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





                FUTURE OF THE EXPORT ADMINISTRATION ACT

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

                                HEARINGS

                               BEFORE THE

                            SUBCOMMITTEE ON
                INTERNATIONAL ECONOMIC POLICY AND TRADE

                                 OF THE

                              COMMITTEE ON
                        INTERNATIONAL RELATIONS
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED SIXTH CONGRESS

                             SECOND SESSION

                               __________

                       MARCH 22 AND APRIL 4, 2000

                               __________

                           Serial No. 106-149

                               __________

    Printed for the use of the Committee on International Relations


        Available via the World Wide Web: http://www.house.gov/
                  international--relations

                                 ______

                    U.S. GOVERNMENT PRINTING OFFICE
67-392                     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 RADAVANOVICH, Califorina      JOSEPH M. HOEFFEL, Pennsylvania
JOHN COOKSEY, Louisiana
THOMAS G. TANCREDO, Colorado
                    Richard J. Garon, Chief of Staff
          Kathleen Bertelsen Moazed, Democratic Chief of Staff
            John P. Mackey, Republican Investigative Counsel
                                 ------                                

        Subcommittee on International Economic Policy and Trade

                 ILEANA ROS-LEHTINEN, Florida, Chairman
DONALD A. MANZULLO, Illinois         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
                   Victor Maldonado, Staff Associate


                            C O N T E N T S

                              ----------                              

                               WITNESSES

                                                                   Page

                     WEDNESDAY MARCH 22, 2000

Daniel A. Hoydysh, Director, UNISYS..............................     7
David Rose, Director, Export/Import Administration, Intel........    10
David McCurdy, President, Electronic Industries Alliance.........    12
John W. Douglass, President, Aerospace Industries Association....    14
Paul Freedenberg, Director of Government Relations, Association 
  for Manufacturing Technology...................................    17

                      TUESDAY, APRIL 4, 2000

Roger Majak, Assistant Secretary for Export Administration, 
  Department of Commerce.........................................    28

                                APPENDIX

                    WEDNESDAY, MARCH 22, 2000

Prepared statements:

Daniel A. Hoydysh................................................    40
David Rose.......................................................    59
David McCurdy....................................................    61
John W. Douglass.................................................    74
Paul Freedenberg.................................................    80

                      TUESDAY, APRIL 4, 2000

Prepared statements:

The Honorable Ileana Ros-Lehtinen, a Representative in Congress 
  from Florida and Chair, Subcommittee on International Economic 
  Policy and Trade, Committee on International Relations.........    94
The Honorable Robert Menendez, a Representative in Congress from 
  New Jersey.....................................................    96

 
          THE FUTURE OF THE EXPORT ADMINISTRATION ACT--PART I

                              ----------                              


                       WEDNESDAY, MARCH 22, 2000

              House of Representatives,    
        Subcommittee on International Economic     
                                      Policy and Trade,    
                      Committee on International Relations,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 1 p.m., in 
room 2200 Rayburn House Office Building, Hon. Ros-Lehtinen, 
(Chairman of the Subcommittee) presiding.
    Ms. Ros-Lehtinen [presiding]. The Subcommittee will come to 
order. Thank you so much for your patience, the panelists, the 
Members especially, and the audience. Thank you.
    The export of dual use commodities has been and continues 
to be a priority. In light of recent technological advancements 
and the continuing demand for American merchandise, 
apprehensions have intensified about the loss of future markets 
for American industries, as well as the potential for U.S. 
exports to contribute to the military capabilities of foreign 
adversaries. Export controls in the form of the Export 
Administration Act have been the pivotal instruments used to 
address these dual, yet converging concerns.
    The Export Administration Act of 1979 was based upon 
legislation devised at the onset of the Cold War for the 
purpose of regulating the export of dual use items to provide 
safeguards for U.S. national security. Since 1990, when the Act 
expired, there have been several attempts to develop 
legislation which meets the needs of both a rapidly developing 
marketplace, as well as a rapidly changing global security 
environment with new and different threats.
    These efforts have failed to find consensus in both the 
House and Senate. Thus, the Export Administration Act has been 
maintained through a series of executive orders issued under 
the International Emergency Economic Powers Act. The dilemma we 
continue to face is how to restrict the spread of potentially 
destructive technologies, how to deter terrorism and other 
rogue behavior, while allowing legitimate sales to go forward, 
to preserve the ability of U.S. technology exporters to develop 
their markets, and to foster U.S. technological leadership.
    Critics of the current U.S. export control system say that 
the existing policies promote interagency gridlock, causing 
conflicts between the various entities responsible for 
licensing and enforcement. They argue that the solution to a 
more efficient export control mechanism lies in streamlining 
the process and consolidating regulatory power.
    Recent statements by Bruce Middleton, managing director of 
the Australia-based Asia Pacific Aerospace Consultants, 
illustrates the challenges facing American industries and the 
impending need for reform of the licensing process. He states, 
``Frankly, America is no longer seen as a reliable supplier or 
partner. American companies can neither guarantee export 
permission nor estimate how long getting that permission might 
take.''
    One alternative which has been proposed is for the 
licensing review and approval process to take into account 
policy precedent. That is, if licenses for exports of 
particular products to specific countries are routinely 
approved, then new requests which fall under this precedent 
should be expedited for approval.
     Industry and scientific experts underscore the need for 
better definitions of products and national security risks to 
better focus on technologies that should be protected. We 
cannot continue to, for example, treat simple metal mounting 
brackets for the avionics bays of aircraft equal to 
sophisticated satellite technologies.
    In the case of computers, we need to move away from an 
MTOP-based system to a more responsive approach which reflects 
technological realities and provides a more accurate measure 
than offered by current performance-based controls. Other areas 
which, I'm sure that we will hear today, need to be addressed 
are: reductions in the congressional review periods; targeting 
post-shipment verification of products and recipient countries 
posting the greatest national security threat; and issues such 
as the foreign availability and mass market status.
    There are some who use the foreign availability argument to 
advocate the removal of all export controls for everything and 
for all countries. However, we as policymakers must be careful 
not to make such broad, far-reaching generalizations, and take 
into consideration the type of technology or product to be 
exported; how the product will be used; and the nature of the 
importing and recipient country.
    The recent agreement between the Secretary of Defense Cohen 
and his British counterpart hints at the goal of waiving U.S. 
export controls over time. What some observers will point to as 
perhaps more pertinent to the discussions regarding the Export 
Administration process is the underlying distinction made 
between friends and foes in the U.S.-U.K. agreement. Perhaps 
proposals to give preferential export control treatment to NATO 
members and close non-NATO allies such as Australia, New 
Zealand, and Japan to expedite the export process is another 
option? Perhaps there are better alternatives? But one thing is 
certain, we must focus on a balanced approach which targets 
those countries, the recipients, the technologies, and the 
products which are of concern to our national security, and 
define those within the new global environment.
    A clear distinction must be made between products and 
technologies, taking into account the rapid pace of 
technological change. We must differentiate between the 
longstanding U.S. allies and pariah states which continue to 
support international terrorism; which conduct espionage 
activities against us in the United States; which develop 
biological weapons or engage in the proliferation of weapons of 
mass destruction, among other threatening behaviors. Enemies 
should not be rewarded.
    Nevertheless, the balance must and can be achieved. As 
Senator Michael Enzi, one of the current cosponsors of S. 1712, 
has remarked concerning a new export administration system, 
``Industry needs reliability and predictability. Industry needs 
to be able to make into it into the marketplace at least the 
same time that the competitor does.'' However, a new Export 
Administration Act must ensure that ``items that can be used 
against our country do not fall into the wrong hands.''
    That is the task at hand as we look into our distinguished 
panelists today for insight and recommendation on how we in 
Congress can achieve these goals. We look forward to all of 
your testimony today.
    I now would like to yield to the Ranking Member of our 
Subcommittee, Mr. Robert Menendez of New Jersey.
    Mr. Menendez. Thank you, Madam Chairlady. Thank you for 
holding the hearing, continuing in our efforts in this regard. 
I am very pleased to have the distinguished Ranking Member of 
the Full Committee with us today. This is an issue that he has 
been pursuing for quite some time as the former chairman of 
this Subcommittee, and now as the Ranking Member of the Full 
Committee. I am sure we'll hear from him in a few moments.
    The Export Administration Act and export control policy are 
amongst the areas of greatest importance to this Subcommittee. 
The challenge of the EAA is to strike a balance between our 
national security interests and our commercial interests. I 
believe that goal is achievable, as I have said in the past. We 
have a new bill that is out there, Senate bill 1712, for 
example. I think it seeks to achieve that precarious balance. 
There are some issues I still have with it, but I see it as 
making much-needed changes to our antiquated export control 
laws, particularly in the area of enhanced penalties for 
illicit export sales.
    I think the Congress' failure to reauthorize the EAA has 
left the Congress without a voice in an area of increasing 
importance to our national security and to U.S. industry. 
Moreover, I believe it's a breach of our constitutional duties. 
The Constitution clearly gives authority to Congress in the 
regulation of foreign commerce. By not reauthorizing, we have 
ceded this authority to the executive branch.
    Now clearly no one would advocate a policy that would 
undermine our national security, but often the lines between 
security and commerce are not quite clear. Where there is a 
discernible national security threat and where the technology 
is clear, clearly not available from any other source, the 
licensing decision I would submit is simple. However, licensing 
is usually significantly more complicated. Licensing decisions 
have to consider not only the intended use of the export and 
who the end user is, but whether a foreign country is likely to 
permit the sale if we do not.
    The United States is a leader of the global economy, and 
many businesses rely on exports for a large portion of their 
business. American businesses in this field are rightly 
concerned about losing business to less scrupulous nations or 
being seen as unreliable suppliers. Already the American 
computer industry has been stymied and sales of basic desktop 
computers due to inflexible export controls. If the United 
States wants to continue to be the world leader in the field of 
technology, our export control system must be able to 
differentiate between exports of sophisticated satellite 
systems and the export of a desktop computer.
    The bill developed by Senators Enzi and Graham go a long 
way toward addressing our national security concerns and our 
commercial concerns. Creation of a national security control 
list developed in conjunction with the Secretary of Defense is 
one way of streamlining the licensing process to focus on 
exports to countries of concern and exports of items that pose 
a national security concern, I think addressing the issues of 
mass market items and foreign availability to ensure that items 
which are not exclusively available from American companies and 
are not controlled by our export system when they are available 
elsewhere is of importance.
    In a perfect world, the United States would be the sole 
manufacturer and supplier of sensitive technologies, and we 
could and would control all sales. However, in today's global 
economy, if the United States prohibits the sale of a certain 
technology, for example, encryption just to use one, Israeli, 
Japanese or Chinese firms would most certainly make the sale if 
we do not.
    Last, the bill proposed makes some important improvements 
in the area of penalties and enforcement. By substantially 
increasing penalties, we hope to discourage individuals and 
companies from making illicit export sales and to severely 
punish them if they violate the law.
    Let me close by saying we Democrats will be pressing very 
hard to have an EAA that meets the balance necessary, but that 
preserves the well dominance of the technology field that we 
presently enjoy. I don't believe that we should be sacrificing 
that to any other country, any other entity, any other part of 
the world. We look forward to hearing from all of our panelists 
and the industry and making sure that we meet that goal.
    Ms. Ros-Lehtinen. Thank you so much, Mr. Menendez.
    I now would like to recognize the Ranking Member of the 
Full Committee, who joins us today, Mr. Gejdenson of 
Connecticut.
    Thank you, Sam.
    Mr. Gejdenson. Thank you, Madam Chair, Mr. Menendez, Mr. 
Delahunt. I will be very brief. But I do think this is an 
incredibly important element in our economy and the continued 
ability for the United States to stay dominant in many of these 
fields.
    You know, at times in human development, change came in 
millennia, thousands of years between changes in technologies. 
Then for many years it took hundreds of years for change. Then 
a period where it took decades to change. When my family came 
to this country, we bought a dairy farm in 1950 that used 
technology that was available in 1850. It was a perfectly good 
and working farm.
    Today we can't do that. The shelf life of a computer is 
often less than the regulatory time it takes to get an upgrade 
through Congress of super computers. With a shelf life of less 
than 6 months in a process that can take 180 days here, it is 
insane what we are doing. In the Senate, they have shelved the 
bill. The Senate leadership should be pressed by the industry 
and people to move the bill, and let's see where the votes are.
    Should that fail, I think that maybe we should do what we 
did with encryption, break this down by computers, by 
satellites, to try to focus on choke points in technologies in 
a series of small bills, but the industry has to do more than 
just come and present itself to this panel. It has to do more 
than get its industry heads to speak. You need to get a 
grassroots operation going so people understand the 
consequences back home.
    In Members' districts, they ought to be invited to meet 
with employees and managers who understand what's happening 
here. Frankly, to some degree, there is an age divide here. 
Members of Congress who don't have a computer on their desk and 
haven't gone through XTs and ATs and 286s and 486s and 
pentiums, don't understand what the differences really mean. 
Even this Administration, though it's generally been good, has 
made some mistakes.
    I can remember when we first got here, the Chinese wanted 
to import I think 65 switches for their telephone system. The 
Administration blocked it. Next thing you know, the Israelis 
were selling the Chinese 625s. The Chinese were making their 
own 565s. We accomplished absolutely nothing.
    We need to make sure there is a concerted effort to get out 
of the way because what's going to happen here, and I see a 
couple of folks who spend a large part of their career working 
on defense issues, is exactly what happened to the machine tool 
industry. We told American machine tool manufacturers they 
couldn't export overseas because we didn't want the Russians to 
get them. By the time the Russians got around to getting a good 
machine tool to improve their submarine program, it was a 
Toshiba they were looking at, and the American Defense 
Department didn't want American machine tools. They too wanted 
Japanese machine tools.
    If we want to dominate the industry, we have to sell the 
old technology so we can move into the new technologies. I 
really think that it is an embarrassment, bipartisanly an 
embarrassment, that we have not been able to move forward. This 
is a rational decision. This isn't like many decisions that 
Congress makes, that you know, there are lots of considerations 
that are often hard to place into an equation. If you can buy 
the parts in Radio Shack in Beijing, it's hard to believe that 
the American Government is going to be able to preclude that 
product from reaching people that we don't want it to reach, if 
it is generally available manufactured. If we don't allow our 
satellites to be launched and we don't sell satellites, do you 
know what happens? Instead of knowing what's going on, we have 
to watch other people selling them. We devastate an industry 
that's very effective and profitable in this country. On top of 
that, we lose the information we used to have, which is what 
capability each of these other countries has.
    I think the Chairman and the Ranking Member have really 
laid out where we are. They can't do it alone. One of the 
reasons I came here today is to ask you all to make a much 
greater effort at getting the grassroots out there on what is 
the critical technology for the future. America can't compete 
at the bottom of the economic ladder. If you need cheap labor, 
you can go to China, you can go to India, you can go to lots of 
other places.
    We succeed at the top end of technology. If you close that 
export door, you are going to kill the American economy. Thank 
you.
    Ms. Ros-Lehtinen. Thank you, Sam.
    Mr. Delahunt.
    Mr. Delahunt. Being an older Member of Congress, I'll sit 
here and listen to the educated body, the panel and my 
colleagues.
    Ms. Ros-Lehtinen. OK. Take careful notes then.
    I would like to take the opportunity to welcome our five 
panelists who have taken time out of their schedule to 
enlighten us on their views on the Export Administration Act. 
Let us begin with Dr. Daniel Hoydysh, the director of Trade 
Policy and Government Affairs for UNISYS Corporation, and the 
co-chair of the Computer Coalition for Responsible Exports. Mr. 
Hoydysh previously worked with the Bureau of Export 
Administration where he assisted in the development of export 
control policy for computers, as well as he helped guide and 
negotiate multilateral export control agreements.
    He will be followed by Mr. David Rose, the director of 
Export/Import Administration for the Intel Corporation, and 
also the past chairperson of the American Electronics 
Association, which he is also representing here this afternoon. 
In addition to his work for Intel and the AEA, Mr. Rose serves 
as the chairperson of the Semi-Conductor Industry Association's 
Export Control Committee, and is active in numerous other 
industry groups.
    We are also fortunate to have with us our dear friend, Mr. 
Dave McCurdy, president of the Electronic Industries Alliance 
since 1998, and a former colleague of ours in Congress. Many of 
us have had the pleasure of working with David, and following 
his service to the constituents of Oklahoma's fourth district. 
Mr. McCurdy founded his own consulting firm, the McCurdy Group, 
and utilizes his expertise on behalf of a variety of businesses 
and corporations. We thank you for being with us, Dave. Thank 
you.
    Sitting next to Mr. McCurdy is Mr. John Douglass, the 
president, CEO, and general manager of the Aerospace Industries 
Association, AIA. In addition to his many responsibilities with 
that organization, he is also retired Air Force Brigadier 
General, who has served at the Pentagon as Assistant Secretary 
of the Navy for Research, Development, and Acquisition. We 
welcome you today.
    Rounding out our distinguished panel today is Dr. Paul 
Freedenberg, the director of Government Relations for the 
Association for Manufacturing Technology. As well as having 
served as the first Under Secretary for the Export 
Administration at the Department of Commerce, having been 
appointed to the post by President Reagan in 1987, Dr. 
Freedenberg is a successful published author, and essayist on 
the issues of export policy and international banking.
    Thank you, all of you, for joining us today. We look 
forward to hearing your comments on the issue of the EAA.
    We have been joined once again by Mr. Cooksey, who I know 
was here previously. There is a markup going on in the Asia and 
Pacific Subcommittee, so we'll have Members going back and 
forth. Joining us is Mr. Cooksey and Mr. Rohrabacher. I don't 
know if you would like to make some opening statements.
    Dana.
    Mr. Rohrabacher. Let me just say I have been disappointed 
in American industry, and I am very anxious to hear today from 
American industry. I think the American people have a right to 
be disappointed when we realize that the technologies that 
could be used to kill Americans have been transferred to 
potential enemies of the United States of America. It's a very 
serious issue. People try to dismiss the Cox report. I know 
people have tried to pooh-pooh it, and forget it, and put it 
under the rug, and pretend that it doesn't exist. But it does 
exist. In fact, transfer of technologies to potential enemies 
is worse than what the Cox report has suggested and documented.
    Because we want America to be prosperous, and foreign trade 
is an important component of American prosperity. It is a vital 
component. We can not cutoff trade. When people express concern 
about our national security, people come back as if we are 
isolationists and don't want any trade at all or protectionist, 
and don't want any trade at all. That is not the case. But 
trade in no way excuses an American citizen from being involved 
in the transfer of technology that could kill Americans to a 
potential enemy of the United States of America. If anybody 
needs further clarification, Communist China is a potential 
enemy. It is not an enemy at this time. But there is no one 
that I know in the foreign policy arena that would rule out 
Communist China being an enemy of the United States, unlike we 
would rule out Britain or Belgium or Japan or any of these 
other democratic powers.
    So I am very interested today in hearing this testimony. 
Also, I think we need a dialogue at the very highest level with 
American businessmen, to let them know that citizenship is 
not--just because someone is seeking profit for a company that 
has to answer to stockholders, that is no excuse for doing 
things that are contrary to what obligations every citizen has, 
which is not to do anything to put his country or her country 
in jeopardy.
    With that, I will work with business in every way I can to 
ensure there's a free flow of trade to those countries that do 
not pose a threat to the United States of America. But I am 
aghast at what American corporations have done in terms of the 
transfer of technology and trading with countries that do pose 
a threat to our national security. Thank you.
    Ms. Ros-Lehtinen. Thank you very much, Mr. Rohrabacher.
    Mr. Cooksey.
    Mr. Cooksey. Thank you, Madam Chairman. I don't really have 
any statement, but you know, I agree with a lot of what my 
colleague said. I would encourage each one of you to make a 
comment on this as you go through your testimony. It would 
probably be easier for you to make a comment than for us to, I 
hate to say hammer you with questions or grill you on that, but 
maybe you could comment as you go through. It would give us 
some idea about your position on that too. Because I too share 
Mr. Rohrabacher's concerns on that issue.
    Ms. Ros-Lehtinen. Thank you very much.
    Mr. Hoydysh, we will be glad to enter your full statements 
into the record. Please feel free to summarize your key points.

        STATEMENT OF DANIEL A. HOYDYSH, DIRECTOR, UNISYS

    Mr. Hoydysh. Thank you, Madam Chair. I guess I could begin 
immediately by responding to Congressman Rohrabacher by saying 
that the members of the Computer Coalition care very deeply 
about national security. We are very much concerned about the 
security of this country. After all, we are citizens. We live 
here. Our children go to school here. We are dependent on this 
country for our very survival. We would never do anything 
consciously that would hurt or damage the security of this 
country. I just wanted to say that right off the top.
    Anything that we are proposing, everything that we are 
proposing, we feel is in the best interest of the United 
States. We feel that the export control system needs to be 
balanced in such a way that we can compete effectively in the 
global marketplace while still protecting our national 
security. I realize that that's an easy statement to make and 
the devil is in the details. I would like to provide you some 
information that would help you in your deliberations on where 
that line should be drawn.
    Let me just emphasize a couple of facts. First, we are No. 
1. The U.S. computer industry dominates the global computer 
market. There is no question about that. We are the leaders in 
market share and technology because we are able to beat our 
foreign competitors to the market. Also, a healthy and vibrant 
United States IT industry is the principal driver of our 
economic and industrial, and ultimately military strength. So 
our security, we believe, is very closely tied to a healthy 
computer and IT industry.
    But to maintain this leadership, we must export. Exports 
equal profits. Profits can be put back into R&D. R&D translates 
to technological leadership. That simply is an economic 
equation for which there is no substitute.
    According to a study done by the Gartner Group, which was 
commissioned by the Computer Coalition for Responsible Exports, 
over 60 percent of the computer market is outside the United 
States. In other words, two out of every three computers that 
will be sold over the next several years will be sold not in 
the United States, but outside the United States. If we want to 
stay on top, we must compete in this international marketplace.
    The second point that I would like to really emphasize is 
foreign competition exists and it is substantial. If I 
accomplish nothing else in this testimony, I would like to lay 
to rest the myth that there is no foreign competition for two 
and four processor commodity computers that we are talking 
about when we are talking about the control. Again, the Gartner 
study projects that over the next 3 years, 30 percent of these 
commodity systems will be sold by foreign manufacturers. That 
adds up to over 4.5 million units. We're not talking about 
thousands. We're talking about millions of units of two and 
four processor commodities.
    Another fact, according to an International Data 
Corporation study released a few months ago, 4 of the top 10 
server vendors, and servers are the kinds of systems that we 
are talking about, are foreign. They include large world class 
companies like Fujitsu, NEC, Siemens, and Hitachi. So for this 
myth to continue, that there is no foreign availability, no 
foreign competition for the kind of systems that we are talking 
about, it is simply not supported by the facts.
    Point three. The U.S. export control system is broken. It 
is broken, and it is threatening to undermine the technology 
leadership upon which our economic, industrial, and ultimately 
military strength depends. Let me give you some examples of why 
the system is broken. First, it's not consistent with 
technological and competitive reality. The evidence for that is 
that it continues to control commodity business systems that 
are widely available from U.S. and foreign sources. To 
illustrate this point, we are asking for the control of 4 
processor business systems, not super computers. This is a 
critical point, so let me be very clear about what we are 
talking about. I would like to provide you some examples that 
were taken from press reports.
    Compaq computer company, a U.S. company, one of our 
members, recently announced that it will install a super 
computer for the French Atomic Energy Commission. The French 
will use this supercomputer for simulation programs to ensure 
the reliability and safety of the French nuclear stockpile 
without new nuclear tests. This Compaq system will use 2,500 
alpha processors and will operate roughly at 5 million MTOPs. 
That is a supercomputer, not the 2 and 4 processor systems that 
we are talking about.
    Please note that the French are not ordering over the 
Internet a 4 processor Dell, IBM, or UNISYS server for this 
work. This is a specially designed, specially made for them 
2,500 processors.
    Another example. Fujitsu recently announced that it would 
provide the world's most powerful supercomputer to the Toyota 
Corporation for automobile design purposes. In its maximum 
configuration, this system consists of 512 proprietary vector 
processors, and can operate again at roughly 5 million MTOPs. 
That is a supercomputer.
    Point two. Why is the system broken? It's not effective 
because it is largely unilateral. U.S. export controls are much 
stricter than those of our trading competitors. For example, 
the Wassenaar Agreement, which is really the only multilateral 
agreement that focuses on computers, as Roger Majak, Assistant 
Secretary for Export Administration testified, China is 
generally not regarded as a target of the four multilateral 
export control regimes, which include the Wassenaar and the 
missile technology, etc. Wassenaar in particular does not 
consider China a target with respect to dual use technologies.
    So in effect, there is no multilateral regime for computers 
that targets the countries of concern that are of concern for 
the United States. So that U.S. controls, whatever they may be, 
end up being largely unilateral.
    The system is also counterproductive. It wastes Government 
and industry resources, and attempts to control the 
uncontrollable. Therefore, efforts to police truly sensitive 
items are diluted. In a sense, it undermines national security 
by undermining our technological preeminence. According to a 
Defense Science Board Task Force report, ``protection of 
capabilities in technologies readily available on the world 
market is at best unhelpful to the maintenance of military 
dominance, and at worst, counter productive, by undermining the 
industry upon which U.S. military technological supremacy 
depends.''
    The net result of the current export control system is 
therefore that it creates a competitive advantage for foreign 
manufacturers that over time will erode our market dominance 
and technological leadership, and ultimately our military 
superiority.
    That basically is the points that I would like to 
emphasize. I would be happy to answer any questions.
    [The prepared statement of Mr. Hoydysh appears in the 
appendix.]
    Ms. Ros-Lehtinen. Thank you so much.
    Mr. Rose.

      STATEMENT OF DAVID ROSE, DIRECTOR OF EXPORT/IMPORT 
                     ADMINISTRATION, INTEL

    Mr. Rose. Yes. Thank you very much for the opportunity to 
testify. My testimony this afternoon is going to focus on three 
areas. One is the tension between global information technology 
trends and export controls, the second is the need for 
fundamental reform of the export control system, and the third 
is a brief assessment of the Export Administration Act of 1999, 
the Senate bill, S. 1712.
    Today's information technology industry, and the patterns 
and trends associated with it, presents a number of new and 
fundamentally distinct challenges to the U.S. export control 
system. The overwhelming permeation of commodity computers and 
microprocessors, commodity networking equipment, and other 
information technology products has basically become interwoven 
into what is rapidly becoming a global information 
infrastructure. At my company, we tend to think, for example, 
about computing rather than computers, or separate products, 
because of the infrastructural aspect of computing.
    This kind of pervasiveness creates a situation in which 
commodity level information technology is largely 
uncontrollable. In fact, I believe, and our members believe, 
such technology is largely unworthy of control. So we have a 
fundamental tension between the pervasiveness of information 
technology and the export control system. This has occurred, I 
think, for a number of reasons. I'll cite four.
    First, global mass production and distribution have 
resulted in the wide availability of information technology 
products throughout the world. The statistics here tend to be 
endless, but an estimated 150 million personal computers and 
other commodity computers were shipped worldwide last year. 
Global Internet usage has more than doubled in the last 2 
years. Even the year 2000 projection for sales of digital wire 
phones, many of which will be Internet friendly, is 435 million 
units. My company, Intel, sells microprocessors at a rate of 
roughly 2 million units a week into a global network of tens of 
thousands of dealers and distributors.
    Three other important factors that drive the pervasiveness 
of information technology include: world standardization of 
product design and manufacturing processes; increased access to 
computers and other products that are linked to the Internet 
and other global networks; and the wide diffusion of foreign 
manufacturing capability and resultant foreign availability of 
products. It is interesting here that the advanced semi-
conductors can be produced outside the United States without 
using a single piece of U.S. production equipment.
    In all the decentralization and global nature of 
information technology, especially commodity level technology, 
stands in stark contrast to the centralized nature of the 
export control system. This conflict is readily apparent in the 
area of computers, as my colleague has indicated, where MTOPs 
export controls continually collide with the pace of commodity 
level performance.
    Later this year, Intel will introduce its Itanium processor 
chip, which I have here, which promises to drive the power of 4 
processor commodity computers to about 24,000 MTOPs, well above 
today's computer decontrol level of 6,500 MTOPs.
    So the overall lack of alignment of export controls with 
commodity level technological and commercial realities, we 
believe requires fundamental reform of the export control 
system.
    Now in the area of Export Administration Act renewal, AEA 
believes that several principles ought to be considered. One is 
a new balance. Export controls should be weighed against 
economic and competitive costs that can undermine the very 
technological leadership upon which the U.S. military and our 
overall security relies. Rather than controlling the 
uncontrollable, the overriding national security goal should be 
continued and expanded U.S. technological leadership.
    The second is flexibility. An export regulatory system must 
have a variety of ways to adjust controls, including mechanisms 
that account for mass market products and changing product 
performance, foreign availability, and foreign capabilities.
    Timeliness is another important element. A control regime 
needs to operate with the speed of modern information 
technology as much as possible. Decision making delays measured 
in weeks and months are unacceptable in many respects.
    Simplification. Any modern export control system needs to 
be clear and understandable. To the extent it's not, it is 
going to undercut the effectiveness of an export control 
system.
    Finally, multilateral controls. Controls ought to be 
implemented on a broad multilateral basis in order to be 
effective in an era of globalism. Unilateral controls are 
simply self-defeating.
    Overall, AEA believes that the Senate EAA bill, S. 1712 as 
passed by the Senate Banking Committee, generally comports with 
these principles. On the upside, the bill contains favorable 
mass market foreign availability provisions, though they could 
be improved. It contains reasonable provisions for parts and 
components and technology transfers to foreign nationals. The 
bill would reduce the 180-day congressional waiting period for 
computer MTOPs to 60 days, although we believe it should go 
down to 30.
    On the downside, AEA members feel that penalty provisions 
are excessive in some respects. They do not provide for self 
disclosure, for example, and for mitigation in the case of 
mistakes of fact or other inadvertancies.
    In sum, AEA believes that the current bill is a good 
starting point for this Subcommittee to begin consideration of 
new enabling legislation. Thank you.
    [The prepared statement of Mr. Rose appears in the 
appendix.]
    Ms. Ros-Lehtinen. Thank you so much.
    Mr. McCurdy.

 STATEMENT OF DAVID MCCURDY, PRESIDENT, ELECTRONIC INDUSTRIES 
                            ALLIANCE

    Mr. McCurdy. Thank you, Madam Chair. It's a pleasure to see 
the Chair and to the Ranking Chair and the former chairman of 
the Committee, Sam Gejdenson, who left earlier.
    I represent Electronic Industries Alliance, which is a 
partnership of high tech associations and companies committed 
to shared information and shared influence. We are proud to 
represent the most dynamic and competitive industry in the 
world economy today. The companies we represent operate 
globally and face intense international competition. The fact 
is, the days when U.S. companies dominated the global high 
technology industry are over. Similarly, the days when the 
domestic U.S. market could sustain the industry are also over.
    As you can see on the chart to my right here, our industry 
exported $180 billion in goods last year. This is more than 
one-third of what our industry produces. The chart also 
demonstrates how fast technology is changing and becoming 
pervasive throughout the world. This is especially true in the 
area of semi-conductor speed, where Moore's Law defines the 
rapid pace of change. Quite frankly, there are now seminars on 
beyond Moore's law, what comes next in nanotechnology and other 
areas.
    I thought it was interesting David and I could touch the 
Itanium chip. My palm computer is about the same. PDA is about 
the same size as this, virtually almost a supercomputer. So it 
is incredible the pace of change in the size.
    Much of the rhetoric over export controls boils down to 
national security versus economics in exports. More than ever 
before, protecting U.S. national security depends on a dynamic 
and innovative high technology sector. Whether we're talking 
about weapon systems, intelligence gathering capabilities, or 
command and control networks, our industry is constantly 
improving the technologies that keep us a step ahead of our 
adversaries.
    An effective export control policy would recognize the 
reality that our national security is improved by enabling our 
high tech industries to thrive. U.S. national security should 
be based on maintaining our technological edge through 
innovation, not on a doomed effort to hoard as much technology 
as possible.
    Another key point to keep in mind is that export controls 
can severely disrupt the business models which sustain our 
competitive advantage. The U.S. technological advantage is 
based to a large extent on speed to market, and mass marketing 
through electronic commerce and the World Wide Web. But the 
administrative costs of trying to determine what products may 
go to what end user for what purpose can easily wreak havoc 
with these models.
    Our industry operates in terms of global R&D collaboration, 
web-based instantaneous order processing, and just-in-time 
manufacturing. In contrast, our export control system operates 
in terms of general prohibitions, 6-month notification periods, 
and inter-agency dispute escalation procedures.
    The system in place encourages regulatory complexity. It 
emphasizes bureaucratic processes and paperwork over 
coordinating with our allies to prevent the bad end users from 
acquiring truly sensitive technologies. Effective export 
control policies should be based on multilateral cooperation 
and facilitation of effective corporate compliance. But the 
hundreds of pages of regulations we now operate under have the 
effect of penalizing those U.S. companies that try to obey the 
law.
    We appreciate the efforts in Congress to take a fresh look 
at this system with an eye toward updating it to reflect the 
economic and political realities of the post-Cold War world. As 
you know, the Senate Banking Committee unanimously approved the 
EAA reauthorization last September. EIA has neither endorsed 
nor opposed the substance of the committee-approved bill. I 
would like to emphasize that we continue to have serious 
reservations with several aspects of the bill as reported.
    We are especially concerned by a number of proposals being 
advanced by other Senators and by some in the national security 
community, aspects of which would be even more restrictive than 
we experienced during the height of the Cold War. Nevertheless, 
there are some beneficial aspects of the bill. We have been 
supportive of the overall effort.
    This process has served a valuable educational purpose, I 
think, for everyone involved. One provision I would like to 
highlight is that when an item achieves mass market status or 
becomes readily available from our overseas competitors, that 
item will automatically be released from controls. This is a 
provision we have continually advocated. For these types of 
items, the inevitable bureaucratic tendency is to resist the 
removal of controls. But we must accept that when an item 
becomes uncontrollable, it is not just pointless, but harmful 
to maintain these restrictions.
    Clearly, computers and encryption fall under this category, 
but many types of telecommunications equipment, components, and 
other items do as well. On this point, we would be deeply 
skeptical of any so-called carve-out which would perpetuate 
controls on items in spite of those items being found to have 
mass market or foreign availability status.
    Some proposals we have heard would go so far as to prevent 
legitimate mass market or foreign availability studies from 
even being conducted. It is disturbing that some policymakers 
continue to try to control the uncontrollable in this way.
    In closing, I call your attention to my written testimony, 
which includes our comments on specific provisions of the 
Senate bill, as well as the general principles we believe 
should be part of any EAA reauthorization. I hope that you find 
these comments useful as you continue this effort.
    Madam Chair, I was encouraged by your opening comments and 
those of the Ranking Member, and believe that there is an 
opportunity to bridge this gap.
    If I may, Madam Chair, just to quickly respond to the 
gentleman from California's earlier question and comment 
supported by Mr. Cooksey. As a Commissioner on the Weapons of 
Mass Destruction Commission over the past year-and-a-half, as 
the former chairman of the Intelligence Committee, as a former 
member of the Armed Services Committee, I stand with General 
Douglass here and would bow to no one as far as concern about 
national security.
    There are serious risks. There are serious challenges. 
There are rogue states. There are rogue actors. There are 
potential enemies. It is important that we have a national 
security apparatus that can speak out when there is that danger 
and potential transfer of technology that has a material impact 
on the potential national security or national defense of this 
country. I think we can look at changing this law in a way that 
is safe and provides security.
    What we really need to be doing is looking at the 
organization of the Federal Government as a whole to ensure 
that there are clear delineations of the kinds of technology 
and look at the end user first, look at those countries that 
are the real threats, and target the countries and understand 
through our intelligence capability what their real risk is 
going to be, and then work back, as opposed to have a blanket 
kind of wall that we try to impose around our own country, and 
hopelessly try to prevent the export of technology which is 
capable of being used in most commercial activities.
    So, Madam Chair, again I appreciate the opportunity. I look 
forward to working with the Subcommittee, and trust that you 
will make some progress this year.
    [The prepared statement of Mr. McCurdy appears in the 
appendix.]
    Ms. Ros-Lehtinen. Thank you so much, Dave. We appreciate 
it.
    Mr. Douglass.
    We have been joined by Mr. Hilliard. Earl, I don't know if 
you wanted to make some opening statements before Mr. Douglass 
speaks.
    Mr. Hilliard. No.
    Ms. Ros-Lehtinen. Thank you.

  STATEMENT OF JOHN DOUGLASS, PRESIDENT, AEROSPACE INDUSTRIES 
                          ASSOCIATION

    Mr. Douglass. Thank you, Madam Chairman. I want to thank 
you for holding these important hearings because this is a 
subject of enormous importance to the aerospace industry. I am 
sorry Mr. Gejdenson left because I wanted to thank him as well 
for the role that he has played in the past. He and I worked 
together very closely on some of the most sensitive submarine 
technology that exists in our country today when I was the 
Assistant Secretary of the Navy.
    I would like to also thank Senator Enzi and the others in 
the Senate, who drafted this bill. My industry thinks they have 
made a major step forward. We do have a few concerns with the 
bill, which I will touch on in a minute, but we do believe that 
this legislation is needed.
    In many respects, Senator Rohrabacher, the need for this 
bill----
    Mr. Rohrabacher. Congressman.
    Mr. Douglass. Excuse me. I don't know whether that's a 
promotion or a demotion, sir. But the need for this bill speaks 
in large degree to your concerns. One can tell from the passion 
of your remarks that you feel deeply about this. I can tell you 
as a former military officer, general officer, and a former 
Assistant Secretary of the Navy, I share your deep concern for 
this. It has been my experience that while I have been in the 
aerospace industry after leaving the Government, that no one, I 
have not run across a single person anywhere that condones 
trading outside of our law or in any way even getting close to 
the borderlines of that.
    Part of the problem, however, is that the processes that we 
have today are very confusing. It is possible to get lost in 
the maze, if you will. I will speak to that in a minute.
    If the Chair would allow me, ma'am, I would like to also 
submit to the record--this is a document called ``The Final 
Report of the Defense Science Board.''
    Ms. Ros-Lehtinen. Without objection.
    Mr. Douglass. ``Task Force on Globalization and Security.'' 
This is a study done by an independent panel over at the 
Department of Defense on the subject of this hearing today. 
Much of what we in the Aerospace Industries Association are 
advocating is contained in report.
    Basically you can sum it up and say that the Defense 
Department and industry are almost in total agreement on the 
need for a proper form of export licensing, but one that is 
substantially different than what we have today.
    I would like to begin with a few charts and then talk very 
briefly about the bill. A lot of the confusion that you hear on 
this subject stems from the fact that we have two laws. We have 
one, the Arms Export Control Act, to deal with military 
products and services, administered by the Department of State. 
That is not what we are talking about today. We are talking 
about the Export Administration Act, which is meant to cover 
dual use products which could be used both as commercial or 
military products. It is administered by the Department of 
Commerce.
    So the very beginning of this discussion takes you to the 
righthand side of the chart, and away from most of those 
technologies which one would be concerned about in terms of 
sharing with a potential enemy of the United States.
    Ms. Ros-Lehtinen. And a fine assistant you have there, Mr. 
John Barsa.
    Mr. Douglass. He is a fine young man.
    Ms. Ros-Lehtinen. Formerly of Lincoln Diaz-Balart's office. 
So finally he found a credible job.
    [Laughter.]
    Mr. Douglass. Next, John. This next chart gives you an idea 
of where my industry is in terms of dependence on the global 
economy. If you were to go back 10 years ago, you would see 
that 50 percent of everything manufactured in the aerospace 
industry was sold to the Department of Defense. Only about 30 
percent of it was exported outside the United States. Today, 
that picture is radically different. The Defense Department is 
down in the mid-20's in terms of our business base. The global 
economy is somewhere between 40 and 50 percent of our business 
base. So we are dependent on the global economy. The vast 
majority of those products manufactured in the aerospace 
industry for export outside the United States are commercial 
products like airliners.
    Next, please. This is another important chart which speaks 
to many of the comments made by my colleagues earlier. That is, 
the economic security of the United States as a critical 
element to our overall national security. That's our trade 
balance in 1997 broken down by our Commerce Department by 
sectors. As you can see, the industry with the largest positive 
trade balance in the entire American economy, is our industry, 
the aerospace industry, that blue line at the top represents 
almost $35 billion positive trade balance.
    Now look what happened in 1 year, from 1997 to 1998. Most 
of the blue on the chart went away, and all of the other 
sectors except for the aerospace sector, which grew to almost 
$45 billion positive trade balance. The reds, as you can see, 
grew substantially.
    I would also submit for the record, ma'am, if I might, an 
article today in the Washington Post in the business section 
where the headline says, ``U.S. trade deficit rises to a record 
$28 billion.'' What this newspaper article is saying is that 
the situation in 1999 and 2000 continues to worsen. I can also 
add for the Committee that for my industry, we have seen a 
reduction of our ability to produce a surplus for the American 
economy. We are looking at our sales for 1999 in close scrutiny 
now. Sales are probably going to be somewhere between 8 and 10 
percent lower than they were in 1998, meaning that our 
contribution to the American economy and all that comes from 
that large, almost $45 billion surplus, is being reduced. One 
of the reasons why it's being reduced is the increasing 
confusion in industry over the export licensing laws of our 
country.
    Now to speak very quickly to S. 1712, I share the general 
concerns that my colleagues have and the general support that 
they have expressed for S. 1712. We need a new law. I thought 
it had been elapsed for over 5 years. You mention in your 
opening testimony, ma'am, that it's been 12 years. I didn't 
know it had been that long, but clearly, the lack of a legal 
framework for these dual use items is causing a lot of 
problems.
    There are some things about it that I'll comment on. 
Section 204 assures that there won't be controls on any items 
based on small amounts of controlled American content. That is 
a very positive step forward. Section 211 assures that there 
will be no controls where items are available on the open 
market. These mass market provisions are enormously important. 
My colleagues have spoken to those. I won't say any more except 
that they should be proactive. We ought to be able to figure 
this out before we begin to move toward controls, and indeed we 
can. We know what's out there on the global economy.
    Section 301, the contract sanctity section, is very 
important. Section 304, the Presidential report to Congress 
prior to the imposition of controls is important, especially 
those portions of the Presidential report that deal with the 
economic impact.
    Congressman Rohrabacher has been working with the aerospace 
industry in dealing with satellite licensing because it is 
something he is very concerned about. I think it's fair to say 
that when the law was passed moving satellites from Commerce 
back under State Department control, people didn't really fully 
understand what the economic impact would be. I am here to tell 
you that since that happened, our sales have declined by over 
40 percent. Hundreds of millions of dollars of high tech sales 
and jobs have gone from this industry. These are not weapons. 
These are commercial communication satellites, the kind of 
satellites that most people credit with spreading news around 
the world that did such wonderful things as caused the whole 
Soviet empire to collapse.
    Section 307 is an important----
    Ms. Ros-Lehtinen. If you could wrap up your statement, Mr. 
Douglass.
    Mr. Douglass. Yes, ma'am. I will wrap it up very quickly. 
That is a sunsetting clause. Title 4 contains some humanitarian 
exemptions. We think there should be an exemption in there for 
safety of flight for commercial airliners. Title 5 is in 
procedures. That's a good section. We like its deadlines.
    Finally, in title 6, there is a little section in there on 
enforcement which needs to be strengthened. It has to do with 
people being able to report violations, and then getting a 
reward. We think it's important for it to be clear in that 
section that people can't just stand by and let a violation 
occur, and then reap a reward. If they know a violation is 
going to occur, they need to come forward before it occurs so 
that steps can be taken to stop the export.
    So those are the detailed comments. Thank you very much, 
ma'am.
    [The prepared statement of Mr. Douglass appears in the 
appendix.]
    Ms. Ros-Lehtinen. Thank you, Mr. Douglass.
    Dr. Freedenberg.

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

    Mr. Freedenberg. Thank you, Madam Chair. I can clear up the 
difference between the 12 years and the 5-years. The 12 years 
is the time since we passed an Export Administration Act. The 
last one was Omnibus Trade Act of 1988. I testified before this 
Subcommittee on that subject on behalf of the Reagan 
Administration. So I am familiar with it. Five years, and 
actually now going on 6, is the time since we have had an 
Export Administration Act in force. There was some extension. 
Since then, we have been operating on the 6-month-at-a-time 
International Emergency Economic Powers Act, essentially by 
Presidential fiat, which I believe having also been involved in 
the legislation dealing with that, was not the intention of the 
International Economic Powers Act. It was supposed to put a 
restraint on the President's use of that rather than give him 
carte blanche to extend laws through the use of it.
    Today I will be talking on behalf of AMT, the Association 
for Manufacturing Technology, where I am the director of 
Government Relations. AMT represents 370 member companies, with 
sales ranging from $10 million to more than $1 billion. We make 
machine tools, manufacturing software, and measurement devices. 
Our industry sales are nearly $7 billion, and exports account 
for more than a third of those sales.
    I will also talk about the Graham and Enzi EAA, S. 1712, 
but I would like to put it in context before I discuss it. 
There is a myth that's grown up in the popular media that U.S. 
export control policy toward China is lax. The facts, 
particularly with regard to machine tools indicate quite the 
opposite. The assertion that our China export control policy is 
lax couldn't be further from the truth. The U.S. Government has 
consistently been the most rigorous with regard to reviewing 
license applications for exports to China. Other countries 
within the Wassenaar arrangement simply do not share our 
assessment of the risk factors involved in technology transfer 
to China, and have generally maintained a far less stringent 
licensing policy. Indeed, one could say without equivocation 
that our European allies maintain what could only be described 
as a favorable export licensing policy toward China.
    I point out in my testimony that the time it takes the 
process to license is only part of the problem. Official 
statistics show that the U.S. Government is far more likely to 
disapprove machine tool licenses for China than any of our 
European competitors. While a mere handful of U.S. machine tool 
licenses have been approved for China over the past 5 years, 
actually it's about 25 licenses or 5 a year. Our European 
allies have shipped huge volumes, hundreds more than that to 
China, to Chinese end users.
    The U.S. Government has rigorously enforced the limits on 
machine tools. This has significantly disadvantaged U.S. 
machine tool builders in the global marketplace. The most 
rigorously controlled machine tools are those that possess five 
axis. A recent survey by AMT has indicated there are 718 models 
of five axis machine tools manufactured around the world, with 
584 manufactured outside the United States in places like Japan 
and Germany. In fact, there are even six models manufactured in 
China. This is the most tightly controlled product to China.
    Now the fact that these machine tools are denied is quite 
frustrating for the U.S. machine tool builders and their 
workers because many of the commercial aircraft factories in 
China contain joint ventures and co-production arrangements 
with U.S. airframe and aircraft engine companies. In other 
words, despite the fact that these Chinese factories are 
supervised, are monitored by American executives, U.S. 
Government export control policy creates a situation in which 
machine tools in those factories are almost certain to be 
supplied by European machine tool builders. I would ask how 
that assures or enhances our national security?
    I argue in my testimony that the statistics show that 
European license applications are likely to be approved in a 
matter of days or weeks by our European allies, while U.S. 
applications languish for months or even longer. Many companies 
have told me they forego business in China rather than go 
through this process because it's so uncertain and so unlikely 
that they are going to get approval.
    The Chinese have learned that. They have been telling U.S. 
companies not to even come to bid on projects. In fact, they 
have now put a monetary penalty for failure to obtain a 
license. This is a further deterrent to doing business in 
China.
    A recent example will illustrate many of the problems 
inherent in attempts by U.S. companies to obtain export 
licenses for machine tool sales to China. Three months ago, an 
AMT member asked for my assistance in obtaining final approval 
for an export license that had already been pending for many 
months. The Chinese who were making purchases for an aircraft 
engine plant informed the AMT member company that they were at 
the end of their patience in waiting for U.S. export license 
approval. This particular company had been delaying the Chinese 
buyers repeatedly, while it tried to obtain individual 
validated license for two 5-axis machine tools.
    After waiting many months, the Chinese canceled one of the 
two orders, but gave the company one last chance to obtain an 
export license from U.S. authorities for the remaining machine. 
The owners believed that there would be followup orders for as 
many as a dozen additional machines that they could prove they 
could obtain a license for this one. The U.S. Government was 
aware that a Swiss company had offered to fill the order for 
these machine tools, and in contrast to the American company, 
the Swiss made it clear to the Chinese that there would be no 
security conditions or compulsory visitations by the Swiss 
company if they were given the business by the Chinese.
    In order to create an incentive to approve the license, the 
AMT member company offered to provide special software that 
would limit the use of the machines and to only a small group 
of activities approved by the U.S. Government, and to provide 
for regular visitations to ensure that the machine tool could 
only be used for the jobs described in the license. While all 
this was being negotiated, the State Department refused to 
demarche the Swiss government to warn them of the U.S. 
Government's concerns with the sales of the machine tool to the 
Chinese plant. Negotiations between the AMT member and the 
Defense Department dragged on for another 2\1/2\ months, with 
none of the AMT members' security or post-shipment visitation 
proposals deemed adequate by DOD.
    Finally, just as this license that had then been pending 
for 6 months was about to be escalated to the Cabinet level for 
resolution, the Chinese buyer informed the AMT member company 
that they lost patience with the U.S. licensing process and 
canceled the order. As it turned out, the Chinese plant manager 
decided instead to go with either the Swiss or the French 
machine tool alternatives, neither of which had required any 
post-shipment conditions, and both of which had already 
obtained licenses from their governments earlier.
    Reportedly, when informed of the Chinese cancellation and 
the need to return the license without action, the comment from 
the Defense representative to the interagency review panel, 
known as the operating committee, was that he was happy that 
because DOD had achieved its objective since no U.S. machine 
tool would be going to the Chinese factory.
    Of course the U.S. machine tool that would have gone to 
that factory would have been under strict conditions, with 
numerous followup visits to ensure that it was being used for 
the purposes stated in the license. While there would be no 
guarantee that Western authorities would be able to check on 
the projects which the Swiss or the French machine tools would 
be used. Nonetheless, DOD was apparently happy because it had 
accomplished the objective of blocked the U.S. sale. I presume 
the State Department was happy as well, because it didn't have 
to offend any of our friends or allies by taking a strong 
position or asking uncomfortable questions of them.
    The only ones who are unhappy are the owners of the U.S.-
based machine tool company, who may very well move the 
production off-shore to avoid a repeat of this ridiculous 
process. Also, of course the employees who may lose their jobs 
are not happy either.
    I would ask the Subcommittee to consider what this case 
illustrates about the national security benefits of our current 
export control policy other than the fact that such a policy is 
likely to maintain machine tool employment in Switzerland and 
France. It certainly did not have any appreciable effect on the 
Chinese ability to obtain machine tools for whatever aerospace 
projects they deemed appropriate.
    I just gave that as a context. I would like to comment 
briefly on the Senate bill, S. 1712. The one thing that I think 
is most beneficial in that, and it's related to the issue I 
just talked about, is that it defines foreign availability as 
possible to be proven--the foreign availability can come from 
within the multilateral organization, not just outside it. 
Currently, you can't prove foreign availability under the law 
unless you prove that it comes from outside, in this case 
Wassenaar.
    Ms. Ros-Lehtinen. If you could quickly wrap up, Mr. 
Freedenberg, because we are going to have a series of votes.
    Mr. Freedenberg. That's one proposal. The other major thing 
that it has that would be beneficial--it does not have it in 
there yet, is that we need to create a mandate to go back to 
Wassenaar and negotiate a no undercut rule, so that something 
on the order of what I was talking about couldn't occur. That 
is, the United States turned down a license. The allies could 
not approve the license. That was the case in the past. It is 
the case in other regimes. We need to have a similar provision 
in our current multilateral organization. I'll leave it at 
that.
    [The prepared statement of Dr. Freedenberg appears in the 
appendix.]
    Ms. Ros-Lehtinen. Thank you so much.
    Do you believe, and I'll ask it for anyone who would like 
to answer, that legislation addressing penalties alone or only 
shortening the congressional review period would be sufficient, 
and realistically speaking, would these offer significant 
benefits to the industries that you represent? Also, why is it 
important for the penalties to be imposed per transaction 
rather than per shipment? If you could be very brief.
    Yes, Mr. Hoydysh.
    Mr. Hoydysh. Madam Chair, certainly on behalf of the 
computer industry we would strongly favor reducing the time 
period from 180 to 30 days. We think the 180-day period is 
without precedent. It only affects the computer industry. It's 
not consistent with any other waiting periods imposed by 
Congress. It creates, it makes the system unable to respond to 
rapidly advancing technologies. So we would certainly favor a 
bill, even if it was just for a 30-day period alone.
    Ms. Ros-Lehtinen. Anyone else? Dr. Freedenberg.
    Mr. Freedenberg. I could refer to the penalties. Currently 
you have the penalties are 10,000 and 50,000, but they can be 
parsed. I was enforcing the system, so I can tell you those 
penalties can go up to $250,000 or $500,000. So it isn't as if 
companies have great incentive to break the law. It is still 
fairly substantial fines. But the more significant penalty 
which is in the current law already is that you lose your 
export privileges. That, since every company has to export, it 
basically shuts them down. It is an extremely strong deterrent.
    So I think in itself, although it sounds very good to have 
a million dollar penalty, and in some cases it may be 
justified, that in itself is not such a major accomplishment. 
We already do have a fairly strong deterrent within the current 
law.
    Ms. Ros-Lehtinen. Thank you.
    Dave, for the last comment?
    Mr. McCurdy. Madam Chair, we are not opposed to increasing 
penalties for these violations, but unless the regulations are 
made simpler or easier to comply with, then companies may face 
some overwhelming liabilities for I think non-intentional 
violations.
    We also urge that companies be fined per transaction as 
opposed to shipment.
    Ms. Ros-Lehtinen. Mr. Menendez? Hold on.
    Mr. Douglass. I just wanted to add that we also have not 
taken a position on the penalty provisions, but we would 
strongly support the reduction in the review time. I mean the 
issue in many, many cases is we can't bid on things because it 
takes so long to get a license that we can't answer the bid 
time.
    Ms. Ros-Lehtinen. Thank you.
    Mr. Menendez?
    Mr. Menendez. Thank you, Madam Chairlady. I want to thank 
all the panelists.
    Mr. Douglass, let me ask you. You said the 40 percent sales 
drop in satellite sales. Did other countries fill the void in 
that regard?
    Mr. Douglass. Oh absolutely. Yes, sir.
    Mr. Menendez. Were their satellites of equal?
    Mr. Douglass. Yes, sir.
    Mr. Menendez. Abilities--was our technology superior?
    Mr. Douglass. Mr. Menendez, there is a lot of confusion 
about what kind of satellites we're talking about here. Most of 
the time when the public hears this, they think we're talking 
about spy satellites or something like that. That is not at all 
what we're talking about. We are talking about state-of-the-art 
communication satellites. They are the kind of satellites that 
in a strange way really help democracy spread around the world. 
I have had many of my Russian generals that I had to negotiate 
with when I was a NATO general tell me the reason why the whole 
Soviet Union collapse was because people in Eastern Europe 
could watch Western TV, could see what was available.
    So when countries around the world want to buy an American 
satellite so they can broadcast TV to their people or do e-mail 
and things of that nature, and American companies can't compete 
on it because it takes too long to get a license or there's 
some other----
    Mr. Menendez. So the satellites that they purchased from a 
foreign country gave them the same capacity that they would 
have had, had they purchased ours?
    Mr. Douglass. Absolutely. Even if they then were used in a 
military sense, if they were our satellites, we could shut them 
off, but if they are somebody else's satellites, we can't. So 
we doubly lose on this.
    Mr. Menendez. If the United States, and this goes to any of 
the panelists who want to talk about it, if the United States' 
goods are controlled unilaterally to any country, and other 
countries sell that same capacity of the item, whether it be a 
computer, whether it be a satellite, whether it be any of these 
other equipment that the United States leads on, how do we 
promote our security, our non-proliferation goals in that 
regard? Is there something we're missing?
    Mr. Douglass. That's a good question. You want to take a 
crack at it?
    Mr. McCurdy. Yes. Mr. Menendez, it is clear that most 
unilateral sanctions have been highly ineffective. If you are 
not getting the cooperation on a multilateral basis, it just 
flat doesn't work. The only victim in this case or the only one 
that is injured or harmed is often the United States.
    So it's not popular to say, and I know the politics of the 
Congress and in the country, but it's clear that unilateral 
sanctions is for the most part, not the answer.
    Mr. Douglass. The most important thing, Mr. Menendez, to 
remember about this debate that we're talking about is there is 
a lot of confusion between the supremacy of American military 
technology and the supremacy of American dual use technology. 
Generally speaking, America's dual use technology is not 
particularly superior to what you can find in the rest of the 
world, even though our military products may be.
    When I was living in Europe, they had a form of the 
Internet over there a long time before we did, had e-commerce 
and all kinds of things a long time before we did. So we tend 
to be somewhat of an ethnocentric society that believes 
everything is invented here, and it's not, especially in the 
commercial environment.
    Mr. Hoydysh. Mr. Menendez, could I respond to the non-
proliferation question? Just to put this into context, if we 
look at the whole universe of technology that's available, the 
chart that was up here before shows you there's a whole chunk 
that is military. That subject, the munitions list, it's a very 
tight regime. That is not under discussion.
    If you are talking about missile technology, there is a 
missile technology control regime, which is adhered to by 17 or 
20 countries which is relatively effective. It does not control 
computers, but it controls everything that everyone deemed is 
important for missiles.
    There is a regime that controls things for nuclear, the 
Nuclear Suppliers Group. That is a multilateral, fairly 
effective regime. And there is a regime that controls things 
for chemical weapons and biological weapons called the 
Australia Group. Again, a relatively effective group.
    So what really is left when you are talking about dual use 
equipment is the stuff that is like computers and machine 
tools. That is a relatively narrow slice of industrial 
equipment over which there is relatively little control, 
because these are the kinds of things that are absolutely 
essential if any developing country wants to go into the 21st 
century. So it makes it very difficult to deny the entry level 
items, especially in the computer area, when they are available 
all over. They are cheap, they are transportable, and you can 
buy them or make them yourself without too much effort.
    Mr. Freedenberg. If I could say one other thing. The way 
you could work on that would be, what I try to say at the end 
of my testimony, if you could get the allies to do--we can't 
have a veto over what they export any more. That's gone. That 
was COCOM. But you could have a no undercut rule, where if you 
turn down a license, you get the pledge of the others that they 
will turn down that license as well. Not that you stop their 
licenses, but that if you already had--say a particular end 
user is bad, they pledge to at least give you a hearing and in 
general to turn down that license without at the very least, 
talk with you about it.
    Mr. Menendez. With deference to my colleagues.
    Ms. Ros-Lehtinen. Thank you, Mr. Menendez. Yes, I'm sorry, 
because of the time.
    Mr. Rohrabacher.
    Mr. Rohrabacher. OK. Mr. McCurdy, thank you very much for 
your comments, your opening statement. I think that your idea 
or concept of let's try to find out what countries that we're 
talking about that are potentially adversarial or potential 
enemies, and let's work back from there, I think that is 
exactly correct. I appreciate you going out of the way to make 
comments based on my rather I say loud opening statement.
    Mr. McCurdy. Aim to please, Mr. Rohrabacher.
    Mr. Rohrabacher. Let me say this. First of all, Mr. 
Douglass, last week a Chinese launched a satellite. It was 
widely reported that that satellite would have a multiplier 
effect on the military capabilities of the Communist Chinese 
because it would permit command and control coordination that 
they never had in the past.
    Do you believe that there was any American technology in 
that satellite, or that the rocket that lifted it into orbit 
had American technology in it?
    Mr. Douglass. Mr. Rohrabacher, I wish I could give you a 
more definitive answer because I'm not aware of the precise 
launch that you are talking about. But it is entirely possible 
that the satellite and the missile had some derivative American 
technology. Everyone knows that we lead the field here, and 
once proof of concept is demonstrated by a country, it is much 
easier for others to follow along.
    Mr. Rohrabacher. I've only got a couple minutes, but let me 
point out yes, it is possible. Not only is it possible, it is 
probable that the Chinese rocket that lifted that up was 
perfected by American technology, American aerospace engineers 
that were over there with either Hughes or Loral, and that the 
satellite that went up had not only spinoff or not only things 
that they copied, but actually components that were sold to 
them by our corporations.
    If America--just note why this is important, and you 
expressed this in your opening statement. Again, I appreciate 
you again giving me the courtesy of commenting on what I had to 
say. American lives are going to be lost if we get into some 
sort of a conflict with China because technology has been 
transferred to that country. I disagree totally with our final 
witness. I'm sorry. You can't compare somebody who has no 
controls whatsoever and then say well, ours can't be considered 
lax because we are comparing it to people in Europe who have no 
controls whatsoever on what goes over to Communist China. That 
does not make logical sense. It doesn't make sense for our 
country's national security.
    This is a very important issue. I agree we have got to take 
it seriously in a way so we can control the technology flow to 
potential enemies, like China, without hindering. What's 
happened is we have hindered our ability to do business with 
countries that pose no threat, that are democratic nations. I 
am very happy to have worked with all of you to achieve that 
end.
    I'm sorry. We have got to go.
    Mr. Douglass. Mr. Rohrabacher, if I could make one comment 
though that strikes to the heart of what we have said here 
today. I don't think there is any technology in the satellite 
or the booster that they could not have gotten from another 
source.
    I would also add, sir, that it's a two-way street. I was 
recently----
    Ms. Ros-Lehtinen. Thank you, Mr. Douglass. Thank you so 
much. We apologize. We have 1 minute left to go vote on the 
floor. The Subcommittee is adjourned. Thank you so much for 
your excellent testimony.
    [Whereupon, at 2:29 p.m., the Subcommittee was adjourned.]


            FUTURE OF THE EXPORT ADMINISTRATION ACT--PART 2

                              ----------                              


                         TUESDAY, APRIL 4, 2000

              House of Representatives,    
        Subcommittee on International Economic     
                                      Policy and Trade,    
                      Committee on International Relations,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 3 p.m., in 
room 2128 Rayburn House Office Building, Hon. Ileana Ros-
Lehtinen (Chairman of the Subcommittee) presiding.
    Mrs. Ros-Lehtinen [presiding]. The Subcommittee will come 
to order.
    American industry continues to create and realize an 
astonishing array of new and improved technologies. With these 
wonderful improvements come both opportunities as well as 
responsibilities, given that these advancements may pose new 
and yet unknown threats to U.S. national security.
    In an effort to address the needs of American companies and 
to capitalize on the advantages that new technologies offer, 
this Subcommittee has been holding a series of hearings to 
discuss ways in which a new Export Administration Act may best 
manage export controls.
    Based on the Cold War need to restrict access to sensitive 
technologies and the ability to control its proliferation due 
to U.S. predominance, the original Export Administration Act 
was drafted. That legislation lapsed in 1990, leaving the U.S. 
to operate export control regulations through a series of 
executive orders issued under the International Emergency 
Economic Powers Act. This was never intended to replace an EAA. 
However attempts to reauthorize the bill have not been able to 
achieve the necessary consensus for passage.
    The advent of the 21st century underscores the inadequacy 
of an export control system devised for a rigidly structured 
bipolar world prefacing the onset of the technological 
revolution. The world of the 21st century is one marked by a 
borderless, fast-paced marketplace which requires a system to 
avoid the pitfalls of gridlock and regulatory bureaucracy.
    By the same token, however, some experts contend that the 
new millennium is a much more dangerous world, devoid of 
clearly defined security parameters and riddled with new 
weapons, methods, and rogue states.
    Some suggest that these competing needs can be reconciled 
and that the answer to effective regulation lies in 
concentrating regulatory authority in fewer agencies. Other 
approaches include giving preferential export control treatment 
to NATO members and such non-NATO allies as Australia, New 
Zealand, and Japan.
    Some see unilateral export controls as self-injurious and 
instead would look to multilateral agreements as the only 
effective tools for nonproliferation. Still others refer to 
their criteria, which takes into account mass-market and 
foreign availability, as well as risk factors, end-use, 
diversion, and recipient countries.
    We must avoid vast generalizations in formulating a new 
approach and refrain from removing restrictions and licensing 
requirements on controls or controls which threaten and seek to 
undermine our U.S. national security.
    There are differences of opinions on the specifics of the 
approach to be undertaken, however, all agree on the urgent 
need to develop a judicious, explicit, and understandable 
policy which will govern the licensing, oversight, and review 
of dual-use technologies to be exported to foreign markets.
    We look forward to the testimony from our witnesses in 
this, which is the second in a series of hearings on this 
issue.
    Before we proceed to other opening statements and our 
witness presentation, I'd like to advise our Subcommittee 
Members about a markup that our Subcommittee will hold this 
Thursday, April 6, at 2 p.m. on H.R. 3680, the Dreier bill, 
which seeks to shorten the congressional review period to 30 
days from the export of supercomputers. Some of us are already 
cosponsors of this measure, but we need the attendance of our 
Subcommittee Members for this very important markup and a 
markup notice will go out later today.
    It is my pleasure to recognize for his opening statements 
the Ranking Member of our Subcommittee, Mr. Robert Menendez of 
New Jersey.
    [The prepared statement of Representative Ros-Lehtinen 
appears in the appendix.]
    Mr. Menendez. Thank you, Madam Chairlady. I want to thank 
you for hosting a second EAA hearing. The future of our export 
control laws is an important commercial and national security 
issue and I believe we need to hear from the broad range of 
public and private sector entities that are impacted by the 
EAA.
    For that reason, I am sorry that this Subcommittee's work 
has been stymied by our inability to hear from witnesses from 
the Department of Defense and from the sponsors of the Senate's 
EAA bill. I know that the Chairlady has been working with the 
Full Committee to bring these witnesses before the Subcommittee 
and I appreciate your efforts to address this issue. But I'm 
disappointed that we, the subcommittee of jurisdiction, have 
been censured by the Full Committee.
    As I said at our previous hearing, the challenge of the EAA 
is to strike a balance between our national security interests 
and commercial interests. I do believe that this precarious 
balance is achievable, not to mention necessary.
    For far too long, we have been operating under a system 
developed for the Cold War era. Today's technology era demands 
a system that is responsive to change, that acknowledges 
America's world leadership in the technology industry, and that 
recognizes the importance of exports to the American economy.
    Senate Bill 1712 is a step toward achieving that balance. 
The bills developed by Senators Graham and Enzi begins to 
address our national security concerns and our commercial 
concerns. It creates a national security control list developed 
in conjunction with the Secretary of Defense that will 
streamline the licensing process to focus on exports to 
countries of concern and on exports of items that pose a 
national security concern.
    The bill also addresses the issue of mass market items and 
foreign availability to ensure that items which are not 
exclusively available from American companies are not 
controlled by our export control system when they are available 
elsewhere. In today's global economy, if the United States 
prohibits the sale of a certain encryption technology, for 
example, an Israeli, Japanese, or Chinese firm will most 
certainly make the sale if we do not.
    Last, the bill makes important improvements in the area of 
penalties and enforcement. The United States is a member of the 
global economy. It's its leader. Many business rely on exports 
for a large portion of their businesses.
    At our last hearing, we heard from a representative from 
the Aerospace Industries Association who noted the shift in the 
make up of their sales. In 1989, 58 percent of the aerospace 
company sales were to the Department of Defense and the U.S. 
Government. Only 32 percent of their sales were exports. A 
decade later in 1999, 42 percent of the aerospace company sales 
were exports and only 35 percent were to the Department of 
Defense or the U.S. Government.
    American businesses are rightly concerned about losing 
business to less scrupulous nations or being seen as an 
unreliable supplier. Already the American computer industry has 
been stymied in sales of basic desktop computers due to 
inflexible export controls. If the United States wants to 
continue to be a world leader in the field of technology, our 
export control system must be able to differentiate between 
exports of sophisticated satellite systems and the export of a 
desktop computer.
    The reauthorization of the EAA is a serious matter that 
demands our attention. American industry deserves laws that are 
responsive to today's global economy, not laws that were 
created over two decades ago to respond to Cold War era 
threats. I, along with many of my Democratic colleagues, will 
be pressing for such a reauthorization and I look forward to 
working with the Chairlady on this challenge to renewing 
Congress' voice on this important topic. I believe we've lost 
some of our jurisdiction over the issue by not speaking to it. 
We look forward to the Secretary's testimony.
    Thank you, Madam.
    [The prepared statement of Representative Menendez appears 
in the appendix.]
    Mrs. Ros-Lehtinen. Thank you so much, Mr. Menendez. Our 
ever-faithful Member of our Subcommittee, Mr. Sherman.
    Mr. Sherman. Thank you, Madam Chairwoman. I think it is 
important that we reauthorize. It is a small affront to our 
constitutional system that for so many years this important 
area of Federal responsibility is handled by executive fiat 
instead of pursuant to legislation. This is an important issue. 
Everyone in the country knows that we need to balance our 
economic with our security interests and they expect Congress 
to draft laws that will do that, not simply punt due to 
concerns about which committee or whatever other concerns have 
stymied the reauthorization of this Act.
    I do think that it is often said that technology is, 
``available elsewhere,'' we do need and have often worked with 
our allies around the world so that we work together to make 
sure that rogue states and dangerous states do not get a dual-
use technology and that it should not be a circumstance where 
in Britain or France, an exporter is saying, well, we'd better 
sell because the Americans will sell and vice versa. All of 
those concerned with world security should work together. That 
will not, of course, always happen.
    The great enemy in this area is delay, because where 
Americans exports are stopped for good security reasons, that's 
the price we pay for working for national security. But where 
there are just interminable delays, not only are we depriving 
ourselves of jobs, but we are also building high technology 
industries in countries that have less reluctance to export. So 
it is imperative, from a national security perspective and an 
economic perspective, that nothing gets done quicker in the 
Federal Government than a review for an export license.
    I look forward, as we reauthorize, that we design it in 
such a way and obtain whatever appropriations are necessary so 
that we make the right decisions and we make them quickly. 
Thank you.
    Mrs. Ros-Lehtinen. Thank you so much, Mr. Sherman. I'd like 
to take this opportunity to introduce our panelist, Mr. Roger 
Majak, who will share his insight and expertise on the Export 
Administration Act.
    Mr. Majak serves as assistant secretary of Commerce for 
Export Administration. A political economist who has 
specialized in international trade and national security 
policy, Mr. Majak has served in a variety of capacities 
throughout his career, including having served as the staff 
director this Subcommittee from 1975 to 1985.
    We thank you for joining us today, Roger, and we look 
forward to your informative and engaging hearing over the issue 
of the EAA. Due to a previously scheduled appointment that 
could not be moved, I will leave sometime during this hearing 
and a very able vice chair of this Subcommittee, Mr. Manzullo, 
will chair.
    Thank you so much, Mr. Majak, and you may proceed. Your 
full statement will be entered into the record, without 
objection.

 STATEMENT OF ROGER MAJAK, ASSISTANT SECRETARY OF COMMERCE FOR 
         EXPORT ADMINISTRATION, DEPARTMENT OF COMMERCE

    Mr. Majak. Thank you, Madam Chairwoman. It's a great 
pleasure to be back before this Subcommittee where I spent so 
much time from 1975 to 1985. Of course, the Administration 
appreciates the interest and concern of this Subcommittee and, 
indeed, the full House International Relations Committee in the 
subject of export controls.
    Since August 1994, when the Export Administration Act 
expired, as you noted, Madam Chairwoman, we have maintained 
export controls on dual-use goods and technologies through a 
combination of emergency statutory authority, executive orders, 
and our regulations. The Cold War has ended and export control 
legislation reflecting that reality is long overdue.
    A new Export Administration Act should recognize the 
current realities of today's intricate, fast-paced markets. 
Such a new law is needed in order to help ensure our national 
security, to enhance U.S. leadership and credibility throughout 
the world, and to avoid legal challenges that we are now facing 
under the International Economic Emergency Powers Act statute.
    The Administration's export control vision is to continue 
to maintain military superiority in the face of more diffuse 
adversaries and less multilateral agreement on precise security 
threats. We seek to maintain the gap between our capabilities 
and those of our adversaries by both retarding their progress 
and accelerating our own.
    National security has become a direct function of our 
economic strength in this global economy. Our military alone no 
longer purchases enough to maintain healthy suppliers. Failure 
to export means fewer profits for today's high-tech companies 
to pour into new technologies which are needed for, among other 
things, our defense.
    At the same time, the ubiquity of many technologies and 
their ease of transfer makes controlling exports all the more 
difficult. Semiconductors and computers are just two examples 
among many. Large capital items like machine tools, 
semiconductor manufacturing equipment, satellites, and 
aerospace items are more susceptible to controls, but there 
again, controls that are too broad can cripple companies that 
are critical for our own military development and security.
    Our lead in these crucial product sectors is based on the 
quality and efficiency of our production, not on any monopoly. 
Close any part of the world market for any of these products 
and competitors will move in, using China or India, whatever 
markets we restrict or abandon, to gain market share to 
eventually challenge our global leadership.
    This Administration believes that our continuing ability to 
stay at the cutting edge of technology is the key to our 
security. This is very different from the Cold War approach of 
simply denying products to a clearly identified adversary. In 
short, the Administration's equation has become exports equals 
healthy high-tech companies equals strong defense.
    Operating under these emergency authorities, Madam 
Chairwoman, leaves important aspects of our export control 
system and thus our national security at risk. Penalties for 
violations, both civil and criminal, are too low, eroding the 
deterrent effect of controls by tempting some companies to view 
penalties as just another cost of doing business.
    Even the penalties in the EAA of 1979, as it was amended 
over the years, are now outdated. The Administration proposed 
significant increases, which were reflected in H.R. 361, which 
was passed by the House in 1996, but not enacted into law. Our 
enforcement agents are without adequate police powers: Powers 
to make arrests, powers to execute search warrants, and to 
carry firearms. They must obtain special deputy U.S. marshal 
status in order to do their job, consuming limited resources 
that could be better used on enforcement activities.
    The Emergency Powers statute under which we're operating 
has no explicit confidentiality provisions, which jeopardizes 
both national security and business competitiveness. As Under 
Secretary Reinsch predicted before this same Subcommittee in 
1997, lawsuits have now been brought under the Freedom of 
Information Act seeking public release of detailed export 
licensing information. Similarly, respondents in anti-boycott 
cases argue, so far unsuccessfully, that the Administration has 
no authority to implement and enforce the anti-boycott 
provisions of the Export Administration Act and our 
regulations.
    These challenges are directly related to the absence of 
specific authorities in the International Economic Emergency 
Powers Act.
    The Administration's proposed EAA, as well as H.R. 361 and 
now S. 1712, currently under consideration in the Senate, would 
restore these various crucial powers. In so doing, such 
legislation would also restore a level of certainty about 
export controls that our companies need and deserve. We have 
made considerable progress in eliminating unnecessary controls 
while enhancing our ability to control truly sensitive items. 
Industry has the right to expect these reforms to be certain 
and permanent in order to plan legitimate export transactions 
and to comply with the restrictions.
    Continued failure to enact a new EAA sends the wrong signal 
to them, as well as to our former Soviet and Warsaw Pact 
adversaries and our allies, all of whom we strongly urge to 
strengthen their export control laws and procedures. So the 
credibility of our export control policy is diminished both 
domestically and internationally by our lack of a specific, 
permanent statute.
    In February 1994, the Administration proposed to renew and 
revise the EAA to refocus on the proliferation of weapons of 
mass destruction without sacrificing our interest in increasing 
exports, reducing the trade deficit, and maintaining global 
competitiveness in critical technologies.
    The Administration bill emphasized five principles. First, 
export controls exercised in conjunction with the multilateral 
nonproliferation regimes. Second, increased discipline on 
unilateral controls. Third, a simplified and streamlined export 
control system. Fourth, strengthened enforcement. Fifth, 
expanded rights for exporters to petition for relief from 
ineffective controls.
    H.R. 361, which was passed by the House in 1996, made 
several improvements to the EAA similar to those contained in 
the Administration proposal. Control authority was updated to 
address current threats, to increase discipline on unilateral 
controls, and to enhance enforcement.
    H.R. 361 also contained reforms of the licensing and 
commodity jurisdiction procedures which were largely embodied 
in Executive Order 12981, which was issued by the President in 
December 1995. Under that order, the Commerce Department 
manages the export control system for dual-use goods and 
technology, as it always has, but State, Defense, and Energy 
review any and all licenses they wish and can easily escalate 
their concerns all the way to the President.
    It's a tribute, Mr. Chairman, to the effective management 
of this system and the good faith of all the agencies involved 
that consensus is reached under these procedures in more than 
90 percent of all cases and agency reviews have been conducted 
in less than half the allotted time, on the average. So far, 
all differences have been resolved at my level, the assistant 
secretary level, or below and no case has gone to the Cabinet 
or the President, except in situations where there is a 
statutory requirement to do so.
    The Administration, however, has had and continues to have 
some concerns about H.R. 361 regarding its terrorism provision, 
its provision regarding unfair impact, the provision for anti-
boycott private right-of-action, its judicial review 
provisions, and some constitutional issues which the 
Administration feels are raised by the bill.
    Finally, S. 1712. Last September, the Senate Banking 
Committee unanimously reported that bill. While structurally 
different from H.R. 361, it nevertheless updates controls to 
address current security threats and contains other useful 
provisions, including enhanced enforcement authorities and 
significant higher penalties for violations. It is largely 
consistent with the Administration's own procedural reforms. S. 
1712 continues to be the subject of discussions between the 
Banking Committee and interested members of other Senate 
committees. Pending the outcome of those discussions, the 
Administration has not yet taken a formal position on that 
bill.
    In conclusion, Mr. Chairman, we need an EAA that allows us 
to address our current security concerns effectively while 
maintaining a transparent and efficient system for U.S. 
exporters. The Administration and the House, particularly in 
H.R. 361, and the Senate Banking Committee, in S. 1712, have 
agreed on many of the salient issues. Together, we should build 
on the consensus that has already been achieved to reauthorize 
an EAA that enhances our security in the ways that I have 
outlined in this statement.
    Thank you for the opportunity to address the Subcommittee 
and I would be glad to take any questions you might have.
    Mr. Manzullo [presiding]. Thank you, Mr. Secretary. Mr. 
Menendez.
    Mr. Menendez. Thank you, Mr. Chairman. Mr. Secretary, thank 
you for your statement. There's a lot that I find that I am in 
concurrence with you on and I appreciate the 
straightforwardness of it. Let me ask you a couple of 
questions, though.
    One, we, as the Chairlady said earlier, are having a markup 
of Congressman Dreier's legislation. I support that bill, 
however I'm concerned that it only touches the surface or 
partially addresses the industry's concerns. Do you believe 
that the legislation is sufficient to address the industry's 
concerns?
    Mr. Majak. As I have reviewed in this statement, I think 
there are a broad range of situations that need to be 
addressed. Certainly the subject of the Dreier bill is one of 
them, but only one of quite a number. Those matters that need 
to be addressed are of concern to both the business community 
and to the Administration. So we would certainly prefer a more 
comprehensive piece of legislation to deal with the full range 
of both industry and administration concerns.
    Having said that, the reduction of the time for review of 
changes in our computer policies is needed and the 
Administration will try to work with all approaches to this 
legislation. But I think we would strongly prefer a more 
comprehensive approach and one which would contain a permanent 
authority.
    Mr. Menendez. We support Mr. Dreier's effort to reduce the 
time. The problem is that that is only part of a series of 
issues that confront the industry. I would hope that my 
colleagues, when we have the markup, understand that the 
resolution of that one issue in no way puts us in the position 
to be totally as competitive as we need to be and address both 
our security concerns.
    Now you said we have agreed, and I believe you're right, on 
the wide range of the salient issues in both the Senate and the 
House legislation. So what's stopping us? What's stopping us? 
Why can't we move forward from here? What is it that is--I have 
a sense of what's stopping us, but I want to hear the 
Administration's perspective of what is stopping us from moving 
forward with the reauthorization?
    Mr. Majak.I think what's stopping us at this point is the 
remaining diversity of views, especially by key committees in 
the Senate, since that's where the most recent activity has 
been.
    Mr. Menendez. Particularly Defense-related views?
    Mr. Majak. Particularly Defense and, to some extent, 
Intelligence-related views. But also Foreign Relations-related 
views. There are at least three committees, in addition to the 
Banking Committee, who have remaining concerns about S. 1712. I 
know that Senator Gramm, Senator Enzi, and others in the Senate 
have worked diligently to try to resolve those differences of 
view, but they are substantial differences which, so far, have 
not been resolved.
    We in the Administration have taken the posture of 
encouraging this process to move forward because we believe the 
underlying bill, S. 1712, as passed by the Banking Committee, 
is a promising vehicle. We have tried to facilitate some 
possible compromises and to comment on all of the proposals 
that have been put forward. But, so far, I think those 
differences have not been resolved.
    Mr. Menendez. Could you outline for the Committee what some 
of those differences, without mentioning who the differences 
emanates from, but what some of those differences are?
    Mr. Majak. Yes. For example, the Senate bill contains 
provisions for removing items from control on the basis of 
foreign availability, as well as on the basis of mass market 
production which, makes these items difficult or impossible to 
control.
    Under the Senate bill, the Commerce Department would make 
those determinations. But before those items were removed from 
control, there would have to be some degree of interagency 
consensus. Members of other Senate committees feel that there 
should be some category or list of items that would be 
ineligible for that kind of review or that should require 
Presidential level decision to implement the removal of items 
from control. So there is disagreement over that issue, for 
example.
    There are a number of others. I think----
    Mr. Menendez. Is the Administration actively engaged in 
trying to reconcile some of these other issues so that we can 
have a reauthorization? Or is the Administration's position to 
sit back and wait to see if the parties themselves?
    Mr. Majak. No, we've been quite actively involved, 
including a number of late-night meetings at which I 
personally, and others, have participated and which the 
representatives of the various committees have sat around the 
table and tried to resolve these issues. So we have been quite 
available and proactive.
    Mr. Menendez. Are you're brethren in the Department of 
Defense actively engaged in trying to seek also a 
reauthorization? Because sometimes I get the sense that there 
are those in this process who believe that, by raising every 
possible obstacle, we'll not see a reauthorization. Their 
ultimate goal is to virtually, in their views, which I believe 
are wrongly held although I believe they hold them for the 
right--for their own--I think they're committed to their views. 
I think their views are wrong. But I think they're committed to 
their views for what they believe are the right interests.
    But I think, ultimately, what happens here is that there is 
an effort here that does not move this process forward. Because 
those who don't want to see the process moved forward because 
they believe they want to give access to nothing, which I think 
is a very myopic view of the world today, don't want to see 
something happen or are they actively engaged in a good faith 
effort here to make this happen?
    Mr. Majak. No, I would have to say, although there are a 
variety of opinions in these departments, I would have to say 
that the Defense Department and the State Department in 
particular have taken an active part in these discussions. Each 
of the agencies has, from time to time, offered compromise 
language in response to the concerns of one committee or 
another. But, ultimately, at the end of the day, we can't 
resolve the disputes. That must be done by the members of the 
respective committees themselves.
    But I can say from personal experience, that all of the 
agencies have been at the table willing to respond to the 
various positions, to offer compromises, and suggest different 
approaches. But so far, that has not succeeded in bridging the 
differences.
    Mr. Menendez. Yes, I hope they recognize that, ultimately, 
in those products that are available in the marketplace and 
that others are providing, that I would rather see, for the 
security interests of the United States, products that are 
produced in the United States which we will have the total 
wherewithal and knowledge of and we can deal with versus those 
products that are produced elsewhere that we do not know.
    Mr. Chairman, one last question, since there's only the two 
of us, it appears, if I may. If current controls are continued 
and a new Export Administration Act is not enacted, from the 
view of the Department of Commerce and understanding your 
charge in that regard, what's the impact on the ability of U.S. 
industries to export?
    Mr. Majak. Mr. Chairman, I think it would be our plan and 
expectation to continue the process and the policy as we have 
since 1994 under our emergency authorities. In that regard, I 
would expect us to continue to approve a large proportion of 
the license applications that we receive, to review all of 
those license applications on an interagency basis, and to 
proceed largely as we have.
    So I don't think that there would be any disruption of our 
ability to exercise these controls, except to the extent that 
we might face legal challenges.
    Mr. Menendez. I will tell you, Mr. Secretary, that those 
who have come forth from these hearings from the private sector 
will say that, in fact, that it is more than just that reality. 
It is beyond the legal challenges you are facing, that they 
face the loss of exports which are growing, if not the 
substantial part, of their business. I just really do not 
believe that just the continuation of the existing process, as 
well-intentioned as it is under the best of the circumstances 
that exist, inures to our interests either commercially or, for 
that fact, in terms of national security.
    Thank you, Mr. Chairman.
    Mr. Manzullo. Thank you, Mr. Menendez. Mr. Secretary, first 
of all, I want to thank you for the efficiency with which your 
agency handles all types of requests, the fairness with which 
you interpret the law, and the nonpartisanship involved in the 
agency. It's really a credit to you and the people that work 
with you. You are trying to do what's best for the United 
States, taking into mind the overriding concern for national 
security and I commend you, publicly, for that.
    Mr. Majak. Thank you, Mr. Chairman. That's a great 
compliment.
    Mr. Manzullo. I only wish that other Members of Congress, 
in addition to Mr. Menendez and I, had as much understanding of 
what's going on or had a fraction of your understanding of this 
issue, because it's extremely difficult to understand. So often 
the first thing that Members of Congress want to do is, in 
reaction to a bad foreign country is to punish American 
manufacturers for something over which they have no control.
    But I have a question about Wassenaar that's come up 
several times. As you know, COCOM worked on a consensus basis. 
How do we strengthen Wassenaar so that, if the United States 
decides against issuance of a license, that one of our allies 
doesn't undercut us and go ahead and simply sell the same 
thing? What are your thoughts on that?
    Mr. Majak. This is a very difficult and knotty problem. 
Certainly what we need to do first is continue to press our 
partners at Wassenaar and the other multilateral agencies to 
adopt what we call ``no undercut'' provisions, which we have 
done in Wassenaar. We have repeatedly proposed to strengthen 
the no undercut provisions that are under the agreement.
    At present, those provisions largely require member 
countries simply to consult before they make a sale that 
another member turned down. That process is working moderately 
well, but we would like to expand it to include more items and 
to include more than just notification, but some greater 
obligation to, in fact, to respect the denials of other 
countries.
    We have not been able to achieve much progress in that 
area. This, I think, is in part a spill-over from COCOM and the 
Cold War days when our allies and partners at times resented 
and resisted the pressures of what was then actually prior 
approval of their licenses, as you mentioned. The presence of 
some additional countries in the Wassenaar group, like Russia 
and the Ukraine, for example, make selling the idea of a no 
undercut arrangement even more difficult.
    At the end of the day, it seems to me, having observed this 
now for a couple of years, it really is a question of how much 
priority we're prepared to put on achieving stronger no 
undercut provisions. Frankly, we have had on the table other 
things that we have wanted from Wassenaar, like greater 
controls on small arms and other items that are not subject to 
controls. So there are tradeoffs.
    We've also wanted to remove some items from Wassenaar 
control which we felt no longer require controls. That requires 
us to use some political capital with our partners.
    So we have obtained some other concessions from them. It's 
just a matter of how much we want to extract in order to get 
that kind of cooperation. I'm not sure, under the present 
circumstances, even very heavy pressure from us will get us a 
broader no undercut provision.
    Mr. Manzullo. They have no incentive. They realize, unlike 
this country, that if something is readily available on the 
open market and the United States is trying to be righteous and 
say we don't want to sell it, then why close that market to 
another country? Good luck on negotiations, but if you don't 
succeed and strengthen it, I'm not going to hold that against 
you or anybody else who is working on our behalf.
    Mr. Majak. I appreciate that. I should note, Mr. Chairman, 
that we have had some reasonable cooperation from them in the 
no undercut area with respect to the terrorist states, which is 
the central and the main focus of Wassenaar. Where you begin to 
lose discipline is when you talk about destinations outside of 
the key terrorist countries. There is much less willingness to 
recognize a no undercut concept.
    Mr. Manzullo. That answers my question.
    Congressman Cooksey, would you like to chair this hearing 
to its conclusion, because I have to go on to another meeting? 
Thank you. I appreciate it very much, Mr. Secretary.
    Mr. Majak. Thank you, Mr. Manzullo.
    Mr. Cooksey [presiding]. I'm asking the staff a question 
that I don't know the answer to myself. Does Israel belong to 
the CAA?
    Mr. Majak. Israel----
    Mr. Cooksey. Have they participated in the past?
    Mr. Majak. Israel is not a member of any of the 
multilateral export control cooperation arrangements at 
present.
    Mr. Cooksey. Why not?
    Mr. Majak. Because they prefer and feel they need to pursue 
an individual and independent course. I should note, however, 
that they recognize and cooperate with U.S. controls and the 
Wassenaar and other multilateral controls, in fact, in some 
cases. But they feel that they must preserve their national 
discretion so they have not joined these multilateral 
organizations.
    Mr. Cooksey. Wassenaar does not really have any teeth in 
it, though, does it, as it currently exists? Or does it?
    Mr. Majak. The teeth are, essentially, powers of persuasion 
and pressure from other members to conform. It has teeth in the 
sense that it has a common list of items that are controlled 
and that is a very important area of consensus in itself. If 
you don't at least have a common list of items that are of 
concern and should be controlled, to one degree or another, 
then you have, really, no coordination at all.
    Wassenaar does have such a list and much of our time is 
spent at Wassenaar refining and improving that list. That 
includes both extensions of the list as well as deletions from 
the list. So that is a very important core of cooperation.
    However, the type of control that countries apply to those 
items is subject to national discretion and, therefore, some 
significant variation. We control those items in one way. Other 
countries, using other kinds of mechanisms and other legal 
authorities, may control them differently. We try to harmonize 
the impact as much as possible, but there is the ability to 
have variation based on national discretion.
    Mr. Cooksey. Let me ask you a followup question on that. 
Recently Israel has exported some missile technology to China. 
Am I not correct? It is missile technology?
    Mr. Majak. I have seen reports to that effect. I can't--or 
at least, in public session, wouldn't want to confirm or 
disconfirm it. But, certainly, I've seen those reports.
    Mr. Cooksey. I got it from reading the newspaper. I find 
when I go to the CIA briefings or I just left another members 
only meeting, I can read the same thing in the newspaper, the 
New York Times, the next day. What did the Administration do to 
prevent this? I understand they expressed some opposition to it 
and Israel said they would go ahead with this.
    Mr. Majak. Here the absence of my State Department 
colleagues at the table handicap me because they would have 
undertaken those representations. I'm sure there were 
representations made, but I'm, frankly, not familiar with them 
in detail. I'd have to defer to the State Department to answer 
that question.
    Mr. Cooksey. I consider Israel a very important ally and, 
as a result, we give them a lot of technology and a lot of 
important military technology. It is a little bit disconcerting 
when you see that they are, in turn--I'll tell you what it was. 
It was really the AWACS technology. They are transferring that 
technology to them.
    Mr. Majak. Yes.
    Mr. Cooksey. And, of course, the missile technology goes 
back to 1996 and I understand the two principals--now this was 
the front page of the Washington Post--the two principals in 
those companies, Loral and Hughes, are in China today, as we 
speak.
    But my good friend from California, Mr. Rohrabacher is 
here. Mr. Rohrabacher.
    Mr. Rohrabacher. Thank you very much. There was a news 
report about the U.S. Ambassador to China hosting a meeting 
between the China space agency and Hughes and Loral. Was this 
approved by the White House?
    Mr. Majak. I saw that report, Mr. Rohrabacher. I have not 
been able either to confirm, in the short time since I did see 
it, whether the meeting took place or whether it was cleared by 
anybody in the Administration. I can say with certainty it 
wasn't cleared by me, but whether it was cleared elsewhere in 
the Administration, we'd have to determine and get back to you.
    Mr. Rohrabacher. Is it the Administration's policy that 
Hughes and Loral should be meeting with the China space agency?
    Mr. Majak. I could only speak for the area of authority 
that I have, which is how we treat those companies with respect 
to future exports. Under the Export Administration Act, as 
extended by the President, unlike the munitions control 
statute, which authorizes the U.S. Government to withhold 
business from companies when they've been accused of these 
possible violations, there is not a similar provision in the 
area of dual-use technology. So I could say that, under our 
legislation, discussions of exports of dual-use equipment by 
those companies would not be prohibited.
    Mr. Rohrabacher. All right. Is it still the 
Administration's policy that China is treated as a strategic 
partner?
    Mr. Majak. I think, again, I would have to defer, with your 
forgiveness, Mr. Rohrabacher, to the State Department for a 
proper answer to that question.
    Mr. Rohrabacher. All right. It just seems to me that you 
guys all have the same boss and I give he would give the same 
guidelines.
    Just for the record, Mr. Chairman, just let me say this 
whole situation when you read in the newspaper, after going 
through years of seeing that there is a technological transfer 
to China through Hughes and Loral corporations that has been 
deemed something that damaged our national security, put 
millions of lives at risk that wouldn't otherwise be at risk, 
the fact that there is a meeting arranged by the U.S. 
Ambassador for these same two companies on the very same 
subject area with the very same culprits that were the 
recipients of this technology before, is breathtaking. It's 
just beyond belief.
    I mean, this proves that Mark Twain was wrong. A cat will 
sleep on a hot stove twice. You're not at fault. You're not 
here to be raked over the coals. You're here to just try to do 
your best, I know. But this Administration, through what we're 
talking about today and through just in this one incident, has 
demonstrated again its either incompetence or its sheer 
disregard for the national security interests of the United 
States of America.
    I don't know why, but that's what's happening and this 
Congress eventually is going to get down to the reason why 
these decisions continue to be made over and over again with 
America's worst potential enemy.
    Than you very much, Mr. Chairman.
    Mr. Cooksey. Thank you, Mr. Rohrabacher.
    Mr. Menendez, would you like to have a closing comment?
    Mr. Menendez. Right. Just very briefly. Just a quick 
question to the Secretary. I appreciate all of your answers and 
your testimony. How long have we been authorizing satellites as 
a government?
    Mr. Majak. As commercial items, since, I'd say, the late 
1960's, when what was previously largely a military activity 
became commercialized and we began using commercial satellites. 
Certainly, Intelsat, for example, has been around even longer 
than that. But in those days, the State Department still 
licensed many of those satellites as munitions. Of course, the 
jurisdiction was transferred from the Commerce Department for 
commercial satellites in 1996.
    Mr. Menendez. So we have been authorizing and licensing 
satellites since before this Administration, I take it.
    Mr. Majak. Much before this Administration.
    Mr. Menendez. Thank you very much, Mr. Secretary.
    Mr. Majak. Thank you.
    Mr. Cooksey. Mr. Majak, Mr. Secretary, we appreciate your 
coming today. I appreciate your testimony. It's an important 
issue. Needless to say, there's controversy that surrounds 
this. I feel that you've given a good presentation and I 
personally thank you. We've got to go vote.
    Mr. Majak. Thank you.
    Mr. Cooksey. The meeting will be adjourned.
    [Whereupon, at 3:56 p.m., the Subcommittee was adjourned.]
      
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                            A P P E N D I X

                       March 22 and April 4, 2000

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