GAO

United States General Accounting Office

Testimony

Before the Committee on Armed Services, House of 

Representatives

For Release on Delivery

Expected at

10:00 a.m., EDT

Thursday,

October 28, 1999

EXPORT CONTROLS

Implementation of the 1998 

Legislative Mandate for 

High Performance 

Computers

Statement of Harold J. Johnson, Associate Director, 

International Relations and Trade Issues, National Security 

and International Affairs Division

GAO/T-NSIAD-00-53

Page 1 GAO/T-NSIAD-00-53

Mr. Chairman and Members of the Committee:

We are pleased to be here to discuss our recent report on the export of high 

performance computers to countries of concern that might use the 

computers for military or nuclear proliferation purposes.1

 In 1996, the 

executive branch removed licensing requirements for most exports of high 

performance computers to civilian end-users but retained a licensing 

requirement for countries of concern. This change made exporters 

responsible for determining whether they needed to apply for an export 

license based on their knowledge of the end-user’s activities. In 1997, 

several U.S. exporters shipped high performance computers to Russian 

nuclear weapons laboratories and to a military end-user in China without 

licenses. Because the Congress believed that U.S. exporters may be 

unaware of end-users’ activities, it included a provision in the fiscal year 

1998 National Defense Authorization Act (P.L. 105-85) requiring exporters 

to notify the Commerce Department of any proposed export of a high 

performance computer to countries of concern so that a determination 

could be made whether the export needed a license. Countries that pose 

such a concern include China, Russia, India, Pakistan, Israel, and Egypt. 

The act also requires Commerce to verify that high performance computers 

exported to countries of concern, regardless of whether a license was 

required, are being used by the appropriate end-user.

You asked us to determine whether (1) exporters’ notifications to 

Commerce of proposed sales of high performance computers to countries 

of concern have resulted in any license applications and what action was 

taken on these licenses and (2) Commerce is verifying the use of high 

performance computers after their export to these countries. I will briefly 

summarize our principal findings.

Summary We found that most of the 938 proposed exports of high performance 

computers to civilian end-users in countries of concern from February 3, 

1998, when procedures implementing the 1998 authorization act became 

effective, to March 19, 1999, did not require a license. The agencies that 

reviewed the exporters’ proposals—the Departments of Commerce, 

Energy, Defense, and State and, until March 1999, the Arms Control and 

Disarmament Agency—allowed 828 proposed high performance computer 

1

Export Controls: 1998 Legislative Mandate for High Performance Computers

(GAO/NSIAD-99-208, Sept. 24, 1999).
Page 2 GAO/T-NSIAD-00-53

exports to continue without a license, but they required license 

applications for 101 proposed exports. Nine export proposals were 

classified as “incomplete” and returned to the exporter. The majority of the 

agencies’ objections to the 101 proposed exports were based on concerns 

that the proposed end-users of the computers might have been involved in 

military or proliferation-related activities. Of the 101 license applications 

required, 16 were approved and 6 were denied. The remaining 79 were 

returned to the exporters without action, which essentially blocks the 

proposed export. Licenses that were approved had additional conditions 

placed on the reexport or end-use of the computers. The majority of these 

applications involved China, India, and Israel. Licenses were required in 

nine cases where the end-user had previously received computers without 

a license before the Authorization Act was implemented.

The act contains no time limit for the completion of post-shipment 

verifications. As of November 17, 1998, Commerce had performed

post-shipment verifications of 104 exported high performance computers, 

or 27 percent of the verifications required on the 390 high performance 

computers exported during fiscal year 1998. In a report to Congress, 

Commerce stated that all 104 post-shipment verifications were favorable; 

that is, the computer had been seen during an on-site visit and nothing was 

inconsistent with the license or license exceptions. However, a verification 

conducted by Commerce but not yet completed detected the possible 

diversion of two computers to a military end-user in apparent violation of 

U.S. export control regulations. The Commerce Department is investigating 

these diversions.

Of the 286 high performance computer exports where post-shipment 

verifications had not been completed, almost two-thirds (187) involve 

exports to China. According to Commerce, the verifications have not been 

done because China’s policy prior to June 1998 did not permit 

post-shipment verifications, or the exports did not meet requirements 

agreed upon in a June 1998 memorandum of understanding between the 

Department of Commerce and China’s Ministry of Foreign Trade and 

Economic Cooperation.

The Departments of Commerce, Energy, Defense, and State were provided 

an opportunity to comment on our report. Energy did not comment and 

State provided oral technical comments, which we incorporated in our 

report. The Defense Department reviewed the report and had no 

comments. Commerce said that the report did not acknowledge that it had 

to divert enforcement resources from investigations and other preventive 
Page 3 GAO/T-NSIAD-00-53

enforcement activities to conduct the legislatively mandated post-shipment 

verifications and that it would soon be impossible to perform the 

verifications mandated by law. Commerce also stated that most 

uncompleted verifications were in China and that 103 of 200 outside of 

China were completed. Although the 1998 act requires post-shipment 

verifications on all high performance computers exported since 

November 18, 1997, whether licensed or not, Commerce believes that it is 

futile to seek to verify the use of high performance computers exported to 

China before the end-use visit arrangement or without end-use certificates. 

This is particularly true in view of the proposed changes to control levels 

for exports military end-users in countries of concern.

The July 1999 announcement to change export control levels removed 

future licensing requirements for many high performance computers that 

have already been exported to China. Notwithstanding the new control 

levels established by the executive branch, the act requires Commerce to 

conduct post-shipment verifications on all licensed and unlicensed high 

performance computers at certain performance levels that are exported to 

countries of concern, including China.

Background The legislation authorizes a 10-day period following notification for 

Commerce to circulate among the Departments of Defense, State, and 

Energy2

 the exporters’ notifications of proposed exports of high 

performance computers (HPC). The act requires a license to export if any 

of these agencies raises a written objection to the export without a license. 

According to National Security Council guidance, agency objections are to 

state whether the proposed export represents a risk of diversion for a 

military or proliferation end-use or to an end-user of concern. If no 

objection is raised during the 10-day period, the exporter may ship the 

computers without a license. Exporters that plan to ship HPCs to users that 

are already known to be of military or proliferation concern must apply 

directly to Commerce for an export license; they do not need to go through 

the notification process.

To indicate the level of concern the United States has with regard to the 

export of HPCs, the executive branch has organized countries into four 

2

The Arms Control and Disarmament Agency also reviewed cases until March 31, 1999, 

when it was terminated as an independent entity and its arms control and nonproliferation 

functions were merged with the State Department.
Page 4 GAO/T-NSIAD-00-53

tiers. Each tier after tier 1 represents a successively higher level of concern 

to U.S. security interests. (App. I contains a list of countries in the four 

tiers.) Tier 3 contains 50 countries that are of concern for military or 

proliferation reasons. The executive branch also established separate 

control levels for different types of end-users in tier 3. For end-users of 

military or proliferation concern, the controls require a license to export 

high performance computers that perform over 2,000 millions of 

theoretical operations per second (MTOPS). For civilian end-users in 

tier 3 countries, a license was required to export computers that perform 

over 7,000 MTOPS. For exports of HPCs performing between 2,000 and 

7,000 MTOPS, an exporter could ship the computers without a license, 

provided the exporter determined that the recipient was a civilian 

end-user.3

The act also requires Commerce to perform post-shipment verifications in 

tier 3 countries on the use of all licensed and unlicensed computers that 

perform more than 2,000 MTOPS. This requirement applies to all high 

performance computers exported from the United States on or after 

November 18, 1997. Verifications confirm the physical location of the 

computers and, to the extent practical, verify whether they are being used 

as intended. The current legislative requirement to conduct verifications on 

all computers performing over 2,000 MTOPS that were exported to 

countries of concern is not affected by the July 1999 executive 

announcement to raise export control levels.

The Legislation’s Effect 

on HPC Exports

The responsible executive branch agencies objected to 101 of 938 the 

notifications of proposed HPC export to tier 3 countries between 

February 3, 1998, and March 19, 1999.

Of the 101 objections raised regarding the proposed HPC exports, the Arms 

Control and Disarmament Agency (ACDA) and the Department of Defense 

submitted 59 and 55, respectively; the State Department submitted 14; and 

Commerce submitted 3. The Department of Energy raised no objections. 

3

In July 1999, the executive branch further revised licensing levels for tier 3 countries and 

reported these changes to Congress. The level for civilian end-users was raised from 7,000 

MTOPS to 12,300 MTOPS, effective immediately, and for military end-users from 2,000 

MTOPS to 6,500 MTOPS, effective in 6 months. The executive branch also raised the 

National Defense Authorization Act notification levels from 2,000 MTOPS to 6,500 MTOPS. 

By law, this change will take effect 6 months after the executive branch reports the changes 

to Congress.
Page 5 GAO/T-NSIAD-00-53

According to Commerce, an agency will often not object if an objection has 

already been raised by another agency.

The majority of the objections were based on concerns that the proposed 

end-users of the HPCs might have been involved in some military or 

proliferation-related activity. This was particularly evident in ACDA’s 

objections to telecommunications end-users in China. Of ACDA’s 

59 objections, 39 were for exports to China and 29 of those involved 

telecommunications end users, which, according to ACDA officials, have 

close ties with China’s military. The HPCs could therefore contribute to the 

military’s command and control capability. The Defense Department had 

similar concerns with several other civil entities in China about the risk of 

diversion of HPCs to military end-users and uses.

During the review process, objections were made to nine proposed HPC 

exports to end-users that had previously received HPCs without a license.4

Of the nine proposed exports, four were for end-users in China, four were 

for India, and one was for Israel. The agencies raised objections on the four 

proposed HPC exports to China based on their potential diversion from 

telecommunication and university end-users for military and

proliferation-related activities. Objections to the four proposed HPC 

exports to India were based on the sanctions imposed due to proliferation 

concerns. One objection to a proposed HPC export to Israel involved an 

Israeli university that might have had connections to proliferation-related 

activities. Commerce approved a license for one export and returned the 

remaining eight applications to the exporters without action.

Implementation of 

Post-Shipment 

Verifications Is 

Incomplete and Has 

Several Limitations

Section 1213 of the legislation requires the Secretary of Commerce to 

conduct post-shipment verifications (PSV) on each HPC performing over 

2,000 MTOPS exported from the United States to a tier 3 country, whether 

licensed or unlicensed, on or after the date of the statute’s enactment, 

4

These HPC exports, completed prior to the legislatively mandated review procedures, did 

not require a license under the regulations at that time if the HPC performed between 2,000 

and 7,000 MTOPS and if the exporter believed the HPC was going to a civilian end-user.
Page 6 GAO/T-NSIAD-00-53

which was November 18, 1997.5 The PSVs confirm the physical location of 

the HPC and, to the extent practical, verify whether it is being used as 

intended. However, there are limitations to determining end-use. While the 

legislation contains no time limit for completing PSVs, Commerce has 

completed PSVs on 104 HPC exports, or about 27 percent of those 

verifications required for the HPCs exported during fiscal year 1998. 

Commerce reported that all 104 PSVs were favorable. However, a PSV 

conducted by Commerce that has yet to be completed detected the 

possible diversion of two computers to a military end-user, in apparent 

violation of U.S. export control regulations. The Commerce Department is 

investigating these possible diversions.

The Commerce Department uses U.S. personnel from its Bureau of Export 

Administration or its U.S. and Foreign Commercial Service officers located 

at U.S. embassies and consulates to conduct legislatively mandated 

post-shipment verifications of the use of HPCs. Export Administration 

teams, which typically comprise two agents, go to a country or a group of 

countries for a 2- to 3-week period to conduct PSVs and pre-license checks 

and to meet with businesses to educate them on U.S. export control 

regulations. During fiscal year 1998, Export Administration teams took two 

trips to Russia, one trip each to Israel and Egypt, and one trip to India to 

conduct PSVs. No trips were made to China. Commerce’s guidelines 

instruct the PSV officials to determine

• what the serial number of the HPC is and, if possible, whether the 

machine has been upgraded;

• what the location of the HPC is, including a complete address, telephone 

number, fax number, and the name of a contact person, if the HPC has 

been resold or retransferred;

• whether the HPC is being used in a manner consistent with the stated 

purpose;

• whether anyone has remote access to the computer and, if so, who does 

and for what purpose;

• whether the HPC is located in a secure area and whether the level of 

security seems consistent with the function performed or seems overly 

strict for a commercial facility; and

5

The July 1, 1999, revision of licensing levels does not affect the act’s requirement to conduct 

post-shipment verifications on all exported computers performing over 2,000 MTOPS 

exported to tier 3 countries.
Page 7 GAO/T-NSIAD-00-53

• whether any activities seem inconsistent with the stated end-use, 

including indications of ownership or operations by a military 

organization or involvement of an organization in the design, 

manufacture, storage, use, or testing of nuclear, chemical, or biological 

weapons.

When conducting a PSV, officials confirm that the computer has arrived at 

the intended location and either qualifies for a license exception (if it has 

been exported without a license) or is being used under the terms of the 

license. According to an Export Administration official, a favorable PSV 

means that an HPC has been seen during an on-site visit and that nothing 

was inconsistent with the license or the license exception. An unfavorable 

PSV means that an inconsistency was found between the actual end use 

and the end-use intended for the export. The Export Administration’s 

Office of Export Enforcement may investigate the inconsistency, 

depending on its seriousness.

Mr. Chairman, this concludes my prepared testimony. I would be happy to 

respond to any questions you or other members may have.

Contacts and Acknowledgments

For further information regarding this testimony, please contact Jim 

Johnson at 512-3540. Individuals making key contributions to this 

testimony were Jim Shafer, Charles Bolton, and Jason Fong.
Page 8 GAO/T-NSIAD-00-53

Appendix I

Licensing Requirements for High Performance 

Computer Exports, by Country Group ApendxIi

Four country groups and licensing requirements have been established for 

high performance computer exports, as follows:

• Tier 1 (32 countries: Western Europe, Eastern Europe, Japan , Canada, 

Mexico, Brazil, Australia, and New Zealand). No prior government 

review (license exception) for all computers, but companies must keep 

records on higher performance shipments that will be provided to the 

U.S. government, as directed.

• Tier 2 (102 countries: Latin American, South Korea, Association of 

Southeast Asian Nations, or ASEAN; Slovak Republic; Slovenia; and 

South Africa). No prior government review (license exception) for 

computers performing up to 20,000 MTOPS, with record-keeping and 

reporting as directed; individual license (requiring prior government 

review) for computers performing above 20,000 MTOPS.

• Tier 3 (50 countries: India, Pakistan, all Middle East/Maghreb, the 

former Soviet Union, China, Vietnam, and the rest of Eastern Europe). 

No prior government review (license exception) for computers 

performing up to 2,000 MTOPS. Individual license for military and 

proliferation-related end uses and users and license exception for 

civilian end users for computers performing between 2,000 MTOPS and 

7,000 MTOPS, with exporter record-keeping and reporting as directed. 

Individual license for all end users for computers performing above 

7,000 MTOPS. Above 10,000 MTOPS, additional safeguards may be 

required at the end-user location.

• Tier 4 (7 countries: Iraq, Iran, Libya, North Korea, Cuba, Sudan, and 

Syria). Current policies continue to apply (i.e., virtual embargo on 

computer exports).

For all these groups, reexport and retransfer provisions continue to apply. 

The government continues to implement the Enhanced Proliferation 

Control Initiative, which authorizes the government to block exports of 

computers of any level in cases involving exports for end uses or to end 

users of proliferation concern or risks of diversion to proliferation 

activities. Criminal as well as civil penalties apply to violators of the 

initiative.

(711464) Letr
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