Export Controls: Changes in Controls Applied to the Export of High
Performance Computers (Testimony, 09/16/1998, GAO/T-NSIAD-98-250).

The government decided in 1996 to relax the controls over the export of
high performance computers even though the executive branch had not
identified how this equipment could be used by countries of concern,
such as India and Pakistan (referred to as tier three countries), for
military purposes. A Department of Energy study on how high performance
computers could be used for nuclear weapons development was completed in
June 1998, but Defense Department study on how such computers could be
used by countries of concern has not yet been completed. As to the
foreign availability of high performance computers, GAO found that
subsidiaries of U.S. computer manufacturers dominate the overseas
market, and they must comply with U.S. controls. Because there is
limited competition from foreign high performance computer manufacturers
and U.S. manufacturers reported no lost sales to foreign competition in
tier three countries, GAO concludes that foreign suppliers of high
performance computers had no impact on sales by U.S. exporters.
Moreover, Russia, China, and India have developed high performance
computers, but the capabilities of their equipment are believed to be
limited. Thus, GAO's analysis suggests that high-performance computers
capable of more than 2,000 millions of theoretical operations per second
are unavailable to tier three countries without restriction from foreign
sources. This testimony summarizes the September 1998 report,
GAO/NSIAD-98-200.

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

 REPORTNUM:  T-NSIAD-98-250
     TITLE:  Export Controls: Changes in Controls Applied to the Export
	     of High Performance Computers
      DATE:  09/16/1998
   SUBJECT:  Export regulation
	     Foreign trade agreements
	     International relations
	     Foreign governments
	     Technology transfer
	     Computer equipment industry
	     Supercomputers
	     Dual-use technologies
	     Foreign trade policies
	     Nuclear proliferation
IDENTIFIER:  China
	     India
	     Pakistan
	     Russia

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Cover
================================================================ COVER

Before the Subcommittee on International Security, Proliferation, and
Federal Services, Committee on Governmental Affairs, U.S.  Senate

For Release on Delivery
Expected at
2:00 p.m., EDT
Wednesday,
September 16, 1998

EXPORT CONTROLS - CHANGES IN
CONTROLS APPLIED TO THE EXPORT OF
HIGH PERFORMANCE COMPUTERS

Statement of Harold J.  Johnson, Associate Director, International
Relations and Trade Issues, National Security and International
Affairs Division

GAO/T-NSIAD-98-250

GAO/NSIAD-98-250T

Export Controls

(711383)

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

  ACDA - Arms Control and Disarmament Agency
  DOD - Department of Defense
  DOE - Department of Energy
  HPC - high performance computers
  MTOPS - millions of theoretical operations per second
  PSV - post-shipment verifications

============================================================ Chapter 0

Mr.  Chairman and Members of the Committee: 

We are pleased to be here today to discuss export controls on high
performance computers (HPC).  Since January 1996, when the executive
branch raised the thresholds of computer performance for which
exporters must obtain a license, several unlicensed HPCs were
exported to Russia and China, including some sent illegally to a
Russian nuclear weapons laboratory.  You expressed concern about
these sales, and asked us to (1) assess the basis for the executive
branch's revision of HPC export controls and (2) identify changes in
licensing activities and export enforcement requirements resulting
from the revision.  You also asked that we determine the current
foreign availability of HPCs, particularly for countries of national
security concern.  Because the unlicensed exports to Russia and China
were under investigation by the Departments of Commerce and Justice
and the Customs Service, we did not specifically address this matter
during our assessment.  Also, it is important to note that we did not
determine the appropriate thresholds for controlling HPC exports, but
instead, as you requested, we evaluated the process by which the
executive branch made its decisions and the adequacy of the
information it had available for this purpose. 

Our report on the decision to revise HPC export controls is being
released today,\1 as is our companion report responding to Section
1214 of the Fiscal Year 1998 National Defense Authorization Act;\2
therefore, my prepared statement will summarize our principal
findings.  However, to facilitate an understanding of the issues, I
believe that a brief background may be useful. 

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

\2 Export Controls:  National Security Issues and Foreign
Availability for High Performance Computer Exports (GAO/NSIAD-98-200,
Sept.  16, 1998). 

   BACKGROUND
---------------------------------------------------------- Chapter 0:1

As we have stated in previous testimony,\3 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.  The President has the responsibility and authority
to control and require licenses for the export of items that may pose
a national security or foreign policy concern, and he may remove or
revise export controls as U.S.  concerns and interests change.\4 It
should be noted that the law does not require that a foreign
availability\5 analysis be performed when deciding to remove or relax
export controls. 

In 1995, the executive branch conducted a review of export controls
on computer exports to determine how changes in computer technology
and its military applications should affect U.S.  export control
regulations.  This review was the continuation of a process begun in
the 1980s to take into account the technological advancements in the
computer industry.  It may be useful to note that as recently as
1993, the export of computers with a composite theoretical
performance of 195 millions of theoretical operations per second
(MTOPS)\6 were controlled.  This was raised to 1,500 MTOPS in
February 1994. 

A key element of the executive branch review was a Stanford
University study, jointly commissioned by the Departments of Commerce
and Defense (DOD).\7 Among other things, the study concluded that (1)
U.S.-manufactured computer technology with a composite theoretical
performance of up to 4,000 to 5,000 MTOPS were currently widely
available and uncontrollable worldwide, (2) computers with a
performance level of up to 7,000 MTOPS would become widely available
and uncontrollable worldwide by 1997, and (3) many HPC applications
used in U.S.  national security programs occur at about 7,000 MTOPS
and at or above 10,000 MTOPS.  The study also concluded that it would
be too expensive for government and industry to effectively control
exports of computing systems with performance below 7,000 MTOPS, and
that attempts to control HPC exports below this level would become
increasingly ineffectual, and would unreasonably burden a vital
sector of the computer industry. 

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.  The revised 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. 
The policy also organized countries into four "computer tiers," with
each tier after tier 1 representing a successively higher level of
concern to U.S.  security interests.  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. 

The January 1996 regulation also made other changes.  It specified
that exporters would be responsible for (1) determining whether an
export license is required, based on the MTOPS level of the computer;
(2) screening end users and end uses for military or proliferation
concerns, and (3) keeping records and reporting on exports of
computers with performance levels of 2,000 MTOPS.\8 The Fiscal Year
1998 National Defense Authorization Act (P.L.  105-85) modified the
1996 revisions by requiring exporters to notify the Department of
Commerce of any planned sales of computers with performance levels
greater than 2,000 MTOPS to
tier 3 countries.  The government has 10 days to assess and object to
a proposed HPC sale without a license.  The law also now requires
Commerce to perform post-shipment verifications (PSV) on all HPC
exports with performance levels over 2,000 MTOPS to tier 3
countries.\9

--------------------
\3 Export Controls:  Issues Related to Commercial Communications
Satellites (GAO/T-NSIAD-98-208, June 10, 1998). 

\4 In this report, revision of export controls refers to removal of
licensing requirements for groups of countries based on the
performance levels of HPCs. 

\5 The Export Administration Act of 1979, as amended, describes
foreign availability as goods or technology available without
restriction to controlled destinations from sources outside the
United States in sufficient quantities and comparable quality to
those produced in the United States so as to render the controls
ineffective in achieving their purposes. 

\6 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. 

\7 Building on the Basics:  An Examination of High-Performance
Computing Export Control Policy in the 1990's, Seymour Goodman, Peter
Wolcott, and Grey Burkhart, (Center for International Security and
Arms Control, Stanford University, November 1995). 

\8 In addition to the standard record-keeping requirements, the
regulation added requirements for the date of the shipment, the name
and address of the end user and of each intermediate consignee, and
the end use of each exported computer

\9 The Commerce Department promulgated regulations implementing the
law on February 3, 1998. 

   SUMMARY
---------------------------------------------------------- Chapter 0:2

As I indicated, one focus of our work was to assess whether the
empirical evidence presented in the Stanford study--a key element in
the decision to revise HPC export controls--supports its conclusions. 
Our analysis showed that it had two significant limitations.  First,
the study lacked empirical evidence or analysis to support its
conclusion that HPCs were uncontrollable based on (1) worldwide
availability and (2) insufficient resources to control them.  Second,
the study did not assess the capabilities of countries of concern to
use HPCs for military and other national security applications, as
required by its tasking.  The study's principal author said that U.S. 
government data was insufficient to make such an assessment, and the
study recommended that better data be gathered so that such an
analysis could be done in the future. 

Except for nuclear weapons, the executive branch has not completed an
assessment of the national security risks of exporting HPCs to tier 3
countries, and the nuclear weapons assessment was completed by the
Department of Energy (DOE) in June 1998, more than 2 years after the
export control policies for HPCs were revised.  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. 

In December 1997, the House Committee on National Security directed
DOE and DOD to assess the national security impacts of HPC sales to
tier 3 countries.  DOE's study on nuclear weapons 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 not yet finished identifying
how specific countries of concern would use HPCs for nonnuclear
national defense applications. 

Nonetheless, based on its view of the worldwide availability of
computing power and the technological advancements in this area, the
executive branch raised the MTOPS thresholds for HPC export controls. 
The 1996 revision to HPC export controls had three key consequences. 

  -- First, by increasing the performance thresholds for computers
     that require a license, the 1996 revisions decreased the number
     of license applications from 459 in fiscal year 1995 to 125 in
     1997 and of approved export license applications for HPCs from
     395 in fiscal year 1995 to 42 in 1997. 

  -- Second, the revision shifted some of the government's end use
     screening responsibilities from the government to the computer
     industry.  In essence, the exporters had to decide whether a
     license was required since the decision is made on the basis of
     the end use, the end user, and the computer performance
     capability.  This decision could be particularly difficult for
     exports to a tier 3 country, like China, where identifying the
     distinction between a civilian and military end user can be very
     difficult.  In response to several allegations of improper sales
     to Russia and China, Congress partly reversed this situation by
     passing the Fiscal Year 1998 National Defense Authorization Act,
     which requires exporters to notify the Commerce Department of
     all HPC sales over 2,000 MTOPS to tier 3 countries prior to
     their export. 

  -- Third, the regulation required HPC manufacturers to keep records
     of the end users of all their HPC exports over 2,000 MTOPS. 
     Based on our review of records provided by the manufacturers to
     the Commerce Department from January 1996 through September
     1997, we noted that China ranked first in the number of HPCs
     acquired by tier 3 countries, having purchased a total of 77
     HPCs during this period.  These exports were all made without an
     individual license being required.  Examining how these machines
     are being used was beyond the scope of this review. 

Responsibility for PSV checks on exports remained with the
government, but information on these exports reported to the
government has been incomplete.  PSVs for computers generally have
been of reduced value because of how this process is implemented. 
First, PSVs verify the physical location of an HPC, but not how it is
used.  Also, some governments, such as China, have not allowed the
United States to conduct PSVs. 

With regard to foreign availability of HPCs,\10 we found that
subsidiaries of U.S.  computer manufacturers dominate the overseas
HPC market and they must comply with U.S.  controls.  Russia, China,
and India have developed HPCs, but their capabilities are believed to
be limited.  Thus, our analysis suggests that HPCs over 2,000 MTOPS
are not readily available to tier 3 countries from foreign sources
without restriction. 

The report contains two recommendations:  one that requires action by
the Secretary of Defense, and one that requires action by the
Secretary of Commerce with support from DOD, DOE, the Department of
State, and the Arms Control and Disarmament Agency (ACDA). 

First, we recommended that to complement the studies undertaken by
DOD and DOE for the House Committee on National Security, the
Secretary of Defense assess and report on the national security
threat and proliferation impact of U.S.  exports of HPCs to countries
of national security and proliferation concern.  This assessment, at
a minimum, should address (1) how and at what performance levels
countries of concern use HPCs for military modernization and
proliferation activities, (2) whether such uses are a threat to U.S. 
national security interests, and (3) the extent to which such HPCs
are controllable. 

Second, upon completion of the analysis suggested in our first
recommendation, we also recommended that the Secretary of Commerce,
in conjunction with the other agencies I mentioned, jointly evaluate
and report on options to safeguard U.S.  national security interests
regarding HPCs.  Such options should include, but not be limited to,
(1) requiring government review and control of the export of
computers at their highest scalable MTOPS performance levels and (2)
requiring that HPCs destined for tier 3 countries be physically
modified to prevent upgrades beyond the allowed levels. 

I would also like to comment just briefly on the agencies' response
to our report.  In addition to Commerce and DOD, DOE, the Department
of State, and ACDA offered their views. 

Commerce said that the President's decision was intended to change
the computer export policy from what it referred to as "a relic of
the Cold War to one more in tune with today's technology and
international security environment," and was based on (1) rapid
technological changes in the computer industry, (2) wide
availability, (3) limited controllability, and (4) limited national
security applications for HPCs.  Commerce further stated that our
report focused too much on how countries might use HPCs for
proliferation or military purposes and on what it called an outdated
Cold War concept of "foreign availability".  The Commerce said that
our analysis of foreign availability was too narrow and that foreign
availability is not an adequate measure of the problem. 

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 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 the Export Administration Act 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 offered no specific evidence to support this point of view;
moreover, its view seems to be inconsistent with the requirement for
DOD to identify militarily critical technologies.  In assessing these
militarily critical technologies, DOD 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 annual plan that the use of HPC
technology has led to lower costs for system deployment and improved
the effectiveness of complex weapons 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. 

In its comments on our report, DOD said that it had considered the
threats associated with HPC exports to countries of national security
and proliferation concern.  In this context, DOD referred to its
identification of how HPCs in the United States are used for national
security applications.  While our report recognized that such an
assessment of domestic uses had been done, this did not address our
concern.  We reported that (1) the Stanford study did not assess the
capabilities of countries of concern, such as China, Russia, India,
or Pakistan, to use HPCs for military and other national security
applications, as required by its tasking and (2) the executive branch
did not undertake a threat analysis of providing HPCs to such
countries of concern.  As we reported, the principal author of the
Stanford study noted that no assessment had been done of the national
security impact of allowing HPCs to go to particular countries of
concern and of what military advantages such countries could achieve. 
In fact, the April 1998 Stanford study on HPC export controls by the
same principal author 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 Department of State, DOE, and ACDA generally agreed with our
report. 

--------------------
\10 We used the description of foreign availability described in
footnote 5 as our criteria. 

-------------------------------------------------------- Chapter 0:2.1

Mr.  Chairman, that concludes our prepared testimony.  My colleagues
and I would be happy to respond to any questions you or other members
may have. 

*** End of document. ***