The U.S. Department of Commerce controls the export of U.S. dual-use commodities, software, and technology by requiring validated licenses prior to shipment unless a license exception applies. A license exception, formerly known as a general license, is a broad grant of authority to export certain goods and technology without prior government review. Dual-use telecommunications items are controlled under the Commerce Control List, which specifies the items that require validated licenses, generally for reasons of national security. During the Cold War, the United States sought international coordination of export controls through the Coordinating Committee for Multilateral Export Controls (COCOM), which was made up primarily of North Atlantic Treaty Organization member countries. With the end of the Cold War, COCOM members pushed for liberalization of many dual-use items, including telecommunications equipment, computers, and machine tools. However, before COCOM ended on March 31, 1994, participant countries agreed to continue controlling dual-use items, at each country’s discretion, after COCOM’s expiration. The new U.S. export control arrangement, established in 1996, focuses export controls on several potential aggressor countries, such as Iraq, Libya, and North Korea, and away from former communist countries. Broadband telecommunications equipment, such as ATM and SDH, have numerous civilian and military applications and are becoming increasingly available in China as it strives to improve its telecommunications networks to meet international standards. According to U.S. government officials, overall improvements to China’s telecommunications networks will likely benefit the Chinese military as well. Broadband networks employ ATM and SDH equipment to transfer data, voice, and video communications simultaneously at high rates of speed. ATM is a flexible switching technique used to transfer information over advanced telecommunications networks. SDH technology is used for high speed transmission of data, video, and voice traffic. Both ATM and SDH equipment were developed by commercial industry for civil applications, and they are now increasingly used worldwide on broadband telecommunications networks. Civil applications of ATM and SDH equipment generally allow work groups to collaborate quickly and efficiently over a computer network. These applications include holding a meeting simultaneously in several locations (video-conferencing), having people in different locations work simultaneously on the same document (virtual notebook), and transmitting X-rays and other medical records from one location to another (telemedicine). ATM and SDH equipment are necessary to have the speed of delivery, quick data retrieval, and clear video images that are needed for these applications to operate. Military applications for ATM and SDH equipment are similar to civilian applications. These applications include sharing of intelligence, imagery and video between several locations, command and control of military operations using video-conferencing, and medical support and telemedicine between the battlefield and remote hospitals. When used in a military application, both types of equipment requires encryption devices to protect communications from interception. The Department of Defense buys such equipment “off-the-shelf” and is still testing it for potential military uses. According to Defense officials, ATM and SDH equipment will be beneficial to military functions, such as command and control, and will form the basis for future Defense Department communications networks. Both ATM and SDH equipment are considered to be advanced technologies in the telecommunications industry and are now increasingly deployed worldwide. While ATM equipment has only recently become readily available, SDH has been commercially available for at least the last 5 years. In 1993, a U.S. company claimed that foreign producers of SDH equipment were marketing to China and urged the Commerce Department to reduce its controls on such equipment. SDH equipment was found to be foreign available by the Commerce Department in 1994. Former COCOM member countries tightly controlled the export of such equipment until 1994, when controls on telecommunications items were relaxed. Prior to the liberalization of exports of dual-use telecommunications equipment in April 1994, the export of ATM and SDH equipment to China would have required a validated license from the Commerce Department. According to company officials, since the removal of most export restrictions on telecommunications equipment, the market for such equipment in China has grown quickly and large quantities of SDH equipment have been sold to China to modernize its commercial long-distance telecommunications network. Advanced telecommunications equipment, particularly SDH, is increasingly used to be consistent with the emerging international communications standards, and it should vastly improve China’s outdated and underdeveloped telecommunications systems. According to industry officials, U.S. companies sold tens of millions of dollars worth of SDH equipment in China in 1994, and several joint ventures are currently manufacturing SDH equipment in China to build China’s telecommunications network. In contrast, there is little demand for ATM equipment in China and there is no in-country production of such equipment. Company officials noted the demand for ATM equipment in the United States is also limited. Officials at the Defense Department told us that the Chinese military would like to improve its telecommunications capabilities. According to these officials, the Chinese military is seeking to acquire ATM and SDH equipment, which may increase their operational readiness by the end of the next decade. Defense Department officials told us that broadband telecommunications equipment could be used to improve the Chinese military’s command and control communications networks. These officials also observed that the Chinese military will benefit from the improvements to China’s overall public telecommunications system, since they also make use of that system. The Chinese military may also benefit from the use of broadband equipment in its nonmilitary activities. For example, Chinese Army hospitals, which also serve civilians, are interested in acquiring high-speed telecommunications links using ATM switches to develop telemedicine capabilities and to extend health care to rural areas. The Chinese military operates at least one-third of the hospitals in China. The Commerce Department created GLX in 1994, allowing nearly all dual-use telecommunications items to be exported to Chinese civil end users without validated licenses. As a result, the ATM and SDH equipment exported to HuaMei did not require prior government approval before being shipped. According to U.S. government officials, the Commerce Department created GLX in April 1994 to ease export restrictions and reduce administrative burdens on U.S. exporters. In September 1993, the Trade Promotion Coordinating Committee, chaired by the Secretary of Commerce, recommended removing export controls on computers and telecommunications products to aid key U.S. industries. Commerce officials noted that there was an interagency effort to determine which items to decontrol before COCOM expired at the end of March 1994. The Commerce Department used the advisory notes from the Commerce Control List as a basis for what items were to be included under GLX. Advisory notes are included in the list to advise exporters of the items likely to be approved for export to certain locations. The Commerce Department removed the requirement for a validated license and prior government review on all items with advisory notes because it viewed the items as being less sensitive. According to a Commerce Department official, the advisory note items included under GLX did not necessarily include the entire category of equipment, nor did they apply to China. For example, one advisory note stated that licenses would likely be approved for the export of telecommunications transmission equipment, such as SDH, to China, provided that such equipment did not exceed certain capabilities. Under GLX, all SDH equipment is eligible for export to China, regardless of capability. Another advisory note stated that licenses would likely be approved for the export of all controlled dual-use telecommunications equipment, including ATM, for civil end use in Estonia, Latvia, and Lithuania. According to a Commerce Department official, since ATM equipment was included in this advisory note, it became eligible for export under GLX, even though the note did not apply to China. Our analysis of the telecommunications items included under GLX showed that each item category was covered by some advisory note on the Commerce Control List. Because most of the telecommunications items on the list were covered by advisory notes, they became eligible for export under GLX. The only telecommunications items covered by an advisory note that were not included under GLX were radio frequency hopping equipment and radio receivers with certain scanning and frequency switching capabilities. Items included under GLX were telecommunications transmission equipment, switching equipment, optical fiber communication cables, and phased array antennas. However, technology for the development and production of the telecommunications equipment may not be exported under GLX. The Commerce Department officially requested comments from other agencies on GLX on March 17, 1994, and the creation of GLX was announced in the Federal Register on April 4, 1994. According to government officials, the period of time given to other agencies to comment on the new license category was limited due to the expiration of COCOM at the end of March 1994. Senior Commerce and Defense Department officials stated that while the comment period provided to the agencies for approving GLX was limited, the items included under GLX were less sensitive and had been previously considered for liberalization under earlier COCOM-related negotiations. The Departments of Defense, Energy, and State all approved the new license category. At the time that AT&T exported U.S. telecommunications equipment to HuaMei in 1994, the Commerce Department had already created GLX, so AT&T did not need to apply for a license to ship ATM and SDH equipment to China. In 1993, SCM Brooks Telecommunications entered into a joint venture with Galaxy New Technology, a Chinese company controlled by the Commission of Science, Technology, and Industry for National Defense (COSTIND), an agency of the Chinese military, to form Guangzhou HuaMei Communications Limited. The purpose of the HuaMei project was to demonstrate the commercial capabilities of a broadband telecommunications network, using several hotels in Guangzhou. The demonstration included video-conferencing, virtual notebook, and teleradiology applications. HuaMei contracted with AT&T to provide the equipment necessary for the project. AT&T exported three ATM switches from the United States under a general license and four SDH transmission systems from the Netherlands under a Dutch validated license to Guangzhou in the fall of 1994.