controls based on anticipated, not actual, sales. The Executive Branch established new computer control thresholds based on the technical performance ratings of those processors the computer manufacturers said would be in their next mass-produced processor and on the estimated dates that they would be introduced in the market, rather than on actual volume of sales. For example, the control levels for Tier III countries announced by the President in July of last year roughly match the expected performance levels of computers using four and eight Intel Pentium processors that are expected to be on the market in July of this year. Last November, we reported on changes in export computer control levels the President announced in July. We found that the administration's conclusion was correct, that the capabilities of high- performance computers and related components, from both domestic and foreign sources, are generally increasing. This conclusion was supported by evidence that they presented in a report; however, it was true in part because the United States does not generally control the export of computer processor components. Most sources of this supply are U.S. companies. Our earlier 1998 review showed that subsidiaries of U.S. computer manufacturers dominate the overseas high-performance computer market, but they must comply with U.S. controls. A 1998 study, sponsored by DOD and Commerce, similarly found that the United States had dominated the international computer market, at least in the mid- and high-range performance categories. Under current regulations, computer processors that perform up to 3,500 MTOPS can be directly exported to civilian end users in many Tier III countries, including China and Russia, and exports of these processors to users in other Tier III countries, such as Israel and Saudi Arabia, are not subject to any MTOPS levels that require a license. Exports of other key components for systems with four and eight processors are also generally not controlled, and these parts can be shipped to Tier III countries for civilian end users who can then use them to assemble computers. Just a brief comment on the government's end-use monitoring through post-shipment verifications. While post-shipment verifications are important in detecting and deterring physical diversion of computers, they simply do not verify computer end use. According to Department of Energy officials, it is quite easy to conceal how a computer is being used, and although it is possible to verify how a computer is being used by reviewing the internal operations of computer data, this is very costly and intrusive and requires some very sophisticated computer analysis. With that, I will conclude my summary and be prepared to respond. Chairman Thompson. Thank you very much. Our next witness will be Robert Lieberman, Assistant Inspector General for Audits, U.S. Department of Defense. Mr. Lieberman. TESTIMONY OF ROBERT J. LIEBERMAN,\1\ ASSISTANT INSPECTOR GENERAL FOR AUDITING, OFFICE OF THE INSPECTOR GENERAL, U.S. DEPARTMENT OF DEFENSE Mr. Lieberman. Thank you, Mr. Chairman. I appreciate the opportunity to be here this morning. In my written statement, I have attempted to recap the most important findings from recent IG reviews of the export control processes. Now I would like to highlight four factors that my office believes merit consideration in terms of new dual-use export control legislation. I want to emphasize that these views are ours and do not necessarily reflect those of other IGs or DOD managers. --------------------------------------------------------------------------- \1\ The prepared statement of Mr. Lieberman appears in the Appendix on page 57. --------------------------------------------------------------------------- First, we believe that the Export Administration Act, which expired in 1994, needs to be reenacted, rather than having the government continue to operate under the current patchwork of emergency declarations, other laws and executive orders. However, any legislation in this area is going to send very strong signals to every exporting country in the world, so it is imperative that the law be well-thought out and the entire spectrum of views here be carefully considered. Second, it is vitally important that the export license review process be properly applied. By this, I mean that it should not be easily circumvented. In accordance with that precept, I urge particular attention to formulation of the control list, commodity classification requests, determinations of foreign availability or mass-market status, and other issues bearing on licensing exemptions. I will return to those specific points in a moment. Third, we believe that all available government expertise must be brought to bear on export license application reviews. Therefore, the current requirement in Executive Order 12981 for Commerce to refer all dual-use license applications to Defense for review should be made a matter of law by including it in a new EAA. Likewise, the exporter appeal process on licensing decisions should be formalized in a new EAA and provide for participation by all interested agencies. Fourth, no program will be credible unless there are viable inter-agency dispute resolution procedures with final adjudication by the President, if necessary. We believe it is particularly important to provide statutory underpinning to the inter-agency dispute resolution process. Furthermore, we strongly recommend that a new EAA specify that this process be applicable to all inter-agency export control issues, including the composition of the control list, commodity classification determinations, licensing exemptions, etc. Returning, if I may, to safeguards against circumventing the licensing process, I would like to underscore our conclusion that the current process, wherein a DOD-developed list of militarily critical technologies is integrated into the overall control list, is working reasonably well. No official, except the President, should be able to override the determination of the Secretary of Defense that an item belongs on the control list. Similarly, it is important for the national security community to be involved in the commodity classification process, which matches a prospective export item with an export control classification number. Those determinations are extremely important because they indicate whether an item requires an export license for a given destination, and if so, whether it is licensable by Commerce or State. On pages 14 through 16 of my written statement, I describe the joint IG review finding from last year that Commerce was referring very few commodity classification cases to Defense for review. This was occurring despite current policy that requires Commerce to share with State and Defense all commodity classification requests for items or technologies specifically designed, developed, configured, adapted and modified for military application. Of thousands of requests received in a recent 3-year period, only 12 were referred by Commerce to Defense for review. This is an issue that actually bears on export controls for both dual-use and munitions items. Similarly, I would like to emphasize the need for careful controls over any process for exempting items from licensing requirements because of foreign availability or mass-market status. Again, we believe that no determination to exclude or drop an item from the control list should be possible without Defense concurrence, unless the President directs otherwise. We would not support any proposed legislative or regulatory language that would allow, for example, items that would help proliferate weapons of mass destruction to be exported without export licenses, merely on grounds that similar items are available from other sources. Finally, I think it bears noting that dual-use export license applications made up only 22 percent of the nearly 58,000 applications for export licenses received by the Federal Government last year. Most applications go through the munitions control process, and that is where the most concern about excessive delay and red tape appears to have been warranted. That concludes my statement, Mr. Chairman. Thank you again for considering our views. Chairman Thompson. Well, thank you very much. Our next witness is Gary Milhollin, Director of the Wisconsin Project on Nuclear Arms Control. Thank you for being with us. TESTIMONY OF GARY MILHOLLIN,\1\ DIRECTOR, WISCONSIN PROJECT ON NUCLEAR ARMS CONTROL Mr. Milhollin. I am pleased to testify before this distinguished Committee, Senator. In my written statement, I have requested that three items be submitted for the record. They are articles that I have recently written. I assume there is no objection to that. --------------------------------------------------------------------------- \1\ The prepared statement of Mr. Milhollin with attached articles appear in the Appendix on page 76. --------------------------------------------------------------------------- Chairman Thompson. It will be made a part of the record, without objection. Mr. Milhollin. You have requested that I discuss foreign availability and mass-market status, in particular you have asked whether these concepts are useful or not for use in export control implementation or policy. In order to respond to that question, I took five items that have been controlled for some time by the United States and our allies, and I compared the criteria for mass-market status and for foreign availability status to those items, and I have indicated in my written statement how that turns out. I believe that all five of these rather sensitive things would be decontrolled under the sweeping language that this bill contains. I am not sure that its drafters intended for this result to occur, but it is of great interest to compare the criteria, for example, to high-precision switches--these are switches that are incorporated into a nuclear weapon firing circuit. Recently, Saddam Hussein tried to obtain 120 of these switches as spare parts for kidney treatment machines. He did not get them, at least according to Siemens, from whom he ordered them, but he certainly tried. And so, what that shows you is countries like Iraq are still trying hard to procure items that are controlled, and I think if you look at the criteria and you compare it to high-precision switches, these switches would fit that definition. The bill says that if they do, the Secretary of Commerce must decontrol them. It gives him no discretion, and the same is true of many other items that we have controlled for a long time. Glass and carbon fibers are another example; these are used to make the rotors for centrifuges to enrich uranium for nuclear weapons; they are used for rocket cases; they are used for rocket nozzles; they are used for rocket nose cones; they have been controlled for a long time. We apprehended a person here who was trying to send this material to Cairo for use in a missile that the Iraqis were never successful in building. They were building it in cooperation with the Egyptians and the Argentines. If that had succeeded, then when we deployed our troops in the Gulf War, it would have been a very different scenario. If Iraq had had the kind of missile that it was building with these fibers, history would have been different. So we are not talking just in theory here about dollars and cents. We are talking about actual threats to our troops. Maraging steel is another item I looked at. Maraging steel, as well, it was one of the few materials that can make high- speed rotors for centrifuges to enrich uranium. Maraging steel is also used in missile applications. We have protected it for a long time. We apprehended a Pakistani who was trying to export this steel to Pakistan some time ago. It, too, in my judgment, would be caught by the sweeping language of this bill. The other things that I looked at were corrosion-resistant valves. Those are used to resist the corrosive material in uranium enrichment plants. Iraq and Iran, when they go the last step in building a uranium enrichment plant for nuclear weapons, will need lots of these valves. You cannot build a plant without them. That is why they are controlled for export. If this language passed in its present form, I think these would be decontrolled. High-performance computers also would fall under this category, and the reason for the presence in the bill of these concepts is because the computer industry has pushed for them to be included. I think it would be a very dangerous thing to decontrol high-performance computers just because they are made in large quantities domestically. We have always used--the United States has always used its highest-performance computers for designing nuclear weapons and for cryptography. It is reasonable to expect other countries to do the same. The Russians, after they illegally imported supercomputers from us--that is, from IBM and Silicon Graphics--announced that they were planning to use those computers to design nuclear weapons after the test ban came into effect--that is, the present moratorium on testing. So we know these items have great national security significance. To decontrol them under a vague criterion, such as mass-market status, in my opinion, would be a big mistake. The other concept that you have asked me to discuss is foreign availability. That, too, would, I think, decontrol many things that its drafters did not intend to decontrol. Just for purposes of illustration, I compared North Korean rocket motors to the criteria in the bill for foreign availability. If you look at those criteria, I think you will see that, actually, North Korean rocket motors would be decontrolled; that is, they are foreign-available under the definition in the bill. The criteria say that for something to have foreign availability status, it must be available to controlled countries from sources outside the United States. North Korean rocket motors obviously are. Lots of countries are buying them. Also under the criteria, the motors can be acquired at a price that is not excessive and they are available in sufficient quantities so that the requirement of a license or other authorization with respect to the export of such item is or would be ineffective. I do not think the drafters of this bill intended to decontrol motors, but it looks to me as if they have, and they have swept in a lot of other things, as well. I do not think that the definition of foreign availability, as now written into the bill, is really tolerable. It would require the United States to decontrol things that our allies control under regimes that the United States has built up--the missile technology control regime; nuclear suppliers group guidelines-- all the regimes that have been built through U.S. diplomacy since World War II. If we apply this language literally to the things now on the list of those regimes, our government would be required to decontrol a great many of them. This would leave our allies aghast, and it would--well, I do not want to go so far as to say it would make us into a rogue supplier, but it would certainly break our international obligations and it would give a signal to the rest of the world that we really did not care about export controls. I think the reason that the bill is so sweeping is because it has adopted a principle that really is not sustainable, and that principle is that if somebody else is doing it, we should do it, too. The United States has never followed that kind of a principle in our own actions or in our diplomacy toward other countries. I had the dubious honor of being on CNN a lot during the Gulf War, and testifying before Congress about scuds and about other things that turned out to be a big surprise to the world. One of the things I remember was the Israelis holding up pieces of scuds that they had found in the debris of destroyed buildings in Tel Aviv. They found German markings on some of those scud fragments. If you adopt the idea that our industry should be able to sell anything any other industry should sell, then you have to accept the idea that somebody is going to hold up a fragment with a U.S. marking on it. I cannot believe our industry really wants that to happen. We also should remember that a scud supplied by Russia and enhanced in range by Germany killed our troops in Saudi Arabia, sleeping in their barracks. I cannot believe that the United States would want our industry to be able to participate in the market that caused that to happen, even if it means losing sales and even if it means that the countries like Iraq, who are doing these things, can get it from somebody else. You simply cannot go down the road in which you say, ``If somebody else is going to do it, our guys should be able to do it, too,'' unless you are prepared to sustain the criticism and the shame that would result from seeing your products used to achieve the things that were achieved by Saddam Hussein. So I think that is the main problem we are getting into, is that we have these arguments that if somebody else is going to do it, we should do it. That is not a position you want to take. It would make export controls, as a practical matter, impossible in the world if everybody adopted that point of view. The last thing I would like to mention here is that in the latter portion of my testimony--other portions of my testimony refer to things that have been covered by other witnesses--in the last section of my testimony, I recommended that one of the ways around the dilemma that Senator Lieberman mentioned would be simply to use transparency; that is, if we put more light on the export control process, I think it would cause us to do a better job. It would allow our government to deny things that are dangerous and allow legitimate trade to go forward. I have attached to my testimony a proposed list that is a first step toward more transparency. I have attached a list of 50 Chinese companies that I believe, based on very reliable open-source information, are dangerous buyers for high-speed computers and for other dual-use technologies. I recommend that the Committee submit those names to the State Department for review; and if the State Department agrees that they are dangerous buyers, then they should be put on the warning list to U.S. exporters. I must say that I am glad that Dan Hoydysh is here today, because when I interviewed him for an article in The Washington Post that I wrote not too long ago about this subject, he agreed that the industry would welcome more guidance on who the bad guys are, who are dangerous buyers. I am not suggesting this list as an embargo list. I am suggesting it simply as a warning list; that if an exporter gets an order from one of these buyers, the exporter should check it out. What I am recommending is that it should trigger an export license application. I am not saying that these recipients should be denied U.S. exports. I am just saying that it merits a look if they are going to buy something that can conceivable contribute to a nuclear weapon or missile program. Thank you very much. Chairman Thompson. Thank you very much. Our last witness will be Daniel Hoydysh, Co-Chair of the Computer Coalition for Responsible Exports. Mr. Hoydysh. TESTIMONY OF DAN HOYDYSH,\1\ CO-CHAIR, COMPUTER COALITION FOR RESPONSIBLE EXPORTS Mr. Hoydysh. Thank you very much, Mr. Chairman, for the opportunity to testify on this important subject. I have submitted my full testimony and in the interest of time I would briefly summarize a few highlights. Before I get to that, I would like to make two points in response to what my good friend Gary has said. --------------------------------------------------------------------------- \1\ The prepared statement of Mr. Hoydysh appears in the Appendix on page 102. --------------------------------------------------------------------------- One, I believe that in the Export Administration Act, no decontrol is automatic. There are provisions for presidential overrides, and that is something that at least ought to be looked at carefully. Two, we do not advocate decontrolling computer exports to any of the rogue or terrorist nations. I would like to make a couple of other major points. Something often gets lost in the heat of debate is that our industry cares very deeply about national security. We are responsible citizens of the United States and would not do anything to jeopardize the security of the country in which our workers and families live. We believe, however, that our national security is directly dependent on the technological leadership of the U.S. computer industry. To maintain this leadership, we must compete in the global market and we must export. Exports equal profits. Profits are used to fund R&D, and R&D drives technological leadership. The U.S. computer industry is the world leader and we want it to stay that way. But we do have substantial foreign competition. If I accomplish nothing else in this testimony, I would like to lay to rest the myth that there is no foreign competition for the business computers that we are talking about in terms of decontrol. According to a recent report by the International Data Corporation, four of the top 10 server vendors are foreign. They include companies from Japan, Germany, and France. We are not proposing that controls on supercomputers be abolished. Again, I would like to dispel the myth that this debate, is about the export of supercomputers. We are proposing that restrictions be eased on business servers with two, four, and eight processors. These machines are the basic building blocks of the new digital Internet economy. Supercomputers, such as those used for sophisticated nuclear simulations, consist of thousands of processors. For example, in the Sandia Labs, Intel has installed a machine called the ASCII-RED, which has 9,632 processors. Recently, the French Atomic Energy Commission ordered a supercomputer from Compaq for simulation programs to ensure the reliability and safety of the French nuclear stockpile without the need to conduct new nuclear tests. The Compaq system will use 2,500 alpha processors, will take a year to install and operate roughly at 5 million MTOPS. Now that is a supercomputer. Finally, Fujitsu recently announced that it would provide the world's most powerful supercomputer to the Toyota Corporation for automobile design purposes. In its maximum configuration, this system has 512 vector processors and can operate at over five million MTOPS. And please note that this system is replacing a U.S.-made Cray supercomputer. While we do not come to praise the export control system, we certainly do not come here to bury it. We support effective export controls. However, we think the current system is broken. It is broken because it is inefficient, it is ineffective, and it is counterproductive. It is inefficient because it takes too long to process export licenses. The reviewing agencies do not have the resources, either in personnel or equipment, to do the job. It is ineffective because it is largely unilateral. Our controls are much stricter than those of our foreign competitors. It is counterproductive because it wastes government and industry resources in trying to control the uncontrollable. Therefore, efforts to police truly sensitive items are diluted, and this undermines national security. Dr. Steve Bryan, a respected expert on export control, who served in the Reagan Administration and is in large measure the architect of a lot of the systems that we have, described the current export control system best when he testified before the House Armed Services Committee last year. And I quote: ``I do not think there is any point in having an export control system that tilts at windmills. I think you have to have controls that makes sense, that can be enforced, and that protect our strategic interest.'' Another quote that is right on point in terms of evaluating the export control system is contained in this report which I recommend to the Committee, ``Final Report of the Defense Science Board and Task Force on Globalization and Security.'' The basic premise of this report is that rather than trying to restrict exports of widely available technology, we have to concentrate on trying to run faster than our adversaries. And a quote that is particularly on point here from this report, ``Protection of capabilities and technologies readily available on the world market is, at best, unhelpful to the maintenance of military dominance and, at worst, counterproductive by undermining the industry upon which U.S. military technological supremacy depends.'' So what do we need? We need to fix the export control system. We need an efficient, effective, and credible control system that reflects competitive and technological reality. In the short-term, we would like to reduce the congressional review period from 6 months to 30 days. We also need to increase control thresholds now to reflect advances in technology and competitive reality. In the long- term, we want to work with the Executive Branch and the Congress to develop an effective approach to controlling exports that fit national security concerns of the 21st Century. This would require a thorough evaluation of the threats posed to the United States in this century, the effect of globalization of markets technology and knowledge, identification of choke-point technologies and techniques for how we can run faster than our potential adversaries. Thank you very much. Chairman Thompson. Well, thank you very much. This testimony, from all of you, really lays excellent groundwork for our discussion today, and it is a classic case of two competing interests. Both of them are valid interests, but I was just thinking yesterday about what was happening here in the process, as we are trying to balance our commercial interest and our competitiveness--and keeping our own capabilities where we want them to be--versus national security. It seems to me all the movement--we can argue about this later--but it seems to me all the movement seems to be on the side of the export industry. The administration, of course, periodically and quite often increases the MTOPS levels at which computers can be sold without a license. They were changed in April, 1994; October, 1995; July, 1999; February, 2000; and again in August, 2000, as I understand it. So we are moving in that direction. We have gone from 2,000 MTOPS for military use in October 1995 to conceivably as much as 40,000--according to what some industry folks were saying earlier this year--in August 2000. You might ask, compared to what, because some computers have MTOPS levels in the millions, but we are moving certainly in that direction. Congress has a right to review whether or not we are moving too fast or perhaps not fast enough. Up until, I believe, 1999, Congress had what was in practice an 18-to-24 months review period. So until recently, we had 2 years. Now we have got 6 months. Now it is being suggested by proposed legislation that we reduce that review level to 30 days. I think it is important to keep in mind this has nothing to do with the holding up of an individual export. It just has to do with whether or not exports at particular levels even need licenses at all. So that may be reduced. Then we have the Export Administration Act, which interjects new concepts in terms of statutory law, derived and greatly expanded from what previously were only to be used by exporters who were denied licenses and so forth. Basically, the concepts and statutory law of ``mass-marketing'' and ``foreign availability'' are new, and this bill would propose to take whole categories of items, even above the MTOPS levels that are allowed, out of the control regime completely on the basis that everybody supposedly has got or can get them anyway. So there is quite a bit happening here, and it seems to me that it is all moving in the same direction. Now, perhaps the case could be made that this is good and that it is valid. If we err too far on one side, we are perhaps hurting ourselves somewhat commercially. If we err too far on the other side, we are perhaps hurting ourselves somewhat from a national security standpoint. And one of the things that concerns me from your testimony, Mr. Johnson, it that as the administration makes this determination as to when and how much to raise these MTOPS levels, they are not making any kind of national security assessment. It is strictly based on what is deemed to be controllable or uncontrollable. Is that correct? Mr. Johnson. That is basically correct. They have not done a national security analysis to know what impact the relaxation or the change in the control levels might have on our national security and how the recipient governments, may use the computers in their military modernization programs, and we think that that is a serious deficiency. Chairman Thompson. And the GAO, of course, has been dealing with this for some time, and you have had occasion to criticize the administration in times past because of some of the analyses and studies that they were relying upon, such as the Stanford analysis, in making their decisions to raise the MTOPS levels. Mr. Johnson. Correct. Chairman Thompson. So the justification for their decision is one of the things that we can look at in trying to determine where we should go and how fast we should go as an administration is increasing these MTOPS levels. I am certainly not arguing that they should not be increased. But the question is to what levels and how fast? Reasonable people can disagree on that, but one of the benchmarks that I think we can look at is the nature of the material they are relying upon in order to make those increases. The fact of the matter is that in times past, in dealing with these nebulous terms of foreign availability or uncontrollability or whatnot, they have relied on studies that you did not feel supported the conclusions that the administration came up with. Is that not accurate? Mr. Johnson. Well, it was unclear whether the studies really supported the conclusion, because the studies themselves lacked empirical data to support the conclusion that was in the study. And mainly in the area of controllability, the study simply did not have sufficient data to come to a conclusion that--I think the initial Stanford study indicated that computers at 4,000 to 5,000 MTOPS were, at that point in time, which was 1995, uncontrollable. There simply was not data to support that, so whether or not they came to the right conclusion, we did not reach that conclusion. They may have serendipitously come to that conclusion properly---- Chairman Thompson. It would seem to me, that there's so much anecdotal evidence--so many statements that we hear from time to time about the clear availability of computers when you walk into Radio Shack, etc. If that is so clear, you think they would be able to come up with a study that the GAO would say at least is a valid study in order to support that conclusion. Mr. Johnson. Well, at certain MTOPS levels, I am sure they could do that. But, we are talking about MTOPS levels that are generally higher than what you would find at Best Buy or Radio Shack. Chairman Thompson. And the administration deals not just in terms of what is perceived to be the case at the time of the analysis, but also of the anticipated availability. Mr. Johnson. That is a major concern that we have had in the last couple of--in our current study, as well as the study that we did of the President's July, 1999 report; that the decision was based on anticipated mass-market, rather than on what existed at the time the decision was made. Chairman Thompson. Correct me if I am wrong, but it seems to me that this anticipated mass-market, in turn, is based upon what our domestic producers intend to manufacture in the future. Mr. Johnson. That is correct, what they say they are going to produce and when they are going to---- Chairman Thompson. So foreign availability---- Mr. Johnson. That is not a factor in that kind of judgment. Chairman Thompson. Well, is controllability? Mr. Johnson. Well, projected controllability, yes; but suggesting that because they are going to have a particular type of processor available 6 months hence does not necessarily mean that we should be decontrolling now in anticipation that the processor will be available. If you are looking at what is mass-market, I mean, that is something that exists, you can count--I do not want to put numbers on what the criteria ought to be, but you can determine what a mass-market is, rather than what is anticipated. Chairman Thompson. All right. Let's make sure we are talking about the same thing. Let's talk about not what it ought to be or what you think it should be. Let's talk about what the current situation is, as it is applied now, as these determinations are made to raise these MTOPS levels. It is based in part on anticipated levels. Mr. Johnson. That is correct. Chairman Thompson. And that, in turn, helps to reach a determination as to what is going to be controllable. Mr. Johnson. What the control levels ought to be. Chairman Thompson. Ought to be? Mr. Johnson. Right. Chairman Thompson. So it sounds to me like a self- fulfilling prophecy. If your supposed ability to control or the controllability of a type of item is determined primarily on the basis of what our domestic manufacturers intend to produce, that seems to be a self-fulfilling prophecy. I mean, that begs the question: Should they be controlled, should they be available? And certainly we have something to do with that. That is my assessment. I mean, that is my comment. Do you have any problem with that? Mr. Johnson. I think that is a fair analysis, yes. Chairman Thompson. All right, sir. One more thing, on the reduction of the time of the analysis. You mentioned you were doing some work for Armed Services. Mr. Johnson. Right. Chairman Thompson. Is part of that work an analysis of the last MTOPS level proposal, I will call it, of the administration's---- Mr. Johnson. Yes. Chairman Thompson [continuing]. Increase? Mr. Johnson. Yes. It is an analysis of the President's February, 2000 announcement that---- Chairman Thompson. All right. I will just ask you, do you have any anticipated date of release of that? Mr. Johnson. Well, probably within 4 to 6 weeks. Chairman Thompson. Probably within 4 to 6 weeks. Mr. Johnson. Right. Chairman Thompson. So the GAO does that. Do you traditionally do that? I mean, is this your first time? Mr. Johnson. No, we have done this twice now. Chairman Thompson. OK. Mr. Johnson. And it is anticipated--we have had some discussion at the staff level that GAO might be requested to do this on a routine basis. Chairman Thompson. All right. Now, my information here--you correct me if I am wrong--that from September 1993 through October 1995, the review time period was in practice for 18 to 24 months. From July 1999 till now, it is 6 months. The proposed legislation would cut that review time back to 30 days. As the entity that is doing that review, what is your opinion of that? Mr. Johnson. I think 30 days would reduce unreasonably the amount of time the Congress has to look at the President's report. In terms of our work, we do not require the full 6 months. I mean, we have been--we have had this study underway now for probably 6 or 8 weeks, but if we had immediate access to information from the Commerce Department when the announcement is made, that would shorten our time frame. So I am not suggesting that it needs to remain 6 months. It can be shortened from that, possibly, but I think 30 days would be overly-restrictive for the Congress to deal with it. Chairman Thompson. So you have had this review underway for about how long so far? Mr. Johnson. Probably about 8 weeks. Chairman Thompson. And you anticipate, you said a few minutes ago, how many more weeks? Mr. Johnson. Well, I would say 4 to 6 weeks, until the report is published; but, I mean, under other circumstances, that time could be shortened to some extent. Chairman Thompson. All right. Now, that is just your time to produce a report. That is not congressional review or analysis or hearings or anything else. Mr. Johnson. That is correct. That is our time. Chairman Thompson. I see. All right. Well, I have taken up more than my time. Senator Lieberman go ahead. Senator Lieberman. No problem. Thanks, Mr. Chairman, very interesting discussion. Mr. Milhollin, let me start asking you a question that goes back to something you said and at least helps me get into this discussion and the competing interests and values involved here. At one point, you quoted one of the common responses to this dilemma, which is, ``Well, if everybody else is doing it, we should, too,'' and you were critical of that. In one sense, of course, you are appealing to America's better nature. We like to believe that we are not like everyone else, both in terms of values and hopefully the extent to which we are prepared to protect our national security interest. But I want to just start my discussion with the panel by asking you whether that criticism of that response, if everyone else is doing it, we should, too, you mean it comprehensively? In other words, if you were convinced that, in fact, some high-performance computer was really quite widely available-- let's assume for a moment that the facts were proven--but that it really could be used to endanger our national security, would you still say we should not do it--and, of course, we all remember those moments in the Gulf War when the shards of different systems were held up--to avoid in some measure, to having blood on our hands? Mr. Milhollin. I would answer your question by saying first that it is not simply a moral position I am taking, although I think it principally is--that is most of it--but it also is a functional point. If every member of the regime operated on the assumption that everybody else was going to sell anything he did not sell, it would be pretty hard to have a regime. It is really a question of keeping the faith. Somebody has to be the leader. It has always been the United States. We have gone to our allies and said, ``Here is what we think ought to be controlled.'' We did that in COCOM. We said, ``Here is what we think is important. Here is what we think ought to be controlled. We are going to control this and we hope that you will join.'' In fact, that was President Bush's approach to the Gulf War. I mean, we did not wait for everybody else to decide, ``Yes, we are going to roll this back.'' President Bush said, ``We are going to roll this back,'' and then he invited everybody else in to come in and help out. Senator Lieberman. Right. Mr. Milhollin. As a practical matter, that is how you have to do it. So it is not just a moral issue. It is also a practical question of how you achieve things diplomatically, and unless somebody is going to step out there and take the lead, nothing happens. Senator Lieberman. But what if they do not follow on these commercial questions, on the sale of high-performance computers? Mr. Milhollin. They will never follow 100 percent. Senator Lieberman. Right. Mr. Milhollin. What you have to do is decide how much is enough. Under COCOM, the Russians could always get things. They could always--if they wanted something enough, they could figure out a way to get it. But, often, they did not get training; they did not get manuals; they did not get spare parts; and 6 months later, it wound up being a piece of junk because they could not service it. They admitted that after the Cold War ended and there was sort of a look at how COCOM had functioned. COCOM was a giant success not because it was airtight--we had the Toshiba case. We had lots of situations where people violated COCOM and undermined our industries, but overall it worked, and if you visit the former Soviet Union now, you can see the impact it had on their infrastructure. Go to Russia and try to make phone calls from one village to another. COCOM really did have a big negative impact, on Russia primarily, even though it was not airtight; that is, it did not work 100 percent. So you will always have situations where somebody will not follow. What I am worried about is that we have to maintain the faith here or we will not have anybody following. That is really the question. It is not the question of whether you can get 100 percent compliance. The question is, if you decide that we are going to send the world a message that we do not care about this anymore, then you are certain to get zero compliance. Senator Lieberman. That is very interesting. So is it fair for me to conclude that what you are saying is that even if a particular dual-use item is available in foreign markets to foreign countries, to countries that we would put in one of the tiers that we worry about that you would say that we should still try to control its export from here, even if that does some damage to our high-technology companies, because the effect will be that we will make it harder for those who would threaten us to get hold of it; so that this is a balance and maybe there will be some economic damage here, but when you balance it against the national security threat, because we are the leader, it is worth it. Mr. Milhollin. Yes, it is worth it. You are going to take some hits. You are going to take some losses, but nothing is free. Senator Lieberman. Right. Mr. Milhollin. So you have to be willing to say to the U.S. industry, ``You are going to lose some sales here and there from this system, but overall, it is worth it.'' There was a recent case in which a rather sensitive Chinese company was tried to buy a five-axis machine tool from us and they did not get it. I must admit, because I have an activist hat, that the deal happened to be exposed in the newspapers and it made it much harder to approve. Well, I was told that an European company filled that order. I suppose that pro-export forces would say, ``Well, there is an example. You know, you made it hard for us to approve this. It got held up. We did not approve it and then the Chinese got tired of waiting and they bought it from somebody else.'' Well, I think that is a victory. If this company is going to make missiles and military aircraft at this plant, and they want to do it with a German or a French or a Swiss machine tool, I think it is better than having them do it with ours, because if we had sold that machine tool, then the message would have been clear, because this was a very dubious end-user. The message would have been, ``Look, guys, if America--if we are going to do it, then the signal is, we really do not care that much.'' Senator Lieberman. So, your reasons are both moral and functional or practical? Mr. Milhollin. Yes. Senator Lieberman. Both, we do not want that on our hands, but also that, so long as we exercise some restraint, even though in that case that Chinese company got what it wanted, that we send out a message to the world that makes it less likely that this stuff will be more widely available. Mr. Milhollin. That is right. The next time the Iranians want something and we go to a European company and say, ``We discovered that the Iranians are about to buy this from you and we think you ought to stop it,'' they are not going to say, ``Yes, but what about the machine tool you guys just sold to the Chinese?'' Senator Lieberman. Right. Mr. Milhollin. And, believe me, that happens. It happens all the time. So unless you are willing to be clean in your own behavior, you are not going to get anywhere with anybody else. Senator Lieberman. Mr. Lieberman, from a Defense Department perspective--I know you are not here to speak for the Defense Department--but from within the purview that you have, how do you react to that standard that Mr. Milhollin establishes? I know from your testimony that you obviously feel that the Department of Defense should be involved more in these export control decisions, but he is posing a tough standard, I think. I am interested in your reaction to it. Mr. Lieberman. I believe that it serves no purpose to have any export control regime if we do not enter into that process with expectations of having a pretty tough standard. I would point out that when a buyer decides to purchase a product, they make their choice based on what they think the best product on the market is and perhaps best price. So what we seem to be talking about here is selling products that could create national security threats, and we are providing the best product at the best price to whomever that other party is, which, to me, creates a problem. You used the word balance in your opening statement, and clearly that is what we are talking about here. I believe that the current process is somewhat inefficient, but the inefficiencies in the process can be fixed, because those are mostly bureaucratic procedures and resourcing questions that can be addressed. Senator Lieberman. In some of the delay involved. Mr. Lieberman. Yes. Absolutely. Senator Lieberman. In reaching a decision. Mr. Lieberman. But the basic feature of the existing review process, which is multi-agency deliberation over the wisdom of granting a license, I think is really the thing that we need to retain. That is why I said that we need to be extremely careful about exempting products or classes of products from the process, because I think ultimately the process needs to be applied to anything where there is even a smidgen of a national security implication. That does not mean when something has to go through the process, that a license is going to be denied. In fact, very few licenses are denied. So I think that is an important distinction that I would try to make. Senator Lieberman. I would take it that you believe the bill before the Senate, S. 1712, is somewhat imbalanced, that it tilts too much toward the commercial interest. Mr. Lieberman. Yes. That has been our testimony to the Senate Armed Services Committee and there is some of that in my statement today. Senator Lieberman. Mr. Hoydysh, how about Mr. Milhollin's standard? I presume you find it too stringent and, in some senses, unrealistic. Mr. Hoydysh. Well, Senator, before I get to that, could I just take one point to deal with a factual issue that Senator Thompson raised earlier about the review period going from 180 days to 30 days? Senator Lieberman. Yes. Sure. Mr. Hoydysh. Senator Thompson mentioned something about an 18-month or 2-year review period. In my knowledge, there was no review period before the current 180-day review was enacted in 1997. I spent 7 years in the Reagan Administration (from 1982 to 1989), in the Export Control Bureau, and there was no congressional review period whatsoever. So I am not sure what it is factually that the Chairman is referring to. Chairman Thompson. I think the difference has to do with the policy and the law. As I look at this, my chart indicates that the 18 to 24 months was the policy during that period of time. The 6 months was put into law, so---- Mr. Hoydysh. Fair enough. Chairman Thompson. Whatever conclusions we want to draw from that, I think that is what the situation was. Mr. Hoydysh. To get back to the standard, Gary raises a very difficult question. Moral questions are always very difficult. I think the answer is in how you draw the balance and where you actually draw the line. We could all agree that no one wants to sell items to someone who is going to do damage to this country. In fact, the system, as currently structured, has safeguards built into it. Senator Lieberman. Would you say that even if the item is available from other countries? In other words, that is part of the challenge that is posed here. Mr. Hoydysh. Senator, we are not permitted under current law to sell to an end-user in China or anywhere else if we have knowledge that that end-user is going to use that equipment for proliferation purposes. Senator Lieberman. Right. Mr. Hoydysh. Most of the enforcement cases that have been handled over the years generally result from tips that are provided by the industry. So, with a few exceptions which have been publicized in recent years and which are under investigation the industry, I think, has a very good record on that. The real question is where do you draw the line and at what level do you have to either control things by having the government review each export, and where do you allow industry to make that ultimate choice? Senator Lieberman. That is exactly the question. So, in other words, if Mr. Milhollin has drawn the line in one place, which is that even if a particular dual-use item is available in foreign markets, we ought not to be selling it, if we are reasonably confident that it is going to be badly used, not only for moral reasons, but because we set a standard. So that is a tough standard. Where would you draw the line yourself? Mr. Hoydysh. I would not remove the requirement that if there was knowledge that the equipment was going to be used for some inappropriate purpose, that we should not sell. Senator Lieberman. Forgive me for interrupting, but how do we enforce that? That is a reasonable standard, but how do we make it real? Mr. Hoydysh. Well, in some cases, it is easier to enforce. I mean, most of the companies--most of our companies that deal in countries like China, for example, have a fairly complex process in terms of searching for customers. Generally, we just do not go off and sell someone 50 boxes of something and leave it there. Generally, it is involved in providing an airline reservation system or some kind of banking system. So we have a good idea of what the end-use is. If somebody comes to us and says, ``I want you to help me automate the missile factory,'' we will not do it. In fact, we are not permitted to do it. So there is just, in the normal way of doing business, a certain amount of security in how these products are used. Where it begins to break down is if you have a product like the Macintosh PowerG3 or whatever the nomenclature is, and you want to sell that in a Radio Shack or a Best Buy-type environment in China, where you provide 50 of these to people who walk in off the street, as a practical matter, it becomes almost impossible to monitor where those sales are going to go to. There is a big difference between delivering 150 boxes to the People's Liberation Army missile base and delivering them to Best Buy. So, I mean, these are just practical issues and, at some point, it simply becomes impossible to actually do it in practice, no matter how well-intentioned the idea is. Senator Lieberman. In your testimony, you talked, and we all have, about the extraordinary advances, rapid advances in the capability of high-performance computers. Now, as you mentioned, we are into millions of MTOPS. But isn't it true that some of the applications that we have made that are most significant of high-performance computers have been done at much lower MTOPS levels, some under the limits we are now establishing? The question is, is the MTOPS number an adequate and appropriate standard to use? Mr. Hoydysh. It is becoming clear to people in industry and people at the Defense Department, as well, that MTOPS alone may not be an adequate standard to measure the strategic significance of a computer. The computers that we are talking about are basically designed for transaction processing; that is why they have many processors, so that Visa or a bank can handle 100,000 phone calls a minute coming in. They really are not specially designed to be used for military applications or for nuclear weapons or any of the prohibited purposes. That is not to say that they cannot be used for prohibited purposes, because any computer can be used for that, but they are really not designed primarily for that. There may be other technological parameters, in addition to MTOPS or in place of MTOPS, to better measure what it is that we are concerned about. I understand that the Commerce Department Technical Advisory Committee is looking at this and also the Defense Department is looking at this. Senator Lieberman. Well, that is a very important point and obviously we would be interested in the results of that inquiry, because that may help us come to a more practically- effective standard. Mr. Johnson, you said some things in your testimony I want to just ask you to amplify a bit which interested me, which was that the Executive Branch has not clearly stated what the national security interest is in controlling exports of high- performance computers, and, in a way, this may touch on the last point of exchange with Mr. Hoydysh, that maybe MTOPS are not the appropriate, certainly not sole standard, for determining what should be exported. I just wonder if you could talk about that a little more. Mr. Johnson. Sure. Yes, we have basically come to the same conclusion. In fact, another study that we have been requested by the Senate Armed Services Committee to do is to follow these studies that are ongoing within industry, as well as Department of Defense and Commerce, on what other standards might be appropriate, other than MTOPS, because MTOPS clearly does not address the concern that has been raised about distributed computing; in other words, where you can line up several computers and tie them together and distribute the calculation process among them. It just does not address that issue. But in terms of our concern that the Defense Department has not clearly addressed the national security interest it is trying to protect, obviously, they have looked at how computers are used in their own processes, and have come to conclusions that there are a number of applications that are important applications that are required from a very low level of performance to a high level of performance. Our concern is that there are a number of applications, computer applications, that are of such critical importance that we need to do whatever is required to protect our ability to deal with those applications, and that is what the Defense Department has not done. They have been requested now, through legislation, to do that. I think the National Defense Authorization Act of last year laid that requirement on. My understanding is that they will have that study completed in August, and hopefully that will resolve that concern; but what we have held is that if they looked at all the applications that are of extreme importance, they may come to a conclusion that the level that we are trying to control computers at now just does not make any sense. It may be much higher than what we are trying to control. It may be lower, too, but---- Senator Lieberman. It may be lower, if we add in other standards, other factors to consider. Mr. Johnson. Yes. Right. Senator Lieberman. Could you give us an example of one or two other factors that, to you at this point, seem relevant besides the MTOPS standard? Mr. Johnson. Well, just basically, looking at the architecture of the computer, what it is designed to perform, and I am not a technician myself, but what the computer is designed to--the application is designed to perform--would be one way of measuring it. I know it is fraught with all kinds of problems and we have already had some discussions with industry on that, but---- Senator Lieberman. Mr. Johnson, a final question. You also said that you thought that two very central terms to this discussion, particularly of the legislative proposal before Congress, are not adequately defined; that is, the terms widely available and uncontrollable. Mr. Johnson. Controllability, yes. Senator Lieberman. Controllability. So tell us what is lacking and, if you had your druthers--you were drafting--how would you define those two critical terms? Mr. Johnson. Well, I basically--the Commerce Department, in response to our raising that issue, did define controllability, and I think their definition of controllability is not a bad standard. Unfortunately, they did not apply that standard. But in defining controllability, they included factors like the volume of sales, and I think that is a critical aspect. I do not want to try and attach numbers to it. It is very difficult to do that, and it would differ depending on what the component is. But the way Commerce defined controllability to us, which implies widely available, it is not a bad standard, and I think we have included that statement in our prepared testimony. Senator Lieberman. OK. Thanks, Mr. Chairman. I am going to give it back to you. Chairman Thompson. Thank you very much. We have been looking at the front end of the process as we increase the MTOPS levels and we propose to shorten the amount of time Congress has to review, but we have also touched on the back end of the process--and that is, who winds up with these so- called supercomputers? Everything we are doing is based on an assumption that we have something to do about that or that we can in some way affect that or control that. In our tiered process, for Tier III countries such as China, we have an export-license free computer performance level for military use and one for civilian use. But, in listening to you, I was reminded of a point that the staff had made earlier to me, and that is about the difficulty in dealing with a country like China, and being able to rely upon the proper end-use of an export to a civilian company with assurances that it will not have military use. There is also a Russian angle to this problem. In 1996, both Silicon Graphics and IBM illegally exported high- performance computers to Russian nuclear weapons laboratories without licenses. They claimed that they had not known that these facilities were weapons labs, even though the two locations, Chelyabinsk 70 and Arzamas-16--which I have been to, by the way--should have been well-known to anyone with any knowledge of the Russian nuclear program. I do not know. It seems like I knew about Arzamas a long time ago. Anyway, after these illegal sales were revealed, the head of the Russian program bragged that he had planned to use these machines to design nuclear weapons. I guess it is impossible to keep something like that from happening every once in a while. But, again, we need to look at the process, because we are relying upon industry to make the initial determination of whether a Tier III end-user is civilian or military. That might be more than industry really has the capability of doing. It might be an unfair burden to be putting on them. Some in industry might be tempted to hedge. In the China situation, there was a period of time there when they were allowing no post-shipment verification checks at all. Isn't that true? Mr. Johnson. That is correct; yes. Chairman Thompson. A period of time, up until the agreement in, what, 1998? Mr. Johnson. June 1998. Chairman Thompson. June 1998. They would not allow us---- Mr. Johnson. Right. Chairman Thompson. Here we are trying to export these computers to them, and they would not allow us to check with regard to post-shipment verifications. Then, we supposedly entered into an agreement with them in 1998 that would allow post-shipment verifications. Is that correct? Mr. Johnson. Yes, that is correct, but they had to comply with certain requirements that were laid out in the agreement, and not all high-performance computers that were shipped without a license to the civilian sector complied; so that was also a problem. Chairman Thompson. Have you seen this agreement? Mr. Johnson. No. Chairman Thompson. Who has seen this agreement? Mr. Johnson. Well, it is a classified agreement, and we do have access to classified information, of course; but I have not personally read the agreement. Chairman Thompson. Well, are you familiar with the Cox Report's reference to this? Mr. Johnson. Yes, I am. Chairman Thompson. Is it not true that the Cox Report says there is such an agreement; that the administration would not release the agreement because the Chinese would not allow it; and that the Cox Committee had reviewed the agreement and found it to be wholly inadequate? Mr. Johnson. I read that in the Cox Report, yes. Chairman Thompson. Do you know of any national security reason why the American people should not see the agreement that allows us to do post-shipment verifications for high- performance computers? Mr. Johnson. Not to my knowledge. Chairman Thompson. Does anybody else know who might have access to this agreement or know anything about what is in the agreement? Mr. Johnson. No, sir. Chairman Thompson. Well, I think that this is something that we might want to inquire about, because a large part of what we are doing is supposed to be in reliance upon the fact that computers that are sent for civilian purposes, for example, do not wind up in civilian hands. If the Cox Committee has concluded that this agreement is wholly inadequate and the administration will not release the agreement because of Chinese objections, I think that raises serious concerns. I think it might be a good idea perhaps to inquire of the administration whether they would let us review that agreement to see whether there are any legitimate national security purpose for withholding portions of it, and that certainly can be dealt with. But I see no reason on something like a post- shipment verification arrangement and the extent to which we should be able to rely upon who the real end-user is going to be in any given situation, why this information should be withheld from the American people. Mr. Hoydysh, what is the economic effect of what we are talking about? I have seen numbers that seem to indicate that, right now anyway, there are only a limited number of high- performance computers sold to Tier III countries. Obviously, you have large domestic sales. You have large international sales, most of which are not controlled because they are not of a certain level. Can you give us some feel in terms of numbers of sales or potential sales that we are talking about--again, not that you cannot export to Tier III countries, but that for some items you have to go through a license process? I guess you have the delay issue and then you have the denial issue, both; but can you give us some better idea as to what the commercial impact of this is for the computer industry, which clearly has millions of sales domestically and internationally? Mr. Hoydysh. Senator, in terms of the absolute volumes and the absolute sales, this is not an overwhelming market for us at this time. Depending on the company, depending on how you slice it, it is anywhere from 10 to 15 percent of company sales; that is all of Tier III. Now, China is the fastest- growing market in Asia, and I believe is, after Japan, the second-largest market. It certainly has tremendous potential. We do not--again, just to clarify--we do not object to licensing requirements for truly high-end systems. In fact, I do not believe that any truly high-end system has ever been approved to China. What we are concerned about is competition at the lower end with commodity machines which are available from a wide variety of sources, including from companies in China. The problem is one of delay, even without licenses, you have a 10-day delay. But, on top of that, the United States is the only country that requires our vendors to get an end-user certificate from the Chinese government; so that a comparable sale from anyone else would not require an end-user certificate, and this is a bureaucratic process that can take anywhere from 2 to 6 weeks. Chairman Thompson. Have you been following any of the hearings and debates that we have been having here on the PNTR with regard to China, and national missile defense? And are you familiar with the testimony that we have heard from this table, from our intelligence officers, including the CIA, giving their biennial estimates on weapons of mass destruction and nuclear proliferation, in which they said that China still is the greatest proliferator of weapons of mass destruction, and that Beijing is continually supplying the rogue nations that are increasingly becoming a threat to this country with regard to biological, nuclear and chemical capabilities? We hear that testimony all the time. That is why I consider it more than a bureaucratic quibble to require some kind of end-user satisfaction with regard to the Chinese. This is why it concerns me that the administration wants to keep under wraps the agreement that we supposedly have entered into as to the way we are supposed to have some satisfaction on post- shipment verification. So it is not just strictly a Chinese deal. It is a complicated world out there, and part of what is happening is that the Chinese are supplying dual-use items, technicians, technology, raw materials, and components, to a host of rogue nations. Now, that is not your business, but that is our business, and I just want you to know that we are not trying to be unduly restrictive or anti-competitive, and we understand the genie is out of the bottle. But this is part of what we have got to balance, and this is why we have got to be careful as, on the one hand, we try to embrace these countries, and trade, and get along as best we can, and, on the other, we remain mindful of their threats and of information revealed by our own intelligence analyses, whether it be by the Rumsfeld Commission or the Deutsch Commission or our own intelligence assessments. These assessments are continually saying that this country is doing things that pose a threat to our national security, albeit, in some cases, in a roundabout way through the rogue nations. So that is a part of this process, too, and that has got to enter into the balance. It looks to me like this has front-end and back-end ramifications in terms of this process. It is the process, it seems to me, that is most important here. No one can sit here--I cannot sit here--and say what the MTOPS level ought to be. But I do not think somebody within the bowels of the Department of Commerce ought to be the unilateral determiner of what that MTOPS level should be, either. I think we need a process that includes all of the relevant people at the table. I will make a final point here. It seems to me that we should not overlook the fact that our allies, our economic competitors and other countries in which these computers are made and so forth, they have licensing processes themselves. It's also worth remembering that when you are looking at something like foreign availability or mass- marketing, some are proposing taking whole categories of things out of the process--decontrolling them because of alleged foreign availability. We are not even looking at the question of whether or not ``foreign available'' computers are available perhaps only to our competitors' licensing process. If they have a licensing process and they control these items, even if it is ``foreign- available,'' do we want to totally decontrol this item? When they have got a licensing regime and we will not have one anymore, aren't they going to immediately do away with their licensing regime too? It is going to be a race to the bottom. So those are the sort of things that concern me. I am making more of a statement. Anybody can comment on any of that, if you want to. Mr. Hoydysh. Let me just make a comment on the question of foreign availability, and I think that has to be split into two parts. There are two issues here; one, can other countries make these products? And I think that, we can demonstrate very clearly that almost anyone can make them. There is no technological impediment to making them--it is a economic impediment. Everyone can make them, but not everyone can make money making them; so that is what keeps people from getting into the business. The other question is whether they have equal export controls. My experience, and I have been doing this for 17 years, including attending COCOM for 7 years, that our allies stayed in COCOM only by the force of the will of the United States. If we had opened the door, they would have been out of COCOM way before it was formally dissolved. One of the big differences between COCOM, which at least worked fairly well, and today is that there was then general agreement about a common threat. Right now, there is little agreement on the common threat. There is agreement on the rogue nations, but there is no agreement that China poses a threat. In fact, the other COCOM countries explicitly--the other Wassenaar countries explicitly rejected putting China on a target list. Another complicating factor that one of our targets in Tier III, Russia, is a member of Wassenaar. In addition, other members of Wassenaar are actually trying to get China to join Wassenaar. So if you have China and Russia as members of Wassenaar, which is the organization that is supposed to control exports to these countries, you end up with some very strained relationships and situations. Chairman Thompson. Well, that is interesting you should mention that, because I just came back a few weeks ago from a trip. I went to Vienna, talked to the Wassenaar Arrangement people there, talked to several of our allies about the Wassenaar Arrangement and what they thought about it, and ran into some of the things that you are talking about. There is more than one view as to the COCOM situation and as to who the leader was in disbanding that, however, and a lot of people think it was the United States. Some people think it should have been, and certainly something different should have come about. So we have got something that really is dysfunctional in many respects, and that is the Wassenaar Arrangement. You are right; Russia is a part of that. And some of our allies too: Oftentimes, we have particular problems with the French, amazingly enough, and we and they do not see eye-to-eye on many things. The question is, what kind of example are we going to set; and, what are we doing particularly with regard to these high-performance computers? I was surprised to hear from some of our allies while I was over there that far from playing catch-up to our competitors, the United States is leading the way in decontrolling these high-performance computers, much to the chagrin of some of our Japanese friends and our European allies. I was also surprised to learn that our allies still, in some cases, maintain some controls on these computers that we are not controlling; and that we are constantly the ones that are pushing the limit because of the competitive advantage we have there. So I do not think that this is a totally black-and-white picture. The other thing I would ask is whether or not there is any validity to the notion that it makes a big difference whether one secretly steals a computer or whether one buys it legitimately. Sure, many countries have substantial capabilities in terms of high-performance computers, whether they are making them themselves or import into them, either legally or illegally. But that is much different than having a formal relationship with a legitimate supplier, in which you are exporting mass quantities and where the recipient is able to receive the technical support and training. Does it not slow them down to be denied such support? I think many times maybe this is what we are talking about, what we are trying to do while we are building the national missile defense system and reconfiguring our military and all that. Perhaps we are just talking about slowing down the proliferation process with regard to problem countries. Does it not slow down the process if you deprive them of the technical support and training? We maintain our ability to track who gets what by having a control system--track what is going out of the country; we do not wholly decontrol; we do not give to just anybody the technical support and training that would go with a traditional commercial transaction. Is there any validity to that concept, do you think? Mr. Hoydysh. Absolutely, Senator, there is validity to it. But just to put this in context, we are not asking to release all high-performance computers. We are only asking for easing of restrictions on the lowest level of high-performance computers, assuming for the moment they can be still called high-performance computers. These are common business servers which are used in electronic commerce, and we have talked about a level of four-to-eight processors. Each of our companies make computers that have 32, 64, and above, and the highest computers, the most powerful ones, have thousands of processors. So we still believe in strict controls on that level of technology, and not even a question of licensing. We do not even think that the highest end should be exported to Tier III, period. What we are talking about is the large-volume, lower- end, which is absolutely essential if China is going to develop its Internet infrastructure, if it is going to develop its e- commerce capabilities, which would allow it to have more information, and more interaction. These computers provide the backbone for that system infrastructure. We are not talking about all computers. We are talking about the lowest slice of technology that is widely available. Chairman Thompson. And we are not talking about stopping the sale of those computers. We are talking about a review process. Mr. Hoydysh. And that is where the difficulty lies, because at this level of processor, you are talking more and more about direct sales, about delivery in a matter of days. These are not things that take a long time to build. Most of these things are built within a few days of receiving the order; so speed of delivery is essential. One of the biggest problems with the review process that we have is that even if it lasts 10 days, you have to add the Chinese end-user certificate process to it. Then you have to add the fact that each of these exports requires, by law visitation by government official on top of that. Foreign rendors can deliver the same product at relatively the same price with the same performance without all of this bureaucratic baggage. It makes our stuff less competitive and, in addition to which, we cannot utilize third-party distributors because we cannot ship the product into China unless we have the end-user identified at the time of shipment; so that we are deprived of a whole channel of distribution of these systems. Chairman Thompson. There are a lot of distribution problems in selling goods to China that have nothing to do with our controls on this end. Mr. Hoydysh. No, but this is a specific aspect of the way some of our companies do business. They identify someone who will provide the service, who will hold the product and distribute it to individual end-users. We cannot use that channel. Chairman Thompson. One more thing. Your criteria seems to be the sale of processors. We have been talking about MTOPS levels. Mr. Hoydysh. What I wanted to do was de-mystify the question of MTOPS, because everyone is fixated on the 2,000 MTOPS level which, in the mid-1900's or early 1990's, represented a powerful machine. Today, an Intel personal computer, the Apple personal computers, have MTOPS rating of almost 2,500. In addition, as some of the other folks here have testified, MTOPS may not be a valid measure of national security concern. Just because---- Chairman Thompson. Excuse me. But for better or for worse, the MTOPS level still is the criteria we are having to deal with here. So what are you suggesting be decontrolled in terms of MTOPS levels? Mr. Hoydysh. At MTOPS levels now, coming out with the newest processors that will be available later this summer---- Chairman Thompson. Again, we are looking into the future a little bit. Mr. Hoydysh. Well, you see, you are right, we are looking into the future; but what makes it so much more difficult for us is, because of the 6-month delay and because it takes at least 3-plus months for an interagency process to come up with a number, we are required to forecast what would be available anywhere from 9 months to a year in advance. In the last go-round, we actually missed the fact that the Apple Macintosh arrived sooner than expected and could not be sold through these distribution channels. So that one of the reasons for shortening this 6-month congressional review period is to make that forecast less prospective. We are not saying decontrol today that which will be available 6-months from now. Chairman Thompson. I understand. I did not mean to get you diverted. We were getting back to the MTOPS level. Can you translate what you would suggest? Mr. Hoydysh. We are suggesting that if the MTOPS level is announced in July, let's say, and it becomes available 6 months from now, which is still the current law, then we need to be able to sell four-processor systems, which are large-volume systems made with the new Itanium microprocessor, and that number, and I could be off by several hundred, is somewhere on the order of 27,000 MTOPS. That is a four-processor system. Later on next year, and this is January 2001, mid-July, 2001, that number goes up to somewhere on the order of 33,000 or 34,000 MTOPS. And I do happen to have a prop---- Chairman Thompson. I thought as of February of this year, you were at the 20,000 MTOPS level for civilian use anyway for Tier III countries. Mr. Hoydysh. Well, the level that we are talking about is the lower level. That is the level below which government review is not required. Chairman Thompson. Right. Mr. Hoydysh. So, right now, that level is 6,500 and the civilian level is 20,000. But above 6,500 we have to submit it to the government for a 10-day review, so that the government still has the ability to review the end-user above 6,500 MTOPS. Chairman Thompson. Maybe February was an announced date instead of an effective date. Mr. Hoydysh. It is an announced date. That does not---- Chairman Thompson. That was 12,500 for military. Mr. Hoydysh. That becomes effective August. Chairman Thompson. OK. Mr. Hoydysh. Because of the 6-month delay. Chairman Thompson. All right. Mr. Hoydysh. Any announcement in July would become effective in January 2001. Chairman Thompson. Thank you very much. Senator Lieberman. Senator Lieberman. Thanks, Mr. Chairman. I want to come back to Mr. Johnson and Mr. Lieberman briefly. Mr. Johnson, you said at one point in your testimony that post-shipment verifications are important, but if I heard you correctly, they do not always tell us what the end-use of the computer is. Mr. Johnson. That is correct. Senator Lieberman. So what I wanted to ask you was what system would you put in place--or would you--to help us better do verification after shipment to see exactly how these items are being used? Mr. Johnson. Well, I think our conclusion is that post- shipment verification is an important process, because it does identify the location of the computer. You can tell what kind of facility it is in, but you cannot necessarily determine what it is being used for. That requires some highly-trained technicians to be able to go in and look at the data that is in the computer, the computer codes, the programming and all, to determine how that computer is being used. We do not have a fix for that, but we do think the process of just identifying having that verification that the computer is there does at least help keep the system honest. There may be some occasions when the Department of Commerce would want to, and I think it has on some occasions, used highly-trained technicians from the national labs to look at how computers are used, but that would be one alternative. It is a very expensive process. These people are highly paid and it takes time to do that. Senator Lieberman. Is it clear that we have the authority under law to do that next level of post-shipment verification to see exactly how the computers are being used? Mr. Johnson. I would have to research that. I think that we do have that authority, but whether or not we would be able to get the cooperation of the---- Senator Lieberman. The purchaser? Mr. Johnson [continuing]. Government, the purchaser, to do that, is another thing. Senator Lieberman. So, in a way, you are saying that the difference here is between determining where the computer ends up and how it is used. Mr. Johnson. How it is used; yes. Senator Lieberman. OK. I would welcome any response you have to that in writing afterwards.\1\ --------------------------------------------------------------------------- \1\ The information referred to appears in the Appendix on page 119. --------------------------------------------------------------------------- Mr. Johnson. Sure. Senator Lieberman. Which is whether the authority is there. Mr. Lieberman--every time I say that, I feel as if I am having a conversation with myself, which are some very good conversations I have, of course, regularly. You talked about the fact that you do not want to see any items dropped from the control list without DOD approval at one point in your testimony. Just help me remember to what extent DOD participates with Commerce in the construction of the control list; that is, the dual-use items that are on the control list? Mr. Lieberman. Well, currently, DOD basically generates a national security list that is a list of militarily-critical items, and then gives it to Commerce to be incorporated into the Commerce control list, and we think that process works pretty well. So, basically, what we are suggesting is simply that this process be retained, or at least the essence of the process be retained. Senator Lieberman. You are really right at the heart of this dilemma that we have talked about all morning, which is here are these extraordinarily capable computers and other items, and how do we determine how they are going to be used and whether, in fact, they are--so how does the Department of Defense make that judgment? Is it a cautious judgment? In other words, is it a sort of worst-case scenario judgment, that here is something that of course can be used for peaceful, commercial purposes, but, in these circumstances, it is possible that it could be used in a way that would threaten us? Mr. Lieberman. Well, I would hesitate to make a general characterization like that. Certainly Defense is subject to the same pressures in terms of different opinions, different inputs, from across the spectrum. Industry certainly provides input to the department, and right now, a lot of the department's efforts to re-engineer its own internal review processes for export controls are largely driven by complaints from industry that our process is inefficient and takes too long. So we are aware of that end of the spectrum. Of course, we have several Defense agencies involved. The intelligence community certainly inputs. But we are talking about a dynamic situation where what it makes sense to control today may not make a whole lot of sense down the road; and, in fact, the control list does change over time. I think there is certainly a legitimate case to be made that the control list ought to be under constant scrutiny and evaluation from the standpoint of advancing technology. Senator Lieberman. And maybe that is not happening frequently enough now or regularly enough now. Mr. Lieberman. Well, I do not have enough knowledge of that to say whether it is happening--we really have not made any attempt to look into individual determinations of what has gone on the list and what has come off the list. In fact, that is the primary subject of next year's interagency IG review. You may recall that the authorization act last year requires the IGs of several Federal agencies to look at this whole process annually for 7 years; and this year, we looked at what are called deemed exports. Next year, we are going to be looking at the composition of the control list, and I hope that I can give you a much better answer perhaps this time next year. Chairman Thompson. Excuse me. And also, would that include who decides what goes on and comes off of it? Mr. Lieberman. Yes, sir. Chairman Thompson. OK. Senator Lieberman. Thank you. We will look forward to that. Mr. Milhollin, I want to come back to something you said, which is if the current definition of foreign availability--I presume, in 1712, continues--that we will, in fact, be required--the United States will be required--to decontrol certain items that our allies now control. Could you just develop that thought a little bit more? Mr. Milhollin. Yes. Well, to begin with, there is a generally agreed list of things which we control in common with our allies for each kind of technology. Senator Lieberman. Right. Mr. Milhollin. I am sure the Committee is familiar with those. The five items in my testimony that I selected as examples are controlled by our allies, as well as ourselves. I think some of them are probably controlled for missile, as well as nuclear, reasons. In my judgment, I think that it would be very likely that foreign availability determinations would be made for all of them, because they are made by manufacturers in more than one country. Senator Lieberman. Right. These are all again controlled now by our major allies and ourselves? Mr. Milhollin. Yes, and I think you could probably find cases where foreign countries or countries that we are worried about, say controlled countries, had managed to buy these things on the world market. So, again, if you come down to the position that if a controlled country can buy these things from somebody, then they should not be controlled here, you run into the problem that you would have to go down the whole control list to see which items are available to a rogue from some rogue supplier--I am sorry--available to a controlled country from a rogue supplier, then you would have to make a judgment in each case to what extent it is available, and our experience shows that the controlled countries can get some of these things some of the time from rogue suppliers. For example, the Pakistanis have been quite successful in importing missile technology of all kinds from China, and Iran has been successful in importing poison gas technology from China. In fact, lots of countries have been successful in importing lots of things from China; and if you use that as a standard, then you are going to have to decontrol a fair number of items that our allies and we now control. Senator Lieberman. Do you have a recommendation for a better definition of foreign availability? Mr. Milhollin. Well, we have a foreign availability procedure now that has been criticized. I question whether--it seems to me that if an exporter can go through the present process and prove that something is foreign-available, then he is entitled--then the exporter is entitled to some consideration. I have not sat down and tried to draft standards of my own. I mean, it took me a fair amount of time to go through the standards that are in the bill and compare these items to that standard. Senator Lieberman. Sure. Mr. Milhollin. But I could say one thing, that the standard that the Banking Committee has adopted seems to me to be entirely too broad and too sweeping. Senator, if I could, I would like to comment on something. Senator Lieberman. Before you go there, let me just say that if you have the time and inclination, I think it would be very helpful if you had some suggestions about what a better standard might be than the one that is in the Banking Committee bill. Mr. Milhollin. Very well. Senator Lieberman. Please go ahead with what you were going to say. Mr. Milhollin. I was going to say a couple of things in response to Mr. Hoydysh's answers to the Chairman's questions. The most recent data on the amount of supercomputer exports to Tier III countries is about 5 percent. Senator Lieberman. Five percent of? Mr. Milhollin. Five percent of the supercomputer market or the high-performance computer market. Senator Lieberman. And that is the world market or the American share of the business? Mr. Milhollin. The American, I guess--5 percent of what we, the United States, export. Senator Lieberman. OK. Mr. Milhollin. Because there are some numbers on that, and the most recent ones I have seen put the share at about 5 percent. Second, I think we have talked a fair amount about delays. The Commerce Department is now meeting its time requirements in over 90 percent of its cases. So the Commerce Department now has a pretty good record of getting dual-use items turned around in a pretty good period of time. The primary reason for that is that we are only controlling about a tenth as much dual-use equipment as we controlled during the Cold War; that is, in about 1989, we were controlling about ten times as much as we are doing now. So, with the lighter licensing burden, Commerce is able to turn around the applications within its time restraints in about 90 percent--over 90 percent of its cases. The third thing I would like to point out is we are not talking about barring exports; we are talking about licensing them. Senator Lieberman. Right. Mr. Milhollin. And, again, over 90 percent of the applications are approved. So, for Mr. Hoydysh's purposes, I would suggest to him that it is a good thing, if you are exporting a sensitive item, to get the government to tell you whether it might be going to the wrong place; that is, if I were an exporter and I had the government giving me a free bureaucrat that would tell me within 10 days whether my customer was a problem, I think I would want to take the government up on that, rather than read in The New York Times or The Washington Post that my product had gone astray. I think we are providing a good service; that is, a 10-day review to tell an exporter, ``Look, you know, there is a problem with this guy,'' or there is not. It seems to me an exporter would--I do not understand why exporters do not want that service. Let's put it that way. Senator Lieberman. Mr. Milhollin, I want to finally just ask you to respond to two other points made here, in some ways, both by Mr. Hoydysh, but the first one is a general point that is certainly made by those who support the current movement of our export control system, which is to turn the national security argument around, if you will, and say that at the heart of our national security today is our technological capability. Part of the way the high-tech industries in America stay strong is by enjoying a good share of the global market, and if, in some sense, export controls are applied so rigidly or demandingly that we deny them that market, that the effect will be that they will have less resources with which to develop the capabilities that make us a strong Nation. So how do you respond to that? Mr. Milhollin. I think that argument would be a valid argument if the countries we are worried about were a major part of their market. But, in fact, they are not. Senator Lieberman. Including China? Mr. Milhollin. Including China. Again, the most recent figures I have seen show that Tier III, that is, the countries we are worried most about for supercomputer exports, are taking about 5 percent of our sales. Senator Lieberman. Tier IV are what we more typically call the rogue nations, Iraq, Iran, and Libya? Mr. Milhollin. That is right. Senator Lieberman. And then Tier III is China, Pakistan---- Mr. Milhollin. India, Israel, and Russia, that sort of thing. Senator Lieberman. Right. Mr. Milhollin. I believe that in the supercomputer industry, the companies--there are not very many companies. There are six, eight, or ten. They are going to survive or not depending on how they do in the big market; that is, the U.S. market, the Japanese market, the European market, the markets for truly civilian applications of high-speed computing. They are going to make it or not with respect to each other depending on how they do in those markets, not whether they make a marginal sale to Tier III or not. So I think that it is a good argument that we have to be strong and maintain our competitive edge, but it is just that the numbers are not there. Who makes it or does not is not going to depend on sales to Tier III. That is my response. Senator Lieberman. The second one was the very interesting exchange between Senator Thompson and Mr. Hoydysh, and it goes back in a way to something you said earlier in the initial argument you made about America setting the standard, which is that we did during the Cold War. That is part of why COCOM worked and why, though there was naturally some leakage, nonetheless, the former Soviet Union was impeded in its development of some sophisticated systems. And, of course, the argument would be as it was made by Mr. Hoydysh, which is that the world has changed and we are post- Cold War. Not only is it not a bipolar world anymore, but more to the point here, though we have a rough consensus with our allies about the rogue nations, the Tier IV nations--and, again, there is some leakage there about Iran, Iraq, and Libya, from some of our allies, in Europe particularly--the real controversy seems to be over China and our differing attitudes, notwithstanding some of the testimony today, from you particularly, about China's proliferation activities. So I wanted to give you a chance to update your argument about the effectiveness of COCOM because of our American leadership in a world that is quite different from the one in which COCOM existed and, most particularly, in which we seem to have some fundamental disagreements with our allies, sophisticated, well-developed allies, about China. Mr. Milhollin. I think that Mr. Hoydysh's point is a good one. He argues that we do live in a different world and it is true, there is less consensus and the targets of our activities are not as well-defined, and, in particular on China, there is a debate. But, you know, there is also a debate on Iran. I have talked to German export control officials high up who do not see Iran as a threat. In fact, one of them told me that Iran was his favorite country. We are in a world where one country's rogue is another country's good customer. Senator Lieberman. Right. Mr. Milhollin. So this whole effort is much more difficult and it is going to require much more aggressive and more effective diplomacy by us than in the old days when it was easier. But if you look at the alternatives, do we have an alternative to doing it? I do not think we do. I think we have to do the best we can in a new world which is more difficult, but I do not think we can just say, ``Well, gee, the world is really difficult now. It is very dangerous. We are just going to throw up our hands and everybody is going to sell everything to everybody and we are going to have total democracy in all the technologies that are necessary to build weapons of mass destruction.'' I fear that that is the tendency we are seeing, but I do not think we are ready to live in the world of 1914 in which everybody has the bomb. Nuclear weapons grew up during the Cold War, which was a pretty stable period, looking back on it now. If you postulate the kind of--lots of countries with lots of different alliances that we had before World War II, and you imagine lots of those folks with nuclear weapons, we are not ready for that, but I think that is where we are going. And what I am trying to argue is that we should slow it down as much as we can. Senator Lieberman. Sure. Understood. Mr. Hoydysh, do you want a word to respond? Mr. Hoydysh. Yes, very briefly. I am not going to argue about whether it is 5 or 6 percent of the market. If we believed that what we were doing was hurting national security, it would not matter whether it was 5, 10, or 15 percent of the market. We are convinced, though, that even the 5 percent, which is bound to grow--Tier III countries represent about half of the population of the world--we cannot afford to give up those markets without having some serious impacts on our technological leadership and on the health of our industry. Five percent sounds like a small number, but what if someone proposed to cut the defense budget by 5 percent? That has significant impacts on our R&D and significant impact on where we can compete. We are proposing what we are proposing because we think on balance it helps us more than it helps any potential enemies, and that, even if we did not sell a single one of these items that we are talking about--and I am not talking about high-end computers, only the ones that we are talking about decontrolling--that the target countries could get as many of these as they wanted from other sources and we would have accomplished nothing, other than losing 5 percent of the market. Senator Lieberman. That frames the issue and the difficulty of our decisions. Thanks very much to all of you and to you, Mr. Chairman. I think it has been for me a very helpful morning. Chairman Thompson. Well, thank you. Listening to you and Mr. Milhollin, it seems to me what happened was that during the Cold War, we had this pretty tough regime, this COCOM regime. Then, the Cold War was over. We disbanded COCOM and we had a lull period there. Now what has happened is that a new, more diverse threat has emerged, in terms of the rogue nations. And all we are left with is Wassenaar, which is very, very weak, and we are struggling to see how much further we want to or can go in terms of something less than COCOM, but more then Wassenaar. It seems to me that this is what we are struggling with. There is one more point I would like to make before concluding, one that I think is a very, very important one. It concerns the idea of reducing the congressional renew period for computer decontrols to 30 days, that is 30 calendar days that is being proposed. If we were out of session, there would be no review time at all. GAO would not even get it, presumably. So that is somewhat unusual and, I think, absolutely undesirable. But finally, on a note of harmony, we had IG reports last year, and we had an array of all the inspector generals before us who looked at our export situation with regard to various departments. There are clearly some things that we ought to be doing that we are not doing, and that are not or should not be controversial. We do not have enough licensing officers. They apparently are not sufficiently trained. The law requires training programs for these agencies. It is not being complied with. The law requires a cumulative effect analysis that is not being done. Nobody knows what the cumulative effect of all this is. We look at these things one at a time. We have in our export control bureaucracy, as we do in most all the other government agencies, totally inadequate information systems. Our computers do not talk to each other with regard to this licensing process. Our law enforcement people, who might have information on some of these entities that our exporters are trying to deal with, and not integrated sufficiently into the process. It is either not there, or not used, and there is no coordination. It's a real management problem. That is what we ought to be doing first, I think. There is an awful lot of stuff that we could do that would speed up the process and also improve the safety of the process and help fix some of the things that we are concerned about. So that should be on the table, also. So, with that, we will cease and desist. Thank you very, very much for this very enlightening hearing that we have had today and your testimony. The record will remain open for a week after the close of the hearing. So, we are in recess. [Whereupon, at 12:20 p.m., the Committee was adjourned.] A P P E N D I X ---------- PREPARED STATEMENT OF SENATOR AKAKA Mr. Chairman and Senator Lieberman thank you for holding this hearing. How to control exports critical to our national security in a world of rapid technological innovation is one of the most serious issues we face. I hope that this Committee will hold more hearings on this topic and I would recommend looking at the administration's new proposals on export controls announced just this week. Most of us would consider computers to be on the cutting edge of technologies which we should control. But at the same time the definition of ``cutting edge'' is constantly changing. Sometime this year Intel will introduce a new chip which will more than double the current level of computer processing capability. Efforts to control this technology sometimes become ridiculous. For example, this fall Sony will introduce its new PLAY STATION II which contains a processor above the performance levels set by current Japanese export controls. Rather than restrict PLAY STATION exports, the Japanese redefined how to control such items. We are in a similar situation in this country. Every few years-- with increasing frequency--every administration since President Reagan's has had to revise controls on computer exports. This has become an even more critical question as the American computer industry earns more than 50 percent of its revenues from exports. With the speed of innovation and the need to protect market share from foreign competition, I can see why the industry is eager to raise the level of permissible exports and speed up the license review process. This is an industry in which innovation is the key to market success. American manufacturers do not have a monopoly on production. For example, 80 percent of all computer motherboards are manufactured in Taiwan. One of the fastest growing computer companies in the world is in Beijing. To keep pace with this competition, American manufacturers need the revenues to plow back into research and development. In December 1999, the Pentagon's Defense Science Board Task Force on Globalization and Security concluded that ``if U.S. high-tech exports are restricted in any significant manner, it could well have a stifling effect on the U.S. military's rate of technological advancement.'' In effect, this is the heart of the problem: How do we control critical defense exports without stifling the innovation necessary to national security in a world in which the globalization of technology can outstrip our ability to control it? I look forward to the witnesses today and their answer to this question. 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