Export Controls: Statutory Reporting Requirements for Computers Not Fully
Addressed (Letter Report, 11/05/1999, GAO/NSIAD-00-45).

Pursuant to a congressional request, GAO reviewed the executive branch's
report on high performance computer export controls, focusing on: (1)
whether the July 1999 report to Congress satisfied the requirements of
the Fiscal Year 1998 National Defense Authorization Act; (2) whether the
report was factually supported; and (3) how many high performance
computers at the current control levels have been approved for export to
certain sensitive countries.

GAO noted that: (1) the President's July 1999 report to Congress did not
fully satisfy the reporting requirements of section 1211 of the Fiscal
Year 1998 Defense Authorization Act; (2) the report did address two of
the three requirements--to determine the availability of high
performance computers in foreign countries and the potential for use of
the newly decontrolled computers for significant military use; (3) it
did not, however, assess the impact of such military use on the national
security interests of the United States; (4) instead, the report
discussed the economic importance of a strong U.S. computer industry to
U.S. national security; (5) a 1998 Department of Defense- and
Commerce-sponsored study and data from the U.S. computer industry
generally provided evidence to support the report's statements that the
capabilities of high performance computers and their related components
are increasing; (6) however, the President's report implied that there
is a greater level of foreign supply of high performance computers than
is supported by evidence in the Commerce- and Defense-sponsored study;
(7) the study found that U.S. companies and their international business
partners overwhelmingly dominate the international market for most high
performance computers; (8) further, GAO was unable to assess the
justification for the new export control levels because the President's
report did not define key terms or explain how they were applied; (9)
from November 1997 through August 1999, the United States approved for
export 4,092 high performance computers, as defined under the current
export control levels, to certain sensitive countries such as China and
Russia; (10) China, by far the largest importer of high performance
computers, received 1,924 of these approvals; (11) 141 of the computers
going to certain sensitive countries, or 3.4 percent of the total,
required a license; and (12) the requirement for a license is an
indication that the end-use or -user might be connected to the military
or a proliferation related end-use or -user.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  NSIAD-00-45
     TITLE:  Export Controls: Statutory Reporting Requirements for
	     Computers Not Fully Addressed
      DATE:  11/05/1999
   SUBJECT:  Computer equipment industry
	     Dual-use technologies
	     Export regulation
	     Foreign governments
	     Supercomputers
	     International trade restriction
	     Foreign trade policies
	     Technology transfer
	     Internal controls
	     Reporting requirements
IDENTIFIER:  China
	     Russia
	     India
	     Pakistan
	     Israel

******************************************************************
** This file contains an ASCII representation of the text of a  **

** GAO report.  Delineations within the text indicating chapter **
** titles, headings, and bullets are preserved.  Major          **
** divisions and subdivisions of the text, such as Chapters,    **
** Sections, and Appendixes, are identified by double and       **
** single lines.  The numbers on the right end of these lines   **
** indicate the position of each of the subsections in the      **
** document outline.  These numbers do NOT correspond with the  **
** page numbers of the printed product.                         **
**                                                              **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced.  Tables are included, but    **
** may not resemble those in the printed version.               **
**                                                              **
** Please see the PDF (Portable Document Format) file, when     **
** available, for a complete electronic file of the printed     **
** document's contents.                                         **
**                                                              **
** A printed copy of this report may be obtained from the GAO   **
** Document Distribution Center.  For further details, please   **
** send an e-mail message to:                                   **
**                                                              **
**                                            **
**                                                              **
** with the message 'info' in the body.                         **
******************************************************************

Report to Congressional Requesters

November 1999

EXPORT CONTROLS

Statutory Reporting Requirements for Computers Not Fully
Addressed
*****************

*****************

GAO/NSIAD-00-45

Letter                                                                     3

Appendixes

Appendix I:Computers Approved by the U.S. Government for Export to Tier 3
Countries From November 18, 1997, Through August 27, 1999

                                                                         20

Appendix II:Comments From the Department of Defense

                                                                         23

Appendix III:Comments From the Department of Commerce

                                                                         25

Table 1:  Estimated Performance Capabilities of Single and 
Multiprocessor Computers Available in 1999 and the Year 200011

Table 2:  Performance Levels of Computers That Support 
Applications of Military Significance           14

Figure 1:  Percent of Approved Tier 3 High Performance Computer 
Exports That Required a License and May Be Going to a Sensitive End-Use or
End-User, November 18, 1997, Through August 27, 199916

AMD     Advanced Micro Devices

DOD     Department of Defense

MTOPS   millions of theoretical operations per second

 We evaluated several aspects of the 1996 relaxation of controls. See
Export Controls Information on the Decision to Revise High Performance
Computer Controls 
 See Seymour E. Goodman, et al., Building on the Basics: An Examination of 
                                                      National Security and
                                             International Affairs Division

B-283964

November 5, 1999

The Honorable Thad Cochran
Chairman, Subcommittee on International Security,
  Proliferation, and Federal Services
Committee on Governmental Affairs
United States Senate

The Honorable Michael B. Enzi
Chairman, Subcommittee on International
  Trade and Finance
Committee on Banking, Housing, and Urban Affairs
United States Senate

The U.S. government controls the export of high performance computers to
certain countries based on foreign policy and national security concerns.
The Commerce Department considers a high performance computer to be one
that exceeds a defined performance threshold, thus requiring an export
license. In a July 1999 report,/Footnote1/ the executive branch described
its plans to change the controls on the exports of high performance
computers by increasing the level of computing performance for which
export licenses would be required. The executive branch last modified
controls on high performance computers in January 1996. In the Fiscal Year
1998 National Defense Authorization Act (P.L. 105-85, sec. 1211, Nov.
1997), Congress required the executive branch to provide a report
justifying proposed changes to export controls on computers. The act
requires the report, at a minimum, to (1) address the extent to which high
performance computers with capabilities between the established level and
the new proposed level of performance are available from other countries,
(2) address all potential uses of military significance to which high
performance computers at the new levels could be applied, and (3) assess
the impact of potential military uses on U.S. national security interests.

As you requested, we determined (1) whether the executive branch's July
1999 report to Congress satisfied the requirements of the act; (2) whether
the report was factually supported; and (3) how many high performance
computers at the current control levels have been approved for export to
certain sensitive countries, for example, Russia and China, and how many
have been approved for export since 1997 to military or other sensitive 
end-users (for example, entities suspected of being engaged in
proliferation activities).

Results in Brief

The President's July 1999 report to Congress did not fully satisfy the
reporting requirements of section 1211 of the Fiscal Year 1998 Defense
Authorization Act. The report did address two of the three requirements--
to determine the availability of high performance computers in foreign
countries and the potential for use of the newly decontrolled computers
for significant military use. It did not, however, assess the impact of
such military use on the national security interests of the United States.
Instead, the report discussed the economic importance of a strong U.S.
computer industry to U.S. national security.

A 1998 Department of Defense- and Commerce- sponsored study and data from
the U.S. computer industry generally provided evidence to support the
report's statements that the capabilities of high performance computers
and their related components are increasing. However, the President's
report implied that there is a greater level of foreign supply of high
performance computers than is supported by evidence in the 
Commerce- and Defense-sponsored study. The study found that U.S. companies
and their international business partners overwhelmingly dominate the
international market for most high performance computers. Further, we were
unable to assess the justification for the new export control levels
because the President's report did not define key terms or explain how
they were applied.

From November 1997 (the date of the act) through August 1999, the United
States approved for export 4,092 high performance computers, as defined
under the current export control levels, to certain sensitive countries
such as China and Russia. China, by far the largest importer of high
performance computers, received 1,924 of these approvals. One hundred and
forty-one of the computers going to certain sensitive countries, or 3.4
percent of the total, required a license. The requirement for a license is
an indication that the end-use or -user might be connected to the military
or a proliferation related end-use or -user.

We make a recommendation in this report to clarify the criteria used in
establishing the export control thresholds for high performance computers.

Background

High performance computers and related components (for example,
processors) are controlled under the Export Administration Act./Footnote2/
The act establishes authority to require licenses for the exports of
sensitive items that may pose a national security or foreign policy
concern. The Department of Commerce administers the Export Administration
Act. The Departments of State, Energy, and Defense assist Commerce by
reviewing export applications and providing support to Commerce in its
reviews of export control policy. High performance computers are regulated
based on their performance as measured in millions of theoretical
operations per second (MTOPS).

Since 1993, the President has revised U.S. export control requirements for
high performance computers three times, including the revisions announced
in July 1999. The export control policy implemented in January 1996
removed license requirements for most exports of computers with
performance levels up to 2,000 MTOPS (an increase from 1,500
MTOPS)./Footnote3/ The policy also organized countries into four computer
"tiers," with each tier after tier 1 representing a successively higher
level of concern related to U.S. national security interests. The policy
placed no license requirements on tier 1 countries, primarily those in
Western Europe and Japan. Exports of high performance computers above
10,000 MTOPS to 
tier 2 countries in Asia, Africa, Latin America, and Central and Eastern
Europe continued to require licenses. A dual-control system was
established for tier 3 countries. There are 50 tier 3 countries including
China, Russia, India, and Israel. For tier 3 countries, high performance
computers up to 7,000 MTOPS could be exported to civilian end-users
without a license, while exports for potential military end-uses at and
above 2,000 MTOPS required a license. Exports of high performance
computers with performance capabilities above 7,000 MTOPS to civilian end-
users for all tier 3 countries required a license. High performance
computer exports to countries in tier 4 (for example, Iran, Iraq, and
Libya) were essentially prohibited because of national security and
foreign policy concerns about these countries.

Section 1211 of the Fiscal Year 1998 National Defense Authorization Act
requires an exporter to notify the Commerce Department that it proposes to
export high performance computers that perform above 2,000 MTOPS to end-
users in tier 3 countries. The Departments of Commerce, Defense, State,
and Energy review these notifications, and if any of these agencies
objects to the export, the exporter must submit a license
application./Footnote4/ According to National Security Council guidance,
agency objections shall state whether the proposed export represents a
risk of diversion to a military end-user or end-user of proliferation
concern. Exporters that want to ship high performance computers above
2,000 MTOPS to military 
end-users in tier 3 countries must apply directly to Commerce for a
license; they do not go through the notification process./Footnote5/ The
act also required the President to submit a report to Congress justifying
any changes to the control levels for high performance computers.

On July 27, 1999, the President proposed changes to the current export
control levels for high performance computers and submitted a report to
Congress, as required by the act. According to a statement by the
President, changes were needed because of the extraordinarily rapid rate
of technological change in the computer industry. These changes were as
follows:

o Four countries-Hungary, Poland, the Czech Republic, and Brazil-were
  moved from tier 2 to tier 1.

o The tier 2 licensing level was raised from 10,000 MTOPS to 20,000
  MTOPS, effective immediately.

o The two-level system for tier 3 countries was retained, and the
  licensing level for civilian end-users was raised from 7,000 to 12,300
  MTOPS, effective immediately. The licensing level for military end-
  users is to be raised from 2,000 to 6,500 MTOPS, effective January
  2000. A level of 6,500 MTOPS was also established for the notification
  requirement, also effective January 2000.

Two studies commissioned by the Departments of Commerce and Defense and
completed in 1995 and 1998 were key sources of information for the
executive branch's review of computer export controls. These studies
examined trends in high performance computing and their applications and
provided much of the background analysis the executive branch used as a
basis for deciding to relax export controls on high performance
computers./Footnote6/

President's Report Addressed All but One Reporting Requirement

The President's report to Congress was responsive to two requirements of
the 1998 Defense Authorization Act but was not responsive to the third.
The report discussed the extent to which high performance computers with
capabilities at the proposed level of decontrol are available in other
countries and generally described the potential uses of the newly
decontrolled computers for significant military applications. However, the
report did not assess how U.S. national security interests might be
affected by other countries' potential military uses of the newly
decontrolled computers.

Report Addressed Availability of High Performance Computers in Foreign
Countries
---------------------------------------------------------------------------

The President's report noted that while U.S. firms control the market in
processors (computer chips) and currently dominate the high performance
computer market, there is some foreign competition from firms in Asia and
Europe. It should be noted, however, that the law does not require a
finding that these computers are currently available from non-U.S.
producers or with non-U.S. origin processors and parts. The report stated
that due to the rapid advances in processor speeds and related
technologies, customers, including those in foreign countries, can acquire
very powerful computers that can be easily assembled or upgraded by adding
up to eight processors to increase computing performance levels. The
report stated that the capability of these computers would exceed the
current export control thresholds.

Report Addressed Potential Military Uses of High Performance Computers
----------------------------------------------------------------------

The report stated that high performance computers at all levels, including
performance levels below current export control levels, are used in
virtually all military applications, including the design, development,
and production of weapon systems; military operations; cryptography; and
nuclear design and simulation. The President's report determined that all
of these applications are militarily significant and concluded that it is
impossible to establish a limit below which computers could not be used
for significant military applications./Footnote7/ Consequently, the new
control levels are not based on an assessment that these new computing
levels do not involve national security applications but rather that
computers in this performance range are so widely available that they are
uncontrollable.

Report Did Not Assess Impact of Military Uses on National Security
------------------------------------------------------------------

The President's report did not discuss how U.S. national security
interests might be affected by potential military uses of high performance
computers with greater capabilities. The report noted that because of
widespread availability of high performance computers, tier 3 countries
can obtain computers in the 6,500 MTOPS performance range or the necessary
components to build such computers. However, the report did not say how
other countries' use of high performance computers that operate between
2,000 and 6,500 MTOPS would affect U.S. national security.

Specifically, the President's report did not discuss the impact of any
significant military applications of high performance computers on the
national security interests of the United States nor did it cite past or
ongoing studies of this issue. The President's report concluded in
response to the second reporting requirement that there are militarily
significant applications in the new control range, and, if not for their
widespread availability, these applications would need to be controlled.
These applications include advanced aircraft design, antisubmarine warfare
sensor development, and radar applications. However, the President's
report provided no assessment of how computers sold under the new control
levels could impact national security.

Furthermore, the President's report did not cite any past or ongoing
government studies that have examined or are examining the national
security impact of the availability of high performance computers, even
though such studies are available. For example, a June 1998 study by the
Department of Energy assessed the potential contribution of high
performance computers to the nuclear weapons programs of China, Russia,
India, Pakistan, and Israel and countries suspected of proliferating
weapons of mass destruction. This report found that the impact of high
performance computing capability depends on the complexity of the weapon
being developed and the availability of high quality, relevant test data.
Also, in the spring of 1999, both the Energy Department and the Central
Intelligence Agency began a study on the impact of exports of high
performance computer exports in response to a directive from the National
Security Council, as recommended by the House Select Committee on U.S.
National Security and Military/Commercial Concerns with the People's
Republic of China. According to a National Security Council official, this
study is not yet completed.

Instead of discussing the act's requirement, the President's report
assessed the economic importance of marketing and developing U.S. high
performance computers and processors. It also discussed the importance to
U.S. national security interests of ensuring that the United States
retains its technological advantage in the design, development, and
production of processors and computers. The President's report concluded
that failure to adjust U.S. export requirements for computers and
processors would have a significant negative effect on the U.S. computer
industry and harm the industry's ability to produce products with military
applications./Footnote8/

Report Findings Were Generally Supported

The report's statement that the capabilities of high performance computers
and related components, from both domestic and foreign sources, are
generally increasing was supported. However, while the report implied that
high performance computers are readily available from foreign sources, a
1998 study sponsored by DOD and Commerce found that the United States
dominates the international computer market, at least in the mid- and 
high-range performance categories. Furthermore, we were unable to assess
the justification for the new export control levels for tier 3 because the
report did not define key terms or explain how they were applied.

Report's Statements on Increases in Computing Capabilities Supported
--------------------------------------------------------------------

The report's conclusion that the capabilities of high performance
computers are increasing was supported. The executive branch based its
conclusion that these capabilities are widely available and are therefore
uncontrollable on the ability of foreign countries to obtain high
performance computers directly or indirectly from a vendor, a reseller, or
another third party or to assemble such a computer using U.S. processors
and components. The conclusion that faster processors and related
components/Footnote9/ are widely sold was supported because the United
States does not generally control the export of the processors and
components. Under current regulations, processors that perform up to 1,900
MTOPS can be directly exported to civil end-users in many tier 3
countries, including China and Russia. Exports of processors to such users
in many other tier 3 countries, such as Israel and Saudi Arabia, are not
subject to any MTOPS limit. Exports of other key components for computer
systems with four and eight processors are also not generally controlled;
these parts can be shipped to tier 3 countries for civilian end-users,
which could then use them to support the assembly of computers.

Table 1 shows the speed of processors introduced in 1999 and those
expected to be introduced by mid-2000. Single processors introduced in
1999 by Motorola and Advanced Micro Devices (AMD) already exceed the
export licensing control threshold of 2,000 MTOPS for tier 3 countries.
Table 1 also shows estimated performance levels for computers using more
than one processor and shows that an eight-processor computer using an
Intel Pentium processor available since October 1999 exceeds the civilian
export control licensing level of 7,000 MTOPS. The control levels
announced in the President's report roughly match the expected performance
levels of computers using four and eight Intel Pentium processors that are
expected to be on the market in July 2000.

Table****Helvetica:x11****1:    Estimated Performance Capabilities of
                                Single and Multiprocessor Computers
                                Available in 1999 and the Year 2000

--------------------------------------------------------------------------
|                Estimated performance levels (in MTOPS)                 |
|------------------------------------------------------------------------|
|                  :     Single :        Two :        Four :      Eight  |
|                  : processor  : processors :  Processors : processors  |
| Processor        :            :            :             :             |
|------------------------------------------------------------------------|
| Available October 1999                                                 |
|------------------------------------------------------------------------|
| Intel Pentium    :      1,710 :      3,177 :          ^a :         ^a  |
| III              :            :            :             :             |
| 733 Megaherz     :            :            :             :             |
| (Mhz)            :            :            :             :             |
|------------------------------------------------------------------------|
| Pentium III      :      1,283 :      2,383 :       4,584 :      8,983  |
| (Xeon)           :            :            :             :             |
| 550 Mhz          :            :            :             :             |
|------------------------------------------------------------------------|
| AMD Athlon (K7)  :      2,130 :         ^a :          ^a :         ^a  |
| 700 Mhz          :            :            :             :             |
|------------------------------------------------------------------------|
| Motorola G4      :      2,469 :         ^b :          ^b :         ^b  |
|                  :            :            :             :             |
| 400 Mhz          :            :            :             :             |
|------------------------------------------------------------------------|
| Estimated available by December 1999                                   |
|------------------------------------------------------------------------|
| AMD Athlon  (K7) :      2,282 :         ^a :          ^a :         ^a  |
| 750 Mhz          :            :            :             :             |
|------------------------------------------------------------------------|
| Motorola G4      :      3.395 :         ^b :          ^b :         ^b  |
|                  :            :            :             :             |
| 550 Mhz          :            :            :             :             |
|------------------------------------------------------------------------|
| Estimated available by July 2000                                       |
|------------------------------------------------------------------------|
| Intel Pentium    :      1,750 :      3,250 :       6,250 :     12,251  |
| III (Xeon) 750   :            :            :             :             |
| Mhz              :            :            :             :             |
|------------------------------------------------------------------------|
| Motorola G4      :      4,630 :         ^b :          ^b :         ^b  |
|                  :            :            :             :             |
| 750 Mhz          :            :            :             :             |
|------------------------------------------------------------------------|
| Estimated available second half of 2000                                |
|------------------------------------------------------------------------|
| Intel Willamette :      2,667 :      5,000 :          ^c :         ^c  |
| 1,000 Mhz        :            :            :             :             |
--------------------------------------------------------------------------

Note: The above performance levels are estimates provided by the
manufacturers and are subject to change.

^a These processors are not presently capable of being configured to this
level.

^b According to Motorola and DOD officials, the G4 is multiprocessor
capable. However, the DOD official is aware of only two companies making
such computers, and each uses a proprietary design.

^c According to Intel officials, the Willamette processor will eventually
be configured for use in four and eight processor systems.

Source: U.S. computer processor manufacturers, October 1999.

Foreign Supply of High Performance Computers More Limited Than Report
Implied
---------------------------------------------------------------------------

The report's discussion of foreign sources of high performance computers
implied that there is a higher level of foreign competition than is
factually supported by available evidence. The 1998 study that the Defense
and Commerce Departments sponsored stated that the controllability of high
performance computer systems is not greatly influenced by their
availability in foreign countries, except Japan, because U.S. companies
and their international business partners overwhelmingly dominate the
international market for computers, at least in the mid- and high-range
performance categories. This conclusion is consistent with what we
reported in our 1998 report, where we found that the only global
competitors for general computer technology were three Japanese companies,
two of which compete for sales of high-end computer systems sold in small
volumes and performing at advanced levels./Footnote10/

Controllability Difficult to Assess
-----------------------------------

While we found evidence supporting the report's conclusion that computers
with greater capabilities and related components are becoming increasingly
available, we were unable to assess the report's determination that
computers rated below the new control levels are widely available and by
implication are uncontrollable. An assessment of controllability involves
critical assessments of when and in what quantities an item should be
considered so widely available as to be uncontrollable. However, "widely
available" and "uncontrollable" are not terms defined in current export
control laws or regulations, and nothing that has been offered in support
of the proposed relaxation of controls defines how these concepts have
been applied in setting the new control levels./Footnote11/Defense and
Commerce Department officials stated that the analysis they prepared in
support of the President's report relied on a definition of
controllability used in their sponsored studies of high performance
computers. However, the discussion of controllability in these studies is
general. The 1998 study, for example, cites the following general factors
"influencing" controllability:

   1.    the performance of computing platforms that have qualities (size,
         price, numbers installed, vendor distribution channels, age, and
         dependence on vendor support) that make them difficult to monitor;

   2.    the ability to increase the capability of a computer system
         incrementally by adding processors; and

   3.    the performance of systems available from foreign sources not
         supporting U.S. export control policies.

The President's report did not explain how these factors were considered
in setting the new control levels. The establishment of 12,300 MTOPS as
the licensing level for civilian end-users in tier 3 countries/Footnote12/
illustrates the difficulties in making a judgment about controllability.

o The President's report, as well as Commerce and Defense Department
  officials, indicated that computers with both four and eight processors
  are or will be sold in such volumes that they are uncontrollable.
  However, computers with eight Intel Pentium processors were just
  introduced to the market in the summer of 1999 and have been and will
  likely be sold in much smaller quantities than systems with either two
  or four processors. 

o The President's report suggested that computers can be upgraded with up
  to eight processors and maintained without vendor support. However,
  according to three of the largest companies selling computers using
  eight Intel Pentium processors, customers must return to the company
  for modifications to the Pentium III processor before it can be added
  to the computer. In other words, the widespread availability of the
  Pentium III processor is not sufficient to enable anyone to upgrade a
  multiprocessor system without some company assistance.

o The President's report cited German and Japanese firms that produce
  high performance computers as examples of foreign availability.
  However, like the United States, Germany, and Japan maintain export
  controls on high performance computers. These controls appear to afford
  protections similar to U.S. regulations and would likely limit exports
  of high performance computers to sensitive countries.

Without more specific criteria and a clear explanation linking these
criteria to the new control levels, it is not possible to determine
whether sales of computers with eight processors are produced in
sufficient quantity to make them uncontrollable or if the level of vendor
involvement in upgrading computers or the current level of foreign supply
makes such computers controllable.

The President's report noted that high performance computers perform
sensitive military applications and it is only because of their widespread
availability that the control levels are being changed. Table 2 lists
examples identified in the DOD- and Commerce-sponsored study of these
applications and the performance levels of the computers that support
these applications. These examples highlight the importance of having
clear criteria for determining whether a commodity is or is not
controllable.

Table****Helvetica:x11****2:    Performance Levels of Computers That
                                Support Applications of Military
                                Significance

------------------------------------------------------------------------
| Computer performance   : Applications                                |
| level (MTOPS)          :                                             |
|----------------------------------------------------------------------|
| 4,000 to 6,000         : Joint Attack Strike Aircraft design;        |
|                        : nonacoustic antisubmarine warfare sensor    |
|                        : development; and advanced synthetic         |
|                        : aperture radar computation                  |
|----------------------------------------------------------------------|
| 8,000 to 9,000         : Bottom-contour modeling of shallow water    |
|                        : in submarine design; some synthetic         |
|                        : aperture radar applications; and            |
|                        : algorithm development for shipboards'       |
|                        : infrared search and track                   |
|----------------------------------------------------------------------|
| 10,000 to 12,000       : Global and regional weather-related         |
|                        : applications, image processing, and         |
|                        : moderate-sized particle dynamics problems   |
|----------------------------------------------------------------------|
| 15,500 to 17,500       : Computational fluid dynamics applications   |
|                        : to model the turbulence around aircraft     |
|                        : under extreme conditions                    |
|----------------------------------------------------------------------|
| 20,000 to 22,000       : Weather forecasting; impact of blasts on    |
|                        : underground structures; advanced aircraft   |
|                        : design                                      |
------------------------------------------------------------------------

Source: High-Performance Computing, National Security Applications, and
Export Control Policy at the Close of the 20th Century.

Small Percent of Exports to Tier 3 Countries  Are Licensed and May Go to
Sensitive End-Users

From November 18, 1997, when the 1998 authorization act was enacted,
through August 27, 1999, the United States approved the export of 4,092
high performance computers/Footnote13/ to tier 3 countries./Footnote14/
China, the largest importer among tier 3 countries, received approvals for
1,924 high performance computers. Russia, Israel, and Saudi Arabia were
the next three largest authorized importers of U.S. high performance
computers. The high performance computers approved for export had an
average performance capability of 3,568 MTOPS. Saudi Arabia received
approval to import the most powerful computer, with a capability of 28,980
MTOPS. China received approval to import the next most powerful computer,
with a capability of 24,750 MTOPS. (App. I lists the countries that
imported U.S. high performance computers and their MTOPS capabilities.)

Our analysis of Commerce data shows that 141 high performance computers,
or about 3.4 percent of all exports approved to tier 3 countries, may have
been going to sensitive end-uses or end-users (see fig. 1)./Footnote15/
This number is an estimate based on the number of high performance
computer exports that required an individual validated license. The
requirement for a license is an indication that the end-user may be
connected to the military or the end-use may be sensitive./Footnote16/
Licenses are required for high performance computers if the end-use or -
users are known by the exporter to be connected to the military. Licenses
are also required if, after a proposed export is notified to the Commerce
Department, any of the reviewing agencies object based on information that
the end-use or -user

might be connected to the military or some other sensitive end-use 
or -user./Footnote17/

Figure****Helvetica:x11****1:    Percent of Approved Tier 3 High
                                 Performance Computer Exports That
                                 Required a License and May Be Going to a
                                 Sensitive End-Use or End-User, 
                                 November 18, 1997, Through August 27,
                                 1999
*****************

*****************

Notes:

1. Approved exports to possible sensitive end-users or -uses include
approved licensed exports of computers (and processor upgrades) rated
between 2,000 and 7,000 MTOPS.

2. All other approved exports include approved exports of computers rated
above 2,000 MTOPS that did not require a license and approved licensed
exports of computers rated above 7,000 MTOPS.

Source: GAO analysis of Commerce Department licensing data.

Conclusion

Key terms of widespread availability and controllability used by the
administration in setting the new export control levels are not defined in
regulations or explained in the President's report. Future reports to
Congress explaining additional changes to the control levels for high
performance computers would be more useful if these terms were clearly
defined.

Recommendation

To clarify the basis for future changes to the export control levels for
high performance computers, we recommend that the Secretary of Commerce
develop specific criteria defining both "widely available" and
"controllability."

Agency Comments and Our Evaluation

The Departments of Commerce and Defense provided written comments on a
draft of this report (see apps. II and III, respectively). State reviewed
a draft of this report but did not take an overall position on its
content. DOD, Commerce, and State provided technical comments, which we
incorporated where appropriate.

In regard to our recommendation that the Secretary of Commerce define the
terms "widely available" and "controllability" that were used in
justifying the proposed changes in control levels for high performance
computer exports, Commerce noted that these terms require judgment.
Commerce said that as it works with Congress to renew the Export
Administration Act, it would explore the utility of defining these terms.
We continue to believe that our recommendation has merit. A clear
understanding of these terms and how the administration has applied them
will be essential for Congress to assess future proposed changes in
computer control levels. The Department of Defense did not comment on our
recommendation.

DOD and Commerce said that in their view, the President's report responds
to the legislative requirement to discuss the national security impact of
the new control levels. They note that the President's report concedes
that computers have many military applications and that computers at all
performance levels are used in virtually all military applications. For
this reason, the President's report identifies the most serious national
security issue: the reliance of the U.S. military on the high performance
computer industry and the need to ensure that the industry is able to
maintain worldwide market share to stay at the forefront of technological
innovation. As we point out in our report, this focus is not responsive to
the specific reporting requirements of section 1211(d)(3) of the Fiscal
Year 1998 Defense Authorization Act. While the health of the economy
overall, and the computer industry in particular, is an important element
of national security, the act requires that the President's report assess
the impact of potential military uses of computers at the new control
levels on U.S. national security interests. The President's report notes
that computers in the performance range affected by the change in control
levels have numerous military applications, but the report does not
discuss the possible impact on national security from the use of these
computers for such military applications.

Commerce also commented that our estimate of the number of computers
approved for export to sensitive end-uses is misleading since it is based
on license applications and notifications to which the reviewing agencies
objected. Our figures are estimates based on license application data. As
we note in the report, the requirement for a license is an indication that
the end-use or -user may be connected to the military or a proliferation-
related activity.

Scope and Methodology

To address whether the President's report satisfied the three reporting
requirements of section 1211 of the Fiscal Year 1998 National Defense
Authorization Act (P.L. 105-85), we reviewed the President's report and
compared it to the requirements in the law. We also interviewed officials
from the Departments of Defense, Commerce, and State and the National
Security Council to discuss the report's treatment of these reporting
requirements as well as the discrepancies we noted in our analysis.

To assess the factual support for the President's report, we reviewed
copies of the studies and other documentation used in preparing the
report. We interviewed officials from the Departments of Defense,
Commerce, State, and Energy; the Central Intelligence Agency; and the
National Security Council to identify the support used as the basis for
the report. We also interviewed officials from the major computer and
processor manufacturers and the trade group representing the computer
industry, and we obtained computer sales data from a consulting firm. We
also relied on our previous work on high performance computers.

To identify how many high performance computers were exported to tier 3
countries, we obtained licensing records from the Department of Commerce.
We began this analysis in November 1997, when Public Law 105-85 was
enacted, and continued through August 27, 1999, when the data was provided
to us. We included in our analysis all approved licensed exports and all
exports that exporters notified to Commerce and were effectively approved
for export after no objections were raised by Commerce or the other
reviewing agencies.

We determined the number of approved high performance computer exports for
military end-users or -uses going to tier 3 countries by identifying all
the exports that required an individual validated license. These included
those that were initially submitted to Commerce as license applications
and those that were submitted as notifications and later converted to
formal license applications based on an objection from one of the
reviewing agencies. We did not include in our estimate license
applications that were denied or returned to the exporter without action.
We also did not include in our estimate license applications for computers
with performance capabilities above 7,000 MTOPS because those computers
always require a license regardless of the end-use or -user. Due to the
time constraints on our review, we did not attempt to review each export
license to determine which were going to military end-uses or other
sensitive destinations.

We conducted our review from August 1999 through October 1999 in
accordance with generally accepted government auditing standards.

Unless you publicly announce the contents of this report earlier, we plan
no further distribution of this report until 30 days from its issue date.
At that time, we will send copies of this report to other congressional
committees; the Honorable William S. Cohen, Secretary of Defense; the
Honorable Madeleine K. Albright, Secretary of State; the Honorable
Willliam M. Daley, Secretary of Commerce; and the Honorable William
Richardson, Secretary of Energy. Copies will also be made available to
others upon request.

If you or your staff have any questions concerning this report, please
call me or Jim Shafer at (202) 512- 4128. Key contributors to this
assignment were David Trimble, Eugene Beye, and Claude Adrien.

*****************

*****************

Benjamin F. Nelson
Director, International Relations and Trade Issues

--------------------------------------
/Footnote1/-^ Summary of Findings With Respect to Criteria Set Forth in
  Subsection 1211 (d) of the National Defense Authorization Act for Fiscal
  Year 1998, attachment to letter sent to Congress, July 23, 1999
  (Washington, D.C.: The White House).
/Footnote2/-^ The Export Administration Act terminated on August 20, 1994.
  Pursuant to Executive Order 12924, issued on August 19, 1994 (59 Fed.
  Reg. 43437) the President, to the extent permitted by law, extended the
  application of the act indefinitely.
/Footnote3/-^(GAO/NSIAD-98-196, Sept. 16, 1998).
/Footnote4/-^ In addition to reviewing notifications, State, the
  Department of Defense (DOD), and Energy also review export license
  applications that are submitted directly to Commerce.
/Footnote5/-^ For more information on the Fiscal Year 1998 National
  Defense Authorization Act and its provisions, see Export Controls: 1998
  Legislative Mandate for High Performance Computers (GAO/NSIAD-99-208,
  Sept. 24, 1999).
/Footnote6/-^High-Performance Computing Export Control Policy in the
  1990's (Palo Alto, CA: Stanford University, Center for International
  Security and Arms Control, 1995) and High-Performance Computing,
  National Security Applications, and Export Control Policy at the Close
  of the 20th Century (Palo Alto, CA: Stanford University, Center for
  International Security and Arms Control, 1998).
/Footnote7/-^ The report noted that while some applications are currently
  being performed with computers at a given performance range, this
  typically reflects the ability of users to obtain the fastest machine
  within their budget constraints rather than the demands of any
  particular application. As with commercial applications, the report
  noted that demand for computing power tends to rise to what is available
  to the user.
/Footnote8/-^ The report also noted that because of the widespread
  availability of high performance computers, tier 3 countries can obtain
  systems in the 6,500 MTOPS performance range, or the necessary
  components, and manufacture higher performance computer systems on their
  own. Although this statement offers a rationale for raising the export
  control level, it does not say anything about how militarily significant
  applications of high performance computers between 2,000 and the new
  control level of 6,500 MTOPS would affect U.S. national security.
/Footnote9/-^ Related key components include chipsets, circuit boards, and
  memory cards.
/Footnote10/-^ See Export Controls Information on the Decision to Revise
  High Performance Computer Controls, (GAO/NSIAD-98-196, Sept. 16, 1998).
/Footnote11/-^In contrast, under the Export Administration Act, "foreign
  availability" is more specifically described as goods or technology
  available without restriction from sources outside the United States in
  sufficient quantities and comparable quality to those produced in the
  Untied States so as to render the controls ineffective in achieving
  their purposes.
/Footnote12/-^ According to DOD and Commerce officials, the new licensing
  level of 12,300 MTOPS was based on the expected performance capability
  of an eight-processor computer using an Intel-based chip expected to be
  on the market in mid-2000.
/Footnote13/-^ These high performance computer exports included complete
  computers as well as processors to replace or be added to existing
  computers. These processor upgrades are treated as high performance
  computers for export control purposes when the performance capabilities
  enabled by the new processors exceed the MTOPS control thresholds.
/Footnote14/-^ Because exporters do not always use approved export
  licenses, the quantities actually shipped to these countries may be less.
/Footnote15/-^ U.S. exports to tier 3 countries are a fraction of total
  U.S. exports of high performance computers. Data from January 1996
  through September 1997 indicates that about 94 percent of U.S. high
  performance computer exports went to countries in tiers 1 and 2.
/Footnote16/-^ Commerce regulations state that a license is required to
  export or reexport computers rated above 2,000 MTOPS to countries in
  tier 3 to military end-users and end-uses and to nuclear, chemical,
  biological, or missile end-users.
/Footnote17/-^ If no objection is raised, the exporter may ship the high
  performance computer without a license.

COMPUTERS APPROVED BY THE U.S. GOVERNMENT FOR EXPORT TO TIER 3 COUNTRIES
FROM NOVEMBER 18, 1997, THROUGH AUGUST 27, 1999
===========================================================================

                                   Continued from Previous Page
-------------------------------------------------------------------------
|             :    Total approved     :   Approved licensed exports     |
|             :       exports^a       :      that may be going to       |
|             :                       : sensitive end-users or -uses^b  |
|-----------------------------------------------------------------------|
|             : Quant : Avera : Highe : Quant : Perce : Avera : Highes  |
|             :   ity :    ge :    st :  ity  :    nt :    ge :      t  |
|             :       : MTOPS : MTOPS :       :    of : MTOPS :  MTOPS  |
|             :       :       :  level:       : total :       :  level  |
| Country     :       :       :       :       :       :       :         |
|             :       :       :       :       : expor :       :         |
|             :       :       :       :       :   ts  :       :         |
|-----------------------------------------------------------------------|
| China       : 1,924 : 3,610 : 24,75 :    48 :  2.49 : 3,111 : 6,436.6 |
|             :       :    .6 :   0.0 :       :       :    .4 :         |
|-----------------------------------------------------------------------|
| Russia      :   503 : 3,624 : 16,06 :     3 :  0.60 : 2,791 : 3,062.5 |
|             :       :    .4 :   3.0 :       :       :    .8 :         |
|-----------------------------------------------------------------------|
| Israel      :   458 : 3,857 : 10,44 :     4 :  0.87 : 4,956 : 6,287.2 |
|             :       :    .8 :   0.0 :       :       :    .2 :         |
|-----------------------------------------------------------------------|
| Saudi Arabia:   212 : 9,973 : 28,98 :     2 :  0.94 : 3,958 : 5,296.3 |
|             :       :    .2 :   0.0 :       :       :    .8 :         |
|-----------------------------------------------------------------------|
| United      :   191 : 3,519 : 12,06 :     1 :  0.52 : 2,675 : 2,675.0 |
| Arab        :       :    .6 :   3.0 :       :       :    .0 :         |
| Emirates    :       :       :       :       :       :       :         |
|-----------------------------------------------------------------------|
| Algeria     :   117 : 2,228 : 5,460 :     0 :     0 :     0 :      0  |
|             :       :    .1 :    .0 :       :       :       :         |
|-----------------------------------------------------------------------|
| India       :   113 : 3,449 : 11,87 :    79 : 69.91 : 3,182 : 6,008.8 |
|             :       :    .5 :   3.0 :       :       :    .6 :         |
|-----------------------------------------------------------------------|
| Egypt       :    67 : 3,803 : 9,661 :     2 :  2.99 : 2,062 : 2,062.5 |
|             :       :    .6 :    .0 :       :       :    .5 :         |
|-----------------------------------------------------------------------|
| Romania     :    53 : 3,280 : 9,143 :     0 :     0 :     0 :      0  |
|             :       :    .8 :    .8 :       :       :       :         |
|-----------------------------------------------------------------------|
| Kuwait      :    52 : 3,110 : 6,804 :     0 :     0 :     0 :      0  |
|             :       :    .8 :    .0 :       :       :       :         |
|-----------------------------------------------------------------------|
| Vietnam     :    35 : 2,408 : 3,843 :     0 :     0 :     0 :      0  |
|             :       :    .2 :    .0 :       :       :       :         |
|-----------------------------------------------------------------------|
| Kazakhstan  :    32 : 7,836 : 21,63 :     0 :     0 :     0 :      0  |
|             :       :    .5 :   0.0 :       :       :       :         |
|-----------------------------------------------------------------------|
| Oman        :    24 : 6,260 : 11,06 :     0 :     0 :     0 :      0  |
|             :       :    .4 :   3.0 :       :       :       :         |
|-----------------------------------------------------------------------|
| Qatar       :    31 : 3,545 : 6,500 :     0 :     0 :     0 :      0  |
|             :       :    .7 :    .0 :       :       :       :         |
|-----------------------------------------------------------------------|
| Estonia     :    28 : 8,710 : 14,86 :     0 :     0 :     0 :      0  |
|             :       :    .3 :   8.0 :       :       :       :         |
|-----------------------------------------------------------------------|
| Lebanon     :    28 : 3,089 : 5,296 :     0 :     0 :     0 :      0  |
|             :       :    .8 :    .2 :       :       :       :         |
|-----------------------------------------------------------------------|
| Ukraine     :    28 : 2,391 : 4,063 :     0 :     0 :     0 :      0  |
|             :       :    .4 :    .0 :       :       :       :         |
|-----------------------------------------------------------------------|
| Bahrain     :    26 : 2,749 : 5,460 :     0 :     0 :     0 :      0  |
|             :       :    .6 :    .0 :       :       :       :         |
|-----------------------------------------------------------------------|
| Latvia      :    26 : 2,937 : 4,612 :     0 :     0 :     0 :      0  |
|             :       :    .7 :    .6 :       :       :       :         |
|-----------------------------------------------------------------------|
| Croatia     :    23 : 2,832 : 5,296 :     0 :     0 :     0 :      0  |
|             :       :    .5 :    .3 :       :       :       :         |
|-----------------------------------------------------------------------|
| Bulgaria    :    20 : 3,471 : 6,780 :     1 :   5.0 : 3,461 : 3,461.6 |
|             :       :    .5 :    .0 :       :       :    .6 :         |
|-----------------------------------------------------------------------|
| Lithuania   :    19 : 4,275 : 8,553 :     0 :     0 :     0 :      0  |
|             :       :    .9 :    .0 :       :       :       :         |
|-----------------------------------------------------------------------|
| Jordan      :    16 : 2,626 : 6,500 :     0 :     0 :     0 :      0  |
|             :       :    .9 :    .0 :       :       :       :         |
|-----------------------------------------------------------------------|
| Angola      :    14 : 4,150 : 6.520 :     0 :     0 :     0 :      0  |
|             :       :    .3 :    .2 :       :       :       :         |
|-----------------------------------------------------------------------|
| Morocco     :    11 : 2,305 : 2,475 :     0 :     0 :     0 :      0  |
|             :       :    .7 :    .0 :       :       :       :         |
|-----------------------------------------------------------------------|
| Macedonia   :     8 : 2,666 : 4,166 :     0 :     0 :     0 :      0  |
|             :       :    .2 :    .6 :       :       :       :         |
|-----------------------------------------------------------------------|
| Yemen       :     8 : 2,736 : 4,166 :     0 :     0 :     0 :      0  |
|             :       :    .6 :    .9 :       :       :       :         |
|-----------------------------------------------------------------------|
| Serbia      :     5 : 2,527 : 2,772 :     0 :     0 :     0 :      0  |
|             :       :    .7 :    .0 :       :       :       :         |
|-----------------------------------------------------------------------|
| Azerbaijan  :     3 : 3,213 : 5,100 :     0 :     0 :     0 :      0  |
|             :       :    .2 :    .0 :       :       :       :         |
|-----------------------------------------------------------------------|
| Belarus     :     2 : 2,456 : 2,850 :     0 :     0 :     0 :      0  |
|             :       :    .3 :    .0 :       :       :       :         |
|-----------------------------------------------------------------------|
| Bosnia-     :     2 : 3,497 : 4,612 :     0 :     0 :     0 :      0  |
| Herzogovina :       :    .8 :    .6 :       :       :       :         |
|-----------------------------------------------------------------------|
| Cambodia    :     2 : 2,372 : 2,372 :     0 :     0 :     0 :      0  |
|             :       :    .9 :    .9 :       :       :       :         |
|-----------------------------------------------------------------------|
|             :    Total approved     :   Approved licensed exports     |
|             :       exports^a       :      that may be going to       |
|             :                       : sensitive end-users or -uses^b  |
|-----------------------------------------------------------------------|
|             : Quant : Avera : Highe : Quant : Perce : Avera : Highes  |
|             :   ity :    ge :    st :  ity  :    nt :    ge :      t  |
|             :       : MTOPS : MTOPS :       :    of : MTOPS :  MTOPS  |
|             :       :       :  level:       : total :       :  level  |
| Country     :       :       :       :       :       :       :         |
|             :       :       :       :       : expor :       :         |
|             :       :       :       :       :   ts  :       :         |
|-----------------------------------------------------------------------|
| Cyprus      :     2 : 2,223 : 2,372 :     0 :     0 :     0 :      0  |
|             :       :    .6 :    .9 :       :       :       :         |
|-----------------------------------------------------------------------|
| Georgia     :     2 : 3,300 : 3,300 :     0 :     0 :     0 :      0  |
|             :       :    .0 :    .0 :       :       :       :         |
|-----------------------------------------------------------------------|
| Mauritania  :     2 : 2,166 : 2,166 :     0 :     0 :     0 :      0  |
|             :       :    .7 :    .7 :       :       :       :         |
|-----------------------------------------------------------------------|
| Tunisia     :     2 : 3,166 : 4,166 :     0 :     0 :     0 :      0  |
|             :       :    .8 :    .8 :       :       :       :         |
|-----------------------------------------------------------------------|
| Turkmenistan:     2 : 3,023 : 3,300 :     1 :  50.0 : 2,747 : 2,747.0 |
|             :       :    .5 :    .0 :       :       :    .0 :         |
|-----------------------------------------------------------------------|
| Uzbekistan  :     1 : 2,166 : 2,166 :     0 :     0 :     0 :      0  |
|             :       :    .7 :    .7 :       :       :       :         |
|-----------------------------------------------------------------------|
| Pakistan    :     0 :     0 :     0 :     0 :     0 :     0 :      0  |
|-----------------------------------------------------------------------|
| Total       : 4,092 : 3,567 : 28,98 :   141 :  3.45 : 3,216 : 6,436.6 |
|             :       :    .6 :   0.0 :       :       :    .3 :         |
-------------------------------------------------------------------------

Note: Data includes authorized exports of computers and processors for
computer upgrades. The quantities actually shipped to these countries may
be lower.

^a Total approved exports include authorized exports of computers (and
processor upgrades) rated above 2,000 MTOPS that did not require a license
and approved licensed exports of computers (and processor upgrades) rated
above 2,000 MTOPS.

^b Approved licensed exports that may be going to sensitive end users
include approved licensed exports of computers (and processor upgrades)
rated between 2,000 and 7,000 MTOPS. The requirement for a license is an
indication that the end-use or -user might be sensitive. Exports of
computers rated between 2,000 and 7,000 MTOPS to countries in tier 3
generally do not require an individual export license unless the export is
to military end-users and end-uses or to nuclear, chemical, biological, or
missile end-users.

Source: GAO analysis of Commerce Department licensing data.

COMMENTS FROM THE DEPARTMENT OF DEFENSE
=======================================

*****************

*****************

The following are GAO's comments on the Department of Defense's (DOD)
letter dated October 27, 1999.

GAO Comments

   1.    Our report found that while the capabilities of processors are
         clearly increasing, the source of this supply is largely from
         generally unrestricted exports from U.S. manufacturers. As DOD
         notes, the source of this increasing capability comes from U.S.
         manufacturers and their business partners in other countries.
         Availability from foreign suppliers is not a critical factor in
         the administration's decision to change the control levels.

   2.    It is unclear from DOD's response and the President's report how
         the administration determined that four and eight-processor-
         capable computers are uncontrollable. DOD's response states that
         these systems will be produced in the millions. Data from a 1998
         industry study used by DOD and Commerce, however, shows that
         expected sales in the year 2000 of eight-processor-capable
         systems will be below 200,000 units and 
         four-processor units will be about 550,000 units. Other factors
         also suggest that these systems may be controllable: the large
         majority of these sales will be in the Untied States and tier 1
         countries that appear to have similar export control regulations;
         the U.S. companies and their foreign subsidiaries are subject to
         U.S. export control regulations; and, customers wishing to add
         additional processors to such systems must return to the vendor
         for assistance.

   3.    Economic security is an important element of national security.
         The reporting requirement in section 1211 of the Fiscal Year 1998
         Defense Authorization Act, however, specifically requires an
         assessment of the potential military uses of the newly
         decontrolled computers on U.S. national security.

   4.    The President's report did not provide evidence to show how
         requiring licenses for exports of high performance computers
         would be a significant burden for industry or compromise its
         leadership in the design, development, and production of
         computers and processors. We noted that exports to tier 3
         countries are a fraction of U.S. exports of high performance
         computers. Between January 1996 and September 1997, only 6
         percent of U.S. high performance computer exports went to tier 3
         countries.

COMMENTS FROM THE DEPARTMENT OF COMMERCE
========================================

*****************

*****************

*****************

*****************

*****************

*****************

*****************

*****************

The following are GAO's comments on the Department of Commerce's letter
dated November 3, 1999.

GAO Comments

   1.    Section 1211 of the National Defense Authorization Act for Fiscal
         Year 1998 requires that the President's report to Congress "at a
         minimum . . . address all potential uses of military significance
         to which high performance computers at the new control level
         could be applied; and assess the impact of such uses on the
         national security interests of the United States"[emphasis
         added]. The President's report concluded that there are
         militarily significant applications in the new control range, but
         it did not assess the impact of these applications on the
         national security interests of the United States. Instead, the
         report discussed the national security interest of ensuring the
         country's technological advantage in computers and discussed the
         impact a failure to adjust the control levels could have on U.S.
         industry.

   2.    Economic security is an important element of national security.
         However, the reporting requirement in section 1211 of the Fiscal
         Year 1998 Defense Authorization Act specifically requires an
         assessment of the potential military uses of the newly
         decontrolled computers on U.S. national security. Furthermore,
         the President's report does not provide evidence to show how
         requiring licenses for exports of high performance computers
         would be a significant burden for industry or compromise its
         leadership in the design, development, and production of
         computers and processors. Exports to tier 3 countries are a
         fraction of U.S. exports of high performance computers. Between
         January 1996 and September 1997 only 
         6 percent of U.S. high performance computer exports went to tier
         3 countries.

   3.    The information on processor performance speeds was provided by
         industry for inclusion in this report. The information presented
         in this report on license applications is aggregate data, and
         thus its use is consistent with section 12c of the Export
         Administration Act.

   4.    We agree with Commerce's observation that the President's report
         does not provide evidence of significant foreign sources of high
         performance computers. As Commerce indicates, the President's
         report cites "potential competitors" and suggests that the
         proposed changes in control levels are based, in part, on
         potential foreign availability. The President's report, however,
         does not explain in what time frame this potential competition
         might develop, how contingent its development is on U.S.
         technology, or how likely it is to occur given the large capital
         investments needed to develop certain technologies.

   5.    The President's report does not provide information on the
         effectiveness of other countries' export control systems to
         assess whether they effectively limit the widespread availability
         of high performance computers. The export licensing practices of
         other countries is a critical factor in assessing the
         administration's conclusion that high performance computers are
         widely available and are therefore uncontrollable. Without such
         information and definitions of "widely available" and
         "controllability," it will be difficult to assess the basis for
         any future changes in the export control levels for high
         performance computers. 

   6.    We have incorporated the suggested changes to make clear that our
         data refers to license applications and notifications for high
         performance computers and processor upgrades and not actual
         shipments.

   7.    Our data on the numbers of export applications for exports going
         to sensitive end-users or -uses is an estimate. We believe our
         approach in developing this estimate is sound. The requirement
         for a license is an indication that the end-user may be connected
         to the military or the 
         end-use or -users are sensitive. As our report notes, licenses
         are required if the end-use or -user is connected to the
         military. Further, a license is required if State, DOD, Energy,
         or Commerce objects to an export notification. According to
         guidance from the National Security Council, agency objections
         shall state whether the proposed export represents a risk of
         diversion to a military end-user or end-user of proliferation
         concern. 

   8.    We disagree with Commerce's statement that objections to export
         notifications from DOD, State, Energy, and Commerce are usually
         based on a lack of information about the end-user. In a 1999
         review, we examined the notification process for high performance
         computers and the objections raised by the reviewing
         agencies./Footnote1/ We reported that of the 939 notifications we
         examined, agencies raised objections to 101 of the proposed
         exports. The majority of the agencies' objections to the 101
         proposed exports were based on concerns that the end-users of the
         computers might have been involved in military or proliferation-
         related activities. Furthermore, our review of the data does not
         support Commerce's suggestion that once additional information is
         gathered, these exports are no longer determined to be sensitive.
         Of the 101 license applications that were required after
         reviewing the notifications, only 16 were subsequently approved. 
         Seventy-nine were returned to the exporters without action, which
         essentially blocks the proposed export, and 6 were denied.
         Moreover, the licenses that were approved had additional
         conditions placed on the reexport or end-use of the computers.

   9.    The terms "sufficient quantity" and "comparable quality" are used
         in the Export Administration Act to define foreign availability.
         The President's report, however, does not define either "widely
         available" or "controllability" or explain how these terms were
         applied in setting the proposed control levels. Applying these
         terms clearly requires judgment. However, Congress will neither
         be able to understand nor assess the judgments reached unless
         Commerce develops specific criteria defining these terms.

(711449)

--------------------------------------
/Footnote1/-^ See Export Controls: 1998 Legislative Mandate for High
  Performance Computers (GAO/NSIAD-99-208, Sept. 24, 1999).
Table 1:  Estimated Performance Capabilities of Single and 
Multiprocessor Computers Available in 1999 and the Year 200011

Table 2:  Performance Levels of Computers That Support 
Applications of Military Significance           14

Figure 1:  Percent of Approved Tier 3 High Performance Computer 
Exports That Required a License and May Be Going to a Sensitive End-Use or
End-User, November 18, 1997, Through August 27, 199916

*** End of document. ***