Export Controls: National Security Issues and Foreign Availability for
High Performance Computer Exports (Letter Report, 09/16/98,
GAO/NSIAD-98-200).

Pursuant to a legislative requirement, GAO reviewed the efforts by the
executive branch to determine national security risks associated with
exports of high performance computers (HPC).

GAO noted that: (1) the executive branch has identified high performance
computing as having applications in such national defense areas as
nuclear weapons programs, cryptology, conventional weapons, and military
operations; (2) however, except for nuclear weapons, the executive
branch has not identified how and at what performance levels specific
countries of concern may use HPCs for national defense applications--an
important factor in assessing risks of HPC sales; (3) a Department of
Energy study on nuclear weapons was completed in June 1998; (4) the
study shows that nuclear weapons programs in tier 3 countries (which
pose some national security and nuclear proliferation risks to the
United States), especially those of China, India, and Pakistan, could
benefit from the acquisition of HPC capabilities; (5) the executive
branch has only recently begun to identify how specific countries of
concern would use HPCs for nonnuclear national defense applications; (6)
to date, a Department of Defense study on this matter begun in early
1998 is not completed; (7) with regard to foreign availability of HPCs,
GAO found that subsidiaries of U.S. computer manufacturers dominate the
overseas HPC market and they must comply with U.S. controls; (8) three
Japanese companies are global competitors of U.S. manufacturers, two of
which told GAO that they had no sales to tier 3 countries; (9) the third
company did not provide data on such sales in a format that was usable
for GAO's analysis; (10) two of the Japanese companies primarily compete
with U.S. manufacturers for sales of high-end HPCs at about 20,000
millions of theoretical operations per second (MTOPS) and above; (11)
two other manufacturers, one in Germany and one in the United Kingdom,
also compete with U.S. HPC suppliers, but primarily within Europe; (12)
only the German company has sold HPCs to tier 3 countries; (13) Japan,
Germany, and the United Kingdom each have export controls on HPCs
similar to those of the United States, according to foreign government
officials; (14) because there is limited competition from foreign HPC
manufacturers and U.S. manufacturers reported no lost sales to foreign
competition in tier 3 countries, GAO concluded that foreign suppliers of
HPCs had no impact on sales by U.S. exporters; (15) in addition, Russia,
China, and India have developed HPCs, but the capabilities of their HPCs
are believed to be limited; (16) thus, GAO's analysis suggests that HPCs
over 2,000 MTOPS are not available to tier 3 countries without
restriction from foreign sources.

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

 REPORTNUM:  NSIAD-98-200
     TITLE:  Export Controls: National Security Issues and Foreign 
             Availability for High Performance Computer Exports
      DATE:  09/16/98
   SUBJECT:  Nuclear proliferation
             Export regulation
             Technology transfer
             Foreign trade agreements
             Foreign trade policies
             International relations
             Foreign governments
             Dual-use technologies
             Computer equipment industry
             Supercomputers
IDENTIFIER:  Germany
             China
             Japan
             Russia
             United Kingdom
             India
             Pakistan
             
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Cover
================================================================ COVER


Report to Congressional Committees

September 1998

EXPORT CONTROLS - NATIONAL
SECURITY ISSUES AND FOREIGN
AVAILABILITY FOR HIGH PERFORMANCE
COMPUTER EXPORTS

GAO/NSIAD-98-200

Export Controls

711355


Abbreviations
=============================================================== ABBREV

  ACDA - Arms Control and Disarmament Agency
  DOD - Department of Defense
  DOE - Department of Energy
  EAA - Export Administration Act
  HPC - high performance computer
  MTOPS - millions theoretical operations per second

Letter
=============================================================== LETTER


B-280321

September 16, 1998

Congressional Committees

In January 1996, the executive branch revised controls on the export
of U.S.- manufactured high performance computers (HPC) by raising
thresholds of computer performance for which exporters must obtain a
license.  The revised regulation established a four-tiered system as
a basis for controlling HPC exports to all countries; tier 3 includes
some countries that may pose national security and proliferation
risks to the United States.  HPC exports to terrorist countries in
tier 4 were essentially prohibited. 

Section 1214 of the Fiscal Year 1998 National Defense Authorization
Act (P.L.  105-85) required that we review the national security
risks relating to the sale of computers with a composite theoretical
performance of between 2,000 and 7,000 millions of theoretical
operations per second (MTOPS)\1 to end users in tier 3 countries.  To
accomplish this, we focused on efforts by the executive branch to
determine national security risks associated with such HPC sales.  As
required by the act, we also reviewed the foreign availability of
computers with performance levels at 2,000 to 7,000 MTOPS and the
impact on U.S.  exporters of foreign sales of these computers to tier
3 countries. 


--------------------
\1 MTOPS is the composite theoretical performance of a computer
measured in millions of theoretical operations per second.  In
principle, higher MTOPS indicates greater raw performance of a
computer to solve computations quickly, but not the actual
performance of a given machine for a given application. 


   BACKGROUND
------------------------------------------------------------ Letter :1

The U.S.  export control system is about managing risk; exports to
some countries involve less risk than to other countries and exports
of some items involve less risk than others.  Under United States
law, the President has the authority to control and require licenses
for the export of items that may pose a national security or foreign
policy concern.  The President also has the authority to remove or
revise those controls as U.S.  concerns and interests change.\2

In 1995, as a continuation of changes begun in the 1980s, the
executive branch reviewed export controls on computer exports to
determine how changes in computer technology and its military
applications should affect U.S.  export control regulations.  In
announcing its January 1996 change to HPC controls, the executive
branch stated that one goal of the revised export controls was to
permit the government to tailor control levels and licensing
conditions to the national security or proliferation risk posed at a
specific destination. 

According to the Commerce Department, the key to effective export
controls is setting control levels above the level of foreign
availability of materials of concern.  The Export Administration Act
(EAA) of 1979 describes foreign availability as goods or technology
available without restriction to controlled destinations from sources
outside the United States in sufficient quantity and comparable
quality to those produced in the United States so as to render the
controls ineffective in achieving their purposes.  Foreign
availability is also sometimes associated with the indigenous
capability of foreign sources to produce their own HPCs, but this
meaning does not meet all the EAA criteria. 

The 1996 revision of HPC export control policy removed license
requirements for most HPC exports with performance levels up to
2,000 MTOPS--an increase from the previous level of 1,500 MTOPS.  For
purposes of export controls, countries were organized into four
"computer tiers," with each tier after tier 1 representing a
successively higher level of concern to U.S.  security interests. 
The policy placed no license requirements on tier 1 countries,
primarily Western European countries and Japan.  Exports of HPCs
above 10,000 MTOPS to tier 2 countries in Asia, Africa, Latin
America, and Central and Eastern Europe would continue to require
licenses.  A dual-control system was established for tier 3
countries, such as Russia and China.  For these countries, HPCs up to
7,000 MTOPS could be exported to civilian end users without a
license, while exports at and above 2,000 MTOPS to end users of
concern for military or proliferation of weapons of mass destruction
reasons required a license.  Exports of HPCs above 7,000 MTOPS to
civilian end users also required a license.  HPC exports to terrorist
countries in tier 4 were essentially prohibited. 


--------------------
\2 In this report, revision of export controls refers to removal of
licensing requirements for groups of countries based on the
performance levels of HPCs. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :2

The executive branch has identified high performance computing as
having applications in such national defense areas as nuclear weapons
programs, cryptology, conventional weapons, and military operations. 
However, except for nuclear weapons, the executive branch has not
identified how and at what performance levels specific countries of
concern may use HPCs for national defense applications--an important
factor in assessing risks of HPC sales. 

A Department of Energy (DOE) study on nuclear weapons was completed
in June 1998.  The study shows that nuclear weapons programs in tier
3 countries, especially those of China, India, and Pakistan, could
benefit from the acquisition of HPC capabilities.  The executive
branch has only recently begun to identify how specific countries of
concern would use HPCs for nonnuclear national defense applications. 
To date, a Department of Defense (DOD) study on this matter begun in
early 1998 is not completed. 

With regard to foreign availability of HPCs,\3 we found that
subsidiaries of U.S.  computer manufacturers dominate the overseas
HPC market and they must comply with U.S.  controls.  Three Japanese
companies are global competitors of U.S.  manufacturers, two of which
told us that they had no sales to tier 3 countries.  The third
company did not provide data on such sales in a format that was
usable for our analysis.  Two of the Japanese companies primarily
compete with U.S.  manufacturers for sales of high-end HPCs at about
20,000 MTOPS and above.  Two other manufacturers, one in Germany and
one in the United Kingdom, also compete with U.S.  HPC suppliers, but
primarily within Europe.  Only the German company has sold HPCs to
tier 3 countries.  Japan, Germany, and the United Kingdom each have
export controls on HPCs similar to those of the United States,
according to foreign government officials.  Because there is limited
competition from foreign HPC manufacturers and U.S.  manufacturers
reported no lost sales to foreign competition in tier 3 countries, we
concluded that foreign suppliers of HPCs had no impact on sales by
U.S.  exporters.  In addition, Russia, China, and India have
developed HPCs, but the capabilities of their HPCs are believed to be
limited.  Thus, our analysis suggests that HPCs over 2,000 MTOPS are
not available to tier 3 countries without restriction from foreign
sources. 


--------------------
\3 We used a description of foreign availability in the EAA as our
criteria. 


   HPC PROLIFERATION AND NATIONAL
   SECURITY RISKS NOT ASSESSED
------------------------------------------------------------ Letter :3

The executive branch has determined that HPCs are important for
designing or improving advanced nuclear explosives and advanced
conventional weapons capabilities.  It has identified high
performance computing as having applications in such national defense
areas as nuclear weapons programs, cryptology, conventional weapons,
and military operations.  According to DOD, high performance
computing is an enabling technology for modern tactical and strategic
warfare and is also important in the development, deployment, and use
of weapons of mass destruction.  It has also played a major role in
the ability of the United States to maintain and increase the
technological superiority of its warfighting support systems.  HPCs
have particular benefits for military operations, such as battle
management and target engagement, and they are also important in
meeting joint warfighting objectives like joint theater missile
defense, information superiority, and electronic warfare.  However,
the executive branch has not, with the exception of nuclear weapons,
identified how or at what performance levels, countries of concern
may use HPCs to advance their own military capabilities. 

The House Committee on National Security in December 1997 directed
DOE and DOD to assess the national security risks of exporting HPCs
with performance levels between 2,000 and 7,000 MTOPS to tier 3
countries.  In June 1998, DOE concluded its study on how countries
like China, India, and Pakistan can use HPCs to improve their nuclear
programs.  According to the study, the impact of HPC acquisition
depends on the complexity of the weapon being developed and, even
more importantly, on the availability of high-quality, relevant test
data.  The study concluded that "the acquisition and application of
HPCs to nuclear weapons development would have the greatest potential
impact on the Chinese nuclear program--particularly in the event of a
ban on all nuclear weapons testing." Also, India and Pakistan may now
be able to make better use of HPCs in the 1,000 to 4,000 MTOPS range
for their nuclear weapons programs because of the testing data they
acquired in May 1998 from underground detonations of nuclear devices,
according to the DOE report.  The potential contribution to the
Russian nuclear program is less significant because of its robust
nuclear testing experience, but HPCs can make a contribution to
Russia's confidence in the reliability of its nuclear stockpile.  An
emerging nuclear state is likely to be able to produce only
rudimentary nuclear weapons of comparatively simple designs for which
personal computers are adequate.  We were told that DOD's study on
national security impacts has not been completed. 

We attempted to identify national security concerns over other
countries' use of HPCs for conventional weapons development. 
However, officials from DOD and other relevant executive branch
agencies did not have information on how specific countries would use
HPCs for missile, chemical, biological, and conventional weapons
development. 


   CURRENT FOREIGN AVAILABILITY OF
   HPCS
------------------------------------------------------------ Letter :4

Based on EAA's description of foreign availability, we found that
subsidiaries of U.S.  companies dominate overseas sales of HPCs. 
According to U.S.  HPC exporters, there were no instances where U.S. 
companies had lost sales to foreign HPC vendors in tier 3 countries. 
The U.S.  companies primarily compete against one another, with
limited competition from foreign suppliers in Japan and Germany.  We
also obtained information on the capability of certain tier 3
countries to build their own HPCs and found it to be limited.  Tier 3
countries are not as capable of producing machines in comparable
quantity and of comparable quality and power, as the major
HPC-supplier countries. 

The only global competitors for general computer technology are three
Japanese companies, two of which compete primarily for sales of
high-end computers--systems sold in small volumes and performing at
advanced levels.  Two of the companies reported no exports to tier 3
countries, while the third reported some exports on a regional,
rather than country basis.\4 One German company sells HPCs primarily
in Europe but has reported a small number of sales of its HPCs over
2,000 MTOPS to tier 3 countries.  One British company said it is
capable of producing HPCs above 2,000 MTOPS, but company officials
said it has never sold a system outside the European Union. 

Our findings in this regard were similar to those in a 1995 Commerce
Department study of the HPC global market, which showed that American
dominance prevailed at that time, as well.  The study observed that
American HPC manufacturers controlled the market worldwide, followed
by Japanese companies.  It also found that European companies
controlled about 30 percent of the European market and were not
competitive outside Europe. 

Other HPC suppliers also have restrictions on their exports.  Since
1984, the United States and Japan have been parties to a bilateral
arrangement, referred to as the "Supercomputer Regime," to coordinate
their export controls on HPCs.  Also, both Japan\5 and Germany, like
the United States, are signatories to the Wassenaar Arrangement\6 and
have regulations that generally appear to afford levels of protection
similar to U.S.  regulations for their own and for U.S.-licensed
HPCs.  For example, both countries place export controls on sales of
computers over 2,000 MTOPS to specified destinations, according to
German and Japanese officials.  However, foreign government officials
said that they do not enforce U.S.  reexport controls on unlicensed
U.S.  HPCs.  A study of German export controls noted that regulatory
provisions specify that Germany has no special provisions on the
reexport of U.S.-origin goods.  According to German government
officials, the exporter is responsible for knowing the reexport
requirements of the HPC's country of origin.  We could not ascertain
whether improper reexports of HPCs occurred from tier 1 countries. 

Only one German company reported several sales to tier 3 countries of
HPCs over 2,000 MTOPS, and U.S.  HPC subsidiaries reported no loss of
sales due to foreign competition.  Officials of U.S.  HPC
subsidiaries explained that they primarily compete for sales in local
markets with other U.S.  HPC subsidiaries.  None of these officials
identified lost HPC sales to other foreign vendors in those markets. 
Further, none claimed to be losing sales to foreign vendors because
of delays in delivery resulting from the subsidiary's compliance with
U.S.  export control regulations. 

Because some U.S.  government and HPC industry officials consider
indigenous capability to build HPCs a form of foreign availability,
we examined such capabilities for tier 3 countries.  Based on studies
and views of specialists, we found that the capabilities of China,
India, and Russia to build their own HPCs still lag well behind those
of the United States, Japan, and European countries.  Although
details are not well-known about HPC developments in each of these
tier 3 countries, most officials said and studies show that each
country still produces machines in small quantities and of lower
quality and power than U.S., Japanese, and European computers.  For
example: 

  -- China has produced at least two different types of HPCs, the
     Galaxy and Dawning series, both based on U.S.  technology and
     each believed to have an initial performance level of about
     2,500 MTOPS.  Although China has announced its latest Galaxy's
     capability at 13,000 MTOPS, U.S.  government officials have not
     confirmed this report. 

  -- India has produced a series of computers called Param, which are
     based on U.S.  microprocessors and are believed by U.S.  DOE
     officials to be capable of performing at about 2,000 MTOPS. 
     These officials were denied access to test the computers'
     performance. 

  -- Over the past 3 decades Russia has endeavored to develop
     commercially viable HPCs using both indigenously developed and
     U.S.  microprocessors, but has suffered economic problems and
     lacks customers.  According to one DOE official, Russia has
     never built a computer running better than 2,000 MTOPS, and
     various observers believe Russia to be 3 to 10 years behind the
     West in developing computers. 


--------------------
\4 One of the three Japanese companies--Fujitsu--reported some of its
HPC sales on a regional, rather than country, basis.  Therefore, we
could not determine whether that company has provided any HPC exports
to tier 3 countries. 

\5 We also obtained information from the Japanese government and HPC
vendors.  We identified controls in force but did not assess their
implementation. 

\6 The 1996 Wassenaar Arrangement of Export Controls for Conventional
Arms and Dual-Use Goods and Technologies is an arrangement to share
export information among 33 states with the purpose of contributing
to regional and international security by enhancing cooperation among
export control systems and international regimes. 


   AGENCY COMMENTS AND OUR
   EVALUATION
------------------------------------------------------------ Letter :5

Commerce and DOD each provided one set of general written comments
for both this report and our report entitled, Export Controls: 
Information On The Decision to Revise High Performance Computer
Controls (GAO/NSIAD-98-196, Sept.  16, 1998).  Some of those general
comments do not relate to this report.  Therefore, we respond to them
in the other report.  General comments relevant to this report are
addressed below.  Additional specific comments provided by Commerce
on this report are addressed in appendix II. 

In its written comments, Commerce said that the report's scope should
be expanded to better reflect the rationale that led to the decision
to change computer export control policy "from a relic of the Cold
War to one more in tune with today's technology and international
security environment." This report responds to the scope of work
required by Public Law 105-85 (Nov.  18, 1997), that we evaluate the
current foreign availability of HPCs and their national security
implications.  Therefore, this report does not focus on the 1995
decisions by the Department of Commerce.  Our companion report,
referred to above, assesses the basis for the executive branch's
revision of HPC export controls. 

Commerce commented that our analysis of foreign availability as an
element of the controllability of HPCs was too narrow, stating that
foreign availability is not an adequate measure of the problem. 
Commerce stated that this "Cold War concept" makes little sense
today, given the permeability and increased globalization of markets. 
We agree that rapid technological advancements in the computer
industry have made the controllability of HPC exports a more
difficult problem.  However, we disagree that foreign availability is
an outdated Cold War concept that has no relevance in today's
environment.  While threats to U.S.  security may have changed, they
have not been eliminated.  Commerce itself recognized this in its
March 1998 annual report to the Congress, which stated that "the key
to effective export controls is setting control levels above foreign
availability." Moreover, the concept of foreign availability, as
opposed to Commerce's notion of "worldwide" availability, is still
described in EAA and Export Administration Regulations as a factor to
be considered in export control policy. 

Commerce also commented that the need to control the export of HPCs
because of their importance for national security applications is
limited.  It stated that many national security applications can be
performed satisfactorily on uncontrollable low-level technology, and
that computers are not a "choke point" for military production. 
Commerce said that having access to HPCs alone will not improve a
country's military-industrial capabilities.  Commerce asserted that
the 1995 decision was based on a variety of research leading to the
conclusion that computing power is a secondary consideration for many
applications of national security concern.  We asked Commerce for its
research evidence, but it cited only a 1995 Stanford study used in
the decision to revise HPC export controls. 

Moreover, Commerce's position on this matter is not consistent with
that of DOD.  DOD, in its Militarily Critical Technologies List,\7
has determined that high performance computing is an enabling
technology for modern tactical and strategic warfare and is also
important in the development, deployment, and use of weapons of mass
destruction.  High performance computing has also played a major role
in the ability of the United States to maintain and increase the
technological superiority of its war-fighting support systems.  DOD
has noted in its High Performance Computing Modernization Program\8
annual plan that the use of HPC technology has led to lower costs for
system deployment and improved the effectiveness of complex weapon
systems.  DOD further stated that as it transitions its weapons
system design and test process to rely more heavily on modeling and
simulation, the nation can expect many more examples of the profound
effects that the HPC capability has on both military and civilian
applications.  Furthermore, we note that the concept of choke point
is not a standard established in U.S.  law or regulation for
reviewing dual-use exports to sensitive end users for proliferation
reasons. 

In its comments, DOD stated that our report inaccurately
characterized DOD as not considering the threats associated with HPC
exports.  DOD said that in 1995 it "considered" the security risks
associated with the export of HPCs to countries of national security
and proliferation concern.  What our report actually states is that
(1) except for nuclear weapons, the executive branch has not
identified how and at what performance levels specific countries of
concern may use HPCs for national security applications and (2) the
executive branch did not undertake a threat analysis of providing
HPCs to countries of concern.  DOD provided no new documentation to
demonstrate how it "considered" these risks.  As DOD officials stated
during our review, no threat assessment or assessment of the national
security impact of allowing HPCs to go to particular countries of
concern and of what military advantages such countries could achieve
had been done in 1995.  In fact, an April 1998 Stanford study on HPC
export controls also noted that identifying which countries could use
HPCs to pursue which military applications remained a critical issue
on which the executive branch provided little information. 

The Arms Control and Disarmament Agency (ACDA) provided oral comments
on this report and generally agreed with it.  However, it disagreed
with the statement that "according to the Commerce Department, the
key to effective export controls is setting control levels above the
level of foreign availability of materials of concern." ACDA stressed
that this is Commerce's position only and not the view of the entire
executive branch.  ACDA said that in its view (1) it is difficult to
determine the foreign availability of HPCs and (2) the United States
helps create foreign availability through the transfer of computers
and computer parts. 

The Departments of State and Energy had no comments on a draft of
this report. 

Our scope and methodology are in appendix I.  Commerce's and DOD's
comments are reprinted in appendixes II and III, respectively, along
with an evaluation of each. 


--------------------
\7 The Militarily Critical Technologies List, required by EAA, is a
compendium of the technologies DOD assesses as critical to
maintaining superior U.S.  military capabilities.  According to DOD,
it should be used as a reference for evaluating potential technology
transfers and to determine if the proposed transaction would permit
potential adversaries access to technologies with specific
performance levels at or above the characteristics identified as
militarily critical. 

\8 The High Performance Computing Modernization Program is the major
force designed to improve DOD's ability to exploit the computation
necessary to sustain technological superiority on the battlefield. 
Managed by the Director, Defense Research and Engineering, the
program is intended to establish a nationwide integrated
infrastructure to support the defense research, development, test,
and evaluation communities. 


---------------------------------------------------------- Letter :5.1

We conducted our review between December 1997 and June 1998 in
accordance with generally accepted government auditing standards. 

Please contact me on (202) 512-4128 if you or your staff have any
questions concerning this report.  Major contributors to this report
are listed in appendix IV. 

Harold J.  Johnson, Associate Director
International Relations and Trade Issues

List of Recipients

The Honorable Alfonse M.  D'Amato
Chairman
The Honorable Paul Sarbanes
Ranking Minority Member
Committee on Banking, Housing and Urban Affairs
United States Senate

The Honorable Strom Thurmond
Chairman
The Honorable Carl Levin
Ranking Minority Member
Committee on Armed Services
United States Senate

The Honorable Benjamin A.  Gilman
Chairman
The Honorable Lee Hamilton
Ranking Minority Member
Committee on International Relations
House of Representatives

The Honorable Floyd D.  Spence
Chairman
The Honorable Ike Skelton
Ranking Minority Member
Committee on National Security
House of Representatives


SCOPE AND METHODOLOGY
=========================================================== Appendix I

Section 1214 of the Fiscal Year 1998 National Defense Authorization
Act (P.L.  105-85) required that we review the national security
risks relating to the sale of computers with a composite theoretical
performance of between 2,000 and 7,000 millions of theoretical
operations per second (MTOPS) to end users in tier 3 countries. 
Accordingly, we examined the executive branch's actions to assess the
risks of these sales.  As required by the act, we also reviewed the
foreign availability of computers with performance levels at 2,000 to
7,000 MTOPS and the impact on U.S.  exporters of foreign sales of
these computers to tier 3 countries. 

To determine the executive branch's actions to assess or analyze the
national security risks of allowing high performance computers (HPC)
to be provided to countries of proliferation and military concern, we
reviewed the Department of Defense (DOD) and the Department of Energy
(DOE) documents on how HPCs are being used for nuclear and military
applications.  We discussed high performance computing for both U.S. 
and foreign nuclear weapons programs with DOE officials in
Washington, D.C., and at the Lawrence Livermore, Los Alamos, and
Sandia National Laboratories.  We also met with officials of the DOD
HPC Modernization Office and other officials within the Under
Secretary of Defense for Acquisition and Technology, the Office of
the Secretary of Defense, the Joint Chiefs of Staff, and the
intelligence community to discuss how HPCs are being utilized for
weapons design, testing and evaluation, and other military
applications.  Additionally, we met with DOD and Institute of Defense
Analyses officials to discuss the basis for identifying high
performance computing on the Militarily Critical Technologies List, a
compendium of technologies identified by DOD as critical for
maintaining U.S.  military and technological superiority.  We also
reviewed intelligence reports on the use of high performance
computing for developing weapons of mass destruction. 

To determine foreign availability of HPCs, we reviewed the Export
Administration Act (EAA) and the Export Administration Regulations
for criteria and a description of the meaning of the term.  We then
reviewed market research data from an independent computer research
organization.  We also reviewed lists, brochures, and marketing
information from major U.S.  and foreign HPC manufacturers in France
(Bull, SA), Germany (Siemens Nixdorf Informationssysteme AG and
Parsytec Computer GmbH), and the United Kingdom (Quadrics
Supercomputers World, Limited), and met with them to discuss their
existing and projected product lines.  We also obtained market data,
as available, from three Japanese HPC manufacturers.  Furthermore, we
met with government officials in China, France, Germany, Singapore,
South Korea, and the United Kingdom to discuss each country's
indigenous capability to produce HPCs.  We also obtained information
from the Japanese government on its export control policies.  In
addition, we obtained and analyzed from two Commerce Department
databases (1) worldwide export licensing application data for fiscal
years 1994-97 and (2) export data from computer exporters provided to
the Department for all American HPC exports between January 1996 and
October 1997.  We also reviewed a 1995 Commerce Department study on
the worldwide computer market to identify foreign competition in the
HPC market prior to the export control revision.\1 To identify
similarities and differences between U.S.  and foreign government HPC
export controls, we discussed with officials of the U.S.  embassies
and host governments information on foreign government export
controls for HPCs and the extent of cooperation between U.S.  and
host government authorities on investigations of export control
violations and any HPC diversions of HPCs to sensitive end users.  We
also reviewed foreign government regulations, where available, and
both foreign government and independent reports on each country's
export control system.  To obtain information on the impact of HPC
sales on U.S.  exporters, we interviewed officials of American HPC
firms and their subsidiaries and U.S.  and foreign government
officials. 



(See figure in printed edition.)Appendix II

--------------------
\1 Part III, Global Supercomputer Industry and Market Assessment,
June 2, 1995, Department of Commerce, Bureau of Export
Administration, Office of Strategic Industries and Economic Security,
Economic Analysis Division. 


COMMENTS FROM THE DEPARTMENT OF
COMMERCE
=========================================================== Appendix I



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)


The following are GAO's comments on the Department of Commerce's
letter, dated August 7, 1998.  Commerce provided one set of written
comments for this report and for a companion report, in which we
discuss our analysis of the basis for the 1995 executive branch
decision to revise export controls for HPCs.\1 We addressed
Commerce's general comments relevant to this report on page 9 and its
specific comments below. 

GAO COMMENTS

1.  Commerce stated that one key to effective export controls is
setting control limits of items of concern above that which is widely
available throughout the world.  However, this wording is a change
that contrasts with documentary evidence previously provided to us
and to the Congress.  In successive Export Administration Annual
Reports, the Commerce Department stated that "the key to effective
HPC export controls is setting control levels above foreign
availability.  .  ." In addition, Commerce has provided us with no
empirical evidence to demonstrate the "widespread availability" of
HPCs, either through suppliers in Europe and Asia or a secondary
market. 

2.  Commerce commented that a number of foreign manufacturers
indigenously produce HPCs that compete with those of the United
States.  Our information does not support Commerce's position on all
of these manufacturers.  For example, our visit to government and
commercial sources in Singapore indicated that the country does not
now have the capabilities to produce HPCs.  We asked Commerce to
provide data to support its assertion on foreign manufacturers, but
it cited studies that were conducted in 1995 and that did not address
or use criteria related to "foreign availability." As stated in our
report, we gathered data from multiple government and computer
industry sources to find companies in other countries that met the
terms of foreign availability.  We met with major U.S.  HPC companies
in the United States, as well as with their overseas subsidiaries in
a number of countries we visited in 1998, to discuss foreign HPC
manufacturers that the U.S.  companies considered as providing
foreign availability and competition.  We found few.  Throughout
Europe and Asia, U.S.  computer subsidiary officials stated that
their competition is primarily other U.S.  computer subsidiaries and,
to a lesser extent, Japanese companies.  In addition, although
requested, Commerce did not provide documentary evidence to confirm
its asserted capabilities of India's HPCs and uses. 

3.  Commerce stated that worldwide availability of computers
indicates that there is a large installed base of systems in the tens
of thousands or even millions.  Commerce further stated that license
requirements will not prevent diversion of HPCs unless realistic
control levels are set that can be enforced effectively.  While we
agree, in principle, that increasing numbers of HPCs makes
controllability more difficult, as our recommendation in our
companion report suggests, a realistic assessment of when an item is
"uncontrollable" would require an analysis of (1) actual data, (2)
estimated costs of enforcing controls, and (3) pros and cons of
alternatives--such as revised regulatory procedures--that might be
considered to extend controls.  Commerce did not perform such an
analysis before revising export controls in 1995.  In addition,
although we requested that Commerce provide documentary evidence for
its statement that there is a large installed base of HPCs in the
millions, it did not provide such evidence. 

4.  Commerce stated that most European governments do not enforce
U.S.  export control restrictions on reexport of U.S.-supplied HPCs. 
We agree that at least those European governments that we visited
hold this position.  However, although requested, Commerce provided
no evidence to support its statement that the government of the
United Kingdom has instructed its exporters to ignore U.S.  reexport
controls. 



(See figure in printed edition.)Appendix III

--------------------
\1 Export Controls:  Information on the Decision to Revise High
Performance Computer Controls (GAO/NSIAD-98-196, Sept.  16, 1998). 


COMMENTS FROM THE DEPARTMENT OF
DEFENSE
=========================================================== Appendix I



(See figure in printed edition.)


The following is GAO's comment on DOD's letter dated July 16, 1998. 

GAO COMMENT

1.  DOD provided one set of written comments for this report and for
a companion report, in which we discuss our analysis of the basis for
the 1995 executive branch decision to revise export controls for
HPCs.\1 We addressed DOD's comments relevant to this report on page
8. 


--------------------
\1 Export Controls:  Information on the Decision to Revise High
Performance Computer Controls (GAO/NSIAD-98-196, Sept.  16, 1998). 


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix IV

NATIONAL SECURITY AND
INTERNATIONAL AFFAIRS DIVISION,
WASHINGTON, D.C. 

Eugene Beye
Jason Fong
Christian Hougen
Jeffrey D.  Phillips
Minette Richardson
James Shafer
Pierre Toureille
David Trimble

OFFICE OF THE GENERAL COUNSEL,
WASHINGTON, D.C. 

Richard Seldin

ACCOUNTING AND INFORMATION
MANAGEMENT DIVISION, WASHINGTON,
D.C. 

Hai Tran


*** End of document. ***