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Timestamp: 2016-12-10 03:06:17
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EXPORT CONTROLS Rapid Advances in China’s Semiconductor Industry Underscore Need for Fundamental U.S. Policy Review
GAO-02-620
The United States controls the export of certain technology, including some of the equipment and materials used to make semiconductors, or computer “chips,” to sensitive destinations such as China for national security or foreign policy reasons. In light of China’s efforts to acquire modern semiconductor manufacturing technology, GAO was asked to assess (1) advances in China’s manufacturing capability, and (2) U.S. export control policy for this technology and its analytical basis.
Highlights of GAO-02-620, a report to the Ranking Minority Member, Committee on Governmental Affairs, U.S. Senate
Since 1986, the gap between U.S. and Chinese semiconductor manufacturing technology has rapidly narrowed (See chart). Today, China’s advanced manufacturing facilities can make chips that are less than one generation behind the current, commercial state of the art.
GAO recommends that the secretaries of commerce, defense and state reassess, document, and update as necessary U.S. policy and practices on exporting semiconductor manufacturing equipment and materials to China. The agencies disagreed with this recommendation stating that their current policies and practices are sufficient for making export licensing decisions to China. We disagree. U.S. export regulations governing China contain inherent inconsistencies and are based on outdated government assessments of the availability of technology from non-U.S. sources. Accordingly, our recommendations remain unchanged.
The gap between U.S. and Chinese semiconductor manufacturing technology, as measured in the feature size of the semiconductors produced, rapidly diminished in recent years. A semiconductor’s feature size is measured in microns and is used to define the current level of technology.
U.S. policies and practices to control the export of semiconductor technology to China are unclear and inconsistent leading to uncertainty among U.S. industry officials about the rationale for U.S. government licensing decisions. • While export regulations restrict certain sales that would make a direct and significant contribution to China’s military capabilities, the United States generally approves most exports of semiconductor manufacturing equipment and materials to China. Although the stated practice of U.S. export agencies has been to keep China two generations behind state of the art semiconductor production capabilities, U.S. regulations do not describe the level of allowable technology that can be exported to China relative to the commercial state of the art. The Departments of Commerce and Defense have not conducted recent national security and economic assessments to form a sound analytical basis for exporting semiconductor technology to China.
This is a test for developing Highlights for a GAO report. The full report, including GAO's objectives, scope, methodology, and analysis is available at www.gao.gov/cgi-bin/getrpt?GAO-02-620. For additional information about the report, contact Joseph Christoff at (202) 512-8979. To provide comments on this test Highlights, contact Keith Fultz (202-512-3200) or e-mail HighlightsTest@gao.gov.
Results in Brief Background Rapid Advances in Semiconductor Manufacturing Capability Have Improved China’s Commercial and Defense Industrial Base Wassenaar Arrangement Has Not Affected China’s Ability to Acquire Advanced Semiconductor Manufacturing Equipment Export Controls on Advanced Semiconductor Manufacturing Technology to China Lack Analytical Basis Conclusions Recommendations for Executive Action Agency Comments and Our Evaluation Scope and Methodology
1 2 5 9 17 23 28 29 30 33
Appendix I: Appendix II: Appendix III: Appendix IV: Appendix V: Appendix VI: Reasons for Controlling Dual-Use Goods and Technologies Wassenaar Reporting Commitments by List Comments from the Department of Commerce GAO Comments Comments from the Department of Defense GAO Comments Comments from the Department of State GAO Comments GAO Contact and Staff Acknowledgments GAO Contact Acknowledgments Table 1: Newest Semiconductor Manufacturing Facilities in China (as of February 2002) Table 2: Commerce Control List Categories Table 3: Commerce Control List Category Groups Table 4: Frequency of Reasons for Control of Category 3 (Electronics) Items 36 40 41 47 50 63 69 74 77 77 77
12 37 37 38
GAO-02-620 Export Controls
Table 5: Description of Semiconductor Manufacturing Equipment and Materials Requiring Export License to China
Figure 1: Semiconductor Manufacturing Technology Gap Between China and the United States (feature size measured in microns) Figure 2: Shanghai Hua Hong NEC Semiconductor Manufacturing Facility (Completed in 2001) Figure 3: German Metal Organic Chemical Vapor Deposition Equipment at the Institute of Semiconductors, Beijing Figure 4: Controlled Arsine and Phosphine Gases in Use at the Institute of Semiconductors, Beijing Figure 5: Reasons for the Control of Dual-Use Goods and Technologies
10 14 21 22 36
including some of the equipment and materials used to make semiconductors.1 Because of your concerns about whether the United States’ national security and foreign policy interests are being adequately protected. national security and foreign policy interests with the objective to promote U. Belgium. Sweden. Denmark. particularly in light of the pace at which China has been acquiring modern semiconductor manufacturing technology. trade and competitiveness. Russian Federation. Finland. Ireland. Semiconductors. Greece. As part of its efforts to control exports of sensitive dual-use technology. New Zealand. Romania. United Kingdom. Poland.A
United States General Accounting Office Washington. Australia. and the United States. Republic of Korea. 20548
April 19. analyze how the Wassenaar Arrangement has affected the transfer of semiconductor manufacturing technology to China. 2002 The Honorable Fred Thompson Ranking Minority Member Committee on Governmental Affairs United States Senate Dear Senator Thompson: The United States controls the export of certain technology. Czech Republic. describe advances in China’s semiconductor manufacturing capability and the impact of these advances on its industrial base. Hungary. D. Portugal. 2. communications equipment.
.S. Bulgaria. Canada. U. Japan. Spain. France.S. Austria. Netherlands. to sensitive destinations such as China for national security or foreign policy reasons. and
1 The 33 participating states of the Wassenaar Arrangement are: Argentina. commonly referred to as computer “chips.S. Norway. the United States is a member of the Wassenaar Arrangement—a forum of 33 countries established in 1996 to reach multilateral agreements about which dual-use goods merit special scrutiny and reporting. Turkey. This policy strives to balance the need to protect U. Ukraine. you asked that we 1. Switzerland. Luxembourg. Italy. policy on the export of such “dual-use” items—goods and technologies that have both civilian and military uses—is a subject of continuing debate. Slovak Republic. and weapons systems. Germany.” are key components in computers.C.
S. has been fueled by China’s success in acquiring manufacturing technology from abroad. we collected and analyzed information from the U. and Chinese semiconductor manufacturing technology from between 7 to 10 years to 2 years or less.S. Agency comments in this report containing information designated For Official Use Only have been redacted.
. Further. According to our analysis of information obtained from semiconductor manufacturing facilities in China and industry experts. Austria. Defense.3. and research organizations in China. China’s efforts to improve its semiconductor manufacturing capability have narrowed the gap between U. 2002). GAO-02-151 (Washington. China has made improving its semiconductor manufacturing capability a priority for national and economic security reasons and plans to build as many as 20 multibillion-dollar manufacturing facilities over the next 5 to 10 years with substantial levels of foreign investment. U. commercial state-of-the-art technology. Departments of Commerce.: Feb. Our work focused on China and its newest semiconductor manufacturing facilities. describe U. We visited manufacturing facilities.S. and from various industry and trade associations. The growing sophistication of China’s semiconductor manufacturing facilities. Export Controls: Rapid Advances in China’s Semiconductor Industry Underscore Need for Fundamental U. and U. we spoke to more than 170 representatives from academia. China’s most advanced commercial manufacturing facilities can produce chips that are only one generation behind current. To address these issues. D. 19. policy and practice regarding the export of this manufacturing technology to China and assess its analytical basis. Policy Review. and foreign governments. industry.S.C. In addition.2
Since 1986. General Accounting Office. which has improved its ability to develop more capable weapons systems and advanced consumer electronics. and State. S.S. The multilateral Wassenaar Arrangement on Export Controls for Conventional Arms and Dual-Use Goods and Technologies has not affected China’s ability to obtain semiconductor manufacturing equipment because the United States is the only member of this voluntary arrangement that
We issued a separate For Official Use Only version of this report in February 2002. we analyzed Commerce Department licensing review and approval data and analyzed export reporting and proposal acceptance and rejection data provided by the Wassenaar Arrangement Secretariat in Vienna. government agencies.
well-documented basis for making export-licensing decisions to China. policies and practices to control the export of semiconductor technology to China are unclear and inconsistent.S. security interests. Defense. We found that the United States approves most licenses for exports of semiconductor manufacturing equipment and materials to China. In this report. reassess and document U. or alternative means for protecting U. through exchanging information and sharing views. necessary to justify such a practice or serve as the basis for licensing decisions. practice has been aimed at keeping China at least two generations (about 3 to 4 years) behind global state-ofthe-art semiconductor manufacturing capabilities. particularly electronics-related items. In commenting on a draft of this report. if appropriate. leading to uncertainty among U. industry officials about the rationale for some licensing decisions. export policy on semiconductor manufacturing equipment and materials to China. national security interests. such as assessing foreign availability of this technology or the cumulative effects of such exports on U.S. we are recommending that the secretary of commerce. Specifically. Congress and industry. develop new export controls. export control policy is to keep China’s industry two
.S.S. except those items that would make a direct and significant contribution to specific areas of China’s military. U. and communicate the results of these efforts to the U. we are recommending that these agencies complete the analyses needed to serve as a sound basis for an updated policy. is the sole means by which the arrangement tries to achieve its goals. Although U.considers China’s acquisition of semiconductor manufacturing equipment a cause for concern. and State said that our report was based on an invalid assumption that the goal of U.S.S. Further. Over the past several years. The arrangement deems only one type of semiconductor manufacturing equipment to be sufficiently sensitive to warrant greater information sharing among arrangement members—no export information is shared for 97 percent of all electronics-related items covered by the arrangement.S.S. U. Transparency. fewer items have been subject to the Wassenaar Arrangement. the regulations make no reference to the level of technology that can be exported to China relative to the current commercial state of the art. in consultation with the secretaries of defense and state. Consequently. the general licensing policy is to approve applications.S. the executive branch does not have a sound. agencies have not conducted the analyses. Under the Export Administration Regulations pertaining to China. the Departments of Commerce.
generations behind U.S. industry. These agencies said that U.S. policy for why and how these items should be controlled can be found in the Export Administration Regulations and is based on a sound analytical framework. We agree with the Departments of Commerce, Defense, and State that a description of the U.S. government’s export control policy toward China is found in the Export Administration Regulations. We added some additional information to the report to better describe this policy and to make a clearer distinction between policy and practice as the current regulations make no reference to the level of semiconductor manufacturing technology that can be exported to China relative to the current commercial state of the art. We found that the executive branch practice was aimed at keeping China two generations behind the U.S. semiconductor manufacturing industry. On March 1, 2001, the under secretary for export administration (a policy-level official), described this practice and reconfirmed it in a follow-up January 2002 meeting with GAO after he left office. Moreover, in commenting on our draft report, the Commerce Department described this practice, noting that “certain exports of semiconductor manufacturing equipment to China are limited to two generations behind state-of-the-art levels to address national security, or other concerns related to a particular transaction.” Regarding the Departments of Commerce, Defense, and State’s comments that the current export licensing process is based on a sound, analytical framework, we found that a U.S. government foreign availability analysis of semiconductor manufacturing equipment has not been completed since 1987. Further, the U.S. government has not conducted studies of the cumulative effect of the export of advanced semiconductor manufacturing equipment and materials to China on U.S. national security. The findings, conclusions, and recommendations of our report remain unchanged.
Semiconductors or “computer chips” are critical components in everything from automobiles to weapon systems.3 They contain millions of transistors and other components that are smaller than 1/100 the width of a human hair. The manufacture of integrated circuits involves a complex, 250-step process utilizing hundreds of millions of dollars in technologically advanced equipment and purified materials. An integrated circuit’s component size—or feature size—is measured in microns; modern chips range from 0.35 micron to 0.13 micron.4 Smaller feature size allows for more components to be integrated on a single chip, thus creating more powerful chips. The semiconductor industry also uses feature size to define the current level of integrated circuit technology: Each reduction in feature size, for example, from 0.35 micron to 0.25 micron, is considered a move to a new generation of technology.5 According to Semiconductor Equipment and Materials International, the $76 billion global semiconductor equipment and materials industries ($48 billion and $28 billion, respectively) serve as the foundation for the $204 billion semiconductor industry, which in turn supports many other industries including the $1.1 trillion electronics industry.6 The equipment and materials industries produce a variety of equipment, chemicals, gases, films, and other materials critical to manufacturing integrated circuits. U.S. companies created and dominated the semiconductor equipment and materials industries until the early 1980s, when Japan increased investment and Japanese companies gained a greater market share in several critical
Semiconductor materials, such as silicon, can be used as both a conductor and insulator of electricity. Almost all of today’s computer chips are constructed on wafers made of 99.9999 percent pure silicon, although other materials such as gallium arsenide may also be used for specific applications. The term “semiconductor” also refers to devices that are manufactured from semiconductor materials. Semiconductors include discrete devices, such as transistors, and integrated circuits comprising millions of transistors and other components. For the purposes of this report, the terms semiconductor, integrated circuit, and computer chip are used interchangeably.
One micron is one-millionth of a meter or 1/100th the width of a human hair.
5 Each new generation of technology represents a reduction of approximately 28 percent of the previous generation’s feature size. This term applies exclusively to silicon-based, very large-scale integrated circuit technology (that is, circuits with 100,000 to 1 million components).
Semiconductor Equipment and Materials International is the trade association serving the global semiconductor equipment, materials, and flat panel display industries.
equipment and materials technologies. During the 1990s, U.S. companies regained market share and currently share worldwide leadership with Japan, although Japan still dominates the key silicon manufacturing and lithography markets.7 The global semiconductor equipment and materials industries comprise more than 2,400 small to medium-sized companies located primarily in the United States, Japan, and Europe. Typically these companies manufacture equipment or materials required for just one or two of the numerous processes for making integrated circuits. In 2000, 10 companies accounted for approximately 63 percent ($30.3 billion) of the equipment industry’s $48 billion revenue.8 One of the reasons semiconductor equipment and materials are controlled is their potential role in improving a nation’s military capabilities. The Export Administration Act of 1979,9 as amended, and the implementing Export Administration Regulations authorize the Commerce Department to require firms to obtain licenses for the export of sensitive items that may pose a national security or foreign policy concern.10 The Departments of Commerce, Defense, and State and others review export license applications. The Commerce Control List provides detailed specifications for about 2,400 dual-use items that require export licenses to particular destinations for largely national security and foreign policy reasons. (See app. I for additional information on the Commerce Control List.) Semiconductors and related equipment and materials fall under the list’s “Category 3” (electronics), with manufacturing equipment and materials placed in Category 3B (test, inspection, and production equipment) and
7 Lithography is a manufacturing process used to imprint circuits on semiconductor materials. 8 The top 10 materials companies accounted for approximately 42 percent ($11.7 billion) of the industry’s $28 billion revenue in 1999—the last year for which complete information was available.
Since August 20, 1994, when the Export Administration Act of 1979 was terminated, several executive orders and one law have extended application of the act. Most recently, application of the act has been extended by Executive Order 13222, Aug. 17, 2001 (66 Fed. Reg. 44025).
50 U.S.C. App. sections 2401 and following and 15 C.F.R. sections 730 and following.
3C (materials), respectively.11 Category 3 goods and technologies are controlled primarily as a tool of U.S. anti-terrorism policy, but also to meet nuclear nonproliferation policy objectives, control the spread of missile technology and crime, and address general national security concerns.12 The primary control concern regarding China is national security. In many cases, items on the Commerce Control List will require a license only if they are going to a particular country. However, some products will require a license because (1) there is a risk of diversion to an unfriendly destination; (2) the nature of the product makes it sensitive; or (3) the end use or end user of the product triggers concerns.13 As part of its efforts to control exports of sensitive dual-use technology, the United States is a member of the Wassenaar Arrangement. The Wassenaar Arrangement, the successor regime to the Coordinating Committee for Multilateral Export Controls, came into existence in July 1996. 14 It is built on a broad international consensus that new threats to global security from the spread of weapons of mass destruction and their delivery systems make multilateral export controls on dual-use items necessary. The Wassenaar Arrangement was designed to complement and reinforce, without duplication, the other existing international export control regimes for weapons of mass destruction and their delivery systems.15 The arrangement was explicitly charged in its founding documents to prevent “destabilizing accumulations” of dual-use goods and technologies that may be used to
Group B and C items are described in 15 C.F.R., Part 774, Supp. 1. See C.F.R. 15 Part 774.
The U.S. government controls some items unilaterally to particular countries for specific purposes. For example, some items in Category 3B are controlled multilaterally through the Wassenaar Arrangement but are controlled more strictly to particular countries by the United States for antiterrorism purposes.
The Coordinating Committee for Multilateral Export Controls was established early in the cold war and included all NATO countries except Iceland, plus Japan and Australia. Members agreed not to export specified, listed dual-use goods and technologies to Soviet bloc countries and China and to obtain unanimous preapproval for any nonprohibited exports. Each of the other existing regimes focuses on one general category of weapons of mass destruction. The Nuclear Suppliers Group aims to tightly control access to nuclear exports to reduce the possibility that such transfers could be diverted to nuclear explosive or unsafeguarded nuclear fuel cycle activities. The Australia Group seeks to control the spread of chemical and biological warfare agents. The Missile Technology Control Regime seeks to control the export of missiles or related equipment that can be used to produce a missile with a range of at least 300 kilometers capable of delivering any payload.
The arrangement also provides for the exchange of information among its members on exports of conventional munitions.
. The Wassenaar Arrangement is not directed against any state or group of states.16 Transparency. no countries are specifically named as targets of the arrangement. and inform other Wassenaar member governments of selected approvals and denials of export licenses for these items. according to national judgment. Libya. Like its predecessor regime. through exchanging information and sharing views. These commitments may or may not lead a member state to deny an export license. for example. Iraq. is the sole means by which the arrangement tries to achieve its goals. According to a senior State Department official on detail to the Wassenaar Secretariat and Wassenaar documents. members of the arrangement make a threefold political commitment to: control exports of selected advanced dual-use goods and technologies. Members have no power to veto other members’ sales. the arrangement does not enjoy formal treaty status. and North Korea bear special scrutiny. refrain from exporting dual-use items that may. The “control” aspect of the arrangement resides entirely in the discretion of national governments that commit only to scrutinize selected dual-use goods and technologies. Although there is an informal understanding that exports to Iran. We did not review this aspect of the arrangement because it is not relevant to semiconductor manufacturing technology.contribute to the development or enhancement of military capabilities that would undermine regional security and stability. noted that for export control purposes the Russian government considers Iran a “normal country. contribute to weapons proliferation or regional or international instability. The Russian representative to Wassenaar. Even this informal understanding does not hold in all cases among all Wassenaar members.
and U.18 Consequently. The ability to produce smaller feature sizes by fine-tuning equipment is dependent on the semiconductor manufacturing process used and the capability of the engineers operating the equipment. increases the number that can be produced on a given wafer. China was five generations of technology behind the United States’ then-current commercial production capability.180. China’s efforts to improve its semiconductor manufacturing capability have resulted in a narrowing of the gap between U. The country’s rapid advances in this sector have integrated China into the global semiconductor industry. according to semiconductor manufacturing experts with whom we spoke.S.Rapid Advances in Semiconductor Manufacturing Capability Have Improved China’s Commercial and Defense Industrial Base
Since 1986. Currently. Acquiring semiconductor technology and know-how is a priority of the Chinese government. Today. China has narrowed this technology gap. China’s most advanced semiconductor manufacturing facilities can produce integrated circuits that are only one generation or less behind the current state of the art.13 micron feature sizes or less in some cases.25-0. typically through joint ventures or wholly foreign owned manufacturing facilities. China has eight major integrated circuit manufacturing facilities with substantial levels of foreign investment or ownership. integrated circuit manufacturers in China.17 The country’s improvements in semiconductor manufacturing capability are the direct result of the involvement of European. Today. Although the equipment in China’s newest manufacturing facilities is designed to produce integrated circuits with 0. according to industry experts we interviewed.18 micron feature sizes. and created a potential new source of sophisticated integrated circuits for China’s industry and military. it can be fine-tuned to produce integrated circuits with 0.
. the most advanced semiconductor manufacturing facilities in China today can
This goal was first stipulated in China’s Eighth 5-year Economic Plan (1991--1995).
Fine-tuning the equipment to produce integrated circuits with smaller features decreases the size of the integrated circuits and.
Technology Gap Between United States and China Is Narrowing Rapidly
Fifteen years ago. However. this can only be carried so far before decreasing yields (due to small feature size) lead to increasing overall costs. therefore.S. and Chinese semiconductor manufacturing technology. Japanese. improved China’s commercial and defense industrial base.
Intel Corporation. University of Maryland.produce integrated circuits that are one generation or less behind current state of the art.
. Although China is now capable of producing close to state-of-the-art technology.13 micron. United States--1. and the International Technology Roadmap for Semiconductors. 3.
Figure 1: Semiconductor Manufacturing Technology Gap Between China and the United States (feature size measured in microns)
Note: Complete data for the period between 1986 and 2002 were not available.19 Figure 1 shows how the technology gap between the United States and China has narrowed since 1986.13 micron state of the art in 2001.25. 0.35. the director of the Computer Aided Life Cycle Engineering Electronics Products and Systems Center. Data points for the years listed are as follows: China--5.35. Data for 2002 based on estimates.
A microelectronics expert at the Naval Research Laboratory stated that worldwide stateof-the-art commercial production was 0. while 87 percent is for older technology between 0.5 microns. 0. The time scale was altered to show the years where data were available. its current domestic demand for these integrated circuits is low (about 13 percent of China’s demand is for semiconductors with feature sizes between 0.18 micron.18 micron in 2001.18. 0. and 0.00.80. Industry considered 0.18 and 0. Source: GAO analysis of data provided by semiconductor manufacturing facilities in China. and 0. 0. 0.00.00.6 and 6 microns).
and projects focused on high-technology industries. in part from students returning to China after earning degrees at U. China has substantially increased its semiconductor manufacturing capabilities through joint ventures and foreign direct investment. including procuring semiconductors on the open market for both commercial and military uses and developing a domestic manufacturing capability. This goal is being pursued for economic and national security reasons and is directed by a series of 5-year economic plans. the other three are wholly-owned entities funded with foreign capital. high-technology development zones. It also is acquiring expertise from foreign semiconductor manufacturers who provide their Chinese employees with advanced training and establish research and development facilities in China. universities in semiconductor-related subjects. (See table 1 for details on the level of technology incorporated at each facility and the level of Chinese ownership. China is cultivating the human capital to operate and manage semiconductor design and manufacturing facilities.)
. to attract some of the world’s leading semiconductor manufacturers and equipment suppliers. and Chinese technology stems from both the Chinese government’s concentrated effort to develop its semiconductor manufacturing capabilities and the direct involvement of foreign integrated circuit manufacturers. China has constructed 53 “Silicon Valley”-style. In addition.
Foreign Partners Improve China’s Integrated Circuit Manufacturing Capability
The narrowing gap between U. China has pursued a number of strategies to acquire the technology to meet its current and future semiconductor needs.Acquiring Semiconductor Technology and Related Know-How Is a Priority of the Chinese Government
China’s stated goal is to become self-sufficient in the production of semiconductors for its domestic market and to develop technology that is competitive on the world market. Five out of China’s eight newest major integrated circuit manufacturing facilities were established as joint ventures. China also recognizes the importance of foreign investment and has instituted numerous incentive programs. Since 1995. To encourage domestic innovation.S. which include free use of land and low taxes.S.
45.000b
International/none
Both Grace and Semiconductor Manufacturing International are managed by Taiwanese nationals.6
Facility Advanced Semiconductor Manufacturing Corporation Shanghai Belling
Wafer size Approximate (diameter) wafers/month 5” & 6” 40.3
51 0 71
Central Semiconductor Manufacturing Corporation Grace Semiconductor Manufacturing Corporationa Semiconductor Manufacturing International Corporationa
0.Table 1: Newest Semiconductor Manufacturing Facilities in China (as of February 2002) Minimum feature size in micron 0.25
25.S.000
0.000 24. These are planned production levels.000
Foreign/ Chinese partner Philips (Netherlands)/Chinese government Alcatel (Belgium)/Shanghai Bell & Shanghai municipal government NEC (Japan)/Chinese government Motorola (U.35
6” 8” 8”
Source: Semiconductor manufacturing firms listed in the table.35 0.8
4” & 5”
13. Funding for these companies comes from multiple international sources.
Shougang NEC Motorola Corporation Shanghai Hua Hong NEC
0. none of the companies are currently producing at full capacity.25 0.000b 20.)/none NEC (Japan)/Shanghai and Chinese government CSMC(Hong Kong)/Chinese government International/none
Percent Chinese ownership 62
20 Moreover. which is based in Santa Clara.
. estimates that 20 percent of its revenue in the next decade will be derived from sales to China.34 billion. Figure 2 shows one of China’s newest semiconductor manufacturing facilities. U. Chinese companies have established joint ventures with foreign semiconductor equipment manufacturing companies in an effort to improve the semiconductor manufacturing equipment constructed in China. This trend in joint ventures and foreign direct investment is likely to continue since there are plans to construct an additional 10 to 20 advanced semiconductor manufacturing facilities in China by 2005 at an estimated cost of over $1 billion per facility. and is the world’s largest manufacturer of semiconductor equipment.S.These joint ventures and wholly foreign owned semiconductor manufacturing facilities provide China with access to more advanced technology than it previously had or could produce on its own.
Applied Materials’ total revenue in 2001 was $7. and that the market for semiconductor manufacturing equipment in China will grow to $7 billion by 2003. Approximately $147 million or 2 percent of this revenue was generated by sales to manufacturing facilities in China. Hua Hong NEC in Shanghai. California. since the quality of semiconductor manufacturing equipment produced in China is not high enough to use in modern facilities. The Semiconductor Industry Association estimates that China will become the world’s second largest market for integrated circuits by 2010. companies have participated in these joint ventures. Applied Materials.
Figure 2: Shanghai Hua Hong NEC Semiconductor Manufacturing Facility (Completed in 2001)
Source: Shanghai Hua Hong NEC.
Semiconductor Manufacturing International. putting [it] on the map both technologically and in terms of capacity in the global market.23
Improvements in Semiconductor Manufacturing Industry Assist China’s Military Modernization
According to a senior Defense Department official. This official added that China’s increasing emphasis on the
21 Approximately twice as many integrated circuits can be produced on a silicon wafer with an 8-inch diameter compared to a 6-inch wafer. and Motorola will add an additional 94. 2.’ where advances in select technologies can be leveraged for disproportionate benefit in a potential conflict.In addition to improving China’s semiconductor manufacturing technology. According to the State Department.000 8-inch wafers per month to China’s overall production capacity once their facilities are fully operational in early 2002. a cutting-edge domestic semiconductor industry supports military modernization in China. the joint ventures and wholly foreign owned facilities have increased the overall volume of integrated circuits produced in China by supporting the country’s migration to larger silicon wafers.-China Commission. statement of the deputy under secretary of defense for technology security and counterproliferation before the U. In contrast. 5-inch. information dominance.
. 2002.S.24 According to this official. Beijing has identified the development of an indigenous semiconductor industry as one of its highest priorities. the majority of China’s older manufacturing facilities use 4-inch. command and control. and integrated air defense. China’s military modernization program appears to be focusing on ‘pockets of excellence.”22 Further. Consequently. 22
The new fabrication facilities primarily use 8-inch wafers. and 6-inch wafers. Grace.5 times the number of integrated circuits can be produced on 12-inch wafer compared to an 8-inch wafer. In support of these efforts.
Manufacturers we spoke to in Taiwan and China stated that they would manufacture small numbers of wafers (3-25) for a single customer. several of these modern manufacturing facilities are designed to produce custom-made semiconductors for any customer.21 This shift allows China to produce greater numbers of integrated circuits and thus reduce their cost per unit. they will “multiply by several times China’s current production capacity. Several such ‘pockets’ include: preemptive long-range precision strike capabilities. when these new fabrication facilities are operational.
January 17. they provide China’s industry and military with a new source of custom-made integrated circuits that are not subject to foreign export controls.
advanced semiconductor production facilities improve China’s military industrial base by providing a conduit for technology transfer. The most sophisticated facilities in China are capable of producing semiconductors with feature sizes that are more advanced than those used in some of the United States’ most advanced weapons. and management and marketing skills that can aid indirectly in military production. surveillance. It has a rating of 5 to 10 million theoretical operations per second and runs at a speed of 20 megahertz. The integrated avionics system is a major feature of the F-22. However. According to the Defense Department experts we consulted. navigation. and interrogation. advanced phased-array radar. and missile guidance equipment that is less vulnerable to foreign disruption during a protracted conflict. communications.development of integrated circuits “will have direct application in future military systems.26 For example.7 micron to be military critical.
. the semiconductor manufacturing technology China has acquired will enable it to produce components to enhance current and future weapon systems. Air Force’s new F-22 advanced tactical fighter is now undergoing preproduction testing after a decade of development.28 According to defense experts. these facilities provide China with a domestic supply of integrated circuits that are useful in a broad range of applications including command. In terms of feature size.
The i960MX processor went out of commercial production in 1999.S.
Avionics refers to three major classes of airborne equipment—communications. including transfer of technical specifications. the i960MX processor is at least four technology generations behind the integrated circuits that China is capable of producing today.”25 Moreover. the U. control. The experts note that China has experienced
Phased-array radar uses a set of many small stationary radar antennas configured to create a narrow radar beam that can be electronically steered in any direction in a fraction of a second to track missiles. The aircraft’s avionics27 rely on an Intel i960MX microprocessor that has a feature size of 0.
The Department of Defense considers semiconductor manufacturing capability more advanced than 0.8 micron. having the components does not guarantee that China will be able to produce complete weapons systems. for example. production and process technology. permitting the pilot to have substantially better control of the information regarding the surrounding environment.
United States Is the Only Member Concerned About China
There is a broad consensus among Wassenaar members that the export of an item covered by the arrangement should be denied only if it is critical for military purposes and destined for a state whose actions may undermine regional or international security and stability.
Wassenaar Arrangement Has Not Affected China’s Ability to Acquire Advanced Semiconductor Manufacturing Equipment
The Wassenaar Arrangement on Export Controls for Conventional Arms and Dual-Use Goods and Technologies has not affected China’s ability to obtain semiconductor manufacturing equipment primarily because the United States is the only member of the Wassenaar Arrangement that considers China’s acquisition of semiconductor manufacturing equipment a cause for concern. Transparency. structural. such as making complex systems work together. a large-scale decontrol of these items has occurred since the end of the cold war. Yet. including semiconductor manufacturing equipment. necessary to fully utilize acquired technologies. and U.problems translating theory and design into reliable weapons systems. Japanese. The United States is the only member that considers the relationship between semiconductor manufacturing equipment and military end uses sufficiently critical and considers China’s acquisition of this technology a potential threat to regional or international stability. They also note that China’s defense industry faces technical. through exchanging information and sharing views. In addition. covered by the arrangement. We found that European. there are no commitments to provide information on exports for 97 percent of all electronics-related items. is the sole means by which the arrangement tries to achieve its goals. export control authorities license sales of semiconductor manufacturing equipment to China that is at least two generations more advanced than the threshold stipulated in the Wassenaar and Commerce
. and other barriers that impede its ability to absorb and utilize advanced technologies for weapons production. under existing Wassenaar agreements. For example. One of the principal goals of the arrangement is to prevent “destabilizing accumulations” of advanced dual-use goods and technologies through the reporting of export information by its members. China’s defense industry lacks many of the basic skills. These experts also note that the highly compartmentalized and risk-adverse hierarchical structure of China’s defense industry make it difficult for various branches of the industry to collaborate on weapons design or extract greater benefits from technology.
no export information is shared for 76 percent of all listed items. 30 (See app.1 percent) in Category 3 (electronics). U.lists (0.
Wassenaar Reporting Does Not Provide Enough Information to Assess Accumulations
Member states have agreed to exchange only limited information on items covered by the Wassenaar Arrangement. also concluded that export control reporting systems are an ineffective mechanism for tracking accumulations of technology and capabilities. A Department of Commerce study. sensitive.8 percent in Category 3B (equipment) and no arrangements to report information on any Category 3C (materials) items.70 micron).) Metal organic chemical vapor deposition equipment is the only type of semiconductor manufacturing equipment that is defined as sensitive and thus subject to arrangement reporting commitments for approved exports.50 micron) and three generations more advanced than what the Defense Department considers military critical (0. came to a similar conclusion. In general. 29 The Wassenaar Arrangement’s activities focus on the regular review and updating of technical parameters for three lists of dualuse items—basic. January 1999. arrangement reporting data do not provide sufficient information to determine whether countries are accumulating advanced dual-use semiconductor manufacturing goods and technologies. No export information is shared among members for 97 percent of the electronics-related items covered by the arrangement. a joint project of the Henry L.S. some of which are applicable to military uses. Commercial Technology Transfers to the People’s Republic of China. This equipment has a wide range of capabilities. there are nonbinding arrangements to report export information for just 1 out of 26 items or 3. Thus.
There are nonbinding arrangements to report export information for just 4 out of the 127 items (3.
. Stimson Center and the Center for Strategic and International Studies. we found that the reporting information on approvals for such equipment lacks enough detail to shed much light on its capabilities or intended end use and is of little practical use for determining the semiconductor manufacturing capability of the country to which the equipment is exported. II for information on Wassenaar reporting commitments. National Security.S. More specifically. However.
The Final Report issued in April 2001 by the Study Group on Enhancing Multilateral Export Controls for U. and very sensitive—for which there are varying reporting commitments.
In addition. under which a Wassenaar member would agree not to permit the export of any listed item(s) that had been. officially denied an export license by another member.
Information obtained from the institute in Beijing and the suppliers of the equipment. the United States denied the sale of an advanced metal organic chemical vapor deposition machine—which can be used to manufacture compound semiconductors for advanced military systems such as missiles and satellites—to the Hebei Semiconductor Research Institute in China in May 1998 because of concerns about its possible diversion for military uses.S. implementing a no undercut rule would be the only realistic way to relieve competitive pressures to approve certain exports. 3) and the Nanjing Electronic Device Institute both have German-made metal organic chemical vapor deposition equipment. the Institute for Semiconductors in Beijing (see fig. The United States has démarched the Germans several times on this issue.31 A German company sold equivalent equipment to the same end user. the time lapse between exports of items and the reporting of these transfers further reduces the value of the minimal reporting information.32 In response to this situation.34 The U.
. For example. According to a senior Wassenaar Arrangement official. The United States has also licensed the sale of equipment with similar operating parameters to other Chinese entities. government
Information provided by Somerset. For example. 33
A démarche is a diplomatic protest or representation. Aggregate sensitive and very sensitive item approval information is reported twice a year. the United States formally registered its displeasure with the German government through a diplomatic démarche.S.
32 Emcore Corporation’s application to sell metal organic chemical vapor deposition equipment to China was denied by the U.S. The operating parameters of the German-made equipment at these facilities exceed the parameters deemed military critical on the Department of Defense Military Critical Technologies List. New Jersey-based Emcore Corporation. 1998. denial was the loss of a multimillion-dollar sale by Emcore Corporation and the gain of a sale by Germany-based Aixtron GmbH.
The Arrangement Does Not Have a “No Undercut” Rule
The Wassenaar Arrangement lacks a “no undercut” rule. within a specified period.33 Our work identified other examples of equipment and materials being sold to end users to whom the United States had previously denied export licenses. The practical effect of the U. government on May 9.
has determined that exports of semiconductor manufacturing equipment and materials to these institutes are detrimental to U.S.
. national security interests.
.Figure 3: German Metal Organic Chemical Vapor Deposition Equipment at the Institute of Semiconductors. Beijing
1. as shown in figure 4. Note: Highlighted areas indicate gas mixtures (arsine on the left and phosphine on the right) currently being used in the production of semiconductors. Part 774. Supp. It should be noted that the Commerce Department has charged a company for illegally exporting chemicals to China. Information on the denial of the license was provided by the exporter of the gases.35 However. GAO did not independently verify this statement.
According to an institute official.The United States has also denied the sale of arsine and phosphine gases to the Institute of Semiconductors in Beijing for national security reasons. due to U. including the chemicals in question. during our visit to the institute we found that the institute was using these same gases in its manufacturing process.S.
These gases are controlled by 15 C. Category 3C of the Commerce Control List.
Figure 4: Controlled Arsine and Phosphine Gases in Use at the Institute of Semiconductors.R. export controls. the gases the institute uses are purchased from European and Japanese companies.. Beijing
Source: GAO.F.
we found that the Commerce Department has not conducted any “end-use” checks on the U. Although these licenses contain a number of conditions stipulating how such equipment can be used.S. Only 33 percent of the proposals added new controls. there has been a trend toward the large-scale decontrol of dual-use goods and technologies. However. The remaining proposals clarified the text of the lists of controlled items. The regulations also state that each license application is to be considered individually. practice has been aimed at keeping China at least two generations (about 3 to 4 years) behind global state-of-the-art semiconductor manufacturing production capabilities. which has raised questions within government and industry about the Wassenaar Arrangement’s relevance as an export control mechanism. we found that the United States approves most licenses for exports of semiconductor manufacturing equipment and materials to China.S. gallium arsenide-based integrated circuits used in devices with high frequency and power requirements had only aerospace and military applications in the past. U. More and more advanced goods and technologies are considered dual-use. the general licensing policy is to approve applications. agencies have not used the available analytic tools to serve as a basis for this practice or to make decisions on export licenses. For example. according to policy officials.Large-Scale Decontrol Raises Questions About Relevancy
Since the end of the cold war. U. They are now used widely in common consumer devices such as mobile phones. For example. according to officials we interviewed. including semiconductor manufacturing equipment and materials. The increasingly blurred lines between civilian and military technology are an important factor leading to more decontrol. Despite the twogenerations-behind objective.
Export Controls on Advanced Semiconductor Manufacturing Technology to China Lack Analytical Basis
Under the Export Administration Regulations pertaining to China. 50 percent of the adopted proposals from 1997 through 2000 for Categories 3B and 3C liberalized controls on items or decontrolled items. semiconductor equipment exported to China to determine whether licensing conditions are being met.
. Although the regulations make no reference to the level of technology that can be exported to China relative to the current commercial state of the art. which allows for some assessment of the semiconductor equipment being exported and of end users and end uses. with some exceptions.S.
has been to use export controls on semiconductor manufacturing technology to keep China’s semiconductor manufacturing industry at least two generations behind commercial state-of-the-art production capabilities. In commenting on a draft of this report.S. government licensing decisions.Industry Notes Lack of Clarity in Current Export Regulations
U. Industry officials we interviewed confirmed that this practice exists.S. except that those items that would make a direct and significant contribution to electronic and antisubmarine warfare. export licensing control policy toward China is broadly described in title 15.4(a)) • For the People’s Republic of China. export policy to China. and U. and State said this is not U. and air superiority receive extended review or denial. government’s practice. (742. power projection. However. Each application will be considered individually. (742.S.4(b)(7) of the Export Administration Regulations. in its detailed comments. Defense. the Commerce Department’s undersecretary for export administration and the director of the Technology and Security Directorate of the Defense Threat Reduction Agency told us that the U.4(a) and 742. sections 742. the Commerce Department contradicted this assertion and stated that certain exports to China are limited to two generations behind state-of-the-art levels to address national security or other concerns related to a particular transaction. In March 2001. companies have all exported advanced semiconductor manufacturing equipment to China that allows manufacturing facilities to produce semiconductors that are less than two generations behind commercial state-of-the-art technology.S.S. policy. they do not describe the level of technology that can be exported to China relative to the current commercial state of the art.
. They stated that the lack of clear criteria has created a great deal of uncertainty about the export licensing process and raises questions about the rationale for some U. Items may be approved even though they may contribute to Chinese military development or the end user or end use is military.4(b)(7)) Although the regulations broadly describe U.S. which state: • It is the policy of the United States to restrict the export and reexport of items that would make a significant contribution to the military potential of any other country or combination of countries that would prove detrimental to the national security of the United States. intelligence gathering. the general licensing policy is to approve [license] applications. while undocumented. officials from the Departments of Commerce. We found that European. Japanese.
national security export controls. sources. Industry officials told us that if new studies were conducted and completed in a timely manner.S. or U. export controls and sanctions on particular industries and overall U.S.
. semiconductor manufacturing equipment and materials industries.S.”36 We found that neither the Departments of
Department of Defense Directive Number 2040. as allowed by the regulations.S. Industry officials told us that they had not requested these studies. related export licensing decisions. • The Commerce Department conducts studies of the impact of U.S. export controls on the items studied have been ineffective since all the equipment necessary to manufacture semiconductors can be purchased from non-U. Department of Defense Directive 2040. January 17.S.S.1.7 and 7. we found that the Commerce Department has not studied the impact of export controls on the U. goods. • The Commerce Department has the authority to initiate “foreign availability” assessments that identify foreign sources of items subject to U. These assessments determine if items of comparable quality are available in quantities that would render U. July 5.S.Analysis on Which to Base Policy Objective Is Lacking
We also found that neither the Department of Commerce nor Defense had conducted the analyses that could serve as the basis for an export control policy objective. • The Commerce Department researches technology transfer issues in order to enhance long-term U. and munitions on U. However.2 states that the department shall “assess annually the total effect of transfers of technology. sections 5. proposals to the Wassenaar Arrangement. economic security.1. regardless of the transfer mechanisms involved.S.2. It conducts these studies because U. the results would indicate that U.15. services.S. global trade. along with national security and foreign policy concerns. such as semiconductor manufacturing equipment. economic interests are major factors in export control decisions. reissued incorporating Change 1. 1985. export controls on the items ineffective. security. because the government’s prior effort to complete a study took several years and was outdated at issuance. In addition. Commerce Department officials and Semiconductor Equipment and Materials International representatives stated that a foreign availability study has not been conducted since 1987.S. 1984.
Further.S.S.39 Despite major advances in semiconductor-related technology in the United States and in foreign countries. • The Export Administration Act of 1979 calls for the Defense Department to compile a list of military critical technologies. the predecessor to the Wassenaar Arrangement.
.S.37 The Military Critical Technologies List describes the performance parameters of critical technologies that the United States needs to ensure superiority of U.
The technology assessments are foreign capability assessments and do not constitute findings of foreign availability covered by Commerce Department foreign availability assessments.Commerce nor Defense has conducted assessments of the cumulative effect of semiconductor-related technology transfers to China. Without these analyses and assessments. App. negotiators in the Wassenaar Arrangement. proposals to Wassenaar without complete and up-to-date information.2 has not been updated since July 5. and information exchanges among Wassenaar Arrangement members. the export licensing community is kept informed by frequent industry briefings. Although the information obtained through these methods is useful. under which semiconductors and semiconductor manufacturing equipment and materials fall. Department of Defense Directive 2040. and State are making licensing decisions and U. 1985. military systems. among other purposes. the Departments of Commerce. Defense. Defense. it is not an adequate substitute for formal agency analysis. section 2404(d)(2). as the technical foundation for U. and many of its provisions are centered on the Coordinating Committee for Multilateral Export Controls. and as a technical reference guide for the Departments of Commerce. defense and intelligence analysts also make related foreign technology assessments that describe foreign countries’ capabilities to produce each of the listed technologies.C. and Treasury licensing and export control staff. In developing the list.38 The list is intended to serve.S. intergovernmental contacts. Energy. the Defense Department has not substantively updated the Military Critical Technologies List pertaining to semiconductor equipment and materials since 1996.
50 U. According to the Departments of Defense and State.
The technology list covers 18 categories including electronics. State. the international press.
Licenses can also be returned to applicants without action.S. 0.Most Export Licenses for Semiconductor Manufacturing Equipment and Materials Are Approved
We found the majority of export license applications for semiconductor manufacturing equipment and materials for China are approved. The conditions are designed to deter the end user from using the equipment inappropriately. During the fiscal year 1997 through fiscal year 2000 period. As measured by dollar value. we found that the U. government reviewed nearly $1. 2002. Without periodic monitoring.S. respectively. An export license application is returned without action if the applicant does not respond to Department of Commerce requests for additional information within 20 days.S. the types of integrated circuits that equipment should not be used to produce. End-use checks in China are conducted based on an end-use visit arrangement negotiated between the U. China Commission on January 17. were denied as measured by dollar value.6 percent of export licenses for semiconductor manufacturing equipment (Category 3B) were approved.5 percent of equipment and materials licenses. the Commerce Department’s assistant secretary of export enforcement stated that the schedule for conducting end-use checks is dictated by the Chinese government. Other data indicate that export license denials have not had a major economic impact on the industry. 26.8 percent of Category 3C license applications were returned without action. officials in China tasked with this job have not conducted any of these checks on semiconductor manufacturing equipment in the last 5 years.1 percent of Category 3B and 13 percent of Category 3C license applications were returned without action.
. only 0. and 78. government personnel.4 percent and 0.S. the inability to quickly and predictably obtain license approvals could have a significant negative impact on the industry.8 percent of Category 3B and 27. Although monitoring is supposed to be accomplished through end-use checks conducted by U.40 The U. 64. In testimony before the U.6 billion worth of semiconductor manufacturing equipment and materials licenses for export to China from fiscal year 1997 through fiscal year 2000. among other things. there is no way to verify compliance.42 This situation has
Semiconductor Equipment and Materials International maintains that as license applications for China increase. and the customers who can or cannot purchase the integrated circuits produced with the licensed equipment.3 percent of export licenses for semiconductor manufacturing materials (Category 3C) were approved. From fiscal year 1997 through fiscal year 2000.S. and Chinese governments in 1998.41 The approved licenses typically contain a number of conditions that stipulate the characteristics (such as feature size) of the integrated circuits that can be produced.
Despite the overall high approval rates for electronics goods and technologies. companies sales worth several million of dollars. due to delays caused by the Chinese government’s scheduling.S. Sweden. the Commerce Department denied an export license to Emcore Corporation of Somerset.44
The current export control system has not effectively slowed China’s ability to obtain billions of dollars worth of advanced semiconductor equipment as part of its national strategy to modernize its semiconductor industry and thus needs to be reexamined. Of the six cases they identified. checks on items other than high-performance computers continue to “languish. We asked companies that are members of the semiconductor equipment and materials trade association to provide examples of cases where export license denials resulted in sales lost to foreign competitors.
. The success of export controls is predicated on a nation’s ability to control a particular form of technology or to
Information on the denial of this license was provided by Emcore. the firm canceled its ETEC order and purchased a machine from Micronic of Taby. was provided by ETEC and Semiconductor Manufacturing International Corporation. most of the end-use checks that the United States has been allowed to conduct have been on highperformance computers that are no longer controlled due to the liberalization of export controls. Semiconductor Manufacturing International Corporation. there are a few cases where licensing denials did cost some U. we were able to verify two. In May 1998. and Micronic. The Commerce Department later approved the sale of a more advanced machine (ALTA 3500) to Semiconductor Manufacturing International Corporation. New Jersey.” and the Commerce Department is unable to focus its efforts on the checks it considers the most strategic. All information concerning ETEC. while the ALTA 3500 manufactures products with a feature size of 0. Hayward. California-based ETEC lost the sale of a mask pattern generating machine (ALTA 3000) to Shanghai-based Semiconductor Manufacturing International Corporation. Specifically. Due to delays in the license approval process.35 micron. The institute later purchased a similar machine from Aixtron GmbH of Aachen. including dispositions of licenses. Germany.25 micron.43 In 2001. 700 outstanding checks remain to be completed. to sell a metal organic chemical vapor deposition machine to the Hebei Institute of Semiconductors.
The ALTA 3000 is used to manufacture products with a feature size of 0. In addition.caused a number of problems.
This has led industry to perceive that semiconductor manufacturing equipment sales to China are subject to an ad hoc system of controls. U. and 3) clear justification for why the current control parameters are maintained or how they contribute to slowing the transfer of this equipment to China. While U. policymakers may find it increasingly difficult to justify licensing decisions and to strike the appropriate balance between national security risks and the economic interest in promoting sales of high-technology goods to China. the technical parameters necessary to ensure critical U. clarify.S.S. and the overall national and economic security implications of China’s ability to import. national security.2. and updating related regulations and policy documents including the Military Critical Technologies List and Department of Defense Directive 2040. 2) the cumulative effect of the transfer of this technology on U. conducting assessments of foreign availability. the impact of export controls on U. they lack criteria describing the level of semiconductor manufacturing technology that can be exported to China relative to the current state of the art. and document export policy on semiconductor manufacturing equipment and materials.S. However. 2. Wassenaar Arrangement reporting does not provide enough information to allow member countries to assess whether destabilizing accumulations of these and related dual-use goods and technologies are occurring.S. agency efforts to control this technology have been complicated by the globalization of the industry and foreign competitors’ views that transfers of this technology to China are not a matter for concern. military capabilities.S. produce. U. we recommend that the secretary of commerce work with the secretary of defense and the secretary of state to reevaluate. the U. government continues to require licenses for semiconductor manufacturing equipment without 1) adequate consideration of the impact of the global market forces that are undermining its ability to control this technology. These actions should include: 1.S. If the technology cannot be controlled using
. export regulations broadly describe export licensing policy to China. and develop advanced semiconductor-related technology.
To improve the effectiveness of the U.multilateralize binding controls. developing new export controls if the technology needs to and can be controlled. export control system. industry. Under the current approach.S. Without an updated assessment.S. In addition.
and State disagreed with our analysis and conclusions and said our report is based on a flawed premise that U. security to the U.S.S.S. national security. Defense. government’s export control policy toward China is found in the Export Administration Regulations. 2001. Defense.export controls.
We received written comments on a draft of this report from the Departments of Commerce. and 3.S. The State Department asserted that these efforts are sufficient to meet the intent of the draft report’s recommendations concerning establishing a sound. policy for why and how these items should be controlled can be found in the Export Administration Regulations and that this policy specifies a case-by-case review. export licensing process does consider the nature and extent of foreign availability of semiconductor manufacturing equipment and the cumulative effect of those exports to China. and V. We agree with the Departments of Commerce. the current U. and State that a description of the U.S. The Commerce Department also noted that no semiconductor equipment producer or industry association has requested a foreign availability assessment. the under
. contrary to our report findings. IV. These agencies said that U. security interests.S. The State Department also asserted that.S. On March 1.S. The Departments of Commerce. We added some additional information to the report to better describe this policy and to make a clearer distinction between policy and practice as the current regulations make no reference to the level of semiconductor manufacturing technology that can be exported to China relative to the current commercial state of the art. controls on semiconductor manufacturing-related items exported to China stem from a policy of trying to keep Chinese industry at least two generations behind state-of-the-art semiconductor manufacturing facilities. We found that the executive branch practice was aimed at keeping China two generations behind the U. as well as the potential risks to U. and State that are reprinted in appendixes III. semiconductor manufacturing industry. develop alternative means for protecting U. Congress and industry. The Commerce Department said that no policy-level official at the Commerce Department informed GAO of the two-generations-behind policy. communicating the results of the assessments and the options for controlling the technology and protecting U.S. analytical basis for current policy. Defense.
” In a January 17. national security. the U. Moreover. and States’ comments that the current export licensing process is based on a sound.” U. however. We are not suggesting that the “two-generations-behind” objective is the appropriate criterion.S. government foreign availability analysis of semiconductor manufacturing equipment has not been completed since 1987. The Department of Defense also questioned whether China’s semiconductor industry has advanced as far as our analysis suggests. On a number of occasions. government has not conducted studies of the cumulative effect of the export of advanced semiconductor manufacturing equipment and materials to China on U.S.S.S. industry officials complain that the lack of clearly articulated criteria creates uncertainty about the export licensing process and raises question about U.S.S.S. companies located in China have been approved. analytical framework. SEM suppliers and their ability to remain global leaders.S. the department disputed our analysis indicating that China is one generation of technology behind the United States.secretary for export administration (a policy-level official) described this practice and reconfirmed it in a follow-up January 2002 meeting with GAO after he left office. in commenting on our draft report. the Commerce Department described this practice. or other concerns related to a particular transaction. Further. we are recommending that the executive branch devise appropriate criteria once the supporting analysis has been completed and documented. the U. noting that “certain exports of semiconductor manufacturing equipment to China are limited to two generations behind state-of-the-art levels to address national security.S. The Defense Department cited a November 2001 press release issued by the Semiconductor Manufacturing International Corporation (SMIC) to support its conclusion. We met with the senior management team of this
. hampering U. the president of the Semiconductor Industry Association also discussed this practice. yet the controls remain. That is why we are recommending that this issue be reevaluated. policy objective of using export controls to keep China’s indigenous semiconductor production two generations behind the state of the art is not being met. rather. and documented.-China Commission. hearing before the U. clarified. 2002. He testified that “As a result of the ready availability of SEM [semiconductor production equipment and materials] globally. In particular. export policy toward China. Defense. Regarding the Departments of Commerce. we found that a U. exports of more sophisticated equipment to wholly-owned subsidiaries of U.
-China Commission.” Additional information was added to the report to clarify specific points. hearing before the U.g. This official noted that “China’s modernization program appears to be focusing on pockets of excellence. in a January 17. Defense. for example. However. China’s increasing emphasis on the development of very large-scale integrated circuits will have a direct application in future military systems. section 12(c) of the Export Administration Act of 1979. and State also commented that the report presented no evidence that the semiconductor manufacturing facilities constructed in China provided any benefit to China’s military. advanced phased-array radars.S. Beijing has identified the development of an indigenous microelectronics industry as one of its highest priorities. command and control. public disclosure of information regarding individual license applications is not authorized. The Department of Defense also cited a 2001 RAND Corporation study that discusses developments in China’s microelectronics industry to support its assessment of China’s current semiconductor manufacturing capabilities. where advances in select technologies can be leveraged for disproportionate benefit in a potential conflict. The Departments of Commerce. the deputy undersecretary of defense for technology security and counterproliferation affirmed our observation. In support of these efforts. due to confidentiality provisions of current law (e.
. as amended). the comments provided by the Departments of Commerce. We discussed these issues with agency officials and assured them that all companyspecific examples we used in our report were obtained from public sources or the companies and organizations mentioned in the report. Several such pockets include: preemptive long-range precision strike capabilities. 2002. The Departments of Commerce and Defense also said that. and integrated air defense. Defense. conclusions. However. The study was based on secondary sources utilizing 1997 industry data. A cutting-edge domestic microelectronics sector will support both military and commercial modernization in China. or recommendations contained in the report. Our analysis was based on 2001 primary data collected directly from semiconductor manufacturing industry officials in China.corporation during our visit to China in June 2001 and verified the information we presented in our report in follow-up discussions with company officials. and State provide no basis for altering the findings. information dominance..
we met with officials from Advanced Semiconductor Manufacturing Corporation. D. Defense. In addition. and State and an export control expert from the Center for International Trade and Security in Washington. Motorola Tianjin. Semiconductor Manufacturing International Corporation. China. Virginia. California. D. Virginia. and export approval and denial reports. respectively.. to further understand semiconductor research and development and associated manufacturing processes and applications. Finally. the Naval Research Laboratory in Washington. China. Shougang Electronics NEC. we met with officials from the Ministry of Foreign Trade and Economic Cooperation in Beijing and the Trade and Industry Department of the government of Hong Kong. Texas. and State in Washington. the intelligence community. and Livermore. In China. We analyzed information provided by the Wassenaar Arrangement’s Secretariat.C. Russian. California. we met with officials and toured the facilities of the Chinese Academy of Sciences’ Institute of Semiconductors in Beijing. and Japanese Missions to the Wassenaar Arrangement and staff members of the Wassenaar Arrangement Secretariat in Vienna. including the Wassenaar Arrangement’s Initial Elements.. D. we visited Semiconductor Materials Technology International in Austin. we met with representatives of the Departments of Commerce. Finally. Central Semiconductor Manufacturing Cooperation. and DuPont Photo Masks Incorporated in China. China. we analyzed trend data describing the disposition of proposals from the United States and
. China. Hua Hong NEC.C.C.S. In addition.. industry. and the Sandia and Lawrence Livermore National Laboratories in Albuquerque. and BAE Systems in Manassas. we met with and reviewed studies and analyses prepared by experts from academia. and the Departments of Commerce. and Beijing. To analyze how the Wassenaar Arrangement has affected the transfer of semiconductor manufacturing equipment and materials to China. the Defense Microelectronics Activity in McClellan. we toured the manufacturing facilities of Advanced Semiconductor in Shanghai. Defense.Scope and Methodology
To describe China’s present semiconductor manufacturing capability. the Defense Advanced Research Projects Agency in Arlington. controlled items lists. D. Grace Semiconductor Manufacturing Corporation. We also met with officials from the U. to determine whether the arrangement’s reporting mechanisms could be used to identify trends in the export of semiconductor equipment and materials and other dual-use technology from 1996 through 2000. and Motorola in Tianjin. As part of this work. we spoke to the director of the New York office of the Japan External Trade Organization in Washington. Further.C. New Mexico. Austria.
In addition. California. Hsinchu. ETEC. we analyzed license processing and approval information from the Commerce Department’s Export Control Administrative Support System. United Epitaxy Company. D. United Microelectronics Corporation.S.S. California. the Taiwanese Semiconductor Industry Association in Hsinchu. we met directly with major U. San Jose. China. Motorola. Emcore. and Washington. Taiwan..S.C. Finally. Texas Instruments. Semiconductor Equipment and Materials International in Washington. National Semiconductor.C. These panels included representatives from Advantest. and the United States Information Technology Office in Beijing. and Hsinchu. D. Statements in the report about foreign laws and regulations were derived from secondary sources. KLA-Tencor. China. California. International Business Machines. Applied Materials. we met with officials from the Departments of Commerce and State in Washington. and VIA Technologies Incorporated. and the Defense Department in Washington. Taiwan. we convened panels of representatives from the semiconductor and semiconductor equipment and materials industries in San Jose. We also met with representatives of the Semiconductor Industry Association in San Jose. to obtain their views on U. We did not verify the data obtained from the Wassenaar Arrangement’s Secretariat. NEC. Taiwan Semiconductor Manufacturing Company. Applied Materials. In addition. Silicon Laboratories. China. export control policy pertaining to the export of semiconductor equipment and materials to China. Ultratech Stepper. Taiwan.C. To assess the analytical basis for U. and the attorneys for the industry associations—Dewey Ballantine in Washington. and Beijing. D. We performed our work from February 2001 through January 2002 in accordance with generally accepted government auditing standards. Silicon Valley Group. and Beijing. we attended Commerce Department Information System Technology Advisory Committee meetings in San Diego. and Varian Semiconductor Equipment.
. Novellus.C.other members of the Wassenaar Arrangement for 1996 through 2000. and with officials at the American Institute in Taiwan in Taipei.. California. export controls on semiconductors and semiconductor manufacturing equipment and materials. Hewlett-Packard. Intel.. Hermes Systems.C. D. D. and Taiwanese firms including Advanced Micro Devices. Intel. In addition.
Please contact me at (202) 512-8979 if you or your staff have any questions concerning this report.
Joseph Christoff Director International Affairs and Trade
. Other GAO contacts and staff acknowledgments are listed in appendix VI. Sincerely yours.
15 C.2
The Export Administration Regulations establish the framework for regulating the exports of dual-use items by identifying the characteristics and capabilities of items that may require export licenses.2.)
Figure 5: Reasons for the Control of Dual-Use Goods and Technologies
Source: 15 CFR section 738.Appendix I
Reasons for Controlling Dual-Use Goods and Technologies
Export controls on dual-use items are maintained for national security and foreign policy reasons. Part 734. Scope of the Export Administration Regulations.
.F.45 Each export control regulation is governed by at least 1 of 13 specific concerns. (See figure 6 for a list of the 13 reasons for controlling dual-use goods.R.
Table 3: Commerce Control List Category Groups Commerce Control List subcategories A B C D E
Source: 15 C. and production equipment Materials Software Technology
Semiconductors and semiconductor manufacturing equipment and materials fall under Category 3 (electronics). section 738. facilities.F. inspection.2
Equipment.” and toxins Materials processing Electronics Computers Telecommunications and information security Lasers and sensors Navigation and avionics Marine Propulsion systems.F. space vehicles. section 738. which provides detailed specifications for about 2. with manufacturing
.Appendix I Reasons for Controlling Dual-Use Goods and Technologies
restricted by item. “microorganisms. These characteristics and capabilities are contained in the Commerce Control List.2
Nuclear materials. each category is subdivided into 5 groups designated by the letters A through E (see table 3 for a list of the 5 groups). country. and entity. assemblies.R. divided into 10 categories (see table 2 for a list of the 10 categories). and components Test.R.400 dual-use items.
Table 2: Commerce Control List Categories Commerce Control List categories 0 1 2 3 4 5 6 7 8 9
Source: 15 C. and miscellaneous Materials. chemicals. and equipment.
Table 5 describes the specific equipment and materials that require a license for export to China. Part 774. and production equipment) and materials placed in Category 3C (materials).
.. inspection. but also. 2001.F. 15 Part 774—The Commerce Control List.
Category 3B and 3C items are described in 15 C.R.
Table 4: Frequency of Reasons for Control of Category 3 (Electronics) Items National security 2 2 4 3 2 13 Missile technology Antiterrorism 2 0 0 2 3 7 17 4 5 7 8 41 Nuclear nonproliferation 11 0 0 0 3 14 Crime control 2 0 0 1 0 3
Subcategory A B C D E Total
Source: C. and address general national security concerns. control the spread of missile technology and crime. 15. as shown in table 4. antiterrorism policy. 1 of the Commerce Control List as test. Parts 300 to 799. Commerce and Foreign Trade.
See C.Appendix I Reasons for Controlling Dual-Use Goods and Technologies
equipment placed in Category 3B (test. Supp. to meet nuclear nonproliferation policy objectives.R. inspection. respectively.46 These goods and technologies are controlled most frequently as a tool of U.F.R.47 Exports of semiconductor manufacturing equipment and materials to China are controlled for national security reasons.F. and production equipment and materials.S.
S.f. Japan U.b 3B001. Commerce Control List. Sweden U. Germany U. Japan U...c 3C002 3C003 3C004
Epitaxial germanium wafers Epitaxial wafers of III/IV compounds Photo resists Purified metal organics Purified gases
Same as for 3B001. 3A001 and 3A101 or under the International Traffic in Arms Regulations Category XI. Japan.2 3B001.. Netherlands.. Japan. enable production of controlled analogto-digital converters..
These items are controlled under Export Administration Regulations.S..S. Taiwan
3B001.S. Germany U. Some items have been consolidated under one heading for clarity.a.S.e 3B001.
. Japan. and application specific integrated circuitsb U.a. Japan Needed for all state-of-the-art U. infrared focal plane arrays Primary supplier countries U. Japan U. Germany Potential starting material for devices outlined in metal oxide chemical vapor deposition and molecular beam epitaxy equipment U.S.g 3B001. Japan U. Japan U..3 3B001.S. Japan.Appendix I Reasons for Controlling Dual-Use Goods and Technologies
Table 5: Description of Semiconductor Manufacturing Equipment and Materials Requiring Export License to China List numbera 3B001.S.a
Plasma enhance chemical vapor deposition Cluster tools Lithography systems Mask lithography systems Masks Multilayer masks S-parameter testers Integrated circuit testers Microwave integrated circuit testers Epitaxial silicon wafers
3C001. Eurpoe
Category number in the Commerce Control List.a.. high power radiofrequency devices.. Japan electronics.S. Source: Department of Defense..1 Description Thin layer deposition equipment National security significance Radiation-hardened electronics..S.h 3B002. Japan.c 3C001.S.c
Metal organic chemical vapor deposition reactors Molecular beam epitaxy equipment Ion implantation equipment Plasma dry etching equipment Used for radiation hardened circuitry
U. field programmable logic devices..b 3B002.S.. Japan U.S. Japan.d 3B001. commercial or military. Part 774.b 3C001.c Gas sources for metal oxide chemical vapor deposition
U.f. Europe.S. Japan
3B001.1 3B001.a 3B002.S... Europe U. spacequalified solar cells.2 3B001. United Kingdom U.S.S.
4 percent Aggregate • • • • •
Exporting country Destination country Control List item number Brief description of the item Number of units
Individual • • • • • • • • • • Exporting country Destination country Control List item number Brief description of the item Number of units Intermediate consignee (name and address) Ultimate consignee (name and address) Stated end-use Reason for denial Other relevant information
Denials Biannually
Approvals Biannually Denials “Preferably” within 30 days but no later than within 60 days
Source: GAO analysis of Wassenaar Initial Elements and the December 1.3 percent None Sensitive / 19.3 percent Aggregate • • • • • Denial information Aggregate • • • • • • • Exporting country Destination country Control List item number Brief description of the item Number of licenses denied Number of units Reason for the denial (usually formulaic.
. 2000 list of Dual-Use Goods and Technologies.Appendix II
Wassenaar Reporting Commitments by List
Category / percentage of items within each category Type of information Approval information Basic / 76. not specific or detailed) Exporting country Destination country Control List item number Brief description of the item Number of units Very Sensitive / 4.
See comment 3.Appendix III Comments from the Department of Commerce
See comment 8. See comment 10.
See comment 7. 17. 6. See comment 11.
Now on p. Now on p. 17.
Now on p.
.Appendix III Comments from the Department of Commerce
See comment 6. 6. See comment 9.
Now on p. See comment 12. 19. 19.
Now on p. 22 See comment 12.
Now on p. 19. See comment 12. See comment 12. 22. See comment 12. 19. See comment 12. See comment 12.Appendix III Comments from the Department of Commerce
Now on p. See comment 12. 19.
Now on p. 24. 23. 23.
Now on pp. 24.Appendix III Comments from the Department of Commerce
Now on p. See comment 13. See comment 14. 25 and 26.
Now on p. See comment 12. See comment 14. 22.
Now on p. See comment 14.
Now on p. 28. See comment 15.
Now on p. 28.
. See comment 15.
Now on p.Appendix III Comments from the Department of Commerce
Now on p. 29 and 30. See comment 16. See comment 15. See comment 16. 28. 28. Now on pp. See comment 15.
we found a lack of understanding and information about the semiconductor manufacturing equipment and materials industry. This view was confirmed by the chairman of the Information Services Technical Advisory Committee—an industry advisory committee. 2. policy toward the export of goods and technology to China and do not include a discussion of the “two-generations-behind” objective. Foreign Commercial Service officials in Shanghai.
1.S. government officials. We agree that the regulations discuss U. We have modified the text of the report on page 25 to note that neither the semiconductor equipment producers nor industry associations have requested a foreign availability study. while undocumented.S. However.S. including the undersecretary of commerce for export administration and the director of the Technology and Security Directorate of the Defense Threat Reduction Agency. In discussions with U. policy.S. aims at keeping China's manufacturing capability two generations behind commercial state of the art. export controls on the items studied have been ineffective. Further. For example. 2002. government's practice. senior executive branch officials involved in making U. welcomed our visit as an opportunity to learn more about the industry and meet with industry representatives and said they had been unable to complete a study of China's semiconductor industry due to a lack of resources. stated that the U. since all the equipment necessary to manufacture semiconductors can be purchased from nonU. 3. sources. the Commerce Department said in its detailed written comments on this report that the “two-generationsbehind” practice has been used in making some export licensing decisions. we further note in the revised report that industry representatives had not requested a study because the government's prior efforts to conduct a study took several years to complete and were outdated at issuance. the center of China's semiconductor manufacturing industry. Industry officials told us that if new studies were conducted and completed in a timely manner the results would indicate that U.S. in March 2001.
.S. We have modified the text on pages 23 and 24 to better distinguish between the policy articulated in the Export Administration Regulations and agency practice.Appendix III Comments from the Department of Commerce
The following are GAO’s comments on the letter from the Department of Commerce dated January 16. However.
12. See comment 5.Appendix III Comments from the Department of Commerce
4. 10.” 9. The line cited is from the introductory paragraph. government's twogenerations-behind practice. Additional text added has been added on page 23 of the report.. The level of detail contained in the report is sufficient. government's practice. Additional more detailed information follows.F. 15.S.R. Page 24 now discuss the policy as set forth in 742. No change made. See comment 5. 8.S. No change made.4 and the U. 14. 7. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx 5. The objective of the Wassenaar Arrangement is fully described in the report. See also comment 1.S. Additional information has been added to page 24 of the report to reflect the stated U. government's two-generations-behind practice.S. government policy and the differences between the policy and the U. No change made. 13. “of 1979” has been inserted on page 6 after “Export Administration Act. Change made. We have revised the highlights page to include discussion of the policy as set forth in 15 C. and the U.
.4. We met with agency officials and explained that all of the companyspecific information cited in the report was gleaned from public sources or was provided to GAO by the companies mentioned. section 742. 11. 6.
16. government policy and the difference between the policy and the U. government's practice. Additional information has been added to page 24 of the report to reflect the stated U.
.Appendix IV
Aex pn pd i I V
See comments 2 and 3.
See comments 4 and 5.Appendix IV Comments from the Department of Defense
.Appendix IV Comments from the Department of Defense
2 and 3. See comment 12.
Now on pp.
See comment 16. Now footnote 18.
See comment 17. See comment 15
Now on p. 9. 7. 9. See comment 18. Now on p.Appendix IV Comments from the Department of Defense
15. 10.Appendix IV Comments from the Department of Defense
Now on p. See comment 22. See comments 20 and 21. 13.
Now on p. See comment 24.
See comments 20 and 21.
. Now on p. Now footnote 20. See comment 19. See comment 23.
Now on p. 10. Footnote 19. 13.
17. See comment 26.
Now on p. 19. See comment 28. See comment 27. See comment 29. 17. 17.
Now on p. See comment 25. 17.
. See comment 30.Appendix IV Comments from the Department of Defense
Now on p. 18 Footnote 30.
Now on pp. 26.
Now on p. See comments 31and 32.
Now on p. 23 and 24. See comments 33 and 34. 27. 23.
. See comments 31 and 32. See comment 35. See comments 33 and 34. 23. 23. Now footnote 41.
Now on p.Appendix IV Comments from the Department of Defense
Now on p. See comment 36.
. See comment 38. 28. 28. See comment 37.
Now on p. See comment 40.Appendix IV Comments from the Department of Defense
Now on p. 29 and 30. 29. See comment 39.
The author of the RAND Corporation study confirmed that his analysis was based on secondary information that is at least 3 years old. 2002. Further.S. 2.-China Commission on January 17.
1. 3. the deputy undersecretary of defense technology security policy and counterproliferation stated that a “cutting-edge”
. in March 2001. including the undersecretary of commerce for export administration and the director of the Technology and Security Directorate of the Defense Threat Reduction Agency.S. policy. policy related to semiconductor equipment and materials exports to China.S.S. the Department of Commerce stated in its detailed written comments on this report that the “two-generationsbehind” policy has been applied in making some export licensing decisions. policy toward the export of goods and technology to China and do not include a discussion of the “two-generations-behind” objective. The analysis and conclusions presented in our report support the need for a fundamental review of U. while undocumented. We have modified the text on page 24 to better distinguish between the policy articulated in the Export Administration Regulations and agency practice. No change. However.Appendix IV Comments from the Department of Defense
The following are GAO’s comments on the letter from the Department of Defense dated January 17. Additional information has been added on pages 15 and 16 to clarify the relationship between China's semiconductor manufacturing facilities and its military capabilities. 2002. stated that the U. 4. The chairman of the Information Services Technical Advisory Committee--an industry advisory committee--also shared this view with us. We agree that the regulations discuss U. The data demonstrate that China's most advanced manufacturing facilities currently contain equipment capable of producing semiconductors that are only one generation or less behind the current commercial state of the art. government's practice. aims at keeping China's manufacturing capability two generations behind commercial state of the art. we further note in the revised report that in testimony delivered to the U. The data presented in the report on the current state of China's semiconductor manufacturing capability are based on information we collected during our visits to Chinese semiconductor manufacturing facilities in 2001. senior executive branch officials involved in making U. However.S.
As noted in our report. 2002.S. Several such ‘pockets’ include: preemptive long-range precision strike capabilities. officials in China told us that they had not conducted any end-use checks on semiconductor manufacturing equipment in the last 5 years. This official testified that “China's military modernization program appears to be focusing on ‘pockets of excellence. We modified the report by adding more information on pages 27 and 28 about the conditions typically imposed on approved export licenses. In discussions with U. advanced phased-array radar.
. Although these conditions are designed to deter the end user from using the U. In addition.’ where advances in select technologies can be leveraged for disproportionate benefit in a potential conflict. Beijing has identified the development of an indigenous microelectronics industry as one of its highest priorities. equipment inappropriately. The official testified that most of the end-use checks that the United States has been allowed to conduct in China have been on high-performance computers that are no longer controlled because of the liberalization of U.” 6. we found a lack of understanding and information about the semiconductor manufacturing equipment and materials industry. the government lacks information on whether these conditions are being met.” 5.Appendix IV Comments from the Department of Defense
domestic semiconductor industry supports military modernization in China. and integrated air defense. 9. China's increasing emphasis on the development of integrated circuits will have direct application in future military systems.S. See comment 3 and comment 14.-China Commission on January 17. this official noted that due to delays caused by the Chinese government's scheduling. For example. See comment 3. 700 outstanding checks remain to be completed and checks on items other than high-performance computers continue to “languish. for example. Moreover. the Commerce Department's assistant secretary of export enforcement noted some problems with these checks and said the schedule for conducting end-use checks is dictated by the Chinese government. 8. In support of these efforts.S.S. in testimony before the U. information dominance. command and control. U. these conditions should be monitored on a regular basis. 7.S. See comment 3. government officials. export controls.
Although the Defense Department's chart shows that four new controls were added. it does not specify the level of semiconductor manufacturing technology that can be exported to China relative to the current state of the art. welcomed our visit as an opportunity to learn more about the industry and meet with industry representatives and said they had been unable to complete a study of China's semiconductor industry due to a lack of resources. goods. 1985.2 establishes policy. 14.S. The United States is the only member that considers the relationship between semiconductor manufacturing equipment and military end uses sufficiently critical and considers China’s acquisition of this technology a potential threat to regional or international stability. as noted in our report. We have added information from this table to appendix I.4(b)(7). concerns pertaining to the export of semiconductor manufacturing equipment and materials to China. page 39. assigns responsibility. services. The report generally refers to controlled semiconductor manufacturing equipment and materials (all of Categories 3B and 3C). 12. it has not been updated since July 5. This regulation provides a general statement of U. export policy for China. We modified figure 1 to give a clearer picture of China's rate of advancement relative to the United States. 11. and prescribes procedures for international transfer of defense-related technology. the data points used in the chart have not been changed as they are based on primary data sources including the president of the Semiconductor Manufacturing International Corporation. However. 13. We agree that countries are willing to listen to U. However. 10.Appendix IV Comments from the Department of Defense
Foreign Commercial Service officials in Shanghai. Additional text has been added to page 23 that includes the Defense Department information pertaining to proposals in Category 3B and Category 3C. it also shows that one item was decontrolled and that controls on five additional items were relaxed. and a number of its provisions are centered on the now defunct
. the center of China's semiconductor manufacturing industry.S. Although Department of Defense Directive 2040. We modified our report on page 24 by adding language from Export Administration Regulation 742. and munitions. to clarify the types of items the report discusses.
The updating of control lists and other efforts to improve these lists are all aspects of transparency. 23. 22. See comments 4 and 5. See comment 10. 25. 20. Adding or deleting items from the lists simply alters the reporting requirements for those items. 16. The text on pages 16 and 17 has been modified to clarify the characterization of the problems facing China's defense industry. 18. See comment 10. and the RAND Corporation study cited in the Defense Department comments on a draft of this report. See comment 4. 28. 15. We modified page 7 of the report to clarify why this technology is controlled. the predecessor to the Wassenaar Arrangement. No change. See comment 16. Footnote 18 has been reworded to clarify the information presented. No change. 27. No change. The information presented was obtained from papers published by defense experts. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
. 21. 19. GAO interviews with defense experts. The 2 percent refers to the total sales to China. 24. 26. The statement made in the report refers to China's efforts to develop an indigenous semiconductor manufacturing equipment industry.Appendix IV Comments from the Department of Defense
Coordinating Committee for Multilateral Export Controls (COCOM). Footnote 19 has been reworded to clarify the information presented. 17. Additional information pertaining to Categories 3B and 3C was added to footnote 30. not to efforts to improve its facilities.
the analyst responsible for the list stated that the list had not been substantively updated since 1996. 31. The Internet site does indicate that some revisions were made to the electronics section in 1999. Meanwhile. xxxxxx 32. The report also highlights the continuing ineffectiveness of the Wassenaar Arrangement as a means for controlling the export of semiconductor manufacturing equipment and materials to China. export control policy articulated in the Export Administration Regulations and practice. Information was added to page 27 of the report to indicate that the information presented pertains to China. 36. The report clearly illustrates the contrast between formal U.
. 40. The information presented in the report pertaining to specific companies was obtained from the companies or public sources. See comment 3. Additional information was added to footnote 30 pertaining to Categories 3B and 3C. See comments 4 and 5. See comment 3. However. China's defense industrial base continues to obtain benefits from the modernization of China's semiconductor manufacturing industry that is driven by the acquisition of advanced semiconductor manufacturing equipment and materials from foreign sources. 34. 37. The information presented in the report pertaining to specific companies was obtained from the companies or from public sources. 35. xxxxxxxxxxxxx 33. 38.S. It also reveals the lack of an analytical basis for export control licensing decisions and proposals for the Wassenaar Arrangement. See comment 3.Appendix IV Comments from the Department of Defense
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxx 29. 39. 30.
necessary to correct weaknesses in the current system.
. A fundamental reevaluation of U.S. therefore.Appendix IV Comments from the Department of Defense
including the United States. policy on export controls on semiconductor manufacturing equipment and materials to China is.
Aex pn pd i V
See comment 3.Appendix V Comments from the Department of State
Appendix V Comments from the Department of State
See comments 4 and 5.
See comment 9.Appendix V Comments from the Department of State
3. The equipment in the Motorola facility is two generations behind commercial state of the art. We agree that no single piece of semiconductor manufacturing equipment exported to China will make a “significant contribution” to China's military. 2.
1. This view was confirmed by the chairman of the Information Services Technical Advisory Committee—an industry advisory committee.S. page 36. According to defense experts. the newest semiconductor manufacturing facilities constructed in China represent a significant improvement to China's military industrial base. in March 2001. including the undersecretary of commerce for export administration and the director of the Technology and Security Directorate of the Defense Threat Reduction Agency. We agree that the regulations discuss U.25micron equipment.
. During our visit to the Motorola facility in Tianjin.S. We have modified the text on page 24 to better distinguish between the policy articulated in the Export Administration Regulations and agency practice.Appendix V Comments from the Department of State
The following are GAO’s comments on the letter from the Department of State dated January 9. policy toward the export of goods and technology to China and do not include a discussion of the “two-generations-behind” objective. We also describe the reasons for controlling dual-use goods further in appendix I. Rather. government's practice. policy. 2002.13 micron. We modified the report to clarify existing export control policy for semiconductor manufacturing-related items on page 24. we found that the U. 4. it is the cumulative effect of these exports that raises national security concerns. stated that the U. aims at keeping China's manufacturing capability two generations behind commercial state of the art. the Department of Commerce said in its detailed written comments on this report that the “two-generationsbehind” practice has been used in making some export licensing decisions. while undocumented. This is a scenario that was overlooked in the State Department's comments.S. which is 0. China. senior executive branch officials involved in making U. However. Further. government approved export licenses allowing the sale of 0. It is the cumulative effect of exports of semiconductor manufacturing equipment from the United States and other Wassenaar members that has allowed China to improve its military industrial base.S.
this official noted that due to delays caused by the Chinese government's scheduling.S. the information sources mentioned by the State Department. welcomed our visit as an opportunity to learn more about the industry and meet with industry representatives and said they had been unable to complete a study of China's semiconductor industry due to a lack of resources. As our report notes. Foreign Commercial Service officials in Shanghai. In addition. the government lacks information on whether these conditions are being met. in testimony before the U. Moreover. We modified pages 27 and 28 by adding more information about the conditions typically imposed on approved export licenses. 700 outstanding checks remain to be completed and checks on items other than high-performance computers continue to “languish. are not adequate substitutes for a formal. equipment inappropriately. the center of China's semiconductor manufacturing industry.S. As noted in our report.” 6. since all export control decisions of Wassenaar members are based on the national discretion of member countries.S. U. government officials. China Commission on January 17. Furthermore. Although these conditions are designed to deter the end user from using the U.S.S. comprehensive study. these conditions should be monitored on a regular basis. weaknesses in Wassenaar reporting make it difficult to assess whether any exports covered by the arrangement were “contrary to the purposes of the Arrangement. officials in China told us that they had not conducted any end-use checks on semiconductor manufacturing equipment in the last 5 years. judgments of whether particular exports are contrary to the purposes of the arrangement are matters subject to a member state's interpretation. For example. the Commerce Department's assistant secretary of export enforcement noted some problems with these checks and said the schedule for conducting enduse checks is dictated by the Chinese government. In discussions with U. The official testified that most of the end-use checks that the United States has been allowed to conduct in China have been on high-performance computers that are no longer controlled because of the liberalization of U.” Also. export controls.Appendix V Comments from the Department of State
5. we found a lack of understanding and information about the semiconductor manufacturing equipment and materials industry. 2002. such as information exchanges and international press articles.
.S.Appendix V Comments from the Department of State
8. export control policy and practice. It is not appropriate to speculate on the consequences of not having U. export controls or the Wassenaar Arrangement. of which the Wassenaar Arrangement is one part. and recommends that the executive branch consider new ways of controlling this technology. The report discusses some of the overall weaknesses in U.S.
Bruno. Janey Cohen.Appendix VI
Aex pnI pd i V
Stephen Lord (202) 512-4379
In addition to the individual named above. Richard Seldin. and Hai Tran made key contributions to this report. Julie Hirshen. Kevin Tarmann. David M.
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