U.S. GOVERNMENT PRINTING OFFICE

60–295 CC WASHINGTON : 2000

HEARING ON A NEW ACT FOR A NEW WORLD

ORDER: REASSESSING THE EXPORT ADMINISTRATION ACT

HEARING

BEFORE THE

SUBCOMMITTEE ON

INTERNATIONAL ECONOMIC POLICY AND TRADE

OF THE

COMMITTEE ON

INTERNATIONAL RELATIONS

HOUSE OF REPRESENTATIVES

ONE HUNDRED SIXTH CONGRESS

FIRST SESSION

ON

MARCH 3, 1999

Serial No. 106–49

Printed for the use of the Committee on International Relations

(

(II)

COMMITTEE ON INTERNATIONAL RELATIONS

BENJAMIN A. GILMAN, New York, Chairman

WILLIAM F. GOODLING, Pennsylvania

JAMES A. LEACH, Iowa

HENRY J. HYDE, Illinois

DOUG BEREUTER, Nebraska

CHRISTOPHER H. SMITH, New Jersey

DAN BURTON, Indiana

ELTON GALLEGLY, California

ILEANA ROS-LEHTINEN, Florida

CASS BALLENGER, North Carolina

DANA ROHRABACHER, California

DONALD A. MANZULLO, Illinois

EDWARD R. ROYCE, California

PETER T. KING, New York

STEVEN J. CHABOT, Ohio

MARSHALL ‘‘MARK’’ SANFORD, South

Carolina

MATT SALMON, Arizona

AMO HOUGHTON, New York

TOM CAMPBELL, California

JOHN M. McHUGH, New York

KEVIN BRADY, Texas

RICHARD BURR, North Carolina

PAUL E. GILLMOR, Ohio

GEORGE RADANOVICH, California

JOHN COOKSEY, Louisiana

THOMAS G. TANCREDO, Colorado

SAM GEJDENSON, Connecticut

TOM LANTOS, California

HOWARD L. BERMAN, California

GARY L. ACKERMAN, New York

ENI F.H. FALEOMAVAEGA, American

Samoa

MATTHEW G. MARTINEZ, California

DONALD M. PAYNE, New Jersey

ROBERT MENENDEZ, New Jersey

SHERROD BROWN, Ohio

CYNTHIA A. MCKINNEY, Georgia

ALCEE L. HASTINGS, Florida

PAT DANNER, Missouri

EARL F. HILLIARD, Alabama

BRAD SHERMAN, California

ROBERT WEXLER, Florida

STEVEN R. ROTHMAN, New Jersey

JIM DAVIS, Florida

EARL POMEROY, North Dakota

WILLIAM D. DELAHUNT, Massachusetts

GREGORY W. MEEKS, New York

BARBARA LEE, California

JOSEPH CROWLEY, New York

JOSEPH M. HOEFFEL, Pennsylvania

RICHARD J. GARON, Chief of Staff

KATHLEEN BERTELSEN MOAZED, Democratic Chief of Staff

SUBCOMMITTEE ON INTERNATIONAL ECONOMIC POLICY AND TRADE

ILEANA ROS-LEHTINEN, Florida, Chairperson

DONALD A. MANZULLO, Illinois

STEVEN J. CHABOT, Ohio

KEVIN BRADY, Texas

GEORGE RADANOVICH, California

JOHN COOKSEY, Louisiana

DOUG BEREUTER, Nebraska

DANA ROHRABACHER, California

TOM CAMPBELL, California

RICHARD BURR, North Carolina

ROBERT MENENDEZ, New Jersey

PAT DANNER, Missouri

EARL F. HILLIARD, Alabama

BRAD SHERMAN, California

STEVEN R. ROTHMAN, New Jersey

WILLIAM D. DELAHUNT, Massachusetts

JOSEPH CROWLEY, New York

JOSEPH M. HOEFFEL, Pennsylvania

MAURICIO TAMARGO, Subcommittee Staff Director

JODI CHRISTIANSEN, Democratic Professional Staff Member

YLEEM POBLETE, Professional Staff Member

CAMILA RUIZ, Staff Associate

(III)

C O N T E N T S

WITNESSES

Page

Hon. Ileana Ros-Lehtinen, a U.S. Representative from the State of Florida,

Chairperson, Subcommittee on International Economic Policy and Trade ..... 6

Hon. Christopher Cox, a U.S. Representative from the State of California ....... 6

Hon. Norman D. Dicks, a U.S. Representative from the State of Washington .. 9

Mr. William Reinsch, Undersecretary of Commerce, Bureau of Export Administration ................................................................................................................. 28

Mr. Richard Hoglund, Assistant Commissioner for Investigations, U.S. Customs Service .......................................................................................................... 32

Hon. Toby Roth, Former Member of Congress, President, The Roth Group ...... 39

Mr. Dave McCurdy, Former Member of Congress, President, Electronic Industries Alliance ......................................................................................................... 41

Mr. Joel Johnson, Vice President, International Division, Aerospace Industries Association ................................................................................................... 43

Dr. Paul Freedenberg, Director of Government Relations, The Association

for Manufacturing Technology ............................................................................ 45

APPENDIX

Prepared statements:

William A. Reinsch .................................................................................................. 62

Richard J. Hoglund .................................................................................................. 67

Toby Roth ................................................................................................................. 74

Dave McCurdy ......................................................................................................... 82

Joel Johnson ............................................................................................................. 94

Dr. Paul Freedenberg .............................................................................................. 100

(1)

HEARING ON A NEW ACT FOR A NEW WORLD

ORDER: REASSESSING THE EXPORT ADMINISTRATION ACT

Wednesday, March 3, 1999

HOUSE OF REPRESENTATIVES

SUBCOMMITTEE ON INTERNATIONAL ECONOMIC POLICY

AND TRADE

COMMITTEE ON INTERNATIONAL RELATIONS

Washington, D.C.

The Subcommittee met, pursuant to call, at 2:33 p.m., in room

2237, Rayburn House Office Building, Washington, D.C., the Honorable Ileana Ros-Lehtinen (Chairperson of the Committee) presiding.

Present: Representatives Ros-Lehtinen, Manzullo, Chabot, Rohrabacher, Burr, Menendez, Sherman, Delahunt, and Hoeffel.

Ms. ROS-LEHTINEN. The Subcommittee will come to order.

The exports of dual-use commodities have been and continue to

be of critical concern to the national security interests of the

United States. In light of recent developments related to the transfer of satellites and possible missile-related technology to China,

apprehensions have mounted about the possibility of U.S. exports

contributing to the military potential of pariah states and what role

the Export Administration Act plays in this scenario.

Initially, at the onset of the cold war, concerns over the transfer

of superior technology to governments, factions or individuals may

have threatened the collective interests of the United States and its

trading partners and it led to the development of unilateral and

multilateral export controls to ensure that dual-use technologies

with potential military applications did not fall into the wrong

hands.

The Export Administration Act of 1979, based on legislation

drafted at the onset of the cold war in 1949, had, as part of its

original purpose, the tasks of restricting the export of technology

and dual-use items, of guarding the domestic economy from scarcity and inflation, of furthering U.S. foreign policy and of protecting

U.S. National Security.

This was achieved through a somewhat complex licensing system

that allowed the United States to monitor proliferation and the

movement of goods into the Soviet bloc nations.

Since 1990, when the Act expired, there have been several attempts made at rewriting the Export Administration Act of 1979.

These efforts to develop legislation to meet the needs of a rapidly

2

developing marketplace and of a new world order have failed to

pass through both houses of Congress.

Since then, the Act has been maintained through a series of Executive orders issued through the International Emergency Economic Powers Act. In a post-cold war era, many have argued that

there is a need to find a new approach to export controls that deal

with today’s political realities and increasingly globalized marketplaces, one which shifts the focus from the previous Soviet threat

to the existing menace of terrorism and proliferation of weapons of

mass destruction and one which balances the foreign policy benefits

and the economic costs.

While there is debate over whether there can be coexistence between industry interests and their desire to enhance export competitiveness and national security priorities are promoting effective

and non-proliferation policy, lawmakers must look at a way to try

to reconcile both goals.

The dilemma we face is how to restrict the spread of potentially

destructive technologies, while preserving the ability of U.S. technology exporters to develop their civilian technology markets.

There are those who stress the benefits of export controls and

who argue that the economic sacrifices, including reduced exports,

are worth the price of ensuring U.S. National Security and that exporters are paying the burden of doing business with possibly dangerous commodities.

Others suggest that new or modified unilateral export control

must withstand a cost-benefit analysis, whether the costs of the

proposed control on American industries and our economic competitiveness exceed the value to the foreign policy or national security

priorities.

Critics of current U.S. export control laws say that the current

policies promote interagency grid lock, causing conflicts between

the various responsible licensing administrations and their enforcement goals, and that the solution to a more effective export control

mechanism lies in streamlining the process and concentrating regulatory authority in fewer agencies.

Still there are those who claim that providing greater transparency on U.S. export control laws while maintaining tighter restrictions on export to terrorist nations would be a more effective

approach to bring export control laws up to par with today’s current global realities.

Opponents of stricter expert controls have pointed to the foreign

availability of many of these dual-use items and claim that some

export controls hurt America’s competitiveness, because, in effect,

we are unnecessarily limiting our access to certain foreign markets

and allowing our competitors to benefit.

Others yet point to what they call a lack of effective unilateral

controls. Those who criticize unilateral controls claim that they are

ineffective and that only multilateral controls, such as missile technology control regime or other acts where allied countries to seek

to coordinate export controls are actually the effective tools in nonproliferation.

Supporters of unilateral export controls, however, argue that the

United States cannot risk our security interests as we wait for our

3

allies to decide whether or not to place similar controls on their export markets.

Former President George Bush, in outlining the importance in

developing a new Export Administration Act, spoke about some of

the key considerations we should look at when drafting new legislation. He said American exporters are entitled to prompt review of

export license applications submitted to the U.S. Government

based on our commitment to an open International Trading System

and the need to ensure America’s competitiveness.

While he also emphasized that these changes did not signal a

lessening of our determination to weigh cautiously the licensing applications, raising potential non-proliferation or broader national

security concerns.

This is the challenge that we face today while considering the future of export control structure of the Administration and the reauthorization of the EAA. We must carefully evaluate the arguments

and counter-arguments to find a solution that, first and foremost,

safeguards our U.S. National Security and promotes our foreign

policy objectives, yet also addresses market demands and incorporates U.S. trade and commercial concerns.

We look forward to the testimony and the recommendations of

our very esteemed witnesses that they will offer us today as we

begin the reauthorization process.

With that, I would like to turn to my colleague, Congressman

Menendez.

Mr. MENENDEZ. Thank you, Madam Chairlady. I look forward to

today’s hearing. I have a full statement for the record, which, in

the interest of time, I would ask to submit. But I do want to make

some prefatory comments that as we embark on what I hope will

be a successful conclusion which will ultimately conclude in having

an Export Administration Act passed through this House and the

Senate and get signed by the President.

I think that the Congress has acceded authority to the executive

branch by not acting and in doing so, under the Constitution,

which clearly gave the Congress the authority to deal with questions of commerce that are not acting, has created an abdication of

what is, I think, an incredibly important interest that the Congress

should be pursuing and an incredibly important right under the

Constitution that the Congress should be exercising.

I’m also concerned, as any one of us who sits on this panel or

in this Congress are, about the concerns of national security, as

well as economic development and opportunity, that in an everchanging world, in an ever-changing economic reality of the United

States needs to have, and the balance that is struck there is, of

course, of incredible importance to us.

However, I hope that we do not, by virtue of our concerns, our

legitimate concerns in the context of national security, do not move

the pendulum so far as to snuff out the very economic vitality of

those commercial enterprises that, in fact, in my mind, assist

America in being safer.

Ultimately, the companies that are, in fact, doing the research

and development that the United States, as a government, is not

doing is, in fact, crucial to the type of competitive advantage that

the United States has had in technology against any other ally or

4

any other potential enemy of the United States, and it is that competitive edge that is ultimately fueled not necessarily by Government research, but by the research and development of the very

private sector who falls within the am bit of the Act and ultimately

who, if we go overboard on, we will, in essence, hurt ourselves in

the context of national security.

So therefore, it’s part of our dilemma. I think that there are

issues that we can all universally agree upon up front and they include, of course, the questions of penalties. On the side of penalties,

we have a regime presently operating under Executive order that

I think gives very little teeth to the type of enforcement that we

would want to see, as well as a regime that we’re working under

that ultimately creates, I think, a very significant problem for the

enforcement, the intelligent enforcement of our law, and that

spreads us so thin in pursuing avenues under the present regulations that do not create a meaningful enforcement regime that can

really serve the national interests and the national security interests of the United States.

Having said that, I want to thank you colleague Norm Dicks

Chris Cox for their work in making sure that the national security

questions which are vital to all of us have been looked at deeply.

I look forward to their testimony.

I do intend to have some questions for them based upon some of

the recommendations I’ve seen and how we can work together to

strike that balance that protects the national security of the United

States, but that understands that the commercial enterprises that

are subject to this regime ultimately, also are part not only of economic vitality, but of helping the national security of the United

States be further secure in the days ahead.

Ms. ROS-LEHTINEN. Thank you, Mr. Menendez. The Vice Chair of

our Subcommittee, Mr. Manzullo.

Mr. MANZULLO. Thank you very much. Madam Chair, I commend

you for holding this hearing today, and I can’t think of an issue

that is more critical to the economic vitality of this nation than the

reauthorization of the Export Administration Act.

Bottom line is this. Unless we do something, it’s very conceivable

that 13 of our largest computer manufacturers will be manufacturing not in the United States next year, but in Europe and Asia.

Because of the vision that was put in the Defense Authorization

bill that requires a license for computers that have 2,000 MTOPS

and above, we are in the process in the country of sending hundreds of thousands of high-paying jobs overseas.

Second, we have to come to an understanding that computers,

that satellites, that machine tools, that electronic equipment is sophisticated, but it’s not unique. If we don’t sell it, then the French

or the Swiss, the Fins, the Radians, the Germans, or the Japanese

or the Canadians will do it.

If we do not do this bill correctly, it’s close-up time for hundreds

of thousands of jobs in this country. This is so absolutely totally

critical. We have to take a look at what it means to have something

called foreign availability.

Does it do any good for this country to deny the sale of a machine

of several million dollars based upon some foreign policy objective,

then to have the French move right in and sell the very same maVerDate 11-SEP-98 13:22 May 15, 2000 Jkt 000000 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 60295.TXT HINTREL1 PsN: HINTREL1
5

chine to the people who want to buy it? It does two things. The upfront injury is obviously apparent, because we lose the sale of that

machine. The second thing is it paints the American manufacturers

as inherently unreliable suppliers.

Third, on top of the problems with the EAA, we fight continually

with the Export/Import Bank that tries to pride itself upon some

type of cloak of humane justice, at the same time while not allowing firms such as Caterpillar to get Ex/Im loans to the three gorgeous dam projects. Our own American Government ends up having the Chinese buy those machines from Japan as opposed to the

United States.

We are our own worst enemy when it comes to export policy. We

can have an aggressive and victorious and profitable export policy

and, at the same time, guard very carefully our national security

interests.

Madam Chair, I look forward to working with you on coming up

with a bill aimed toward that effect.

Ms. ROS-LEHTINEN. Thank you, Mr. Manzullo. Mr. Hoeffel.

Mr. HOEFFEL. I have no comment. Thank you.

Ms. ROS-LEHTINEN. Thank you. Mr. Chabot. Mr. Delahunt.

Mr. DELAHUNT. Just briefly. Before we begin, I really want to

publicly state what I’ve said to both Mr. Dicks and Mr. Cox privately, that I was—it was very refreshing, during the course of

your efforts, which I know were considerable, that the issue did not

become politicized as a result of the work that you did, that there

were no leaks.

I would say, given my short time here in this institution, it was

unusual, but it reflected well on both of you and you brought great

credit to Congress as an institution by your conduct and other

Members of the Select Committee.

I just wanted to say that, and one other item. Tomorrow, listening to my colleagues on the Subcommittee, in the same room, this

happens to be a Subcommittee room usually utilized by the Intellectual Property Subcommittee of the Judiciary, that Subcommittee

I also serve on, and we’ll be dealing with the issue of encryption.

That, I think, last year, had in excess of 250 co-sponsors; co-sponsored, again, in a bipartisan way between the lead co-sponsors

being Representative Goodlatte and Representative Lofgren.

I think really what we’re talking about is whether Mr. Manzullo

very accurately and articulately described as this need to, at some

point in time, resolve this anguish we have, and I know it’s a difficult balance between our security concerns and our need to be

competitive internationally. And I dare say that when we pick up

the barons on a monthly basis and discover that our trade imbalance is ever increasing, that we have to keep that in mind, because

the one account where we have the advantages in the high tech

area—and I just want to make that observation without reaching

any conclusions.

But, again, to both of you, congratulations on the work that you

did.

6

STATEMENT OF THE HONORABLE ILEANA ROS-LEHTINEN, A

U.S. REPRESENTATIVE OF CONGRESS FROM THE STATE OF

FLORIDA, CHAIRMAN OF THE SUBCOMMITTEE ON INTERNATIONAL ECONOMIC POLICY AND TRADE

Ms. ROS-LEHTINEN. Thank you so much. We’re so pleased to have

before our Subcommittee two of our colleagues. Representative

Chris Cox is the highest Ranking Californian in Congress. He’s

Chairman of the House Policy Committee and the fourth Ranking

Member of the leadership, behind the Speaker. He currently serves

as Chairman of the Select Committee on U.S. National Security

and Military Commercial Concerns with the People’s Republic of

China, as well as on the Committee on Commerce and its various

Subcommittees.

Before he was elected to Congress in 1988, he served as Senior

Associate Counsel to President Reagan, advising the President on

a broad range of policy matters, and prior to his White House career, Congressman Cox, along with his father, a retired publisher,

founded a company that provided a complete English translation of

the former Soviet Union’s leading daily paper.

From 1978 to 1986, he specialized in Venture Capital and Corporate Finance with the International Law Firm of Latham & Watkins, where he was a partner in charge of corporate development

and a member of the firm’s national management.

Representative Norm Dicks is a former Vice Chair of the Select

Committee of the U.S. National Security and Military Commercial

Concerns with the People’s Republic of China. He received a rare

first-term appointment to the House Appropriations Committee

and currently serves as a Senior Member.

He is a Member of three Appropriations Subcommittees, including Defense Military Construction and the Subcommittee on the Interior, where, this Congress, he became the Ranking Democratic

Member.

Prior to his successful run for Congress in 1976, Congressman

Dicks was a legislative assistant and later AA to Senator Warren

Magnuson.

We welcome you both. Thank you. Chris, you may begin.

STATEMENT OF THE HONORABLE CHRISTOPHER COX, A U.S.

REPRESENTATIVE OF CONGRESS FROM THE STATE OF CALIFORNIA

Mr. COX. Thank you very much. I certainly feel very welcome

here and I want to first thank the Chairperson for her introduction

and, also, immediately recognize that Mr. Manzullo has put the potato on the fork for us. That is the issue that we’ve got to deal with

today.

I deal with it, as Mr. Delahunt does, in part, by having signed

on as original co-sponsor of the bill that you’re going to consider in

here tomorrow on encryption. Nothing that I have seen as Chairman of the Select Committee, which completed its work prior to the

commencement of this Congress, caused me to be anything other

than enthusiastic for that piece of legislation.

The Select Committee, as you know, was established a resolution

that you all voted on the floor last June. It was a nearly unaniVerDate 11-SEP-98 13:22 May 15, 2000 Jkt 000000 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 60295.TXT HINTREL1 PsN: HINTREL1
7

mous vote in support of investigating matters that had been

brought publicly to the attention of the Congress.

Mr. Bereuter, who is not here, but is a Member of this Subcommittee, as well as the Full Committee did a splendid job serving as one of the Members on this Committee.

As Mr. Delahunt pointed out, our report was unanimously delivered. Norm and I don’t agree on everything. We didn’t during the

pendency of our Committee. The same could be said for every single Member on the Republican and Democrat sides. We have intramural, as well as interpartisan disagreements. But we agreed on

everything in our report and all of its recommendations and we did

so because the facts that we uncovered in our investigation are

compelling and they carry grave consequences.

The Export Administration Act figured in our recommendations.

The Act, as several of you have outlined in your opening statements, long since expired. It’s been carried on after some brief extensions in 1993 and 1994, under the President’s Executive order

authority, pursuant to IEEPA.

The penalties, as you have also alluded to, under IEEPA, are significantly less than those that were enforced when we had an Act

and that would be enforced if we simply reauthorized the Act.

I’m used to playing with accompaniment.

The Export Administration Act carries a maximum criminal pen- alty for an individual of $250,000 and up to 10 years in prison. But

under IEEPA, the maximum penalty is just one-fifth of that,

$50,000. The maximum criminal fine for an organizational violator,

and typically we’re dealing with firms that are involved in these

things, is the greater of $1 million or five times the value of the

export, under the Export Administration Act; not treble, but quintuple damages. But under IEEPA, the maximum fine is only half

of that $1 million base or $500,000 for an organization and there

is no quintuple, treble or any other multiple of an export fine. The civil penalties, likewise, $100,000 under the Export Adminis- tration Act, but the maximum of $11,000 under IEEPA, and you

can imagine how silly it is to have an $11,000 penalty for something that requires Federal prosecution even to bring to the penalty phase.

So we on the Committee recommended what came rather clearly

and obviously to all of us, and that is that Congress ought to restore the Act and its penalties, because, as Mr. Menendez pointed

out in his opening remarks, to a substantial degree, our enforcement is rendered toothless.

Licensing procedures are governed by Executive order, dating

back to 1995. The established time lines for processing export license applications and reviewing departments and agencies and

procedures, resolving differences among the agencies regarding the

disposition of license applications, are all covered by EO–12981.

Presently, under that regulation, the Defense Department has

only 30 days to provide a recommendation to Commerce, not the

Committee, but the department, to approve or disapprove every license application, no matter how complex. And I can tell you that

right now we are disserving both the national security interest and

our commercial interest by overloading that system. It doesn’t work

and it is very, very easy to imagine ways to improve upon it.

8

The Select Committee recommends that the current licensing

procedures be modified to provide longer review periods, when

deemed necessary by a reviewing department or agency on national

security grounds, in light of the volume and complexity of licensing

activities.

Presently, when departments and agencies are not in agreement

regarding a license application, the Commerce Department makes

the final decision on every license, subject only to appeal by other

departments or agencies.

The Select Committee recommends approval of a license application that requires a consensus by reviewing departments and agencies, subject to appeal procedures.

The new procedures and deadlines for processing Commerce Department Export License Applications were instituted in late 1995.

They place National Security Agencies under significant time pressures. Commerce officials acting alone are less likely to have the

expertise for identifying national security implications of export of

militarily useful technologies.

While National Security Agencies may be informed of applications, due time is needed for their consideration. The time-frame

for consideration under the current system is not always sufficient

for DOD to determine whether a license should be granted or if

conditions should be imposed.

In addition, the intelligence community has sought a role earlier

in the licensing process in order to evaluate the technology and the

end user.

The Select Committee recommended that Congress and all of you

here in this Subcommittee work to establish a mechanism to identify on a continuing basis those control technologies and items that

are of greatest national security concern. With respect to those

technologies and items, it is our recommendation that there be

longer review periods and a consensus.

But with respect to other currently controlled technologies and

items that are not of greatest national security concern, currently

licensing procedures should be modified to streamline the process

and provide greater transparency, predictability and certainty.

There has been some public comment, press comment and television comment on the recommendations of the Select Committee.

I hasten to add that the Select Committee has not issued its recommendations and what is out there is only part of the picture.

In particular, several of our recommendations, bearing directly

on what you are considering, are more fully and understandably

described in our report, which presently remains classified. Even

more importantly, the basis, the reasons for those recommendations remain classified, and so it’s impossible to have a dialogue or

a discussion of, on the one hand and on the other hand, about these

things, so long as that classification remains in place.

Tomorrow, Representative Dicks and I will brief your Full Committee in a closed session so that we can go into those reasons, but

for today, of course, we are in open session and so we are left with

only the highest gloss on our work.

But we very much appreciate the time to introduce you to our

thinking on the subject. I would yield to the distinguished Ranking

Member on the Select Committee, Mr. Dicks, with respect to whom

9

I have the very same high praise that Mr. Delahunt shared with

us a moment ago.

STATEMENT OF HONORABLE NORMAN D. DICKS, A U.S. REPRESENTATIVE OF CONGRESS FROM THE STATE OF WASHINGTON

Mr. DICKS. Thank you, Madam Chairperson. I appreciate being

here today and I have enjoyed very much working with Chris Cox

on this important subject and I was pleased that we were able to

come to a unanimous conclusion.

Obviously, there are differences of opinion on certain of these

issues, but we tried to work it out in a way that, in the midst of

the impeachment proceedings, to try and demonstrate that Congress could work on a serious issue without necessarily breaking

along partisan lines, though we certainly had our differences.

I would just say that I come from Washington State and there

is no state in the country—we lead the Nation in export because

of the Boeing Company and I have always been a person who has

believed that we needed to have a policy of engagement and that

we needed to trade with the rest of the world, and my record in

Congress has been that.

On the other hand, I would just say to my good friend Mr.

Delahunt that there are differences of opinion on the issue of

encryption. Washington State also is the home of Microsoft, a very

important company in our State and they have a very definite view

on that.

The Intelligence Committee, last year, on a unanimous vote, all

17 Members, took a position very different from the Goodlatte legislation on the basis of law enforcement equities, particularly those

of the FBI, and Mr. Louie Freeh has very strong views about this

and I would encourage, in your deliberations here, that you listen

to what he has to say, as well, because there are very important

national security and foreign policy reasons for looking at this

thing carefully and trying to get the rest of the world to look at

this issue carefully.

But that’s not what we’re here about today. I just wanted to

make a very brief statement. I appreciate the opportunity to appear with the Chairman in support of reauthorization of the Export

Administration Act.

As Mr. Cox has indicated, the Select China Committee felt

strongly that continuing to implement export control through the

emergency authorities, which have been in place since 1994, was

unwise. Chairman Cox noted that the penalty authorities, both

civil and criminal, under the International Emergency Economic

Power Act, IEEPA, were substantially lower than under the Export

Administration Act of 1979.

Even if it were possible simply to reinstate the EAA penalty levels, sufficient correction would not result since the effect of those

levels has been seriously eroded by two decades of inflation.

If penalties are to be of assistance in conforming behavior, they

must be meaningful. Currently, deterrence is not enhanced by the

available penalty authorities. I understand that there are authorities other than those related to penalties which are either reVerDate 11-SEP-98 13:22 May 15, 2000 Jkt 000000 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 60295.TXT HINTREL1 PsN: HINTREL1
10

stricted or susceptible to being questioned under the existing export control framework.

Resolving those matters is important, but perhaps not as important as having an Export Administration Act reauthorization serve

as the basis for a serious debate within Congress and between Congress and the executive branch about export control policy.

Much has changed certainly since 1979, but even since 1996,

when the House last voted on export control issues, I think we

need to carefully consider how to balance best national security

concerns, particularly on dual-use items, with the legitimate concerns of U.S. businesses seeking to sell their products overseas.

I must say that our Committee struggled with this, too, because

I think all of our Members are very concerned about allowing the

United States to export around the world. At the same time, we

want to be very careful that sensitive technologies not be inadvertently turned over to potential adversaries, especially with the problem of proliferation, in that some countries get these technologies

and then they go on to other countries which could be even more

dangerous.

So we think this is a very important issue. It’s one that we struggled with and debated, but I thought that the recommendations

that we made were pretty solid and I would hope that, as we get

this thing declassified and we can share more of this information

with you, you will see the basis for the recommendations that we

did make.

On the subject of high speed computers, we know that’s a very

sensitive issue. We know that that’s very important to our country,

as well. There were some reasons why we did what we did, that

we simply can’t talk about in this particular forum because of classification levels. But at some future point, we want to engage everyone, so that you can have the best information and you can see

what we developed and then draw your own conclusions.

Thank you very much.

Ms. ROS-LEHTINEN. Thank you so much to both of you gentlemen. I just have two questions and if you could stick around for

a few minutes while the Members ask, and we understand the classified nature of your report. So whatever you could answer would

be great.

Your report includes recommendations for current licensing procedures and you talked about it in your presentation to be modified

in order to provide longer review periods when deemed necessary

for controlled technologies and for items of greatest national security.

What specific recommendations would you offer? What items

would you consider to be in that category of greater national security concern and do you believe that any reviewing agency should

be able to ask for a longer review period or should it be limited to

a specific longer review period, and what happens if what you

talked about, Chris, about consensus, if it cannot be achieved, as

is so often the case in the governmental infrastructure, what would

happen?

Mr. COX. Well, Madam Chairman, our approach would do two

things. First, it would attempt to separate out those items that we

know are the subject of espionage, that are the subject of collection,

11

that are the focus of military acquisition by countries of concern

and countries with proliferation records, from our standpoint.

The second thing that it would do is take that core, which is a

subset of what presently now is controlled, and essentially go back

to the system of a few years ago, where not just the Commerce Department, but also the State Department and the Defense Department, and I would, for a variety of purposes, which to include

somehow in that mechanism the Intelligence community, have not

just a heads-up, but an opportunity to be involved in a meaningful

way.

We have said two things. First, we want longer review times for

those essential things and, second, we want a fast track for many

other things. We’re in many ways, in many respects, always trying

to fight the last war, and the same can be said about the way that

we run our exports.

But as I said in my opening comments, the present system is the

worst of both worlds. It is woefully inadequate when it comes to

protecting our national security. It is woefully inadequate when it

comes to giving us a competitive edge vis-a`-vis our trading partners, because the process chews up time and all of that time and

paperwork doesn’t result normally in the kind of quality review

that it should.

So we need to decide what we really care about, put more resources there, and focus attention on our real national security concerns.

Ms. ROS-LEHTINEN. Thank you. Norm?

Mr. DICKS. Basically, what we tried to say was that there ought

to be a way to make a judgment here about which of these items

are of the most concern, take a little more time on those, and the

ones that are of less concern, then you could have an expedited procedure.

Now, we left that up, frankly, to the Administration to decide at

what point you’d make that cutoff.

The other thing is, I think a thorough review of the timing process here and whether agencies can stop the clock, how that’s done,

those are the kind of things that we think are necessary.

We also think that there ought to be consensus on issues that

are sensitive on national security grounds rather than allowing for

a majority vote process which, as we understood it, currently exists. So those are just a few of the things that we felt. But we also

felt that in areas that were less sensitive, we ought to have an expedited procedure.

We don’t want to hold up industry here, but we want to be careful, because there was some indication that there were times when,

a little more time, we might have ascertained that we had a problem and that the agencies felt, the Defense Department and the

State Department felt rushed on some of their judgments about

certain sensitive technologies.

Ms. ROS-LEHTINEN. In order to meet those——

Mr. DICKS. To meet time lines.

Ms. ROS-LEHTINEN. One more question. Should reauthorization

of the EAA wait for the results of the investigation by various

agencies into the adequacy of current export controls that would

protect against the acquisition of militarily sensitive U.S. techVerDate 11-SEP-98 13:22 May 15, 2000 Jkt 000000 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 60295.TXT HINTREL1 PsN: HINTREL1
12

nology by the PRC or by other countries and how would an EAA

protect against the foreign acquisition of such sensitive technology

by other countries?

Mr. COX. Well, our investigation is, in fact, complete. Our existence presently is solely for the purpose of working out with the Administration a declassified version of our report, but our staff,

which once numbered 45, is now to about a half dozen now and we

are working only on making the report available in public form.

And so for Members and for the Congress, it is possible now to

see the results of our report and to see our recommendations. The

EAA, therefore, should not await any further proceedings from this

Committee, but perhaps there is other information that you’d wish

to have before you proceeded in the Subcommittee.

I would also say, in answer to the second part of your question,

that reauthorization of the Export Administration Act gives us an

opportunity to protect the national security and to enhance our export position and our competitive position in the world, because it

will, by definition, if we do a good job of it, be a modernization. And

the Act, in addition to bringing penalties up to date, needs some

modernization, as we indicated in our recommendations.

I stated, rather elliptically, that the Intelligence community

wishes to be brought in earlier and that we think the Intelligence

community ought to be brought in earlier, but we did not recommend that the Intelligence community be one of the reviewing

agencies, the consensus of which is required. Rather, we made a

separate recommendation in our report that within the executive

branch, the Intelligence community share information with those

people who have responsibility for export Administration.

We found not just evidence, but serious problems because information about theft of our technology was not shared, for example,

with the Secretary of Commerce or the entire Department of Commerce that’s responsible for administering our export regime. That

simply cannot stand.

Ms. ROS-LEHTINEN. Thank you, Chris.

Mr. DICKS. I support the Chairman’s comments here. I don’t

think there is any reason to hold up. Frankly, I think the fact that

we didn’t have an Export Administration Act may have sent the

wrong signal to the business community.

Part of the problem here, frankly, is that there were some mistakes made by major companies in terms of the licensing process

and those things are being investigated by the executive branch.

There was kind of an attitude that we’re going to relax the rules

a bit here and that’s when we get in trouble. When the private sector, if they know what the rules are and know that the government

is going to enforce those rules, then I think they’ll abide by them

and respect them. And in this case, there is evidence that there

were problems there.

So I think quite the contrary. I think getting on with this, get

this thing done, sends a very powerful message that we’re serious

about this subject matter and we want them to be.

Ms. ROS-LEHTINEN. Thank you so much. Mr. Menendez.

Mr. MENENDEZ. Thank you. Let me just—I want to pursue just

one line of questioning which I think is within the public purview,

13

and that is on your recommendation of having a—requiring a consensus for the agencies in the license approval.

Now, some people have characterized this, including the Administration, as suggesting a return to the old system which resulted

in licenses sometimes just being vetoed without adequate cause; in

short, a system in which everyone could say no, but no one could

say yes, and a process which did not serve the dual interests that

we’ve all talked about here today.

Can you give us a sense of why you think that that recommendation versus the Administration’s current default to decision process

is a wiser one and where, my understanding is, under the present

process, dissenting agencies can raise their objections all the way

up to the President.

My concern is that we can have a situation here in which there

is a virtual one agency veto in this process and I’m not quite sure

of the appeal process you all laid out, to the extent that there is

one.

I’m wondering, is there any case in which an agency’s concerns

were not adequately considered through the current process.

Mr. COX. Well, the answer to the last question is easy. The answer is yes. There are a number of examples of mistakes being

made and it isn’t so much a case of the formal process not being

observed. Rather, it is the cumbersome nature of the current or the

post-1995 process in which there was a theoretical appeal to the

President, but in which, frankly, trains left the station and national security was not looked after.

I said earlier and I want to reemphasize that this system shortchanges both national security and our commercial interests. It is

hurtful to both of them. The notion is that if we let Commerce be

the final say on these things, that we will vindicate our commercial

interests, but in truth, we haven’t done that. In truth, there have

been delays. In truth, there has been a lot of paperwork. In truth,

a lot of focus has been placed where it ought not to have been

placed and things that ought to have been looked at after were not

looked after.

So we can say that while there is an attempt made to resolve the

different interests by placing one or another agency in charge, in

this case, Commerce, that we have caused some rough justice, but

rough justice ought not to be what we’re after here.

The law of averages isn’t good enough. If sensitive technology is

exported, it doesn’t take but a few times for that to come back and

bite you. You want to make sure you’re looking where you’re supposed to be looking.

So I think we can do a much better job than presently we do and

I don’t think there is any question that you don’t resolve these

issues by saying that Commerce is going to be king or national security is going to be king. That’s not the way to go about it.

Mr. MENENDEZ. And that’s not my sense of it. My sense of it is

that through a process in which any agency—in my understanding,

there is no agency that has ever sought an appeal up to the President. So I’m not quite sure how it is that it didn’t work if people

had an appealable process. But my concern——

Mr. COX. That’s precisely my point. That point was made many

times in——

14

Mr. MENENDEZ. My concern is, how is it that—you know, we can

all sit in a room and we can be locked in and at the end of the

day, one of us may just simply not agree, and how do we go beyond

that. I mean, that’s my concern.

I understand we want safeguards, but I’m just concerned this is

overly broad.

Mr. DICKS. As you can imagine, trying to do all this in 6 months,

we had to be kind of instant experts in some areas and I would

characterize this as one of them.

In fact, I think on this question, this is something your Committee should take a very careful look at. We’ve raised the issue

for you. I think you need to look at this and work out a process

that you think protects national security and, at the same time, allows these decisions to be made.

I do believe we have an appeal process that would raise this to

a higher level of authority if there wasn’t a consensus. So the lack

of consensus wouldn’t mean you wouldn’t get a decision. It would

just have to go up to a higher authority, which, under the present

procedure, would have—the same—the difference was that, as we

understood it, there was a requirement for a majority vote.

We felt that if the Defense Department or State Department

were outvoted, here you’ve got the national security issue not being

maybe given the credence.

Now, they obviously could have raised it in an appeal to a higher

level. But I guess my urging here today would be take a real careful look at this area. This is one that needs attention and when you

have more time than we did, I think you, frankly, can do a better

job.

Mr. MENENDEZ. Thank you.

Mr. COX. One final point, if I may. As I said earlier, the other

agencies, the National Security Agencies, under that system introduced in late 1995, were pressured for time. So while there is a

theoretical appeal, there isn’t necessarily preparation for that appeal.

If we have a lot of time to look at everything in a fulsome way,

we’re probably looking at too many things, by the way, and so we

want to circumscribe that universe that gets this special attention.

But we know if we bring to bear the significant intelligence information that we have, we know that we’d be wise to spend our time

in certain areas as against certain other areas. And at least in

those areas where we face significant threats, we would like to see

some national security input at the front end and not time-limit it

arbitrarily.

Mr. MENENDEZ. It’s interesting how you said it, because in 1996,

when the Congress voted on this, both the National Security Committee and the House International Relations Committee moved in

a different way, which was to shorten the time periods, not lengthen them.

So I think these are two of part of a very significant serious——

Mr. COX. Which we also are recommending. That’s a very important part of our recommendations. We have recommended a fast

track for a significant number of these things.

Ms. ROS-LEHTINEN. Thank you so much. Mr. Manzullo.

15

Mr. MANZULLO. Thank you. I read the report and I want to commend you for the work that you did on it. Let me present to you

a live scenario and see how you would fashion the re-write of the

Export Administration Act to it.

As I said in my opening statement, any computer with MTOPS

in excess of 2,000 to be sold to a tier three country would have to

have a validated export license. The new Pentium chip, Pentium 3,

has 1,200 MTOPS. IBM, the new IBM PC will have two of those

chips. That’s two times 1,200, that’s 2,400 MTOPS. The Dell

workstation will also have two of these, that’s 2,400 MTOPS.

Those two companies supplied the BXA last year for about 300

sales to tier three countries. This next year, it’s estimated that

there will be 34,000 applications before BXA in order to sell these

computers.

How do you re-write the Export Administration Act to make sure

that our computers are sold to tier three countries as opposed to

these tier three countries buying the very same machines, possibly

manufactured by our own manufacturers overseas, because of presence of foreign availability?

Mr. COX. Two points. First, you would have a remarkably difficult time writing the Export Administration Act if you had to include an MTOPS level in the statute. That is not where the requirement comes from and it has to be adjusted from time to time

because of the pace, rapid pace of development of this technology.

All that we require from a national security standpoint is to keep

a technological lead in weapons development and deployment and,

second, to make sure that we are not shipping tools and, for some

purposes, computers are tools, that are used in ways that are otherwise preventable to deploy and proliferate weapons of mass destruction.

So you’re left with the problem. It is a subjective problem. It’s

one that probably the Act cannot satisfactorily address in the statute. It hasn’t in the past. But you’re also guided by some general

principals and we will be able, as Representative Dicks mentioned

in his opening remarks, tomorrow, when we go into closed session,

talk to you explicitly about our recommendations in this area and

the reasons for them.

There are some very, very explicit things that you need to know

about.

Mr. MANZULLO. Mr. Dicks, did you want to comment on that?

Mr. DICKS. This was one of those areas where there was a lot of

angst and we struggled with this. The problem here is that at the

low end, you’re absolutely right. There are all these other countries

that produce these. As I remember the numbers, it’s under 7,000

that can be exported for non-military purposes.

One of the things that we did feel strongly was that there has

to be some ability to do meaningful end-use verification to make

certain that if they bought these things and said it’s going to the

cultural or the academic institute, that these things don’t wind up

being used for other non-allowed purposes.

So we understand the difficulty of getting this done. In fact, the

Administration has attempted to try to set up an end use regime

and that’s something that you may want to look at as well here.

16

I do think there are some questions as you get to the higher levels where, in fact, you’re going to have national security problems

and that’s one area where you need to get the intelligence information.

Mr. MANZULLO. The M top levels were written into the Defense

authorization bill. At 2000, we’re frozen. We’re frozen with this.

This is something—it’s not a matter of taking a look at. I think

technology has out paced much of the need for these types of restrictions. When Cray tried to sell their super-computer, which is

a computer which just does regular functions at a faster speed, to

India, the licensing requirement took so long, India did reverse

technology, made the computer, canceled the contract and started

exporting elsewhere.

And I don’t care if it’s with computers or if it’s with communication satellites or if it’s with machine tools. This problem is endemic

because I think what we should start with, re-writing the bill, is

with foreign availability, then work backwards on it.

Mr. DICKS. That’s going to be your challenge and you can take

a look back and forth, and good luck.

Mr. MANZULLO. Thank you. Thank you, Madam Chairman.

Ms. ROS-LEHTINEN. There you go. That’s what you get for putting

the potato on the fork. Mr. Delahunt.

Mr. DELAHUNT. Yes, thank you, Madam Chairman. I want to go

back to the—I had the same question that Mr. Menendez put forth

in terms of the consensus issue. Given the inherent condition of bureaucracies to require a consensus raises a level of concern.

It’s as if it were a veto, if you will, and raises a level of concern

with me that it would really encumber this process.

To pick up a point made by Mr. Cox, if you brought in—and I

don’t know whether, in your opinion, this would obviate the need

for the consensus, but it’s my understanding that historically the

intelligence community has never played a role in this review and

process.

And if they were factored in at an earlier point in time, at the

beginning, if that could be the case, I just simply don’t know,

would——

Mr. DICKS. On that point, just on that point.

Mr. DELAHUNT. Sure.

Mr. DICKS. Both the State Department and the Defense Department have the benefit of intelligence information as they make

their recommendations.

Mr. DELAHUNT. But I think what Mr. Cox was alluding to was

to have actually representatives from the intelligence community

there participating at an earlier stage in the process itself.

Mr. COX. But in the manner that Mr. Dicks just described, our

Committee’s concern was that that process, which was supposed to

work that way, isn’t functioning that way and information that

ought to have been shared with the State Department, with the

Defense Department and the Commerce Department and so on was

not.

Mr. DELAHUNT. Well, let me ask both of you. If it worked, would

that obviate the need to, in your opinion, to have this consensus

process?

17

Mr. COX. We did not suggest an extra seat at the table for the

intelligence community, requiring their explicit consensus, and we

think it can work through the other cabinet departments.

Mr. DICKS. If you have a need for consensus and there isn’t consensus and you can raise it to a higher level of authority to get a

decision, to me, that sends a message to the higher level authority;

they could not reach a consensus here, but now we have to decide

this and you get the Assistant Secretaries and then the Deputies

and then it goes to NSC and finally to the President.

To me, that makes sense, something like that makes sense.

Mr. DELAHUNT. I hear you, but I think Mr. Manzullo is right

and, again, I’m just concerned that these various agencies, innately

conservative as they are and not wanting to be vulnerable to unfavorable public exposure at some point in time, are going to say,

well, when they sit down among themselves, hey, let’s nix this one.

They can appeal.

And we find ourselves, in terms of competition, as Mr. Manzullo

indicated, the technology is moving so rapidly that I’m concerned

we’re going to lose our competitive edge.

Mr. COX. If I may say so, this gets awfully easy if you’re using

a Pentium computer as your example. Paperwork that slows down

the export of PC’s is, I hope, a straw man. We oughtn’t to be in

favor of that.

But I will say that there are plenty of examples in the current

regime where things that ought to be no-brainers are slowed up

and that’s the problem. The problem is we are shortchanging both

the national security and our commercial interests and, therefore,

you are right to focus on behavior by people who work in the system.

How do they really work? One of the problems that we observed

is that at the Commerce Department and at the State Department,

the staffing is inadequate.

Mr. DELAHUNT. That was going to be my question.

Mr. COX. First of all, they’re undermanned, they’re under-powered, and the people in many cases lack the training that they need

in order to carry out these responsibilities.

Congress is uniquely situated to address these problems and we

hope that that’s one of the things that we can do, put resources to

bear and also do it wisely. Don’t have an army of people looking

at things that don’t need that kind of review.

I agree, for example, with Mr. Manzullo that we can be sensitive

when we set up—whether we even want to use M top levels forever, because there are some shortcomings with that measure, as

you know, whether we can set up flexible systems that can change

those standards as need be.

And you are right that on one occasion, Congress did, for tier

three countries, write the standard into law. I think that’s a mistake. Fortunately, there, is an opportunity for the President to

change that, although he has to notify Congress first, but that’s the

only occasion when that’s happened and I think we ought to, when

we re-write the Export Administration Act, keep the system of

doing it by regulation.

18

Mr. DICKS. Another possible way, as we said, we think there

ought to be a division between those very sensitive items and the

ones that are less sensitive.

You might just have consensus required on the most sensitive

one as one way to make sure that national security is protected.

That’s one way you might deal with this.

Mr. DELAHUNT. The problem is drawing the line and writing that

into statutory language. I don’t see how we do it.

Mr. DICKS. Well, you might give that responsibility to the Administration and then have oversight.

Ms. ROS-LEHTINEN. Thank you. Mr. Chabot.

Mr. CHABOT. Thank you. Chris, you mentioned in your testimony

that right now the Defense Department has to respond in about 30

days. Is that correct?

Mr. DICKS. We think that’s the answer.

Mr. CHABOT. I thought you said basically that it goes to Commerce and the Defense Department has 30 days and they’re saying

they need more time essentially to review these things. My concern

was that there are some things that I kind of——

Mr. DICKS. They can be extended, too. I’m advised that whatever

time-frame it is, it can be extended if they’ve got a real heartburn

problem.

Mr. CHABOT. And my concern for the idea of extending times, although I’m certainly willing to listen to this and I’m sure that’s one

of the reasons we’re having these hearings and discussing the

whole issue, is that I basically believe that bureaucracy by its very

nature will have a tendency to expand to whatever time you give

it, just as government has a tendency, I think, to expand as large

as you’ll allow it to.

I believe that if we leave a lot of the money from the surplus

here in Washington, we’ll spend it, and that’s why I’m for tax cuts,

just basic beliefs that I have.

But I’m just wondering how do you make sure that if we expand

that time that the Defense Department has to review these things,

that it doesn’t basically get kind of put on the back burner. I mean,

it happens in offices all the time where you have to do something

within a certain amount of time. You’ll take the time. You need to

do it. But if you know you don’t have to do it for a certain period

of time, you have a tendency to put those things off.

I’m just wondering. And as has been mentioned here, some of the

technology advances so rapidly and companies want to do the sale

and if the U.S. company can’t get it done, then it’s going to go to

some French company or something else is going to happen.

So I’m just wondering how you address just bureaucracy’s tendency to take up as long as you’ll give it to accomplish a given task.

Mr. COX. As we were just discussing, first of all, you need to improve that bureaucracy. It is, at present, inadequate. It is both

under-powered, undermanned, and under-trained. If you don’t have

the right people looking at these problems, then any length of time

is going to be inadequate.

But you also have to have enough people to do it. The testimony

that we received concerning the average backlog of the average person working on these things is enough to lead you to conclude the

whole system is an accident waiting to happen and that there is

19

a great deal of happenstance about whether or not a review is adequate.

So that for the price of being held up while in the midst of competitive bid overseas, a firm might have done nothing to contribute

to the national security, and that shouldn’t be.

Mr. DICKS. Let me just read you a couple of sentences out of the

report. This is the Administration’s response, but I think there is

a better understanding of what has just been discussed.

In fact, agencies, on average, consistently conduct their reviews

in less time than they are permitted by current Executive order.

Existing procedures also allow for time extension, when requested.

For example, a request by an agency for additional information

about a license application stops the clock and agencies also have

found that they can obtain additional time for review by escalating

cases.

However, we believe that allowing an agency to stop the clock indefinitely would return the dual-use licensing system to the days

of unjustified delays that the executive branch and the Congress

worked hard for over a decade to reform.

So at least at the executive branch, I think there is some sensitivity to this and, again, I think this is, not shifting the responsibility, but our investigation is over. You’re going to now have to

take what we’ve said and what the Administration has said and listen to all these very impressive witnesses out here and make up

your mind about whether you think the existing system works and

should be changed or not.

But we just want you to know that we think that there are some

areas of very sensitive matters that may need additional time and

we don’t want to close that off.

Mr. CHABOT. Thank you very much.

Ms. ROS-LEHTINEN. Thank you. Mr. Sherman.

Mr. SHERMAN. Thank you, Madam Chairwoman. So far, we’ve

been focused on the procedural standards, which agency will have

to give its consent, consensus, the length of time. I think we also

need to focus on whatever substantive standards we provide.

Not that we can fix them in stone and certainly we’re not going

to be the ones to apply them. The technology is changing too quickly. But I hope that we will direct the agencies to look at whether

certain items could be exported and we could still protect our national security interest by taking particular procedures or requiring

them to be taken by the company involved.

For example, if we’re concerned about satellite technology, not

rocket technology, but the technology to build the satellite coming

into Chinese or other potentially unfriendly hands, that we would

require perhaps U.S. Government employees to be in physical control of that satellite until it was in outer space.

I hope, also, that we will direct the Administration and all the

various agencies to ask the question not only is this device potentially helpful to a potential adversary, but, also, can that potential

adversary or other country that we don’t have total faith in obtain

the technology from another source, because we should not be punishing American workers for the fact that—I’m going to mispronounce the name—Wassenaar hasn’t been an overwhelming

success and it is up to our State Department to negotiate with

20

other developed countries mutual limits on exports rather than

punish American companies and workers.

For example, I see a situation where we’re dealing with

encryption where the same encryption technology, and you gentlemen may know more about this than I do, seems to be available

from dozens of other sources outside the United States, and yet we

persist in limiting its export.

There was some comment about the budget of those who administer our export program and I don’t know if this was within the

purview of your Committee, but perhaps you should comment on

whether we’ve adequately appropriated funds and whether we

should be imposing additional fees in order to make it more of a

self-funding program.

Mr. COX. Well, your recommendation with respect to the protection of satellites is almost to a T what we recommended in our report. There are some very concrete and simple and understandable

steps that our government can take and that Congress can take to

make that broken system work.

But, frankly, to a degree that even people in industry did not appreciate, the system that we all thought we had is not the one that

actually we have had. And, therefore, we’re all in agreement that

that’s the system we ought to have. It’s just a question of putting

it in place.

Your comment with respect to Wassenaar is also right on the

money. When a company comes to you, as a Member of Congress,

and says Congressman, if we don’t sell that, then Germany is going

to, more often than not, that’s correct.

It didn’t use to be so, but in 1994, the United States led the

agreement to disband COCOM on the theory that the cold war was

over and we didn’t need a multilateral regime any longer.

But the truth is there are other different threats, if not the Soviet Union, indeed there is a very related cognate, the problem that

presently we face with Russian proliferation, if not Russian accidental launch.

Yet we have completely unilateralized the regime and you were

right to say that Wassenaar has not worked in that respect. It has

not and one of our recommendations is that the executive branch

lead an international effort to increasingly multilateralize this effort, so that self-abnegation is not required.

Self-abnegation doesn’t even work. It amounts to nothing more

than that and is a further example of having the worst of both

worlds continuing to do nothing for the national security and, at

the same time, disadvantaging our competitive position in world

markets.

Mr. SHERMAN. I would add that you also provide the financing

and the incentive for those foreign competitors that might be a few

months behind us in developing militarily useful technology to then

move equal or ahead of us in that technology, since we provide

them with markets, with needs, and with capital that gets the

genie even further out of the bottle.

I don’t know if either of you have a comment, though, on——

Mr. DICKS. Let me just make one brief comment. I think there

would be a little difference in the review of history here about

COCOM. I think the Administration and others would say that a

21

number of allies wanted COCOM to be ended and the United

States resisted that for a significant period of time and then finally

it acquiesced to it, I guess.

The second point is that the strengthening of the new agency is

a prerequisite of our recommendation.

Mr. SHERMAN. What about the funding of our administrative enforcement and licensing department?

Mr. COX. I think we both agree on that. As we’ve said several

times, we’ve got to make sure that we have adequate resources to

do this job.

If you’re going to have a regime of export Administration, you

can’t do it only partially.

Mr. DICKS. And we saw some major problems in defense and

made recommendations about that and the strengthening of

DITSA, the agency that is supposed to overview this when you’re

dealing with a satellite. Also, there is probably some help needed

at the State Department, frankly, to go through these applications.

Mr. SHERMAN. I want to thank the Chairwoman for not having

those green and yellow lights.

Ms. ROS-LEHTINEN. They’re not working. I wish I did.

Mr. SHERMAN. Noticing that my time has not expired.

Ms. ROS-LEHTINEN. After my questions, of course, that’s when I

would put them on.

Mr. SHERMAN. Focusing, again, on the satellite issue, I just want

to comment that there was a report in the Washington Post that

Hughes was being punished by the State Department for daring to

come to Congress and advocating that the turf for licensing satellites be vested in Commerce, and I hope very much that that report is inaccurate.

I would hate to think that a particular company faces tougher

scrutiny. I mean, there are other things Hughes did for which

tough scrutiny might be called for, but the idea that they would be

faced with tougher scrutiny because of their political position here

before the Congress seems absurd.

I would also point out that if the whole China satellite concern

was not about the satellites, but was about the rocket, and there

the problem we had was that U.S. entities had an economic incentive to evaluate and even an economic incentive to correct the Chinese space launch capacity.

I would point out that U.S. companies, I think, are still free to

ensure launches from China. No technology is being exported there.

And yet that would provide the same kind of economic incentive,

could lead to the same kind of post-disaster insurance investigation

with the same risk of communication through investigation.

And that the focus may not be on where the satellite is built, but

rather making sure that no U.S. entity involves itself in asking

questions of the Chinese as to why their rocket was unsuccessful

or why it wasn’t more successful, because asking questions is a way

that it inevitably conveys information.

I want to know whether your Committee is focused on preventing

the reason for U.S.-China communication about their rockets and

prevent outlawing that communication or whether the focus is just

on whether a U.S.-built satellite is going up on a Chinese rocket.

22

Mr. COX. The former and not the latter, notwithstanding our vote

in the House, it was not the recommendation of our Select Committee that we outlaw foreign launches. Rather, we wanted to

make sure that the promised regime of security is, in fact, delivered.

I would also say that we recommended that—and found that it

is in the national security interest that the United States increase

its domestic launch capacity. But here we had no silver bullet and

if you can define ways to do that in addition to the very general

things that we discuss in our report, you will have advanced the

ball greatly.

But nobody disagrees with this, of course, but it was not essentially the focus of our Select Committee. Nonetheless, were we to

have expanded launch capacity in the United States, there would

still be demands placed, for example, by the People’s Republic of

China, as a condition of purchasing the satellite that we use their

launch vehicle, and some of those tying arrangements are trade

matters that can be looked at in that context.

Mr. SHERMAN. Mr. Dicks.

Mr. DICKS. The other thing I would point out is that there are

major problems with that. When we had several accidents, that

there was supposed to be a post-crash discussion that had to be licensed, and then the question of not licensing it is where we got

into some trouble.

So this is a discussion—I mean, it’s something that we brought

up in our report. Obviously, this is under investigation by the Justice Department and it’s a very serious matter. But you’re right,

there is an incentive.

I mean, it’s old American know-how. You want to try to help fix

the problem. But in these cases, you have to have a license in order

to do that and the question is, in these cases, the licenses were not

obtained. So this is a serious problem.

Mr. SHERMAN. Madam Chairwoman, I see the red light is on and

my time has expired.

Ms. ROS-LEHTINEN. Thank you. Mr. Burr.

Mr. BURR. Thank you. Chris, you mentioned training, understaffing. Let’s assume for a minute that we were able to address

those needs. Can I assume that you still suggest that there has to

be structural changes? And I guess the follow-up would be to Mr.

Sherman. He mentioned turf. Do we have a turf war between the

agencies who have some piece of the decisionmaking problem?

Is that as much the problem as structure?

Mr. COX. To answer your first question, if we were successful in

addressing, and I hope we will be in the short run, the problems

of under-funding and under-staffing, inadequate personnel, in the

export license review process, we would still have the question of

who sits at the table and whose expertise is being tapped in order

to make these decisions. And structural reform, I think, therefore,

is necessary and should be addressed in the Export Administration

Act.

In answer to your second question, of course, there is a turf battle going on. When you have a number of cabinet departments,

which, after all, are themselves enormous bureaucracies, there is

going to be a turf issue.

23

I can say, from having served in the executive branch in the

White House, that this is not a Democrat or Republican issue; that

these are intra-administration issues that antedate the Clinton Administration and there will always be a tug-of-war among national

security interests, commercial interests, State Department interests, Pentagon interests, and intelligence community interests, because that’s the nature of our Federal system.

And Congress, in its oversight capacity and here in its legislative

capacity, has to take these things into account when we design a

system that in the end will not be perfect, but that will work better

than presently what we’ve got.

Mr. BURR. Norm, you mentioned the intelligence in put that was

available, but not supplied, I think, in some of the things that the

Select Committee——

Mr. DICKS. We wanted to make sure that each of the entities

share the intelligence information that is available prior to making

a decision and we want them to know about these things so that

they can have the benefit of that.

Mr. BURR. Had that—based upon your findings, had that been

shared to the degree you think should have been appropriate,

would some of the mistakes that you found not have happened?

Mr. DICKS. Well, my own judgment is that not all the intelligence

was shared and because it was—you know, it happened over a period of time and maybe they just didn’t look at it the same way.

When we saw it, when we gathered all this information, we could

see the picture, and maybe we saw it more clearly than they did.

But we were concerned about that and, frankly, as a person who

served for 8 years on the Intelligence Committee and 4 years as the

Ranking Member, not all this information was shared with the

Congress, as it’s required to be under the law. That’s another issue

that we raised.

But I think it’s important for these agencies that are making

these issues, especially on the very sensitive issues, to have the

benefit of the intelligence information. We want to ensure that that

happens.

Mr. BURR. Does the consensus, Chris, that you talked about

within this decisionmaking body, would it assure us that the see

no evil, hear no evil attitude of possibly one of the agencies won’t

exist?

Mr. COX. I don’t think so. No system is going to guarantee

against problems that arise as a result of the people involved. And

if you have the wrong people, they will—or if you have people who

are the right folks, but they’re over-tasked, they haven’t had a

chance to look at things as they should, you’re going to have imperfect results or dangerous results.

And I think it’s important to point out that it doesn’t much matter, from a national security standpoint, whether you’ve got someone who is willing to hear no evil or see no evil or who is being

tendentious or is not fulfilling his or her responsibility, on the one

hand, or if you’ve got somebody who is the best person you can possibly find, adequately trained and is overworked and operating

under unrealistic time constraints, if the result is that something

gets sent overseas for military purposes, even though we didn’t inVerDate 11-SEP-98 13:22 May 15, 2000 Jkt 000000 PO 00000 Frm 00026 Fmt 6633 Sfmt 6633 60295.TXT HINTREL1 PsN: HINTREL1
24

tend it for that purpose, what’s the difference, from a national security standpoint.

I don’t care about the motive or how it happened. We just need

to make sure the system doesn’t operate that way.

Mr. BURR. I thank both of you for the commitment on the Select

Committee.

Ms. ROS-LEHTINEN. Thank you. Mr. Rohrabacher.

Mr. ROHRABACHER. Thank you very much. I’m sorry that I was

late for this hearing. It seems that I am the Chairman of a Subcommittee on Space and Aeronautics and, by the way, for the last

10 years, I have been pushing to try to bring down the cost of the

American space launch and that hearing, what was on reasonable

rockets, which is finally coming about, which has something to do

with the issue we’re talking about today, and there was another

hearing dealing with Afghanistan which most of you know that I

have been deeply involved with, as well.

Mr. DICKS. We’re working on those up in Washington State.

Mr. ROHRABACHER. As long as you’re not working on the Afghans

up there in Washington State.

People have been dancing around some central questions and I

really would like to put them on the record.

The last time we loosened the restrictions and the controls on

technology exports, and it was done and, by the way, I went along

with it, because I was assured by those people who were advocating

this, those people, technology industry giants who came here and

gave us their word that not one bit of technology would be transferred, that all these safeguards would take place.

I mean, we were promised this. This was something that was

sworn and the systems were going to be back up. The last time we

did that, and, of course, we’re talking about the situation permitting the Chinese to launch our satellites, did that result in damaging United States national security?

Mr. COX. I’m sorry. Can you——

Mr. ROHRABACHER. Did the last time that we loosened—I mean,

I hope I—the last time that we loosened the restrictions by permitting this leeway for the communist Chinese to launch American

satellites, did that result, maybe not intentionally, but was the result of that loosening a damage, a severe damaging of our national

security?

Mr. COX. Well, only to the degree that Mrs. O’Leary’s cow caused

the great fire. It was certainly that without which, but I don’t know

that it was designed in such fashion——

Mr. ROHRABACHER. I’m not asking for any suggestion that somebody intentionally designed this in order to permit weapons of

mass destruction technology to fall into the hands of a potential

enemy of the United States.

But can we say with certainty—and I think, by the way, this is

the part of your report you’ve already released and I’m just asking

you to restate it—that American lives have been put in jeopardy

and our national security has been damaged because of the loosening of controls of the technology dealing with satellite launches

in the communist China.

Mr. COX. To more fully explain, if, at the time, we had instead

passed a law that said there will be no foreign launches in any

25

country in the world, then, by definition, none of these things that

occurred would have happened and that would have been one way

to prevent it. I think that would have been overkill.

But it’s in that sense that it’s a necessary, but ultimately insufficient cause of all that followed. What actually happened was sufficiently complex that you would need to explain it with a number

of things, not just Congress’ choice there, because our report, as we

will be able to tell you more fully tomorrow, describes ways in

which the system was abused.

So the system itself can’t be fully to blame, except to the extent

that somebody was able to take advantage of it.

Second, our Select Committee quickly moved beyond the issue of

satellites into things which we all agree were much more grave in

their consequence to the national security, and so we’re going to direct your attention after a very short of period time beyond that

to these other things.

Mr. ROHRABACHER. Mr. Dicks, would you like to answer that?

Mr. DICKS. Let me give you my take on this. First of all, before

and after, the United States possesses overwhelming military superiority. I have served for 20 years on the Defense Appropriations

Subcommittee. We have 18 Trident submarines, we have three

intercontinental bombers, we have 500 Minuteman–3s, and 50 MX

missiles.

At the end of the day, after all whatever happened happened

here, they have 18 single warhead ICBM’s with—and warheads are

not made into the rockets. Now, yes, some things happened here

that should not have happened.

If this system had worked the way it was designed, there would

have been not transfer of technology whatsoever to the Chinese.

Because of the post-accident launch discussions, that’s where we

got into some trouble, and there is a debate about how important

whatever that technology was that was transferred was and there’s

a debate about just how significant it was.

Some people view it as being more important than other people

do. Now, I would argue that——

Mr. ROHRABACHER. Chris just suggested it was like Mrs.

O’Leary’s cow kicking over the lamp.

Mr. DICKS. Let me just say this. There was some inappropriate

transfer of technology. But did it change the overall balance? Not

in the near term. Now, can it have long-term significance? We’ll

have to wait and see.

Mr. ROHRABACHER. I guess my question isn’t whether the overall

balance or any of these other things, everybody is dancing around

the question on, but is it that difficult to suggest that we, by transferring technology to the communist Chinese, that they are able to

use on their rockets, that damages American security?

I read the official release from your report and you were very

clear that that’s the case.

Mr. COX. That’s why it’s easier for you to understand it and it

will be easier for us to answer your questions much more directly

if we can tell you the facts that we came up with and people can

infer then what they wish. But we have said publicly that even

with respect to just the four corners of the satellite issue, that in

26

consequence of those events, the national security was harmed.

There is no question.

Mr. ROHRABACHER. Thank you for that direct answer.

Mr. DICKS. It’s a question of degree. Again, I don’t want us to

overreact. I think the worst thing we could do is to try to overstate

this. I mean, yes, some harm occurred. Now, was it a catastrophic

in this area? I would not say it was catastrophic.

Mr. ROHRABACHER. Mr. Dicks, if, in the future, we come to some

sort of confrontation with communist China and some American

technology has been used to upgrade the capabilities of a communist Chinese rocket that ends up being shot at the United

States, that will be a catastrophe.

Mr. DICKS. Of course it would be, but I—we have lived under a

world where the Soviet Union had forces that were equivalent to

ours. They were deterred for 30 years because of our deterrent.

So I look at this from a perspective of does it make a great deal

of difference in terms of the deterrent. Our deterrent is——

Mr. ROHRABACHER. Mr. Dicks, using your example, wouldn’t it be

called treason if somebody, during the cold war, would have given

missile technology to the Soviet Union?

Mr. DICKS. Of course it would be.

Mr. ROHRABACHER. Of course it would have been treason. But

now everybody is dancing around it because this Administration labels communist Chinese as our strategic partners.

Mr. DICKS. Congressman, there was no missile technology——

Mr. ROHRABACHER. I know. It was rocket technology, right, and

rockets versus missiles. Missiles, of course, shoot nuclear weapons

and they’re painted in this camouflage and rockets shoot up satellites and they’re painted in pastel.

Mr. DICKS. All I’m saying to you——

Mr. MENENDEZ. Would you yield a minute for a question?

Mr. DICKS. All I’m saying to you is just——

Mr. ROHRABACHER. One moment.

Mr. DICKS—[continuing]. Is just weigh this and look at the facts

and don’t overreact here. The world that Ronald Reagan helped

create and when you two were down at the White House, we still

have a very strong military capability. I’m not going to bed worried

about what happened here. I don’t like it and it should not have

happened, but it did not effect the overall military balance.

Mr. ROHRABACHER. Mr. Dicks, we don’t have a missile defense

system to stop these rockets which Ronald Reagan tried to build,

and, in fact, during the cold war, at least with the——

Mr. DICKS. Deterrence worked.

Mr. ROHRABACHER. OK. Yes, deterrence worked with the Soviet

Union, which didn’t—which really cared about whether——

Mr. DICKS. They had thousands of weapons that——

Mr. ROHRABACHER. Which whether or not the Soviet Union cared

about the mad deterrents because they cared about losing 50 or

100 million of their people. The communist Chinese, as we know,

may not have the same notion about their own population that the

Soviet leaders had.

The deterrence—to help the communist Chinese improve the reliability of their rockets in order—their missiles or rockets or however you want to define it, in order to cheapen the cost and to hold

27

down the cost of putting up an American satellite, wouldn’t you call

that, if that would have happened with the Russians, that we actually transferred some of that technology, just to bring down the

cost of putting up those satellites, that would have been looked at

as highly, let’s say, not dishonest, but let’s say disloyal to our country?

Mr. DICKS. We probably wouldn’t have entered into that kind of

a relationship in the cold war with the Soviets.

Mr. MENENDEZ. Would the gentleman yield? Just for my edification.

Ms. ROS-LEHTINEN. Mr. Menendez, if you could go by the Chair,

that would be great. Yes. Mr. Menendez.

Mr. MENENDEZ. Well, I’m just asking the gentleman to yield. I

think that’s within the rules of the Committee.

Are you talking about the decisions made in 1989 by Ronald

Reagan and then put into effect by George Bush to go ahead and

have launches? Is that the question that you’re putting to the witnesses?

Mr. ROHRABACHER. Is that what you’re asking me?

Mr. MENENDEZ. Yes. Is that the question that you’re concerned

about in the context of rocket launches, whether or not that was

a right decision?

Mr. ROHRABACHER. OK. Answering my Member’s question or my

colleague’s question, the fact is that Ronald Reagan, you’re right in

remembering, that before Tiananmen Square and before the communist Chinese massacred the democracy movement in that country, yes, Ronald Reagan thought better cooperation was important

and there were restrictions placed on that cooperation.

No. I’m asking what happened when this Administration and the

industry today called for Ronald Reagan’s restrictions to be lifted

and it resulted in what? It resulted in communist Chinese rockets

being provided American technology to improve their reliability and

their ability to carry payloads and their ability to hit their targets.

This is a catastrophe and I do believe it could be—yes, it could

be compared to Mrs. O’Leary’s cow. Mrs. O’Leary’s cow knocked

over that lamp and that cow burned down and killed thousands of

people in Chicago.

Well, I would hate to see a conflagration, a nuclear conflagration

caused by a modern day Mrs. O’Leary’s cow, which is in the form

of a communist Chinese rocket hitting southern California.

Mr. DICKS. All I’ll say to my friend, and I appreciate his commitment, I believe that the United States has an adequate deterrent

that we can deter them from ever doing what the gentleman has

suggested. And I hope someday we have a national missile defense

system.

But, again what happened here, you’re going to have to look at

it and decide how significant you think it was. There is a dispute

about that. Some people view it—and I would argue—I would

argue that, yes, some technology was transferred; the significance

of that and the damage to the country, we’re going to do an assessment. We’re having an assessment done of that.

So we’ll all get the information. I don’t think it’s going to change

the overall strategic balance.

Ms. ROS-LEHTINEN. Thank you so much.

28

Mr. DICKS. And I feel very comfortable with it.

Ms. ROS-LEHTINEN. Thank you, Congressman Cox, and thank

you, Congressman Dicks, for an excellent presentation. Our Subcommittee looks forward to continuing to work with you on this

very important issue. Thanks Chris, thanks Norm.

Our second set of panelists, we are pleased to have testifying before us Bill Reinsch, Under Secretary for the Bureau of Export Administration for the U.S. Department of Commerce.

As head of the Bureau of Export Administration, Secretary

Reinsch is charged with administering and enforcing the export

control policies of the U.S. Government, as well as its anti-boycott

laws, and is part of an interagency team helping Russia and other

newly emerging nations developing effective export control systems.

From 1991 to 1993, Secretary Reinsch served as Senior Legislative Assistant to Senator Rockefeller, responsible for trade, International Economic Policy, Foreign Affairs and Defense, and served

on the staff of the late Senator Heinz.

Secretary Reinsch has served as an adjunct Associate Professor

at the University of Maryland’s University College, at the School

of Management and Technology, since 1990.

We welcome the Secretary here today.

Also testifying will be Richard Hoglund, the Deputy Assistant

Commissioner for the Office of Investigations of the U.S. Customs

Service. Commissioner Hoglund’s investigative and management

experience covers all areas of customs enforcement, including investigations on narcotics, money laundering, export controls and

trade abroad.

Mr. Hoglund served as special agent in charge in Detroit and

during this period he also served several long-term assignments in

my hometown area of south Florida for Operation Florida. He has

previously served as Senior Special Agent and Group Supervisor

and Mr. Hoglund began his Federal law enforcement career as a

U.S. Sky Marshal in 1971, the same year he became a U.S. Customs Special Agent.

We welcome both of you here today. Secretary Reinsch.

STATEMENT OF THE HONORABLE WILLIAM REINSCH, UNDERSECRETARY OF COMMERCE, BUREAU OF EXPORT ADMINISTRATION;

Mr. REINSCH. Thank you, Madam Chairman. I’ve been told that

you run a tight ship and I’m going to try to briefly go through my

statement and I’d ask——

Ms. ROS-LEHTINEN. I’m powerless without my buttons here.

Mr. REINSCH. I would ask that the full statement be put in the

record.

Ms. ROS-LEHTINEN. Of course, we will be glad to enter both of

your testimonies in the record.

Mr. REINSCH. What I would like to do today is first describe why

we need the EAA, and then talk briefly about H.R. 361, which is

the legislation passed in the House in 1997, and which is very similar to legislation the Administration proposed in 1994.

Currently, we are operating under emergency authority, as was

noted in the last panel. Doing so means functioning under certain

29

legal constraints and leaving important aspects of our control system at risk of legal challenge.

In addition, it can undercut our credibility as leader of the

world’s efforts to stem the proliferation of weapons of mass destruction.

In some significant areas, we have less authority under IEEPA

than under the Export Administration Act of 1979. Foremost

among these, as Congressman Dicks mentioned, are the penalty

authorities, which are substantially lower, both criminal and civil,

than those for violations that occurred under the EAA.

However, even the EAA penalties are too low and have been

eroded over the past 20 years by inflation. The Administration’s

bill, as well as the bill passed by the House 2 years ago, significantly increased the penalties. We rely on the deterrent effect of

stiff penalties. The longer we are under IEEPA or even the old bill,

the more the deterrent erodes.

Another limitation of IEEPA for us concerns police powers, the

authority to make arrests, execute search warrants and carry firearms of our enforcement agents. Those powers lapsed with the

EAA of 1979. Our agents must now obtain special deputy U.S. marshal status in order to exercise these authorities and function as

law enforcement officers.

While this complication can be overcome, has been, doing so consumes limited resources that would be better used for enforcement.

Both the Administration’s bill and H.R. 361 continue those powers,

as well.

Finally, the longer the EAA lapse continues, the more likely we

will be faced with challenges to our authority. For example, IEEPA

does not have an explicit confidentiality provision like that in Section 12(c) of the Export Administration Act or similar provisions in

the Administration’s proposal and the House bill 2 years ago.

As a result, the department’s ability to protect from public disclosure information concerning license applications, the licenses themselves and related enforcement information is likely to come under

increasing attack on several fronts.

Similarly, the absence of specific anti-boycott references in

IEEPA has led some respondents in anti-boycott cases to argue

thus far unsuccessfully that BXA has no authority to implement

and enforce the anti-boycott provisions of the Export Administration Act and our regulations,

On a practical note, we are also finding that the Congressional

requirement to conduct post-shipment visits on every computer

over 2,000 MTOPS exported to 50 countries is rapidly becoming a

major burden, for precisely the reasons that Mr. Manzullo referred

to in his question. It forces us to divert enforcement resources to

visit computers that do not need to be seen, with the result that

we have fewer resources left to focus on real enforcement problems.

Unlike the computer export notification provision in the same

law, the visit provision cannot be adjusted by the President to take

into account advancing levels of technology, so we must seek relief

from Congress on this issue.

The lapse of authority also has policy ramifications. Although

we’ve made great progress in eliminating unnecessary controls,

while enhancing our ability to control sensitive exports, exporters

30

have the right to expect these reforms to be certain and permanent,

as they would be if they were embodied in legislation.

In addition, failure to enact a new EAA sends the wrong message

to our allies and regime partners, whom we have been urging to

strengthen their export control laws. We have also been working

with the former Soviet Union in Warsaw pact countries to encourage them to strengthen their export control laws and our credibility

is diminished by our own lack of a statute.

I would comment, in passing, Madam Chairman, that we have

with us today, as they have been visiting BXA this week, representatives from the Russian DUMA and other representatives of

the Russian Government who are here precisely to discuss export

controls and have an exchange of views and to learn from us about

our system and also give us an opportunity to learn from them

about their system.

They’re sitting back there listening to the exchange taking place

so far.

Now, let me comment on—I thought I’d alert you to that, for future reference. Let me comment on legislation. In February 1994,

the Administration proposed a revised EAA. Our overall goal was

and remains to refocus the law on the security threat the United

States will face in the next century—the proliferation of weapons

of mass destruction in a more complicated era than we faced during the cold war, while taking into account the growing dependence

of our military on strong high technology companies here at home,

developing state-of-the-art products, and, in turn, those companies’

need to export to maintain their cutting edge.

Mr. Menendez, in his opening comments, I think, summarized

the same line of reasoning more effectively than I can here.

Let me focus my remaining remarks on legislation that this Committee reported and the House passed in 1997 that was authored

by former Congressman Roth, who I believe will be a Member of

the next panel, and will also discuss it with you. Its structure reflected new challenges resulting from the end of the cold war and,

in many respects, it was similar to the legislation, as I said, that

we proposed.

Its basic control authorities were multilateral and unilateral, instead of the national security-informed policy authorities of the

EAA in 1979. Its new structure explicitly recognized the preference

for compliance with international regimes that the U.S. either is a

Member of or may help create or join in the future. It also provided

for increased discipline on unilateral controls and I want to note,

in passing, Madam Chairman, the Administration would likely

want to suggest some changes to this provisions to ensure that unilateral export controls are available when they’re in the overall national interests, consistent with the position we have taken on

sanction reform before this body.

But in general, we agree with the need to exercise discipline in

the application of such controls.

The House-passed bill also supported the Administration reforms

of the licensing and commodity jurisdiction processes. The standards for license processing were consistent with the 1995 Executive

order, which provided for a transparent time-limited review process

31

that permitted all pertinent agencies to review any license application and raise issues all the way to the President, if they desired.

This default to decision approach has replaced the black hole into

which licenses often fell, improving the system’s responsiveness to

exporters, while also providing broader interagency review of license applications that enhance our ability to meet our national security, foreign policy, non-proliferation goals.

On that point, Mr. Chairman, if I could comment on two points

that Mr. Cox made on the processes issues. He is correct that the

Executive order that I have just referenced gives the other agencies

30 days to review licenses. In fact, every agency takes considerably

less time than that. The Pentagon, in the last fiscal year, averaged

14 days to complete its license reviews and the State Department

did better than that, they averaged 11 days.

In addition, as Mr. Dicks pointed out, the Executive order provides explicit authority to stop the clock, if you will, should there

be a license that raises unusual issues and where more information

is needed.

One license that has been in the news lately, and I get depressed

when I see this in the news, because they’re not supposed to, which

was the Hughes APMT license. That one has been pending for

about a month, which is well outside the time-frame that we prefer

and well outside the Executive order, but I think also we have complicated—we have a process that can accommodate and provide

more time.

And that, in fact, the agencies now are doing their routine work

in less than half the time that the Executive order allows.

I would also make the point on process that the proposal to act

by consensus, which is a term for giving any agency a veto, which

does, in fact, do what I think Mr. Menendez or Mr. Manzullo said,

coming back to the anyone can say no, and no one can say yes system, would also have the practical effect of eliminating the one part

of our process where the intelligence community is represented fulltime.

That is the senior level working level review licenses, where the

agencies all meet and discuss and the intelligence community is

generally there and inputting into the process.

If we went to a consensus approach, what we would get is objections from agencies without discussion and escalation to the political level, missing the most rigorous level of review that is done.

That is why the Administration made the comments in response

to the recommendations that Mr. Dicks read in his testimony or in

his response.

Let me say, finally, about the House bill, that we do have some

concerns, we have had some concerns about H.R. 361’s terrorism,

unfair impact, anti-boycott, private line of action, and judicial review provisions, as well as certain Constitutional issues that we believe the bill raises. Those are outlined in my written statement

and rather than take up your time, I will pass over that and refer

you to that.

Let me also point out that we are, at the request of the Senate

Committee and also at the request of staff here, undertaking review of our own bill, as well as the House-passed bill, and we will

32

report to Congress with any post-modifications or changes that we

might have.

In conclusion, let me say that we believe an EAA that allows us

to fully and effectively address our security concerns, while maintaining a transparent and efficient system for U.S. exporters, is essential.

As I discussed, the Administration and the House, 2 years ago,

agreed on most of the important changes to bring the law up to

date in light of current economic and proliferation realities. Our

preference is that you take up reauthorization of the EAA that

would build on a consensus already achieved.

I can understand, however, given your heavy agenda of other

matters, that we may find it difficult to devote the time and attention needed to produce such a bill, which, to say the least, has not

been without controversy in the past, and it sounds, from the previous panel, may not be without controversy in the future, and

under these circumstances, I want to indicate that we will be prepared to discuss with the Committee some extension of the expired

EAA to remedy some of the short-term problems I discussed, particularly in the penalties area.

That is not a substitute for full reauthorization, which we still

want, but it would better enable us to do our business more effectively if Congress feels it needs more time to do it.

Thank you, Mr. Chairman.

[The prepared statement of William Reinsch appears in the appendix.]

Mr. MANZULLO—[presiding]. Thank you, Mr. Reinsch. Mr.

Hoglund.

STATEMENT OF THE HONORABLE RICHARD HOGLUND, ASSISTANT COMMISSIONER FOR INVESTIGATIONS, U.S. CUSTOMS SERVICE

Mr. HOGLUND. Good afternoon, Mr. Chairman and Members of

the Subcommittee. It is a privilege to appear before the Subcommittee today to discuss Customs’ unique role in enforcing U.S.

export controls and the enactment of a new Export Administration

Act.

Customs is a leader in enforcing U.S. export controls. We are at

the forefront of the Administration’s efforts to prevent the proliferation of weapons of mass destruction and conventional arms,

combat international terrorism, and force U.S. economic sanctions

and embargoes against countries which support international terrorism and threaten global security.

Customs is principally responsible for the enforcement of all U.S.

export controls. This includes the controls found in the Arms Export Control Act, which governs exports of arms, military equipment and other munitions; the export administration regulations,

which regulate the export of dual-use strategic technologies; the

International Emergency Economic Powers Act, in trading with the

Enemy Act, which regulate economic and other transactions with

specified countries and groups as an instrument of U.S. foreign policy.

Customs’ export law enforcement has evolved as the threats we

face in international trade have evolved. Through the 1970’s, the

33

threat chiefly involved belligerent countries trafficking in arms. Beginning in the early 1980’s, the Soviet Union and its allies began

a massive coordinated effort to acquire sophisticated western technologies for use in building their military establishments.

To respond to this threat, Customs Initiated Operation Exodus,

an intensified enforcement program to prevent the illegal export of

munitions, strategic technologies, and shipments destined for sanctioned and embargoed countries.

Our objectives are to disrupt illegal international trafficking in

sensitive and controlled commodities through the interdiction of illicit shipments and to dismantle criminal trafficking organizations

through the arrest, prosecution and conviction of export violators.

Since its inception in 1981, Operation Exodus has resulted in the seizure of over $1.2 billion in merchandise being exported in violation of U.S. export controls. Customs is the only Federal law enforcement agency with border search authority. Only Customs may

search without a warrant passengers, conveyances and cargo entering and leaving the United States to ensure full compliance with

all U.S. import and export requirements and to uncover violations.

Customs’ automated systems are key tools in our interdiction and

investigative efforts. The Automated Export System, or AES, is

now operational at all ports in both the air and sea environments.

AES is a new and powerful tool not only in the processing of trade

data and the collection of export statistics, but also in the identification of potential violations of possible U.S. export controls.

Customs’ successes in conducting proactive investigations of

criminal export violations continues our tradition of leadership in

export enforcement. For example, in fiscal year 1998, we arrested

over 450 criminal export violators, secured over 280 indictments,

and obtained over 300 convictions for export violations. These included obtaining the conviction of two individuals in Oregon on

their attempts to export chemical weapons precursors to Iran; one

corporation for illegal exports of computer workstations to a Russian nuclear weapons factory, laboratory; and, a U.S. corporation

for the illegal export of $3 million worth of aircraft parts to Iran.

In the past 2 weeks alone, we’ve arrested two individuals for attempted illegal exports of sophisticated airborne navigation equipment to China and obtained the conviction of a third who was sentenced to 24 months imprisonment for violations of the Arms Export Control Act.

Now, let me turn to Customs’ views on enactment of a new Export Administration Act. First, let me say that Customs does not

set Administration policy on which commodities should be controlled for export to which countries. That responsibility lies with

the Department of State, the Department of Commerce, the Department of Defense, and other agencies.

Customs’ role is to enforce U.S. export controls through the processing of export documentation, the examination and clearance of

exported merchandise, the seizure of merchandise exported in violation of U.S. export controls, and the investigation of criminal violations of our export control statutes.

That being said, Customs supports passage of a new Export Administration Act as a way of enhancing our ability to enforce U.S.

export controls.

34

The Congress last considered passage of an Export Administration Act in 1996. That proposed legislation was introduced before

the Congress as H.R. 361. Customs supports the penalty provisions

set out in Section 110 of H.R. 361 and the authorities for Customs’

investigations and seizures related to export violations set out in

Section 113.

We believe that similar provisions should be incorporated into

any new Export Administration Act which may now be considered

by the Congress.

Customs suggests that the Congress consider four additional provisions which would close enforcement loopholes and enhance our

export enforcement abilities.

The first deals with statutory authority to examine outbound

mail. Current restrictions on Customs’ ability to search outbound

mail limit our ability to interdict strategic commodities and technical data being illegally exported through the mails from the

United States. Statutory language to clearly authorize Customs to

search outbound mail would deny international criminals and terrorists’ use of the U.S. mail to avoid U.S. export controls.

A second enhancement would be the inclusion of an attempt provision as a violation of a new Export Administration Act. As I stated earlier, one of Customs’ objectives in export enforcement is the

interdiction of merchandise being illegally exported from the

United States.

The inclusion of an attempt provision in any new Export Administration Act would make clear that a substantive violation of the

Act has occurred when Customs is successful interdicting strategic

goods before they leave the U.S., in addition to actual consummated export.

Third would be statutory authority for Customs to ship inoperable control items to countries sponsoring terrorism in an undercover capacity in furtherance of a law enforcement investigation.

Fourth would be enactment of a Customs criminal statute covering exports contrary to law and parallel to the existing smuggling

statute, Title 18, United States Code 545. This particular provision

is currently contained in Senate Bill S. 5.

In closing, I appreciate the opportunity to appear before you

today. The United States Customs Service enjoys a unique role in

export enforcement, preventing the proliferation of weapons of

mass destruction, protecting the American public from the threat

of international terrorism, enhancing regional and global security

through combating illicit trafficking in arms, and implementing

U.S. foreign policy through out enforcement of economic sanctions

and embargoes against countries which support international terrorism and suppress freedom around the world.

We are proud of our role in enforcing U.S. export controls and

we support your efforts to enact legislation to give us the tools to

protect the security of all Americans and make the world a safer

place in which to live.

Thank you, and I would be pleased to answer any questions you

might have.

[The prepared statement of Richard Hoglund follows:]

35

Mr. MANZULLO. Thank you very much. I’m going to waive any

questions I have and I’m going to defer to Mr. Menendez and hold

everybody to the 5-minute rule.

I don’t have a light, but I do have a gavel. So I will tap at 4 minutes. At 5 minutes, I’ll lower the gavel. Mr. Menendez.

Mr. MENENDEZ. Mr. Secretary, let me thank you for your testimony. I have a couple of questions, if you can work with me to see

if I can get through them in my 5 minutes.

Regarding the satellite license that was processed by the Commerce Department that were the subject of investigation by Representative Cox’s Committee, were there any disputes among agencies regarding whether to license the satellite launches?

Mr. REINSCH. No, sir. All agencies concurred in the issuance of

that license.

Mr. MENENDEZ. So they all concurred. There were no policy objections that were overridden by the Department of Commerce.

Mr. REINSCH. No. Every satellite license the Department of Commerce has issued has had the concurrence of the State Department

and the Defense Department.

Mr. MENENDEZ. With reference to the volume of cases that Commerce processes annually, could you give me a sense of it?

Mr. REINSCH. We are hovering between ten and 11,000 licenses

per year currently.

Mr. MENENDEZ. And of these, what percentage of the licenses are

reviewed by other agencies?

Mr. REINSCH. Subsequent to the Executive order in 1995, right

now, it is around—well, I can give it to you exactly. In fiscal year

1998, it was 85 percent and in fiscal year 1997, it was 91 percent.

That were referred to one or more other agencies.

Mr. MENENDEZ. So that in other words, you don’t have exclusivity an overwhelming amount of the time.

Mr. REINSCH. Prior to the Executive order in fiscal year 1991, it

was 21 percent, but before we issued the EO, it was around 50 to

54 percent. It’s been climbing into the upper 80’s and 90’s every

since.

Mr. MENENDEZ. Now, let me ask you. You heard Mr. Cox and

Mr. Dicks and you heard some of my questions. Could you give us

a sense, I think you refer to it in your testimony, I’d like you to

elaborate, what would be, in fact, the result if we were to adopt,

as proposed, the changes that they have suggested concerning, in

essence, this process in which all of the agencies would have to

reach consensus or, in essence, the veto of any individual?

Mr. REINSCH. That particular proposal, Mr. Menendez, I believe,

would cripple the process. What you would have is—let me go back.

The reality of this process is that to the extent that there is disagreement over the issuance of the license, it most often is amongst

individuals at low to mid working levels, and as the process works

its way up in each agency’s own building, it goes through a variety

of changes and by the time you get to senior levels, most of the

time, there is a consensus.

So 90 percent of our licenses are handled by consensus, without

having to get to political levels of resolution.

If you are going to effectively give every agency a veto, which is

what consensus would permit, what you are doing is telling low

36

level officials who might dissent from their own agency’s position,

not to mention any collective position, they can put in a veto of a

license and prevent consensus, that would force these issues to be

taken essentially to the assistant secretary level for resolution,

which would force senior officials to spend a much larger amount

of their time than they do working on these.

And from out standpoint, it would eliminate the most rigorous

level we have. The senior working level, where all the agencies get

in the same room and actually debate these things and argue them

out and have the Intel community there on scene supplying the information.

Mr. MENENDEZ. The last question I have for you is with reference

to—and I think our Russian colleagues left, but I had this question

anyhow, so I’m going to ask it, whether they are here or whether

they’re not.

Despite Russia’s pledges upon joining the Wassenaar agreement

not to export missile technology to Iran, the Administration has

had to sanction Russian entities for this reason.

So give us a sense of what’s the value of having Russia as a

member of such an arrangement if it does not achieve our goal of

limiting exports in this particular case to Iran and give us a sense

of this multilateral effort which has, seems to me, had to have virtually no real consequence.

Mr. REINSCH. These regimes, we never get the full level in negotiation and, again, we have to spend time, whether it’s the missile

technology control regime or the nuclear suppliers group, regimes

that are generally thought of as being mature and effective.

It took them a long time to reach that point. It’s going to take

Wassenaar some time to reach that point. We are better off with

Russia in than out. They learn the standards, they learn what’s expected of them, they subject themselves to pressures not only from

us, but from the Germans, the French, the British to conform to

those norms and standards.

They subject themselves to regular meetings in which they learn

what it is and why and what they’re expected to do about it, and

generally it helps them upgrade.

It’s for the same reason that we have an extensive program with

them, which is why these people were here this week to exchange

views and help them develop a system of their own. It’s been my

view that while we do have policy differences with them and while

we have sanctioned them, as you point out, there are also a number of situations in which things are leaked out of their borders

that their government would have stopped had they had the capacity to do so and had they known about it.

What Wassenaar does is help give countries the tools that they

can use to prevent, at a minimum, that part of the problem and

also to subject them to multilateral pressure to deal with the first

part of the problem, namely, their policy.

Ms. ROS-LEHTINEN—[presiding]. Thank you so much. Thank you,

Mr. Menendez, and I want to thank our Vice Chair for taking over

and I hear that he instituted a strict 5-minute rule. Good for you.

No more Ms. Nice Guy. With that in mind, Congressman Rohrabacher.

37

Mr. ROHRABACHER. Right. Thank you. Are our Russian friends

still here? No, they left. That’s right. They heard I was going to ask

them up.

To our friend Mr. Hoglund, U.S. customs investigated the transfer of rocket technology to communist China. Was there a recommendation made by U.S. customs that charges be brought

against Americans involved with transferring rocket technology to

the communist Chinese?

Mr. HOGLUND. We have an active investigation. It is before a

Federal grand jury and when that is concluded, we’d be pleased to

provide the outcome of that, but currently that’s under active investigation.

Mr. ROHRABACHER. Is it against the rules to relate whether or

not you have recommended a prosecution or not?

Mr. HOGLUND. Well, we wouldn’t recommend. We would present

the facts to the United States Attorney. It would be presented to

a Federal grand jury and then that is where the recommendation

would come from.

Mr. ROHRABACHER. Well, in your investigation, did you find that

American technology, rocket technology had been transferred to the

communist Chinese in a way to upgrade the capabilities and effectiveness of communist Chinese rockets?

Mr. HOGLUND. I really would not feel comfortable answering

that, although the newspapers suggest that that the Office of Defense trade controls penalized companies in regard to that issue.

Mr. ROHRABACHER. And was there, to your knowledge, a recommendation by members of the Administration that a licensing of

a satellite launch by an American company be denied because it

would undercut a prosecution of an American corporation for transferring rocket technology to the communist Chinese?

Mr. HOGLUND. I am not familiar with that. I am personally not

familiar.

Mr. ROHRABACHER. You’re not familiar with that.

Mr. HOGLUND. No, sir.

Mr. ROHRABACHER. It was in the newspaper. I’m surprised that

that wouldn’t be something——

Mr. HOGLUND. I can get you a better answer.

Mr. ROHRABACHER. I would like to have a better answer on that.

So if you could get it to me with 24 hours, would that be OK?

Mr. HOGLUND. Sure.

Mr. ROHRABACHER. Or how about a half an hour? All right.

Again, people are dancing around the issues here. Everybody is

afraid here, it seems to me, to look each other in the face and say

that some American corporations may not keep the national security interest of the United States in mind when they’re out to make

a buck. Surprise, surprise.

Has it been your experience at Customs that we can trust American companies to watch out for American security over and above

their own profit?

Mr. HOGLUND. It’s our experience that in virtually every area we

investigate and enforce, that there is a profit motive virtually all

the time.

38

Mr. ROHRABACHER. And the things that you’re investigating

sometimes are very heinous violations of our national security, is

that not correct?

Mr. HOGLUND. They can be, yes.

Mr. ROHRABACHER. Listen, I don’t know why everybody—you

know, nobody wants to tell their friend at the country club that

they betrayed the United States of America. That’s what it comes

down to here.

Folks, we’re talking about—yeah, I’m not talking about whether

or not the Chinese are going to end up with the same kind of ballistic missile system that they had in the Soviet Union. People can

dance around this all they want. What we’re talking about is

whether it’s possible that a communist Chinese rocket, using American technology, now has a greater chance of landing a nuclear

weapon and killing millions of Americans, making that conflagration caused by Mrs. O’Leary’s cow in Chicago look like petty ante

arson.

This is a very serious issue and it does not lend itself to the—

frankly, the dancing around that I’ve seen here today and this obfuscation that’s being done by people who are trying to protect this

Administration for some very terrible decisions.

Mr. Hoglund, does the fact that this Administration, even after

evidence continues to mount that the Chinese communists have

been systematically trying to get their hands on American technology of weapons of mass destruction, doesn’t the fact that we continue to label that regime as America’s strategic partners undercut

the efforts to prevent American corporations from inadvertently

perhaps giving weapons technology to the communist Chinese?

Mr. HOGLUND. I really don’t feel I’m qualified to answer that.

Mr. ROHRABACHER. All right. Thank you very much.

Ms. ROS-LEHTINEN. Thank you so much. Thank you to your panelists for being here with us today and we also look forward to

working with you. Thank you.

Oh, I’m sorry, Mr. Manzullo. I thought when you were chairing

that you recognized yourself.

Mr. MANZULLO. That’s fine. Go the next panel.

Ms. ROS-LEHTINEN. We will hear from our third set of panelists.

Former Chairman of this Subcommittee, Toby Roth, who served as

a Member of Congress for 18 years, until January 1997. He currently serves as President of the Roth Group, a political consulting

firm here in D.C. The former Representative of Wisconsin’s 8th

Congressional District also served as Senior Member of the House

Banking Committee and was a founding Member of the Conservative Opportunity Society.

He is a frequent guest expert on public affairs programs.

He will be followed by another former colleague, Dave McCurdy,

current President of the Electronic Industries Alliance. Mr. McCurdy served as Chairman and Chief Executive Officer of the McCurdy

Group, a business consulting and investment practice.

Mr. McCurdy served the 4th District of Oklahoma for 14 years

and during his tenure in Congress, he attained numerous leadership positions, including serving as Chair of the House Permanent

Select Subcommittee on Intelligence, Chair of the Subcommittee on

Military Installations and Facilities of the House Armed Services

39

Committee, and was a Subcommittee Chairman of the House

Science Committee.

Next is Joel Johnson, who serves as Vice President of the International Division for the Aerospace Industries Association of America, AIA, which represents 50 of the major manufacturers of the industry. Prior to joining AIA, Mr. Johnson was Executive Vice President for the American League for Exports and Security Assistance.

Mr. Johnson also served on the Senate Foreign Relations Committee as Professional Staff Member and as Chief Economist for

the Foreign Assistance Subcommittee.

Previously, Mr. Johnson served as a member of the Secretary of

the States Policy Planning Staff and is Deputy Director of the Office of Trade Policy and Negotiations at the Treasury Department,

and a wide array of other positions in the field of International

Economic Affairs.

Following Mr. Johnson is Dr. Paul Freedenberg, the Government

Relations Director for the Association for Manufacturing Technology. Dr. Freedenberg was appointed by President Reagan to

serve as the Undersecretary for Export Administration at the Department of Commerce.

Dr. Freedenberg was Staff Director of the Senate Subcommittee

on International Finance and since 1989 he has been an International Trade Consultant with the Law firm of Baker in Washington, D.C., specializing in general international trade issues, as

well as technology transfer, export licensing, export financing and

enforcement.

We welcome all of you and look forward to your testimony. Congressman Roth.

STATEMENT OF THE HONORABLE TOBY ROTH, FORMER

MEMBER OF CONGRESS, PRESIDENT, THE ROTH GROUP

Mr. ROTH. Thank you very much, Madam Chair. It’s great to be

back in these familiar surroundings, with Members of the Committee that I enjoyed so much working with.

It’s my pleasure to be here today. With the time constraints,

Madam Chair, I ask that my entire testimony be entered into the

record, so I can abbreviate my remarks.

Ms. ROS-LEHTINEN. Thank you. Without objection, we will be

glad to enter all of your testimonies and we’ve got our enforcer here

behind me, Mauricio ‘‘The Body’’ Tomargo.

Mr. ROTH. As you said, Madam Chair, I spent 18 years as a

Member of this Subcommittee, two as its Chairman. I devoted

much of time to analyzing and attempting to improve the Export

Administration Act.

I leave to others whether I can claim any particular wisdom

when it comes to the EAA, but no one can doubt that I have a lot

of experience, good and otherwise, in exploring the byways and the

highways.

By way of clarification, although I’m a consultant whose clients

include firms in high tech sectors, I appear here today representing

no one but myself. Since leaving Congress, I have gained additional

knowledge of the industry’s perspective, but most of what I believe

I can offer as a function of the years I spent serving in this House

and on this Subcommittee.

40

Some of us have a question whether the EAA is needed at all.

We had been surviving adequately under the International Economic Emergency Powers Act, IEEPA, for nearly 5 years. So would

say some individuals, so why open the Pandora’s box and write a

new EAA.

I respectfully disagree. For one thing, IEEPA is largely a blank

check for the executive branch. Even if we believe that the current

Administration has taken a reasonable and balanced approach to

the export controls, there is no guarantee that that will continue

under this or under a new Administration in the future.

Second, it is Congress’ job to determine how Government regulatory programs should operate. Congress advocates that responsibility when it throws up its hands and leaves everything to the

President.

So I believe strongly that we should have an EAA and should not

continue to rely on IEEPA.

My most important recommendations, Madam Chair and Members of the Committee, are these. Export licenses should be required only for goods and technologies that are controllable from a

practical standpoint, are not available to our foreign competitors,

and would make, if placed in the wrong hands, a significant and

material contribution to the weapons proliferation or other legitimate stated purpose of control.

If items such as personal computers and mass market software,

with 128-bit encryption, are widely and easily available domestically, export controls will not keep them away from anyone who

wants to obtain them. The same is true for items that are available

from foreign competitors whose governments do not, in fact, impose

controls as stringent as those imposed by the United States.

Second, the EAA should discourage the imposition of unilateral

export controls and other unilateral export restraints. Faced with

misconduct by Foreign Governments, public officials, like our Congressmen, all too often have seen the imposition of export controls

as the only available alternative to sending in Marines, at one extreme, or to do nothing on the other.

When governments whose exporters supply identical goods and

technology refuse to go along with our controls, however, the effect

is like damming up half a river. For the most part, the misbehaving government that is the target of our ire, merely turns to industrialized countries to supply its needs, while American workers

and business people end up suffering.

This hardly seems like sound thinking to convince a Foreign Government to change its ways.

Third, the sluggish export control system should rule swiftly on

license applications and requests for policy determinations. Inordinate delay in approving an export license and costs to a U.S. exporter a sale just as surely as a license is denied. The Commerce

Department has been doing a good job of managing the dual-use

licensing system and should remain in charge.

The FAA should restrict, if not the EAA, let me say that, the

EAA should restrict, if not eliminate the extra-territorial application of the United States Export controls. The United States takes

the position that an item made in this country remains subject to

our export jurisdiction forever, no matter how long it may have

41

been exported and no matter how many non-Americans may have

owned it.

This is inconsistent with international standards. This hearing

marks the beginning of a lengthy process and I hope that it will

produce a new EAA, one that—an EAA reflecting the realities of

the millennium and not the cold war.

Now, in 1996, this Subcommittee and the House of Representatives passed a bill with your help, a great EAA bill. It was applaud

by all. The President applauded it, the people here in the House

passed it under suspension, we had people in the Senate all agree.

There was only one Senator put a hold on the bill at the end and

that is why this bill was not enacted into law.

Let me say that President Clinton and Sandy Burger and Tony

Lake did a great deal to make this bill possible. We met with the

President three different times. The House passed it, the Senate,

because of one Senator, it was not passed.

I hope that this Committee and this Congress will now move forward and complete that job.

Had we done so, I think many of the problems that we have

today would have been eliminated.

Thank you very much, Madam Chairman.

[The prepared statement of Toby Roth appears in the appendix.]

Ms. ROS-LEHTINEN. Thank you so much. Mr. McCurdy.

STATEMENT OF THE HONORABLE DAVE McCURDY, FORMER

MEMBER OF CONGRESS, PRESIDENT, ELECTRONIC INDUSTRIES ALLIANCE

Mr. MCCURDY. Thank you, Madam Chair. I, too, would like for

my statement to be admitted into the record, and I want to state,

just first of all, how pleased I am to be back.

This is my first return to the House after 4 years and I can’t

think of a finer Subcommittee or group of people to be with. As the

Chairwoman knows in the annual congressional baseball game, she

was always the most feared batter that I ever faced in all those

years, had the smallest strike zone and was one of the most courageous and fearless.

Ms. ROS-LEHTINEN. The game has not improved in your absence,

unfortunately. I wish it would have been your fault, but.

Mr. MCCURDY. And let me congratulate Mr. Menendez for his

steady rise in the leadership, as well.

Madam Chair, I’m delighted to be here today as representing the

Electronic Industries Alliance, over 2,000 member companies which

makes it the premier trade association for the high technology industry.

During my 14 years of tenure in this body, I served as Chairman

of the House Intelligence Committee and, as well as Subcommittees

in the Armed Services Committee and the Science and Space Committee.

I continue to serve now as a commissioner on the—and you have

to forgive the title of this commission, but it’s the Commission to

Assess the Organization of the Federal Government to Counter the

Proliferation of Weapons of Mass Destruction.

42

For over a year now, we’ve been reviewing the tremendous destructive potential of chemical and biological and nuclear weapons

land their proliferation of that.

But the task of the commission, I must say, was to look at the

organization of the Federal Government. And what we heard earlier today from both Mr. Cox and Mr. Dicks seems to be—and those

are two of my best friends and people that I respect the most in

the House.

But some of the statements that came forward with regard to the

need to actually bifurcate the decisionmaking process as opposed to

centralize is just the opposite direction that most people are looking at how to organize the Federal Government to combat the proliferation of technology and of weapons of mass destruction. So it

seems somewhat contradictory.

But since I do serve on that commission and, based on my past

experience, I’m very concerned about export controls for our national security. However, I also recognize the severely limited effectiveness of export controls.

Madam Chair, I have the privilege of representing the most innovative, yet competitive industry in the global economy. Our companies operate globally and they face intense international competition. The fact is the days when U.S. companies dominated the high

technology industry are over. Similarly, the days when the domestic U.S. market could sustain the industry are also over.

It has become almost clich that the global economy is a fact of

doing business for us and is a critically important concept to keep

in mind as we formulate public policy in this area.

As any successful CEO will tell you, competing, indeed surviving

in the global economy means exporting. The phenomenal success of

U.S. technology industry comes from its entreprenurialism, its aggressiveness, its willingness to compete, all those free market

forces that drive innovation.

In this kind of business environment, tapping new markets before competition does is the key to success. As you can see on the

chart behind me, our industry will export over $150 billion in goods

this year. This is more than one third of what our industry produces.

The chart also demonstrates how fast technology is changing and

becoming pervasive throughout the world. This is especially true in

the area of semiconductor speed, where Moore’s law defines rapid

pace of change.

Congress has a critical role to play in overseeing this country’s

export control system and we encourage efforts to take a fresh look

at the system, with an eye toward updating it to reflect technological and political realities of the post cold war world.

It is a daunting challenge and with that in mind, I would like

to lay out three very broad principals and I think the three Members that are present today have expressed those, as well, what

should guide our thinking on export control issues.

The first principal is that U.S. export controls must reflect the

new commercial and political realities of the post cold war world.

The cold war export control regime was based on then, and it was

an accurate premise at that time, that if you prevent U.S. companies from exporting a product to specified destinations, you will

43

have denied that destination of the use of that product or technology.

This premise no longer holds. Whereas U.S. industry used to

have a monopoly over the development and production of high technology products, many of which were directed by the Federal Government, many countries today produce the same or often better

commercial technologies as U.S. manufacturers.

The governments of our competitors do not place the same restrictions on their export activities. When U.S. companies are impeded from selling abroad, our competitors are willing and able to

fill the void.

The second principal is that the current model for administering

U.S. export control law is appropriate and effective in protecting

national security. And I agree with my colleague, Mr. Roth, on that

point.

Currently, there are two systems for administrating export controls, both of which provide for interagency review of license applications.

Now, there’s certainly room for improvements in the license review process, but essentially they’re appropriate as separate functions. The Commerce Department’s review system ensures that legitimate commercial exports are permitted, to the extent possible,

without interfering or threatening U.S. National Security or Foreign Policy interest.

The State Department review system ensures that military exports promote our national security and foreign policy objectives.

The third principal is that our industry strives to be compliant

with the relevant export control laws. In fact, the industry devotes

significant resources to be compliant. Many of our companies have

elaborate and expensive export control compliance systems that include numerous highly trained staff.

I brought with me the regulations that our companies must adhere to and there are a stack of books there. They are very complex

and sometimes difficult to comply with.

Madam Chair, in closing, I’d like to call your attention to my

written testimony, which describes a number of specific export control issues of concern to our industry.

I hope these comments are useful for you as you continue in this

effort, and certainly I’d be happy to entertain any questions.

[The prepared statement of Dave McCurdy appears in the appendix.]

Ms. ROS-LEHTINEN. Thank you, Dave. Mr. Johnson.

STATEMENT OF JOEL JOHNSON, VICE PRESIDENT, INTERNATIONAL DIVISION, AEROSPACE INDUSTRIES ASSOCIATION;

Mr. JOHNSON. Thank you, Madam Chairwoman. As an ex-staff

person as opposed to an ex-member, I’m particularly sensitive to

the Congressional hook and will be very brief.

Obviously, Aerospace, too, is extremely sensitive concerning export controls. We exported about $59 billion last year and with a

net of about $37 billion, the largest net exporter of any sector in

the U.S.

44

It’s certainly timely to turn to the issue of EAA. I would hope

that this also would begin a process of laying the groundwork for

a major overhaul of the overall export control legislation, regulation

and administration that would be appropriate for the 21st century.

Your Full Committee is the only Committee that can look at the

full range of export controls, including both the AECA and the

EAA, and that, I think, is extremely necessary.

I touch in my testimony on how times have changed. We clearly

don’t have a consensus among the industrial democracies that we

had during the cold war. That’s particularly true with respect to

China. The distinction between military and commercial technology

is increasingly blurred and the rate of change of technology is ever

more accelerated.

Our military is increasingly dependent on the commercial sector

for its requirements and, in turn, high technology commercial sectors are dependent on the international marketplace for their economic health.

I might note, in the case of Aerospace, as opposed to 10 years

ago, when 65 percent of our customer base was the U.S. Government, today it’s 40 percent. Of the remaining 60 percent, 75 percent is for export.

Meanwhile, we have too many export control systems requiring

too many licenses, with too many bureaucratic actors involved in

decisionmaking. It seems to me that we do need to take a longterm look at the process, but in the short term, it clearly makes

sense to try to pass an interim EAA, perhaps for a 3-year time

span.

The industry would certainly support such a move if such an act

contained a number of safeguards, many of which have been referred to already. Let me touch very briefly on the ones that are

critical to us.

First, obviously, foreign availability. If all the control does is shift

the source of supply, you are punishing the American supplier, not

the person that you are trying to affect.

Second, contract sanctity. In general, companies ought to be able

to carry out existing contracts, except in the context of multilateral

controls that cutoff everybody’s contracts.

Third, support of formally exported products. This is particularly

important for us in the realm of safety. People who fly commercial

airplanes often have U.S. and Foreign citizens on them, even when

they do come under some kind of export controls. They fly over

many countries’ air space.

You cannot pull an airliner in trouble off to the side of the road

and wait for a wrecker to appear.

On multilateral versus unilateral controls, obviously, as anyone

in industry will say, we much prefer multilateral controls and believe there should be some unit on unilateral controls.

I’d note that H.R. 361 is somewhat misleading in that it has a

multilateral section which in turn pertains to a whole slew of unilateral controls and unilateral sanctions, which would not be emulated by our industrial partners.

Economic impact. Export controls, I think, are sometimes politically attractive because they’re essentially one of the last unfunded

mandates. They don’t show up in the Federal budget. They’re simVerDate 11-SEP-98 13:22 May 15, 2000 Jkt 000000 PO 00000 Frm 00047 Fmt 6633 Sfmt 6633 60295.TXT HINTREL1 PsN: HINTREL1
45

ply imposed on industry and workers. It seems to me that a CBO

review of what the costs of export controls would be perhaps appropriate, and enough said on that.

Time limits on controls, as I already alluded to. When the intended results of controls don’t occur, there is no politically easy

way to get rid of those controls. The EAA that was passed in 1996

does have at least some automatic time endings for those controls

unless the President extends them, and I think that’s probably appropriate.

Finally, licensing processing time. This was discussed considerably earlier. It is terribly important in the commercial arena. You

can make time deadlines. I had a company tell me 2 days ago that

because they could not get a license within 35 days, even to respond to a request for a study from Intelstat, the study went to the

Germans.

Some of us in the room are old enough to know that the Germans

not only know something about satellites, but know something

about rockets, and I’m not sure how U.S. security was improved by

turning that study over to our European competitors.

I think H.R. 361 did address most of these issues. There are certainly some limitations to it. But its not a bad starting point.

I would hope that the comments in the larger testimony will be

useful to the Subcommittee and the Committee, and I will cutoff

there before the hook comes.

[The prepared statement of Joel Johnson appears in the appendix.]

Ms. ROS-LEHTINEN. Thank you. Dr. Freedenberg.

STATEMENT OF DR. PAUL FREEDENBERG, DIRECTOR OF GOVERNMENT RELATIONS, THE ASSOCIATION FOR MANUFACTURING TECHNOLOGY

Dr. FREEDENBERG. As the last one up, I will be even briefer, because I recognize it’s been a long day.

My testimony deals with the problems for U.S. companies created by the current multilateral export control structure.

Wassenaar, which has replaced COCOM, causes a great deal of

problems, particularly with regard to China. COCOM worked reasonably well and had a clear enemy. The Wassenaar arrangement

works poorly and there is absolutely no consensus with regard to

China. China is the one area which you would expect an export

control system to deal with, and yet Wassenaar, when it was

formed, as I understand it, our negotiators specifically said it does

not deal with China. It deals with the pariah states.

That put the United States in a very uncomfortable position, because the United States, one gets the impression the United States

has a fairly easy export control system on companies. I represent

the machine industry. We’ve had an average of five licenses per

year over the last 5 years. That’s 25 total. That’s a fairly tough system.

And we’re not making judgments about any individual license,

but clearly it’s not a system that lets everybody slip through. It

also is a system which, if you compare it with our allies, the allies

are able, and I put some data in my testimony, the allies are able

to get licenses, allied companies and allied countries, such as GerVerDate 11-SEP-98 13:22 May 15, 2000 Jkt 000000 PO 00000 Frm 00048 Fmt 6633 Sfmt 6633 60295.TXT HINTREL1 PsN: HINTREL1
46

many, Italy, France, et cetera are able to get their licenses through

the system in somewhere between 10 days to a month.

The U.S. system—well, it was many months and sometimes as

long as a year. So again, one would hope there would be some time

limits put in. It’s a very difficult thing to impose.

There is a particular problem because China is the largest capital goods market and what they have, following the Aerospace representative, is that we see that Boeing is increasingly placing its

Aerospace contracts, large portions of those contracts offshore.

With the current U.S. export control system, those Aerospace

parts are likely to be made on European machine tools. They’re

going to be made, the Chinese are going to get those machine tools,

but they’re going to be European. That’s something that needs to

be addressed.

There is very little chance, under the current circumstance, that

the Wassenaar allies would go along with our own tightening, but

one of the things I think we need to do is take a very serious look

at Wassenaar, decide where our negotiating strategy is, and go

back and reopen the issue.

I have three recommendations in my testimony and the first and

the most important is that foreign availability provisions ought to

reflect the system that we currently find ourselves in. We find ourselves, under the export control system that I enforce, from 1985

through 1989, foreign availability had to be found outside the system.

Under the current system, because Wassenaar is so loose and because we operate under national discretion, a system of national

discretion, foreign availability can be found from within the international—the multilateral system. That is, there can be, for example, machine tools supplied from other Wassenaar members and I

think we need to have a provision, and actually H.R. 361 has a

fairly strong provision, I would recommend adopting that, which

recognizes that foreign availability can exist, in fact, from within

a system.

The other two recommendations I have, and I will conclude with

those recommendations, are I agree with Secretary Reinsch that if

we were go to go a consensus system, unless we’re very clear what

we mean by consensus, it could easily lead to a veto and we could

end up with deadlocks, with the lowest common denominator determining whether licenses go forward.

That would—as I’ve said, the current system isn’t exactly an

easy one. For the machine tool industries, there’s been very few licenses granted. If we were go to go to a sort of veto system, we

think those few licenses that were granted, there would be even

less in the future.

Finally, with regard to the recommendation for surprise inspection as a precondition for selling computers, we have to—I think

the likelihood is that the Chinese would refuse this. If we don’t

want to be selling computers to China, that’s one thing. I think we

ought to have a debate about that subject.

But I happen to know the United States has a very strong position on surprise inspections by foreign countries, as well. That’s an

issue that went into the chemical weapons convention. We’re not

47

going to expect other countries to accept provisions that we will not

accept ourselves.

Now, that doesn’t mean—that’s something that we have to take

into consideration if we’re serious about dealing with China.

I think I will stop there.

[The prepared statement of Paul Freedenberg follows:]

Ms. ROS-LEHTINEN. Thank you, Paul. I just have a few questions

for you.

Mr. McCurdy, you had stated in your testimony, written testimony, that if we treat China as an enemy, then it will become an

enemy, and some would say that the Chinese communist party and

the Chinese leadership have declared themselves as enemies of the

United States.

In fact, on December 18th, the President of China gave a reform

speech to 6,000 communist party government and military officials,

stating, quote, ‘‘The Western mode of political systems must never

be copied. China should try to minimize the impact of international

risk and decadent thoughts and lifestyles.’’

His comments are directed not only at the United States, but all

western countries.

Would you suggest that the U.S. should remove all export restrictions currently imposed on China and how can the U.S. develop

beneficial trade relations with China while safeguarding our U.S.

security interests in the region?

Mr. MCCURDY. Well, thank you, Madam Chairman. I think the

Chinese President also directed that statement at his own people.

There is a great deal of change underway in China itself.

We’ve seen dramatic improvement in their own emerging market

system and they are opening up to the world as we’ve not seen in

the past.

Now, I testified the other day at the International Trade Commission on China’s accession to the WTO. I did so with the condition that it be done on commercially viable terms. I don’t believe

that we ought to be negotiating among ourselves, but that the Administration should be taking those points to the negotiating table

and trying to get the best agreement they possibly can out of the

Chinese, and those will be liberalization of their system and the

market.

The comment I made, Madam Chair, about self-fulfilling prophecy is that if we do not reach out, there are plenty of countries that

are willing to do so.

If it’s a unilateral decision on our part to declare that China cannot be—or cannot take the right fork in the road, proverbial fork

in the road, to be in a more open system, one that can a more legitimate player on the international arena, then we may have the

adverse consequence of actually pushing them in the wrong direction.

So I believe that we have tools available to influence much of

their decisions.

Am I saying we should have no controls? Absolutely not. We believe there should be controls. We do have regimes. We have the

missile technology control regime. We have other areas that we

should be looking very seriously at and there needs to be pressure

brought to bear on those.

48

But it’s not a one size fits all type of position. As we indicated

and I think each of the panelists have indicated that there is increased trade opportunities for the U.S. firms in China. It will be

the largest market. There are opportunities that we think advance

U.S. long-term national security interest, but also economic security interest by advocating greater cooperation.

And it’s going to take a long time to do it.

Ms. ROS-LEHTINEN. Great. Thank you, Dave. Dr. Freedenberg,

you state in your testimony that without a clear U.S. technology

transfer policy toward China, that it would be difficult for us in the

U.S. to draft and enact a new EAA.

What are your initial recommendations on this?

Dr. FREEDENBERG. I think one of the problems, and I tried to get

at it in my brief summary, is there really is an ambivalence about

China. China is seen as a technology transfer risk and it’s clear

that we have rules about it and that we enforce those rules, in fact,

as I was pointing out in a much more rigorous way than our allies.

On the other hand, the Administration has also pushed very

hard for U.S. companies to get a piece of a very large market. I

think it’s—I don’t have a great deal of recommendations in my testimony. I don’t have a number right now. I’d say it’s the sort of

thing where we need to most importantly look at foreign availability, give companies a legitimate right to petition the government to demonstrate that these products are available in sufficient

quantity and comparable quality to the Chinese as a significant

factor for the government to take into account when they make licensing decisions.

That’s really not the case with regard to China right now and I

provide statistics in my testimony that show that there are very

large numbers of European, for example, in the area that I know,

in European machine tools going into China, with—and those—

that has never been used as an argument for allowing U.S. companies to sell to those entities.

Ms. ROS-LEHTINEN. Thank you, Paul. Mr. Menendez.

Mr. MENENDEZ. Thank you. Gentlemen, let me thank you all for

your testimony. I was reading through some of it, your extended

testimony.

I have heard today, in broad strokes, sometimes alternatively

categorized your respective industries as either incredibly important not only for economic purposes, but for national security purposes, or money hungry treasonist entities.

Could you give me a sense of, on a serious note, what is the—

what is the value beyond the economic values, which I think everybody can ascertain, what do the values of some of the industries

you represent mean to us in terms of national security?

Mr. MCCURDY. Congressman, we represent almost the full spectrum of the electronics industry, from those that are involved in

telecommunications, again, a very vibrant area that we see, consumer electronics, components which are the essential elements for

any final system, all the way through the manufacturers of electronics for U.S. Government activities.

There are a couple points that I’d like to make. One is that the—

when I was—and Toby and I were up here, it seemed that the U.S.

Government was providing a lot of the leadership in technological

49

development, in R&D activities, and they were leading the entire

economy. That’s no longer the case.

As a matter of fact, in 1997, we passed an important threshold.

There are now more—there’s more commercial money being spent

in space than there is government.

So, again, the innovation, and we see, as the world actually becomes a smaller place, because now we have communication satellites circling the earth, providing tremendous communication.

And that freedom of information, for those of us who had very

extensive careers combating the former Soviet Union and the tyranny that was involved in that system, we believed that greater information, greater openness, giving the citizens the tools to reach

out and access information was going to change that system.

We find the same today. If you look at this chart on internet

users, talk about a vehicle to open up societies, this is the best. It’s

instant access to all kinds of information, both good and bad. But

they’re going to have a hard time blocking that and I think that’s

critical.

But the industries that I represent and we, as an association or

an alliance represent perhaps the most vibrant industries in the

world today. We are now—we’ve moved from the industrial age to

the information age. We’re really moving into the digital economy

and the digital age and the technological development is at such a

rapid pace, you talk about Moore’s law doubling the semiconductor

speed every 18 months, mentioned earlier, Mr. Manzullo, about the

MTOPS, the incredible change in speed there.

I don’t have it with me today, but I carry a little chip that’s

about the size of a quarter, which is a micro storage device that

has the equivalent of 340 megabytes, a little thin, little chip, the

equivalent of 246 floppy disks.

We now see fast cards and electronic cards. Again, the technology

is changing. Not only the ability of this country to expand and the

global economy to expand and for us to see the success of it, but

also improve the quality of people’s lives.

When we actually see growth rates remaining relatively low in

the consumer sector, it’s the one sector where the prices continue

to drop and it’s one of the most price-sensitive areas of the economy. Again, electronics, it improves.

And the last point I’d say is that in a way, ironically, it may be

the private sector that is now subsidizing government technology

because if these large defense firms that are providing information

services, electronic systems to the Federal Government, if they

don’t have a vibrant market, then they’re not going to continue the

R&D rate that they’re currently pursuing.

And the Government has not ante’d up at a rate which we think

is in our long-term best interest. So the irony is that rather than

the Federal Government subsidizing industry to take the lead in

technology and technological development, it may be the reverse.

Mr. ROTH. If I can just quickly add to that, Congressman Menendez. When I came to this Committee, I was one of the people that

said, hey, let’s not let anything be sold overseas. We’re going to

keep everything from the Soviet Union.

But as time went on, I realized that that was the wrong approach. I learned from people like Paul Freedenberg and others

50

and good people like Roger Majack that you’ve got to look to the

future and the way you look to the future, you’ve got to take a look

at this technology. Technology is not a static thing.

What’s a state-of-the-art today, 5 years from now is going to be

obsolete. So what you want to do—this was the conclusion I came

to—is that you’ve got to protect the tip of the iceberg, the most sophisticated technology, but the rest of it you want to let go, because

you want to keep the state of technology in this country.

But once you deny our business to sell overseas and other companies, whether the German or French or whoever it might be, step

in, then we will no longer keep that edge. And what gives us our

protection is the edge, and that’s why we want to keep that. Something like going pheasant hunting. I don’t know. When I first went

pheasant hunting, I couldn’t get a pheasant and the reason was I

was always aiming at the bird and then 1 day a guy came and said

you’ve got to swing that shotgun and stay ahead of the pheasant

at all times in order to hit it, and that’s the analogy for technology.

You’ve got to stay ahead of the curve and once you don’t, then

you’re going to lose.

Mr. MENENDEZ. I appreciate your answers. I hope you don’t carry

that chip with you when you go abroad. You take it out of your

suit, you might be an export——

Mr. MCCURDY. It’s commercial available.

Mr. MENENDEZ. Is that right? OK. Let me ask you one other

question, for any of you wish to answer. If the current controls are

continued, if we do not have a new Export Administration Act,

what impact does this have on U.S. industries, their ability to export, as we turn the century?

Mr. ROTH. You’re going to let the companies overseas become—

have the state-of-the-art technology and then we will no longer

have the leverage that we’ve had ever since I came to Congress.

Mr. MCCURDY. I would agree with that. But, again, in light of

the testimony earlier today from Mr. Cox and Mr. Dicks and what

Toby just said earlier about the tip of the iceberg, and the Secretary made the comment as well, you’re talking about 11 or

12,000, I think was the number, applications for license and such

a small percentage are those that are truly involved in the very

sensitive areas.

You have a munitions list. It’s very clear, very precise. There are

some who would argue that that needs to be expanded perhaps.

The gray area obviously is in the dual-use technologies and in the

computer areas. Mr. Manzullo, I believe, last year or in the last

Congress, considered removing controls on computers.

I mean, again, what is the—it is very, very difficult to define

some of the dual-use areas and I think we have to keep that in

mind as we look at this export regime.

It would be a mistake, I think Congress would be abdicating its

responsibility if it did not reauthorize the law and make it a postcold war, modern, realistic regime or system that, rather than inhibit our ability to succeed abroad, but actually increase it.

Mr. JOHNSON. To add to that, I think we have, after all, survived

4 years without one. We could probably go on a bit longer. I think

perhaps one of the crucial problems is not reauthorizing, but one

51

of not having the debate within Congress, but to have greater consensus within Congress as to what export controls are all about.

The dangers that we have gotten into in the last few months in

the last Congress, was that there clearly was no consensus and

there was a tendency to run this way and that way. And that

leaves us in an even greater area of grayness and uncertainty as

to our future and our ability to plan two, three, or 5 years ahead.

So I think the debate itself will be extremely useful. As we look

around, with Congressman Roth here, there aren’t very many people who have gone through this debate in Congress. The last EAA,

there were five or ten people in Congress who were here when that

passed.

The Senate hasn’t discussed this subject for a decade or more. I

think you need that discussion to help bring to the table these

issues and build a greater comfort level within the Congress and

within industry as to where we’re going.

Dr. FREEDENBERG. The other point is you really can’t have a system long-term that is based on a COCOM international system.

That doesn’t exist anymore. You have a system that is much, much

different in terms of how we interact with our allies, how we deal

with the essential problem, which is China.

We’ve heard the debate about China. China is not dealt with adequately within the current multilateral system and, in fact, that

causes great problems for our companies. Keeping our companies

out doesn’t necessarily help things and, in fact, it can harm us in

the long run.

But we have to make a decision on what technology we want to

go, under what circumstances, and that’s really a debate that this

Act really ought to stimulate and it’s something that would be, I

think, very helpful to undertake.

Ms. ROS-LEHTINEN. Thank you, Mr. Menendez. Mr. Manzullo, I’d

like to recognize you for your questions, and if you could Chair the

rest of the meeting.

Toby, Dana and I concluded that you should have aimed that

shotgun at Mrs. O’Leary’s cow, thereby sparing Chicago. You

missed your true calling.

Mr. MCCURDY. Thank you, Madam Chair.

Mr. MANZULLO—[presiding]. Thank you for testifying. Toby, I

want to just publicly thank you for the inspiration and the guidance that you’ve given to me personally as a role model and a mentor in this very, very difficult area.

I want to talk about jobs. I want to get right down to why we

are here. I am terrified. I wish that every member could read especially Mr. Freedenberg’s statement on the disgrace, the national

disgrace of this country, which has the finest machine tool producers who are being shut out of the markets in China, on the fiveaxis machines. We’re having problems getting four-axis machines

into India.

I want your estimate as to the number of jobs, I hope some press

is left here—I’m sorry—still here—on the basis of a billion dollars

of exports equals 20,000 jobs. I want to know what our present policy is doing to send U.S. jobs abroad.

Dr. FREEDENBERG. China is the largest overseas market for machine tools, interestingly, but there is a real problem when you

52

can’t sell sophisticated machines, which is the other part, they

don’t want to take that approach.

Mr. MANZULLO. Replacement parts, updates, right.

Dr. FREEDENBERG. I will get you the estimates. The substantial

point is the U.S. machine tool industry, which is at a disadvantage

in the 1980’s, is now very competitive, exports fully a third of its

output in the 1990’s, and China is the largest market.

That is very important and it’s going to become a much larger

market. Boeing estimates, I think, 25 percent of their sales may be

to China over the next decade. It’s a very substantial commercial

market and you want to—and those planes are going to be built increasingly on Chinese—at least parts of those planes.

Mr. MANZULLO. Dr. Freedenberg, can you give us a dollar—the

word has to get out and if we can use this as a platform, the word

has to get out as to what we’re doing to destroy our jobs.

Dr. FREEDENBERG. One example we have is China is—we have

10 percent of the Chinese market and currently we have 20 percent

of the South Korean market. The differential, there close to the

same levels of economic development in terms of the sorts of products they’re trying to produce, automobiles, aircraft parts, et cetera.

But that differential can be—I will get you the exact numbers.

Mr. MANZULLO. OK. Congressman McCurdy, do you want to take

a stab at that, starting with computers and anything else?

Mr. MCCURDY. Certainly, Mr. Chair. I believe the real problem

that you state is one that we use quite often, and that is that for

every billion dollars in exports, you’re looking at 20,000 U.S. jobs.

As I indicate in my statement, we exported, in the electronics sector, $150 billion worth of systems and technology and products.

I think there has been a lot of focus on China itself. I don’t think

anyone is up here saying that China is an easy market. China is

a very difficult market and there is a lot that has to be done.

There’s a lot of effort that has to be put in by the Administration

and by the U.S. Government to try to open that market more successfully.

But it is clear that our competitors see that as one of the biggest

opportunities in the world today and they are without any hindrance, without any limitations, spending the time and money in

technology and investments to have the foothold in that market.

Mr. MANZULLO. What are we losing in terms of items that could

be sold to countries that—a foreign availability, but which we can’t

sell because of our licensing requirements?

Mr. MCCURDY. In those areas, in some of the dual-use technologies, where there is foreign availability, it is clear that if we

do not have access to that market, if we do not have a presence

in that market, that market will in fact go to competitors.

There is no guarantee, even if we had a perfect export control regime, that we would be the dominant player in that market. I

think our technology is better, higher quality, and more competitive in price, and, therefore, should be the commodity or product

of choice, but that’s not a guarantee.

If you look at who is doing business in China, but also throughout Asia and throughout the emerging markets around the world,

all the major foreign competitors are there, especially in the telecommunications area, that we also represent.

53

Mr. Rohrabacher, I think, is aware as well that that is one of

the—when they deregulated and are deregulating in foreign countries the telecommunications sector, that opened up the opportunity for the creation of thousands, of hundreds of thousands of

jobs for U.S. telecommunications manufacturers.

When we are denied access to some of those markets, that has

an adverse impact on those companies.

Mr. MANZULLO. Toby, did you want to respond to this?

Mr. ROTH. No. I think Mr. McCurdy has put it very well and I

associate myself with his remarks and the other remarks of the

panelists made here today.

Mr. MANZULLO. Applied Materials, which manufacture semicon- ductor manufactured equipment, lost a $3 billion sale to China due

to export controls. NEC of Japan picked it up. I have—the district

that I represent is one of the most exporting and very high in machine tools and the worst that could occur now is a drying up of

machine tool exports, the same thing that happened in 1981, and

that’s when we led the Nation in unemployment at 26 percent.

Dr. FREEDENBERG. Let me give you just one example of something I’ve done. When I was over in Japan, I talked with a number

of export control officials and I said, one of the—you’ve actually

had fairly good arrangements with the Japanese in the area of

super-computers. We had a bilateral agreement that worked fairly

well. I suggested to the Japanese that we ought to begin bilaterally

talking about what the limits ought to be on China, get some understanding among ourselves so that we don’t undercut each other

with—in the area of export, and then try to expand it informally

within the Wassenaar agreement.

You can’t have China, now that Russia is a part of us now, you

can’t have China officially as the objective, but you can get some

understandings on what the export control levels ought to be. We

really don’t have those, and as a result, the U.S. Government from

time to time can come down very hard on a U.S. company and have

absolutely no assurance that their foreign competitor won’t get the

deal.

On the case you’re talking about with Applied Materials, that’s

exactly the case. It’s exactly the same specifications for the equipment that went in to China from NEC that would have come from

the United States. That doesn’t do us any good. That’s a very good

example of what we need to get some understandings with our allies about. So the export controls are not a factor with regard to

the——

Mr. MANZULLO. What I would like to see, maybe Mr. McCurdy

and Dr. Freedenberg, I would like to see a letter, perhaps a joint

letter or individual letter—I want to quantify, present to the American people, present to the Members of Congress that because of

this policy, the number of jobs that we are losing. China has 300

cities in excess of one million people. Twenty-five percent of those

cities do not have airports. China is in the process of building I

think right now 13 or 14 airports in the southern part of that country, with a goal of a new airport in every city. I mean, the opportunities for sales there and elsewhere are ripe.

Mr. Delahunt.

Mr. DELAHUNT. Thank you, Mr. Manzullo.

54

Let me just approach this from a different angle, and if my questions or observations appear to be naive, it’s a reflection of my—

the fact that I’m brand new to this Committee. But I find his conversation interesting.

Help me walk through. If—and I think this goes to the issue that

Mr. Manzullo expressed his concern about. But if an American

company makes a decision—or can an American company create a

subsidiary and situate a plant or locate a venture, whether it’s a

joint venture, whatever the mix may be, in China to avoid the export control regime that currently exists? Is that doable under

mergers and acquisitions, not only in this nation, but at, you know,

the international level? How does this issue mesh in with the

globalization, if you will, of our economy?

Dr. FREEDENBERG. You can use foreign technology, and frequently the foreign technology is comparable. So you can—I’ve seen

U.S. companies end up, because of a sanction or a particular U.S.

law, simply shift to a foreign operation, which, as long as it’s not

using exclusively U.S. technology—very frequently Europeans have

their own technology that’s comparable——

Mr. DELAHUNT. What concerns me is in terms of the national security interest, how would, again, this consolidation into national—

I mean, we see the emergence of the multinational now. I mean,

in terms of compliance, I mean, in the real world, you know, you

talk about exclusive U.S technology. I mean, that gets real murky

when we’re talking about, you know, multinational corporations.

Mr. McCurdy?

Mr. MCCURDY. Well, Mr. Delahunt, a couple thoughts on that

question, which I think is a good question. Many of the competitors

that our industry faces are European. Many of those competitors

have huge ownership positions by their governments, and their

governments are actively out there supporting their export and

their activities, whereas in our free market system, in our free enterprise system, government doesn’t own, you know, an equity position in the companies, and it—but in many ways is restricting

some of its ability to compete.

I was asked to give a speech recently at the U.S. Chamber of

Commerce on industrial espionage, and as former Chairman of the

Intelligence Committee, I had some recollection of some of the activity of some of our so-called friends and allies with regard to U.S.

businessmen and business people traveling abroad and some of the

risks that were associated there.

The second point is as far as the mergers, there’s a limit to how

large a corporation can really grow and be effective. I think you’ll

see a cycle——

Mr. DELAHUNT. I’m waiting for that time.

Mr. MCCURDY. I think you’ll see a cycle, actually, where there

will be more and more spinoffs. A number of the—the beauty of the

U.S. system and U.S. industries—and it is true they are global in

their span. As I said earlier, a third of their products are now exported. The beauty is the entrepreneurism, the innovation, the incredible rapid pace of market development and time to market. You

don’t see that anyplace else, and that’s the advantage we have. But

if you slowed that down, if you take that portion away from us,

then all of a sudden, the others have a chance to catch up.

55

Mr. DELAHUNT. You know, I don’t disagree. I guess what I’m trying to do is say that—I’m trying to buttress or support your perspective here by saying, I mean, joint ventures, there are so many

different mechanisms to achieve certain ends that it causes me concern.

Let me just pick up on one point that—I think it was Mr. McCurdy that said this earlier, about—in terms of—your concern is, of

course, that if export controls are so cumbersome, that we lose in

terms of our technological edge because the investment in terms of

R&D simply won’t be there. You gave the example of public versus

private satellite technology.

Have you seen evidence of that already happening?

Mr. MCCURDY. Oh, without doubt, yes. I mean, there is——

Mr. DELAHUNT. Because I think you made the comment about—

and I was really taken aback by it, is that you now—I think your

statement was that some of our global competitors are in fact

ahead of us in terms of state-of-the-art technology. Maybe I’m reading into something that——

Mr. MCCURDY. They’re comparable in many areas. There is no

longer—we enjoyed the greatest era of prosperity after World War

II because we were the dominant player, we had the leading technology, we had the infrastructure, we had the education system, we

made the investments, and there really wasn’t a competitor.

In this multipolar world that we live in today that is highly competitive, there are huge investments countries have taken on as a

system to develop technology that, in fact, can compete. They subsidize their companies, they subsidize the exports. In the aviation

section, you see it everyday.

And one point that my friend from California made earlier about

industry, let me just say this where I respectfully disagree on one

point. It’s the U.S. businesses that in fact are concerned about

long-term security, and they have been good citizens.

There’s always an exception, there will be mistakes made, but I

don’t think it’s because of greed. If anything, Mr. Rohrabacher, I

believe that that incentive is what made this system so successful.

That’s what free enterprise is all about, that’s what we’re supporting. And it can operate in conjunction with national security.

That’s why you have a munitions list, that’s why you should—

ought to focus on those areas that are specific to threats that may,

in fact, come back to haunt us.

Mr. DELAHUNT. Just one more question real quickly, because the

focus has been on China today, and I understand that, but also on

the Asian continent, we have a country the size of India. Any comments on, you know, the impact of the current system as it relates

to how we do business, exports, in India. I think, you know,

there’s—that’s an immense nation, obviously.

Mr. JOHNSON. In our industry is a good example of sort of unintended consequences. Because of the Glenn amendment and because of moving communications satellites to the munitions control

list, we could not sell a commercial satellite launched on a Delta

2 rocket to India or Pakistan today, and there is no Presidential

waiver authority. We have turned that market over to the Europeans until the Congress does something about the Glenn amendVerDate 11-SEP-98 13:22 May 15, 2000 Jkt 000000 PO 00000 Frm 00058 Fmt 6633 Sfmt 6633 60295.TXT HINTREL1 PsN: HINTREL1
56

ment. No one intended on doing that, but that’s what happened to

us.

So you undercut—I don’t mean you specifically—they—the system has undercut both the launch industry and the satellite industry in the United States because of sort of unintended consequences of treating commercial items as a military item. Not the

military—I mean.

The other point I would have liked to have made in terms of trying to figure out jobs, it’s a very complicated issue. One reason we

focused on China is because if you take away that large market

and you give it to the Europeans, there’s a monopoly, then a number of things happen in other markets, and that’s really part of the

measure.

I remember when we did export sanctions and we denied Caterpillar sales of 700 pipelaying units to Russia. Comotzo moved in

and within 2 years were marketing heavy construction machinery

in the United States, and if you ride down the road today, you’ll

see Komatsu heavy equipment. It wasn’t there until we did that.

But you give a guy a free market with a monopoly price, bad things

happen elsewhere. He’s got a cash-flow to develop the next generation of products to get out there and market what you’ve taken

away from the Americans.

I have a company that is in the satellite area being told—it was

a supplier of components to French Company Alcatel—that they

were going to design out American components now that we’re on

the munitions list because our strings on munitions don’t stop.

Mr. MANZULLO. OK. Mr. Rohrabacher, I want to end at 10 minutes to six.

Mr. ROHRABACHER. OK. Well, I don’t think I have that much

time, but——

Mr. MANZULLO. Oh, OK.

Mr. ROHRABACHER. Let me just note in terms of the jobs issue,

I noticed Mr. Freedenberg sort of hedged when he realized he was

about to disclose that Aerospace jobs were being lost in order to sell

your equipment to make other equipment.

Dr. FREEDENBERG. Yes.

Mr. ROHRABACHER. Who loses? The American Aerospace workers

in my district, that’s who loses.

Dr. FREEDENBERG. I understand that entirely. In fact,——

Mr. ROHRABACHER. Right.

Dr. FREEDENBERG.—I worked very hard first against offsets,

which is essentially what——

Mr. ROHRABACHER. Yes. Let me just——

Dr. FREEDENBERG. I understand.

Mr. ROHRABACHER—[continuing]. Be very clear as I talk about

losing jobs, the Chinese understand exactly how to create jobs in

China and not in the United States, and part of the bit—the crux

of this issue that we’re talking about today was the Chinese insisting to these Aerospace executives that if you’re going to, you know,

launch your satellites, you’ve got to do it on our rockets, and then

you’ve got to improve our rockets, and then these executives get

lured into this because of the vision of the China market.

The vision of the China market, they say, you know, China is the

market of the future and it always will be. In our whole history,

57

we’ve had people talking about the China market. The bottom line

is, can you—can any of you gentlemen tell me who buys more from

us? Who’s bought more from us in the last 10 years—the 20 million

people in Taiwan or the billions of people on the Mainland? Well,

you know the answer: it’s the people in Taiwan.

The fact is that up until recently, Taiwan bought more from the

United States every year than the entire Mainland of China. That’s

not to mention these other countries. This is little Taiwan.

We have people who are stumbling over themselves in order to

do business in a way that could jeopardize the national security of

our country in order to get a part of the China market. Well, this

dream is causing great damage to the security of our country. People can dance around the issue all they want; the crux of the matter is, we all know that Communist China could well be at war

with the United States within 10 years unless there’s some change

of dynamics. Everybody knows that. Everybody is afraid to say it,

afraid to talk about it.

What are you going to do? Are you going to say that China is

going to be on a list? We’re talking about the COCOM lists of the

past. Are we going to knock it out? Everybody is afraid that, well,

then maybe we destroyed our possibility here of being not only in

the market, but we’ve destroyed the possibility of reaching out to

China and letting them evolve toward democracy. Well, it’s baloney.

Sometime, somewhere, people are going to have to come to the

realization the people who control China hate the United States,

they hate everything we stand for. When our businesses go over

there and sell them our rocket technology or set up factories so

that they’re going to be able to compete with our Aerospace industry, they think we’re weaklings and they despise us and they think

we’re degenerates because we are ending up giving their country

in the long run the leverage they need to dominate the United

States of America. If you don’t think that’s the attitude of these

people, you haven’t studied what these people are all about.

Now, I understand this dream that you’ve got. We’re going to do

more business with them because we have all these computers over

there, and through the Internet, we’re going to open up their eyes.

I hate to tell you this, Communist people are not our problem—I

mean, the Chinese people are not our problem. The Chinese people

don’t want a boot of oppression in their face forever. They don’t

want that. The Chinese people—Tiananmen Square spoke what

they wanted. But you have a ruthless, factious state regime of people who know everything about the United States—they don’t need

the computers to find out—who are committed to what? To making

$50–, $60– to $100 billion dollars in surplus with our trade with

them every year in order to do what? To put our people out of

work, not to give work to our people, to make sure that they can

compete with our Aerospace industry and every other industry, and

eventually to produce weapons of mass destruction that will threaten us. That’s what they’re doing. They’re upgrading their military

every year for the last 5 years in ways that put our country in jeopardy.

And the reason there’s so much to-do about this issue is when

we loosened our restrictions, with my approval, I might add, based

58

on the same arguments that you’ve presented us today, what happened? No, Mr. McCurdy, I’m afraid that those business executives

that watch out for America weren’t watching out for America.

I’ve investigated this myself for 6 months. I went to the contractors, I went to the subcontractors. People in those companies went

to me and told me they were embarrassed and they were ashamed

of their company for what they had done, and I won’t name the

companies that we’re talking about, they were ashamed because

they had spent the cold war trying to protect our country by developing the technology we needed for our own defense. And when

Aerospace workers come to you on the side and tell you they know

that they’re company is engaged in something that is damaging to

our national security, a Member of Congress better well pay attention to what’s going on.

I’m sorry for getting upset, but that’s just me.

Mr. MCCURDY. No, we appreciate your fervor, Mr. Rohrabacher.

But if I may, just on one point, I think you have to be very careful

when you categorize all of industry or all of an entire sector of the

economy with a statement that, you know, so-called friends at the

country club—in fact, it’s U.S. industry that enabled this country

to have the strongest defense——

Mr. ROHRABACHER. Sure.

Mr. MCCURDY—[continuing]. Without equal, without par.

Mr. ROHRABACHER. Dave, I think you can look at the record and

I don’t I’ve ever used the word all or industry or everybody in industry. In fact, I said earlier a member of the country club, and

that doesn’t mean everybody who is a member of the country club.

What happens when you’re part of a little clique like this is you

overlook something that your buddies have done. You say,——

Mr. MCCURDY. Well, Mr. Rohrabacher——

Mr. ROHRABACHER—[continuing]. Well, this guy has done—I’m

not saying everybody has done it.

Mr. MCCURDY. Mr. Rohrabacher, we’re not here to defend a particular company. If, in fact, there were violations, there is a system

that will take care of that. What we’re here to say is that don’t let

an exception—an exception—destroy what has been the fuel that

has run one of the most dynamic engines of a modern economy ever

in history.

Mr. ROHRABACHER. Sure.

Mr. MCCURDY. We have that today and we don’t want to—and

it’s not foolproof, it’s not free of potential risk. This is still a fairly

volatile economy, and if you, in fact, are—if we’re not careful and

just take it for granted that this innovation and entrepreneurisum

will go on forever, and that this phenomenal growth will go on forever, I think that’s a dangerous assumption.

So all we’re arguing for is that don’t impose a system that was

directed at an exception on the entire system and an industry that

is—shares your patriotism and your concern——

Mr. ROHRABACHER. Dave, when I left this room, I went up to my

office to talk to some people in Boeing Corporation, OK, and one

of the things we just happened to talk about was that they’re finding out all of these sales to China weren’t turning out so profitable

after all for their aviation industry. They got stiffed. And what

happened when they got stiffed? They didn’t order all the planes,

59

but they got all the equipment, didn’t they, all those machine tools.

So where do we end up? We end up with American workers who

we’re supposed to watch out for, we’ve given them all the tools they

need to compete with our people to put our people out of work.

Who’s watching out for America?

What we’re doing is we’re letting these big companies go for the

vision of a—not a long-term profit, but a short-term profit, because

you can make a 25 percent profit if you get the right deal in China,

where over in the United States, you know, maybe you’d only make

7 percent.

One last thought, and then I’ll——

Mr. MANZULLO. I’ve got to get back to my office.

Mr. ROHRABACHER. I agree with Mr. Manzullo in that we should

not be restricting——

Mr. MANZULLO. This is a slow motion.

[Laughter.]

Mr. ROHRABACHER. We should not be restricting sales of American technology that can be done—bought on the market. I agree

with that.

Mr. MANZULLO. Amen. This Committee is adjourned.

[Whereupon, at 5:50 p.m., the Subcommittee adjourned.]

(61)

A P P E N D I X

MARCH 3, 1999

62

63

64

65

66

67

68

69

70

71

72

73

74

75

76

77

78

79

80

81

82

83

84

85

86

87

88

89

90

91

92

93

94

95

96

97

98

99

100

101

102

103

104

105

106

107

108

109