The United States controls high performance computers and related components (for example, microprocessors) through the Export Administration Act of 1979 and the implementing Export Administration Regulations. The act authorizes Commerce to require firms to obtain licenses for the export of sensitive items that may be a national security or foreign policy concern. The Departments of Defense, Energy, and State assist Commerce, which administers the act, by reviewing export applications and supporting Commerce in its reviews of export control policy. Since 1993, the President has revised U.S. export control levels for high performance computers seven times, including the revisions announced in January 2002. These revisions have resulted in a nearly thousandfold increase in the export control threshold over the 8-year period; most of these changes have occurred over the last 2 years (see fig. 1). The latest effort to revise the threshold was initiated in response to a letter from the Computer Coalition for Responsible Exports. Beginning in 1996, the executive branch organized countries into four computer "tiers," with each tier above tier 1 representing a successively higher level of concern related to U.S. national security interests. Current U.S. export control policy places no license requirements on tier-1 or tier-2 countries, primarily those in Western Europe, Japan, Asia, Africa, Latin America, and Central and Eastern Europe. Exports of computers above a specific performance level to tier-3 countries such as China, India, Israel, Pakistan, and Russia require a license. Exports of high performance computers to tier-4 countries such as Iran, Iraq, and North Korea are essentially prohibited. To help inform congressional decision makers about changes in U.S. export controls on computers, the National Defense Authorization Act of 1998 requires that the President report to Congress the justification for changing the control threshold for exports of high performance computers to certain sensitive countries. The report must, at a minimum, (1) address the extent to which high performance computers with capabilities between the established level and the newly proposed level of performance are available from foreign countries, (2) address all potential uses of military significance to which high performance computers between the established level and the newly proposed level could be applied, and (3) assess the impact of such uses on U.S. national security interests. In addition, section 1402 of the National Defense Authorization Act of 2000 requires the President to annually assess the cumulative impact of licensed transfers of military-sensitive technologies to countries and entities of concern and possible countermeasures that may be necessary to overcome the use of such technologies. Section 1406 requires the President, in consultation with the Secretaries of Defense and Energy, to conduct a comprehensive review of the national security implications of exporting high performance computers to China with annual updates through 2004. In January 2000, the President delegated the responsibility for producing these reports to the Secretaries of Defense and Energy. As required by law, we reviewed prior justifications for changing the export control thresholds on high performance computers. We found that the changes were not adequately justified. For example, previous reports failed to address all uses of military significance to which high performance computers could be applied at the new thresholds, or the impact of such uses on national security, as required by law. In response to these deficiencies, we recommended that the Secretary of Defense report on the national security threat and proliferation impact of U.S. exports of high performance computers to countries of concern. The Department of Commerce stated that the December 2001 decision to raise the control threshold for high performance computer exports was based on thorough analysis. However, we found the justification did not adequately meet the three criteria required by law. First, the report stated that computers based on Intel Corporation's Itanium processor and capable of performing at the 190,000 MTOPS level would be widely available in early 2002. This assertion was not based on any formal analyses and has proven to be inaccurate. Second, the report provided little analysis of all the potential military uses of these computers. Third, the report did not assess the impact of the uses of these computers on U.S. national security. Although the report asserts that high performance computers would be of limited value to countries of concern not having the demonstrated knowledge and experience in using these computers, the report did not discuss the national security implications of exporting computers to countries of concern, such as China and Russia, that have a demonstrated ability to use them. Further, several laws and a Defense Department directive have mandated other studies that could be used to better understand the national security implications of the export of high performance computers and other technologies; however, the Department of Defense has not completed such studies. The December 2001 report inadequately addressed the first criterion of the National Defense Authorization Act of 1998 in its discussion of the extent to which high performance computers with capabilities between the established level and proposed level of performance are available from other countries. The executive branch's report stated that the decision to raise the licensing threshold level to 190,000 MTOPS was based on the wide availability by early 2002 of new computer servers containing 32 Intel Corporation Itanium processors. Such servers approach a composite theoretical performance of 190,000 MTOPS. Contrary to assertions made in the report, however, Itanium-based computers with performance capabilities in the 190,000 MTOPS range are not widely available. We found that the report's finding of availability was not based on an independent analysis but rather on information provided by industry. According to Defense officials responsible for producing the report, industry representatives told them that (1) the market would be flooded with 32- way, Itanium-based servers in early 2002, (2) the People's Republic of China is the long-term market of importance, and (3) U.S. industry is concerned that, if the threshold is not raised, foreign competitors will capture the market. Although not required by law, Commerce could have independently verified industry's assertions as to the availability of the servers by conducting foreign availability assessments. Foreign availability assessments identify foreign sources of items subject to U.S. national security export controls, such as high performance computers, and are the principal mechanism recognized in the U.S. Export Administration Regulations for determining the availability of controlled items. These assessments determine whether items of comparable quality are available in quantities from non-U.S. sources that would render U.S. export controls on the items ineffective. Commerce officials stated that no foreign availability study was conducted because industry had made its case informally. Instead of conducting a study to establish that these servers would be widely available by early 2002, Commerce stated that it conducted interagency meetings and discussions with industry as well as an analysis of the worldwide availability of high performance computers. Commerce stated that it also reviewed the Internet sites of the computer manufacturers mentioned in the report. In commenting on a draft of our report, the Department of Commerce asserted that it completed a market analysis of the worldwide availability of high performance microprocessors and computer clustering capabilities, and held discussions with other executive branch agencies and foreign governments. However, the President's report did not cite or include this market analysis nor did the department provide additional information to document this completed analysis in response to our request. We reviewed the documentation that Commerce obtained from the Internet and other sources and found little additional evidence about the availability of 32-way, Itanium-based servers beyond the information contained in the Computer Coalition for Responsible Exports' August 2001 letter requesting a change in the export control threshold. The information provided did not indicate that the 10 companies listed in the President's report planned to introduce 32-way servers or that the servers would be widely available in early 2002. We also contacted the companies listed in the report and found that, as of May 2002, only one of the companies--Unisys Corporation--was producing a 32-way, Itanium-based server (see table 1). Information obtained from the companies listed in the President's report contradicts the assertion that 32-way, Itanium-based servers will be widely available in early 2002. Representatives we interviewed stated that their companies would not introduce these servers in 2002 or had no plans to manufacture these servers due to the lack of software and a market for such powerful servers. An official from a leading information technology market research firm stated that Itanium-based technology is far too new to allow a reasonable determination of its impact on the server market. Furthermore, according to the research firm's information, no 32-way, Itanium-based servers were shipped in the first quarter of 2002. Finally, the report noted that a significant market exists for high-end servers of up to 32 processors. However, Commerce data indicate that the market for computers with performance capabilities in the 190,000 MTOPS range in countries of concern is small and that the loss of sales in these countries should not materially affect U.S. manufacturers. In 2001, Commerce received 16 export license applications for computers with performance capabilities at or above 85,000 MTOPS; all but one was approved. Six of the approved applications were for sales to China. Moreover, Japan--the other leading exporter of high performance computers--did not sell any of these systems to China, Russia, or India in 2001, according to the Department of Defense. As in previous reports used to justify changes in the control threshold, the December 2001 report did not meet the second criterion of the National Defense Authorization Act of 1998: to address all potential uses of military significance to which computers with performance capabilities between the old control threshold and the new threshold could be applied. The report stated that the U.S. government uses computers in virtually all military and national security applications, including the design, development, and production of weapon systems, military operations, cryptoanalysis, and nuclear weapons design and simulation. Defense officials to whom we spoke stated that Defense does not maintain an inventory of all U.S. national security-related computer applications, that the value of such a list is questionable, and that it may be impossible to construct such a list. The President's report provides little information about which military applications can be run on computers with capabilities between the old and new threshold. The report pointed out that the majority of U.S. military and national security applications are run on computers below 190,000 MTOPS. Using information provided by Defense, we found that computers operating at or below 190,000 MTOPS meet 98 percent of Defense's military computational requirements. Defense officials responsible for preparing the report said that the level of control selected--190,000 MTOPS--was driven by the market and what the administration believes it can control, not by the military and national security applications that could be run on high performance computers. The President's report did not discuss the impact on U.S. national security of countries such as Russia and China obtaining high performance computing power up to the new control threshold, as required by law. Such a national security assessment has been a long-term, executive branch requirement. For example, section 1402 of the National Defense Authorization Act of 2000 requires the President to annually assess the cumulative impact of licensed transfers of military-sensitive technology to countries and entities of concern and to identify possible countermeasures that may be necessary to overcome the use of such technologies. In addition, section 1406 of the act requires assessments of the national security implications of exporting high performance computers to China with annual updates through 2004. In addition, a 1985 Department of Defense directive requires annual assessments of the total effects of technology transfers. We found that Defense had not completed the studies required by the law or its directive. Moreover, Defense has not yet implemented our prior recommendation to report on the national security threat and proliferation impact of U.S. exports of high performance computers to countries of concern. Although the Departments of Defense and Commerce stated that they are already engaged in reviews of similar issues, the agencies could not furnish plans or other documentation on how they are implementing our recommendation. Instead of addressing the national security implications associated with the export of high performance computers, the President's report simply stated that high performance computers would be of little or no value to countries of concern not having the requisite knowledge and experience in using these computers to advance their military capabilities. However, the report did not discuss the usefulness of these computers to countries such as China and Russia that have demonstrated the ability to use high performance computers. The report's assertion that countries of concern will not benefit from the acquisition of high performance computers also contradicts statements made in other reports published by the executive branch and statements made by Defense officials responsible for producing the President's report, as indicated in the following examples. Reports published in 2000 that were used to justify previous increases in the export control threshold for high performance computers stated that Russia and China have the expertise necessary to use these computers for national security applications such as the construction of submarines, advanced aircraft, composite materials, or a variety of other devices. A 2001 report by the Department of Energy's National Nuclear Security Administration concluded that the availability of overall computing power to a nuclear weapons design program is critical. Acquisition of computers with higher performance levels allows a nuclear weapons program to conduct studies faster and enables studies that cannot be conducted on systems of lower performance, thus shortening the time for design and development to full-scale testing. The report further concludes that computers with an effective performance of 10,000 MTOPS or greater would be of significant use to China's designers in examining likely gaps in their nuclear weapons programs. A 2001 executive branch assessment concluded that the increased use of high performance computers in the weapons of mass destruction programs of countries of concern could severely complicate U.S. efforts to monitor and assess such programs. The use of these computers can reduce and even eliminate many traditional observable weapons production activities such as large manufacturing operations and live weapons tests. According to the Defense officials responsible for preparing the December 2001 report, the level of computing power used to solve a particular problem is based on the level of computing power available. If more powerful computers are available, they are used. The greater the power of the available computer, the faster the problem can be solved. Consequently, the computers exported under the new threshold will allow countries of concern to solve more quickly more complex problems in weapons systems design. Although not required by law, the President's December 2001 report did not address several key issues related to the decision to raise the threshold. These issues include the ability of countries of concern to construct high performance computers on their own, U.S. government difficulties in monitoring the end-use of computers exported to countries of concern, the use of MTOPS as a measure of individual computer performance, and the impact of establishing a new licensing threshold outside the Wassenaar Arrangement process. The report did not acknowledge the difficulty that some countries of concern have encountered in clustering smaller machines together to achieve greater computing power. However, as we have reported before, it may be more difficult to operate custom-built clustered systems than to build them, according to experts. For example, without vendor-supplied software to automate key functions on a clustered system, everything must be done manually, making computing labor intensive and less reliable than if it were performed on a vendor-manufactured system. With the higher thresholds, countries of concern will not have to rely on more inefficient clustered systems to obtain greater computing capabilities. The report did not address the difficulty that the U.S. government has had in effectively monitoring the high performance computers that are exported to countries of concern. Monitoring exported equipment for proper use is a key element of the U.S. export licensing process. Approved export licenses for high performance computers typically stipulate conditions, such as where the computer must be located and how it should be used. The conditions are designed to deter the end user from using the computer inappropriately or from transferring the computer to another location. Monitoring of these conditions is to be accomplished through required end-use checks conducted by U.S. government personnel. In our prior report, we found that U.S. government personnel in China tasked with this job have been unable to conduct many checks. In testimony before the U.S.-China Security Review Commission on January 17, 2002, Commerce's Assistant Secretary for Export Enforcement stated that the Chinese government dictates the schedule for conducting end-use checks. As a result, more than 700 outstanding checks remain to be completed, according to Commerce. The inadequacies of the President's report are compounded by the continued use of MTOPS to determine the performance capabilities of computers. Although industry and government no longer consider MTOPS a valid measure of computer performance, the executive branch continues to use it. In our 2000 report on high performance computers, we recommended that executive branch agencies comprehensively assess ways to address the shortcomings of computer export controls, including the development of new performance measures. The President's December 2001 report stated that the executive branch is conducting a comprehensive review of export controls on computer hardware. According to the report, this interagency review will, among other things, attempt to identify a controllable class of high-end computer systems of greater military sensitivity and alternative metrics for controlling such systems. However, Defense officials stated that the study has no deadline and no formal terms of reference. The report did not acknowledge the multilateral process established under the Wassenaar Arrangement--a forum of 33 countries established in 1996 to reach multilateral agreements on which dual-use goods merit special scrutiny and reporting. Changes to control thresholds on dual- use goods are coordinated through the Wassenaar Arrangement. The arrangement uses a consensus-based approach to establish control thresholds on these goods. The United States unilaterally raised the MTOPS licensing threshold to 190,000 without first obtaining the consensus of other Wassenaar Arrangement members. Due to actions taken by the United States, the U.S. licensing threshold is now 190,000 MTOPS, while the control thresholds of other Wassenaar member states remain at 28,000. Consequently, U.S. exporters have a competitive advantage over their international competitors because U.S. exporters are not required to obtain an export license for a wider range of computers. According to State Department officials, the unilateral U.S. action may complicate future efforts to reach consensus in the Wassenaar forum on other important export control issues. The report justifying the decision to decontrol high performance computers was not based on a thorough analysis and did not fully address the requirements of the National Defense Authorization Act of 1998. Since the report's conclusions are based on inaccurate information provided by the computer industry and an inadequate assessment of national security issues, the decision to raise the export control threshold is analytically weak and appears to be premature, given market conditions. By providing greater access to more powerful computers through the removal of any export-licensing requirement, the United States could allow countries of concern to pursue computer applications having military uses with a greater degree of rigor and reliability. A more thorough analysis of the foreign availability and the national security impact of transferring technology to countries of concern would have provided a better analytical basis for making changes in the control threshold. Given the level of high performance computing power that the United States approves for export, such studies of the cumulative effect of computer and related technology exports will be increasingly important in determining the impact of such exports on U.S. national security and in making future decisions about adjusting export control thresholds. In our draft report, we recommended that the Departments of Commerce, Defense, and State comply with existing statutes and complete a thorough assessment of the foreign availability, military significance, and the national security impact of changes to high performance computer controls. Prior GAO reports have made similar recommendations. Since the departments have not responded to our earlier recommendations on this issue or clearly indicated whether they agreed with the recommendations made in our draft report, we have included a Matter for Congressional Consideration. To help ensure that a thorough assessment of these issues is completed, Congress may wish to consider requiring that the executive branch fully comply with the provisions of the National Defense Authorization Acts of 1998 and 2000 before the executive branch alters or eliminates the export control thresholds for high performance computers. We received written comments on a draft of this report from the Departments of Commerce, Defense, and State, which are reprinted in appendixes I, II, and III. The Commerce Department disagreed with our findings and conclusions and said that the executive branch conducted a thorough review of U.S. export controls on high performance computers prior to the President's January 2002 decision to raise the licensing thresholds. Commerce stated that this review included significant input from all relevant agencies, consultations with other Wassenaar Arrangement partners, as well as an analysis of the worldwide availability of high performance computers and computer clustering. Commerce also said the United States continues to seek a means to control computers of the greatest strategic importance. The Department of Defense said it is conducting a study of computer export controls consistent with our recommendations and the requirements of law. The Department of State said it agreed that several shortcomings exist in the executive branch's justification to raise the licensing thresholds for high performance computers. While agreeing that there were some gaps in the study, State said it did not believe that these shortcomings invalidated a key finding that high performance computers can no longer be controlled effectively, due to advances in clustering computers together to achieve higher capabilities. We have added information to the report to more fully describe the information that Commerce gathered from industry. However, we disagree that the administration conducted a thorough review of U.S. export controls prior to the President's January 2002 decision to raise the licensing thresholds. As noted in our report, the President's justification focused on only one of three elements required by law--the availability of high performance computers. Additionally, the availability assessment was not adequate since only 1 of 10 companies capable of producing high performance computers planned to market such computers in 2002. As noted in Commerce Department data, the current market for computers at the 190,000 MTOOPS level is relatively small and is not developing as quickly as anticipated. Accordingly, the disparity between market conditions and industry's assertions about the widespread availability of such computers should have prompted Commerce to conduct an independent foreign availability assessment as allowed by the Export Administration Regulations. However, Commerce did not conduct this important analysis because senior Commerce officials informed GAO that the department did not have the resources to complete such assessments. The President's report did not fully address the two remaining elements required by law--identifying all potential uses of military significance and the national security implications of high performance computer exports. As noted in our report, Defense Department information shows that computers operating at or below 190,000 MTOPS meet 98 percent of Defense's military computational requirements. Therefore, the President's justification to raise the MTOPS licensing threshold should have included an assessment of the effects on national security. The State Department's comments clearly articulated the executive branch's position on high performance computers--"high performance computers can no longer be controlled effectively" because high performance computing capacity is widely available. While our report found State's assertion on availability is not supported by current market conditions, State's comments demonstrate that preceived market conditions and related trends in computer clustering served as the primary basis for the decision to raise the control threshold for high performance computers. Regarding State's comments on computer clustering, we note that State's position contrasts with an October 2001 Department of Defense analysis that concluded that a clustered system does not provide comparable capabilities as a stand-alone high performance computer. The State and Commerce Departments cited no analysis as to how these powerful computers could enhance the military capabilities of countries of concern or affect U.S. national security interests. These important analyses are required by law but not addressed in the President's report. To assess the President's justifications for raising the export control threshold from 85,000 MTOPS to 190,000 MTOPS, we reviewed the statutory requirements related to the President's justification and the regulations that pertain to the export of high performance computers. Further, we reviewed documentation used as the basis for the report's assertions. The documentation included the letter and associated attachments addressed to Commerce from the Computer Coalition for Responsible Exports that prompted the change in the threshold. We also examined information available on the Internet about the computer server products offered by the 10 manufacturers mentioned in the President's report and contacted the manufacturers to obtain additional information. The information obtained from the manufacturers was supplemented with information obtained from a leading information technology industry research organization, including reports pertaining to the availability of Intel Itanium-based servers. Finally, we interviewed Commerce, Defense, and State officials responsible for producing the report. The National Security Council, which plays a key role in coordinating the interagency process for changing export controls on high performance computers, declined to discuss the President's report with us. We performed our work from February 2002 through July 2002 in accordance with generally accepted government auditing standards. We are sending this report to interested congressional committees and the Secretaries of Commerce, Defense, and State. We will also make copies available to other interested parties on request. In addition, the report will be available at no charge on the GAO Web site at http://www.gao.gov. Please contact me at (202) 512-8979 if you or your staff have any questions concerning this report. Another GAO contact and staff acknowledgments are listed in appendix IV. The following are GAO's comments on the Department of Commerce's letter dated July 16, 2002. 1. We disagree that the Commerce Department conducted a thorough review of U.S. export controls prior to the President's January 2002 decision to raise the licensing thresholds. As noted in our report, the President's justification focused on only one of three elements required by law--the availability of high performance computers. The justification did not adequately identify uses of military significance or the national security impact of changing the thresholds. 2. We agree that this raises a legal issue, which we mentioned in our testimony on high performance computers on March 15, 2001. Once a new measure is decided upon, the executive branch could work with Congress to allow use of other measures. Section 221 of H.R. 2581, would repeal the National Defense Authorization Act provisions dealing with export controls on high performance computers. These controls are expressed in MTOPS. 3. We agree that countries of concern can cluster or link together lower performance computers to achieve higher computing capabilities. However, clustering still comes at a cost in terms of speed and difficulties in operating the clustered systems. Raising the control threshold to 190,000 MTOPS effectively eliminates these costs and allows countries of concern to easily purchase high performance computers. 4. Defense Department officials stated that high performance computers performing at or below 190,000 MTOPS meet 98 percent of the Department of Defense's computational requirements. Therefore, it is difficult to understand Commerce's assertion that the United States continues to seek a means to control computers of the greatest strategic importance. 5. This comment acknowledges that Commerce used market conditions as the sole criterion for changing the control thresholds for high performance computers. The act also requires an assessment of how these powerful computers could enhance the military capabilities of countries of concern or affect U.S. national security interests. These topics were not addressed in the President's report. 6. We disagree. The practical effect of raising the U.S. license exception level to 190,000 MTOPS is to raise the control threshold to this level since computers below this level (190,000 MTOPS) do not require an export license. Further, according to Commerce officials, not all Wassenaar members have license exception provisions in their regulations. Consequently, a disparity exists between U.S. licensing requirements and the control thresholds used by other Wassenaar member countries, as we noted in our report. Finally, according to State Department officials and official documents we reviewed, other Wassenaar members complained that the United States unilaterally increased its export control threshold by raising the licensing exception level to 190,000 MTOPS. 7. Commerce and Defense officials responsible for preparing the President's December 2001 report confirmed that the effort to formally change the licensing threshold and prepare the justification was prompted by the letter from industry. 8. Commerce data indicate that there are more than 700 outstanding post- shipment verifications that have not been conducted in China. 9. When implemented, the Department of Commerce's effort to "red flag" persons for which it has not been able to conduct prelicense checks or post-shipment verifications may prove to be a useful first step in improving its ability to counter problems associated with conducting checks and verifications. The following are GAO's comments on the letter from the Department of State dated July 19, 2002. 1. We are encouraged that executive branch agencies continue to explore alternatives to the current MTOPS metric. We believe the results of this analysis should be shared with Congress. 2. We agree that some countries subject to the existing controls may be among the most adept at developing clustering software and technology. However, this point was not included in the President's report. The report simply stated that the impact of clustering will be assessed in the course of the executive branch's review of computer export controls. 3. While computer clustering complicates efforts to maintain effective export controls, this point was not used as the basis for raising the export control thresholds for high performance computers. Also, the executive branch continues to debate the extent that clustering has rendered the current export control system ineffective. An October 2001 Defense study found that clustered systems do not match the overall performance capabilities of the stand-alone systems supplied by U.S. vendors. This study concluded that foreign country's use of clustered systems should not be used as a justification for decontrolling all classes of high performance computers. In addition to the individual named above, David M. Bruno, Claude T. Adrien, and Lynn Cothern made key contributions to this report. 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Summary:
For national security and foreign policy reasons, U.S. export control policy seeks to balance economic interests in promoting high technology exports with national security interests to maintain a military advantage in high performance computers over potential adversaries. In January 2002, the President announced that the control threshold--above which computers exported to countries such as China, India, and Russia--would increase from 85,000 millions of theoretical operations per second (MTOPS) to 190,000 MTOPS. The report justifying the changes in control thresholds for high performance computers focused on the availability of such computers. However, the justification did not fully address the requirements of the National Defense Authorization Act of 1998. The December 2001 report did not address several key issues related to the decision to raise the threshold: (1) the unrestricted export of computers with performance capabilities between the old and new thresholds will allow countries of concern to obtain computers that they have had difficulty constructing on their own, (2) the United States is unable to monitor the end-uses of many of the computers it exports, and (3) the report does not acknowledge the multilateral process used to make prior changes in high performance computer thresholds.