[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]



 
  HEARING ON A NEW ACT FOR A NEW WORLD ORDER: REASSESSING THE EXPORT 
                           ADMINISTRATION ACT

=======================================================================

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                INTERNATIONAL ECONOMIC POLICY AND TRADE

                                 OF THE

                              COMMITTEE ON
                        INTERNATIONAL RELATIONS
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED SIXTH CONGRESS

                             FIRST SESSION

                                   ON

                               __________

                             MARCH 3, 1999

                               __________

                           Serial No. 106-49

                               __________

    Printed for the use of the Committee on International Relations


                    U.S. GOVERNMENT PRINTING OFFICE
60-295 CC                   WASHINGTON : 2000




                  COMMITTEE ON INTERNATIONAL RELATIONS

                 BENJAMIN A. GILMAN, New York, Chairman
WILLIAM F. GOODLING, Pennsylvania    SAM GEJDENSON, Connecticut
JAMES A. LEACH, Iowa                 TOM LANTOS, California
HENRY J. HYDE, Illinois              HOWARD L. BERMAN, California
DOUG BEREUTER, Nebraska              GARY L. ACKERMAN, New York
CHRISTOPHER H. SMITH, New Jersey     ENI F.H. FALEOMAVAEGA, American 
DAN BURTON, Indiana                      Samoa
ELTON GALLEGLY, California           MATTHEW G. MARTINEZ, California
ILEANA ROS-LEHTINEN, Florida         DONALD M. PAYNE, New Jersey
CASS BALLENGER, North Carolina       ROBERT MENENDEZ, New Jersey
DANA ROHRABACHER, California         SHERROD BROWN, Ohio
DONALD A. MANZULLO, Illinois         CYNTHIA A. McKINNEY, Georgia
EDWARD R. ROYCE, California          ALCEE L. HASTINGS, Florida
PETER T. KING, New York              PAT DANNER, Missouri
STEVEN J. CHABOT, Ohio               EARL F. HILLIARD, Alabama
MARSHALL ``MARK'' SANFORD, South     BRAD SHERMAN, California
    Carolina                         ROBERT WEXLER, Florida
MATT SALMON, Arizona                 STEVEN R. ROTHMAN, New Jersey
AMO HOUGHTON, New York               JIM DAVIS, Florida
TOM CAMPBELL, California             EARL POMEROY, North Dakota
JOHN M. McHUGH, New York             WILLIAM D. DELAHUNT, Massachusetts
KEVIN BRADY, Texas                   GREGORY W. MEEKS, New York
RICHARD BURR, North Carolina         BARBARA LEE, California
PAUL E. GILLMOR, Ohio                JOSEPH CROWLEY, New York
GEORGE RADANOVICH, California        JOSEPH M. HOEFFEL, Pennsylvania
JOHN COOKSEY, Louisiana
THOMAS G. TANCREDO, Colorado
                    Richard J. Garon, Chief of Staff
          Kathleen Bertelsen Moazed, Democratic Chief of Staff
                                 ------                                

        Subcommittee on International Economic Policy and Trade

               ILEANA ROS-LEHTINEN, Florida, Chairperson
DONALD A. MANZULLO, Illinois         ROBERT MENENDEZ, New Jersey
STEVEN J. CHABOT, Ohio               PAT DANNER, Missouri
KEVIN BRADY, Texas                   EARL F. HILLIARD, Alabama
GEORGE RADANOVICH, California        BRAD SHERMAN, California
JOHN COOKSEY, Louisiana              STEVEN R. ROTHMAN, New Jersey
DOUG BEREUTER, Nebraska              WILLIAM D. DELAHUNT, Massachusetts
DANA ROHRABACHER, California         JOSEPH CROWLEY, New York
TOM CAMPBELL, California             JOSEPH M. HOEFFEL, Pennsylvania
RICHARD BURR, North Carolina
             Mauricio Tamargo, Subcommittee Staff Director
        Jodi Christiansen, Democratic Professional Staff Member
                Yleem Poblete, Professional Staff Member
                      Camila Ruiz, Staff Associate



                            C O N T E N T S

                              ----------                              

                               WITNESSES

                                                                   Page

Hon. Ileana Ros-Lehtinen, a U.S. Representative from the State of 
  Florida, Chairperson, Subcommittee on International Economic 
  Policy and Trade...............................................     6
Hon. Christopher Cox, a U.S. Representative from the State of 
  California.....................................................     6
Hon. Norman D. Dicks, a U.S. Representative from the State of 
  Washington.....................................................     9
Mr. William Reinsch, Undersecretary of Commerce, Bureau of Export 
  Administration.................................................    28
Mr. Richard Hoglund, Assistant Commissioner for Investigations, 
  U.S. Customs Service...........................................    32
Hon. Toby Roth, Former Member of Congress, President, The Roth 
  Group..........................................................    39
Mr. Dave McCurdy, Former Member of Congress, President, 
  Electronic Industries Alliance.................................    41
Mr. Joel Johnson, Vice President, International Division, 
  Aerospace Industries Association...............................    43
Dr. Paul Freedenberg, Director of Government Relations, The 
  Association for Manufacturing Technology.......................    45

                                APPENDIX

Prepared statements:

William A. Reinsch...............................................    62
Richard J. Hoglund...............................................    67
Toby Roth........................................................    74
Dave McCurdy.....................................................    82
Joel Johnson.....................................................    94
Dr. Paul Freedenberg.............................................   100




  HEARING ON A NEW ACT FOR A NEW WORLD ORDER: REASSESSING THE EXPORT 
                           ADMINISTRATION ACT

                              ----------                              


                        Wednesday, March 3, 1999

                   House of Representatives
 Subcommittee on International Economic Policy and 
                                              Trade
                       Committee on International Relations
                                                   Washington, D.C.
    The Subcommittee met, pursuant to call, at 2:33 p.m., in 
room 2237, Rayburn House Office Building, Washington, D.C., the 
Honorable Ileana Ros-Lehtinen (Chairperson of the Committee) 
presiding.
    Present: Representatives Ros-Lehtinen, Manzullo, Chabot, 
Rohrabacher, Burr, Menendez, Sherman, Delahunt, and Hoeffel.
    Ms. Ros-Lehtinen. The Subcommittee will come to order.
    The exports of dual-use commodities have been and continue 
to be of critical concern to the national security interests of 
the United States. In light of recent developments related to 
the transfer of satellites and possible missile-related 
technology to China, apprehensions have mounted about the 
possibility of U.S. exports contributing to the military 
potential of pariah states and what role the Export 
Administration Act plays in this scenario.
    Initially, at the onset of the cold war, concerns over the 
transfer of superior technology to governments, factions or 
individuals may have threatened the collective interests of the 
United States and its trading partners and it led to the 
development of unilateral and multilateral export controls to 
ensure that dual-use technologies with potential military 
applications did not fall into the wrong hands.
    The Export Administration Act of 1979, based on legislation 
drafted at the onset of the cold war in 1949, had, as part of 
its original purpose, the tasks of restricting the export of 
technology and dual-use items, of guarding the domestic economy 
from scarcity and inflation, of furthering U.S. foreign policy 
and of protecting U.S. National Security.
    This was achieved through a somewhat complex licensing 
system that allowed the United States to monitor proliferation 
and the movement of goods into the Soviet bloc nations.
    Since 1990, when the Act expired, there have been several 
attempts made at rewriting the Export Administration Act of 
1979. These efforts to develop legislation to meet the needs of 
a rapidly developing marketplace and of a new world order have 
failed to pass through both houses of Congress.
    Since then, the Act has been maintained through a series of 
Executive orders issued through the International Emergency 
Economic Powers Act. In a post-cold war era, many have argued 
that there is a need to find a new approach to export controls 
that deal with today's political realities and increasingly 
globalized marketplaces, one which shifts the focus from the 
previous Soviet threat to the existing menace of terrorism and 
proliferation of weapons of mass destruction and one which 
balances the foreign policy benefits and the economic costs.
    While there is debate over whether there can be coexistence 
between industry interests and their desire to enhance export 
competitiveness and national security priorities are promoting 
effective and non-proliferation policy, lawmakers must look at 
a way to try to reconcile both goals.
    The dilemma we face is how to restrict the spread of 
potentially destructive technologies, while preserving the 
ability of U.S. technology exporters to develop their civilian 
technology markets.
    There are those who stress the benefits of export controls 
and who argue that the economic sacrifices, including reduced 
exports, are worth the price of ensuring U.S. National Security 
and that exporters are paying the burden of doing business with 
possibly dangerous commodities.
    Others suggest that new or modified unilateral export 
control must withstand a cost-benefit analysis, whether the 
costs of the proposed control on American industries and our 
economic competitiveness exceed the value to the foreign policy 
or national security priorities.
    Critics of current U.S. export control laws say that the 
current policies promote interagency grid lock, causing 
conflicts between the various responsible licensing 
administrations and their enforcement goals, and that the 
solution to a more effective export control mechanism lies in 
streamlining the process and concentrating regulatory authority 
in fewer agencies.
    Still there are those who claim that providing greater 
transparency on U.S. export control laws while maintaining 
tighter restrictions on export to terrorist nations would be a 
more effective approach to bring export control laws up to par 
with today's current global realities.
    Opponents of stricter expert controls have pointed to the 
foreign availability of many of these dual-use items and claim 
that some export controls hurt America's competitiveness, 
because, in effect, we are unnecessarily limiting our access to 
certain foreign markets and allowing our competitors to 
benefit.
    Others yet point to what they call a lack of effective 
unilateral controls. Those who criticize unilateral controls 
claim that they are ineffective and that only multilateral 
controls, such as missile technology control regime or other 
acts where allied countries to seek to coordinate export 
controls are actually the effective tools in non-proliferation.
    Supporters of unilateral export controls, however, argue 
that the United States cannot risk our security interests as we 
wait for our allies to decide whether or not to place similar 
controls on their export markets.
    Former President George Bush, in outlining the importance 
in developing a new Export Administration Act, spoke about some 
of the key considerations we should look at when drafting new 
legislation. He said American exporters are entitled to prompt 
review of export license applications submitted to the U.S. 
Government based on our commitment to an open International 
Trading System and the need to ensure America's 
competitiveness.
    While he also emphasized that these changes did not signal 
a lessening of our determination to weigh cautiously the 
licensing applications, raising potential non-proliferation or 
broader national security concerns.
    This is the challenge that we face today while considering 
the future of export control structure of the Administration 
and the reauthorization of the EAA. We must carefully evaluate 
the arguments and counter-arguments to find a solution that, 
first and foremost, safeguards our U.S. National Security and 
promotes our foreign policy objectives, yet also addresses 
market demands and incorporates U.S. trade and commercial 
concerns.
    We look forward to the testimony and the recommendations of 
our very esteemed witnesses that they will offer us today as we 
begin the reauthorization process.
    With that, I would like to turn to my colleague, 
Congressman Menendez.
    Mr. Menendez. Thank you, Madam Chairlady. I look forward to 
today's hearing. I have a full statement for the record, which, 
in the interest of time, I would ask to submit. But I do want 
to make some prefatory comments that as we embark on what I 
hope will be a successful conclusion which will ultimately 
conclude in having an Export Administration Act passed through 
this House and the Senate and get signed by the President.
    I think that the Congress has acceded authority to the 
executive branch by not acting and in doing so, under the 
Constitution, which clearly gave the Congress the authority to 
deal with questions of commerce that are not acting, has 
created an abdication of what is, I think, an incredibly 
important interest that the Congress should be pursuing and an 
incredibly important right under the Constitution that the 
Congress should be exercising.
    I'm also concerned, as any one of us who sits on this panel 
or in this Congress are, about the concerns of national 
security, as well as economic development and opportunity, that 
in an ever-changing world, in an ever-changing economic reality 
of the United States needs to have, and the balance that is 
struck there is, of course, of incredible importance to us.
    However, I hope that we do not, by virtue of our concerns, 
our legitimate concerns in the context of national security, do 
not move the pendulum so far as to snuff out the very economic 
vitality of those commercial enterprises that, in fact, in my 
mind, assist America in being safer.
    Ultimately, the companies that are, in fact, doing the 
research and development that the United States, as a 
government, is not doing is, in fact, crucial to the type of 
competitive advantage that the United States has had in 
technology against any other ally or any other potential enemy 
of the United States, and it is that competitive edge that is 
ultimately fueled not necessarily by Government research, but 
by the research and development of the very private sector who 
falls within the am bit of the Act and ultimately who, if we go 
overboard on, we will, in essence, hurt ourselves in the 
context of national security.
    So therefore, it's part of our dilemma. I think that there 
are issues that we can all universally agree upon up front and 
they include, of course, the questions of penalties. On the 
side of penalties, we have a regime presently operating under 
Executive order that I think gives very little teeth to the 
type of enforcement that we would want to see, as well as a 
regime that we're working under that ultimately creates, I 
think, a very significant problem for the enforcement, the 
intelligent enforcement of our law, and that spreads us so thin 
in pursuing avenues under the present regulations that do not 
create a meaningful enforcement regime that can really serve 
the national interests and the national security interests of 
the United States.
    Having said that, I want to thank you colleague Norm Dicks 
Chris Cox for their work in making sure that the national 
security questions which are vital to all of us have been 
looked at deeply. I look forward to their testimony.
    I do intend to have some questions for them based upon some 
of the recommendations I've seen and how we can work together 
to strike that balance that protects the national security of 
the United States, but that understands that the commercial 
enterprises that are subject to this regime ultimately, also 
are part not only of economic vitality, but of helping the 
national security of the United States be further secure in the 
days ahead.
    Ms. Ros-Lehtinen. Thank you, Mr. Menendez. The Vice Chair 
of our Subcommittee, Mr. Manzullo.
    Mr. Manzullo. Thank you very much. Madam Chair, I commend 
you for holding this hearing today, and I can't think of an 
issue that is more critical to the economic vitality of this 
nation than the reauthorization of the Export Administration 
Act.
    Bottom line is this. Unless we do something, it's very 
conceivable that 13 of our largest computer manufacturers will 
be manufacturing not in the United States next year, but in 
Europe and Asia.
    Because of the vision that was put in the Defense 
Authorization bill that requires a license for computers that 
have 2,000 MTOPS and above, we are in the process in the 
country of sending hundreds of thousands of high-paying jobs 
overseas.
    Second, we have to come to an understanding that computers, 
that satellites, that machine tools, that electronic equipment 
is sophisticated, but it's not unique. If we don't sell it, 
then the French or the Swiss, the Fins, the Radians, the 
Germans, or the Japanese or the Canadians will do it.
    If we do not do this bill correctly, it's close-up time for 
hundreds of thousands of jobs in this country. This is so 
absolutely totally critical. We have to take a look at what it 
means to have something called foreign availability.
    Does it do any good for this country to deny the sale of a 
machine of several million dollars based upon some foreign 
policy objective, then to have the French move right in and 
sell the very same machine to the people who want to buy it? It 
does two things. The up-front injury is obviously apparent, 
because we lose the sale of that machine. The second thing is 
it paints the American manufacturers as inherently unreliable 
suppliers.
    Third, on top of the problems with the EAA, we fight 
continually with the Export/Import Bank that tries to pride 
itself upon some type of cloak of humane justice, at the same 
time while not allowing firms such as Caterpillar to get Ex/Im 
loans to the three gorgeous dam projects. Our own American 
Government ends up having the Chinese buy those machines from 
Japan as opposed to the United States.
    We are our own worst enemy when it comes to export policy. 
We can have an aggressive and victorious and profitable export 
policy and, at the same time, guard very carefully our national 
security interests.
    Madam Chair, I look forward to working with you on coming 
up with a bill aimed toward that effect.
    Ms. Ros-Lehtinen. Thank you, Mr. Manzullo. Mr. Hoeffel.
    Mr. Hoeffel. I have no comment. Thank you.
    Ms. Ros-Lehtinen. Thank you. Mr. Chabot. Mr. Delahunt.
    Mr. Delahunt. Just briefly. Before we begin, I really want 
to publicly state what I've said to both Mr. Dicks and Mr. Cox 
privately, that I was--it was very refreshing, during the 
course of your efforts, which I know were considerable, that 
the issue did not become politicized as a result of the work 
that you did, that there were no leaks.
    I would say, given my short time here in this institution, 
it was unusual, but it reflected well on both of you and you 
brought great credit to Congress as an institution by your 
conduct and other Members of the Select Committee.
    I just wanted to say that, and one other item. Tomorrow, 
listening to my colleagues on the Subcommittee, in the same 
room, this happens to be a Subcommittee room usually utilized 
by the Intellectual Property Subcommittee of the Judiciary, 
that Subcommittee I also serve on, and we'll be dealing with 
the issue of encryption.
    That, I think, last year, had in excess of 250 co-sponsors; 
co-sponsored, again, in a bipartisan way between the lead co-
sponsors being Representative Goodlatte and Representative 
Lofgren.
    I think really what we're talking about is whether Mr. 
Manzullo very accurately and articulately described as this 
need to, at some point in time, resolve this anguish we have, 
and I know it's a difficult balance between our security 
concerns and our need to be competitive internationally. And I 
dare say that when we pick up the barons on a monthly basis and 
discover that our trade imbalance is ever increasing, that we 
have to keep that in mind, because the one account where we 
have the advantages in the high tech area--and I just want to 
make that observation without reaching any conclusions.
    But, again, to both of you, congratulations on the work 
that you did.

    STATEMENT OF THE HONORABLE ILEANA ROS-LEHTINEN, A U.S. 
REPRESENTATIVE OF CONGRESS FROM THE STATE OF FLORIDA, CHAIRMAN 
 OF THE SUBCOMMITTEE ON INTERNATIONAL ECONOMIC POLICY AND TRADE

    Ms. Ros-Lehtinen. Thank you so much. We're so pleased to 
have before our Subcommittee two of our colleagues. 
Representative Chris Cox is the highest Ranking Californian in 
Congress. He's Chairman of the House Policy Committee and the 
fourth Ranking Member of the leadership, behind the Speaker. He 
currently serves as Chairman of the Select Committee on U.S. 
National Security and Military Commercial Concerns with the 
People's Republic of China, as well as on the Committee on 
Commerce and its various Subcommittees.
    Before he was elected to Congress in 1988, he served as 
Senior Associate Counsel to President Reagan, advising the 
President on a broad range of policy matters, and prior to his 
White House career, Congressman Cox, along with his father, a 
retired publisher, founded a company that provided a complete 
English translation of the former Soviet Union's leading daily 
paper.
    From 1978 to 1986, he specialized in Venture Capital and 
Corporate Finance with the International Law Firm of Latham & 
Watkins, where he was a partner in charge of corporate 
development and a member of the firm's national management.
    Representative Norm Dicks is a former Vice Chair of the 
Select Committee of the U.S. National Security and Military 
Commercial Concerns with the People's Republic of China. He 
received a rare first-term appointment to the House 
Appropriations Committee and currently serves as a Senior 
Member.
    He is a Member of three Appropriations Subcommittees, 
including Defense Military Construction and the Subcommittee on 
the Interior, where, this Congress, he became the Ranking 
Democratic Member.
    Prior to his successful run for Congress in 1976, 
Congressman Dicks was a legislative assistant and later AA to 
Senator Warren Magnuson.
    We welcome you both. Thank you. Chris, you may begin.

      STATEMENT OF THE HONORABLE CHRISTOPHER COX, A U.S. 
    REPRESENTATIVE OF CONGRESS FROM THE STATE OF CALIFORNIA

    Mr. Cox. Thank you very much. I certainly feel very welcome 
here and I want to first thank the Chairperson for her 
introduction and, also, immediately recognize that Mr. Manzullo 
has put the potato on the fork for us. That is the issue that 
we've got to deal with today.
    I deal with it, as Mr. Delahunt does, in part, by having 
signed on as original co-sponsor of the bill that you're going 
to consider in here tomorrow on encryption. Nothing that I have 
seen as Chairman of the Select Committee, which completed its 
work prior to the commencement of this Congress, caused me to 
be anything other than enthusiastic for that piece of 
legislation.
    The Select Committee, as you know, was established a 
resolution that you all voted on the floor last June. It was a 
nearly unanimous vote in support of investigating matters that 
had been brought publicly to the attention of the Congress.
    Mr. Bereuter, who is not here, but is a Member of this 
Subcommittee, as well as the Full Committee did a splendid job 
serving as one of the Members on this Committee.
    As Mr. Delahunt pointed out, our report was unanimously 
delivered. Norm and I don't agree on everything. We didn't 
during the pendency of our Committee. The same could be said 
for every single Member on the Republican and Democrat sides. 
We have intramural, as well as interpartisan disagreements. But 
we agreed on everything in our report and all of its 
recommendations and we did so because the facts that we 
uncovered in our investigation are compelling and they carry 
grave consequences.
    The Export Administration Act figured in our 
recommendations. The Act, as several of you have outlined in 
your opening statements, long since expired. It's been carried 
on after some brief extensions in 1993 and 1994, under the 
President's Executive order authority, pursuant to IEEPA.
    The penalties, as you have also alluded to, under IEEPA, 
are significantly less than those that were enforced when we 
had an Act and that would be enforced if we simply reauthorized 
the Act.
    I'm used to playing with accompaniment.
    The Export Administration Act carries a maximum criminal 
penalty for an individual of $250,000 and up to 10 years in 
prison. But under IEEPA, the maximum penalty is just one-fifth 
of that, $50,000. The maximum criminal fine for an 
organizational violator, and typically we're dealing with firms 
that are involved in these things, is the greater of $1 million 
or five times the value of the export, under the Export 
Administration Act; not treble, but quintuple damages. But 
under IEEPA, the maximum fine is only half of that $1 million 
base or $500,000 for an organization and there is no quintuple, 
treble or any other multiple of an export fine.
    The civil penalties, likewise, $100,000 under the Export 
Administration Act, but the maximum of $11,000 under IEEPA, and 
you can imagine how silly it is to have an $11,000 penalty for 
something that requires Federal prosecution even to bring to 
the penalty phase.
    So we on the Committee recommended what came rather clearly 
and obviously to all of us, and that is that Congress ought to 
restore the Act and its penalties, because, as Mr. Menendez 
pointed out in his opening remarks, to a substantial degree, 
our enforcement is rendered toothless.
    Licensing procedures are governed by Executive order, 
dating back to 1995. The established time lines for processing 
export license applications and reviewing departments and 
agencies and procedures, resolving differences among the 
agencies regarding the disposition of license applications, are 
all covered by EO-12981.
    Presently, under that regulation, the Defense Department 
has only 30 days to provide a recommendation to Commerce, not 
the Committee, but the department, to approve or disapprove 
every license application, no matter how complex. And I can 
tell you that right now we are disserving both the national 
security interest and our commercial interest by overloading 
that system. It doesn't work and it is very, very easy to 
imagine ways to improve upon it.
    The Select Committee recommends that the current licensing 
procedures be modified to provide longer review periods, when 
deemed necessary by a reviewing department or agency on 
national security grounds, in light of the volume and 
complexity of licensing activities.
    Presently, when departments and agencies are not in 
agreement regarding a license application, the Commerce 
Department makes the final decision on every license, subject 
only to appeal by other departments or agencies.
    The Select Committee recommends approval of a license 
application that requires a consensus by reviewing departments 
and agencies, subject to appeal procedures.
    The new procedures and deadlines for processing Commerce 
Department Export License Applications were instituted in late 
1995. They place National Security Agencies under significant 
time pressures. Commerce officials acting alone are less likely 
to have the expertise for identifying national security 
implications of export of militarily useful technologies.
    While National Security Agencies may be informed of 
applications, due time is needed for their consideration. The 
time-frame for consideration under the current system is not 
always sufficient for DOD to determine whether a license should 
be granted or if conditions should be imposed.
    In addition, the intelligence community has sought a role 
earlier in the licensing process in order to evaluate the 
technology and the end user.
    The Select Committee recommended that Congress and all of 
you here in this Subcommittee work to establish a mechanism to 
identify on a continuing basis those control technologies and 
items that are of greatest national security concern. With 
respect to those technologies and items, it is our 
recommendation that there be longer review periods and a 
consensus.
    But with respect to other currently controlled technologies 
and items that are not of greatest national security concern, 
currently licensing procedures should be modified to streamline 
the process and provide greater transparency, predictability 
and certainty.
    There has been some public comment, press comment and 
television comment on the recommendations of the Select 
Committee. I hasten to add that the Select Committee has not 
issued its recommendations and what is out there is only part 
of the picture.
    In particular, several of our recommendations, bearing 
directly on what you are considering, are more fully and 
understandably described in our report, which presently remains 
classified. Even more importantly, the basis, the reasons for 
those recommendations remain classified, and so it's impossible 
to have a dialogue or a discussion of, on the one hand and on 
the other hand, about these things, so long as that 
classification remains in place.
    Tomorrow, Representative Dicks and I will brief your Full 
Committee in a closed session so that we can go into those 
reasons, but for today, of course, we are in open session and 
so we are left with only the highest gloss on our work.
    But we very much appreciate the time to introduce you to 
our thinking on the subject. I would yield to the distinguished 
Ranking Member on the Select Committee, Mr. Dicks, with respect 
to whom I have the very same high praise that Mr. Delahunt 
shared with us a moment ago.

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

    Mr. Dicks. Thank you, Madam Chairperson. I appreciate being 
here today and I have enjoyed very much working with Chris Cox 
on this important subject and I was pleased that we were able 
to come to a unanimous conclusion.
    Obviously, there are differences of opinion on certain of 
these issues, but we tried to work it out in a way that, in the 
midst of the impeachment proceedings, to try and demonstrate 
that Congress could work on a serious issue without necessarily 
breaking along partisan lines, though we certainly had our 
differences.
    I would just say that I come from Washington State and 
there is no state in the country--we lead the Nation in export 
because of the Boeing Company and I have always been a person 
who has believed that we needed to have a policy of engagement 
and that we needed to trade with the rest of the world, and my 
record in Congress has been that.
    On the other hand, I would just say to my good friend Mr. 
Delahunt that there are differences of opinion on the issue of 
encryption. Washington State also is the home of Microsoft, a 
very important company in our State and they have a very 
definite view on that.
    The Intelligence Committee, last year, on a unanimous vote, 
all 17 Members, took a position very different from the 
Goodlatte legislation on the basis of law enforcement equities, 
particularly those of the FBI, and Mr. Louie Freeh has very 
strong views about this and I would encourage, in your 
deliberations here, that you listen to what he has to say, as 
well, because there are very important national security and 
foreign policy reasons for looking at this thing carefully and 
trying to get the rest of the world to look at this issue 
carefully.
    But that's not what we're here about today. I just wanted 
to make a very brief statement. I appreciate the opportunity to 
appear with the Chairman in support of reauthorization of the 
Export Administration Act.
    As Mr. Cox has indicated, the Select China Committee felt 
strongly that continuing to implement export control through 
the emergency authorities, which have been in place since 1994, 
was unwise. Chairman Cox noted that the penalty authorities, 
both civil and criminal, under the International Emergency 
Economic Power Act, IEEPA, were substantially lower than under 
the Export Administration Act of 1979.
    Even if it were possible simply to reinstate the EAA 
penalty levels, sufficient correction would not result since 
the effect of those levels has been seriously eroded by two 
decades of inflation.
    If penalties are to be of assistance in conforming 
behavior, they must be meaningful. Currently, deterrence is not 
enhanced by the available penalty authorities. I understand 
that there are authorities other than those related to 
penalties which are either restricted or susceptible to being 
questioned under the existing export control framework.
    Resolving those matters is important, but perhaps not as 
important as having an Export Administration Act 
reauthorization serve as the basis for a serious debate within 
Congress and between Congress and the executive branch about 
export control policy.
    Much has changed certainly since 1979, but even since 1996, 
when the House last voted on export control issues, I think we 
need to carefully consider how to balance best national 
security concerns, particularly on dual-use items, with the 
legitimate concerns of U.S. businesses seeking to sell their 
products overseas.
    I must say that our Committee struggled with this, too, 
because I think all of our Members are very concerned about 
allowing the United States to export around the world. At the 
same time, we want to be very careful that sensitive 
technologies not be inadvertently turned over to potential 
adversaries, especially with the problem of proliferation, in 
that some countries get these technologies and then they go on 
to other countries which could be even more dangerous.
    So we think this is a very important issue. It's one that 
we struggled with and debated, but I thought that the 
recommendations that we made were pretty solid and I would hope 
that, as we get this thing declassified and we can share more 
of this information with you, you will see the basis for the 
recommendations that we did make.
    On the subject of high speed computers, we know that's a 
very sensitive issue. We know that that's very important to our 
country, as well. There were some reasons why we did what we 
did, that we simply can't talk about in this particular forum 
because of classification levels. But at some future point, we 
want to engage everyone, so that you can have the best 
information and you can see what we developed and then draw 
your own conclusions.
    Thank you very much.
    Ms. Ros-Lehtinen. Thank you so much to both of you 
gentlemen. I just have two questions and if you could stick 
around for a few minutes while the Members ask, and we 
understand the classified nature of your report. So whatever 
you could answer would be great.
    Your report includes recommendations for current licensing 
procedures and you talked about it in your presentation to be 
modified in order to provide longer review periods when deemed 
necessary for controlled technologies and for items of greatest 
national security.
    What specific recommendations would you offer? What items 
would you consider to be in that category of greater national 
security concern and do you believe that any reviewing agency 
should be able to ask for a longer review period or should it 
be limited to a specific longer review period, and what happens 
if what you talked about, Chris, about consensus, if it cannot 
be achieved, as is so often the case in the governmental 
infrastructure, what would happen?
    Mr. Cox. Well, Madam Chairman, our approach would do two 
things. First, it would attempt to separate out those items 
that we know are the subject of espionage, that are the subject 
of collection, that are the focus of military acquisition by 
countries of concern and countries with proliferation records, 
from our standpoint.
    The second thing that it would do is take that core, which 
is a subset of what presently now is controlled, and 
essentially go back to the system of a few years ago, where not 
just the Commerce Department, but also the State Department and 
the Defense Department, and I would, for a variety of purposes, 
which to include somehow in that mechanism the Intelligence 
community, have not just a heads-up, but an opportunity to be 
involved in a meaningful way.
    We have said two things. First, we want longer review times 
for those essential things and, second, we want a fast track 
for many other things. We're in many ways, in many respects, 
always trying to fight the last war, and the same can be said 
about the way that we run our exports.
    But as I said in my opening comments, the present system is 
the worst of both worlds. It is woefully inadequate when it 
comes to protecting our national security. It is woefully 
inadequate when it comes to giving us a competitive edge vis-a-
vis our trading partners, because the process chews up time and 
all of that time and paperwork doesn't result normally in the 
kind of quality review that it should.
    So we need to decide what we really care about, put more 
resources there, and focus attention on our real national 
security concerns.
    Ms. Ros-Lehtinen. Thank you. Norm?
    Mr. Dicks. Basically, what we tried to say was that there 
ought to be a way to make a judgment here about which of these 
items are of the most concern, take a little more time on 
those, and the ones that are of less concern, then you could 
have an expedited procedure.
    Now, we left that up, frankly, to the Administration to 
decide at what point you'd make that cutoff.
    The other thing is, I think a thorough review of the timing 
process here and whether agencies can stop the clock, how 
that's done, those are the kind of things that we think are 
necessary.
    We also think that there ought to be consensus on issues 
that are sensitive on national security grounds rather than 
allowing for a majority vote process which, as we understood 
it, currently exists. So those are just a few of the things 
that we felt. But we also felt that in areas that were less 
sensitive, we ought to have an expedited procedure.
    We don't want to hold up industry here, but we want to be 
careful, because there was some indication that there were 
times when, a little more time, we might have ascertained that 
we had a problem and that the agencies felt, the Defense 
Department and the State Department felt rushed on some of 
their judgments about certain sensitive technologies.
    Ms. Ros-Lehtinen. In order to meet those----
    Mr. Dicks. To meet time lines.
    Ms. Ros-Lehtinen. One more question. Should reauthorization 
of the EAA wait for the results of the investigation by various 
agencies into the adequacy of current export controls that 
would protect against the acquisition of militarily sensitive 
U.S. technology by the PRC or by other countries and how would 
an EAA protect against the foreign acquisition of such 
sensitive technology by other countries?
    Mr. Cox. Well, our investigation is, in fact, complete. Our 
existence presently is solely for the purpose of working out 
with the Administration a declassified version of our report, 
but our staff, which once numbered 45, is now to about a half 
dozen now and we are working only on making the report 
available in public form.
    And so for Members and for the Congress, it is possible now 
to see the results of our report and to see our 
recommendations. The EAA, therefore, should not await any 
further proceedings from this Committee, but perhaps there is 
other information that you'd wish to have before you proceeded 
in the Subcommittee.
    I would also say, in answer to the second part of your 
question, that reauthorization of the Export Administration Act 
gives us an opportunity to protect the national security and to 
enhance our export position and our competitive position in the 
world, because it will, by definition, if we do a good job of 
it, be a modernization. And the Act, in addition to bringing 
penalties up to date, needs some modernization, as we indicated 
in our recommendations.
    I stated, rather elliptically, that the Intelligence 
community wishes to be brought in earlier and that we think the 
Intelligence community ought to be brought in earlier, but we 
did not recommend that the Intelligence community be one of the 
reviewing agencies, the consensus of which is required. Rather, 
we made a separate recommendation in our report that within the 
executive branch, the Intelligence community share information 
with those people who have responsibility for export 
Administration.
    We found not just evidence, but serious problems because 
information about theft of our technology was not shared, for 
example, with the Secretary of Commerce or the entire 
Department of Commerce that's responsible for administering our 
export regime. That simply cannot stand.
    Ms. Ros-Lehtinen. Thank you, Chris.
    Mr. Dicks. I support the Chairman's comments here. I don't 
think there is any reason to hold up. Frankly, I think the fact 
that we didn't have an Export Administration Act may have sent 
the wrong signal to the business community.
    Part of the problem here, frankly, is that there were some 
mistakes made by major companies in terms of the licensing 
process and those things are being investigated by the 
executive branch.
    There was kind of an attitude that we're going to relax the 
rules a bit here and that's when we get in trouble. When the 
private sector, if they know what the rules are and know that 
the government is going to enforce those rules, then I think 
they'll abide by them and respect them. And in this case, there 
is evidence that there were problems there.
    So I think quite the contrary. I think getting on with 
this, get this thing done, sends a very powerful message that 
we're serious about this subject matter and we want them to be.
    Ms. Ros-Lehtinen. Thank you so much. Mr. Menendez.
    Mr. Menendez. Thank you. Let me just--I want to pursue just 
one line of questioning which I think is within the public 
purview, and that is on your recommendation of having a--
requiring a consensus for the agencies in the license approval.
    Now, some people have characterized this, including the 
Administration, as suggesting a return to the old system which 
resulted in licenses sometimes just being vetoed without 
adequate cause; in short, a system in which everyone could say 
no, but no one could say yes, and a process which did not serve 
the dual interests that we've all talked about here today.
    Can you give us a sense of why you think that that 
recommendation versus the Administration's current default to 
decision process is a wiser one and where, my understanding is, 
under the present process, dissenting agencies can raise their 
objections all the way up to the President.
    My concern is that we can have a situation here in which 
there is a virtual one agency veto in this process and I'm not 
quite sure of the appeal process you all laid out, to the 
extent that there is one.
    I'm wondering, is there any case in which an agency's 
concerns were not adequately considered through the current 
process.
    Mr. Cox. Well, the answer to the last question is easy. The 
answer is yes. There are a number of examples of mistakes being 
made and it isn't so much a case of the formal process not 
being observed. Rather, it is the cumbersome nature of the 
current or the post-1995 process in which there was a 
theoretical appeal to the President, but in which, frankly, 
trains left the station and national security was not looked 
after.
    I said earlier and I want to reemphasize that this system 
shortchanges both national security and our commercial 
interests. It is hurtful to both of them. The notion is that if 
we let Commerce be the final say on these things, that we will 
vindicate our commercial interests, but in truth, we haven't 
done that. In truth, there have been delays. In truth, there 
has been a lot of paperwork. In truth, a lot of focus has been 
placed where it ought not to have been placed and things that 
ought to have been looked at after were not looked after.
    So we can say that while there is an attempt made to 
resolve the different interests by placing one or another 
agency in charge, in this case, Commerce, that we have caused 
some rough justice, but rough justice ought not to be what 
we're after here.
    The law of averages isn't good enough. If sensitive 
technology is exported, it doesn't take but a few times for 
that to come back and bite you. You want to make sure you're 
looking where you're supposed to be looking.
    So I think we can do a much better job than presently we do 
and I don't think there is any question that you don't resolve 
these issues by saying that Commerce is going to be king or 
national security is going to be king. That's not the way to go 
about it.
    Mr. Menendez. And that's not my sense of it. My sense of it 
is that through a process in which any agency--in my 
understanding, there is no agency that has ever sought an 
appeal up to the President. So I'm not quite sure how it is 
that it didn't work if people had an appealable process. But my 
concern----
    Mr. Cox. That's precisely my point. That point was made 
many times in----
    Mr. Menendez. My concern is, how is it that--you know, we 
can all sit in a room and we can be locked in and at the end of 
the day, one of us may just simply not agree, and how do we go 
beyond that. I mean, that's my concern.
    I understand we want safeguards, but I'm just concerned 
this is overly broad.
    Mr. Dicks. As you can imagine, trying to do all this in 6 
months, we had to be kind of instant experts in some areas and 
I would characterize this as one of them.
    In fact, I think on this question, this is something your 
Committee should take a very careful look at. We've raised the 
issue for you. I think you need to look at this and work out a 
process that you think protects national security and, at the 
same time, allows these decisions to be made.
    I do believe we have an appeal process that would raise 
this to a higher level of authority if there wasn't a 
consensus. So the lack of consensus wouldn't mean you wouldn't 
get a decision. It would just have to go up to a higher 
authority, which, under the present procedure, would have--the 
same--the difference was that, as we understood it, there was a 
requirement for a majority vote.
    We felt that if the Defense Department or State Department 
were outvoted, here you've got the national security issue not 
being maybe given the credence.
    Now, they obviously could have raised it in an appeal to a 
higher level. But I guess my urging here today would be take a 
real careful look at this area. This is one that needs 
attention and when you have more time than we did, I think you, 
frankly, can do a better job.
    Mr. Menendez. Thank you.
    Mr. Cox. One final point, if I may. As I said earlier, the 
other agencies, the National Security Agencies, under that 
system introduced in late 1995, were pressured for time. So 
while there is a theoretical appeal, there isn't necessarily 
preparation for that appeal.
    If we have a lot of time to look at everything in a fulsome 
way, we're probably looking at too many things, by the way, and 
so we want to circumscribe that universe that gets this special 
attention.
    But we know if we bring to bear the significant 
intelligence information that we have, we know that we'd be 
wise to spend our time in certain areas as against certain 
other areas. And at least in those areas where we face 
significant threats, we would like to see some national 
security input at the front end and not time-limit it 
arbitrarily.
    Mr. Menendez. It's interesting how you said it, because in 
1996, when the Congress voted on this, both the National 
Security Committee and the House International Relations 
Committee moved in a different way, which was to shorten the 
time periods, not lengthen them.
    So I think these are two of part of a very significant 
serious----
    Mr. Cox. Which we also are recommending. That's a very 
important part of our recommendations. We have recommended a 
fast track for a significant number of these things.
    Ms. Ros-Lehtinen. Thank you so much. Mr. Manzullo.
    Mr. Manzullo. Thank you. I read the report and I want to 
commend you for the work that you did on it. Let me present to 
you a live scenario and see how you would fashion the re-write 
of the Export Administration Act to it.
    As I said in my opening statement, any computer with MTOPS 
in excess of 2,000 to be sold to a tier three country would 
have to have a validated export license. The new Pentium chip, 
Pentium 3, has 1,200 MTOPS. IBM, the new IBM PC will have two 
of those chips. That's two times 1,200, that's 2,400 MTOPS. The 
Dell workstation will also have two of these, that's 2,400 
MTOPS.
    Those two companies supplied the BXA last year for about 
300 sales to tier three countries. This next year, it's 
estimated that there will be 34,000 applications before BXA in 
order to sell these computers.
    How do you re-write the Export Administration Act to make 
sure that our computers are sold to tier three countries as 
opposed to these tier three countries buying the very same 
machines, possibly manufactured by our own manufacturers 
overseas, because of presence of foreign availability?
    Mr. Cox. Two points. First, you would have a remarkably 
difficult time writing the Export Administration Act if you had 
to include an MTOPS level in the statute. That is not where the 
requirement comes from and it has to be adjusted from time to 
time because of the pace, rapid pace of development of this 
technology.
    All that we require from a national security standpoint is 
to keep a technological lead in weapons development and 
deployment and, second, to make sure that we are not shipping 
tools and, for some purposes, computers are tools, that are 
used in ways that are otherwise preventable to deploy and 
proliferate weapons of mass destruction.
    So you're left with the problem. It is a subjective 
problem. It's one that probably the Act cannot satisfactorily 
address in the statute. It hasn't in the past. But you're also 
guided by some general principals and we will be able, as 
Representative Dicks mentioned in his opening remarks, 
tomorrow, when we go into closed session, talk to you 
explicitly about our recommendations in this area and the 
reasons for them.
    There are some very, very explicit things that you need to 
know about.
    Mr. Manzullo. Mr. Dicks, did you want to comment on that?
    Mr. Dicks. This was one of those areas where there was a 
lot of angst and we struggled with this. The problem here is 
that at the low end, you're absolutely right. There are all 
these other countries that produce these. As I remember the 
numbers, it's under 7,000 that can be exported for non-military 
purposes.
    One of the things that we did feel strongly was that there 
has to be some ability to do meaningful end-use verification to 
make certain that if they bought these things and said it's 
going to the cultural or the academic institute, that these 
things don't wind up being used for other non-allowed purposes.
    So we understand the difficulty of getting this done. In 
fact, the Administration has attempted to try to set up an end 
use regime and that's something that you may want to look at as 
well here.
    I do think there are some questions as you get to the 
higher levels where, in fact, you're going to have national 
security problems and that's one area where you need to get the 
intelligence information.
    Mr. Manzullo. The M top levels were written into the 
Defense authorization bill. At 2000, we're frozen. We're frozen 
with this. This is something--it's not a matter of taking a 
look at. I think technology has out paced much of the need for 
these types of restrictions. When Cray tried to sell their 
super-computer, which is a computer which just does regular 
functions at a faster speed, to India, the licensing 
requirement took so long, India did reverse technology, made 
the computer, canceled the contract and started exporting 
elsewhere.
    And I don't care if it's with computers or if it's with 
communication satellites or if it's with machine tools. This 
problem is endemic because I think what we should start with, 
re-writing the bill, is with foreign availability, then work 
backwards on it.
    Mr. Dicks. That's going to be your challenge and you can 
take a look back and forth, and good luck.
    Mr. Manzullo. Thank you. Thank you, Madam Chairman.
    Ms. Ros-Lehtinen. There you go. That's what you get for 
putting the potato on the fork. Mr. Delahunt.
    Mr. Delahunt. Yes, thank you, Madam Chairman. I want to go 
back to the--I had the same question that Mr. Menendez put 
forth in terms of the consensus issue. Given the inherent 
condition of bureaucracies to require a consensus raises a 
level of concern.
    It's as if it were a veto, if you will, and raises a level 
of concern with me that it would really encumber this process.
    To pick up a point made by Mr. Cox, if you brought in--and 
I don't know whether, in your opinion, this would obviate the 
need for the consensus, but it's my understanding that 
historically the intelligence community has never played a role 
in this review and process.
    And if they were factored in at an earlier point in time, 
at the beginning, if that could be the case, I just simply 
don't know, would----
    Mr. Dicks. On that point, just on that point.
    Mr. Delahunt. Sure.
    Mr. Dicks. Both the State Department and the Defense 
Department have the benefit of intelligence information as they 
make their recommendations.
    Mr. Delahunt. But I think what Mr. Cox was alluding to was 
to have actually representatives from the intelligence 
community there participating at an earlier stage in the 
process itself.
    Mr. Cox. But in the manner that Mr. Dicks just described, 
our Committee's concern was that that process, which was 
supposed to work that way, isn't functioning that way and 
information that ought to have been shared with the State 
Department, with the Defense Department and the Commerce 
Department and so on was not.
    Mr. Delahunt. Well, let me ask both of you. If it worked, 
would that obviate the need to, in your opinion, to have this 
consensus process?
    Mr. Cox. We did not suggest an extra seat at the table for 
the intelligence community, requiring their explicit consensus, 
and we think it can work through the other cabinet departments.
    Mr. Dicks. If you have a need for consensus and there isn't 
consensus and you can raise it to a higher level of authority 
to get a decision, to me, that sends a message to the higher 
level authority; they could not reach a consensus here, but now 
we have to decide this and you get the Assistant Secretaries 
and then the Deputies and then it goes to NSC and finally to 
the President.
    To me, that makes sense, something like that makes sense.
    Mr. Delahunt. I hear you, but I think Mr. Manzullo is right 
and, again, I'm just concerned that these various agencies, 
innately conservative as they are and not wanting to be 
vulnerable to unfavorable public exposure at some point in 
time, are going to say, well, when they sit down among 
themselves, hey, let's nix this one. They can appeal.
    And we find ourselves, in terms of competition, as Mr. 
Manzullo indicated, the technology is moving so rapidly that 
I'm concerned we're going to lose our competitive edge.
    Mr. Cox. If I may say so, this gets awfully easy if you're 
using a Pentium computer as your example. Paperwork that slows 
down the export of PC's is, I hope, a straw man. We oughtn't to 
be in favor of that.
    But I will say that there are plenty of examples in the 
current regime where things that ought to be no-brainers are 
slowed up and that's the problem. The problem is we are 
shortchanging both the national security and our commercial 
interests and, therefore, you are right to focus on behavior by 
people who work in the system.
    How do they really work? One of the problems that we 
observed is that at the Commerce Department and at the State 
Department, the staffing is inadequate.
    Mr. Delahunt. That was going to be my question.
    Mr. Cox. First of all, they're undermanned, they're under-
powered, and the people in many cases lack the training that 
they need in order to carry out these responsibilities.
    Congress is uniquely situated to address these problems and 
we hope that that's one of the things that we can do, put 
resources to bear and also do it wisely. Don't have an army of 
people looking at things that don't need that kind of review.
    I agree, for example, with Mr. Manzullo that we can be 
sensitive when we set up--whether we even want to use M top 
levels forever, because there are some shortcomings with that 
measure, as you know, whether we can set up flexible systems 
that can change those standards as need be.
    And you are right that on one occasion, Congress did, for 
tier three countries, write the standard into law. I think 
that's a mistake. Fortunately, there, is an opportunity for the 
President to change that, although he has to notify Congress 
first, but that's the only occasion when that's happened and I 
think we ought to, when we re-write the Export Administration 
Act, keep the system of doing it by regulation.
    Mr. Dicks. Another possible way, as we said, we think there 
ought to be a division between those very sensitive items and 
the ones that are less sensitive.
    You might just have consensus required on the most 
sensitive one as one way to make sure that national security is 
protected. That's one way you might deal with this.
    Mr. Delahunt. The problem is drawing the line and writing 
that into statutory language. I don't see how we do it.
    Mr. Dicks. Well, you might give that responsibility to the 
Administration and then have oversight.
    Ms. Ros-Lehtinen. Thank you. Mr. Chabot.
    Mr. Chabot. Thank you. Chris, you mentioned in your 
testimony that right now the Defense Department has to respond 
in about 30 days. Is that correct?
    Mr. Dicks. We think that's the answer.
    Mr. Chabot. I thought you said basically that it goes to 
Commerce and the Defense Department has 30 days and they're 
saying they need more time essentially to review these things. 
My concern was that there are some things that I kind of----
    Mr. Dicks. They can be extended, too. I'm advised that 
whatever time-frame it is, it can be extended if they've got a 
real heartburn problem.
    Mr. Chabot. And my concern for the idea of extending times, 
although I'm certainly willing to listen to this and I'm sure 
that's one of the reasons we're having these hearings and 
discussing the whole issue, is that I basically believe that 
bureaucracy by its very nature will have a tendency to expand 
to whatever time you give it, just as government has a 
tendency, I think, to expand as large as you'll allow it to.
    I believe that if we leave a lot of the money from the 
surplus here in Washington, we'll spend it, and that's why I'm 
for tax cuts, just basic beliefs that I have.
    But I'm just wondering how do you make sure that if we 
expand that time that the Defense Department has to review 
these things, that it doesn't basically get kind of put on the 
back burner. I mean, it happens in offices all the time where 
you have to do something within a certain amount of time. 
You'll take the time. You need to do it. But if you know you 
don't have to do it for a certain period of time, you have a 
tendency to put those things off.
    I'm just wondering. And as has been mentioned here, some of 
the technology advances so rapidly and companies want to do the 
sale and if the U.S. company can't get it done, then it's going 
to go to some French company or something else is going to 
happen.
    So I'm just wondering how you address just bureaucracy's 
tendency to take up as long as you'll give it to accomplish a 
given task.
    Mr. Cox. As we were just discussing, first of all, you need 
to improve that bureaucracy. It is, at present, inadequate. It 
is both under-powered, undermanned, and under-trained. If you 
don't have the right people looking at these problems, then any 
length of time is going to be inadequate.
    But you also have to have enough people to do it. The 
testimony that we received concerning the average backlog of 
the average person working on these things is enough to lead 
you to conclude the whole system is an accident waiting to 
happen and that there is a great deal of happenstance about 
whether or not a review is adequate.
    So that for the price of being held up while in the midst 
of competitive bid overseas, a firm might have done nothing to 
contribute to the national security, and that shouldn't be.
    Mr. Dicks. Let me just read you a couple of sentences out 
of the report. This is the Administration's response, but I 
think there is a better understanding of what has just been 
discussed.
    In fact, agencies, on average, consistently conduct their 
reviews in less time than they are permitted by current 
Executive order. Existing procedures also allow for time 
extension, when requested. For example, a request by an agency 
for additional information about a license application stops 
the clock and agencies also have found that they can obtain 
additional time for review by escalating cases.
    However, we believe that allowing an agency to stop the 
clock indefinitely would return the dual-use licensing system 
to the days of unjustified delays that the executive branch and 
the Congress worked hard for over a decade to reform.
    So at least at the executive branch, I think there is some 
sensitivity to this and, again, I think this is, not shifting 
the responsibility, but our investigation is over. You're going 
to now have to take what we've said and what the Administration 
has said and listen to all these very impressive witnesses out 
here and make up your mind about whether you think the existing 
system works and should be changed or not.
    But we just want you to know that we think that there are 
some areas of very sensitive matters that may need additional 
time and we don't want to close that off.
    Mr. Chabot. Thank you very much.
    Ms. Ros-Lehtinen. Thank you. Mr. Sherman.
    Mr. Sherman. Thank you, Madam Chairwoman. So far, we've 
been focused on the procedural standards, which agency will 
have to give its consent, consensus, the length of time. I 
think we also need to focus on whatever substantive standards 
we provide.
    Not that we can fix them in stone and certainly we're not 
going to be the ones to apply them. The technology is changing 
too quickly. But I hope that we will direct the agencies to 
look at whether certain items could be exported and we could 
still protect our national security interest by taking 
particular procedures or requiring them to be taken by the 
company involved.
    For example, if we're concerned about satellite technology, 
not rocket technology, but the technology to build the 
satellite coming into Chinese or other potentially unfriendly 
hands, that we would require perhaps U.S. Government employees 
to be in physical control of that satellite until it was in 
outer space.
    I hope, also, that we will direct the Administration and 
all the various agencies to ask the question not only is this 
device potentially helpful to a potential adversary, but, also, 
can that potential adversary or other country that we don't 
have total faith in obtain the technology from another source, 
because we should not be punishing American workers for the 
fact that--I'm going to mispronounce the name--Wassenaar hasn't 
been an overwhelming success and it is up to our State 
Department to negotiate with other developed countries mutual 
limits on exports rather than punish American companies and 
workers.
    For example, I see a situation where we're dealing with 
encryption where the same encryption technology, and you 
gentlemen may know more about this than I do, seems to be 
available from dozens of other sources outside the United 
States, and yet we persist in limiting its export.
    There was some comment about the budget of those who 
administer our export program and I don't know if this was 
within the purview of your Committee, but perhaps you should 
comment on whether we've adequately appropriated funds and 
whether we should be imposing additional fees in order to make 
it more of a self-funding program.
    Mr. Cox. Well, your recommendation with respect to the 
protection of satellites is almost to a T what we recommended 
in our report. There are some very concrete and simple and 
understandable steps that our government can take and that 
Congress can take to make that broken system work.
    But, frankly, to a degree that even people in industry did 
not appreciate, the system that we all thought we had is not 
the one that actually we have had. And, therefore, we're all in 
agreement that that's the system we ought to have. It's just a 
question of putting it in place.
    Your comment with respect to Wassenaar is also right on the 
money. When a company comes to you, as a Member of Congress, 
and says Congressman, if we don't sell that, then Germany is 
going to, more often than not, that's correct.
    It didn't use to be so, but in 1994, the United States led 
the agreement to disband COCOM on the theory that the cold war 
was over and we didn't need a multilateral regime any longer.
    But the truth is there are other different threats, if not 
the Soviet Union, indeed there is a very related cognate, the 
problem that presently we face with Russian proliferation, if 
not Russian accidental launch.
    Yet we have completely unilateralized the regime and you 
were right to say that Wassenaar has not worked in that 
respect. It has not and one of our recommendations is that the 
executive branch lead an international effort to increasingly 
multilateralize this effort, so that self-abnegation is not 
required.
    Self-abnegation doesn't even work. It amounts to nothing 
more than that and is a further example of having the worst of 
both worlds continuing to do nothing for the national security 
and, at the same time, disadvantaging our competitive position 
in world markets.
    Mr. Sherman. I would add that you also provide the 
financing and the incentive for those foreign competitors that 
might be a few months behind us in developing militarily useful 
technology to then move equal or ahead of us in that 
technology, since we provide them with markets, with needs, and 
with capital that gets the genie even further out of the 
bottle.
    I don't know if either of you have a comment, though, on--
--
    Mr. Dicks. Let me just make one brief comment. I think 
there would be a little difference in the review of history 
here about COCOM. I think the Administration and others would 
say that a number of allies wanted COCOM to be ended and the 
United States resisted that for a significant period of time 
and then finally it acquiesced to it, I guess.
    The second point is that the strengthening of the new 
agency is a prerequisite of our recommendation.
    Mr. Sherman. What about the funding of our administrative 
enforcement and licensing department?
    Mr. Cox. I think we both agree on that. As we've said 
several times, we've got to make sure that we have adequate 
resources to do this job.
    If you're going to have a regime of export Administration, 
you can't do it only partially.
    Mr. Dicks. And we saw some major problems in defense and 
made recommendations about that and the strengthening of DITSA, 
the agency that is supposed to overview this when you're 
dealing with a satellite. Also, there is probably some help 
needed at the State Department, frankly, to go through these 
applications.
    Mr. Sherman. I want to thank the Chairwoman for not having 
those green and yellow lights.
    Ms. Ros-Lehtinen. They're not working. I wish I did.
    Mr. Sherman. Noticing that my time has not expired.
    Ms. Ros-Lehtinen. After my questions, of course, that's 
when I would put them on.
    Mr. Sherman. Focusing, again, on the satellite issue, I 
just want to comment that there was a report in the Washington 
Post that Hughes was being punished by the State Department for 
daring to come to Congress and advocating that the turf for 
licensing satellites be vested in Commerce, and I hope very 
much that that report is inaccurate.
    I would hate to think that a particular company faces 
tougher scrutiny. I mean, there are other things Hughes did for 
which tough scrutiny might be called for, but the idea that 
they would be faced with tougher scrutiny because of their 
political position here before the Congress seems absurd.
    I would also point out that if the whole China satellite 
concern was not about the satellites, but was about the rocket, 
and there the problem we had was that U.S. entities had an 
economic incentive to evaluate and even an economic incentive 
to correct the Chinese space launch capacity.
    I would point out that U.S. companies, I think, are still 
free to ensure launches from China. No technology is being 
exported there. And yet that would provide the same kind of 
economic incentive, could lead to the same kind of post-
disaster insurance investigation with the same risk of 
communication through investigation.
    And that the focus may not be on where the satellite is 
built, but rather making sure that no U.S. entity involves 
itself in asking questions of the Chinese as to why their 
rocket was unsuccessful or why it wasn't more successful, 
because asking questions is a way that it inevitably conveys 
information.
    I want to know whether your Committee is focused on 
preventing the reason for U.S.-China communication about their 
rockets and prevent outlawing that communication or whether the 
focus is just on whether a U.S.-built satellite is going up on 
a Chinese rocket.
    Mr. Cox. The former and not the latter, notwithstanding our 
vote in the House, it was not the recommendation of our Select 
Committee that we outlaw foreign launches. Rather, we wanted to 
make sure that the promised regime of security is, in fact, 
delivered.
    I would also say that we recommended that--and found that 
it is in the national security interest that the United States 
increase its domestic launch capacity. But here we had no 
silver bullet and if you can define ways to do that in addition 
to the very general things that we discuss in our report, you 
will have advanced the ball greatly.
    But nobody disagrees with this, of course, but it was not 
essentially the focus of our Select Committee. Nonetheless, 
were we to have expanded launch capacity in the United States, 
there would still be demands placed, for example, by the 
People's Republic of China, as a condition of purchasing the 
satellite that we use their launch vehicle, and some of those 
tying arrangements are trade matters that can be looked at in 
that context.
    Mr. Sherman. Mr. Dicks.
    Mr. Dicks. The other thing I would point out is that there 
are major problems with that. When we had several accidents, 
that there was supposed to be a post-crash discussion that had 
to be licensed, and then the question of not licensing it is 
where we got into some trouble.
    So this is a discussion--I mean, it's something that we 
brought up in our report. Obviously, this is under 
investigation by the Justice Department and it's a very serious 
matter. But you're right, there is an incentive.
    I mean, it's old American know-how. You want to try to help 
fix the problem. But in these cases, you have to have a license 
in order to do that and the question is, in these cases, the 
licenses were not obtained. So this is a serious problem.
    Mr. Sherman. Madam Chairwoman, I see the red light is on 
and my time has expired.
    Ms. Ros-Lehtinen. Thank you. Mr. Burr.
    Mr. Burr. Thank you. Chris, you mentioned training, under-
staffing. Let's assume for a minute that we were able to 
address those needs. Can I assume that you still suggest that 
there has to be structural changes? And I guess the follow-up 
would be to Mr. Sherman. He mentioned turf. Do we have a turf 
war between the agencies who have some piece of the 
decisionmaking problem?
    Is that as much the problem as structure?
    Mr. Cox. To answer your first question, if we were 
successful in addressing, and I hope we will be in the short 
run, the problems of under-funding and under-staffing, 
inadequate personnel, in the export license review process, we 
would still have the question of who sits at the table and 
whose expertise is being tapped in order to make these 
decisions. And structural reform, I think, therefore, is 
necessary and should be addressed in the Export Administration 
Act.
    In answer to your second question, of course, there is a 
turf battle going on. When you have a number of cabinet 
departments, which, after all, are themselves enormous 
bureaucracies, there is going to be a turf issue.
    I can say, from having served in the executive branch in 
the White House, that this is not a Democrat or Republican 
issue; that these are intra-administration issues that antedate 
the Clinton Administration and there will always be a tug-of-
war among national security interests, commercial interests, 
State Department interests, Pentagon interests, and 
intelligence community interests, because that's the nature of 
our Federal system.
    And Congress, in its oversight capacity and here in its 
legislative capacity, has to take these things into account 
when we design a system that in the end will not be perfect, 
but that will work better than presently what we've got.
    Mr. Burr. Norm, you mentioned the intelligence in put that 
was available, but not supplied, I think, in some of the things 
that the Select Committee----
    Mr. Dicks. We wanted to make sure that each of the entities 
share the intelligence information that is available prior to 
making a decision and we want them to know about these things 
so that they can have the benefit of that.
    Mr. Burr. Had that--based upon your findings, had that been 
shared to the degree you think should have been appropriate, 
would some of the mistakes that you found not have happened?
    Mr. Dicks. Well, my own judgment is that not all the 
intelligence was shared and because it was--you know, it 
happened over a period of time and maybe they just didn't look 
at it the same way. When we saw it, when we gathered all this 
information, we could see the picture, and maybe we saw it more 
clearly than they did.
    But we were concerned about that and, frankly, as a person 
who served for 8 years on the Intelligence Committee and 4 
years as the Ranking Member, not all this information was 
shared with the Congress, as it's required to be under the law. 
That's another issue that we raised.
    But I think it's important for these agencies that are 
making these issues, especially on the very sensitive issues, 
to have the benefit of the intelligence information. We want to 
ensure that that happens.
    Mr. Burr. Does the consensus, Chris, that you talked about 
within this decisionmaking body, would it assure us that the 
see no evil, hear no evil attitude of possibly one of the 
agencies won't exist?
    Mr. Cox. I don't think so. No system is going to guarantee 
against problems that arise as a result of the people involved. 
And if you have the wrong people, they will--or if you have 
people who are the right folks, but they're over-tasked, they 
haven't had a chance to look at things as they should, you're 
going to have imperfect results or dangerous results.
    And I think it's important to point out that it doesn't 
much matter, from a national security standpoint, whether 
you've got someone who is willing to hear no evil or see no 
evil or who is being tendentious or is not fulfilling his or 
her responsibility, on the one hand, or if you've got somebody 
who is the best person you can possibly find, adequately 
trained and is overworked and operating under unrealistic time 
constraints, if the result is that something gets sent overseas 
for military purposes, even though we didn't intend it for that 
purpose, what's the difference, from a national security 
standpoint.
    I don't care about the motive or how it happened. We just 
need to make sure the system doesn't operate that way.
    Mr. Burr. I thank both of you for the commitment on the 
Select Committee.
    Ms. Ros-Lehtinen. Thank you. Mr. Rohrabacher.
    Mr. Rohrabacher. Thank you very much. I'm sorry that I was 
late for this hearing. It seems that I am the Chairman of a 
Subcommittee on Space and Aeronautics and, by the way, for the 
last 10 years, I have been pushing to try to bring down the 
cost of the American space launch and that hearing, what was on 
reasonable rockets, which is finally coming about, which has 
something to do with the issue we're talking about today, and 
there was another hearing dealing with Afghanistan which most 
of you know that I have been deeply involved with, as well.
    Mr. Dicks. We're working on those up in Washington State.
    Mr. Rohrabacher. As long as you're not working on the 
Afghans up there in Washington State.
    People have been dancing around some central questions and 
I really would like to put them on the record.
    The last time we loosened the restrictions and the controls 
on technology exports, and it was done and, by the way, I went 
along with it, because I was assured by those people who were 
advocating this, those people, technology industry giants who 
came here and gave us their word that not one bit of technology 
would be transferred, that all these safeguards would take 
place.
    I mean, we were promised this. This was something that was 
sworn and the systems were going to be back up. The last time 
we did that, and, of course, we're talking about the situation 
permitting the Chinese to launch our satellites, did that 
result in damaging United States national security?
    Mr. Cox. I'm sorry. Can you----
    Mr. Rohrabacher. Did the last time that we loosened--I 
mean, I hope I--the last time that we loosened the restrictions 
by permitting this leeway for the communist Chinese to launch 
American satellites, did that result, maybe not intentionally, 
but was the result of that loosening a damage, a severe 
damaging of our national security?
    Mr. Cox. Well, only to the degree that Mrs. O'Leary's cow 
caused the great fire. It was certainly that without which, but 
I don't know that it was designed in such fashion----
    Mr. Rohrabacher. I'm not asking for any suggestion that 
somebody intentionally designed this in order to permit weapons 
of mass destruction technology to fall into the hands of a 
potential enemy of the United States.
    But can we say with certainty--and I think, by the way, 
this is the part of your report you've already released and I'm 
just asking you to restate it--that American lives have been 
put in jeopardy and our national security has been damaged 
because of the loosening of controls of the technology dealing 
with satellite launches in the communist China.
    Mr. Cox. To more fully explain, if, at the time, we had 
instead passed a law that said there will be no foreign 
launches in any country in the world, then, by definition, none 
of these things that occurred would have happened and that 
would have been one way to prevent it. I think that would have 
been overkill.
    But it's in that sense that it's a necessary, but 
ultimately insufficient cause of all that followed. What 
actually happened was sufficiently complex that you would need 
to explain it with a number of things, not just Congress' 
choice there, because our report, as we will be able to tell 
you more fully tomorrow, describes ways in which the system was 
abused.
    So the system itself can't be fully to blame, except to the 
extent that somebody was able to take advantage of it.
    Second, our Select Committee quickly moved beyond the issue 
of satellites into things which we all agree were much more 
grave in their consequence to the national security, and so 
we're going to direct your attention after a very short of 
period time beyond that to these other things.
    Mr. Rohrabacher. Mr. Dicks, would you like to answer that?
    Mr. Dicks. Let me give you my take on this. First of all, 
before and after, the United States possesses overwhelming 
military superiority. I have served for 20 years on the Defense 
Appropriations Subcommittee. We have 18 Trident submarines, we 
have three intercontinental bombers, we have 500 Minuteman-3s, 
and 50 MX missiles.
    At the end of the day, after all whatever happened happened 
here, they have 18 single warhead ICBM's with--and warheads are 
not made into the rockets. Now, yes, some things happened here 
that should not have happened.
    If this system had worked the way it was designed, there 
would have been not transfer of technology whatsoever to the 
Chinese. Because of the post-accident launch discussions, 
that's where we got into some trouble, and there is a debate 
about how important whatever that technology was that was 
transferred was and there's a debate about just how significant 
it was.
    Some people view it as being more important than other 
people do. Now, I would argue that----
    Mr. Rohrabacher. Chris just suggested it was like Mrs. 
O'Leary's cow kicking over the lamp.
    Mr. Dicks. Let me just say this. There was some 
inappropriate transfer of technology. But did it change the 
overall balance? Not in the near term. Now, can it have long-
term significance? We'll have to wait and see.
    Mr. Rohrabacher. I guess my question isn't whether the 
overall balance or any of these other things, everybody is 
dancing around the question on, but is it that difficult to 
suggest that we, by transferring technology to the communist 
Chinese, that they are able to use on their rockets, that 
damages American security?
    I read the official release from your report and you were 
very clear that that's the case.
    Mr. Cox. That's why it's easier for you to understand it 
and it will be easier for us to answer your questions much more 
directly if we can tell you the facts that we came up with and 
people can infer then what they wish. But we have said publicly 
that even with respect to just the four corners of the 
satellite issue, that in consequence of those events, the 
national security was harmed. There is no question.
    Mr. Rohrabacher. Thank you for that direct answer.
    Mr. Dicks. It's a question of degree. Again, I don't want 
us to overreact. I think the worst thing we could do is to try 
to overstate this. I mean, yes, some harm occurred. Now, was it 
a catastrophic in this area? I would not say it was 
catastrophic.
    Mr. Rohrabacher. Mr. Dicks, if, in the future, we come to 
some sort of confrontation with communist China and some 
American technology has been used to upgrade the capabilities 
of a communist Chinese rocket that ends up being shot at the 
United States, that will be a catastrophe.
    Mr. Dicks. Of course it would be, but I--we have lived 
under a world where the Soviet Union had forces that were 
equivalent to ours. They were deterred for 30 years because of 
our deterrent.
    So I look at this from a perspective of does it make a 
great deal of difference in terms of the deterrent. Our 
deterrent is----
    Mr. Rohrabacher. Mr. Dicks, using your example, wouldn't it 
be called treason if somebody, during the cold war, would have 
given missile technology to the Soviet Union?
    Mr. Dicks. Of course it would be.
    Mr. Rohrabacher. Of course it would have been treason. But 
now everybody is dancing around it because this Administration 
labels communist Chinese as our strategic partners.
    Mr. Dicks. Congressman, there was no missile technology----
    Mr. Rohrabacher. I know. It was rocket technology, right, 
and rockets versus missiles. Missiles, of course, shoot nuclear 
weapons and they're painted in this camouflage and rockets 
shoot up satellites and they're painted in pastel.
    Mr. Dicks. All I'm saying to you----
    Mr. Menendez. Would you yield a minute for a question?
    Mr. Dicks. All I'm saying to you is just----
    Mr. Rohrabacher. One moment.
    Mr. Dicks--[continuing]. Is just weigh this and look at the 
facts and don't overreact here. The world that Ronald Reagan 
helped create and when you two were down at the White House, we 
still have a very strong military capability. I'm not going to 
bed worried about what happened here. I don't like it and it 
should not have happened, but it did not effect the overall 
military balance.
    Mr. Rohrabacher. Mr. Dicks, we don't have a missile defense 
system to stop these rockets which Ronald Reagan tried to 
build, and, in fact, during the cold war, at least with the----
    Mr. Dicks. Deterrence worked.
    Mr. Rohrabacher. OK. Yes, deterrence worked with the Soviet 
Union, which didn't--which really cared about whether----
    Mr. Dicks. They had thousands of weapons that----
    Mr. Rohrabacher. Which whether or not the Soviet Union 
cared about the mad deterrents because they cared about losing 
50 or 100 million of their people. The communist Chinese, as we 
know, may not have the same notion about their own population 
that the Soviet leaders had.
    The deterrence--to help the communist Chinese improve the 
reliability of their rockets in order--their missiles or 
rockets or however you want to define it, in order to cheapen 
the cost and to hold down the cost of putting up an American 
satellite, wouldn't you call that, if that would have happened 
with the Russians, that we actually transferred some of that 
technology, just to bring down the cost of putting up those 
satellites, that would have been looked at as highly, let's 
say, not dishonest, but let's say disloyal to our country?
    Mr. Dicks. We probably wouldn't have entered into that kind 
of a relationship in the cold war with the Soviets.
    Mr. Menendez. Would the gentleman yield? Just for my 
edification.
    Ms. Ros-Lehtinen. Mr. Menendez, if you could go by the 
Chair, that would be great. Yes. Mr. Menendez.
    Mr. Menendez. Well, I'm just asking the gentleman to yield. 
I think that's within the rules of the Committee.
    Are you talking about the decisions made in 1989 by Ronald 
Reagan and then put into effect by George Bush to go ahead and 
have launches? Is that the question that you're putting to the 
witnesses?
    Mr. Rohrabacher. Is that what you're asking me?
    Mr. Menendez. Yes. Is that the question that you're 
concerned about in the context of rocket launches, whether or 
not that was a right decision?
    Mr. Rohrabacher. OK. Answering my Member's question or my 
colleague's question, the fact is that Ronald Reagan, you're 
right in remembering, that before Tiananmen Square and before 
the communist Chinese massacred the democracy movement in that 
country, yes, Ronald Reagan thought better cooperation was 
important and there were restrictions placed on that 
cooperation.
    No. I'm asking what happened when this Administration and 
the industry today called for Ronald Reagan's restrictions to 
be lifted and it resulted in what? It resulted in communist 
Chinese rockets being provided American technology to improve 
their reliability and their ability to carry payloads and their 
ability to hit their targets.
    This is a catastrophe and I do believe it could be--yes, it 
could be compared to Mrs. O'Leary's cow. Mrs. O'Leary's cow 
knocked over that lamp and that cow burned down and killed 
thousands of people in Chicago.
    Well, I would hate to see a conflagration, a nuclear 
conflagration caused by a modern day Mrs. O'Leary's cow, which 
is in the form of a communist Chinese rocket hitting southern 
California.
    Mr. Dicks. All I'll say to my friend, and I appreciate his 
commitment, I believe that the United States has an adequate 
deterrent that we can deter them from ever doing what the 
gentleman has suggested. And I hope someday we have a national 
missile defense system.
    But, again what happened here, you're going to have to look 
at it and decide how significant you think it was. There is a 
dispute about that. Some people view it--and I would argue--I 
would argue that, yes, some technology was transferred; the 
significance of that and the damage to the country, we're going 
to do an assessment. We're having an assessment done of that.
    So we'll all get the information. I don't think it's going 
to change the overall strategic balance.
    Ms. Ros-Lehtinen. Thank you so much.
    Mr. Dicks. And I feel very comfortable with it.
    Ms. Ros-Lehtinen. Thank you, Congressman Cox, and thank 
you, Congressman Dicks, for an excellent presentation. Our 
Subcommittee looks forward to continuing to work with you on 
this very important issue. Thanks Chris, thanks Norm.
    Our second set of panelists, we are pleased to have 
testifying before us Bill Reinsch, Under Secretary for the 
Bureau of Export Administration for the U.S. Department of 
Commerce.
    As head of the Bureau of Export Administration, Secretary 
Reinsch is charged with administering and enforcing the export 
control policies of the U.S. Government, as well as its anti-
boycott laws, and is part of an interagency team helping Russia 
and other newly emerging nations developing effective export 
control systems.
    From 1991 to 1993, Secretary Reinsch served as Senior 
Legislative Assistant to Senator Rockefeller, responsible for 
trade, International Economic Policy, Foreign Affairs and 
Defense, and served on the staff of the late Senator Heinz.
    Secretary Reinsch has served as an adjunct Associate 
Professor at the University of Maryland's University College, 
at the School of Management and Technology, since 1990.
    We welcome the Secretary here today.
    Also testifying will be Richard Hoglund, the Deputy 
Assistant Commissioner for the Office of Investigations of the 
U.S. Customs Service. Commissioner Hoglund's investigative and 
management experience covers all areas of customs enforcement, 
including investigations on narcotics, money laundering, export 
controls and trade abroad.
    Mr. Hoglund served as special agent in charge in Detroit 
and during this period he also served several long-term 
assignments in my hometown area of south Florida for Operation 
Florida. He has previously served as Senior Special Agent and 
Group Supervisor and Mr. Hoglund began his Federal law 
enforcement career as a U.S. Sky Marshal in 1971, the same year 
he became a U.S. Customs Special Agent.
    We welcome both of you here today. Secretary Reinsch.

 STATEMENT OF THE HONORABLE WILLIAM REINSCH, UNDERSECRETARY OF 
           COMMERCE, BUREAU OF EXPORT ADMINISTRATION;

    Mr. Reinsch. Thank you, Madam Chairman. I've been told that 
you run a tight ship and I'm going to try to briefly go through 
my statement and I'd ask----
    Ms. Ros-Lehtinen. I'm powerless without my buttons here.
    Mr. Reinsch. I would ask that the full statement be put in 
the record.
    Ms. Ros-Lehtinen. Of course, we will be glad to enter both 
of your testimonies in the record.
    Mr. Reinsch. What I would like to do today is first 
describe why we need the EAA, and then talk briefly about H.R. 
361, which is the legislation passed in the House in 1997, and 
which is very similar to legislation the Administration 
proposed in 1994.
    Currently, we are operating under emergency authority, as 
was noted in the last panel. Doing so means functioning under 
certain legal constraints and leaving important aspects of our 
control system at risk of legal challenge.
    In addition, it can undercut our credibility as leader of 
the world's efforts to stem the proliferation of weapons of 
mass destruction.
    In some significant areas, we have less authority under 
IEEPA than under the Export Administration Act of 1979. 
Foremost among these, as Congressman Dicks mentioned, are the 
penalty authorities, which are substantially lower, both 
criminal and civil, than those for violations that occurred 
under the EAA.
    However, even the EAA penalties are too low and have been 
eroded over the past 20 years by inflation. The 
Administration's bill, as well as the bill passed by the House 
2 years ago, significantly increased the penalties. We rely on 
the deterrent effect of stiff penalties. The longer we are 
under IEEPA or even the old bill, the more the deterrent 
erodes.
    Another limitation of IEEPA for us concerns police powers, 
the authority to make arrests, execute search warrants and 
carry firearms of our enforcement agents. Those powers lapsed 
with the EAA of 1979. Our agents must now obtain special deputy 
U.S. marshal status in order to exercise these authorities and 
function as law enforcement officers.
    While this complication can be overcome, has been, doing so 
consumes limited resources that would be better used for 
enforcement. Both the Administration's bill and H.R. 361 
continue those powers, as well.
    Finally, the longer the EAA lapse continues, the more 
likely we will be faced with challenges to our authority. For 
example, IEEPA does not have an explicit confidentiality 
provision like that in Section 12(c) of the Export 
Administration Act or similar provisions in the 
Administration's proposal and the House bill 2 years ago.
    As a result, the department's ability to protect from 
public disclosure information concerning license applications, 
the licenses themselves and related enforcement information is 
likely to come under increasing attack on several fronts.
    Similarly, the absence of specific anti-boycott references 
in IEEPA has led some respondents in anti-boycott cases to 
argue thus far unsuccessfully that BXA has no authority to 
implement and enforce the anti-boycott provisions of the Export 
Administration Act and our regulations,
    On a practical note, we are also finding that the 
Congressional requirement to conduct post-shipment visits on 
every computer over 2,000 MTOPS exported to 50 countries is 
rapidly becoming a major burden, for precisely the reasons that 
Mr. Manzullo referred to in his question. It forces us to 
divert enforcement resources to visit computers that do not 
need to be seen, with the result that we have fewer resources 
left to focus on real enforcement problems.
    Unlike the computer export notification provision in the 
same law, the visit provision cannot be adjusted by the 
President to take into account advancing levels of technology, 
so we must seek relief from Congress on this issue.
    The lapse of authority also has policy ramifications. 
Although we've made great progress in eliminating unnecessary 
controls, while enhancing our ability to control sensitive 
exports, exporters have the right to expect these reforms to be 
certain and permanent, as they would be if they were embodied 
in legislation.
    In addition, failure to enact a new EAA sends the wrong 
message to our allies and regime partners, whom we have been 
urging to strengthen their export control laws. We have also 
been working with the former Soviet Union in Warsaw pact 
countries to encourage them to strengthen their export control 
laws and our credibility is diminished by our own lack of a 
statute.
    I would comment, in passing, Madam Chairman, that we have 
with us today, as they have been visiting BXA this week, 
representatives from the Russian DUMA and other representatives 
of the Russian Government who are here precisely to discuss 
export controls and have an exchange of views and to learn from 
us about our system and also give us an opportunity to learn 
from them about their system.
    They're sitting back there listening to the exchange taking 
place so far.
    Now, let me comment on--I thought I'd alert you to that, 
for future reference. Let me comment on legislation. In 
February 1994, the Administration proposed a revised EAA. Our 
overall goal was and remains to refocus the law on the security 
threat the United States will face in the next century--the 
proliferation of weapons of mass destruction in a more 
complicated era than we faced during the cold war, while taking 
into account the growing dependence of our military on strong 
high technology companies here at home, developing state-of-
the-art products, and, in turn, those companies' need to export 
to maintain their cutting edge.
    Mr. Menendez, in his opening comments, I think, summarized 
the same line of reasoning more effectively than I can here.
    Let me focus my remaining remarks on legislation that this 
Committee reported and the House passed in 1997 that was 
authored by former Congressman Roth, who I believe will be a 
Member of the next panel, and will also discuss it with you. 
Its structure reflected new challenges resulting from the end 
of the cold war and, in many respects, it was similar to the 
legislation, as I said, that we proposed.
    Its basic control authorities were multilateral and 
unilateral, instead of the national security-informed policy 
authorities of the EAA in 1979. Its new structure explicitly 
recognized the preference for compliance with international 
regimes that the U.S. either is a Member of or may help create 
or join in the future. It also provided for increased 
discipline on unilateral controls and I want to note, in 
passing, Madam Chairman, the Administration would likely want 
to suggest some changes to this provisions to ensure that 
unilateral export controls are available when they're in the 
overall national interests, consistent with the position we 
have taken on sanction reform before this body.
    But in general, we agree with the need to exercise 
discipline in the application of such controls.
    The House-passed bill also supported the Administration 
reforms of the licensing and commodity jurisdiction processes. 
The standards for license processing were consistent with the 
1995 Executive order, which provided for a transparent time-
limited review process that permitted all pertinent agencies to 
review any license application and raise issues all the way to 
the President, if they desired.
    This default to decision approach has replaced the black 
hole into which licenses often fell, improving the system's 
responsiveness to exporters, while also providing broader 
interagency review of license applications that enhance our 
ability to meet our national security, foreign policy, non-
proliferation goals.
    On that point, Mr. Chairman, if I could comment on two 
points that Mr. Cox made on the processes issues. He is correct 
that the Executive order that I have just referenced gives the 
other agencies 30 days to review licenses. In fact, every 
agency takes considerably less time than that. The Pentagon, in 
the last fiscal year, averaged 14 days to complete its license 
reviews and the State Department did better than that, they 
averaged 11 days.
    In addition, as Mr. Dicks pointed out, the Executive order 
provides explicit authority to stop the clock, if you will, 
should there be a license that raises unusual issues and where 
more information is needed.
    One license that has been in the news lately, and I get 
depressed when I see this in the news, because they're not 
supposed to, which was the Hughes APMT license. That one has 
been pending for about a month, which is well outside the time-
frame that we prefer and well outside the Executive order, but 
I think also we have complicated--we have a process that can 
accommodate and provide more time.
    And that, in fact, the agencies now are doing their routine 
work in less than half the time that the Executive order 
allows.
    I would also make the point on process that the proposal to 
act by consensus, which is a term for giving any agency a veto, 
which does, in fact, do what I think Mr. Menendez or Mr. 
Manzullo said, coming back to the anyone can say no, and no one 
can say yes system, would also have the practical effect of 
eliminating the one part of our process where the intelligence 
community is represented full-time.
    That is the senior level working level review licenses, 
where the agencies all meet and discuss and the intelligence 
community is generally there and inputting into the process.
    If we went to a consensus approach, what we would get is 
objections from agencies without discussion and escalation to 
the political level, missing the most rigorous level of review 
that is done.
    That is why the Administration made the comments in 
response to the recommendations that Mr. Dicks read in his 
testimony or in his response.
    Let me say, finally, about the House bill, that we do have 
some concerns, we have had some concerns about H.R. 361's 
terrorism, unfair impact, anti-boycott, private line of action, 
and judicial review provisions, as well as certain 
Constitutional issues that we believe the bill raises. Those 
are outlined in my written statement and rather than take up 
your time, I will pass over that and refer you to that.
    Let me also point out that we are, at the request of the 
Senate Committee and also at the request of staff here, 
undertaking review of our own bill, as well as the House-passed 
bill, and we will report to Congress with any post-
modifications or changes that we might have.
    In conclusion, let me say that we believe an EAA that 
allows us to fully and effectively address our security 
concerns, while maintaining a transparent and efficient system 
for U.S. exporters, is essential.
    As I discussed, the Administration and the House, 2 years 
ago, agreed on most of the important changes to bring the law 
up to date in light of current economic and proliferation 
realities. Our preference is that you take up reauthorization 
of the EAA that would build on a consensus already achieved.
    I can understand, however, given your heavy agenda of other 
matters, that we may find it difficult to devote the time and 
attention needed to produce such a bill, which, to say the 
least, has not been without controversy in the past, and it 
sounds, from the previous panel, may not be without controversy 
in the future, and under these circumstances, I want to 
indicate that we will be prepared to discuss with the Committee 
some extension of the expired EAA to remedy some of the short-
term problems I discussed, particularly in the penalties area.
    That is not a substitute for full reauthorization, which we 
still want, but it would better enable us to do our business 
more effectively if Congress feels it needs more time to do it.
    Thank you, Mr. Chairman.
    [The prepared statement of William Reinsch appears in the 
appendix.]
    Mr. Manzullo--[presiding]. Thank you, Mr. Reinsch. Mr. 
Hoglund.

     STATEMENT OF THE HONORABLE RICHARD HOGLUND, ASSISTANT 
     COMMISSIONER FOR INVESTIGATIONS, U.S. CUSTOMS SERVICE

    Mr. Hoglund. Good afternoon, Mr. Chairman and Members of 
the Subcommittee. It is a privilege to appear before the 
Subcommittee today to discuss Customs' unique role in enforcing 
U.S. export controls and the enactment of a new Export 
Administration Act.
    Customs is a leader in enforcing U.S. export controls. We 
are at the forefront of the Administration's efforts to prevent 
the proliferation of weapons of mass destruction and 
conventional arms, combat international terrorism, and force 
U.S. economic sanctions and embargoes against countries which 
support international terrorism and threaten global security.
    Customs is principally responsible for the enforcement of 
all U.S. export controls. This includes the controls found in 
the Arms Export Control Act, which governs exports of arms, 
military equipment and other munitions; the export 
administration regulations, which regulate the export of dual-
use strategic technologies; the International Emergency 
Economic Powers Act, in trading with the Enemy Act, which 
regulate economic and other transactions with specified 
countries and groups as an instrument of U.S. foreign policy.
    Customs' export law enforcement has evolved as the threats 
we face in international trade have evolved. Through the 
1970's, the threat chiefly involved belligerent countries 
trafficking in arms. Beginning in the early 1980's, the Soviet 
Union and its allies began a massive coordinated effort to 
acquire sophisticated western technologies for use in building 
their military establishments.
    To respond to this threat, Customs Initiated Operation 
Exodus, an intensified enforcement program to prevent the 
illegal export of munitions, strategic technologies, and 
shipments destined for sanctioned and embargoed countries.
    Our objectives are to disrupt illegal international 
trafficking in sensitive and controlled commodities through the 
interdiction of illicit shipments and to dismantle criminal 
trafficking organizations through the arrest, prosecution and 
conviction of export violators.
    Since its inception in 1981, Operation Exodus has resulted 
in the seizure of over $1.2 billion in merchandise being 
exported in violation of U.S. export controls. Customs is the 
only Federal law enforcement agency with border search 
authority. Only Customs may search without a warrant 
passengers, conveyances and cargo entering and leaving the 
United States to ensure full compliance with all U.S. import 
and export requirements and to uncover violations.
    Customs' automated systems are key tools in our 
interdiction and investigative efforts. The Automated Export 
System, or AES, is now operational at all ports in both the air 
and sea environments. AES is a new and powerful tool not only 
in the processing of trade data and the collection of export 
statistics, but also in the identification of potential 
violations of possible U.S. export controls.
    Customs' successes in conducting proactive investigations 
of criminal export violations continues our tradition of 
leadership in export enforcement. For example, in fiscal year 
1998, we arrested over 450 criminal export violators, secured 
over 280 indictments, and obtained over 300 convictions for 
export violations. These included obtaining the conviction of 
two individuals in Oregon on their attempts to export chemical 
weapons precursors to Iran; one corporation for illegal exports 
of computer workstations to a Russian nuclear weapons factory, 
laboratory; and, a U.S. corporation for the illegal export of 
$3 million worth of aircraft parts to Iran.
    In the past 2 weeks alone, we've arrested two individuals 
for attempted illegal exports of sophisticated airborne 
navigation equipment to China and obtained the conviction of a 
third who was sentenced to 24 months imprisonment for 
violations of the Arms Export Control Act.
    Now, let me turn to Customs' views on enactment of a new 
Export Administration Act. First, let me say that Customs does 
not set Administration policy on which commodities should be 
controlled for export to which countries. That responsibility 
lies with the Department of State, the Department of Commerce, 
the Department of Defense, and other agencies.
    Customs' role is to enforce U.S. export controls through 
the processing of export documentation, the examination and 
clearance of exported merchandise, the seizure of merchandise 
exported in violation of U.S. export controls, and the 
investigation of criminal violations of our export control 
statutes.
    That being said, Customs supports passage of a new Export 
Administration Act as a way of enhancing our ability to enforce 
U.S. export controls.
    The Congress last considered passage of an Export 
Administration Act in 1996. That proposed legislation was 
introduced before the Congress as H.R. 361. Customs supports 
the penalty provisions set out in Section 110 of H.R. 361 and 
the authorities for Customs' investigations and seizures 
related to export violations set out in Section 113.
    We believe that similar provisions should be incorporated 
into any new Export Administration Act which may now be 
considered by the Congress.
    Customs suggests that the Congress consider four additional 
provisions which would close enforcement loopholes and enhance 
our export enforcement abilities.
    The first deals with statutory authority to examine 
outbound mail. Current restrictions on Customs' ability to 
search outbound mail limit our ability to interdict strategic 
commodities and technical data being illegally exported through 
the mails from the United States. Statutory language to clearly 
authorize Customs to search outbound mail would deny 
international criminals and terrorists' use of the U.S. mail to 
avoid U.S. export controls.
    A second enhancement would be the inclusion of an attempt 
provision as a violation of a new Export Administration Act. As 
I stated earlier, one of Customs' objectives in export 
enforcement is the interdiction of merchandise being illegally 
exported from the United States.
    The inclusion of an attempt provision in any new Export 
Administration Act would make clear that a substantive 
violation of the Act has occurred when Customs is successful 
interdicting strategic goods before they leave the U.S., in 
addition to actual consummated export.
    Third would be statutory authority for Customs to ship 
inoperable control items to countries sponsoring terrorism in 
an undercover capacity in furtherance of a law enforcement 
investigation.
    Fourth would be enactment of a Customs criminal statute 
covering exports contrary to law and parallel to the existing 
smuggling statute, Title 18, United States Code 545. This 
particular provision is currently contained in Senate Bill S. 
5.
    In closing, I appreciate the opportunity to appear before 
you today. The United States Customs Service enjoys a unique 
role in export enforcement, preventing the proliferation of 
weapons of mass destruction, protecting the American public 
from the threat of international terrorism, enhancing regional 
and global security through combating illicit trafficking in 
arms, and implementing U.S. foreign policy through out 
enforcement of economic sanctions and embargoes against 
countries which support international terrorism and suppress 
freedom around the world.
    We are proud of our role in enforcing U.S. export controls 
and we support your efforts to enact legislation to give us the 
tools to protect the security of all Americans and make the 
world a safer place in which to live.
    Thank you, and I would be pleased to answer any questions 
you might have.
    [The prepared statement of Richard Hoglund follows:]
    Mr. Manzullo. Thank you very much. I'm going to waive any 
questions I have and I'm going to defer to Mr. Menendez and 
hold everybody to the 5-minute rule.
    I don't have a light, but I do have a gavel. So I will tap 
at 4 minutes. At 5 minutes, I'll lower the gavel. Mr. Menendez.
    Mr. Menendez. Mr. Secretary, let me thank you for your 
testimony. I have a couple of questions, if you can work with 
me to see if I can get through them in my 5 minutes.
    Regarding the satellite license that was processed by the 
Commerce Department that were the subject of investigation by 
Representative Cox's Committee, were there any disputes among 
agencies regarding whether to license the satellite launches?
    Mr. Reinsch. No, sir. All agencies concurred in the 
issuance of that license.
    Mr. Menendez. So they all concurred. There were no policy 
objections that were overridden by the Department of Commerce.
    Mr. Reinsch. No. Every satellite license the Department of 
Commerce has issued has had the concurrence of the State 
Department and the Defense Department.
    Mr. Menendez. With reference to the volume of cases that 
Commerce processes annually, could you give me a sense of it?
    Mr. Reinsch. We are hovering between ten and 11,000 
licenses per year currently.
    Mr. Menendez. And of these, what percentage of the licenses 
are reviewed by other agencies?
    Mr. Reinsch. Subsequent to the Executive order in 1995, 
right now, it is around--well, I can give it to you exactly. In 
fiscal year 1998, it was 85 percent and in fiscal year 1997, it 
was 91 percent. That were referred to one or more other 
agencies.
    Mr. Menendez. So that in other words, you don't have 
exclusivity an overwhelming amount of the time.
    Mr. Reinsch. Prior to the Executive order in fiscal year 
1991, it was 21 percent, but before we issued the EO, it was 
around 50 to 54 percent. It's been climbing into the upper 80's 
and 90's every since.
    Mr. Menendez. Now, let me ask you. You heard Mr. Cox and 
Mr. Dicks and you heard some of my questions. Could you give us 
a sense, I think you refer to it in your testimony, I'd like 
you to elaborate, what would be, in fact, the result if we were 
to adopt, as proposed, the changes that they have suggested 
concerning, in essence, this process in which all of the 
agencies would have to reach consensus or, in essence, the veto 
of any individual?
    Mr. Reinsch. That particular proposal, Mr. Menendez, I 
believe, would cripple the process. What you would have is--let 
me go back. The reality of this process is that to the extent 
that there is disagreement over the issuance of the license, it 
most often is amongst individuals at low to mid working levels, 
and as the process works its way up in each agency's own 
building, it goes through a variety of changes and by the time 
you get to senior levels, most of the time, there is a 
consensus.
    So 90 percent of our licenses are handled by consensus, 
without having to get to political levels of resolution.
    If you are going to effectively give every agency a veto, 
which is what consensus would permit, what you are doing is 
telling low level officials who might dissent from their own 
agency's position, not to mention any collective position, they 
can put in a veto of a license and prevent consensus, that 
would force these issues to be taken essentially to the 
assistant secretary level for resolution, which would force 
senior officials to spend a much larger amount of their time 
than they do working on these.
    And from out standpoint, it would eliminate the most 
rigorous level we have. The senior working level, where all the 
agencies get in the same room and actually debate these things 
and argue them out and have the Intel community there on scene 
supplying the information.
    Mr. Menendez. The last question I have for you is with 
reference to--and I think our Russian colleagues left, but I 
had this question anyhow, so I'm going to ask it, whether they 
are here or whether they're not.
    Despite Russia's pledges upon joining the Wassenaar 
agreement not to export missile technology to Iran, the 
Administration has had to sanction Russian entities for this 
reason.
    So give us a sense of what's the value of having Russia as 
a member of such an arrangement if it does not achieve our goal 
of limiting exports in this particular case to Iran and give us 
a sense of this multilateral effort which has, seems to me, had 
to have virtually no real consequence.
    Mr. Reinsch. These regimes, we never get the full level in 
negotiation and, again, we have to spend time, whether it's the 
missile technology control regime or the nuclear suppliers 
group, regimes that are generally thought of as being mature 
and effective.
    It took them a long time to reach that point. It's going to 
take Wassenaar some time to reach that point. We are better off 
with Russia in than out. They learn the standards, they learn 
what's expected of them, they subject themselves to pressures 
not only from us, but from the Germans, the French, the British 
to conform to those norms and standards.
    They subject themselves to regular meetings in which they 
learn what it is and why and what they're expected to do about 
it, and generally it helps them upgrade.
    It's for the same reason that we have an extensive program 
with them, which is why these people were here this week to 
exchange views and help them develop a system of their own. 
It's been my view that while we do have policy differences with 
them and while we have sanctioned them, as you point out, there 
are also a number of situations in which things are leaked out 
of their borders that their government would have stopped had 
they had the capacity to do so and had they known about it.
    What Wassenaar does is help give countries the tools that 
they can use to prevent, at a minimum, that part of the problem 
and also to subject them to multilateral pressure to deal with 
the first part of the problem, namely, their policy.
    Ms. Ros-Lehtinen--[presiding]. Thank you so much. Thank 
you, Mr. Menendez, and I want to thank our Vice Chair for 
taking over and I hear that he instituted a strict 5-minute 
rule. Good for you. No more Ms. Nice Guy. With that in mind, 
Congressman Rohrabacher.
    Mr. Rohrabacher. Right. Thank you. Are our Russian friends 
still here? No, they left. That's right. They heard I was going 
to ask them up.
    To our friend Mr. Hoglund, U.S. customs investigated the 
transfer of rocket technology to communist China. Was there a 
recommendation made by U.S. customs that charges be brought 
against Americans involved with transferring rocket technology 
to the communist Chinese?
    Mr. Hoglund. We have an active investigation. It is before 
a Federal grand jury and when that is concluded, we'd be 
pleased to provide the outcome of that, but currently that's 
under active investigation.
    Mr. Rohrabacher. Is it against the rules to relate whether 
or not you have recommended a prosecution or not?
    Mr. Hoglund. Well, we wouldn't recommend. We would present 
the facts to the United States Attorney. It would be presented 
to a Federal grand jury and then that is where the 
recommendation would come from.
    Mr. Rohrabacher. Well, in your investigation, did you find 
that American technology, rocket technology had been 
transferred to the communist Chinese in a way to upgrade the 
capabilities and effectiveness of communist Chinese rockets?
    Mr. Hoglund. I really would not feel comfortable answering 
that, although the newspapers suggest that that the Office of 
Defense trade controls penalized companies in regard to that 
issue.
    Mr. Rohrabacher. And was there, to your knowledge, a 
recommendation by members of the Administration that a 
licensing of a satellite launch by an American company be 
denied because it would undercut a prosecution of an American 
corporation for transferring rocket technology to the communist 
Chinese?
    Mr. Hoglund. I am not familiar with that. I am personally 
not familiar.
    Mr. Rohrabacher. You're not familiar with that.
    Mr. Hoglund. No, sir.
    Mr. Rohrabacher. It was in the newspaper. I'm surprised 
that that wouldn't be something----
    Mr. Hoglund. I can get you a better answer.
    Mr. Rohrabacher. I would like to have a better answer on 
that. So if you could get it to me with 24 hours, would that be 
OK?
    Mr. Hoglund. Sure.
    Mr. Rohrabacher. Or how about a half an hour? All right. 
Again, people are dancing around the issues here. Everybody is 
afraid here, it seems to me, to look each other in the face and 
say that some American corporations may not keep the national 
security interest of the United States in mind when they're out 
to make a buck. Surprise, surprise.
    Has it been your experience at Customs that we can trust 
American companies to watch out for American security over and 
above their own profit?
    Mr. Hoglund. It's our experience that in virtually every 
area we investigate and enforce, that there is a profit motive 
virtually all the time.
    Mr. Rohrabacher. And the things that you're investigating 
sometimes are very heinous violations of our national security, 
is that not correct?
    Mr. Hoglund. They can be, yes.
    Mr. Rohrabacher. Listen, I don't know why everybody--you 
know, nobody wants to tell their friend at the country club 
that they betrayed the United States of America. That's what it 
comes down to here.
    Folks, we're talking about--yeah, I'm not talking about 
whether or not the Chinese are going to end up with the same 
kind of ballistic missile system that they had in the Soviet 
Union. People can dance around this all they want. What we're 
talking about is whether it's possible that a communist Chinese 
rocket, using American technology, now has a greater chance of 
landing a nuclear weapon and killing millions of Americans, 
making that conflagration caused by Mrs. O'Leary's cow in 
Chicago look like petty ante arson.
    This is a very serious issue and it does not lend itself to 
the--frankly, the dancing around that I've seen here today and 
this obfuscation that's being done by people who are trying to 
protect this Administration for some very terrible decisions.
    Mr. Hoglund, does the fact that this Administration, even 
after evidence continues to mount that the Chinese communists 
have been systematically trying to get their hands on American 
technology of weapons of mass destruction, doesn't the fact 
that we continue to label that regime as America's strategic 
partners undercut the efforts to prevent American corporations 
from inadvertently perhaps giving weapons technology to the 
communist Chinese?
    Mr. Hoglund. I really don't feel I'm qualified to answer 
that.
    Mr. Rohrabacher. All right. Thank you very much.
    Ms. Ros-Lehtinen. Thank you so much. Thank you to your 
panelists for being here with us today and we also look forward 
to working with you. Thank you.
    Oh, I'm sorry, Mr. Manzullo. I thought when you were 
chairing that you recognized yourself.
    Mr. Manzullo. That's fine. Go the next panel.
    Ms. Ros-Lehtinen. We will hear from our third set of 
panelists. Former Chairman of this Subcommittee, Toby Roth, who 
served as a Member of Congress for 18 years, until January 
1997. He currently serves as President of the Roth Group, a 
political consulting firm here in D.C. The former 
Representative of Wisconsin's 8th Congressional District also 
served as Senior Member of the House Banking Committee and was 
a founding Member of the Conservative Opportunity Society.
    He is a frequent guest expert on public affairs programs.
    He will be followed by another former colleague, Dave 
McCurdy, current President of the Electronic Industries 
Alliance. Mr. McCurdy served as Chairman and Chief Executive 
Officer of the McCurdy Group, a business consulting and 
investment practice.
    Mr. McCurdy served the 4th District of Oklahoma for 14 
years and during his tenure in Congress, he attained numerous 
leadership positions, including serving as Chair of the House 
Permanent Select Subcommittee on Intelligence, Chair of the 
Subcommittee on Military Installations and Facilities of the 
House Armed Services Committee, and was a Subcommittee Chairman 
of the House Science Committee.
    Next is Joel Johnson, who serves as Vice President of the 
International Division for the Aerospace Industries Association 
of America, AIA, which represents 50 of the major manufacturers 
of the industry. Prior to joining AIA, Mr. Johnson was 
Executive Vice President for the American League for Exports 
and Security Assistance.
    Mr. Johnson also served on the Senate Foreign Relations 
Committee as Professional Staff Member and as Chief Economist 
for the Foreign Assistance Subcommittee.
    Previously, Mr. Johnson served as a member of the Secretary 
of the States Policy Planning Staff and is Deputy Director of 
the Office of Trade Policy and Negotiations at the Treasury 
Department, and a wide array of other positions in the field of 
International Economic Affairs.
    Following Mr. Johnson is Dr. Paul Freedenberg, the 
Government Relations Director for the Association for 
Manufacturing Technology. Dr. Freedenberg was appointed by 
President Reagan to serve as the Undersecretary for Export 
Administration at the Department of Commerce.
    Dr. Freedenberg was Staff Director of the Senate 
Subcommittee on International Finance and since 1989 he has 
been an International Trade Consultant with the Law firm of 
Baker in Washington, D.C., specializing in general 
international trade issues, as well as technology transfer, 
export licensing, export financing and enforcement.
    We welcome all of you and look forward to your testimony. 
Congressman Roth.

    STATEMENT OF THE HONORABLE TOBY ROTH, FORMER MEMBER OF 
              CONGRESS, PRESIDENT, THE ROTH GROUP

    Mr. Roth. Thank you very much, Madam Chair. It's great to 
be back in these familiar surroundings, with Members of the 
Committee that I enjoyed so much working with.
    It's my pleasure to be here today. With the time 
constraints, Madam Chair, I ask that my entire testimony be 
entered into the record, so I can abbreviate my remarks.
    Ms. Ros-Lehtinen. Thank you. Without objection, we will be 
glad to enter all of your testimonies and we've got our 
enforcer here behind me, Mauricio ``The Body'' Tomargo.
    Mr. Roth. As you said, Madam Chair, I spent 18 years as a 
Member of this Subcommittee, two as its Chairman. I devoted 
much of time to analyzing and attempting to improve the Export 
Administration Act.
    I leave to others whether I can claim any particular wisdom 
when it comes to the EAA, but no one can doubt that I have a 
lot of experience, good and otherwise, in exploring the byways 
and the highways.
    By way of clarification, although I'm a consultant whose 
clients include firms in high tech sectors, I appear here today 
representing no one but myself. Since leaving Congress, I have 
gained additional knowledge of the industry's perspective, but 
most of what I believe I can offer as a function of the years I 
spent serving in this House and on this Subcommittee.
    Some of us have a question whether the EAA is needed at 
all. We had been surviving adequately under the International 
Economic Emergency Powers Act, IEEPA, for nearly 5 years. So 
would say some individuals, so why open the Pandora's box and 
write a new EAA.
    I respectfully disagree. For one thing, IEEPA is largely a 
blank check for the executive branch. Even if we believe that 
the current Administration has taken a reasonable and balanced 
approach to the export controls, there is no guarantee that 
that will continue under this or under a new Administration in 
the future.
    Second, it is Congress' job to determine how Government 
regulatory programs should operate. Congress advocates that 
responsibility when it throws up its hands and leaves 
everything to the President.
    So I believe strongly that we should have an EAA and should 
not continue to rely on IEEPA.
    My most important recommendations, Madam Chair and Members 
of the Committee, are these. Export licenses should be required 
only for goods and technologies that are controllable from a 
practical standpoint, are not available to our foreign 
competitors, and would make, if placed in the wrong hands, a 
significant and material contribution to the weapons 
proliferation or other legitimate stated purpose of control.
    If items such as personal computers and mass market 
software, with 128-bit encryption, are widely and easily 
available domestically, export controls will not keep them away 
from anyone who wants to obtain them. The same is true for 
items that are available from foreign competitors whose 
governments do not, in fact, impose controls as stringent as 
those imposed by the United States.
    Second, the EAA should discourage the imposition of 
unilateral export controls and other unilateral export 
restraints. Faced with misconduct by Foreign Governments, 
public officials, like our Congressmen, all too often have seen 
the imposition of export controls as the only available 
alternative to sending in Marines, at one extreme, or to do 
nothing on the other.
    When governments whose exporters supply identical goods and 
technology refuse to go along with our controls, however, the 
effect is like damming up half a river. For the most part, the 
misbehaving government that is the target of our ire, merely 
turns to industrialized countries to supply its needs, while 
American workers and business people end up suffering.
    This hardly seems like sound thinking to convince a Foreign 
Government to change its ways.
    Third, the sluggish export control system should rule 
swiftly on license applications and requests for policy 
determinations. Inordinate delay in approving an export license 
and costs to a U.S. exporter a sale just as surely as a license 
is denied. The Commerce Department has been doing a good job of 
managing the dual-use licensing system and should remain in 
charge.
    The FAA should restrict, if not the EAA, let me say that, 
the EAA should restrict, if not eliminate the extra-territorial 
application of the United States Export controls. The United 
States takes the position that an item made in this country 
remains subject to our export jurisdiction forever, no matter 
how long it may have been exported and no matter how many non-
Americans may have owned it.
    This is inconsistent with international standards. This 
hearing marks the beginning of a lengthy process and I hope 
that it will produce a new EAA, one that--an EAA reflecting the 
realities of the millennium and not the cold war.
    Now, in 1996, this Subcommittee and the House of 
Representatives passed a bill with your help, a great EAA bill. 
It was applaud by all. The President applauded it, the people 
here in the House passed it under suspension, we had people in 
the Senate all agree. There was only one Senator put a hold on 
the bill at the end and that is why this bill was not enacted 
into law.
    Let me say that President Clinton and Sandy Burger and Tony 
Lake did a great deal to make this bill possible. We met with 
the President three different times. The House passed it, the 
Senate, because of one Senator, it was not passed.
    I hope that this Committee and this Congress will now move 
forward and complete that job.
    Had we done so, I think many of the problems that we have 
today would have been eliminated.
    Thank you very much, Madam Chairman.
    [The prepared statement of Toby Roth appears in the 
appendix.]
    Ms. Ros-Lehtinen. Thank you so much. Mr. McCurdy.

   STATEMENT OF THE HONORABLE DAVE McCURDY, FORMER MEMBER OF 
      CONGRESS, PRESIDENT, ELECTRONIC INDUSTRIES ALLIANCE

    Mr. McCurdy. Thank you, Madam Chair. I, too, would like for 
my statement to be admitted into the record, and I want to 
state, just first of all, how pleased I am to be back.
    This is my first return to the House after 4 years and I 
can't think of a finer Subcommittee or group of people to be 
with. As the Chairwoman knows in the annual congressional 
baseball game, she was always the most feared batter that I 
ever faced in all those years, had the smallest strike zone and 
was one of the most courageous and fearless.
    Ms. Ros-Lehtinen. The game has not improved in your 
absence, unfortunately. I wish it would have been your fault, 
but.
    Mr. McCurdy. And let me congratulate Mr. Menendez for his 
steady rise in the leadership, as well.
    Madam Chair, I'm delighted to be here today as representing 
the Electronic Industries Alliance, over 2,000 member companies 
which makes it the premier trade association for the high 
technology industry.
    During my 14 years of tenure in this body, I served as 
Chairman of the House Intelligence Committee and, as well as 
Subcommittees in the Armed Services Committee and the Science 
and Space Committee.
    I continue to serve now as a commissioner on the--and you 
have to forgive the title of this commission, but it's the 
Commission to Assess the Organization of the Federal Government 
to Counter the Proliferation of Weapons of Mass Destruction.
    For over a year now, we've been reviewing the tremendous 
destructive potential of chemical and biological and nuclear 
weapons land their proliferation of that.
    But the task of the commission, I must say, was to look at 
the organization of the Federal Government. And what we heard 
earlier today from both Mr. Cox and Mr. Dicks seems to be--and 
those are two of my best friends and people that I respect the 
most in the House.
    But some of the statements that came forward with regard to 
the need to actually bifurcate the decisionmaking process as 
opposed to centralize is just the opposite direction that most 
people are looking at how to organize the Federal Government to 
combat the proliferation of technology and of weapons of mass 
destruction. So it seems somewhat contradictory.
    But since I do serve on that commission and, based on my 
past experience, I'm very concerned about export controls for 
our national security. However, I also recognize the severely 
limited effectiveness of export controls.
    Madam Chair, I have the privilege of representing the most 
innovative, yet competitive industry in the global economy. Our 
companies operate globally and they face intense international 
competition. The fact is the days when U.S. companies dominated 
the high technology industry are over. Similarly, the days when 
the domestic U.S. market could sustain the industry are also 
over.
    It has become almost clich that the global economy is a 
fact of doing business for us and is a critically important 
concept to keep in mind as we formulate public policy in this 
area.
    As any successful CEO will tell you, competing, indeed 
surviving in the global economy means exporting. The phenomenal 
success of U.S. technology industry comes from its 
entreprenurialism, its aggressiveness, its willingness to 
compete, all those free market forces that drive innovation.
    In this kind of business environment, tapping new markets 
before competition does is the key to success. As you can see 
on the chart behind me, our industry will export over $150 
billion in goods this year. This is more than one third of what 
our industry produces.
    The chart also demonstrates how fast technology is changing 
and becoming pervasive throughout the world. This is especially 
true in the area of semiconductor speed, where Moore's law 
defines rapid pace of change.
    Congress has a critical role to play in overseeing this 
country's export control system and we encourage efforts to 
take a fresh look at the system, with an eye toward updating it 
to reflect technological and political realities of the post 
cold war world.
    It is a daunting challenge and with that in mind, I would 
like to lay out three very broad principals and I think the 
three Members that are present today have expressed those, as 
well, what should guide our thinking on export control issues.
    The first principal is that U.S. export controls must 
reflect the new commercial and political realities of the post 
cold war world. The cold war export control regime was based on 
then, and it was an accurate premise at that time, that if you 
prevent U.S. companies from exporting a product to specified 
destinations, you will have denied that destination of the use 
of that product or technology.
    This premise no longer holds. Whereas U.S. industry used to 
have a monopoly over the development and production of high 
technology products, many of which were directed by the Federal 
Government, many countries today produce the same or often 
better commercial technologies as U.S. manufacturers.
    The governments of our competitors do not place the same 
restrictions on their export activities. When U.S. companies 
are impeded from selling abroad, our competitors are willing 
and able to fill the void.
    The second principal is that the current model for 
administering U.S. export control law is appropriate and 
effective in protecting national security. And I agree with my 
colleague, Mr. Roth, on that point.
    Currently, there are two systems for administrating export 
controls, both of which provide for interagency review of 
license applications.
    Now, there's certainly room for improvements in the license 
review process, but essentially they're appropriate as separate 
functions. The Commerce Department's review system ensures that 
legitimate commercial exports are permitted, to the extent 
possible, without interfering or threatening U.S. National 
Security or Foreign Policy interest.
    The State Department review system ensures that military 
exports promote our national security and foreign policy 
objectives.
    The third principal is that our industry strives to be 
compliant with the relevant export control laws. In fact, the 
industry devotes significant resources to be compliant. Many of 
our companies have elaborate and expensive export control 
compliance systems that include numerous highly trained staff.
    I brought with me the regulations that our companies must 
adhere to and there are a stack of books there. They are very 
complex and sometimes difficult to comply with.
    Madam Chair, in closing, I'd like to call your attention to 
my written testimony, which describes a number of specific 
export control issues of concern to our industry.
    I hope these comments are useful for you as you continue in 
this effort, and certainly I'd be happy to entertain any 
questions.
    [The prepared statement of Dave McCurdy appears in the 
appendix.]
    Ms. Ros-Lehtinen. Thank you, Dave. Mr. Johnson.

   STATEMENT OF JOEL JOHNSON, VICE PRESIDENT, INTERNATIONAL 
          DIVISION, AEROSPACE INDUSTRIES ASSOCIATION;

    Mr. Johnson. Thank you, Madam Chairwoman. As an ex-staff 
person as opposed to an ex-member, I'm particularly sensitive 
to the Congressional hook and will be very brief.
    Obviously, Aerospace, too, is extremely sensitive 
concerning export controls. We exported about $59 billion last 
year and with a net of about $37 billion, the largest net 
exporter of any sector in the U.S.
    It's certainly timely to turn to the issue of EAA. I would 
hope that this also would begin a process of laying the 
groundwork for a major overhaul of the overall export control 
legislation, regulation and administration that would be 
appropriate for the 21st century.
    Your Full Committee is the only Committee that can look at 
the full range of export controls, including both the AECA and 
the EAA, and that, I think, is extremely necessary.
    I touch in my testimony on how times have changed. We 
clearly don't have a consensus among the industrial democracies 
that we had during the cold war. That's particularly true with 
respect to China. The distinction between military and 
commercial technology is increasingly blurred and the rate of 
change of technology is ever more accelerated.
    Our military is increasingly dependent on the commercial 
sector for its requirements and, in turn, high technology 
commercial sectors are dependent on the international 
marketplace for their economic health.
    I might note, in the case of Aerospace, as opposed to 10 
years ago, when 65 percent of our customer base was the U.S. 
Government, today it's 40 percent. Of the remaining 60 percent, 
75 percent is for export.
    Meanwhile, we have too many export control systems 
requiring too many licenses, with too many bureaucratic actors 
involved in decisionmaking. It seems to me that we do need to 
take a long-term look at the process, but in the short term, it 
clearly makes sense to try to pass an interim EAA, perhaps for 
a 3-year time span.
    The industry would certainly support such a move if such an 
act contained a number of safeguards, many of which have been 
referred to already. Let me touch very briefly on the ones that 
are critical to us.
    First, obviously, foreign availability. If all the control 
does is shift the source of supply, you are punishing the 
American supplier, not the person that you are trying to 
affect.
    Second, contract sanctity. In general, companies ought to 
be able to carry out existing contracts, except in the context 
of multilateral controls that cutoff everybody's contracts.
    Third, support of formally exported products. This is 
particularly important for us in the realm of safety. People 
who fly commercial airplanes often have U.S. and Foreign 
citizens on them, even when they do come under some kind of 
export controls. They fly over many countries' air space.
    You cannot pull an airliner in trouble off to the side of 
the road and wait for a wrecker to appear.
    On multilateral versus unilateral controls, obviously, as 
anyone in industry will say, we much prefer multilateral 
controls and believe there should be some unit on unilateral 
controls.
    I'd note that H.R. 361 is somewhat misleading in that it 
has a multilateral section which in turn pertains to a whole 
slew of unilateral controls and unilateral sanctions, which 
would not be emulated by our industrial partners.
    Economic impact. Export controls, I think, are sometimes 
politically attractive because they're essentially one of the 
last unfunded mandates. They don't show up in the Federal 
budget. They're simply imposed on industry and workers. It 
seems to me that a CBO review of what the costs of export 
controls would be perhaps appropriate, and enough said on that.
    Time limits on controls, as I already alluded to. When the 
intended results of controls don't occur, there is no 
politically easy way to get rid of those controls. The EAA that 
was passed in 1996 does have at least some automatic time 
endings for those controls unless the President extends them, 
and I think that's probably appropriate.
    Finally, licensing processing time. This was discussed 
considerably earlier. It is terribly important in the 
commercial arena. You can make time deadlines. I had a company 
tell me 2 days ago that because they could not get a license 
within 35 days, even to respond to a request for a study from 
Intelstat, the study went to the Germans.
    Some of us in the room are old enough to know that the 
Germans not only know something about satellites, but know 
something about rockets, and I'm not sure how U.S. security was 
improved by turning that study over to our European 
competitors.
    I think H.R. 361 did address most of these issues. There 
are certainly some limitations to it. But its not a bad 
starting point.
    I would hope that the comments in the larger testimony will 
be useful to the Subcommittee and the Committee, and I will 
cutoff there before the hook comes.
    [The prepared statement of Joel Johnson appears in the 
appendix.]
    Ms. Ros-Lehtinen. Thank you. Dr. Freedenberg.

   STATEMENT OF DR. PAUL FREEDENBERG, DIRECTOR OF GOVERNMENT 
    RELATIONS, THE ASSOCIATION FOR MANUFACTURING TECHNOLOGY

    Dr. Freedenberg. As the last one up, I will be even 
briefer, because I recognize it's been a long day.
    My testimony deals with the problems for U.S. companies 
created by the current multilateral export control structure.
    Wassenaar, which has replaced COCOM, causes a great deal of 
problems, particularly with regard to China. COCOM worked 
reasonably well and had a clear enemy. The Wassenaar 
arrangement works poorly and there is absolutely no consensus 
with regard to China. China is the one area which you would 
expect an export control system to deal with, and yet 
Wassenaar, when it was formed, as I understand it, our 
negotiators specifically said it does not deal with China. It 
deals with the pariah states.
    That put the United States in a very uncomfortable 
position, because the United States, one gets the impression 
the United States has a fairly easy export control system on 
companies. I represent the machine industry. We've had an 
average of five licenses per year over the last 5 years. That's 
25 total. That's a fairly tough system.
    And we're not making judgments about any individual 
license, but clearly it's not a system that lets everybody slip 
through. It also is a system which, if you compare it with our 
allies, the allies are able, and I put some data in my 
testimony, the allies are able to get licenses, allied 
companies and allied countries, such as Germany, Italy, France, 
et cetera are able to get their licenses through the system in 
somewhere between 10 days to a month.
    The U.S. system--well, it was many months and sometimes as 
long as a year. So again, one would hope there would be some 
time limits put in. It's a very difficult thing to impose.
    There is a particular problem because China is the largest 
capital goods market and what they have, following the 
Aerospace representative, is that we see that Boeing is 
increasingly placing its Aerospace contracts, large portions of 
those contracts offshore.
    With the current U.S. export control system, those 
Aerospace parts are likely to be made on European machine 
tools. They're going to be made, the Chinese are going to get 
those machine tools, but they're going to be European. That's 
something that needs to be addressed.
    There is very little chance, under the current 
circumstance, that the Wassenaar allies would go along with our 
own tightening, but one of the things I think we need to do is 
take a very serious look at Wassenaar, decide where our 
negotiating strategy is, and go back and reopen the issue.
    I have three recommendations in my testimony and the first 
and the most important is that foreign availability provisions 
ought to reflect the system that we currently find ourselves 
in. We find ourselves, under the export control system that I 
enforce, from 1985 through 1989, foreign availability had to be 
found outside the system.
    Under the current system, because Wassenaar is so loose and 
because we operate under national discretion, a system of 
national discretion, foreign availability can be found from 
within the international--the multilateral system. That is, 
there can be, for example, machine tools supplied from other 
Wassenaar members and I think we need to have a provision, and 
actually H.R. 361 has a fairly strong provision, I would 
recommend adopting that, which recognizes that foreign 
availability can exist, in fact, from within a system.
    The other two recommendations I have, and I will conclude 
with those recommendations, are I agree with Secretary Reinsch 
that if we were go to go a consensus system, unless we're very 
clear what we mean by consensus, it could easily lead to a veto 
and we could end up with deadlocks, with the lowest common 
denominator determining whether licenses go forward.
    That would--as I've said, the current system isn't exactly 
an easy one. For the machine tool industries, there's been very 
few licenses granted. If we were go to go to a sort of veto 
system, we think those few licenses that were granted, there 
would be even less in the future.
    Finally, with regard to the recommendation for surprise 
inspection as a precondition for selling computers, we have 
to--I think the likelihood is that the Chinese would refuse 
this. If we don't want to be selling computers to China, that's 
one thing. I think we ought to have a debate about that 
subject.
    But I happen to know the United States has a very strong 
position on surprise inspections by foreign countries, as well. 
That's an issue that went into the chemical weapons convention. 
We're not going to expect other countries to accept provisions 
that we will not accept ourselves.
    Now, that doesn't mean--that's something that we have to 
take into consideration if we're serious about dealing with 
China.
    I think I will stop there.
    [The prepared statement of Paul Freedenberg follows:]
    Ms. Ros-Lehtinen. Thank you, Paul. I just have a few 
questions for you.
    Mr. McCurdy, you had stated in your testimony, written 
testimony, that if we treat China as an enemy, then it will 
become an enemy, and some would say that the Chinese communist 
party and the Chinese leadership have declared themselves as 
enemies of the United States.
    In fact, on December 18th, the President of China gave a 
reform speech to 6,000 communist party government and military 
officials, stating, quote, ``The Western mode of political 
systems must never be copied. China should try to minimize the 
impact of international risk and decadent thoughts and 
lifestyles.''
    His comments are directed not only at the United States, 
but all western countries.
    Would you suggest that the U.S. should remove all export 
restrictions currently imposed on China and how can the U.S. 
develop beneficial trade relations with China while 
safeguarding our U.S. security interests in the region?
    Mr. McCurdy. Well, thank you, Madam Chairman. I think the 
Chinese President also directed that statement at his own 
people. There is a great deal of change underway in China 
itself.
    We've seen dramatic improvement in their own emerging 
market system and they are opening up to the world as we've not 
seen in the past.
    Now, I testified the other day at the International Trade 
Commission on China's accession to the WTO. I did so with the 
condition that it be done on commercially viable terms. I don't 
believe that we ought to be negotiating among ourselves, but 
that the Administration should be taking those points to the 
negotiating table and trying to get the best agreement they 
possibly can out of the Chinese, and those will be 
liberalization of their system and the market.
    The comment I made, Madam Chair, about self-fulfilling 
prophecy is that if we do not reach out, there are plenty of 
countries that are willing to do so.
    If it's a unilateral decision on our part to declare that 
China cannot be--or cannot take the right fork in the road, 
proverbial fork in the road, to be in a more open system, one 
that can a more legitimate player on the international arena, 
then we may have the adverse consequence of actually pushing 
them in the wrong direction.
    So I believe that we have tools available to influence much 
of their decisions.
    Am I saying we should have no controls? Absolutely not. We 
believe there should be controls. We do have regimes. We have 
the missile technology control regime. We have other areas that 
we should be looking very seriously at and there needs to be 
pressure brought to bear on those.
    But it's not a one size fits all type of position. As we 
indicated and I think each of the panelists have indicated that 
there is increased trade opportunities for the U.S. firms in 
China. It will be the largest market. There are opportunities 
that we think advance U.S. long-term national security 
interest, but also economic security interest by advocating 
greater cooperation.
    And it's going to take a long time to do it.
    Ms. Ros-Lehtinen. Great. Thank you, Dave. Dr. Freedenberg, 
you state in your testimony that without a clear U.S. 
technology transfer policy toward China, that it would be 
difficult for us in the U.S. to draft and enact a new EAA.
    What are your initial recommendations on this?
    Dr. Freedenberg. I think one of the problems, and I tried 
to get at it in my brief summary, is there really is an 
ambivalence about China. China is seen as a technology transfer 
risk and it's clear that we have rules about it and that we 
enforce those rules, in fact, as I was pointing out in a much 
more rigorous way than our allies.
    On the other hand, the Administration has also pushed very 
hard for U.S. companies to get a piece of a very large market. 
I think it's--I don't have a great deal of recommendations in 
my testimony. I don't have a number right now. I'd say it's the 
sort of thing where we need to most importantly look at foreign 
availability, give companies a legitimate right to petition the 
government to demonstrate that these products are available in 
sufficient quantity and comparable quality to the Chinese as a 
significant factor for the government to take into account when 
they make licensing decisions.
    That's really not the case with regard to China right now 
and I provide statistics in my testimony that show that there 
are very large numbers of European, for example, in the area 
that I know, in European machine tools going into China, with--
and those--that has never been used as an argument for allowing 
U.S. companies to sell to those entities.
    Ms. Ros-Lehtinen. Thank you, Paul. Mr. Menendez.
    Mr. Menendez. Thank you. Gentlemen, let me thank you all 
for your testimony. I was reading through some of it, your 
extended testimony.
    I have heard today, in broad strokes, sometimes 
alternatively categorized your respective industries as either 
incredibly important not only for economic purposes, but for 
national security purposes, or money hungry treasonist 
entities.
    Could you give me a sense of, on a serious note, what is 
the--what is the value beyond the economic values, which I 
think everybody can ascertain, what do the values of some of 
the industries you represent mean to us in terms of national 
security?
    Mr. McCurdy. Congressman, we represent almost the full 
spectrum of the electronics industry, from those that are 
involved in telecommunications, again, a very vibrant area that 
we see, consumer electronics, components which are the 
essential elements for any final system, all the way through 
the manufacturers of electronics for U.S. Government 
activities.
    There are a couple points that I'd like to make. One is 
that the--when I was--and Toby and I were up here, it seemed 
that the U.S. Government was providing a lot of the leadership 
in technological development, in R&D activities, and they were 
leading the entire economy. That's no longer the case.
    As a matter of fact, in 1997, we passed an important 
threshold. There are now more--there's more commercial money 
being spent in space than there is government.
    So, again, the innovation, and we see, as the world 
actually becomes a smaller place, because now we have 
communication satellites circling the earth, providing 
tremendous communication.
    And that freedom of information, for those of us who had 
very extensive careers combating the former Soviet Union and 
the tyranny that was involved in that system, we believed that 
greater information, greater openness, giving the citizens the 
tools to reach out and access information was going to change 
that system.
    We find the same today. If you look at this chart on 
internet users, talk about a vehicle to open up societies, this 
is the best. It's instant access to all kinds of information, 
both good and bad. But they're going to have a hard time 
blocking that and I think that's critical.
    But the industries that I represent and we, as an 
association or an alliance represent perhaps the most vibrant 
industries in the world today. We are now--we've moved from the 
industrial age to the information age. We're really moving into 
the digital economy and the digital age and the technological 
development is at such a rapid pace, you talk about Moore's law 
doubling the semiconductor speed every 18 months, mentioned 
earlier, Mr. Manzullo, about the MTOPS, the incredible change 
in speed there.
    I don't have it with me today, but I carry a little chip 
that's about the size of a quarter, which is a micro storage 
device that has the equivalent of 340 megabytes, a little thin, 
little chip, the equivalent of 246 floppy disks.
    We now see fast cards and electronic cards. Again, the 
technology is changing. Not only the ability of this country to 
expand and the global economy to expand and for us to see the 
success of it, but also improve the quality of people's lives.
    When we actually see growth rates remaining relatively low 
in the consumer sector, it's the one sector where the prices 
continue to drop and it's one of the most price-sensitive areas 
of the economy. Again, electronics, it improves.
    And the last point I'd say is that in a way, ironically, it 
may be the private sector that is now subsidizing government 
technology because if these large defense firms that are 
providing information services, electronic systems to the 
Federal Government, if they don't have a vibrant market, then 
they're not going to continue the R&D rate that they're 
currently pursuing.
    And the Government has not ante'd up at a rate which we 
think is in our long-term best interest. So the irony is that 
rather than the Federal Government subsidizing industry to take 
the lead in technology and technological development, it may be 
the reverse.
    Mr. Roth. If I can just quickly add to that, Congressman 
Menendez. When I came to this Committee, I was one of the 
people that said, hey, let's not let anything be sold overseas. 
We're going to keep everything from the Soviet Union.
    But as time went on, I realized that that was the wrong 
approach. I learned from people like Paul Freedenberg and 
others and good people like Roger Majack that you've got to 
look to the future and the way you look to the future, you've 
got to take a look at this technology. Technology is not a 
static thing.
    What's a state-of-the-art today, 5 years from now is going 
to be obsolete. So what you want to do--this was the conclusion 
I came to--is that you've got to protect the tip of the 
iceberg, the most sophisticated technology, but the rest of it 
you want to let go, because you want to keep the state of 
technology in this country.
    But once you deny our business to sell overseas and other 
companies, whether the German or French or whoever it might be, 
step in, then we will no longer keep that edge. And what gives 
us our protection is the edge, and that's why we want to keep 
that. Something like going pheasant hunting. I don't know. When 
I first went pheasant hunting, I couldn't get a pheasant and 
the reason was I was always aiming at the bird and then 1 day a 
guy came and said you've got to swing that shotgun and stay 
ahead of the pheasant at all times in order to hit it, and 
that's the analogy for technology.
    You've got to stay ahead of the curve and once you don't, 
then you're going to lose.
    Mr. Menendez. I appreciate your answers. I hope you don't 
carry that chip with you when you go abroad. You take it out of 
your suit, you might be an export----
    Mr. McCurdy. It's commercial available.
    Mr. Menendez. Is that right? OK. Let me ask you one other 
question, for any of you wish to answer. If the current 
controls are continued, if we do not have a new Export 
Administration Act, what impact does this have on U.S. 
industries, their ability to export, as we turn the century?
    Mr. Roth. You're going to let the companies overseas 
become--have the state-of-the-art technology and then we will 
no longer have the leverage that we've had ever since I came to 
Congress.
    Mr. McCurdy. I would agree with that. But, again, in light 
of the testimony earlier today from Mr. Cox and Mr. Dicks and 
what Toby just said earlier about the tip of the iceberg, and 
the Secretary made the comment as well, you're talking about 11 
or 12,000, I think was the number, applications for license and 
such a small percentage are those that are truly involved in 
the very sensitive areas.
    You have a munitions list. It's very clear, very precise. 
There are some who would argue that that needs to be expanded 
perhaps. The gray area obviously is in the dual-use 
technologies and in the computer areas. Mr. Manzullo, I 
believe, last year or in the last Congress, considered removing 
controls on computers.
    I mean, again, what is the--it is very, very difficult to 
define some of the dual-use areas and I think we have to keep 
that in mind as we look at this export regime.
    It would be a mistake, I think Congress would be abdicating 
its responsibility if it did not reauthorize the law and make 
it a post-cold war, modern, realistic regime or system that, 
rather than inhibit our ability to succeed abroad, but actually 
increase it.
    Mr. Johnson. To add to that, I think we have, after all, 
survived 4 years without one. We could probably go on a bit 
longer. I think perhaps one of the crucial problems is not 
reauthorizing, but one of not having the debate within 
Congress, but to have greater consensus within Congress as to 
what export controls are all about.
    The dangers that we have gotten into in the last few months 
in the last Congress, was that there clearly was no consensus 
and there was a tendency to run this way and that way. And that 
leaves us in an even greater area of grayness and uncertainty 
as to our future and our ability to plan two, three, or 5 years 
ahead.
    So I think the debate itself will be extremely useful. As 
we look around, with Congressman Roth here, there aren't very 
many people who have gone through this debate in Congress. The 
last EAA, there were five or ten people in Congress who were 
here when that passed.
    The Senate hasn't discussed this subject for a decade or 
more. I think you need that discussion to help bring to the 
table these issues and build a greater comfort level within the 
Congress and within industry as to where we're going.
    Dr. Freedenberg. The other point is you really can't have a 
system long-term that is based on a COCOM international system. 
That doesn't exist anymore. You have a system that is much, 
much different in terms of how we interact with our allies, how 
we deal with the essential problem, which is China.
    We've heard the debate about China. China is not dealt with 
adequately within the current multilateral system and, in fact, 
that causes great problems for our companies. Keeping our 
companies out doesn't necessarily help things and, in fact, it 
can harm us in the long run.
    But we have to make a decision on what technology we want 
to go, under what circumstances, and that's really a debate 
that this Act really ought to stimulate and it's something that 
would be, I think, very helpful to undertake.
    Ms. Ros-Lehtinen. Thank you, Mr. Menendez. Mr. Manzullo, 
I'd like to recognize you for your questions, and if you could 
Chair the rest of the meeting.
    Toby, Dana and I concluded that you should have aimed that 
shotgun at Mrs. O'Leary's cow, thereby sparing Chicago. You 
missed your true calling.
    Mr. McCurdy. Thank you, Madam Chair.
    Mr. Manzullo--[presiding]. Thank you for testifying. Toby, 
I want to just publicly thank you for the inspiration and the 
guidance that you've given to me personally as a role model and 
a mentor in this very, very difficult area.
    I want to talk about jobs. I want to get right down to why 
we are here. I am terrified. I wish that every member could 
read especially Mr. Freedenberg's statement on the disgrace, 
the national disgrace of this country, which has the finest 
machine tool producers who are being shut out of the markets in 
China, on the five-axis machines. We're having problems getting 
four-axis machines into India.
    I want your estimate as to the number of jobs, I hope some 
press is left here--I'm sorry--still here--on the basis of a 
billion dollars of exports equals 20,000 jobs. I want to know 
what our present policy is doing to send U.S. jobs abroad.
    Dr. Freedenberg. China is the largest overseas market for 
machine tools, interestingly, but there is a real problem when 
you can't sell sophisticated machines, which is the other part, 
they don't want to take that approach.
    Mr. Manzullo. Replacement parts, updates, right.
    Dr. Freedenberg. I will get you the estimates. The 
substantial point is the U.S. machine tool industry, which is 
at a disadvantage in the 1980's, is now very competitive, 
exports fully a third of its output in the 1990's, and China is 
the largest market.
    That is very important and it's going to become a much 
larger market. Boeing estimates, I think, 25 percent of their 
sales may be to China over the next decade. It's a very 
substantial commercial market and you want to--and those planes 
are going to be built increasingly on Chinese--at least parts 
of those planes.
    Mr. Manzullo. Dr. Freedenberg, can you give us a dollar--
the word has to get out and if we can use this as a platform, 
the word has to get out as to what we're doing to destroy our 
jobs.
    Dr. Freedenberg. One example we have is China is--we have 
10 percent of the Chinese market and currently we have 20 
percent of the South Korean market. The differential, there 
close to the same levels of economic development in terms of 
the sorts of products they're trying to produce, automobiles, 
aircraft parts, et cetera.
    But that differential can be--I will get you the exact 
numbers.
    Mr. Manzullo. OK. Congressman McCurdy, do you want to take 
a stab at that, starting with computers and anything else?
    Mr. McCurdy. Certainly, Mr. Chair. I believe the real 
problem that you state is one that we use quite often, and that 
is that for every billion dollars in exports, you're looking at 
20,000 U.S. jobs. As I indicate in my statement, we exported, 
in the electronics sector, $150 billion worth of systems and 
technology and products.
    I think there has been a lot of focus on China itself. I 
don't think anyone is up here saying that China is an easy 
market. China is a very difficult market and there is a lot 
that has to be done. There's a lot of effort that has to be put 
in by the Administration and by the U.S. Government to try to 
open that market more successfully.
    But it is clear that our competitors see that as one of the 
biggest opportunities in the world today and they are without 
any hindrance, without any limitations, spending the time and 
money in technology and investments to have the foothold in 
that market.
    Mr. Manzullo. What are we losing in terms of items that 
could be sold to countries that--a foreign availability, but 
which we can't sell because of our licensing requirements?
    Mr. McCurdy. In those areas, in some of the dual-use 
technologies, where there is foreign availability, it is clear 
that if we do not have access to that market, if we do not have 
a presence in that market, that market will in fact go to 
competitors.
    There is no guarantee, even if we had a perfect export 
control regime, that we would be the dominant player in that 
market. I think our technology is better, higher quality, and 
more competitive in price, and, therefore, should be the 
commodity or product of choice, but that's not a guarantee.
    If you look at who is doing business in China, but also 
throughout Asia and throughout the emerging markets around the 
world, all the major foreign competitors are there, especially 
in the telecommunications area, that we also represent.
    Mr. Rohrabacher, I think, is aware as well that that is one 
of the--when they deregulated and are deregulating in foreign 
countries the telecommunications sector, that opened up the 
opportunity for the creation of thousands, of hundreds of 
thousands of jobs for U.S. telecommunications manufacturers.
    When we are denied access to some of those markets, that 
has an adverse impact on those companies.
    Mr. Manzullo. Toby, did you want to respond to this?
    Mr. Roth. No. I think Mr. McCurdy has put it very well and 
I associate myself with his remarks and the other remarks of 
the panelists made here today.
    Mr. Manzullo. Applied Materials, which manufacture 
semiconductor manufactured equipment, lost a $3 billion sale to 
China due to export controls. NEC of Japan picked it up. I 
have--the district that I represent is one of the most 
exporting and very high in machine tools and the worst that 
could occur now is a drying up of machine tool exports, the 
same thing that happened in 1981, and that's when we led the 
Nation in unemployment at 26 percent.
    Dr. Freedenberg. Let me give you just one example of 
something I've done. When I was over in Japan, I talked with a 
number of export control officials and I said, one of the--
you've actually had fairly good arrangements with the Japanese 
in the area of super-computers. We had a bilateral agreement 
that worked fairly well. I suggested to the Japanese that we 
ought to begin bilaterally talking about what the limits ought 
to be on China, get some understanding among ourselves so that 
we don't undercut each other with--in the area of export, and 
then try to expand it informally within the Wassenaar 
agreement.
    You can't have China, now that Russia is a part of us now, 
you can't have China officially as the objective, but you can 
get some understandings on what the export control levels ought 
to be. We really don't have those, and as a result, the U.S. 
Government from time to time can come down very hard on a U.S. 
company and have absolutely no assurance that their foreign 
competitor won't get the deal.
    On the case you're talking about with Applied Materials, 
that's exactly the case. It's exactly the same specifications 
for the equipment that went in to China from NEC that would 
have come from the United States. That doesn't do us any good. 
That's a very good example of what we need to get some 
understandings with our allies about. So the export controls 
are not a factor with regard to the----
    Mr. Manzullo. What I would like to see, maybe Mr. McCurdy 
and Dr. Freedenberg, I would like to see a letter, perhaps a 
joint letter or individual letter--I want to quantify, present 
to the American people, present to the Members of Congress that 
because of this policy, the number of jobs that we are losing. 
China has 300 cities in excess of one million people. Twenty-
five percent of those cities do not have airports. China is in 
the process of building I think right now 13 or 14 airports in 
the southern part of that country, with a goal of a new airport 
in every city. I mean, the opportunities for sales there and 
elsewhere are ripe.
    Mr. Delahunt.
    Mr. Delahunt. Thank you, Mr. Manzullo.
    Let me just approach this from a different angle, and if my 
questions or observations appear to be naive, it's a reflection 
of my--the fact that I'm brand new to this Committee. But I 
find his conversation interesting.
    Help me walk through. If--and I think this goes to the 
issue that Mr. Manzullo expressed his concern about. But if an 
American company makes a decision--or can an American company 
create a subsidiary and situate a plant or locate a venture, 
whether it's a joint venture, whatever the mix may be, in China 
to avoid the export control regime that currently exists? Is 
that doable under mergers and acquisitions, not only in this 
nation, but at, you know, the international level? How does 
this issue mesh in with the globalization, if you will, of our 
economy?
    Dr. Freedenberg. You can use foreign technology, and 
frequently the foreign technology is comparable. So you can--
I've seen U.S. companies end up, because of a sanction or a 
particular U.S. law, simply shift to a foreign operation, 
which, as long as it's not using exclusively U.S. technology--
very frequently Europeans have their own technology that's 
comparable----
    Mr. Delahunt. What concerns me is in terms of the national 
security interest, how would, again, this consolidation into 
national--I mean, we see the emergence of the multinational 
now. I mean, in terms of compliance, I mean, in the real world, 
you know, you talk about exclusive U.S technology. I mean, that 
gets real murky when we're talking about, you know, 
multinational corporations.
    Mr. McCurdy?
    Mr. McCurdy. Well, Mr. Delahunt, a couple thoughts on that 
question, which I think is a good question. Many of the 
competitors that our industry faces are European. Many of those 
competitors have huge ownership positions by their governments, 
and their governments are actively out there supporting their 
export and their activities, whereas in our free market system, 
in our free enterprise system, government doesn't own, you 
know, an equity position in the companies, and it--but in many 
ways is restricting some of its ability to compete.
    I was asked to give a speech recently at the U.S. Chamber 
of Commerce on industrial espionage, and as former Chairman of 
the Intelligence Committee, I had some recollection of some of 
the activity of some of our so-called friends and allies with 
regard to U.S. businessmen and business people traveling abroad 
and some of the risks that were associated there.
    The second point is as far as the mergers, there's a limit 
to how large a corporation can really grow and be effective. I 
think you'll see a cycle----
    Mr. Delahunt. I'm waiting for that time.
    Mr. McCurdy. I think you'll see a cycle, actually, where 
there will be more and more spinoffs. A number of the--the 
beauty of the U.S. system and U.S. industries--and it is true 
they are global in their span. As I said earlier, a third of 
their products are now exported. The beauty is the 
entrepreneurism, the innovation, the incredible rapid pace of 
market development and time to market. You don't see that 
anyplace else, and that's the advantage we have. But if you 
slowed that down, if you take that portion away from us, then 
all of a sudden, the others have a chance to catch up.
    Mr. Delahunt. You know, I don't disagree. I guess what I'm 
trying to do is say that--I'm trying to buttress or support 
your perspective here by saying, I mean, joint ventures, there 
are so many different mechanisms to achieve certain ends that 
it causes me concern.
    Let me just pick up on one point that--I think it was Mr. 
McCurdy that said this earlier, about--in terms of--your 
concern is, of course, that if export controls are so 
cumbersome, that we lose in terms of our technological edge 
because the investment in terms of R&D simply won't be there. 
You gave the example of public versus private satellite 
technology.
    Have you seen evidence of that already happening?
    Mr. McCurdy. Oh, without doubt, yes. I mean, there is----
    Mr. Delahunt. Because I think you made the comment about--
and I was really taken aback by it, is that you now--I think 
your statement was that some of our global competitors are in 
fact ahead of us in terms of state-of-the-art technology. Maybe 
I'm reading into something that----
    Mr. McCurdy. They're comparable in many areas. There is no 
longer--we enjoyed the greatest era of prosperity after World 
War II because we were the dominant player, we had the leading 
technology, we had the infrastructure, we had the education 
system, we made the investments, and there really wasn't a 
competitor.
    In this multipolar world that we live in today that is 
highly competitive, there are huge investments countries have 
taken on as a system to develop technology that, in fact, can 
compete. They subsidize their companies, they subsidize the 
exports. In the aviation section, you see it everyday.
    And one point that my friend from California made earlier 
about industry, let me just say this where I respectfully 
disagree on one point. It's the U.S. businesses that in fact 
are concerned about long-term security, and they have been good 
citizens.
    There's always an exception, there will be mistakes made, 
but I don't think it's because of greed. If anything, Mr. 
Rohrabacher, I believe that that incentive is what made this 
system so successful. That's what free enterprise is all about, 
that's what we're supporting. And it can operate in conjunction 
with national security. That's why you have a munitions list, 
that's why you should--ought to focus on those areas that are 
specific to threats that may, in fact, come back to haunt us.
    Mr. Delahunt. Just one more question real quickly, because 
the focus has been on China today, and I understand that, but 
also on the Asian continent, we have a country the size of 
India. Any comments on, you know, the impact of the current 
system as it relates to how we do business, exports, in India. 
I think, you know, there's--that's an immense nation, 
obviously.
    Mr. Johnson. In our industry is a good example of sort of 
unintended consequences. Because of the Glenn amendment and 
because of moving communications satellites to the munitions 
control list, we could not sell a commercial satellite launched 
on a Delta 2 rocket to India or Pakistan today, and there is no 
Presidential waiver authority. We have turned that market over 
to the Europeans until the Congress does something about the 
Glenn amendment. No one intended on doing that, but that's what 
happened to us.
    So you undercut--I don't mean you specifically--they--the 
system has undercut both the launch industry and the satellite 
industry in the United States because of sort of unintended 
consequences of treating commercial items as a military item. 
Not the military--I mean.
    The other point I would have liked to have made in terms of 
trying to figure out jobs, it's a very complicated issue. One 
reason we focused on China is because if you take away that 
large market and you give it to the Europeans, there's a 
monopoly, then a number of things happen in other markets, and 
that's really part of the measure.
    I remember when we did export sanctions and we denied 
Caterpillar sales of 700 pipelaying units to Russia. Comotzo 
moved in and within 2 years were marketing heavy construction 
machinery in the United States, and if you ride down the road 
today, you'll see Komatsu heavy equipment. It wasn't there 
until we did that. But you give a guy a free market with a 
monopoly price, bad things happen elsewhere. He's got a cash-
flow to develop the next generation of products to get out 
there and market what you've taken away from the Americans.
    I have a company that is in the satellite area being told--
it was a supplier of components to French Company Alcatel--that 
they were going to design out American components now that 
we're on the munitions list because our strings on munitions 
don't stop.
    Mr. Manzullo. OK. Mr. Rohrabacher, I want to end at 10 
minutes to six.
    Mr. Rohrabacher. OK. Well, I don't think I have that much 
time, but----
    Mr. Manzullo. Oh, OK.
    Mr. Rohrabacher. Let me just note in terms of the jobs 
issue, I noticed Mr. Freedenberg sort of hedged when he 
realized he was about to disclose that Aerospace jobs were 
being lost in order to sell your equipment to make other 
equipment.
    Dr. Freedenberg. Yes.
    Mr. Rohrabacher. Who loses? The American Aerospace workers 
in my district, that's who loses.
    Dr. Freedenberg. I understand that entirely. In fact,----
    Mr. Rohrabacher. Right.
    Dr. Freedenberg.--I worked very hard first against offsets, 
which is essentially what----
    Mr. Rohrabacher. Yes. Let me just----
    Dr. Freedenberg. I understand.
    Mr. Rohrabacher--[continuing]. Be very clear as I talk 
about losing jobs, the Chinese understand exactly how to create 
jobs in China and not in the United States, and part of the 
bit--the crux of this issue that we're talking about today was 
the Chinese insisting to these Aerospace executives that if 
you're going to, you know, launch your satellites, you've got 
to do it on our rockets, and then you've got to improve our 
rockets, and then these executives get lured into this because 
of the vision of the China market.
    The vision of the China market, they say, you know, China 
is the market of the future and it always will be. In our whole 
history, we've had people talking about the China market. The 
bottom line is, can you--can any of you gentlemen tell me who 
buys more from us? Who's bought more from us in the last 10 
years--the 20 million people in Taiwan or the billions of 
people on the Mainland? Well, you know the answer: it's the 
people in Taiwan.
    The fact is that up until recently, Taiwan bought more from 
the United States every year than the entire Mainland of China. 
That's not to mention these other countries. This is little 
Taiwan.
    We have people who are stumbling over themselves in order 
to do business in a way that could jeopardize the national 
security of our country in order to get a part of the China 
market. Well, this dream is causing great damage to the 
security of our country. People can dance around the issue all 
they want; the crux of the matter is, we all know that 
Communist China could well be at war with the United States 
within 10 years unless there's some change of dynamics. 
Everybody knows that. Everybody is afraid to say it, afraid to 
talk about it.
    What are you going to do? Are you going to say that China 
is going to be on a list? We're talking about the COCOM lists 
of the past. Are we going to knock it out? Everybody is afraid 
that, well, then maybe we destroyed our possibility here of 
being not only in the market, but we've destroyed the 
possibility of reaching out to China and letting them evolve 
toward democracy. Well, it's baloney.
    Sometime, somewhere, people are going to have to come to 
the realization the people who control China hate the United 
States, they hate everything we stand for. When our businesses 
go over there and sell them our rocket technology or set up 
factories so that they're going to be able to compete with our 
Aerospace industry, they think we're weaklings and they despise 
us and they think we're degenerates because we are ending up 
giving their country in the long run the leverage they need to 
dominate the United States of America. If you don't think 
that's the attitude of these people, you haven't studied what 
these people are all about.
    Now, I understand this dream that you've got. We're going 
to do more business with them because we have all these 
computers over there, and through the Internet, we're going to 
open up their eyes. I hate to tell you this, Communist people 
are not our problem--I mean, the Chinese people are not our 
problem. The Chinese people don't want a boot of oppression in 
their face forever. They don't want that. The Chinese people--
Tiananmen Square spoke what they wanted. But you have a 
ruthless, factious state regime of people who know everything 
about the United States--they don't need the computers to find 
out--who are committed to what? To making $50-, $60- to $100 
billion dollars in surplus with our trade with them every year 
in order to do what? To put our people out of work, not to give 
work to our people, to make sure that they can compete with our 
Aerospace industry and every other industry, and eventually to 
produce weapons of mass destruction that will threaten us. 
That's what they're doing. They're upgrading their military 
every year for the last 5 years in ways that put our country in 
jeopardy.
    And the reason there's so much to-do about this issue is 
when we loosened our restrictions, with my approval, I might 
add, based on the same arguments that you've presented us 
today, what happened? No, Mr. McCurdy, I'm afraid that those 
business executives that watch out for America weren't watching 
out for America.
    I've investigated this myself for 6 months. I went to the 
contractors, I went to the subcontractors. People in those 
companies went to me and told me they were embarrassed and they 
were ashamed of their company for what they had done, and I 
won't name the companies that we're talking about, they were 
ashamed because they had spent the cold war trying to protect 
our country by developing the technology we needed for our own 
defense. And when Aerospace workers come to you on the side and 
tell you they know that they're company is engaged in something 
that is damaging to our national security, a Member of Congress 
better well pay attention to what's going on.
    I'm sorry for getting upset, but that's just me.
    Mr. McCurdy. No, we appreciate your fervor, Mr. 
Rohrabacher. But if I may, just on one point, I think you have 
to be very careful when you categorize all of industry or all 
of an entire sector of the economy with a statement that, you 
know, so-called friends at the country club--in fact, it's U.S. 
industry that enabled this country to have the strongest 
defense----
    Mr. Rohrabacher. Sure.
    Mr. McCurdy--[continuing]. Without equal, without par.
    Mr. Rohrabacher. Dave, I think you can look at the record 
and I don't I've ever used the word all or industry or 
everybody in industry. In fact, I said earlier a member of the 
country club, and that doesn't mean everybody who is a member 
of the country club.
    What happens when you're part of a little clique like this 
is you overlook something that your buddies have done. You 
say,----
    Mr. McCurdy. Well, Mr. Rohrabacher----
    Mr. Rohrabacher--[continuing]. Well, this guy has done--I'm 
not saying everybody has done it.
    Mr. McCurdy. Mr. Rohrabacher, we're not here to defend a 
particular company. If, in fact, there were violations, there 
is a system that will take care of that. What we're here to say 
is that don't let an exception--an exception--destroy what has 
been the fuel that has run one of the most dynamic engines of a 
modern economy ever in history.
    Mr. Rohrabacher. Sure.
    Mr. McCurdy. We have that today and we don't want to--and 
it's not foolproof, it's not free of potential risk. This is 
still a fairly volatile economy, and if you, in fact, are--if 
we're not careful and just take it for granted that this 
innovation and entrepreneurisum will go on forever, and that 
this phenomenal growth will go on forever, I think that's a 
dangerous assumption.
    So all we're arguing for is that don't impose a system that 
was directed at an exception on the entire system and an 
industry that is--shares your patriotism and your concern----
    Mr. Rohrabacher. Dave, when I left this room, I went up to 
my office to talk to some people in Boeing Corporation, OK, and 
one of the things we just happened to talk about was that 
they're finding out all of these sales to China weren't turning 
out so profitable after all for their aviation industry. They 
got stiffed. And what happened when they got stiffed? They 
didn't order all the planes, but they got all the equipment, 
didn't they, all those machine tools. So where do we end up? We 
end up with American workers who we're supposed to watch out 
for, we've given them all the tools they need to compete with 
our people to put our people out of work. Who's watching out 
for America?
    What we're doing is we're letting these big companies go 
for the vision of a--not a long-term profit, but a short-term 
profit, because you can make a 25 percent profit if you get the 
right deal in China, where over in the United States, you know, 
maybe you'd only make 7 percent.
    One last thought, and then I'll----
    Mr. Manzullo. I've got to get back to my office.
    Mr. Rohrabacher. I agree with Mr. Manzullo in that we 
should not be restricting----
    Mr. Manzullo. This is a slow motion.
    [Laughter.]
    Mr. Rohrabacher. We should not be restricting sales of 
American technology that can be done--bought on the market. I 
agree with that.
    Mr. Manzullo. Amen. This Committee is adjourned.
    [Whereupon, at 5:50 p.m., the Subcommittee adjourned.]
      
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                            A P P E N D I X

                             March 3, 1999

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