U.S. GOVERNMENT PRINTING OFFICE

65–171 cc WASHINGTON : 2000

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

(II)

COMMITTEE ON GOVERNMENTAL AFFAIRS

FRED THOMPSON, Tennessee, Chairman

WILLIAM V. ROTH, Jr., Delaware

TED STEVENS, Alaska

SUSAN M. COLLINS, Maine

GEORGE V. VOINOVICH, Ohio

PETE V. DOMENICI, New Mexico

THAD COCHRAN, Mississippi

ARLEN SPECTER, Pennsylvania

JUDD GREGG, New Hampshire

JOSEPH I. LIEBERMAN, Connecticut

CARL LEVIN, Michigan

DANIEL K. AKAKA, Hawaii

RICHARD J. DURBIN, Illinois

ROBERT G. TORRICELLI, New Jersey

MAX CLELAND, Georgia

JOHN EDWARDS, North Carolina

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

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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

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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 knowledgebased 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.

2

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

3

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.

4

1The prepared statement of Mr. Johnson with an attachment appears in the Appendix on

page 40.

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.

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

5

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.

6

1The prepared statement of Mr. Lieberman appears in the Appendix on page 57.

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.

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.

7

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 massmarket 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 interagency 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 conVerDate 11-MAY-2000 09:47 Aug 08, 2000 Jkt 000000 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 65171.TXT SAFFAIRS PsN: SAFFAIRS
8

1The prepared statement of Mr. Milhollin with attached articles appear in the Appendix on

page 76.

currence, 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.

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 highprecision 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.

9

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.

10

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,

11

1The prepared statement of Mr. Hoydysh appears in the Appendix on page 102.

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.

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.

12

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.

13

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

14

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 whatVerDate 11-MAY-2000 09:47 Aug 08, 2000 Jkt 000000 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 65171.TXT SAFFAIRS PsN: SAFFAIRS
15

not, 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 massmarket 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.

16

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 selffulfilling 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.

17

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 highperformance 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.

18

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

19

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

20

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.

21

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 appliVerDate 11-MAY-2000 09:47 Aug 08, 2000 Jkt 000000 PO 00000 Frm 00025 Fmt 6633 Sfmt 6633 65171.TXT SAFFAIRS PsN: SAFFAIRS
22

cations 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

23

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

24

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 postshipment 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

25

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 postshipment 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

26

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 backend 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

27

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.

28

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 highperformance 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

29

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.

30

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 loVerDate 11-MAY-2000 09:47 Aug 08, 2000 Jkt 000000 PO 00000 Frm 00034 Fmt 6633 Sfmt 6633 65171.TXT SAFFAIRS PsN: SAFFAIRS
31

1The information referred to appears in the Appendix on page 119.

cation 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

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 dualuse 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

32

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 availVerDate 11-MAY-2000 09:47 Aug 08, 2000 Jkt 000000 PO 00000 Frm 00036 Fmt 6633 Sfmt 6633 65171.TXT SAFFAIRS PsN: SAFFAIRS
33

ability 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?

34

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 worVerDate 11-MAY-2000 09:47 Aug 08, 2000 Jkt 000000 PO 00000 Frm 00038 Fmt 6633 Sfmt 6633 65171.TXT SAFFAIRS PsN: SAFFAIRS
35

ried 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 postCold 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 welldefined, 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.

36

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

37

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.]

(39)

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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