U.S. GOVERNMENT PRINTING OFFICE

67–392 CC WASHINGTON : 2000

FUTURE OF THE EXPORT ADMINISTRATION ACT

HEARINGS

BEFORE THE

SUBCOMMITTEE ON

INTERNATIONAL ECONOMIC POLICY AND TRADE

OF THE

COMMITTEE ON

INTERNATIONAL RELATIONS

HOUSE OF REPRESENTATIVES

ONE HUNDRED SIXTH CONGRESS

SECOND SESSION

MARCH 22 AND APRIL 4, 2000

Serial No. 106–149

Printed for the use of the Committee on International Relations

(

Available via the World Wide Web: http://www.house.gov/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 RADAVANOVICH, Califorina

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

JOHN P. MACKEY, Republican Investigative Counsel

SUBCOMMITTEE ON INTERNATIONAL ECONOMIC POLICY AND TRADE

ILEANA ROS-LEHTINEN, Florida, Chairman

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

VICTOR MALDONADO, Staff Associate

(III)

C O N T E N T S

WITNESSES

Page

WEDNESDAY MARCH 22, 2000

Daniel A. Hoydysh, Director, UNISYS .................................................................. 7

David Rose, Director, Export/Import Administration, Intel ................................. 10

David McCurdy, President, Electronic Industries Alliance .................................. 12

John W. Douglass, President, Aerospace Industries Association ........................ 14

Paul Freedenberg, Director of Government Relations, Association for Manufacturing Technology ............................................................................................ 17

TUESDAY, APRIL 4, 2000

Roger Majak, Assistant Secretary for Export Administration, Department

of Commerce ......................................................................................................... 28

APPENDIX

WEDNESDAY, MARCH 22, 2000

Prepared statements:

Daniel A. Hoydysh ................................................................................................... 40

David Rose ................................................................................................................ 59

David McCurdy ........................................................................................................ 61

John W. Douglass .................................................................................................... 74

Paul Freedenberg ..................................................................................................... 80

TUESDAY, APRIL 4, 2000

Prepared statements:

The Honorable Ileana Ros-Lehtinen, a Representative in Congress from Florida and Chair, Subcommittee on International Economic Policy and Trade,

Committee on International Relations ............................................................... 94

The Honorable Robert Menendez, a Representative in Congress from New

Jersey .................................................................................................................... 96

(1)

THE FUTURE OF THE EXPORT

ADMINISTRATION ACT—PART I

WEDNESDAY, MARCH 22, 2000

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON INTERNATIONAL ECONOMIC

POLICY AND TRADE,

COMMITTEE ON INTERNATIONAL RELATIONS,

Washington, DC.

The Subcommittee met, pursuant to notice, at 1 p.m., in room

2200 Rayburn House Office Building, Hon. Ros-Lehtinen, (Chairman of the Subcommittee) presiding.

Ms. ROS-LEHTINEN [presiding]. The Subcommittee will come to

order. Thank you so much for your patience, the panelists, the

Members especially, and the audience. Thank you.

The export of dual use commodities has been and continues to be

a priority. In light of recent technological advancements and the

continuing demand for American merchandise, apprehensions have

intensified about the loss of future markets for American industries, as well as the potential for U.S. exports to contribute to the

military capabilities of foreign adversaries. Export controls in the

form of the Export Administration Act have been the pivotal instruments used to address these dual, yet converging concerns.

The Export Administration Act of 1979 was based upon legislation devised at the onset of the Cold War for the purpose of regulating the export of dual use items to provide safeguards for U.S.

national security. Since 1990, when the Act expired, there have

been several attempts to develop legislation which meets the needs

of both a rapidly developing marketplace, as well as a rapidly

changing global security environment with new and different

threats.

These efforts have failed to find consensus in both the House and

Senate. Thus, the Export Administration Act has been maintained

through a series of executive orders issued under the International

Emergency Economic Powers Act. The dilemma we continue to face

is how to restrict the spread of potentially destructive technologies,

how to deter terrorism and other rogue behavior, while allowing legitimate sales to go forward, to preserve the ability of U.S. technology exporters to develop their markets, and to foster U.S. technological leadership.

Critics of the current U.S. export control system say that the existing policies promote interagency gridlock, causing conflicts between the various entities responsible for licensing and enforcement. They argue that the solution to a more efficient export conVerDate 11-MAY-2000 09:58 Dec 12, 2000 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 67392.TXT HINTREL1 PsN: HINTREL1
2

trol mechanism lies in streamlining the process and consolidating

regulatory power.

Recent statements by Bruce Middleton, managing director of the

Australia-based Asia Pacific Aerospace Consultants, illustrates the

challenges facing American industries and the impending need for

reform of the licensing process. He states, ‘‘Frankly, America is no

longer seen as a reliable supplier or partner. American companies

can neither guarantee export permission nor estimate how long

getting that permission might take.’’ One alternative which has been proposed is for the licensing review and approval process to take into account policy precedent.

That is, if licenses for exports of particular products to specific

countries are routinely approved, then new requests which fall

under this precedent should be expedited for approval.

Industry and scientific experts underscore the need for better

definitions of products and national security risks to better focus on

technologies that should be protected. We cannot continue to, for

example, treat simple metal mounting brackets for the avionics

bays of aircraft equal to sophisticated satellite technologies.

In the case of computers, we need to move away from an MTOPbased system to a more responsive approach which reflects technological realities and provides a more accurate measure than offered

by current performance-based controls. Other areas which, I’m sure

that we will hear today, need to be addressed are: reductions in the

congressional review periods; targeting post-shipment verification

of products and recipient countries posting the greatest national security threat; and issues such as the foreign availability and mass

market status.

There are some who use the foreign availability argument to advocate the removal of all export controls for everything and for all

countries. However, we as policymakers must be careful not to

make such broad, far-reaching generalizations, and take into consideration the type of technology or product to be exported; how the

product will be used; and the nature of the importing and recipient

country.

The recent agreement between the Secretary of Defense Cohen

and his British counterpart hints at the goal of waiving U.S. export

controls over time. What some observers will point to as perhaps

more pertinent to the discussions regarding the Export Administration process is the underlying distinction made between friends and

foes in the U.S.-U.K. agreement. Perhaps proposals to give preferential export control treatment to NATO members and close nonNATO allies such as Australia, New Zealand, and Japan to expedite the export process is another option? Perhaps there are better

alternatives? But one thing is certain, we must focus on a balanced

approach which targets those countries, the recipients, the technologies, and the products which are of concern to our national security, and define those within the new global environment.

A clear distinction must be made between products and technologies, taking into account the rapid pace of technological change.

We must differentiate between the longstanding U.S. allies and pariah states which continue to support international terrorism;

which conduct espionage activities against us in the United States;

which develop biological weapons or engage in the proliferation of

3

weapons of mass destruction, among other threatening behaviors.

Enemies should not be rewarded.

Nevertheless, the balance must and can be achieved. As Senator

Michael Enzi, one of the current cosponsors of S. 1712, has remarked concerning a new export administration system, ‘‘Industry

needs reliability and predictability. Industry needs to be able to

make into it into the marketplace at least the same time that the

competitor does.’’ However, a new Export Administration Act must

ensure that ‘‘items that can be used against our country do not fall

into the wrong hands.’’ That is the task at hand as we look into our distinguished panelists today for insight and recommendation on how we in Congress

can achieve these goals. We look forward to all of your testimony

today.

I now would like to yield to the Ranking Member of our Subcommittee, Mr. Robert Menendez of New Jersey.

Mr. MENENDEZ. Thank you, Madam Chairlady. Thank you for

holding the hearing, continuing in our efforts in this regard. I am

very pleased to have the distinguished Ranking Member of the Full

Committee with us today. This is an issue that he has been pursuing for quite some time as the former chairman of this Subcommittee, and now as the Ranking Member of the Full Committee. I am sure we’ll hear from him in a few moments.

The Export Administration Act and export control policy are

amongst the areas of greatest importance to this Subcommittee.

The challenge of the EAA is to strike a balance between our national security interests and our commercial interests. I believe

that goal is achievable, as I have said in the past. We have a new

bill that is out there, Senate bill 1712, for example. I think it seeks

to achieve that precarious balance. There are some issues I still

have with it, but I see it as making much-needed changes to our

antiquated export control laws, particularly in the area of enhanced

penalties for illicit export sales.

I think the Congress’ failure to reauthorize the EAA has left the

Congress without a voice in an area of increasing importance to our

national security and to U.S. industry. Moreover, I believe it’s a

breach of our constitutional duties. The Constitution clearly gives

authority to Congress in the regulation of foreign commerce. By not

reauthorizing, we have ceded this authority to the executive

branch.

Now clearly no one would advocate a policy that would undermine our national security, but often the lines between security

and commerce are not quite clear. Where there is a discernible national security threat and where the technology is clear, clearly not

available from any other source, the licensing decision I would submit is simple. However, licensing is usually significantly more complicated. Licensing decisions have to consider not only the intended

use of the export and who the end user is, but whether a foreign

country is likely to permit the sale if we do not.

The United States is a leader of the global economy, and many

businesses rely on exports for a large portion of their business.

American businesses in this field are rightly concerned about losing

business to less scrupulous nations or being seen as unreliable suppliers. Already the American computer industry has been stymied

4

and sales of basic desktop computers due to inflexible export controls. If the United States wants to continue to be the world leader

in the field of technology, our export control system must be able

to differentiate between exports of sophisticated satellite systems

and the export of a desktop computer.

The bill developed by Senators Enzi and Graham go a long way

toward addressing our national security concerns and our commercial concerns. Creation of a national security control list developed

in conjunction with the Secretary of Defense is one way of streamlining the licensing process to focus on exports to countries of concern and exports of items that pose a national security concern, I

think addressing the issues of mass market items and foreign

availability to ensure that items which are not exclusively available

from American companies and are not controlled by our export system when they are available elsewhere is of importance.

In a perfect world, the United States would be the sole manufacturer and supplier of sensitive technologies, and we could and

would control all sales. However, in today’s global economy, if the

United States prohibits the sale of a certain technology, for example, encryption just to use one, Israeli, Japanese or Chinese firms

would most certainly make the sale if we do not.

Last, the bill proposed makes some important improvements in

the area of penalties and enforcement. By substantially increasing

penalties, we hope to discourage individuals and companies from

making illicit export sales and to severely punish them if they violate the law.

Let me close by saying we Democrats will be pressing very hard

to have an EAA that meets the balance necessary, but that preserves the well dominance of the technology field that we presently

enjoy. I don’t believe that we should be sacrificing that to any other

country, any other entity, any other part of the world. We look forward to hearing from all of our panelists and the industry and

making sure that we meet that goal.

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

I now would like to recognize the Ranking Member of the Full

Committee, who joins us today, Mr. Gejdenson of Connecticut.

Thank you, Sam.

Mr. GEJDENSON. Thank you, Madam Chair, Mr. Menendez, Mr.

Delahunt. I will be very brief. But I do think this is an incredibly

important element in our economy and the continued ability for the

United States to stay dominant in many of these fields.

You know, at times in human development, change came in millennia, thousands of years between changes in technologies. Then

for many years it took hundreds of years for change. Then a period

where it took decades to change. When my family came to this

country, we bought a dairy farm in 1950 that used technology that

was available in 1850. It was a perfectly good and working farm.

Today we can’t do that. The shelf life of a computer is often less

than the regulatory time it takes to get an upgrade through Congress of super computers. With a shelf life of less than 6 months

in a process that can take 180 days here, it is insane what we are

doing. In the Senate, they have shelved the bill. The Senate leadership should be pressed by the industry and people to move the bill,

and let’s see where the votes are.

5

Should that fail, I think that maybe we should do what we did

with encryption, break this down by computers, by satellites, to try

to focus on choke points in technologies in a series of small bills,

but the industry has to do more than just come and present itself

to this panel. It has to do more than get its industry heads to

speak. You need to get a grassroots operation going so people understand the consequences back home.

In Members’ districts, they ought to be invited to meet with employees and managers who understand what’s happening here.

Frankly, to some degree, there is an age divide here. Members of

Congress who don’t have a computer on their desk and haven’t

gone through XTs and ATs and 286s and 486s and pentiums, don’t

understand what the differences really mean. Even this Administration, though it’s generally been good, has made some mistakes.

I can remember when we first got here, the Chinese wanted to

import I think 65 switches for their telephone system. The Administration blocked it. Next thing you know, the Israelis were selling

the Chinese 625s. The Chinese were making their own 565s. We

accomplished absolutely nothing.

We need to make sure there is a concerted effort to get out of

the way because what’s going to happen here, and I see a couple

of folks who spend a large part of their career working on defense

issues, is exactly what happened to the machine tool industry. We

told American machine tool manufacturers they couldn’t export

overseas because we didn’t want the Russians to get them. By the

time the Russians got around to getting a good machine tool to improve their submarine program, it was a Toshiba they were looking

at, and the American Defense Department didn’t want American

machine tools. They too wanted Japanese machine tools.

If we want to dominate the industry, we have to sell the old technology so we can move into the new technologies. I really think

that it is an embarrassment, bipartisanly an embarrassment, that

we have not been able to move forward. This is a rational decision.

This isn’t like many decisions that Congress makes, that you know,

there are lots of considerations that are often hard to place into an

equation. If you can buy the parts in Radio Shack in Beijing, it’s

hard to believe that the American Government is going to be able

to preclude that product from reaching people that we don’t want

it to reach, if it is generally available manufactured. If we don’t

allow our satellites to be launched and we don’t sell satellites, do

you know what happens? Instead of knowing what’s going on, we

have to watch other people selling them. We devastate an industry

that’s very effective and profitable in this country. On top of that,

we lose the information we used to have, which is what capability

each of these other countries has.

I think the Chairman and the Ranking Member have really laid

out where we are. They can’t do it alone. One of the reasons I came

here today is to ask you all to make a much greater effort at getting the grassroots out there on what is the critical technology for

the future. America can’t compete at the bottom of the economic

ladder. If you need cheap labor, you can go to China, you can go

to India, you can go to lots of other places.

We succeed at the top end of technology. If you close that export

door, you are going to kill the American economy. Thank you.

6

Ms. ROS-LEHTINEN. Thank you, Sam.

Mr. Delahunt.

Mr. DELAHUNT. Being an older Member of Congress, I’ll sit here

and listen to the educated body, the panel and my colleagues.

Ms. ROS-LEHTINEN. OK. Take careful notes then.

I would like to take the opportunity to welcome our five panelists

who have taken time out of their schedule to enlighten us on their

views on the Export Administration Act. Let us begin with Dr.

Daniel Hoydysh, the director of Trade Policy and Government Affairs for UNISYS Corporation, and the co-chair of the Computer

Coalition for Responsible Exports. Mr. Hoydysh previously worked

with the Bureau of Export Administration where he assisted in the

development of export control policy for computers, as well as he

helped guide and negotiate multilateral export control agreements.

He will be followed by Mr. David Rose, the director of Export/Import Administration for the Intel Corporation, and also the past

chairperson of the American Electronics Association, which he is

also representing here this afternoon. In addition to his work for

Intel and the AEA, Mr. Rose serves as the chairperson of the SemiConductor Industry Association’s Export Control Committee, and is

active in numerous other industry groups.

We are also fortunate to have with us our dear friend, Mr. Dave

McCurdy, president of the Electronic Industries Alliance since

1998, and a former colleague of ours in Congress. Many of us have

had the pleasure of working with David, and following his service

to the constituents of Oklahoma’s fourth district. Mr. McCurdy

founded his own consulting firm, the McCurdy Group, and utilizes

his expertise on behalf of a variety of businesses and corporations.

We thank you for being with us, Dave. Thank you.

Sitting next to Mr. McCurdy is Mr. John Douglass, the president,

CEO, and general manager of the Aerospace Industries Association,

AIA. In addition to his many responsibilities with that organization, he is also retired Air Force Brigadier General, who has served

at the Pentagon as Assistant Secretary of the Navy for Research,

Development, and Acquisition. We welcome you today.

Rounding out our distinguished panel today is Dr. Paul

Freedenberg, the director of Government Relations for the Association for Manufacturing Technology. As well as having served as the

first Under Secretary for the Export Administration at the Department of Commerce, having been appointed to the post by President

Reagan in 1987, Dr. Freedenberg is a successful published author,

and essayist on the issues of export policy and international banking.

Thank you, all of you, for joining us today. We look forward to

hearing your comments on the issue of the EAA.

We have been joined once again by Mr. Cooksey, who I know was

here previously. There is a markup going on in the Asia and Pacific

Subcommittee, so we’ll have Members going back and forth. Joining us is Mr. Cooksey and Mr. Rohrabacher. I don’t know if you

would like to make some opening statements.

Dana.

Mr. ROHRABACHER. Let me just say I have been disappointed in

American industry, and I am very anxious to hear today from

American industry. I think the American people have a right to be

7

disappointed when we realize that the technologies that could be

used to kill Americans have been transferred to potential enemies

of the United States of America. It’s a very serious issue. People

try to dismiss the Cox report. I know people have tried to poohpooh it, and forget it, and put it under the rug, and pretend that

it doesn’t exist. But it does exist. In fact, transfer of technologies

to potential enemies is worse than what the Cox report has suggested and documented.

Because we want America to be prosperous, and foreign trade is

an important component of American prosperity. It is a vital component. We can not cutoff trade. When people express concern

about our national security, people come back as if we are isolationists and don’t want any trade at all or protectionist, and don’t

want any trade at all. That is not the case. But trade in no way

excuses an American citizen from being involved in the transfer of

technology that could kill Americans to a potential enemy of the

United States of America. If anybody needs further clarification,

Communist China is a potential enemy. It is not an enemy at this

time. But there is no one that I know in the foreign policy arena

that would rule out Communist China being an enemy of the

United States, unlike we would rule out Britain or Belgium or

Japan or any of these other democratic powers.

So I am very interested today in hearing this testimony. Also, I

think we need a dialogue at the very highest level with American

businessmen, to let them know that citizenship is not—just because someone is seeking profit for a company that has to answer

to stockholders, that is no excuse for doing things that are contrary

to what obligations every citizen has, which is not to do anything

to put his country or her country in jeopardy.

With that, I will work with business in every way I can to ensure

there’s a free flow of trade to those countries that do not pose a

threat to the United States of America. But I am aghast at what

American corporations have done in terms of the transfer of technology and trading with countries that do pose a threat to our national security. Thank you.

Ms. ROS-LEHTINEN. Thank you very much, Mr. Rohrabacher.

Mr. Cooksey.

Mr. COOKSEY. Thank you, Madam Chairman. I don’t really have

any statement, but you know, I agree with a lot of what my colleague said. I would encourage each one of you to make a comment

on this as you go through your testimony. It would probably be

easier for you to make a comment than for us to, I hate to say

hammer you with questions or grill you on that, but maybe you

could comment as you go through. It would give us some idea about

your position on that too. Because I too share Mr. Rohrabacher’s

concerns on that issue.

Ms. ROS-LEHTINEN. Thank you very much.

Mr. Hoydysh, we will be glad to enter your full statements into

the record. Please feel free to summarize your key points.

STATEMENT OF DANIEL A. HOYDYSH, DIRECTOR, UNISYS

Mr. HOYDYSH. Thank you, Madam Chair. I guess I could begin

immediately by responding to Congressman Rohrabacher by saying

that the members of the Computer Coalition care very deeply about

8

national security. We are very much concerned about the security

of this country. After all, we are citizens. We live here. Our children go to school here. We are dependent on this country for our

very survival. We would never do anything consciously that would

hurt or damage the security of this country. I just wanted to say

that right off the top.

Anything that we are proposing, everything that we are proposing, we feel is in the best interest of the United States. We feel

that the export control system needs to be balanced in such a way

that we can compete effectively in the global marketplace while

still protecting our national security. I realize that that’s an easy

statement to make and the devil is in the details. I would like to

provide you some information that would help you in your deliberations on where that line should be drawn.

Let me just emphasize a couple of facts. First, we are No. 1. The

U.S. computer industry dominates the global computer market.

There is no question about that. We are the leaders in market

share and technology because we are able to beat our foreign competitors to the market. Also, a healthy and vibrant United States

IT industry is the principal driver of our economic and industrial,

and ultimately military strength. So our security, we believe, is

very closely tied to a healthy computer and IT industry.

But to maintain this leadership, we must export. Exports equal

profits. Profits can be put back into R&D. R&D translates to technological leadership. That simply is an economic equation for which

there is no substitute.

According to a study done by the Gartner Group, which was commissioned by the Computer Coalition for Responsible Exports, over

60 percent of the computer market is outside the United States. In

other words, two out of every three computers that will be sold over

the next several years will be sold not in the United States, but

outside the United States. If we want to stay on top, we must compete in this international marketplace.

The second point that I would like to really emphasize is foreign

competition exists and it is substantial. If I accomplish nothing else

in this testimony, I would like to lay to rest the myth that there

is no foreign competition for two and four processor commodity

computers that we are talking about when we are talking about the

control. Again, the Gartner study projects that over the next 3

years, 30 percent of these commodity systems will be sold by foreign manufacturers. That adds up to over 4.5 million units. We’re

not talking about thousands. We’re talking about millions of units

of two and four processor commodities.

Another fact, according to an International Data Corporation

study released a few months ago, 4 of the top 10 server vendors,

and servers are the kinds of systems that we are talking about, are

foreign. They include large world class companies like Fujitsu,

NEC, Siemens, and Hitachi. So for this myth to continue, that

there is no foreign availability, no foreign competition for the kind

of systems that we are talking about, it is simply not supported by

the facts.

Point three. The U.S. export control system is broken. It is broken, and it is threatening to undermine the technology leadership

upon which our economic, industrial, and ultimately military

9

strength depends. Let me give you some examples of why the system is broken. First, it’s not consistent with technological and competitive reality. The evidence for that is that it continues to control

commodity business systems that are widely available from U.S.

and foreign sources. To illustrate this point, we are asking for the

control of 4 processor business systems, not super computers. This

is a critical point, so let me be very clear about what we are talking

about. I would like to provide you some examples that were taken

from press reports.

Compaq computer company, a U.S. company, one of our members, recently announced that it will install a super computer for

the French Atomic Energy Commission. The French will use this

supercomputer for simulation programs to ensure the reliability

and safety of the French nuclear stockpile without new nuclear

tests. This Compaq system will use 2,500 alpha processors and will

operate roughly at 5 million MTOPs. That is a supercomputer, not

the 2 and 4 processor systems that we are talking about.

Please note that the French are not ordering over the Internet

a 4 processor Dell, IBM, or UNISYS server for this work. This is

a specially designed, specially made for them 2,500 processors.

Another example. Fujitsu recently announced that it would provide the world’s most powerful supercomputer to the Toyota Corporation for automobile design purposes. In its maximum configuration, this system consists of 512 proprietary vector processors,

and can operate again at roughly 5 million MTOPs. That is a

supercomputer.

Point two. Why is the system broken? It’s not effective because

it is largely unilateral. U.S. export controls are much stricter than

those of our trading competitors. For example, the Wassenaar

Agreement, which is really the only multilateral agreement that focuses on computers, as Roger Majak, Assistant Secretary for Export Administration testified, China is generally not regarded as a

target of the four multilateral export control regimes, which include

the Wassenaar and the missile technology, etc. Wassenaar in particular does not consider China a target with respect to dual use

technologies.

So in effect, there is no multilateral regime for computers that

targets the countries of concern that are of concern for the United

States. So that U.S. controls, whatever they may be, end up being

largely unilateral.

The system is also counterproductive. It wastes Government and

industry resources, and attempts to control the uncontrollable.

Therefore, efforts to police truly sensitive items are diluted. In a

sense, it undermines national security by undermining our technological preeminence. According to a Defense Science Board Task

Force report, ‘‘protection of capabilities in technologies readily

available on the world market is at best unhelpful to the maintenance of military dominance, and at worst, counter productive, by

undermining the industry upon which U.S. military technological

supremacy depends.’’

The net result of the current export control system is therefore

that it creates a competitive advantage for foreign manufacturers

that over time will erode our market dominance and technological

leadership, and ultimately our military superiority.

10

That basically is the points that I would like to emphasize. I

would be happy to answer any questions.

[The prepared statement of Mr. Hoydysh appears in the appendix.]

Ms. ROS-LEHTINEN. Thank you so much.

Mr. Rose.

STATEMENT OF DAVID ROSE, DIRECTOR OF EXPORT/IMPORT

ADMINISTRATION, INTEL

Mr. ROSE. Yes. Thank you very much for the opportunity to testify. My testimony this afternoon is going to focus on three areas.

One is the tension between global information technology trends

and export controls, the second is the need for fundamental reform

of the export control system, and the third is a brief assessment of

the Export Administration Act of 1999, the Senate bill, S. 1712.

Today’s information technology industry, and the patterns and

trends associated with it, presents a number of new and fundamentally distinct challenges to the U.S. export control system. The

overwhelming permeation of commodity computers and microprocessors, commodity networking equipment, and other information technology products has basically become interwoven into

what is rapidly becoming a global information infrastructure. At

my company, we tend to think, for example, about computing rather than computers, or separate products, because of the

infrastructural aspect of computing.

This kind of pervasiveness creates a situation in which commodity level information technology is largely uncontrollable. In

fact, I believe, and our members believe, such technology is largely

unworthy of control. So we have a fundamental tension between

the pervasiveness of information technology and the export control

system. This has occurred, I think, for a number of reasons. I’ll cite

four.

First, global mass production and distribution have resulted in

the wide availability of information technology products throughout

the world. The statistics here tend to be endless, but an estimated

150 million personal computers and other commodity computers

were shipped worldwide last year. Global Internet usage has more

than doubled in the last 2 years. Even the year 2000 projection for

sales of digital wire phones, many of which will be Internet friendly, is 435 million units. My company, Intel, sells microprocessors at

a rate of roughly 2 million units a week into a global network of

tens of thousands of dealers and distributors.

Three other important factors that drive the pervasiveness of information technology include: world standardization of product design and manufacturing processes; increased access to computers

and other products that are linked to the Internet and other global

networks; and the wide diffusion of foreign manufacturing capability and resultant foreign availability of products. It is interesting

here that the advanced semi-conductors can be produced outside

the United States without using a single piece of U.S. production

equipment.

In all the decentralization and global nature of information technology, especially commodity level technology, stands in stark contrast to the centralized nature of the export control system. This

11

conflict is readily apparent in the area of computers, as my colleague has indicated, where MTOPs export controls continually collide with the pace of commodity level performance.

Later this year, Intel will introduce its Itanium processor chip,

which I have here, which promises to drive the power of 4 processor commodity computers to about 24,000 MTOPs, well above today’s computer decontrol level of 6,500 MTOPs.

So the overall lack of alignment of export controls with commodity level technological and commercial realities, we believe requires fundamental reform of the export control system.

Now in the area of Export Administration Act renewal, AEA believes that several principles ought to be considered. One is a new

balance. Export controls should be weighed against economic and

competitive costs that can undermine the very technological leadership upon which the U.S. military and our overall security relies.

Rather than controlling the uncontrollable, the overriding national

security goal should be continued and expanded U.S. technological

leadership.

The second is flexibility. An export regulatory system must have

a variety of ways to adjust controls, including mechanisms that account for mass market products and changing product performance,

foreign availability, and foreign capabilities.

Timeliness is another important element. A control regime needs

to operate with the speed of modern information technology as

much as possible. Decision making delays measured in weeks and

months are unacceptable in many respects.

Simplification. Any modern export control system needs to be

clear and understandable. To the extent it’s not, it is going to undercut the effectiveness of an export control system.

Finally, multilateral controls. Controls ought to be implemented

on a broad multilateral basis in order to be effective in an era of

globalism. Unilateral controls are simply self-defeating.

Overall, AEA believes that the Senate EAA bill, S. 1712 as

passed by the Senate Banking Committee, generally comports with

these principles. On the upside, the bill contains favorable mass

market foreign availability provisions, though they could be improved. It contains reasonable provisions for parts and components

and technology transfers to foreign nationals. The bill would reduce

the 180-day congressional waiting period for computer MTOPs to

60 days, although we believe it should go down to 30.

On the downside, AEA members feel that penalty provisions are

excessive in some respects. They do not provide for self disclosure,

for example, and for mitigation in the case of mistakes of fact or

other inadvertancies.

In sum, AEA believes that the current bill is a good starting

point for this Subcommittee to begin consideration of new enabling

legislation. Thank you.

[The prepared statement of Mr. Rose appears in the appendix.]

Ms. ROS-LEHTINEN. Thank you so much.

Mr. McCurdy.

12

STATEMENT OF DAVID MCCURDY, PRESIDENT, ELECTRONIC

INDUSTRIES ALLIANCE

Mr. MCCURDY. Thank you, Madam Chair. It’s a pleasure to see

the Chair and to the Ranking Chair and the former chairman of

the Committee, Sam Gejdenson, who left earlier.

I represent Electronic Industries Alliance, which is a partnership

of high tech associations and companies committed to shared information and shared influence. We are proud to represent the most

dynamic and competitive industry in the world economy today. The

companies we represent operate globally and face intense international competition. The fact is, the days when U.S. companies

dominated the global high technology industry are over. Similarly,

the days when the domestic U.S. market could sustain the industry

are also over.

As you can see on the chart to my right here, our industry ex- ported $180 billion in goods last 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 semi-conductor speed,

where Moore’s Law defines the rapid pace of change. Quite frankly,

there are now seminars on beyond Moore’s law, what comes next

in nanotechnology and other areas.

I thought it was interesting David and I could touch the Itanium

chip. My palm computer is about the same. PDA is about the same

size as this, virtually almost a supercomputer. So it is incredible

the pace of change in the size.

Much of the rhetoric over export controls boils down to national

security versus economics in exports. More than ever before, protecting U.S. national security depends on a dynamic and innovative

high technology sector. Whether we’re talking about weapon systems, intelligence gathering capabilities, or command and control

networks, our industry is constantly improving the technologies

that keep us a step ahead of our adversaries.

An effective export control policy would recognize the reality that

our national security is improved by enabling our high tech industries to thrive. U.S. national security should be based on maintaining our technological edge through innovation, not on a doomed effort to hoard as much technology as possible.

Another key point to keep in mind is that export controls can severely disrupt the business models which sustain our competitive

advantage. The U.S. technological advantage is based to a large extent on speed to market, and mass marketing through electronic

commerce and the World Wide Web. But the administrative costs

of trying to determine what products may go to what end user for

what purpose can easily wreak havoc with these models.

Our industry operates in terms of global R&D collaboration, webbased instantaneous order processing, and just-in-time manufacturing. In contrast, our export control system operates in terms of

general prohibitions, 6-month notification periods, and inter-agency

dispute escalation procedures.

The system in place encourages regulatory complexity. It emphasizes bureaucratic processes and paperwork over coordinating with

our allies to prevent the bad end users from acquiring truly sensitive technologies. Effective export control policies should be based

13

on multilateral cooperation and facilitation of effective corporate

compliance. But the hundreds of pages of regulations we now operate under have the effect of penalizing those U.S. companies that

try to obey the law.

We appreciate the efforts in Congress to take a fresh look at this

system with an eye toward updating it to reflect the economic and

political realities of the post-Cold War world. As you know, the

Senate Banking Committee unanimously approved the EAA reauthorization last September. EIA has neither endorsed nor opposed

the substance of the committee-approved bill. I would like to emphasize that we continue to have serious reservations with several

aspects of the bill as reported.

We are especially concerned by a number of proposals being advanced by other Senators and by some in the national security

community, aspects of which would be even more restrictive than

we experienced during the height of the Cold War. Nevertheless,

there are some beneficial aspects of the bill. We have been supportive of the overall effort.

This process has served a valuable educational purpose, I think,

for everyone involved. One provision I would like to highlight is

that when an item achieves mass market status or becomes readily

available from our overseas competitors, that item will automatically be released from controls. This is a provision we have continually advocated. For these types of items, the inevitable bureaucratic tendency is to resist the removal of controls. But we must

accept that when an item becomes uncontrollable, it is not just

pointless, but harmful to maintain these restrictions.

Clearly, computers and encryption fall under this category, but

many types of telecommunications equipment, components, and

other items do as well. On this point, we would be deeply skeptical

of any so-called carve-out which would perpetuate controls on items

in spite of those items being found to have mass market or foreign

availability status.

Some proposals we have heard would go so far as to prevent legitimate mass market or foreign availability studies from even

being conducted. It is disturbing that some policymakers continue

to try to control the uncontrollable in this way.

In closing, I call your attention to my written testimony, which

includes our comments on specific provisions of the Senate bill, as

well as the general principles we believe should be part of any EAA

reauthorization. I hope that you find these comments useful as you

continue this effort.

Madam Chair, I was encouraged by your opening comments and

those of the Ranking Member, and believe that there is an opportunity to bridge this gap.

If I may, Madam Chair, just to quickly respond to the gentleman

from California’s earlier question and comment supported by Mr.

Cooksey. As a Commissioner on the Weapons of Mass Destruction

Commission over the past year-and-a-half, as the former chairman

of the Intelligence Committee, as a former member of the Armed

Services Committee, I stand with General Douglass here and would

bow to no one as far as concern about national security.

There are serious risks. There are serious challenges. There are

rogue states. There are rogue actors. There are potential enemies.

14

It is important that we have a national security apparatus that can

speak out when there is that danger and potential transfer of technology that has a material impact on the potential national security or national defense of this country. I think we can look at

changing this law in a way that is safe and provides security.

What we really need to be doing is looking at the organization

of the Federal Government as a whole to ensure that there are

clear delineations of the kinds of technology and look at the end

user first, look at those countries that are the real threats, and target the countries and understand through our intelligence capability what their real risk is going to be, and then work back, as

opposed to have a blanket kind of wall that we try to impose

around our own country, and hopelessly try to prevent the export

of technology which is capable of being used in most commercial activities.

So, Madam Chair, again I appreciate the opportunity. I look forward to working with the Subcommittee, and trust that you will

make some progress this year.

[The prepared statement of Mr. McCurdy appears in the appendix.]

Ms. ROS-LEHTINEN. Thank you so much, Dave. We appreciate it.

Mr. Douglass.

We have been joined by Mr. Hilliard. Earl, I don’t know if you

wanted to make some opening statements before Mr. Douglass

speaks.

Mr. HILLIARD. No.

Ms. ROS-LEHTINEN. Thank you.

STATEMENT OF JOHN DOUGLASS, PRESIDENT, AEROSPACE

INDUSTRIES ASSOCIATION

Mr. DOUGLASS. Thank you, Madam Chairman. I want to thank

you for holding these important hearings because this is a subject

of enormous importance to the aerospace industry. I am sorry Mr.

Gejdenson left because I wanted to thank him as well for the role

that he has played in the past. He and I worked together very

closely on some of the most sensitive submarine technology that exists in our country today when I was the Assistant Secretary of the

Navy.

I would like to also thank Senator Enzi and the others in the

Senate, who drafted this bill. My industry thinks they have made

a major step forward. We do have a few concerns with the bill,

which I will touch on in a minute, but we do believe that this legislation is needed.

In many respects, Senator Rohrabacher, the need for this bill——

Mr. ROHRABACHER. Congressman.

Mr. DOUGLASS. Excuse me. I don’t know whether that’s a promotion or a demotion, sir. But the need for this bill speaks in large

degree to your concerns. One can tell from the passion of your remarks that you feel deeply about this. I can tell you as a former

military officer, general officer, and a former Assistant Secretary of

the Navy, I share your deep concern for this. It has been my experience that while I have been in the aerospace industry after leaving the Government, that no one, I have not run across a single

15

person anywhere that condones trading outside of our law or in any

way even getting close to the borderlines of that.

Part of the problem, however, is that the processes that we have

today are very confusing. It is possible to get lost in the maze, if

you will. I will speak to that in a minute.

If the Chair would allow me, ma’am, I would like to also submit

to the record—this is a document called ‘‘The Final Report of the

Defense Science Board.’’ Ms. ROS-LEHTINEN. Without objection.

Mr. DOUGLASS. ‘‘Task Force on Globalization and Security.’’ This

is a study done by an independent panel over at the Department

of Defense on the subject of this hearing today. Much of what we

in the Aerospace Industries Association are advocating is contained

in report.

Basically you can sum it up and say that the Defense Department and industry are almost in total agreement on the need for

a proper form of export licensing, but one that is substantially different than what we have today.

I would like to begin with a few charts and then talk very briefly

about the bill. A lot of the confusion that you hear on this subject

stems from the fact that we have two laws. We have one, the Arms

Export Control Act, to deal with military products and services, administered by the Department of State. That is not what we are

talking about today. We are talking about the Export Administration Act, which is meant to cover dual use products which could be

used both as commercial or military products. It is administered by

the Department of Commerce.

So the very beginning of this discussion takes you to the righthand side of the chart, and away from most of those technologies

which one would be concerned about in terms of sharing with a potential enemy of the United States.

Ms. ROS-LEHTINEN. And a fine assistant you have there, Mr.

John Barsa.

Mr. DOUGLASS. He is a fine young man.

Ms. ROS-LEHTINEN. Formerly of Lincoln Diaz-Balart’s office. So

finally he found a credible job.

[Laughter.]

Mr. DOUGLASS. Next, John. This next chart gives you an idea of

where my industry is in terms of dependence on the global economy. If you were to go back 10 years ago, you would see that 50

percent of everything manufactured in the aerospace industry was

sold to the Department of Defense. Only about 30 percent of it was

exported outside the United States. Today, that picture is radically

different. The Defense Department is down in the mid-20’s in

terms of our business base. The global economy is somewhere between 40 and 50 percent of our business base. So we are dependent

on the global economy. The vast majority of those products manufactured in the aerospace industry for export outside the United

States are commercial products like airliners.

Next, please. This is another important chart which speaks to

many of the comments made by my colleagues earlier. That is, the

economic security of the United States as a critical element to our

overall national security. That’s our trade balance in 1997 broken

down by our Commerce Department by sectors. As you can see, the

16

industry with the largest positive trade balance in the entire American economy, is our industry, the aerospace industry, that blue

line at the top represents almost $35 billion positive trade balance.

Now look what happened in 1 year, from 1997 to 1998. Most of

the blue on the chart went away, and all of the other sectors except

for the aerospace sector, which grew to almost $45 billion positive

trade balance. The reds, as you can see, grew substantially.

I would also submit for the record, ma’am, if I might, an article

today in the Washington Post in the business section where the

headline says, ‘‘U.S. trade deficit rises to a record $28 billion.’’ What this newspaper article is saying is that the situation in 1999

and 2000 continues to worsen. I can also add for the Committee

that for my industry, we have seen a reduction of our ability to

produce a surplus for the American economy. We are looking at our

sales for 1999 in close scrutiny now. Sales are probably going to be

somewhere between 8 and 10 percent lower than they were in

1998, meaning that our contribution to the American economy and

all that comes from that large, almost $45 billion surplus, is being

reduced. One of the reasons why it’s being reduced is the increasing confusion in industry over the export licensing laws of our

country.

Now to speak very quickly to S. 1712, I share the general concerns that my colleagues have and the general support that they

have expressed for S. 1712. We need a new law. I thought it had

been elapsed for over 5 years. You mention in your opening testimony, ma’am, that it’s been 12 years. I didn’t know it had been

that long, but clearly, the lack of a legal framework for these dual

use items is causing a lot of problems.

There are some things about it that I’ll comment on. Section 204

assures that there won’t be controls on any items based on small

amounts of controlled American content. That is a very positive

step forward. Section 211 assures that there will be no controls

where items are available on the open market. These mass market

provisions are enormously important. My colleagues have spoken to

those. I won’t say any more except that they should be proactive.

We ought to be able to figure this out before we begin to move toward controls, and indeed we can. We know what’s out there on the

global economy.

Section 301, the contract sanctity section, is very important. Section 304, the Presidential report to Congress prior to the imposition

of controls is important, especially those portions of the Presidential report that deal with the economic impact.

Congressman Rohrabacher has been working with the aerospace

industry in dealing with satellite licensing because it is something

he is very concerned about. I think it’s fair to say that when the

law was passed moving satellites from Commerce back under State

Department control, people didn’t really fully understand what the

economic impact would be. I am here to tell you that since that

happened, our sales have declined by over 40 percent. Hundreds of

millions of dollars of high tech sales and jobs have gone from this

industry. These are not weapons. These are commercial communication satellites, the kind of satellites that most people credit

with spreading news around the world that did such wonderful

things as caused the whole Soviet empire to collapse.

17

Section 307 is an important—— Ms. ROS-LEHTINEN. If you could wrap up your statement, Mr.

Douglass.

Mr. DOUGLASS. Yes, ma’am. I will wrap it up very quickly. That

is a sunsetting clause. Title 4 contains some humanitarian exemptions. We think there should be an exemption in there for safety

of flight for commercial airliners. Title 5 is in procedures. That’s a

good section. We like its deadlines.

Finally, in title 6, there is a little section in there on enforcement

which needs to be strengthened. It has to do with people being able

to report violations, and then getting a reward. We think it’s important for it to be clear in that section that people can’t just stand

by and let a violation occur, and then reap a reward. If they know

a violation is going to occur, they need to come forward before it

occurs so that steps can be taken to stop the export.

So those are the detailed comments. Thank you very much,

ma’am.

[The prepared statement of Mr. Douglass appears in the appendix.]

Ms. ROS-LEHTINEN. Thank you, Mr. Douglass.

Dr. Freedenberg.

STATEMENT OF PAUL FREEDENBERG, DIRECTOR OF GOVERNMENT RELATIONS, ASSOCIATION FOR MANUFACTURING

TECHNOLOGY

Mr. FREEDENBERG. Thank you, Madam Chair. I can clear up the

difference between the 12 years and the 5-years. The 12 years is

the time since we passed an Export Administration Act. The last

one was Omnibus Trade Act of 1988. I testified before this Subcommittee on that subject on behalf of the Reagan Administration.

So I am familiar with it. Five years, and actually now going on 6,

is the time since we have had an Export Administration Act in

force. There was some extension. Since then, we have been operating on the 6-month-at-a-time International Emergency Economic

Powers Act, essentially by Presidential fiat, which I believe having

also been involved in the legislation dealing with that, was not the

intention of the International Economic Powers Act. It was supposed to put a restraint on the President’s use of that rather than

give him carte blanche to extend laws through the use of it.

Today I will be talking on behalf of AMT, the Association for

Manufacturing Technology, where I am the director of Government

Relations. AMT represents 370 member companies, with sales

ranging from $10 million to more than $1 billion. We make machine tools, manufacturing software, and measurement devices.

Our industry sales are nearly $7 billion, and exports account for

more than a third of those sales.

I will also talk about the Graham and Enzi EAA, S. 1712, but

I would like to put it in context before I discuss it. There is a myth

that’s grown up in the popular media that U.S. export control policy toward China is lax. The facts, particularly with regard to machine tools indicate quite the opposite. The assertion that our

China export control policy is lax couldn’t be further from the

truth. The U.S. Government has consistently been the most rigorous with regard to reviewing license applications for exports to

18

China. Other countries within the Wassenaar arrangement simply

do not share our assessment of the risk factors involved in technology transfer to China, and have generally maintained a far less

stringent licensing policy. Indeed, one could say without equivocation that our European allies maintain what could only be described as a favorable export licensing policy toward China.

I point out in my testimony that the time it takes the process to

license is only part of the problem. Official statistics show that the

U.S. Government is far more likely to disapprove machine tool licenses for China than any of our European competitors. While a

mere handful of U.S. machine tool licenses have been approved for

China over the past 5 years, actually it’s about 25 licenses or 5 a

year. Our European allies have shipped huge volumes, hundreds

more than that to China, to Chinese end users.

The U.S. Government has rigorously enforced the limits on machine tools. This has significantly disadvantaged U.S. machine tool

builders in the global marketplace. The most rigorously controlled

machine tools are those that possess five axis. A recent survey by

AMT has indicated there are 718 models of five axis machine tools

manufactured around the world, with 584 manufactured outside

the United States in places like Japan and Germany. In fact, there

are even six models manufactured in China. This is the most tightly controlled product to China.

Now the fact that these machine tools are denied is quite frustrating for the U.S. machine tool builders and their workers because many of the commercial aircraft factories in China contain

joint ventures and co-production arrangements with U.S. airframe

and aircraft engine companies. In other words, despite the fact that

these Chinese factories are supervised, are monitored by American

executives, U.S. Government export control policy creates a situation in which machine tools in those factories are almost certain to

be supplied by European machine tool builders. I would ask how

that assures or enhances our national security?

I argue in my testimony that the statistics show that European

license applications are likely to be approved in a matter of days

or weeks by our European allies, while U.S. applications languish

for months or even longer. Many companies have told me they forego business in China rather than go through this process because

it’s so uncertain and so unlikely that they are going to get approval.

The Chinese have learned that. They have been telling U.S. companies not to even come to bid on projects. In fact, they have now

put a monetary penalty for failure to obtain a license. This is a further deterrent to doing business in China.

A recent example will illustrate many of the problems inherent

in attempts by U.S. companies to obtain export licenses for machine tool sales to China. Three months ago, an AMT member

asked for my assistance in obtaining final approval for an export

license that had already been pending for many months. The Chinese who were making purchases for an aircraft engine plant informed the AMT member company that they were at the end of

their patience in waiting for U.S. export license approval. This particular company had been delaying the Chinese buyers repeatedly,

19

while it tried to obtain individual validated license for two 5-axis

machine tools.

After waiting many months, the Chinese canceled one of the two

orders, but gave the company one last chance to obtain an export

license from U.S. authorities for the remaining machine. The owners believed that there would be followup orders for as many as a

dozen additional machines that they could prove they could obtain

a license for this one. The U.S. Government was aware that a

Swiss company had offered to fill the order for these machine tools,

and in contrast to the American company, the Swiss made it clear

to the Chinese that there would be no security conditions or compulsory visitations by the Swiss company if they were given the

business by the Chinese.

In order to create an incentive to approve the license, the AMT

member company offered to provide special software that would

limit the use of the machines and to only a small group of activities

approved by the U.S. Government, and to provide for regular visitations to ensure that the machine tool could only be used for the

jobs described in the license. While all this was being negotiated,

the State Department refused to demarche the Swiss government

to warn them of the U.S. Government’s concerns with the sales of

the machine tool to the Chinese plant. Negotiations between the

AMT member and the Defense Department dragged on for another

21⁄2 months, with none of the AMT members’ security or post-shipment visitation proposals deemed adequate by DOD.

Finally, just as this license that had then been pending for 6

months was about to be escalated to the Cabinet level for resolution, the Chinese buyer informed the AMT member company that

they lost patience with the U.S. licensing process and canceled the

order. As it turned out, the Chinese plant manager decided instead

to go with either the Swiss or the French machine tool alternatives,

neither of which had required any post-shipment conditions, and

both of which had already obtained licenses from their governments earlier.

Reportedly, when informed of the Chinese cancellation and the

need to return the license without action, the comment from the

Defense representative to the interagency review panel, known as

the operating committee, was that he was happy that because DOD

had achieved its objective since no U.S. machine tool would be

going to the Chinese factory.

Of course the U.S. machine tool that would have gone to that factory would have been under strict conditions, with numerous followup visits to ensure that it was being used for the purposes stated in the license. While there would be no guarantee that Western

authorities would be able to check on the projects which the Swiss

or the French machine tools would be used. Nonetheless, DOD was

apparently happy because it had accomplished the objective of

blocked the U.S. sale. I presume the State Department was happy

as well, because it didn’t have to offend any of our friends or allies

by taking a strong position or asking uncomfortable questions of

them.

The only ones who are unhappy are the owners of the U.S.-based

machine tool company, who may very well move the production offVerDate 11-MAY-2000 09:58 Dec 12, 2000 Jkt 000000 PO 00000 Frm 00023 Fmt 6633 Sfmt 6633 67392.TXT HINTREL1 PsN: HINTREL1
20

shore to avoid a repeat of this ridiculous process. Also, of course

the employees who may lose their jobs are not happy either.

I would ask the Subcommittee to consider what this case illustrates about the national security benefits of our current export

control policy other than the fact that such a policy is likely to

maintain machine tool employment in Switzerland and France. It

certainly did not have any appreciable effect on the Chinese ability

to obtain machine tools for whatever aerospace projects they

deemed appropriate.

I just gave that as a context. I would like to comment briefly on

the Senate bill, S. 1712. The one thing that I think is most beneficial in that, and it’s related to the issue I just talked about, is

that it defines foreign availability as possible to be proven—the foreign availability can come from within the multilateral organization, not just outside it. Currently, you can’t prove foreign availability under the law unless you prove that it comes from outside,

in this case Wassenaar.

Ms. ROS-LEHTINEN. If you could quickly wrap up, Mr.

Freedenberg, because we are going to have a series of votes.

Mr. FREEDENBERG. That’s one proposal. The other major thing

that it has that would be beneficial—it does not have it in there

yet, is that we need to create a mandate to go back to Wassenaar

and negotiate a no undercut rule, so that something on the order

of what I was talking about couldn’t occur. That is, the United

States turned down a license. The allies could not approve the license. That was the case in the past. It is the case in other regimes. We need to have a similar provision in our current multilateral organization. I’ll leave it at that.

[The prepared statement of Dr. Freedenberg appears in the appendix.]

Ms. ROS-LEHTINEN. Thank you so much.

Do you believe, and I’ll ask it for anyone who would like to answer, that legislation addressing penalties alone or only shortening

the congressional review period would be sufficient, and realistically speaking, would these offer significant benefits to the industries that you represent? Also, why is it important for the penalties

to be imposed per transaction rather than per shipment? If you

could be very brief.

Yes, Mr. Hoydysh.

Mr. HOYDYSH. Madam Chair, certainly on behalf of the computer

industry we would strongly favor reducing the time period from

180 to 30 days. We think the 180-day period is without precedent.

It only affects the computer industry. It’s not consistent with any

other waiting periods imposed by Congress. It creates, it makes the

system unable to respond to rapidly advancing technologies. So we

would certainly favor a bill, even if it was just for a 30-day period

alone.

Ms. ROS-LEHTINEN. Anyone else? Dr. Freedenberg.

Mr. FREEDENBERG. I could refer to the penalties. Currently you

have the penalties are 10,000 and 50,000, but they can be parsed.

I was enforcing the system, so I can tell you those penalties can

go up to $250,000 or $500,000. So it isn’t as if companies have

great incentive to break the law. It is still fairly substantial fines.

But the more significant penalty which is in the current law alVerDate 11-MAY-2000 09:58 Dec 12, 2000 Jkt 000000 PO 00000 Frm 00024 Fmt 6633 Sfmt 6633 67392.TXT HINTREL1 PsN: HINTREL1
21

ready is that you lose your export privileges. That, since every company has to export, it basically shuts them down. It is an extremely

strong deterrent.

So I think in itself, although it sounds very good to have a million dollar penalty, and in some cases it may be justified, that in

itself is not such a major accomplishment. We already do have a

fairly strong deterrent within the current law.

Ms. ROS-LEHTINEN. Thank you.

Dave, for the last comment?

Mr. MCCURDY. Madam Chair, we are not opposed to increasing

penalties for these violations, but unless the regulations are made

simpler or easier to comply with, then companies may face some

overwhelming liabilities for I think non-intentional violations.

We also urge that companies be fined per transaction as opposed

to shipment.

Ms. ROS-LEHTINEN. Mr. Menendez? Hold on.

Mr. DOUGLASS. I just wanted to add that we also have not taken

a position on the penalty provisions, but we would strongly support

the reduction in the review time. I mean the issue in many, many

cases is we can’t bid on things because it takes so long to get a license that we can’t answer the bid time.

Ms. ROS-LEHTINEN. Thank you.

Mr. Menendez?

Mr. MENENDEZ. Thank you, Madam Chairlady. I want to thank

all the panelists.

Mr. Douglass, let me ask you. You said the 40 percent sales drop

in satellite sales. Did other countries fill the void in that regard?

Mr. DOUGLASS. Oh absolutely. Yes, sir.

Mr. MENENDEZ. Were their satellites of equal?

Mr. DOUGLASS. Yes, sir.

Mr. MENENDEZ. Abilities—was our technology superior?

Mr. DOUGLASS. Mr. Menendez, there is a lot of confusion about

what kind of satellites we’re talking about here. Most of the time

when the public hears this, they think we’re talking about spy satellites or something like that. That is not at all what we’re talking

about. We are talking about state-of-the-art communication satellites. They are the kind of satellites that in a strange way really

help democracy spread around the world. I have had many of my

Russian generals that I had to negotiate with when I was a NATO

general tell me the reason why the whole Soviet Union collapse

was because people in Eastern Europe could watch Western TV,

could see what was available.

So when countries around the world want to buy an American

satellite so they can broadcast TV to their people or do e-mail and

things of that nature, and American companies can’t compete on it

because it takes too long to get a license or there’s some other——

Mr. MENENDEZ. So the satellites that they purchased from a foreign country gave them the same capacity that they would have

had, had they purchased ours?

Mr. DOUGLASS. Absolutely. Even if they then were used in a military sense, if they were our satellites, we could shut them off, but

if they are somebody else’s satellites, we can’t. So we doubly lose

on this.

22

Mr. MENENDEZ. If the United States, and this goes to any of the

panelists who want to talk about it, if the United States’ goods are

controlled unilaterally to any country, and other countries sell that

same capacity of the item, whether it be a computer, whether it be

a satellite, whether it be any of these other equipment that the

United States leads on, how do we promote our security, our nonproliferation goals in that regard? Is there something we’re missing?

Mr. DOUGLASS. That’s a good question. You want to take a crack

at it?

Mr. MCCURDY. Yes. Mr. Menendez, it is clear that most unilateral sanctions have been highly ineffective. If you are not getting

the cooperation on a multilateral basis, it just flat doesn’t work.

The only victim in this case or the only one that is injured or

harmed is often the United States.

So it’s not popular to say, and I know the politics of the Congress

and in the country, but it’s clear that unilateral sanctions is for the

most part, not the answer.

Mr. DOUGLASS. The most important thing, Mr. Menendez, to remember about this debate that we’re talking about is there is a lot

of confusion between the supremacy of American military technology and the supremacy of American dual use technology. Generally speaking, America’s dual use technology is not particularly

superior to what you can find in the rest of the world, even though

our military products may be.

When I was living in Europe, they had a form of the Internet

over there a long time before we did, had e-commerce and all kinds

of things a long time before we did. So we tend to be somewhat of

an ethnocentric society that believes everything is invented here,

and it’s not, especially in the commercial environment.

Mr. HOYDYSH. Mr. Menendez, could I respond to the non-proliferation question? Just to put this into context, if we look at the

whole universe of technology that’s available, the chart that was up

here before shows you there’s a whole chunk that is military. That

subject, the munitions list, it’s a very tight regime. That is not

under discussion.

If you are talking about missile technology, there is a missile

technology control regime, which is adhered to by 17 or 20 countries which is relatively effective. It does not control computers, but

it controls everything that everyone deemed is important for missiles.

There is a regime that controls things for nuclear, the Nuclear

Suppliers Group. That is a multilateral, fairly effective regime. And

there is a regime that controls things for chemical weapons and biological weapons called the Australia Group. Again, a relatively effective group.

So what really is left when you are talking about dual use equipment is the stuff that is like computers and machine tools. That

is a relatively narrow slice of industrial equipment over which

there is relatively little control, because these are the kinds of

things that are absolutely essential if any developing country

wants to go into the 21st century. So it makes it very difficult to

deny the entry level items, especially in the computer area, when

they are available all over. They are cheap, they are transportable,

23

and you can buy them or make them yourself without too much effort.

Mr. FREEDENBERG. If I could say one other thing. The way you

could work on that would be, what I try to say at the end of my

testimony, if you could get the allies to do—we can’t have a veto

over what they export any more. That’s gone. That was COCOM.

But you could have a no undercut rule, where if you turn down a

license, you get the pledge of the others that they will turn down

that license as well. Not that you stop their licenses, but that if you

already had—say a particular end user is bad, they pledge to at

least give you a hearing and in general to turn down that license

without at the very least, talk with you about it.

Mr. MENENDEZ. With deference to my colleagues.

Ms. ROS-LEHTINEN. Thank you, Mr. Menendez. Yes, I’m sorry,

because of the time.

Mr. Rohrabacher.

Mr. ROHRABACHER. OK. Mr. McCurdy, thank you very much for

your comments, your opening statement. I think that your idea or

concept of let’s try to find out what countries that we’re talking

about that are potentially adversarial or potential enemies, and

let’s work back from there, I think that is exactly correct. I appreciate you going out of the way to make comments based on my

rather I say loud opening statement.

Mr. MCCURDY. Aim to please, Mr. Rohrabacher.

Mr. ROHRABACHER. Let me say this. First of all, Mr. Douglass,

last week a Chinese launched a satellite. It was widely reported

that that satellite would have a multiplier effect on the military capabilities of the Communist Chinese because it would permit command and control coordination that they never had in the past.

Do you believe that there was any American technology in that

satellite, or that the rocket that lifted it into orbit had American

technology in it?

Mr. DOUGLASS. Mr. Rohrabacher, I wish I could give you a more

definitive answer because I’m not aware of the precise launch that

you are talking about. But it is entirely possible that the satellite

and the missile had some derivative American technology. Everyone knows that we lead the field here, and once proof of concept

is demonstrated by a country, it is much easier for others to follow

along.

Mr. ROHRABACHER. I’ve only got a couple minutes, but let me

point out yes, it is possible. Not only is it possible, it is probable

that the Chinese rocket that lifted that up was perfected by American technology, American aerospace engineers that were over

there with either Hughes or Loral, and that the satellite that went

up had not only spinoff or not only things that they copied, but actually components that were sold to them by our corporations.

If America—just note why this is important, and you expressed

this in your opening statement. Again, I appreciate you again giving me the courtesy of commenting on what I had to say. American

lives are going to be lost if we get into some sort of a conflict with

China because technology has been transferred to that country. I

disagree totally with our final witness. I’m sorry. You can’t compare somebody who has no controls whatsoever and then say well,

ours can’t be considered lax because we are comparing it to people

24

in Europe who have no controls whatsoever on what goes over to

Communist China. That does not make logical sense. It doesn’t

make sense for our country’s national security.

This is a very important issue. I agree we have got to take it seriously in a way so we can control the technology flow to potential

enemies, like China, without hindering. What’s happened is we

have hindered our ability to do business with countries that pose

no threat, that are democratic nations. I am very happy to have

worked with all of you to achieve that end.

I’m sorry. We have got to go.

Mr. DOUGLASS. Mr. Rohrabacher, if I could make one comment

though that strikes to the heart of what we have said here today.

I don’t think there is any technology in the satellite or the booster

that they could not have gotten from another source.

I would also add, sir, that it’s a two-way street. I was

recently—— Ms. ROS-LEHTINEN. Thank you, Mr. Douglass. Thank you so

much. We apologize. We have 1 minute left to go vote on the floor.

The Subcommittee is adjourned. Thank you so much for your excellent testimony.

[Whereupon, at 2:29 p.m., the Subcommittee was adjourned.]

(25)

FUTURE OF THE EXPORT ADMINISTRATION

ACT—PART 2

TUESDAY, APRIL 4, 2000

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON INTERNATIONAL ECONOMIC

POLICY AND TRADE, COMMITTEE ON INTERNATIONAL RELATIONS, Washington, DC.

The Subcommittee met, pursuant to notice, at 3 p.m., in room

2128 Rayburn House Office Building, Hon. Ileana Ros-Lehtinen

(Chairman of the Subcommittee) presiding.

Mrs. ROS-LEHTINEN [presiding]. The Subcommittee will come to

order.

American industry continues to create and realize an astonishing

array of new and improved technologies. With these wonderful improvements come both opportunities as well as responsibilities,

given that these advancements may pose new and yet unknown

threats to U.S. national security.

In an effort to address the needs of American companies and to

capitalize on the advantages that new technologies offer, this Subcommittee has been holding a series of hearings to discuss ways in

which a new Export Administration Act may best manage export

controls.

Based on the Cold War need to restrict access to sensitive technologies and the ability to control its proliferation due to U.S. predominance, the original Export Administration Act was drafted.

That legislation lapsed in 1990, leaving the U.S. to operate export

control regulations through a series of executive orders issued

under the International Emergency Economic Powers Act. This was

never intended to replace an EAA. However attempts to reauthorize the bill have not been able to achieve the necessary consensus

for passage.

The advent of the 21st century underscores the inadequacy of an

export control system devised for a rigidly structured bipolar world

prefacing the onset of the technological revolution. The world of the

21st century is one marked by a borderless, fast-paced marketplace

which requires a system to avoid the pitfalls of gridlock and regulatory bureaucracy.

By the same token, however, some experts contend that the new

millennium is a much more dangerous world, devoid of clearly defined security parameters and riddled with new weapons, methods,

and rogue states.

Some suggest that these competing needs can be reconciled and

that the answer to effective regulation lies in concentrating reguVerDate 11-MAY-2000 09:58 Dec 12, 2000 Jkt 000000 PO 00000 Frm 00029 Fmt 6601 Sfmt 6601 67392.TXT HINTREL1 PsN: HINTREL1
26

latory authority in fewer agencies. Other approaches include giving

preferential export control treatment to NATO members and such

non-NATO allies as Australia, New Zealand, and Japan.

Some see unilateral export controls as self-injurious and instead

would look to multilateral agreements as the only effective tools for

nonproliferation. Still others refer to their criteria, which takes into

account mass-market and foreign availability, as well as risk factors, end-use, diversion, and recipient countries.

We must avoid vast generalizations in formulating a new approach and refrain from removing restrictions and licensing requirements on controls or controls which threaten and seek to undermine our U.S. national security.

There are differences of opinions on the specifics of the approach

to be undertaken, however, all agree on the urgent need to develop

a judicious, explicit, and understandable policy which will govern

the licensing, oversight, and review of dual-use technologies to be

exported to foreign markets.

We look forward to the testimony from our witnesses in this,

which is the second in a series of hearings on this issue.

Before we proceed to other opening statements and our witness

presentation, I’d like to advise our Subcommittee Members about

a markup that our Subcommittee will hold this Thursday, April 6,

at 2 p.m. on H.R. 3680, the Dreier bill, which seeks to shorten the

congressional review period to 30 days from the export of supercomputers. Some of us are already cosponsors of this measure, but

we need the attendance of our Subcommittee Members for this very

important markup and a markup notice will go out later today.

It is my pleasure to recognize for his opening statements the

Ranking Member of our Subcommittee, Mr. Robert Menendez of

New Jersey.

[The prepared statement of Representative Ros-Lehtinen appears

in the appendix.]

Mr. MENENDEZ. Thank you, Madam Chairlady. I want to thank

you for hosting a second EAA hearing. The future of our export

control laws is an important commercial and national security

issue and I believe we need to hear from the broad range of public

and private sector entities that are impacted by the EAA.

For that reason, I am sorry that this Subcommittee’s work has

been stymied by our inability to hear from witnesses from the Department of Defense and from the sponsors of the Senate’s EAA

bill. I know that the Chairlady has been working with the Full

Committee to bring these witnesses before the Subcommittee and

I appreciate your efforts to address this issue. But I’m disappointed

that we, the subcommittee of jurisdiction, have been censured by

the Full Committee.

As I said at our previous hearing, the challenge of the EAA is

to strike a balance between our national security interests and

commercial interests. I do believe that this precarious balance is

achievable, not to mention necessary.

For far too long, we have been operating under a system developed for the Cold War era. Today’s technology era demands a system that is responsive to change, that acknowledges America’s

world leadership in the technology industry, and that recognizes

the importance of exports to the American economy.

27

Senate Bill 1712 is a step toward achieving that balance. The

bills developed by Senators Graham and Enzi begins to address our

national security concerns and our commercial concerns. It creates

a national security control list developed in conjunction with the

Secretary of Defense that will streamline the licensing process to

focus on exports to countries of concern and on exports of items

that pose a national security concern.

The bill also addresses the issue of mass market items and foreign availability to ensure that items which are not exclusively

available from American companies are not controlled by our export control system when they are available elsewhere. In today’s

global economy, if the United States prohibits the sale of a certain

encryption technology, for example, an Israeli, Japanese, or Chinese firm will most certainly make the sale if we do not.

Last, the bill makes important improvements in the area of penalties and enforcement. The United States is a member of the global economy. It’s its leader. Many business rely on exports for a

large portion of their businesses.

At our last hearing, we heard from a representative from the

Aerospace Industries Association who noted the shift in the make

up of their sales. In 1989, 58 percent of the aerospace company

sales were to the Department of Defense and the U.S. Government.

Only 32 percent of their sales were exports. A decade later in 1999,

42 percent of the aerospace company sales were exports and only

35 percent were to the Department of Defense or the U.S. Government.

American businesses are rightly concerned about losing business

to less scrupulous nations or being seen as an unreliable supplier.

Already the American computer industry has been stymied in sales

of basic desktop computers due to inflexible export controls. If the

United States wants to continue to be a world leader in the field

of technology, our export control system must be able to differentiate between exports of sophisticated satellite systems and the export of a desktop computer.

The reauthorization of the EAA is a serious matter that demands

our attention. American industry deserves laws that are responsive

to today’s global economy, not laws that were created over two decades ago to respond to Cold War era threats. I, along with many

of my Democratic colleagues, will be pressing for such a reauthorization and I look forward to working with the Chairlady on this

challenge to renewing Congress’ voice on this important topic. I believe we’ve lost some of our jurisdiction over the issue by not speaking to it. We look forward to the Secretary’s testimony.

Thank you, Madam.

[The prepared statement of Representative Menendez appears in

the appendix.]

Mrs. ROS-LEHTINEN. Thank you so much, Mr. Menendez. Our

ever-faithful Member of our Subcommittee, Mr. Sherman.

Mr. SHERMAN. Thank you, Madam Chairwoman. I think it is important that we reauthorize. It is a small affront to our constitutional system that for so many years this important area of Federal

responsibility is handled by executive fiat instead of pursuant to

legislation. This is an important issue. Everyone in the country

knows that we need to balance our economic with our security inVerDate 11-MAY-2000 09:58 Dec 12, 2000 Jkt 000000 PO 00000 Frm 00031 Fmt 6601 Sfmt 6601 67392.TXT HINTREL1 PsN: HINTREL1
28

terests and they expect Congress to draft laws that will do that,

not simply punt due to concerns about which committee or whatever other concerns have stymied the reauthorization of this Act.

I do think that it is often said that technology is, ‘‘available elsewhere,’’ we do need and have often worked with our allies around

the world so that we work together to make sure that rogue states

and dangerous states do not get a dual-use technology and that it

should not be a circumstance where in Britain or France, an exporter is saying, well, we’d better sell because the Americans will

sell and vice versa. All of those concerned with world security

should work together. That will not, of course, always happen.

The great enemy in this area is delay, because where Americans

exports are stopped for good security reasons, that’s the price we

pay for working for national security. But where there are just interminable delays, not only are we depriving ourselves of jobs, but

we are also building high technology industries in countries that

have less reluctance to export. So it is imperative, from a national

security perspective and an economic perspective, that nothing gets

done quicker in the Federal Government than a review for an export license.

I look forward, as we reauthorize, that we design it in such a

way and obtain whatever appropriations are necessary so that we

make the right decisions and we make them quickly. Thank you.

Mrs. ROS-LEHTINEN. Thank you so much, Mr. Sherman. I’d like

to take this opportunity to introduce our panelist, Mr. Roger

Majak, who will share his insight and expertise on the Export Administration Act.

Mr. Majak serves as assistant secretary of Commerce for Export

Administration. A political economist who has specialized in international trade and national security policy, Mr. Majak has served

in a variety of capacities throughout his career, including having

served as the staff director this Subcommittee from 1975 to 1985.

We thank you for joining us today, Roger, and we look forward

to your informative and engaging hearing over the issue of the

EAA. Due to a previously scheduled appointment that could not be

moved, I will leave sometime during this hearing and a very able

vice chair of this Subcommittee, Mr. Manzullo, will chair.

Thank you so much, Mr. Majak, and you may proceed. Your full

statement will be entered into the record, without objection.

STATEMENT OF ROGER MAJAK, ASSISTANT SECRETARY OF

COMMERCE FOR EXPORT ADMINISTRATION, DEPARTMENT

OF COMMERCE

Mr. MAJAK. Thank you, Madam Chairwoman. It’s a great pleasure to be back before this Subcommittee where I spent so much

time from 1975 to 1985. Of course, the Administration appreciates

the interest and concern of this Subcommittee and, indeed, the full

House International Relations Committee in the subject of export

controls.

Since August 1994, when the Export Administration Act expired,

as you noted, Madam Chairwoman, we have maintained export

controls on dual-use goods and technologies through a combination

of emergency statutory authority, executive orders, and our regulaVerDate 11-MAY-2000 09:58 Dec 12, 2000 Jkt 000000 PO 00000 Frm 00032 Fmt 6601 Sfmt 6601 67392.TXT HINTREL1 PsN: HINTREL1
29

tions. The Cold War has ended and export control legislation reflecting that reality is long overdue.

A new Export Administration Act should recognize the current

realities of today’s intricate, fast-paced markets. Such a new law is

needed in order to help ensure our national security, to enhance

U.S. leadership and credibility throughout the world, and to avoid

legal challenges that we are now facing under the International

Economic Emergency Powers Act statute.

The Administration’s export control vision is to continue to maintain military superiority in the face of more diffuse adversaries and

less multilateral agreement on precise security threats. We seek to

maintain the gap between our capabilities and those of our adversaries by both retarding their progress and accelerating our own.

National security has become a direct function of our economic

strength in this global economy. Our military alone no longer purchases enough to maintain healthy suppliers. Failure to export

means fewer profits for today’s high-tech companies to pour into

new technologies which are needed for, among other things, our defense.

At the same time, the ubiquity of many technologies and their

ease of transfer makes controlling exports all the more difficult.

Semiconductors and computers are just two examples among many.

Large capital items like machine tools, semiconductor manufacturing equipment, satellites, and aerospace items are more susceptible to controls, but there again, controls that are too broad can

cripple companies that are critical for our own military development and security.

Our lead in these crucial product sectors is based on the quality

and efficiency of our production, not on any monopoly. Close any

part of the world market for any of these products and competitors

will move in, using China or India, whatever markets we restrict

or abandon, to gain market share to eventually challenge our global leadership.

This Administration believes that our continuing ability to stay

at the cutting edge of technology is the key to our security. This

is very different from the Cold War approach of simply denying

products to a clearly identified adversary. In short, the Administration’s equation has become exports equals healthy high-tech companies equals strong defense.

Operating under these emergency authorities, Madam Chairwoman, leaves important aspects of our export control system and

thus our national security at risk. Penalties for violations, both

civil and criminal, are too low, eroding the deterrent effect of controls by tempting some companies to view penalties as just another

cost of doing business.

Even the penalties in the EAA of 1979, as it was amended over

the years, are now outdated. The Administration proposed significant increases, which were reflected in H.R. 361, which was passed

by the House in 1996, but not enacted into law. Our enforcement

agents are without adequate police powers: Powers to make arrests, powers to execute search warrants, and to carry firearms.

They must obtain special deputy U.S. marshal status in order to

do their job, consuming limited resources that could be better used

on enforcement activities.

30

The Emergency Powers statute under which we’re operating has

no explicit confidentiality provisions, which jeopardizes both national security and business competitiveness. As Under Secretary

Reinsch predicted before this same Subcommittee in 1997, lawsuits

have now been brought under the Freedom of Information Act

seeking public release of detailed export licensing information.

Similarly, respondents in anti-boycott cases argue, so far unsuccessfully, that the Administration has no authority to implement

and enforce the anti-boycott provisions of the Export Administration Act and our regulations.

These challenges are directly related to the absence of specific

authorities in the International Economic Emergency Powers Act.

The Administration’s proposed EAA, as well as H.R. 361 and now

S. 1712, currently under consideration in the Senate, would restore

these various crucial powers. In so doing, such legislation would

also restore a level of certainty about export controls that our companies need and deserve. We have made considerable progress in

eliminating unnecessary controls while enhancing our ability to

control truly sensitive items. Industry has the right to expect these

reforms to be certain and permanent in order to plan legitimate export transactions and to comply with the restrictions.

Continued failure to enact a new EAA sends the wrong signal to

them, as well as to our former Soviet and Warsaw Pact adversaries

and our allies, all of whom we strongly urge to strengthen their export control laws and procedures. So the credibility of our export

control policy is diminished both domestically and internationally

by our lack of a specific, permanent statute.

In February 1994, the Administration proposed to renew and revise the EAA to refocus on the proliferation of weapons of mass destruction without sacrificing our interest in increasing exports, reducing the trade deficit, and maintaining global competitiveness in

critical technologies.

The Administration bill emphasized five principles. First, export

controls exercised in conjunction with the multilateral nonproliferation regimes. Second, increased discipline on unilateral controls.

Third, a simplified and streamlined export control system. Fourth,

strengthened enforcement. Fifth, expanded rights for exporters to

petition for relief from ineffective controls.

H.R. 361, which was passed by the House in 1996, made several

improvements to the EAA similar to those contained in the Administration proposal. Control authority was updated to address current threats, to increase discipline on unilateral controls, and to enhance enforcement.

H.R. 361 also contained reforms of the licensing and commodity

jurisdiction procedures which were largely embodied in Executive

Order 12981, which was issued by the President in December 1995.

Under that order, the Commerce Department manages the export

control system for dual-use goods and technology, as it always has,

but State, Defense, and Energy review any and all licenses they

wish and can easily escalate their concerns all the way to the

President.

It’s a tribute, Mr. Chairman, to the effective management of this

system and the good faith of all the agencies involved that consensus is reached under these procedures in more than 90 percent

31

of all cases and agency reviews have been conducted in less than

half the allotted time, on the average. So far, all differences have

been resolved at my level, the assistant secretary level, or below

and no case has gone to the Cabinet or the President, except in situations where there is a statutory requirement to do so.

The Administration, however, has had and continues to have

some concerns about H.R. 361 regarding its terrorism provision, its

provision regarding unfair impact, the provision for anti-boycott

private right-of-action, its judicial review provisions, and some constitutional issues which the Administration feels are raised by the

bill.

Finally, S. 1712. Last September, the Senate Banking Committee

unanimously reported that bill. While structurally different from

H.R. 361, it nevertheless updates controls to address current security threats and contains other useful provisions, including enhanced enforcement authorities and significant higher penalties for

violations. It is largely consistent with the Administration’s own

procedural reforms. S. 1712 continues to be the subject of discussions between the Banking Committee and interested members of

other Senate committees. Pending the outcome of those discussions,

the Administration has not yet taken a formal position on that bill.

In conclusion, Mr. Chairman, we need an EAA that allows us to

address our current security concerns effectively while maintaining

a transparent and efficient system for U.S. exporters. The Administration and the House, particularly in H.R. 361, and the Senate

Banking Committee, in S. 1712, have agreed on many of the salient

issues. Together, we should build on the consensus that has already been achieved to reauthorize an EAA that enhances our security in the ways that I have outlined in this statement.

Thank you for the opportunity to address the Subcommittee and

I would be glad to take any questions you might have.

Mr. MANZULLO [presiding]. Thank you, Mr. Secretary. Mr.

Menendez.

Mr. MENENDEZ. Thank you, Mr. Chairman. Mr. Secretary, thank

you for your statement. There’s a lot that I find that I am in concurrence with you on and I appreciate the straightforwardness of

it. Let me ask you a couple of questions, though.

One, we, as the Chairlady said earlier, are having a markup of

Congressman Dreier’s legislation. I support that bill, however I’m

concerned that it only touches the surface or partially addresses

the industry’s concerns. Do you believe that the legislation is sufficient to address the industry’s concerns?

Mr. MAJAK. As I have reviewed in this statement, I think there

are a broad range of situations that need to be addressed. Certainly

the subject of the Dreier bill is one of them, but only one of quite

a number. Those matters that need to be addressed are of concern

to both the business community and to the Administration. So we

would certainly prefer a more comprehensive piece of legislation to

deal with the full range of both industry and administration concerns.

Having said that, the reduction of the time for review of changes

in our computer policies is needed and the Administration will try

to work with all approaches to this legislation. But I think we

32

would strongly prefer a more comprehensive approach and one

which would contain a permanent authority.

Mr. MENENDEZ. We support Mr. Dreier’s effort to reduce the

time. The problem is that that is only part of a series of issues that

confront the industry. I would hope that my colleagues, when we

have the markup, understand that the resolution of that one issue

in no way puts us in the position to be totally as competitive as

we need to be and address both our security concerns.

Now you said we have agreed, and I believe you’re right, on the

wide range of the salient issues in both the Senate and the House

legislation. So what’s stopping us? What’s stopping us? Why can’t

we move forward from here? What is it that is—I have a sense of

what’s stopping us, but I want to hear the Administration’s perspective of what is stopping us from moving forward with the reauthorization?

Mr. MAJAK.I think what’s stopping us at this point is the remaining diversity of views, especially by key committees in the Senate,

since that’s where the most recent activity has been.

Mr. MENENDEZ. Particularly Defense-related views?

Mr. MAJAK. Particularly Defense and, to some extent, Intelligence-related views. But also Foreign Relations-related views.

There are at least three committees, in addition to the Banking

Committee, who have remaining concerns about S. 1712. I know

that Senator Gramm, Senator Enzi, and others in the Senate have

worked diligently to try to resolve those differences of view, but

they are substantial differences which, so far, have not been resolved.

We in the Administration have taken the posture of encouraging

this process to move forward because we believe the underlying

bill, S. 1712, as passed by the Banking Committee, is a promising

vehicle. We have tried to facilitate some possible compromises and

to comment on all of the proposals that have been put forward.

But, so far, I think those differences have not been resolved.

Mr. MENENDEZ. Could you outline for the Committee what some

of those differences, without mentioning who the differences emanates from, but what some of those differences are?

Mr. MAJAK. Yes. For example, the Senate bill contains provisions

for removing items from control on the basis of foreign availability,

as well as on the basis of mass market production which, makes

these items difficult or impossible to control.

Under the Senate bill, the Commerce Department would make

those determinations. But before those items were removed from

control, there would have to be some degree of interagency consensus. Members of other Senate committees feel that there should

be some category or list of items that would be ineligible for that

kind of review or that should require Presidential level decision to

implement the removal of items from control. So there is disagreement over that issue, for example.

There are a number of others. I think——

Mr. MENENDEZ. Is the Administration actively engaged in trying

to reconcile some of these other issues so that we can have a reauthorization? Or is the Administration’s position to sit back and wait

to see if the parties themselves?

33

Mr. MAJAK. No, we’ve been quite actively involved, including a

number of late-night meetings at which I personally, and others,

have participated and which the representatives of the various

committees have sat around the table and tried to resolve these

issues. So we have been quite available and proactive.

Mr. MENENDEZ. Are you’re brethren in the Department of Defense actively engaged in trying to seek also a reauthorization? Because sometimes I get the sense that there are those in this process

who believe that, by raising every possible obstacle, we’ll not see

a reauthorization. Their ultimate goal is to virtually, in their views,

which I believe are wrongly held although I believe they hold them

for the right—for their own—I think they’re committed to their

views. I think their views are wrong. But I think they’re committed

to their views for what they believe are the right interests.

But I think, ultimately, what happens here is that there is an

effort here that does not move this process forward. Because those

who don’t want to see the process moved forward because they believe they want to give access to nothing, which I think is a very

myopic view of the world today, don’t want to see something happen or are they actively engaged in a good faith effort here to make

this happen?

Mr. MAJAK. No, I would have to say, although there are a variety

of opinions in these departments, I would have to say that the Defense Department and the State Department in particular have

taken an active part in these discussions. Each of the agencies has,

from time to time, offered compromise language in response to the

concerns of one committee or another. But, ultimately, at the end

of the day, we can’t resolve the disputes. That must be done by the

members of the respective committees themselves.

But I can say from personal experience, that all of the agencies

have been at the table willing to respond to the various positions,

to offer compromises, and suggest different approaches. But so far,

that has not succeeded in bridging the differences.

Mr. MENENDEZ. Yes, I hope they recognize that, ultimately, in

those products that are available in the marketplace and that others are providing, that I would rather see, for the security interests

of the United States, products that are produced in the United

States which we will have the total wherewithal and knowledge of

and we can deal with versus those products that are produced elsewhere that we do not know.

Mr. Chairman, one last question, since there’s only the two of us,

it appears, if I may. If current controls are continued and a new

Export Administration Act is not enacted, from the view of the Department of Commerce and understanding your charge in that regard, what’s the impact on the ability of U.S. industries to export?

Mr. MAJAK. Mr. Chairman, I think it would be our plan and expectation to continue the process and the policy as we have since

1994 under our emergency authorities. In that regard, I would expect us to continue to approve a large proportion of the license applications that we receive, to review all of those license applications

on an interagency basis, and to proceed largely as we have.

So I don’t think that there would be any disruption of our ability

to exercise these controls, except to the extent that we might face

legal challenges.

34

Mr. MENENDEZ. I will tell you, Mr. Secretary, that those who

have come forth from these hearings from the private sector will

say that, in fact, that it is more than just that reality. It is beyond

the legal challenges you are facing, that they face the loss of exports which are growing, if not the substantial part, of their business. I just really do not believe that just the continuation of the

existing process, as well-intentioned as it is under the best of the

circumstances that exist, inures to our interests either commercially or, for that fact, in terms of national security.

Thank you, Mr. Chairman.

Mr. MANZULLO. Thank you, Mr. Menendez. Mr. Secretary, first

of all, I want to thank you for the efficiency with which your agency handles all types of requests, the fairness with which you interpret the law, and the nonpartisanship involved in the agency. It’s

really a credit to you and the people that work with you. You are

trying to do what’s best for the United States, taking into mind the

overriding concern for national security and I commend you, publicly, for that.

Mr. MAJAK. Thank you, Mr. Chairman. That’s a great compliment.

Mr. MANZULLO. I only wish that other Members of Congress, in

addition to Mr. Menendez and I, had as much understanding of

what’s going on or had a fraction of your understanding of this

issue, because it’s extremely difficult to understand. So often the

first thing that Members of Congress want to do is, in reaction to

a bad foreign country is to punish American manufacturers for

something over which they have no control.

But I have a question about Wassenaar that’s come up several

times. As you know, COCOM worked on a consensus basis. How do

we strengthen Wassenaar so that, if the United States decides

against issuance of a license, that one of our allies doesn’t undercut

us and go ahead and simply sell the same thing? What are your

thoughts on that?

Mr. MAJAK. This is a very difficult and knotty problem. Certainly

what we need to do first is continue to press our partners at

Wassenaar and the other multilateral agencies to adopt what we

call ‘‘no undercut’’ provisions, which we have done in Wassenaar.

We have repeatedly proposed to strengthen the no undercut provisions that are under the agreement.

At present, those provisions largely require member countries

simply to consult before they make a sale that another member

turned down. That process is working moderately well, but we

would like to expand it to include more items and to include more

than just notification, but some greater obligation to, in fact, to respect the denials of other countries.

We have not been able to achieve much progress in that area.

This, I think, is in part a spill-over from COCOM and the Cold War

days when our allies and partners at times resented and resisted

the pressures of what was then actually prior approval of their licenses, as you mentioned. The presence of some additional countries in the Wassenaar group, like Russia and the Ukraine, for example, make selling the idea of a no undercut arrangement even

more difficult.

35

At the end of the day, it seems to me, having observed this now

for a couple of years, it really is a question of how much priority

we’re prepared to put on achieving stronger no undercut provisions.

Frankly, we have had on the table other things that we have wanted from Wassenaar, like greater controls on small arms and other

items that are not subject to controls. So there are tradeoffs.

We’ve also wanted to remove some items from Wassenaar control

which we felt no longer require controls. That requires us to use

some political capital with our partners.

So we have obtained some other concessions from them. It’s just

a matter of how much we want to extract in order to get that kind

of cooperation. I’m not sure, under the present circumstances, even

very heavy pressure from us will get us a broader no undercut provision.

Mr. MANZULLO. They have no incentive. They realize, unlike this

country, that if something is readily available on the open market

and the United States is trying to be righteous and say we don’t

want to sell it, then why close that market to another country?

Good luck on negotiations, but if you don’t succeed and strengthen

it, I’m not going to hold that against you or anybody else who is

working on our behalf.

Mr. MAJAK. I appreciate that. I should note, Mr. Chairman, that

we have had some reasonable cooperation from them in the no undercut area with respect to the terrorist states, which is the central

and the main focus of Wassenaar. Where you begin to lose discipline is when you talk about destinations outside of the key terrorist countries. There is much less willingness to recognize a no

undercut concept.

Mr. MANZULLO. That answers my question.

Congressman Cooksey, would you like to chair this hearing to its

conclusion, because I have to go on to another meeting? Thank you.

I appreciate it very much, Mr. Secretary.

Mr. MAJAK. Thank you, Mr. Manzullo.

Mr. COOKSEY [presiding]. I’m asking the staff a question that I

don’t know the answer to myself. Does Israel belong to the CAA?

Mr. MAJAK. Israel——

Mr. COOKSEY. Have they participated in the past?

Mr. MAJAK. Israel is not a member of any of the multilateral export control cooperation arrangements at present.

Mr. COOKSEY. Why not?

Mr. MAJAK. Because they prefer and feel they need to pursue an

individual and independent course. I should note, however, that

they recognize and cooperate with U.S. controls and the Wassenaar

and other multilateral controls, in fact, in some cases. But they feel

that they must preserve their national discretion so they have not

joined these multilateral organizations.

Mr. COOKSEY. Wassenaar does not really have any teeth in it,

though, does it, as it currently exists? Or does it?

Mr. MAJAK. The teeth are, essentially, powers of persuasion and

pressure from other members to conform. It has teeth in the sense

that it has a common list of items that are controlled and that is

a very important area of consensus in itself. If you don’t at least

have a common list of items that are of concern and should be conVerDate 11-MAY-2000 09:58 Dec 12, 2000 Jkt 000000 PO 00000 Frm 00039 Fmt 6601 Sfmt 6601 67392.TXT HINTREL1 PsN: HINTREL1
36

trolled, to one degree or another, then you have, really, no coordination at all.

Wassenaar does have such a list and much of our time is spent

at Wassenaar refining and improving that list. That includes both

extensions of the list as well as deletions from the list. So that is

a very important core of cooperation.

However, the type of control that countries apply to those items

is subject to national discretion and, therefore, some significant

variation. We control those items in one way. Other countries,

using other kinds of mechanisms and other legal authorities, may

control them differently. We try to harmonize the impact as much

as possible, but there is the ability to have variation based on national discretion.

Mr. COOKSEY. Let me ask you a followup question on that. Recently Israel has exported some missile technology to China. Am I

not correct? It is missile technology?

Mr. MAJAK. I have seen reports to that effect. I can’t—or at least,

in public session, wouldn’t want to confirm or disconfirm it. But,

certainly, I’ve seen those reports.

Mr. COOKSEY. I got it from reading the newspaper. I find when

I go to the CIA briefings or I just left another members only meeting, I can read the same thing in the newspaper, the New York

Times, the next day. What did the Administration do to prevent

this? I understand they expressed some opposition to it and Israel

said they would go ahead with this.

Mr. MAJAK. Here the absence of my State Department colleagues

at the table handicap me because they would have undertaken

those representations. I’m sure there were representations made,

but I’m, frankly, not familiar with them in detail. I’d have to defer

to the State Department to answer that question.

Mr. COOKSEY. I consider Israel a very important ally and, as a

result, we give them a lot of technology and a lot of important military technology. It is a little bit disconcerting when you see that

they are, in turn—I’ll tell you what it was. It was really the

AWACS technology. They are transferring that technology to them.

Mr. MAJAK. Yes.

Mr. COOKSEY. And, of course, the missile technology goes back to

1996 and I understand the two principals—now this was the front

page of the Washington Post—the two principals in those companies, Loral and Hughes, are in China today, as we speak.

But my good friend from California, Mr. Rohrabacher is here.

Mr. Rohrabacher.

Mr. ROHRABACHER. Thank you very much. There was a news report about the U.S. Ambassador to China hosting a meeting between the China space agency and Hughes and Loral. Was this approved by the White House?

Mr. MAJAK. I saw that report, Mr. Rohrabacher. I have not been

able either to confirm, in the short time since I did see it, whether

the meeting took place or whether it was cleared by anybody in the

Administration. I can say with certainty it wasn’t cleared by me,

but whether it was cleared elsewhere in the Administration, we’d

have to determine and get back to you.

Mr. ROHRABACHER. Is it the Administration’s policy that Hughes

and Loral should be meeting with the China space agency?

37

Mr. MAJAK. I could only speak for the area of authority that I

have, which is how we treat those companies with respect to future

exports. Under the Export Administration Act, as extended by the

President, unlike the munitions control statute, which authorizes

the U.S. Government to withhold business from companies when

they’ve been accused of these possible violations, there is not a

similar provision in the area of dual-use technology. So I could say

that, under our legislation, discussions of exports of dual-use equipment by those companies would not be prohibited.

Mr. ROHRABACHER. All right. Is it still the Administration’s policy that China is treated as a strategic partner?

Mr. MAJAK. I think, again, I would have to defer, with your forgiveness, Mr. Rohrabacher, to the State Department for a proper

answer to that question.

Mr. ROHRABACHER. All right. It just seems to me that you guys

all have the same boss and I give he would give the same guidelines.

Just for the record, Mr. Chairman, just let me say this whole situation when you read in the newspaper, after going through years

of seeing that there is a technological transfer to China through

Hughes and Loral corporations that has been deemed something

that damaged our national security, put millions of lives at risk

that wouldn’t otherwise be at risk, the fact that there is a meeting

arranged by the U.S. Ambassador for these same two companies on

the very same subject area with the very same culprits that were

the recipients of this technology before, is breathtaking. It’s just beyond belief.

I mean, this proves that Mark Twain was wrong. A cat will sleep

on a hot stove twice. You’re not at fault. You’re not here to be

raked over the coals. You’re here to just try to do your best, I know.

But this Administration, through what we’re talking about today

and through just in this one incident, has demonstrated again its

either incompetence or its sheer disregard for the national security

interests of the United States of America.

I don’t know why, but that’s what’s happening and this Congress

eventually is going to get down to the reason why these decisions

continue to be made over and over again with America’s worst potential enemy.

Than you very much, Mr. Chairman.

Mr. COOKSEY. Thank you, Mr. Rohrabacher.

Mr. Menendez, would you like to have a closing comment?

Mr. MENENDEZ. Right. Just very briefly. Just a quick question to

the Secretary. I appreciate all of your answers and your testimony.

How long have we been authorizing satellites as a government?

Mr. MAJAK. As commercial items, since, I’d say, the late 1960’s,

when what was previously largely a military activity became commercialized and we began using commercial satellites. Certainly,

Intelsat, for example, has been around even longer than that. But

in those days, the State Department still licensed many of those

satellites as munitions. Of course, the jurisdiction was transferred

from the Commerce Department for commercial satellites in 1996.

Mr. MENENDEZ. So we have been authorizing and licensing satellites since before this Administration, I take it.

Mr. MAJAK. Much before this Administration.

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Mr. MENENDEZ. Thank you very much, Mr. Secretary.

Mr. MAJAK. Thank you.

Mr. COOKSEY. Mr. Majak, Mr. Secretary, we appreciate your

coming today. I appreciate your testimony. It’s an important issue.

Needless to say, there’s controversy that surrounds this. I feel that

you’ve given a good presentation and I personally thank you. We’ve

got to go vote.

Mr. MAJAK. Thank you.

Mr. COOKSEY. The meeting will be adjourned.

[Whereupon, at 3:56 p.m., the Subcommittee was adjourned.]

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