Page 1       TOP OF DOC
[H.A.S.C. No. 106–35]







OCTOBER 28, 1999


 Page 2       PREV PAGE       TOP OF DOC

One Hundred Sixth Congress

FLOYD D. SPENCE, South Carolina, Chairman

BOB STUMP, Arizona
CURT WELDON, Pennsylvania
JIM SAXTON, New Jersey
JOHN M. McHUGH, New York
HOWARD ''BUCK'' McKEON, California
J.C. WATTS, Jr., Oklahoma
 Page 3       PREV PAGE       TOP OF DOC
WALTER B. JONES, Jr., North Carolina
LINDSEY GRAHAM, South Carolina
JIM RYUN, Kansas
BOB RILEY, Alabama
MARY BONO, California
JOSEPH PITTS, Pennsylvania
ROBIN HAYES, North Carolina

JOHN M. SPRATT, Jr., South Carolina
LANE EVANS, Illinois
GENE TAYLOR, Mississippi
MARTIN T. MEEHAN, Massachusetts
 Page 4       PREV PAGE       TOP OF DOC
VIC SNYDER, Arkansas
ADAM SMITH, Washington
JAMES H. MALONEY, Connecticut
MIKE McINTYRE, North Carolina
ROBERT BRADY, Pennsylvania
BARON P. HILL, Indiana
JOHN B. LARSON, Connecticut

Andrew K. Ellis, Staff Director
David Trachtenberg, Professional Staff Member
Ashley Godwin, Staff Assistant



 Page 5       PREV PAGE       TOP OF DOC

    Thursday, October 28, 1999, U.S. Policy Regarding High-Performance Computer Exports


    Thursday, October 28, 1999



    Skelton, Hon. Ike, a Representative from Missouri, Ranking Member, Committee on Armed Services

    Spence, Hon. Floyd D., a Representative from South Carolina, Chairman, Committee on Armed Services


    Bryen, Dr. Stephen, Former Director, Defense Technology Security Administration, Department of Defense

    Hoydysh, Dan, Co-Chairman, Computer Coalition for Responsible Exports
 Page 6       PREV PAGE       TOP OF DOC

    Johnson, Harold J., Jr., Associate Director, National Security and International Affairs Division, U.S. General Accounting Office

    Milhollin, Gary, Director, Wisconsin Project on Nuclear Arms Control

    Reinsch, William A., Under Secretary for Export Administration, Department of Commerce

[The Prepared Statements can be viewed in the hard copy.]

Bryen, Dr. Stephen

Hoydysh, Dan

Johnson, Harold J., Jr.

Milhollin, Gary

Reinsch, Hon. William A.

Skelton, Hon. Ike

 Page 7       PREV PAGE       TOP OF DOC
Spence, Hon. Floyd D.

[The Documents submitted for the Record can be viewed in the hard copy.]

Letter to Hon. Floyd D. Spence and Hon. Ike Skelton from Hon. Adam Smith with attachment Summary of Findings with Respect to Criteria Set Forth in Subsection 1211(d) of The National Defense Authorization Act for Fiscal Year 1998

Letter to President William J. Clinton from Hon. Ike Skelton

[The Questions and Answers submitted for the Record are pending.]


House of Representatives,
Committee on Armed Services,
Washington, DC, Thursday, October 28, 1999.

    The committee met, pursuant to notice, at 10:08 a.m. in room 2118, Rayburn House Office Building, Hon. Floyd D. Spence (chairman of the committee) presiding.

 Page 8       PREV PAGE       TOP OF DOC

    The CHAIRMAN. The meeting will please be in order.

    The committee meets today to receive testimony on our policy regarding the export of high-performance or so-called supercomputers. This morning we will hear from two panels of witnesses. We will start with the General Accounting Office witness, after which we will hear from a panel of outside experts and United States computer industry representatives. Later this afternoon we will receive testimony from Under Secretary of Commerce William Reinsch.

    Three years ago we were all shocked by a report that United States supercomputers which can be used to improve nuclear weapons capabilities or to develop advanced conventional weapons had been shipped without any government review or approval to military-related facilities in both Russia and China.

    For this reason I joined with the committee's then-ranking member Mr. Dellums in co-authoring a provision in the fiscal year 1998 defense authorization bill to ensure that the federal government was notified prior to the export of supercomputers with certain capabilities to a country of proliferation concern, a so-called Tier III country. Contrary to allegations one hears around this town, the provision was not intended to and, in fact, has not shut down the export of supercomputers. Instead, the provision simply requires that the government have an opportunity to review certain proposed exports for national security reasons.

    This past July President Clinton announced his intention to exercise the discretion afforded him under this law to increase the performance threshold that triggers the government notification process. The President's proposal is intended to ease the export of more capable computers to these Tier III countries without any government review. Under the law, the Congress has until January 23, 2000 to review this proposal before it takes effect. Our hearing today is part of this review process.
 Page 9       PREV PAGE       TOP OF DOC

    To assist the committee in determining the effectiveness of the 1998 legislation, earlier this year Mr. Skelton and I asked the GAO to take a look at how the notification requirement has worked. In its recent report, GAO has concluded that the export notification process contained in the 1998 law has helped to prevent the shipment of United States supercomputers to potentially dangerous end users. Specifically, the GAO found that in more than 10 percent of industry's notifications to the Commerce Department of an intent to export a supercomputer, the government decided to require the exporter to submit a formal export license application because of security concerns.

    While we can debate whether a larger or smaller number of proposed exports should have been flagged, in my view the GAO findings validate the fundamental importance of maintaining government visibility into where United States high-performance computers exports are going.

    The President's recently proposed revision to the notification threshold is the third major revision to United States computer export policy proposed by the Administration. Since the president's July announcement, the committee has been engaged with the Administration, the computer industry and outside experts in a continuing dialogue to understand the rationale behind and implications of further decontrols of supercomputer exports.

    On October 19, 1999, Mr. Skelton and I wrote the President asking him to respond to a series of questions regarding the national security implications of his proposal, as well as the impact it will have on the United States computer industry. A copy of that letter is before each member.
 Page 10       PREV PAGE       TOP OF DOC

    [The information referred to can be found in the Appendix.]

    The CHAIRMAN. Given the recent history of unauthorized computer exports to potentially dangerous end users and the Administration's inclination to weigh commercial considerations more heavily than national security concerns on matters of export control policy, I thought it important to have this hearing prior to our adjournment. Whether or not the proposed relaxation of supercomputer export controls will pose increased national security risk is an issue we are looking into and looking to our panel to help us determine.

    To help us understand the current government review process and the President's proposal, our first witness this morning will be Mr. Jim Johnson, Associate Director of the National Security and International Affairs Division of GAO. Following Mr. Johnson's testimony and members' questions we will move to a second panel of outside experts and industry representatives. They will be Mr. Gary Milhollin, Executive Director of the Wisconsin Project on Nuclear Arms Control, Dan Hoydysh, Director of Trade Policy, Public Policy and Government Affairs, Unisys, and co-chair of the Computer Coalition for Responsible Exports, Dr. Stephen Bryen, Former Director of the Defense Technology Security Administration.

    After the conclusion of the second panel, the committee will recess and reconvene at 2:00 to hear from William Reinsch, Under Secretary of Commerce for Export Administration.

    Before turning the floor over to our first witness I want to recognize our committee's ranking member, Mr. Skelton, for any comments he would like to make.
 Page 11       PREV PAGE       TOP OF DOC

    [The prepared statement of Mr. Spence can be found in the Appendix.]


    Mr. SKELTON. Mr. Chairman, thank you very much. It is a pleasure for me to join you in welcoming our witnesses today.

    This is the first opportunity for this committee to review the results of the process and the proposed changes associated with the supercomputer export provisions enacted in the fiscal year 1998 National Defense Authorization Act. Since we are all familiar with the threats to our national security interests possible through uncontrolled exports of supercomputers, I will not take much time with my opening remarks, but I do want to share a few comments, Mr. Chairman.

    While today's hearing addresses the policy changes that have been proposed by the Administration, there is a more perplexing process issue before us right now. That issue is trying to determine what is an appropriate review period for the Congress to provide for itself before any change proposed by the Administration is implemented. The full 180 days may not have been needed at this time for us to assess national security implications of the proposed regulation but I am not certain that 180 days will not be needed for subsequent changes.

    We need to develop a rational and practical procedure that accomplishes at least three simple objectives: one, that provides the Administration flexibility to react in a rapidly changing technological environment; two, that provides adequate review and action period for the Congress to express its views; and three, that permits the U.S. computer industry to remain competitive. I am committed to working to ensure the process we rely on to protect our national security interests in the export of supercomputers achieves these three objectives.
 Page 12       PREV PAGE       TOP OF DOC

    As the committee continues to assess the proposed changes, I look forward to carefully examining the proposal that moves us closer to that end and I look forward to the testimony, Mr. Chairman. Thank you so much.

    [The prepared statement of Mr. Skelton can be found in the Appendix.]

    The CHAIRMAN. Thank you, Mr. Skelton.

    Without objection, the prepared remarks of all of our witnesses will be inserted in the record and Mr. Johnson, you can proceed as you would like.


    Mr. JOHNSON. Thank you very much, Mr. Chairman. I am happy to be here this morning to talk to you about our recently released report on high-performance computers that are exported to countries that might be of military or nuclear proliferation concern.

    In 1996, the Executive Branch removed license requirements for most exports of high-performance computers to civilian end users but retained a licensing requirement for countries of concern. The 1996 change also made exporters responsible for determining whether they needed to apply for an export license based on their own knowledge of the export user's activities.
 Page 13       PREV PAGE       TOP OF DOC

    In 1997, several U.S. exporters shipped high-performance computers to Russian nuclear weapons laboratories and to military end users in China without licenses. Because the Congress believed that U.S. exporters may be unaware of the end user's activities, it included a provision in the 1998 Defense Authorization Act requiring exporters to notify the Department of Commerce of any proposed exports of high-performance computers to countries of concern so that a determination could be made whether the export needed to be licensed. Countries that pose such a concern include such countries as China, Russia, India, Pakistan, Israel, with a total of 50 countries.

    The 1998 act also required Commerce to verify that high-performance computers exported to countries of concern, regardless of whether a license was required, have been installed where they were intended.

    To help you evaluate how this legislation is working, you asked us to determine two things: first, whether exporters' notifications to Commerce of proposed sales of high-performance computers to countries of concern have resulted in license applications and what actions were taken on these applications and second, whether Commerce is verifying the use of high-performance computers after the export to these countries. I will briefly summarize the findings of our report but first I think a little background might be helpful.

    The legislation authorizes 10 days upon receiving notification for Commerce to circulate among the Departments of Defense, State and Energy the exporter's notification of the export of a high-performance computer or an HPC. The act requires a license to export if any of these agencies raise a written objection to the export without a license. If no objection is raised during the 10-day period, the exporter may ship the computer without a license. Exporters that plan to ship HPCs to users that are already known to be of military or proliferation concern must apply directly for an export license. They do not need to go through the notification process.
 Page 14       PREV PAGE       TOP OF DOC

    To indicate the level of concern the United States has with regard to the export of HPCs, the Executive Branch has organized countries into four tiers. Each tier after Tier I represents a successively higher level of concern to the United States interests. We have in an appendix to the statement a list of countries in the four tiers.

    Tier III contains 50 countries that are of concern for military or proliferation reasons. The Executive Branch also established separate control levels for different types of end users in Tier III. For end users of military or proliferation concern, the controls required a license to export high-performance computers that are over 2,000 millions of theoretical operations per second or MTOPS. For civilian end users in Tier III countries, a license was required to export computers that performed over 7,000 MTOPS. For exports of HPCs performing between 2,000 and 7,000 MTOPS, an exporter could ship the computer without a license, provided the exporter determined that the recipient was a civilian end user.

    In summary, we found that most of the 938 proposed exports of high-performance computers to civilian end users in countries of concern from February 3 of 1998, when procedures for implementing the 1998 Authorization Act became effective, to March 19, 1999, which was the cut-off date for our audit, most of those did not require a license. The agencies that reviewed the export proposals, which are the Departments of Commerce, Energy, Defense, State and until March, the Arms Control and Disarmament Agency, allowed 828 proposed high-performance computers to be exported without a license but they required license applications for 101 proposed exports. Nine of the proposals were categorized as incomplete and returned to the exporter.

    The majority of the agencies' objections to the 101 proposed exports were based on concerns that proposed end users of the computers might be involved in military or proliferation-related activities. Of the 101 license applications required, 16 were approved and six were denied. The remaining 79 were returned to the exporter without action, which essentially blocks the proposed export. Licenses that were approved had additional conditions placed on the re-export or the use of the computers. The majority of these applications involved China, India, and Israel. Licenses were required in nine cases where the end user had previously received computers without a license before the Authorization Act was implemented.
 Page 15       PREV PAGE       TOP OF DOC

    The act contains no time limit for the completion of post-shipment verifications. As of November 17, 1998, Commerce had performed post-shipment verifications of the 104 exported high-performance computers or about 27 percent of the verifications required on the 390 high-performance computers exported during fiscal year 1998.

    In a report to Congress, Commerce stated that all 104 shipment verifications were favorable; that is, the computer had been seen during an on-site visit and nothing was inconsistent with the license or license exceptions. However, a verification conducted by Commerce but not yet completed detected the possible diversion of two computers to a military end user in apparent violation of U.S. export control regulations. At the time we completed our work, the Commerce Department was investigating these diversions.

    Of the 286 high-performance computer exports where post-shipment verifications had not been completed, almost two-thirds involved exports to China. According to Commerce, the verifications had not been done because China's policy prior to June of 1998 did not permit post-shipment verifications or because the exports did not meet the requirements agreed upon in the June 1998 memorandum of understanding between the Department of Commerce and China's Ministry of Foreign Trade and Economic Cooperation.

    The Departments of Commerce, Energy, Defense and State were provided an opportunity to comment on our report. Energy did not comment and State provided helpful technical comments. The Department of Defense reviewed the report but had no comments.

    Commerce said that our report had not acknowledged that first, it had to divert enforcement resources from investigations and other preventive enforcement activities to conduct the legislatively mandated post-shipment verifications and second, that it would soon be impossible to perform the verifications mandated by law. Commerce also stated that most of the uncompleted verifications were in China and that 103 of the 200 cases outside of China were complete.
 Page 16       PREV PAGE       TOP OF DOC

    Although the 1998 act requires post-shipment verifications on all high-performance computers exported since November 18, 1997, whether licensed or not, Commerce told us that it believes that it is futile to seek to verify the use of the high-performance computers exported to China before the end use visit arrangement or where there were no end use certificates. This is particularly true in view of the proposed changes to the control levels for exports to military end users in countries of concern.

    The July 1999 announcement to change export control levels removed future licensing requirements for many high-performance computers that have already been exported to China. Notwithstanding the new control levels established by the executive branch, the act requires Commerce to conduct post-shipment verifications on all licensed and unlicensed high-performance computers at certain performance levels that are exported to countries, including China.

    Mr. Chairman, that concludes my summary of our report. I would be pleased to try and respond to your questions.

    [The prepared statement of Mr. Johnson can be found in the Appendix.]

    Mr. STUMP. (presiding) Thank you, Mr. Johnson. I think we will go directly into the second panel and then have all of you come back for questions at that time.

    Mr. JOHNSON. Fine.

 Page 17       PREV PAGE       TOP OF DOC
    Mr. STUMP. Mr. Milhollin, Mr. Hoydysh and Mr. Bryen, would you come up?

    Mr. Milhollin, we will start with you whenever you are ready.


    Mr. MILHOLLIN. Thank you very much. I am pleased to be able to appear again before this distinguished committee. As you probably recall, I appeared before you back in 1997 to recommend that the Fiscal Year 1998 National Defense Authorization Act (NDAA) process which the committee spearheaded be enacted into law. I am very proud to have participated in that process.

    I would like to make three points today: first, that the NDAA process has performed brilliantly—I think that is what the GAO report establishes—and that it should be preserved.

    Second, I would like to say that if the control level is raised for high-performance computers next year to 6,500, which the President has announced he plans to do, it is virtually certain that at least 100 American high-performance computers will go to military or mass destruction weapon sites in countries like India, China, Russia and Pakistan.

    The third point I want to make today is that the industry has shown no reason, no reason why the control level should be changed. The present system is not a burden to industry and there is no reason to think it will be in the future.
 Page 18       PREV PAGE       TOP OF DOC

    I would like to invite the committee to consider what would have happened had the NDAA process not come into effect. What would have happened had we had no NDAA process beginning in 1998? And I would like to start by considering the case of the Digital Equipment Corporation. Digital has since been acquired by Compaq Computer Corporation.

    Digital applied for permission in 1998 to sell a high-performance computer to the Nuclear Power Corporation of India. The Nuclear Power Corporation of India runs a string of plutonium-producing reactors and that plutonium in India is available for atomic bombs because India is not a member of the Nonproliferation Treaty. As we all know, India tested a number of nuclear weapons last year. This application was wisely denied after being objected to by most federal agencies, if not all.

    So I think the question for Digital and now for Compaq is whether they would be happier today if that sale had gone through. Would Compaq or Digital be happier if its product was helping make plutonium in India? That is what would have happened without the NDAA process.

    Digital also applied for permission to sell a supercomputer to the Harbin Institute of Technology in China. The Harbin Institute is part of China's missile program. It makes rocket casings and other components for long-range missiles. The application was denied after objections by the Arms Control and Disarmament Agency and the State Department. The question is would Digital or Compaq be happier today if their equipment were helping China make long-range missiles? That is what would have happened had we had no NDAA process.

 Page 19       PREV PAGE       TOP OF DOC
    I have also mentioned a third case in my testimony. Digital also asked for permission to supply a high-speed computer to the Weizmann Institute in Israel. The Weizmann Institute has always been part of Israel's nuclear weapon effort. It does the research necessary to perfect the design of nuclear weapons. So we have the same question here. Would Digital be happier if that sale had gone through?

    To sum these cases up, I think we can say that if we had not had the NDAA process, the Compaq Computer Corporation would now look out across the world and see machines made by a company that it just acquired operating at nuclear weapon and missile sites in Asia, South Asia and the Middle East. That is surely not something that Compaq wants to be known for.

    And how much money are we talking about? The sale to India was valued at $250,000, the sale to China at $348,000 and the sale to Israel at quite a bit less than that. Compaq's annual revenue is $31 billion.

    So if you are looking at things from the point of view of a CEO, you have to ask yourself does it make sense for my $31 billion company to supply sites that are making nuclear weapons and long-range missiles in three areas of the world for a few hundred thousand dollars? And I think the answer is no, it does not make any business sense to do that.

    Therefore this CEO, in my view, the CEO of Compaq should be supporting the NDAA process. It should be sending representatives here to urge that the process be preserved in order to spare Compaq embarrassment over sales that really are not worth very much.

    The second case I would like to talk about is Silicon Graphics. Silicon Graphics applied for permission to sell a high-performance computer to India's Tata Institute of Fundamental Research. It is part of India's nuclear program. It is also on the British list of entities linked to mass destruction weapon programs and it is also listed by our State Department as involved in nuclear or missile activities. This application, too, was blocked under the NDAA process.
 Page 20       PREV PAGE       TOP OF DOC

    SGI also applied for permission to sell a high-performance computer to India's Space Applications Center. The center is part of India's rocket program. It is also listed by both the British and the U.S. governments as a site that is not safe to export to. This application, too, was blocked after an objection by the Arms Control and Disarmament Agency.

    For these two sales combined, SGI received about $500,000, or would have received had they gone through. Its annual revenue is $2.7 billion, billion. So again the question is does it make sense for SGI to supply equipment to nuclear and missile sites in India for $500,000? I think the answer is no. SGI ought to be pleased that the NDAA process prevented its sales from going out.

    I would like to also mention Sun, Sun Microsystems. Sun asked for permission to sell to the Indian Institute of Technology, which is helping develop India's biggest rockets. Those rockets will someday, if India persists in its present policy, those rockets will someday carry nuclear weapons to intercontinental range. That application was also blocked.

    The second application by Sun was to Rafael. Rafael helped make India's largest nuclear-capable missile and also the reentry vehicle that carries Indian nuclear warheads.

    For those two sales Sun would have received $52,000. Sun's annual revenue is $7 billion. Again does it make business sense to supply products to these programs in exchange for what amounts to the price of one luxury automobile?

    Why have I brought out this sales information? To make a simple point, that the NDAA process helps exporters. It saves them from embarrassing sales, which are not good business. These companies should be the first ones to be urging that the process be preserved.
 Page 21       PREV PAGE       TOP OF DOC

    In my testimony I have recommended to the committee that it invite the CEOs of these companies, of all companies whose sales were blocked by the NDAA process, to testify before this committee and to ask these CEOs whether they think it is better that these sales did not go out.

    If they agree that it was better that these sales not go out, these CEOs should go on record as supporting the present process. They should also endorse a request by this committee to the White House to rescind its plan to weaken the NDAA by changing the control level.

    I think this is a great public service that this committee could perform, would be to call these companies in, call their CEOs in and ask them whether they think the NDAA has protected them from mistaken sales in the past and whether it will protect them in the future. And if they agree, then they should be willing to endorse the process and ask that it be preserved as it is.

    The last point I would like to make is that the process is working and it does not need to be fixed. There is no evidence that there will be an increased burden on industry next year if the process is not changed. Right now there is no burden on industry whatsoever, very little burden, an insignificant burden. We are asking industry to fill out a form and wait 10 days before shipping a computer. Right now the process is producing about three to four applications or notifications per day. Even if the number of notifications doubled because of chip speed increases, as industry has contended, we would be looking at seven notifications per work day.

    The Commerce Department is now handling about 40 per work day. This is not going to make a significant difference in Commerce's work load. Commerce could very easily handle any notifications produced by the present process if it remained at the same level for an additional year.
 Page 22       PREV PAGE       TOP OF DOC

    If it did remain at the same level for an additional year, it is certain that at least 100 and probably more U.S. supercomputers would not go to military and mass destruction weapon programs across the world. If the White House goes through with its change in the process, that is exactly what will happen.

    The last time industry predicted that the system was going to be overwhelmed was in 1995. Industry predicted that computers running at 7,000 MTOPS would be available by 1997, widely available in the world. That is still not true today. Industry was wrong in 1995 with its predictions, so why should we believe industry predictions now? There is simply no evidence to support the idea that the system is going to be overwhelmed unless it is changed.

    The real question is whether there is foreign availability for high-speed computers. I do not think the industry has proved its case that there is or that there will be, and the reason industry cannot prove that is that it is all based on suppositions. The most recent studies—that is, actual studies that have been done on foreign availability—both show that there is no foreign availability for high-performance computers.

    These are the real questions that have to be answered. That is, is there foreign availability and can we control computer exports with the present system? The industry is not answering those questions because the answer to those questions is clear, and that is there is not foreign availability now and there is not likely to be in the future. And we, the United States, can still control very easily the level of applications we can foresee during the next year if the present system is retained as it is. Thank you very much.

 Page 23       PREV PAGE       TOP OF DOC
    [The prepared statement of Mr. Milhollin can be found in the Appendix.]

    Mr. STUMP. Thank you, Mr. Milhollin.

    Mr. Hoydysh.


    Mr. HOYDYSH. Thank you, Mr. Chairman. I represent the Computer Coalition for Responsible Exports and we would like to thank the committee for inviting us here to give our views on the proposed change in the Tier III computer export control threshold.

    My testimony will focus on four key points. First, we believe that the proposed control threshold is entirely consistent with technology and competitive realities. And contrary to what Mr. Milhollin said, I think we will be able to demonstrate that there is substantial foreign availability of these products.

    The second point we would like to make is that the proposed control threshold should be implemented immediately. The third point is we think the six-month review period is too long. And fourth, we are prepared to work with the committee to develop a more responsive and effective export control system.

    We are not here to abolish the NDAA process. We are here to try to make sure that it works and it works in a streamlined fashion so that we can both protect national security and remain competitive in the real world.
 Page 24       PREV PAGE       TOP OF DOC

    Before I get to the specifics of my testimony, I want to make absolutely clear a couple of points. The companies represented by the coalition take their national security obligations very seriously. We fully support the need to protect national security and prevent the proliferation of weapons of mass destruction and we fully support rational, responsive and effective export controls.

    Now to the first of my points. The 6,500 MTOPS control level is fully consistent with technology and market realities. In the first instance, technology continues to advance at a dramatic pace. Over the past 12 months the speed of microprocessors that are used in single processor and multiprocessor systems has increased by over 300 percent from somewhere on the order of 500 MTOPS to about 1,700 MTOPS, as just announced this week by the Intel Corporation. These chips are designed to work in multiprocessor systems containing up to eight chips.

    Another example is in September of this year Apple Computer introduced the first single processor PC that operates at over 2,000 MTOPS. In fact, it operates at about 2,700 MTOPS. Early next year this same PC will operate at over 3,000 MTOPS. So we are halfway into the 6,500 level with a single processor PC. And just this week, IBM also announced a line of their Aptiva PC which operates with one processor over 2,000 MTOPS.

    The reality is we are rapidly approaching a world in which there will be no products below 2,000 MTOPS, no leading edge PC or multiprocessor products.

    Just to clarify one thing, and I think that we really need to make sure what we are talking about, these are not supercomputers. The committee knows that supercomputers are those kinds of products that you looked at, I believe it was last week you had a hearing about a product sold or a computer sold by the Energy Department. That computer operated, according to the Energy Department, 150,000 to 200,000 plus MTOPS. That is where supercomputers begin, not at 3,000 to 6,000, which is the PC and the ordinary server range.
 Page 25       PREV PAGE       TOP OF DOC

    These computers are, in fact, commodities. They are available in large quantities worldwide. A study by the Gartner Group projects that about five million of these boxes will be sold in the year 2000. This number does not include the hundreds of thousands or possibly millions of single processor PCs which have just come on the market. When we commissioned the Gartner study we did not anticipate that these single processor machines would be on the market as quickly as they were.

    And finally, possibly to the most important point, these computers are readily available from foreign manufacturers. Of the five million machines that will be sold in the year 2000, over one million will be sold by foreign manufacturers, including companies from Japan, Germany, Taiwan and France. These are major world-class companies that can fill any market void left by U.S. companies.

    All you need to do is hook up your computer, get on the Internet and take a look at the web sites of Acer, which offers two- and four-processor machines that we are talking about, Comparex from Germany, Toshiba, Bull from France, Hitachi, Olivetti and NEC, and these are only the major companies. These companies can provide any number of these types of systems on 24 hours notice.

    The second point is we urge the committee to support making the new control threshold effective as soon as possible. By law, this new Tier III threshold cannot become effective until January 2000. This additional three-months delay will seriously affect the ability of our members to market commodity systems during the last quarter of this year, a time when sales volumes are traditionally heavy.
 Page 26       PREV PAGE       TOP OF DOC

    Our members who sell commodity products often sell them through distributors, who then resell them to other distributors and ultimately to the final end users. According to the regulations that are in place now, you cannot sell to a Tier III country without identifying the ultimate end user at the time of export.

    The marketing model used by many of our members simply does not allow this to happen. As a result, we have been forced to lose sales, curtail our activity in these areas or, in some cases, dumb down our products by removing capability in order so that they fall below the threshold.

    To underscore this competitive dilemma, let me just read you a press release that was issued in Tokyo on August 24 by the Fujitsu Corporation. It says, ''Fujitsu today announced that it will be shipping eight-way upgradable Intel Pentium III Xeon processor-based servers before Christmas.'' These are computers that have an MTOPS rating of 9,000, not the 6,500 that we are talking about. And you can find this same kind of statement on the press releases of all of these foreign companies.

    The third point I would briefly like to make is that we urge the committee to support a permanent reduction in the six-month waiting period. We think that waiting half a year before needed export controls are implemented is simply too long. Six months is longer than the life cycle of many of our products. We note that Congress has a limit of 30 days for reviewing hardware military sales, so we urge the committee to consider making the export control review process consistent with the 30-day military hardware review.

 Page 27       PREV PAGE       TOP OF DOC
    Finally, I would like to note that we are prepared to work with the Administration and the Congress to develop a responsive and effective export control system that balances national security technology and competitive interests.

    In that regard I would note that our industry CEOs and members of the administration and members of Congress have had preliminary discussions on this topic under the auspices of Secretary Hamre. I understand that Congressman Weldon, who I do not believe is here right now, has played an important role in these discussions. We are prepared to continue this dialogue or perhaps I should say trialogue to make sure we get the export control system right.

    Thank you very much. I would be happy to answer any questions you may have.

    [The prepared statement of Mr. Hoydysh can be found in the Appendix.]

    Mr. STUMP. Thank you, Mr. Hoydysh.

    It will be necessary, gentlemen, for us to recess the committee to the sound of the gavel. We have an adjournment rule on to floor. The committee will stand in recess to the sound of the gavel.


    Mr. STUMP. The meeting will please come to order.

 Page 28       PREV PAGE       TOP OF DOC
    Mr. Hoydysh, you had completed your statement? Is that correct?

    Mr. HOYDYSH. Yes. I just wanted to point out to the committee one thing. We have a chart here that shows the relative positioning of the foreign companies and the U.S. companies in terms of sales of these systems.

    I also wanted to make one final point, that the systems that we are talking about are of this size in magnitude. This is a two-processor system. A four-processor system is not much bigger than this. And this is the Apple G4 chip, which will have an MTOPS rating of over 3,000 by January.

    So we are not talking about the computer that you folks talked about last week, which had to be brought out on a flatbed truck, as I understand it from reading the testimony. You do not need a flatbed truck to ship these around. You put them in an Airborne Express box and you ship them overseas or wherever in 24 hours.

    So that is just to refocus on what is really a supercomputer. This is not a supercomputer.

    Mr. STUMP. Thank you.

    Dr. Bryen.

 Page 29       PREV PAGE       TOP OF DOC

    Dr. BRYEN. Thank you, Mr. Chairman. I have a prepared statement. I think you have copies of it. I would like to ask that it be put in the record.

    Mr. STUMP. Your entire statement will be included in the record.

    Dr. BRYEN. Thank you, sir.

    Mr. Chairman, I am batting clean-up today and so I will try to summarize some of the aspects of my statement and also respond to my colleagues, if I can.

    High-performance computers, Mr. Chairman, are a vital element in United States industrial, economic, political and military leadership. The United States developed the first high-performance computers. And I, by the way, equate high-performance and supercomputers as the same thing. And we continue to lead the world in the development of high-performance computers, both hardware and software.

    By the way, Mr. Chairman, if we are unrestrained in how we handle the export of such computers to what I would call dangerous countries, then we can only expect that our allies and friends, who may also have these capabilities, will not be restrained, as well. And I think this is a terribly important issue and I hope it is one that the committee will keep in mind.

    Now my testimony focusses on the export of high-performance computers where there is strategic risk involved. There are a number of countries that are embarked on nuclear programs, have advanced missile developments under way and, as you know, high-performance computers play a vital role in assisting in the development of these modern weapon systems.
 Page 30       PREV PAGE       TOP OF DOC

    Now I want to distinguish for the committee the difference between a high-performance computer and a desktop computer. I want to make my position very clear. I do not think there is any purpose today in trying to control a desktop computer. Even though all of them in the world use American processors, the fact is that the manufacture of these devices occurs really on a global basis—quite a lot in Asia. In fact, I guess that this board and many others are made in Asia. Many of the peripherals are made in Asia.

    So trying to use export controls for that kind of good or item is simply not going to work. It cannot be done. I do not think there is any point in having an export control system that tilts at windmills. I think you have to have controls that make sense, that can be enforced, and that protect our strategic interests.

    The next question obviously is is there a difference between a high-performance or a supercomputer and one of these things, and I believe that there is significant difference. And it is not related just to this measurement which is called MTOPS—millions of theoretical operations per second. MTOPS, by the way, is an invention of the government. It is not a measurement that is used in industry. It replaced another invention of the government, which was called process data rate or PDR.

    Both of these measurements are extraordinarily confusing and neither of them, it seems to me, really measures what matters. And one of the things that this committee can be very helpful on, in working with industry, as Dan Hoydysh has offered, and I think it is a good offer, is coming up with a formula to differentiate between the desktop and the super or high-performance computer, one that will then differentiate the export control mechanisms in place.
 Page 31       PREV PAGE       TOP OF DOC

    Let me just point out a few of the differences so the committee understands and has on record because I do not think anyone has—in all the debates that I have heard on this subject, this aspect has not been brought out, I think, clearly.

    First of all, high-performance computers have tens or hundreds of processors. Desktop machines mostly have one or two processors.

    Now in the next few years we will see more four- and eight-processor desktop computers or server computers, but these still will fall short of the category that we normally think of as high-performance computers. Most high-performance computers today—it has not always been true—today are parallel processor machines. And most desktop machines—in fact, all of them, as far as I know—are not parallel processor machines.

    Most of the advanced work, for example, at the Department of Energy and at various universities that are working with the Department of Energy to develop nuclear codes and nuclear weapons to develop new types of missiles are parallel machines. Most of the software that has been developed for this purpose runs only on parallel machines. I am not worried about this, this little machine. I am worried about the big machines.

    Now high-performance computers, supercomputers, feature very tight coupling between the processor—that is the microprocessor, this device here—and the memory in the machine. This tight coupling is something that you do not find in a desktop computer.

 Page 32       PREV PAGE       TOP OF DOC
    What that means in practical terms is that when you have a high-performance computer, the memory can, in real time, be addressed, the whole memory can be addressed, and very complex calculations can be run. You cannot do it on one of these things.

    Now the best high-performance computers have random, non-interruptible communication between the machine's processor and the memory. Desktop machines have interrupts in their operating system. They do not have that kind of communication.

    Now there are other features, as well, but the main point that I want to make is that we cannot just rely on this MTOP measurement to distinguish between the high-performance machine and the not-so-high-performance machine.

    The second point I want to make is that what has to be done here and what is really vital is to make sure that a potential adversary cannot get hold of the machine and the kind of software that is needed on those machines that will enable them to do advanced nuclear research or build advanced missile systems. It is a logical place to be. Unfortunately, our export control regime right now addresses neither issue very well. In fact, I say it does not address them at all.

    First of all, most of the software is readily available and is not export licensed. So this software is flying around all over the world. There are conferences going on, supercomputer conferences, where all of this is being discussed. In fact, this May there will be one in Beijing with heavy attendance from the United States, including, I might add, from some in the military.

 Page 33       PREV PAGE       TOP OF DOC
    And these are just tremendous events in which scientists, including from the Chinese Academy of Sciences, which is well known to be involved, as Gary knows, in nuclear research and development, military nuclear work. I have been there. I visited that center in China and, in fact, I was shown their nuclear accelerator, so I am quite well aware of what they do. And these kinds of conferences and meetings and exchange of information and the software that is being legally transferred is an area I have great concern about and it is not being addressed by the export control mechanism.

    The second point I think that goes with that is that the current controls that are being proposed, no one has analyzed the impact that will have on the ability of a country like China to run that kind of software on the machines that they have already acquired or that they will acquire and to achieve the rapid prototyping of new missiles and new weapons programs.

    There is a very interesting article that is in my testimony today that appeared in the Hong Kong Standard just a week ago where China announced that it had conducted laboratory simulations of a test launch of a multi-warhead intercontinental ballistic missile called the DF–41. I do not know if you have seen that article but as far as I know, no one has refuted the authenticity of the information, so I am accepting it as valid and the committee should ask the intelligence community to assess this and assess it carefully because what they are saying basically, and let me read from the reporter's account; she says mainland sources told her that the computer simulations of the launches of the solid-fueled Dongfeng-41, the DF–41, ICBM have been completed and proved successful.

    This is the first time China has publicly acknowledged that it has the ability to simulate, and I do not know how well they have done it but they claim to have done it well, to simulate the design of a new ballistic missile and nuclear weapon. So if it is accurate and if it is true, we are seeing the first results of the transfer of supercomputers to China. You know there are more than 600 of them there that have gotten there since 1996. Before 1996 there were none.
 Page 34       PREV PAGE       TOP OF DOC

    This is where the threat, I think, the future threat is coming from. This is where the problem is coming from. There are many ways that supercomputers can help a country like China not only advance its nuclear programs and its missile programs but to make it very hard for us to contend with it. We are talking in this country about building a missile defense but if China can reduce fratricide of incoming multiple nuclear warheads that may be aimed at the United States, if China can build better penetration aids using the supercomputers to design them, then we are in a lot of trouble because missile defense will not work.

    So Mr. Chairman, the burden of what I have to say is that I would urge the committee—I appreciate the work, the good work that this committee has done—it is very important work—in trying to get hold of this problem, but the current export control parameters simply do not do the job. And raising them higher without really studying this issue in a strategic sense, having a proper strategic analysis, is irresponsible. It is irresponsible by the Administration and it is really something that needs badly to be fixed.

    So my conclusion is this, that before there is any change in these parameters the committee should demand that, I would propose, a Joint Chiefs of Staff study, a Defense Department study of the strategic implications of potential adversaries acquiring even more powerful supercomputers and how that will impact us, in particular in our ability to be able to field the missile defense system in the future.

    Thank you, Mr. Chairman, for inviting me here today and I will be glad to answer questions with my colleagues.

 Page 35       PREV PAGE       TOP OF DOC
    [The prepared statement of Dr. Bryen can be found in the Appendix.]

    Mr. STUMP. Thank you, Dr. Bryen.

    The chair recognizes the ranking member, Mr. Skelton.

    Mr. SKELTON. I pass at this moment.

    Mr. STUMP. The gentleman from Virginia, Mr. Bateman.

    Mr. BATEMAN. Thank you, Mr. Chairman, and I thank the witnesses. I find myself in the very, very usual position for me when I have the benefit of hearing people with great expertise expound on a subject on which I have none. I am left somewhat perplexed, with Mr. Johnson, I believe, and Mr. Milhollin telling us that we have no concerns, that no one in the foreign marketplace is going to be able to sell these high-speed computers and therefore we do not need to regulate or that it is useless for us to regulate and control them. On the other hand I hear the opposite.

    Who am I supposed to believe on this? Is there a marketplace out there in any number of other areas and companies in the world where high-speed, high-performance computers will routinely be available, even if we were to continue to restrict the sale of them by American companies? Is there a problem or is there not a problem?

    Mr. HOYDYSH. I guess I could take a crack at answering this. There is clearly a market for the kinds of systems that we are talking about. And for the purposes of the threshold, we are talking about two- and four-processor systems. These are sold in the millions worldwide and anywhere from 25 to 30 percent of the market is provided by foreign manufacturers.
 Page 36       PREV PAGE       TOP OF DOC

    And again we have commissioned a study that looks at this. There are firms that are in the business of cataloging sales by U.S. and foreign companies that clearly substantiate this.

    The companies that we are in competition with are large, world class companies. Whether it is Fujitsu or NEC or Hitachi or Siemens or Olivetti, all of them are capable of manufacturing this because the industry has moved to allowing or has actually moved the technology to where these can be assembled from commodity parts. There is no technological impediment for anybody with a modest amount of technical expertise to put one of these together by buying the boards on the open market and the chips on the open market.

    What keeps people from getting into the business is a question of entrepreneurships and economics. In order to sell these and make money, you have to have personnel, you have to have advertising, you have to have a service department. But for someone, whether it is the Chinese National Academy of Sciences or anyone else, to buy a bunch of these boards and plug this in is a trivial exercise.

    So there is absolutely, in our judgment, a large market for these that can be supplied by foreign companies.

    Mr. MILHOLLIN. Mr. Bateman, can I respond to that?

    Mr. BATEMAN. I would like for you to.

 Page 37       PREV PAGE       TOP OF DOC
    Mr. MILHOLLIN. I think that what we have just heard is—I must say this with all due respect to my colleague—quite misleading. It is not true that there are millions of computers available from foreign sources that operate above 2,000 MTOPS. The most recent studies were done by GAO and by actually a group that the government commissioned to do several studies. They both found, I think within the last year or so, that there was no foreign availability in the ranges we are talking about, between 2,000 and 6,500, from companies that could supply in sufficient quantity and sufficient quality with sufficient back-up so that a buyer would feel confident in acquiring such a machine.

    The industry is doing—Mr. Hoydysh is making the same argument now the industry made in '95, which is to say that the sky has not fallen yet but it is just about to fall. We are just about to see a hoard of foreign assemblers who are going to take their little solder guns and they are going to buy all these parts, they are going to put them together and they are going to bury our industry with competition.

    It did not happen the last time they predicted it and I do not believe it is going to happen this time, either, and I do not think there is any evidence that it will happen.

    Mr. BATEMAN. Let me turn to another aspect of the testimony that puzzles me. Dr. Bryen, you made reference to MTOPS being a manufactured term by the government having no industrial or scientific basis.

    Dr. BRYEN. I did not say it did not have any basis. What I meant was that it is not a term that is commonly used as a measurement of performance by industry.
 Page 38       PREV PAGE       TOP OF DOC

    Mr. BATEMAN. And you have criticized that as being the measure of what should be licensable or exportable.

    Dr. BRYEN. Yes.

    Mr. BATEMAN. Do you have another measure that you would advance as being the superior or the appropriate measure?

    Dr. BRYEN. I think we need to include the other parameters. For example, one measurement, and there is probably a good scientific way to put it and I am not sure how to write the rule but the rule has to do with the coupling of memory to the processor. This seems to be a very vital issue.

    If the coupling is very tight and there is the ability of the processor to address all the memory at one time, then that is one kind of machine that we have to be concerned with. If the coupling is loose and you cannot address the memory at once, then I think the machine is far less likely to prove problematic.

    And, as I said in my testimony, most of these kinds of machines that Dan has here, and he promised to give me this to take home, by the way, most of the machines like this have very loose coupling of memory and they do not really pose a strategic threat.

    The Commerce Department could fix this whole problem in a minute. All they really have to do is to put a line in the regulations that says anything less than eight processors is not covered by these regulations, and the whole problem is solved. From an industry point of view, they get to export these things which they think are getting out there in large numbers—I am not going to say it is in the millions but it is in large numbers in any case, and that will satisfy, I think, a lot of their problem. And, at the same time, we can then focus on dealing with controlling the parallel processor supercomputers, which is the strategic problem.
 Page 39       PREV PAGE       TOP OF DOC

    I do not understand why we have not done that. I am very frustrated about that and I do not see why the Commerce Department and Defense cannot get together on that and come up with a regulation that makes sense for everybody.

    Mr. HOYDYSH. Congressman, I would like to add one more thing. I just wanted to make clear for the record that my offer to give this to Dr. Bryen had nothing to do with his statement that he just made.

    Mr. BATEMAN. Mr. Chairman, could I be indulged for one brief moment?

    Mr. STUMP. The gentleman is recognized.

    Mr. BATEMAN. Mr. Hoydysh, you indicate that you are not advocating that we completely dispense with any and all regulations and control over supercomputers and that we do need a rational program, but you apparently take issue with the rationality of the one that is in place.

    Have you or industry sat down and undertaken to write what you thought would be the ideal regulatory regimen?

    Mr. HOYDYSH. We have certainly been thinking a lot about it and we have been discussing it among ourselves and we have been discussing it with the Executive Branch and even with some members of Congress.
 Page 40       PREV PAGE       TOP OF DOC

    I think Steve is on the right track here. I think that some of the elements that we have clearly identified as being part of the system is you should not control what is not controllable, so you have to look from the bottom up, you have to look at what are mass market products. And I think Steve is on to something in terms of looking at the number of processors as one alternative.

    One of the problems with the MTOPS rating is that the numbers have become so inflated that no one really understands what it is, but by God, 6,000 is sure a lot of them, so it scares people.

    So this is probably not the best method of looking at them. Maybe we need to look at architecture, some of the other things that Steve looked at.

    We clearly agree that from the top down we ought to be controlling the highest, most powerful computers available. And the things that you saw that you talked about last week, which required the flatbed truck, was up in the 150,000, 200,000 plus, and that is an old computer, so there are things, the Deep Blue, Pacific Blue from IBM and Silicon Graphics, that have thousands of processors.

    We are not talking about that in any sense. We are talking about the products that are essential to make the information age work. These are the products that make the Internet work, that make electronic commerce work and that are, in fact, and I have to vehemently disagree with my friend Mr. Milhollin here that these products are available.

 Page 41       PREV PAGE       TOP OF DOC
    They are available from world class companies, companies that are Fortune 100 companies, that have thousands of employees worldwide and produce thousands of products and make billions of dollars in revenue. There is no impediment to getting two-processor or four-processor, even an eight-processor system from any of a dozen foreign manufacturers. And we can document this and we can document this with independent sources from the IDC Corporation and from Gartner and whatever. There are industry measures of this.

    These products are available and they are being sold now and they will be sold and the GAO report that Mr. Milhollin refers to is something that was in 1997 and since that time, microprocessor speed has increased by 300 percent.

    Mr. STUMP. The gentleman from Missouri, Mr. Skelton, is recognized.

    Mr. SKELTON. Let me ask, when did industry first ask the White House to boost the threshold? Anybody.

    Mr. HOYDYSH. This current round?

    Mr. SKELTON. Yes, if you know.

    Mr. HOYDYSH. Well, we kind of asked for it on a continuous basis. I am not sure that I could actually pinpoint a date for you. I do not know if anybody else knows that. I cannot give you the date.

 Page 42       PREV PAGE       TOP OF DOC
    Mr. SKELTON. Now one of your major problems is the time limit; am I correct? 180 days?

    Mr. HOYDYSH. Right.

    Mr. SKELTON. Now if I were to go backwards and recite numbers from 180 down to zero, at what point would you raise your hand and say, ''That is about right?'' The time limit.

    Let me start with you, Mr. Milhollin.

    Mr. MILHOLLIN. I think the time limit of—you are talking about the time limit for congressional review?

    Mr. SKELTON. That is correct.

    Mr. MILHOLLIN. I am fairly happy with the present system.

    Mr. SKELTON. All right. Mr. Hoydysh.

    Mr. HOYDYSH. I would say we would prefer 30 days but let me just expand on that. I think that we have to start thinking about what we are doing not in serial fashion, like the old computers did, but in parallel. There is no reason why information cannot be presented to the committee by the Administration, by the GAO, by us on a continuing basis so that we do not have to wait for a decision, then we wait for a report, then we wait for something else.
 Page 43       PREV PAGE       TOP OF DOC

    Of the 180 days, six months, half a year that we are waiting, most of the time is dead time where nothing much is happening. So I think that we can significantly reduce the time period and still get the information to you that you need to review this.

    Mr. SKELTON. Dr. Bryen.

    Dr. BRYEN. Well, I think there are two issues. One is that 180 days I think is a good time frame if we are dealing with really true high-performance computers. It is a bad time frame if we are dealing with these small processor machines.

    So if you make the distinction between the two, you do not need to change the rule because I think the problem goes away.

    Mr. SKELTON. Thank you.

    Mr. STUMP. The gentlelady from Florida, Mrs. Fowler, is recognized.

    Mrs. FOWLER. Thank you, Mr. Chairman. I want to thank the gentlemen for being here.

    Mr. Skelton was getting at the question I had had because I have heard different time frames floating around. I met with some industry people last week and they said while they preferred 30 days, they could live with 60 days, but 180 is too long. I'm trying to find some compromise here because I think what we are all looking at is to come out with something that protects our national security but is not doing harm to our computer industry and to the valid need to sell the ones that are readily available, and there does not seem to be anyone out there keeping real good track of how readily available are some of these. There are all sorts of numbers that float around and none of you really answered his question which he was trying to get at as to what the days would be unless we change it.
 Page 44       PREV PAGE       TOP OF DOC

    So I would just like to ask you what factors—we have the responsibility of reviewing the Administration's proposed change and what was put into the fiscal year 1998 defense bill on notification. What factors should we be looking at? How would you assess the importance of each of those factors? Should we be insisting on any safeguards as a condition of agreeing to any proposed threshold changes? If so, what should they be? Because this train is moving down the station and we need to somehow work out a system that is going to work and I am very concerned that we are not coming toward that. I would appreciate some of your expertise.

    Mr. MILHOLLIN. If I might begin, I would say the first factor that Congress should look at is whether the government can actually control the flow of notifications that is presently coming in and is likely to come in if the present control level is kept as it is or if it is changed to some other level.

    I mean the ability of the government to process this paper and to make decisions is a vital consideration. Mr. Hoydysh says that controllability should be the main question and I agree; it should be. And the real question of controllability is can the Commerce Department and the other agencies process this information?

    Now Bureau for Export Administration (BXA), I think, is processing around 10,000 to 12,000 applications a year. The GAO has just established that this new process, the NDAA process, is generating less than 1,000 a year. So we are looking at something less than a 10 percent increase in the workload. So far, I have not heard anybody say that that is not doable.

    The second criterion I think you should look at is what difference does it make, what impact will it have on foreign programs if we do not control or if we move the level to some other level? In my testimony I have cited a report by DOE which found that—a recent report by DOE which found that computers operating at about 4,000 MTOPS would directly aid the nuclear weapon design efforts today of India, Pakistan and China and would aid China most of all.
 Page 45       PREV PAGE       TOP OF DOC

    So if we are talking about what level of computing power is important strategically, the DOE has given us a number. They say around 4,000 would aid these nuclear weapon and missile programs.

    So those are true criteria I think that the Congress and the committee ought to look at very carefully. Controllability, by virtue of government work and second, the impact of letting these computers go out without control.

    Mrs. FOWLER. Does anyone else have any comment on this?

    Mr. STUMP. Dr. Bryen.

    Dr. BRYEN. Thank you. I think it would be reckless to agree to any change in the parameters without receiving, with that proposed change, a strategic analysis of its impact, and there is not any. There simply is not any. No one has done it. And by that I mean what is the impact on particularly China, which Gary mentioned? I am very concerned about China as a potential adversary, as a competitor in the nuclear field from a missile defense point of view. What is the impact? What does that mean as a practical matter?

    If we do not have that kind of analysis, I do not see how you can then raise the threshold. I do not understand how the administration could even dream up changing the numbers, because it has no grounding in any reality. It is simply take a number, take any number, and bet on this. That is a crazy way to do business.

 Page 46       PREV PAGE       TOP OF DOC
    Dan represents a group for responsible computing. They do not want to be in an irresponsible position. I really believe that industry follows the flag in these things. They want to do things that are responsible, that are right. And where we are being put is in a situation where we do not know.

    So I would say the answer to the question is that we have to demand such a study before anything is done.

    Mr. HOYDYSH. I would like to respond to your question about the time period. In the first instance what we would like to see is the current threshold proposal to be implemented as quickly as possible, without dealing with the question of a permanent change, and that can be done by a one-time waiver of some kind. So what we need to have is this implemented immediately.

    The problem that Gary Milhollin refers to all the time about the volume, we are not seeing the volumes in some of the product sales that we have in terms of asking for approvals because, as I stated earlier, the Apple Corporation, for example, cannot market its products effectively the way, through its business model, selling to distributors and then to third parties and ultimately to the end user. So they are simply foregoing sales into Tier III until this threshold is raised. And that amounts to tens of thousands of units over this last quarter.

    So the first thing we would like to do is see the change immediately. Then we would like to see if there is a way of shortening the permanent review period because during a six-month period—we did not anticipate that the Apple machine would be ready in this time period and it came on the market during the six-month hiatus.
 Page 47       PREV PAGE       TOP OF DOC

    So we would like to see if there is a way we could streamline this process by providing the information sooner, by engaging in discussions, whatever it is, so that you would have the information you needed to review it but it would not take six months worth of wait.

    Mrs. FOWLER. Thank you, Mr. Chairman. Thank you.

    Mr. STUMP. The gentleman from Mississippi, Mr. Taylor, is recognized.

    Mr. TAYLOR. Thank you, Mr. Chairman.

    I do appreciate you all being here. I have to admit a very strong sense of skepticism. I remember very vividly sitting on the House floor when a former colleague from California was passing around a letter saying that we needed to allow a company to launch telecommunication satellites over in China. I remember in that letter were some assurances that nothing can possibly go wrong, that we are going to watch it every step of the way and it was signed—I did not sign it—but by Republicans and Democrats alike. Of course, that is where the Hughes-Loral snafu that gave the Chinese just an incredible amount of information came from.

    I hear the testimony of three of you that says we have to do it or someone else will. As I was listening to that I turned to my colleague from Hawaii and said, ''At what point does industry come to us and say, 'Fill in the blank; we have to sell nuclear weapons because if we do not, somebody else will and there are 15 other countries out there that know how to do it?''' I mean, where do you draw the line?
 Page 48       PREV PAGE       TOP OF DOC

    We have spent $53 billion to date trying to defend ourselves from other people's missiles. Why would we want to make it easier for other people to develop them? And I am asking this as a question. I will give you an opportunity to respond. Tell me why I am wrong and why you are right.

    Mr. STUMP. Mr. Hoydysh.

    Mr. HOYDYSH. Well, let me try to answer the question. I do not think anybody on our coalition wants to sell nuclear weapons and certainly we do not want to help anyone design nuclear weapons. In fact, we cannot even sell a pencil to an entity in Tier III countries if we know that it will be used to develop nuclear weapons or weapons of mass destruction. We cannot come in with even the lowest level of computer and somebody say, ''I have this nuclear weapons lab but these are all decontrolled computers; help me hook them up.'' We cannot do that and we would not do that. So first of all, we have no interest in doing that.

    The real question that has to be asked, and I grant that the answer is complicated and it is a difficult question, is at what point does restricting our sales of these commercially available, low-end computers hurt us more than it protects national security? Because we depend—our national security depends on the technological superiority of our computer industry and our other high-tech industries. And the fact is that technological superiority is derived from profit, which is poured back into R&D, which creates new products.

    If you break that cycle, you risk damaging the computer industry and other high-tech industries and you risk, in the long term, eroding our technological superiority.
 Page 49       PREV PAGE       TOP OF DOC

    Now where you draw that line and where that balance is, that is a difficult thing. But you have to understand that when we are selling this and if we make a profit, it is in our interest.

    Now at what point do the restrictions end up hurting us more than helping us? I think that is the key that has to be looked at and that is what we are all struggling with. We think that the line where it is drawn now helps us more than hurts us.

    Dr. BRYEN. Could I respond?

    Mr. STUMP. Dr. Bryen.

    Dr. BRYEN. First of all, I think what you said is right on. I could not agree with you more. I think there is some confusion. You do not balance national security with competitive interests. National security is fundamental. Competitive interests are not fundamental; they are important but not fundamental. If you are dead, competitive interests will not help you much. You have to be sensible here.

    The second point is if industry is sincere about this, there is an easy solution. All they have to do is accept the difference between the high-performance computer which can hurt you and the small machine which will not bother you. And the committee can be helpful here in a very simple way. All the committee has to tell the Administration is we will not approve changing the threshold and you can solve the problem of the small machines by writing an exception in the regulations. It is a simple exception.
 Page 50       PREV PAGE       TOP OF DOC

    These small machines are not a strategic threat, not a significant strategic threat. The high-performance computers, the parallel processor machines are a strategic threat. That is what you design nuclear weapons with. That is what you design multiple re-entry warheads with. That is what you design new generations of missiles with. That is what you break crypto codes with. Those are just some examples. That is what you design germ warfare with.

    These are the kinds of machines that can really cause great difficulty and we are seeing evidence that the first wave of transfers of high-performance computers over the past three years is causing that kind of problem already.

    So it is very important for this committee to respond. And, as I said in response to an earlier question, we must have a strategic study. The Administration has to prove that these increases are not harmful to national security, and they have not done so. There is no Defense Department study. None has been done. It simply does not exist, and that is crazy.

    Mr. STUMP. Mr. Milhollin.

    Mr. MILHOLLIN. I would like to respond, as well. I think that that is an excellent question and I think it shows a very perceptive understanding of a process that we have been dealing with for a long time.

    Here is how I see it. What we are really doing in these cases where we allow imprudent exports is that we are competing against ourselves. Taxpayer dollars are used to develop the high-tech equipment that we are now concerned with. Taxpayer dollars are used to develop high-speed computers, always have been, along with many, many other defense items.
 Page 51       PREV PAGE       TOP OF DOC

    So after receiving these taxpayer dollars, the industry develops a high-end product. Then it comes in and argues to Congress that in order to stay competitive, it ought to be able to sell those products to foreign countries. Congress says yes. The products are then sold to foreign countries. And then we hear that we are not as far ahead as those foreign countries militarily as we should be. So then the industry comes in and says we need even more money to build even higher-tech products so we can maintain our advantage. What happens is the tax dollars are being spent to compete against ourselves.

    We know that nuclear weapons have been manufactured in the tens of thousands. There are probably more nuclear weapons than there are high-speed computers if we follow the industry's definition. Does that mean that nuclear weapons are a mass market item and uncontrollable because, as you have pointed out, other countries also manufacture them?

    Under the industry's logic, we should simply decontrol nuclear weapons because there are just so many of them, we cannot keep track of them and we know other countries are making them.

    I think that the industry ought to be happy with the NDAA process because in exchange for waiting 10 days, the government tells industry, ''Look, this product is going to help make a nuclear weapon or a ballistic missile in a foreign country.'' The industry gets that for free. The government provides a free bureaucrat to keep the industry out of trouble. But the industry keeps arguing that they do not want to know. They do not want to wait that 10 days. They do not want to find out that their product is going to a missile site or a nuclear site. They just want to decontrol.
 Page 52       PREV PAGE       TOP OF DOC

    I cannot remember a time when industry was not arguing that whatever system we had was too restrictive, to answer a previous question. I have been working on export controls for a long time. I asked a bunch of industry people one day to give me a list of things that they thought were really important and they had never thought about it. Whatever is being controlled, they are against. They want that control to be dropped.

    And I think it is as simple as that. And I do not think that is a responsible position. And I think we do have a system that allows them to find out where the dangers are. I just do not understand why they do not support it.

    Mr. STUMP. The gentleman from Indiana, Mr. Hill, is recognized.

    Mr. HILL. Thank you, Mr. Chairman.

    Mr. Milhollin, you went through a series of examples of companies that orders were cancelled or not authorized and then you went on to make the statement that just because they have done that does not mean the rules as they relate to the NDAA process should be changed.

    Could you expand upon that and tell me what your line of thinking was there?

    Mr. STUMP. Mr. Milhollin.

 Page 53       PREV PAGE       TOP OF DOC
    Mr. MILHOLLIN. The idea is that if you look at the GAO report you see that about 85 cases were blocked, either denied or returned without action. If you add up the value of those cases I think you come out to something like maybe $30 to 50 million. I recommended that the committee ask the GAO to total them.

    My point was that that is a very small amount of money compared to the billions of dollars that the computer industry takes in and that it is a good deal. That is, for giving up really an insignificant amount of sales, the companies are avoiding having their products go to the wrong places. That was my point.

    Mr. HILL. But I guess my question to you is you made the statement that just because those sales were not authorized, that that does not mean that we should change the rules of the NDAA.

    Mr. MILHOLLIN. Oh, my point is that we know that with the present level of control, we stopped 85 machines that should not have gone out. If we raise the level to 6,500, we can be virtually certain that at least that many machines will not be stopped next year and will go to missile and nuclear and other sites that we would prefer for them not to go to.

    So I think that the fact that we have stopped those machines is an argument for keeping the level where it is.

    Mr. HILL. Are you saying then that if we raise the threshold that there will not be enough people to analyze whether or not those sales ought to be authorized?
 Page 54       PREV PAGE       TOP OF DOC

    Mr. MILHOLLIN. No, I am saying that if we raise the level to 6,500, there is no evidence that the people we now have could not handle the workload. It seems to me that they probably could. The current workload increase for them is about 10 percent with the present level. Even if they get a doubling of the increase in the workload, that would only be a 20 percent increase in their workload, and I am not aware that we could not handle that.

    I hope I have answered your question.

    Mr. HILL. Well, you have, but not to your advantage, it seems to me. It seems to me that if they can handle the workload by an increased threshold, why should we not go ahead and do it?

    Mr. MILHOLLIN. Well, the point is that—the industry is arguing that unless we increase the threshold, we are going to be swamped.

    I am sorry. What I am arguing is that we can keep the threshold where it is and handle the increased workload, that even if because chips increase in power and the workload doubles next year if we keep the level where it is now, we will be able to handle it. That is my point.

    Mr. HILL. Okay, thank you, Mr. Chairman.

    Mr. STUMP. The gentleman from Hawaii, Mr. Abercrombie.

 Page 55       PREV PAGE       TOP OF DOC
    Mr. ABERCROMBIE. Thank you very much, Mr. Chairman.

    Gentlemen, a kind reference was made about me by my colleague, Mr. Taylor, and I have to return the compliment by acknowledging that he said to me at one point during this discussion, ''This reminds me of somebody standing up and saying 'We are for responsible binge-drinking,''' and I have to agree with that.

    I have a great deal of difficulty in understanding how we are supposed to put forward additional billions and billions and billions of dollars for a national missile defense to defend against weapons that, in great measure, at least in some appreciable measure, are going to be constructed by those to whom we have sold the technology that enables them to build these weapons. I do not understand the logic of it.

    I understand the logic of greed and I do not mean that personally against anybody because I think it is worse than that. If it personal greed, you can dismiss it and just say it is a human failing. But what I see happening here is institutional and programmatic and a deliberate policy of the United States of America, and that is something that I think needs our attention, Mr. Chairman, in the most—I cannot say it in any more severe terms than that.

    I do not want to personalize this. I am not looking for villains. I do not have to look further than the institutional network that we are looking at to find a villain.

    I believe, Mr. Chairman, that government is the instrument of our will and if we fail to exercise our will in a responsible way in this instance, we will have only ourselves to blame.
 Page 56       PREV PAGE       TOP OF DOC

    Now having said that, Mr. Hoydysh is wondering, ''Oh, God, what is he going to ask me?'' I hope you will accept my point, Mr. Hoydysh, that I see this in institutional terms, not in any personal terms. I do not attribute any base motive to your presentation whatsoever.

    When you use the phrase, and I am pulling this out of context but not to cause you difficulty, the necessity of remaining competitive in the real world, are you speaking in an illustrative sense about what the real world is? Surely you do not mean to contend that what I just cited as weapons that may be used against us, constructed at least in part from what we might give them technologically speaking, is not real, is theoretical or hypothetical.

    Mr. HOYDYSH. Congressman, I am not in any sense suggesting that we give any potential enemies any technology, any information that would substantially enhance their capability to do us damage. What I am suggesting is that the export control system that we have in place now does not work well and I agree with Dr. Bryen. What we are talking about are the low-end of the spectrum, which is not of concern. Dr. Bryen, who is in many cases on the opposite side from where industry is, we agree on this.

    Mr. ABERCROMBIE. Let me ask you this, then. Do you agree with Dr. Bryen, because that was going to be my next point and my final point on this, do you agree with Dr. Bryen that with some relatively direct—I will not say simple because things are never simple; in fact, the simpler they are, probably the more difficult the consequences to deal with—but with some rather direct or laser-like language, that this could be solved at this lower level?
 Page 57       PREV PAGE       TOP OF DOC

    Mr. HOYDYSH. At first blush it appears that there might be a solution along the lines that Dr. Bryen—

    Mr. ABERCROMBIE. Well, let me ask Dr. Bryen—

    Mr. HOYDYSH. But again, like you said, you would have to look very carefully at exactly the implications for the industry, to make sure that there were no competitive disadvantages among—

    Mr. ABERCROMBIE. Mr. Hoydysh, I have not the slightest doubt that there will be a real close look made to see whether there is any competitive disadvantages. I do not think that is going to be a problem.

    Dr. Bryen, do you, in fact, have language or have you thought about language or asked someone with some legislative experience to put together language that would address the commerce questions that you raise? Because you did take the position, if I understood you correctly, that you did not feel that from a policy point of view, this was that difficult to deal with if we are all operating on the level.

    Dr. BRYEN. I have not drafted any language. I think I could very quickly. I certainly could work with the committee staff to do that.

    The regulatory language is really very simple. All you need to write on the current rule is an exception that says any machine of less than eight processors is not controlled under this rule, period. It solves the problem.
 Page 58       PREV PAGE       TOP OF DOC

    Mr. ABERCROMBIE. Mr. Milhollin, do you think that that is at least a useful exercise to undertake?

    Mr. MILHOLLIN. I think that before we amend the rules to provide that kind of an exception, I think we should do the other thing that Dr. Bryen recommends, which is to make a strategic assessment of the impact of such a change—

    Mr. ABERCROMBIE. Well, I am all for that but—

    Mr. MILHOLLIN. —on foreign recipients of our computer technology. I would have to sit down and be convinced that this change would not, put in the hands of people we do not want to have them, high-speed machines.

    Mr. ABERCROMBIE. Great.

    Mr. Chairman, I suggest that those two points are something that we could usefully pursue in the immediate future—the question of strategic assessment and the question of whether or not having done that, whether or not there is language that could usefully be put forward by this committee to help resolve at least this portion of the overall question.

    And I want to conclude, Mr. Chairman, by saying I see very close parallel to the encryption question, as well, the sale and marketing of encryption.

    Mr. STUMP. I thank the gentleman for his advice and we will follow through.
 Page 59       PREV PAGE       TOP OF DOC

    Mr. ABERCROMBIE. Thank you.

    Mr. STUMP. Let me say to both the witnesses and the two members that are left, we have a vote in about 10, 15 minutes, so if we can be brief in our questions and direct in our answers, we can maybe finish and we will not have to come back.

    The gentlelady from California, Ms. Tauscher, is recognized.

    Ms. TAUSCHER. Thank you, Mr. Chairman.

    I am glad we have gotten to a place where we can talk some real solutions, as opposed to kind of troublesome, the way I feel when the nature of the relationship between the competitive forces and the companies that predominantly work in my district in the high-technology business and their integrity and their patriotism are questioned and the ability to try to be competitive.

    I think it is important that we discuss what Dr. Bryen has suggested. I have been concerned for a very long time, as someone that came here from the private industry and who represents the district where Silicon Valley sleeps and the home of two national security labs, that MTOPS is something that no one ever looked at as a measurement, that MTOPS was something that is esoteric and specifically a government invention and is not something that is nationally or internationally known as the things that you might look at to decide if this thing is going to hurt us or not.

 Page 60       PREV PAGE       TOP OF DOC
    So I do think it is important for us to look at the opportunity to have definitional terms that people will all understand, that is not only industry-based but has a relevance in national security, that we understand we are talking donuts and donuts and holes and holes.

    Dr. BRYEN. Apples and apples, right.

    Ms. TAUSCHER. So I would encourage, Mr. Chairman, our committee to look at that.

    I would also encourage the opportunity for us to look for some very simple language that will alleviate the redressing on a constant basis of the moving target. We obviously have a nanosecond life cycle in many of these processor businesses and I think that if we can come to some simple understanding over a short bandwidth of time about what is good and what is bad and, at the same time, we have got to have some understanding, once and for all, we have not yet accomplished today, as to what is available worldwide.

    You know, Japan has a ban against selling high-performance computers to Tier III countries and we know it is a farce. We know that many times Japanese companies assemble their computers in China and some of them are high-performance computers.

    So are you meant to suggest to me that what they are assembling in China is not left on that shore and that there is not availability there? What do we do about the distribution channels that are becoming not a specialty but a norm for the computer and the PC business and their worldwide distribution capabilities? How do you prevent a company from saying well, you know, I am not in that business? I make them, I do not sell them. How do you control them, the distribution entities? Dr. Bryen.
 Page 61       PREV PAGE       TOP OF DOC

    Dr. BRYEN. I think what you say is very constructive. I would like to comment for a minute on Japan and also on the U.S.

    Japan, I was involved with Japan on many levels for many years, including the famous case called the Toshiba case, which I uncovered and prosecuted, I guess is the right word, but I have a high level of confidence that the Japanese government will do the right thing if they understand what the right thing is.

    Ms. TAUSCHER. Right.

    Dr. BRYEN. And right now the problem is they do not understand what the right thing is because we—

    Ms. TAUSCHER. We do not, either.

    Dr. BRYEN. We do not seem to be able to articulate it and we keep changing the rules. We tore up the supercomputer agreement we had with Japan unilaterally, threw it in the trash, shocked them, I might add. I have never seen anything more reckless in my life and I do not understand why we did it.

    So we need to get global cooperation. You cannot do this by yourself. And the way you get it is to show leadership and to show responsibility, and I really think that is very important.

 Page 62       PREV PAGE       TOP OF DOC
    I would like to also comment a little bit about Silicon Valley in California. The pace of technological change and inventiveness is terribly important to our economy, it is vital to our national security and I think we all have to take our hats off and say that this is part of the new way of our economy. We have to understand that and it is pioneering work.

    At the same time, California is one of those places that is under the most direct threat from hostile missile attacks, let's say, from China. Mr. Hunter knows that. You know that. So we have to be careful here.

    What I am trying to suggest is that these supercomputer controls have a lot to do with the ability of a country like China to attack us in the future. We have to take this really seriously. We need that strategic study. We have to have it, and it has to be done right.

    Ms. TAUSCHER. And we have to have definitional agreement on what an apple looks like, what a donut looks like.

    Dr. BRYEN. Absolutely. That is what I have suggested.

    Ms. TAUSCHER. And we have to, I believe, also be very aggressive about making sure that on a timely basis, we here on the legislative side and the executive branch and our security people and certainly the industry come together not episodically but regularly so that we are dealing with the vagaries of competition and the kinds of technology advances that happen quite outside of our control, so that we can be appropriate about what we are doing.
 Page 63       PREV PAGE       TOP OF DOC

    Dr. BRYEN. I am a strict constructionist when it comes to export controls. I am well known for it. But I do not believe in cutting off your nose to spite your face. So I think we need to change the controls, and I have said that.

    But, on the other hand, I think we need to tighten them up some. Particularly in areas like software that is being developed for nuclear weapons, very sensitive, and right now we do not have any export controls on it. It is all just disappearing—let's put it that way.

    Whoa, we are getting ourselves in a lot of trouble. We are getting ourselves in a lot of trouble. We can avoid that. And it does not have any economic impact. Apple could care less, or IBM or whoever it is. That is not the issue. The issue is getting a responsible export control program that the members of Congress can defend, that the Administration defends and which they can sell to our allies. I think if we have something that is coherent, our allies will go along. They have done it before. They did not like it but they did it and I think we will get the cooperation we need to have.

    Ms. TAUSCHER. Mr. Hoydysh, I would assume that the business community would be very interested in participating in a very aggressive—

    Mr. HOYDYSH. Absolutely. We have made the offer and the offer is still on the table. We will work with the Administration, with the Congress to develop something that is responsive and is rational and that works.

 Page 64       PREV PAGE       TOP OF DOC
    Ms. TAUSCHER. Thank you, Mr. Chairman.

    Mr. STUMP. The gentleman from California, Mr. Hunter.

    Mr. HUNTER. Thank you, Mr. Chairman. I appreciate it.

    I apologize to all of our witnesses for only catching a part of the hearing but Dr. Bryen, we have worked a lot in the past and I want to applaud you for all of your work as a guy that has worked in government, often against the tide and against the political tide, to do what is right for the country.

    Mr. Milhollin, I have always regarded you as kind of a national treasure. You are a good, honest broker who kind of holds our feet to the fire. And thank you; you represent the best of what we have to offer in this country in terms of an organization that comes in and offers commentary and positions that have no economic interest behind them but do have an important national security interest. Thanks for being with us.

    A couple of things have come out that I think need to be addressed. One is the old argument of foreign availability, which has always been thrown up as a justification for lowering the gates and letting the rest of the horses out of the barn.

    Often we have found, whether you are talking about how the French were going to build a gas pipeline for the then-Soviet Union and they could do it with all the technology that we had and we ended up discovering that, in fact, the protestations of foreign availability were not as accurate as they had been, and that has been kind of an historic thing. It is a simple thing to say everybody else does it; therefore, we should be able to do it.
 Page 65       PREV PAGE       TOP OF DOC

    With respect to supercomputers, of foreign manufacturers of supercomputers, how many of them have a policy of selling to Tier III countries? I think that is an important question, if you gentlemen could answer that one. How many of them have a policy of selling to Tier III countries?

    Second, Dr. Bryen, it appears to me that we need to have a high-tech Coordinating Committee on Multi-Lateral Export Controls (COCOM), if you will, another COCOM. This idea—and I agree, we have to show leadership because if we do not show it, the game is over. This thing is going to have a cascading effect and everybody will rush off to sell Winchesters to the hostiles as fast as they can.

    But how do we put that together? Do you think there is a need for that? How do we put it together and what are reasonable parameters for that? How would it differ from the old Cold War COCOM that we had?

    So gentlemen, if you could answer those.

    And last, end use on supercomputers. During one 12-month stretch of the 160 some supercomputers that went to China, they allowed us to check end use of precisely one. Now unless that changes, does it make sense to continue to allow the continuation of those transactions? Obviously that is not what this Congress had in mind. We wanted to check the end use because end use is so fragile to begin with.

    The idea that a nation that has an interest to use a supercomputer is going to develop a nuclear weapon with it will tell you that it is going to the weather service, that is a fragile position to begin with. And the idea then that we take their word for it, when they do not even allow us to go to the weather service and see if it is there, enters the realm of a total fiction.
 Page 66       PREV PAGE       TOP OF DOC

    So three questions. Thank you.

    Mr. STUMP. Dr. Bryen, do you want to start?

    Mr. HUNTER. The first one was—go ahead.

    Dr. BRYEN. I am not sure what order I am going to do this in.

    Mr. HUNTER. Well, the first one is the foreign availability. How many countries that ship to foreign manufacturers of supercomputers now have a policy of shipping to Tier III nations?

    Dr. BRYEN. Of course, this all depends on what you want to call supercomputers. If you are talking about parallel processing machines, which is what I am primarily concerned with in terms of countries like China, and China is one of the biggest customers for these kinds of machines these days, we ship most of them. We ship most of them. There are not that many countries that make them anyhow—some in Germany, a few in England, Japan, but most of them are made here.

    So to the extent that the evidence is publicly available, this whole thing is principally an American problem, from just about any angle you look at it.

    Mr. HUNTER. But that goes right to foreign availability. Japan has a policy now of not shipping supercomputers to China, does it not?
 Page 67       PREV PAGE       TOP OF DOC

    Dr. BRYEN. That is right.

    Mr. HUNTER. And Mr. Johnson did a study on that a little while back. GAO did a study, I believe, on foreign manufacture, so you may want to give us—

    Mr. JOHNSON. What we found about a year and a half ago is that only Germany had sold high-performance computers to Tier III countries. Japan, the U.K., neither one had sold to Tier III countries. And Germany and Japan and the U.K. all have export controls similar to what we have. But you are right; we do need a COCOM arrangement for that.

    Dr. BRYEN. Coming back to the COCOM arrangement, you could start by taking the supercomputer agreement that was trashed by the Administration and revise it and expand it to the other countries that make such machines. There are only two others. So three countries could join in an agreement and it would not be very taxing on the other countries because, as Mr. Johnson has said, they are not shipping them anyway, for the most part.

    So it is really an American problem. If we want to do this, we can do it.

    Yes, in the future we increasingly need to put back in place something like COCOM. COCOM was very effective. I worked for many years—Dan worked for many years on that, as well. He used to work in the Administration before he went to industry, so he has two hats, as I do, and we know it can work. We know that you can make—I think that everyone who has analyzed the results of that process, particularly with respect to the then-Soviet Union, and who has looked at the technology base and what we achieved, it was quite successful.
 Page 68       PREV PAGE       TOP OF DOC

    We have to do it in a different dimension now because the problem is different, but I think your suggestion is well taken and it is important to do it.

    Now you made one other point that I wanted to come to and that is end use and end users. In China, literally all the supercomputers that are there, from what we understand, are in networks. There are about 10 major networks that we know about in China. That means that a machine at a Chinese toy factory, if it is a supercomputer, can be used by a military research institute to carry out calculations on a new weapon system.

    So when you check end use, it is unlike a machine tool because a machine tool, you put it in a place and it cuts metal for a specific purpose and you can look at the parts and you know what comes out the other end. But with a computer and a network, it could be almost anywhere.

    So I am not real convinced that end use is the whole—and the Chinese have been very difficult about it, as is well known, because they do not want us looking at their operations. But I think you have to assume that any machine that you let go to a country like China is going to be used for whatever national security priority the Chinese may have, whatever defense priority they may have, including their nuclear programs.

    Mr. HUNTER. And you think the benign use theory that we operate under is invalid?

    Dr. BRYEN. Yes, sir. I think it is a mythology. I think the whole differentiation between military and civilian in a country like China is meaningless.
 Page 69       PREV PAGE       TOP OF DOC

    Mr. HUNTER. Maybe Mr. Hoydysh could tell us whether or not he thinks everything is fine or maybe we should—

    Mr. HOYDYSH. Let me answer some of your questions but first I would like to say you complimented Dr. Bryen for working against the tide when he was in the Administration. I am here to tell you that Dr. Bryen was the tide. The rest of us were working against the tide.

    I guess I would like to clarify just one thing. If we can leave here with one understanding, what we are talking about, the reforms that we want implemented have nothing to do with supercomputers. Supercomputers are the things you talked about last week. It took a flatbed truck to drive it from wherever it was to California and to that warehouse. That is a supercomputer and I think Steve agrees with me. Supercomputers have hundreds of processors. They are massively parallel machines that are used for specific number-crunching. These are not supercomputers that we are talking about.

    Now maybe we have a problem with how we define that or whether we transfer MTOPS into something else but I think if we get beyond the differences of definition or maybe the misunderstandings, that there is absolutely no disagreement between what Steve has said and between what I have been saying here this morning, that eight processors and below, however you measure them, are basically commercial, mass market systems. Above that we are into a different realm and different rules would have to apply and we would have to look at how they are actually used.

 Page 70       PREV PAGE       TOP OF DOC
    Mr. HUNTER. How do you define a supercomputer in terms of MTOPS?

    Mr. HOYDYSH. I would define a supercomputer starting from the top down. I would look at the machines, the 500 most powerful machines in the world. And you are talking about MTOPS in the hundreds of thousands of range.

    Mr. HUNTER. That is how you would define it? If it is not hundreds of thousands, then it is not a supercomputer?

    Mr. HOYDYSH. If you have to use MTOPS, I would say that the supercomputers begin somewhere above 50,000, 100,000, something in that category. There is no precise boundary for it.

    Mr. HUNTER. In that case, why is it that it has been established that the Japanese have a policy of not selling computers of certain performance to China? What is it that the Japanese feel that it is not in their interest to sell to China?

    Mr. HOYDYSH. I do not know. I do not know as a fact. I would guess that it does not apply to the boxes that we are talking about.

    Mr. HUNTER. Let me just tell you, Mr. Hoydysh, and I know I have to go but we have heard what I call the old gym socks argument made on the House floor a lot of times. It is always that all we want to do is let old gym socks be sold to these foreign countries and these dumb old congressmen will not even let old gym socks be sold to these foreign countries. And it always ends up that it ain't old gym socks that they want, because they obviously can make them themselves or get them lots of other places.
 Page 71       PREV PAGE       TOP OF DOC

    Inevitably what they want is something, just as is the same in all human experience, that you cannot get somewhere else.

    So my impression of this thing is and one thing that I have always felt to be a fairly solid proposition is you do not have to give people the absolute cream of the crop, top of the line to help their military operation. We just made that mistake with Pakistan and India. We have discovered now they have detonated mid-level nuclear weapons using our published material because we were so stupid, we never thought somebody would want to make a crude nuclear weapon. We thought they would only want to make a top of the line nuclear weapon.

    So I think it is a fairly complex area with respect to whether or not the system that you said, hey, it is old gym socks, no big deal, can appreciably help the Chinese nuclear weapons complex produce, early on, more effective killing capability on systems that will be aimed at American cities. I do not think you have done away with that argument by showing us this nice simple device down there on the table, but I remain to be convinced.

    Mr. HOYDYSH. I am not suggesting that computers cannot be used for anything that you want to use them for. The question is at what level does it make sense to devote government resources to chasing these things, as opposed to concentrating on things that are really important?

    If you have a million single processor PCs that are over the 2,000 MTOPS, is it worthwhile to chase those or are you going to focus on the things that Steve is concerned about, the massively parallel things, to either not sell them at all or to put such safeguards on them that they cannot be used for anything other than what they are supposed to be used for? And that is the question before us, I think.
 Page 72       PREV PAGE       TOP OF DOC

    Mr. HUNTER. Well, I agree with you. I want to hear your answer, where you think we should have limitations.

    Mr. HOYDYSH. Well, we are here right now to suggest that the proposal to raise it to 6,500 MTOPS, which is the parameter that we are stuck with at this point, which would free personal computers; it would free this kind of two- and four-processor system, which is available worldwide in the millions of units; we think that that limit is appropriate for today's technological and competitive realities. And we are here to support that—

    Mr. HUNTER. And does Japan transfer those?

    Mr. HOYDYSH. I am absolutely certain that Japan will sell two-, four- and eight-processor computers to China.

    Mr. HUNTER. Mr. Chairman, I will stop asking questions but I want to get the absolute fact on that, what level for the record or whatever, what level Japan presently sells as a matter of policy to China.

    Mr. STUMP. Mr. Milhollin?

    Mr. MILHOLLIN. I would just make a couple of comments here. We also need, I think—there is a question of perspective. The Tier III countries, which are the only ones affected by the NDAA, represent five percent of the market for high-performance computers, five percent. If all of the supercomputer companies or all of our computer companies and all the Japanese companies just did not sell at all to that market, it is hard for me to see how the destiny of any individual company would be greatly affected by that. We are talking again about five percent of the market.
 Page 73       PREV PAGE       TOP OF DOC

    The most recent figures I have from the Commerce Department show exports to Tier III countries of computers that were considered by the Commerce Department to be high-performance computers, which at that time I think was over 2,000, we are looking at five percent of the market.

    So I cannot see why our companies are so desperate to crack that market if it means that the cost will be that we will be helping their military capability. It just seems to me that the money is not worth the risk.

    It is also possible to think about changing the system so that for certain countries, we would not recognize a difference between civilian and military, and I think, Mr. Hunter, that is what you are suggesting. In the case of China—perhaps there are countries where there should be an exception to the existing differentiation in the regulations between civilian and military. But at whatever the level is for high-performance computer exports for civilian and for military, they ought to be the same for China and perhaps for other countries.

    Mr. STUMP. Thank you. Mr. Skelton.

    Mr. SKELTON. No questions.

    Mr. STUMP. Mr. Bateman? Mr. Hunter, any more questions?

    Mr. HUNTER. Yes, just one follow-up there, Mr. Milhollin. When you say five percent of the sales go to Tier III countries, Mr. Hoydysh, as I understand his position is saying that is what he would consider to be a low level technology computer. That is right, Mr. Hoydysh?
 Page 74       PREV PAGE       TOP OF DOC

    Mr. HOYDYSH. [Nods.]

    Mr. HUNTER. Is a fairly substantial—I take it the reason you are here is because that is a fairly substantial and promising market in these Tier III countries. If we are not going to buy any, this whole thing is—

    Mr. HOYDYSH. Mr. Congressman, for some of our companies it is considerably more than five percent. It is up to 15 percent. It is a very rapidly growing market.

    Mr. HUNTER. Define what level computers those are that make the 15 percent.

    Mr. HOYDYSH. I am talking about the overall sales of all of our information technology (IT) products into the Tier III countries is on the order of maybe from 5 for some companies to 15 percent. All I am suggesting is that we cannot afford to forego five percent of the market unless we have a compelling reason not to do so. Any CEO who would give up five percent of his revenues would be out in three hours from his job.

    So this is important. Revenue is important to keep our companies healthy and unless it can be shown that there is a compelling reason why we should not compete in that market, we have to be allowed to sell.

    Mr. HUNTER. I understand. And every time we do a post-mortem of a war, whether it is Saddam Hussein or somebody else, we find out that American companies and other Western companies have ended up creating part of a military apparatus that destroyed our soldiers, your neighbors on the battlefield. And generally speaking, when we err, we err on the side of having liberalized these exports too much.
 Page 75       PREV PAGE       TOP OF DOC

    And if the standard is always that you want to see a direct link between a military operation and a technology, many times we have missed that. The grinders that we sold to the Soviet Union and made $12 million on the sale in 1972, ended up accurizing their SS–18 missiles, nuclear warheads aimed at the United States. Now those were going to be used ostensibly for a domestic project in the Soviet Union.

    So we make a lot of mistakes and that is why I think it is important for us to not underestimate the value to a military operation of even what I would call mid-level computer technology. We just made a massive mistake with respect to India and Pakistan because they used open American literature to build nuclear weapons. We never dreamed they would want to make a mid-grade nuclear weapon, but they did, and now we may have to pay the consequences.

    Mr. HOYDYSH. Congressman, I agree with everything you say. All I can say is that I take great comfort in the fact that Dr. Bryen and I are on the same page, at least on this one. Even when I worked in the Commerce Department I always thought we could push for anything we want because he would never let us sell what was truly strategic. And if he is on the same page with eight-processor systems, then I feel confidant that we can go ahead and—

    Mr. HUNTER. Dr. Bryen, are you heavily sedated today or is that true?

    Dr. BRYEN. I may need to be after this.

    What I said, Mr. Hunter, is that we can easily fix this problem. It will not satisfy everybody in the computer industry but it will protect our national security. The way you do that is you distinguish between parallel processing machines and these desktop machines, which are not parallel processing machines. You can simply say in the regulations that anything less than eight processors is exempted from the controls because, first of all, they are commodities and they are hard to control. If you want to keep it out of India, you will not succeed, or out of Pakistan or any of those places. It will not work.
 Page 76       PREV PAGE       TOP OF DOC

    And then let's get some tough controls on the supercomputers because that is where we are going to get hurt. I do not think our controls right now are tough. I think they stink, actually. I do not think they are doing the job, and we need to control the software.

    And we need to get a national security impact study, which we do not have. I would not go along with raising the threshold one point without a national security impact study that looks at what our adversaries might do.

    So that is my position and I think we can help out industry and solve a national security problem at the same time and I hope the committee will take it up.

    Mr. HUNTER. Thank you, Mr. Chairman.

    Mr. STUMP. Gentlemen, thank you very much. There are a couple of questions from staff and other members. If you would submit them for the record, we would appreciate it, as rapidly as possible.

    The committee will stand in recess and we will reconvene at 2:00 for a third panel. The committee will stand in recess.

    [Whereupon, at 12:36 p.m., the committee recessed, to reconvene at 2:00 p.m., the same day.]

    The CHAIRMAN. The committee will please be in order.
 Page 77       PREV PAGE       TOP OF DOC

    As I said earlier this morning when we began the first panel hearing, this afternoon we have with us Mr. William Reinsch, Under Secretary of Commerce for Export Administration.

    Before we get to our witness, Mr. Skelton, do you have anything to say?

    Mr. SKELTON. No, Mr. Chairman.

    The CHAIRMAN. Your prepared remarks will be submitted for the record and you can proceed as you would like.


    Secretary REINSCH. Thank you very much, Mr. Chairman. I appreciate the opportunity to be here and let me also thank you personally, as I did privately, for accommodating my schedule. My plane landed this morning at 11:00 a.m. and here I am. I am not sure what day it is but I am here and I am awake for as long as you need me to be awake.

    The CHAIRMAN. We will help you.

    Secretary REINSCH. Yes, I have heard. I have gotten several reports on this morning and I am sorry I missed it. It would have been interesting.

 Page 78       PREV PAGE       TOP OF DOC
    Let me try to tell you a little bit about what we have done and why we have done it in the computing area. I think to save the committee's time I will not announce the details of the announcement that the President made because I am sure that you have already been over that and it would be redundant to go into it.

    At the time of his announcement I would note that the President indicated that he was prepared to implement the changes immediately, even though one of them has a six-month waiting period that will expire on January 23. And the President urged the Congress to reduce that six-month waiting period to 30 days, and I know that is something that members of Congress are thinking about and I just want to reiterate our support for that and hope that the Congress will take that action as the clock is ticking.

    The President has also told us to continue to review these levels every six months to determine if further changes are warranted, and we believe this commitment really, to routinize and regularize this process and take it out of a political environment and put it into a technical environment, if you will, is as important as the specific changes we announced and we intend to meet the schedule he has laid out and we are already meeting on that subject.

    Let me be clear that the role of the Commerce Department in these recommendations was to collect and analyze information on computer technology, the high-performance computer (HPC) market, and capabilities of foreign producers. We do our work in partnership with other agencies, particularly the Department of Defense, the intelligence community, the Department of State and the Department of Energy. And, of course, we build on our previous work.

 Page 79       PREV PAGE       TOP OF DOC
    Let me describe some of our findings for you. Computers were once large, bulky items that were expensive and difficult to install and maintain. There were only a few suppliers in the U.S. and Japan. Many systems were custom-built. In fact, many of the most powerful systems actually sent an employee of the manufacturer along to operate the system and the buyer never actually touched the system in some of these cases.

    Today that situation has changed radically. The engine of that change is the microprocessor, which provides the basis of computing power. Improvements in design and manufacturing mean that manufacturers now sell single chips with speeds over 2,000 MTOPS, which is the current threshold for notification and post-shipment inspection.

    These microprocessors, sold in the tens of thousands, power ordinary PCs and laptops, which under law will have to be treated as high-performance computers as they go over the 2,000 MTOPS threshold. These chips and the related motherboards, and I think you had probably a technology lesson this morning from the private sector witness, are commodity items which are shipped to thousands of distributors around the world. Computers which use these items include servers and work stations, which require little support to install or operate.

    The affordability and widespread availability of these computer products permit foreign end users to modify commodity computers into high-performance systems. The result is that HPCs are smaller, cheaper, simpler to install and maintain and more reliable than ever before.

    In addition, recent gains in network technology have also had a significant effect on high-performance computing. Advances in software, in interconnects and parallel processing mean that the performance levels once associated with giant machines can now be obtained by smaller and less expensive computers.
 Page 80       PREV PAGE       TOP OF DOC

    While there is still an advantage in using one HPC instead of a group of desktops, software and connection capability is opening the way to an increase in both use and availability of very high-performance computing based on PCs. The affordability and widespread availability of these products permit foreign end users to configure them into high-performance computer systems.

    Now the number of firms capable of producing computers that are able to perform above 7,000 MTOPS has greatly expanded in the last few years, along with demand for computers. In part, this is driven by the rapid growth of the Internet. Previously, only the U.S. and Japan had firms capable of producing these items. Other countries, primarily in Europe, had the technological capability but could not compete effectively with us.

    This is no longer the case. While the U.S. and Japan remain the two countries with the ability to produce high-end HPCs in commercial quantities, the technology for producing them using four or eight microprocessors is widely diffused around the world.

    We found 170 computer manufacturers located around the world who account for three-quarters of global production. More than 120 of these manufacturers are outside the United States; 28 are in countries that are not members of the Wassenaar Arrangement, which is the only basis for multilateral controls on these items. Computers are not controlled by the nonproliferation regimes.

    The technologies in the production lines these companies use to build PCs and servers can also be used to build computers with speeds over 7,000 MTOPS. Many of these producers are located in countries that do not observe U.S. or multilateral restrictions on computer exports.
 Page 81       PREV PAGE       TOP OF DOC

    Beyond that, the policies of most of our major trading partners in Europe and elsewhere do not restrict exports even of Wassenaar Arrangement-controlled dual-use items to countries like China. If the U.S. requires its firms to obtain licenses for computers which can be easily produced by non-U.S. suppliers, these foreign suppliers can and will fill the demand. They may not do so now because they cannot compete with us economically, but if we remove our companies from a market, they will step in promptly because we believe they can compete with us technologically.

    Now let me speak generally to the national security issue, but I want to recognize very clearly, particularly before this committee, that the Department of Defense is the U.S. government agency best situated to provide the committee with the Administration's perspective on national security and computers and I would hope the committee will invite DOD at the appropriate time and in the appropriate way to discuss this issue with them in depth in a way that is convenient for you.

    I would refer you, though, to Deputy Secretary of Defense Hamre's statement at the time of the President's announcement that the Defense Department's national security concerns were taken very seriously during the interagency discussions, that every one of Defense's concerns were accommodated and that the Department of Defense is satisfied that it can continue to protect the United States with the changes that the President announced.

    That announcement came after a careful interagency review involving all the agencies that I alluded to earlier—Defense, State, Energy and the intelligence community. We considered a range of options, we took an in-depth look at the technology.
 Page 82       PREV PAGE       TOP OF DOC

    The focus of our work has been to determine what we can realistically control. Computers and chips that are relatively inexpensive, manufactured in the millions and sold through thousands of outlets around the world are readily available to any purchaser and cannot effectively be controlled. We think it is better for our national security to focus our energy and resources on critical items that we can control.

    What we have concluded is that computers at all levels, including PCs, have potential military applications, and I do not want to leave any doubt about that. Our own military production illustrates this. The weapons found in the U.S. arsenal today were built with computers whose performance was below 1,000 MTOPS, in many cases below 500 MTOPS. The level of computational power used to develop all the bombs in the current U.S. nuclear arsenal, for example, is less than that found today in many work stations.

    Our conclusion is that the amount of computing power alone needed to design and manufacture modern weapons once you get over a few hundred MTOPS is not a critical variable. Other factors—software design, access to sophisticated manufacturing techniques, experience and test data—are more important.

    In that regard let me comment, Mr. Chairman, that many of us both here and in the Administration and in preceding administrations have essentially given the same speech. I call it the choke point speech, that we should focus our controls around those items that are critical choke points without which you cannot build systems.

    Mr. Cox in his report referred to building higher fences around a smaller number of items, as I recall. He essentially has made the same point. We should focus on what is truly critical and essential and not on a much broader spectrum that dilutes our focus and dilutes our resources.
 Page 83       PREV PAGE       TOP OF DOC

    That is what we are trying to do in this sector by trying to be realistic about what we need to focus on. That is why our review focussed not only on the potential military applications, which are clear, but also on controllability and U.S. technological leadership.

    Our conclusion was that the national security interests of the United States are best served by ensuring that the U.S. retains its technological advantage in the design, development and production of microprocessors and computers. Some 50 to 60 percent of revenues for these sectors are generated through exports. What that means is the ability to compete internationally is an essential ingredient to the continued viability of these industries. No nation can remain at the leading edge of technology unless it participates in the global market.

    The continued generation of revenues from exports provides needed capital for research and development which keeps these industries at the cutting edge of technology and which, in turn, ensures that the U.S. military and U.S. defense-related industries will continue to have access to the computer technology they need to maintain our military advantage.

        What this means in simpler terms, Mr. Chairman, is that we have come, over time, to two conclusions. One is an equation that strong exports mean strong high-tech companies, which mean strong defense production and strong national security.

    The reality that we have discovered in this sector, and I would not want to say all sectors and I want to be clear about that, but in the information technology sectors the reality is that the Pentagon needs these companies more than these companies need the Pentagon. Most of their revenue and most of their sales come from civilian sales and come from exports. These are companies that very much want to make sure that our country retains its leadership in defense items, that we retain our ability to project power anywhere we want to and that we maintain our role as a global superpower, and the companies want to cooperate with the Department of Defense in doing that.
 Page 84       PREV PAGE       TOP OF DOC

    What we have concluded is that it is very much in the Defense Department's interest in that regard for these companies to be healthy and profitable so that they are able to do that. If they are not able to do that, over time, we lose our lead. And as we lose our lead in this sector, our national security is compromised. That is the basic equation and the basic conclusion that has been driving the Administration's three revisions in controls in this area that occurred in 1993, 1996 and now in 1999.

    Now let me close, Mr. Chairman, if I may by saying a word about the NDAA process, which came out of this committee. To date, we have received a few more than 2,500 notifications under the process that you set up from its inception February 3, 1998. Of this amount, 205 or 8 percent received an objection from one agency or more and were converted to licenses. Of those 205 that were converted to license applications, I should say, nine or less than one-half of one percent have been denied.

    A number of other cases were returned to exporters to allow them to assemble the documents needed for the lengthy process of license review and roughly 120 are pending as of the time of this testimony.

    To be candid, we see problems with the NDAA process. In particular, the 2,000 MTOPS level for notification and verification. Rapid advances in microprocessor and computer performance makes the 2,000 MTOPS level unworkable for us and threatens to clog the system with thousands of notifications to which no one is going to object. This problem is only going to grow as computer and microprocessor speeds continue to increase.

 Page 85       PREV PAGE       TOP OF DOC
    Also of great importance for us is that this level, the current level is forcing Commerce to use scarce investigative resources to conduct a rapidly growing number of post-shipment verifications in Tier III countries which detract from more important enforcement efforts. The fact that we are required by law to visit all such computers, including PCs and laptops, forces us to spend time on those that do not matter and forces us to visit over and over again institutions that we have already decided are safe institutions but every time they buy a new computer, and this is often the case with a bank, for example, or a phone company, we have to go visit them again.

    If our investigators were permitted to exercise their discretion, we could focus our efforts directly on any problematic locations we might identify. Adjusting the MTOPS level upwards for these inspections, and we appreciate the Congress's action in the defense authorization in doing that, will be helpful but I must say it will only be temporary relief as chip speed increases and commodity level PCs and laptops grow increasingly powerful.

    This is going to become more important in the near future as several manufacturers place tens of thousands of chips with speeds greater than 2,000 MTOPS on the market. We expect to see single chips with speeds greater than 3,000 MTOPS enter mass production before the end of the calendar year.

    In particular, I would call your attention to the decision of at least one company, one U.S. company, not to market laptops and PCs with performance above 2,000 MTOPS in Tier III at this time because of NDAA requirements. We do not believe it is possible for PCs and laptops sold in the thousands in retail stores to wait 10 days for interagency review. If these companies sell these commodity computers in Tier III, the NDAA review system would be overwhelmed.
 Page 86       PREV PAGE       TOP OF DOC

    More to the point, we must be clear that the NDAA process does nothing to prevent militaries in Tier III countries from obtaining single chip PCs and laptops with performances above 2,000 if they want them, since these are inexpensive, highly portable and widely available from retail outlets around the world.

    In conclusion, Mr. Chairman, computer export policy has broad ramifications for the health of the entire American economy and for U.S. national security. We are the world leader in information technology and in computer manufacturing and that industry's future depends on exports. Ill-advised export controls could put this vital sector at risk with little benefit to national security.

    In the short term, U.S. companies would lose sale opportunities to foreign firms. In the long term, U.S. companies would suffer significant and perhaps irreversible loss of market share in foreign markets. The loss of export revenue would adversely affect the ability of U.S. companies to fund R&D on next-generation technologies, thereby harming their ability to maintain product lines on the cutting edge of technology, including products with strategic military applications.

    Thank you, Mr. Chairman.

    [The prepared statement of Secretary Reinsch can be found in the Appendix.]

    The CHAIRMAN. Thank you. I was just wondering, you were talking about the 2,500 notifications and 205 were converted to licenses and only nine were denied. Of the nine that were denied, did anyone appeal that decision or contest the fact that they were denied for a good reason?
 Page 87       PREV PAGE       TOP OF DOC

    Secretary REINSCH. Looking at the list, no, sir, there were no appeals of those.

    The CHAIRMAN. And only nine were turned down, so of all the ones that were requested, it seems like a good many of them, would that indicate that the process was working, or what is the problem?

    Secretary REINSCH. Well, let me just give you two more numbers for the record, just to flush it out, Mr. Chairman. Nine were denied; 28 were approved. That means the application, after it came back, after an objection was approved, 139 were returned without action.

    Some of those may have reappeared as separate new applications. We have no way of tracking that. Some of them disappeared. But when you keep in mind also that a lot of these notifications are on spec, if you will, and are put in in anticipation of deals being closed that ultimately do not close, the number of computers actually shipped is not necessarily related to the number of notifications we receive.

    Because of the visit requirement, we actually keep two sets of data. We keep data on notifications obviously. In order to perform visits, of course we want to visit computers that are actually there, not mythical computers that were not shipped. So we keep track of computers actually shipped and that number is probably, depending on what time period you look at, between one-third and one-fourth of the notifications.

 Page 88       PREV PAGE       TOP OF DOC
    So a lot of these fall by the wayside for commercial reasons that have nothing to do with us, and I think I need to make that point.

    In terms of what works and what does not work on the NDAA, the part that clearly does not work the most is the visit part and I can discuss that further if you want, but you have asked about the notification report.

    I think at low volumes, the notification process is functional and we have been able to—the test for us is can we do it with existing resources and manpower and maintain the 10-day limit that it provides for or are we beginning to fumble around at the edges, in the sense that we are taking longer or that you are starting to see sort of blanket rejections without any review because people simply cannot handle the volume.

    At low volumes such as we have had until this summer, the system is manageable. What happens when you start getting into the hundreds each week or more, which is what is happening essentially since the beginning of September, late August, where our curve has started to go up, which is exactly what we have all been predicting, then the system rapidly becomes unmanageable.

    Because we have had at least one company voluntarily decide not to market in these countries and therefore not give us any notifications, that has made the growth curve somewhat slower than it otherwise would have been but that is really what we are worried out.

    Now if we go to 6,500 MTOPS, what will happen at that point is the system will ramp down again and the number of notifications will be much lower because we will only be taking them above that level and pressures will ease and the system will be manageable again. If we have to wait until January to get there, I foresee a lot of difficulties in November and December if you look at our growth curve.
 Page 89       PREV PAGE       TOP OF DOC

    The CHAIRMAN. I do not think anyone is probably advocating lifting all kinds of controls, are they?

    Secretary REINSCH. Well, we have not advocated that, either. I think what we feel is that 6,500 MTOPS is an appropriate level to go to, given the state of technology now, and I would be happy to discuss that if members want to.

    We felt that it was appropriate, obviously since we conducted our study and our review and the president made that decision, he was prepared to do it as of that point. Congress has given itself six months to conduct your study and we think we would encourage you to do it sooner than that.

    And I would simply say in response to your question, I think if we wait until January 23, which would be the 180th day if you will, for the time period to expire, I think the system will be in serious trouble by that point, and we are rapidly getting there now. But I could not tell you that it was nonfunctional from day one. It was not and it worked effectively and it does work effectively at low volumes.

    The CHAIRMAN. Without this system that we have set up, those nine that were denied would have gone?

    Secretary REINSCH. I do not think so, Mr. Chairman. To discuss that would necessitate getting into specific end users, which the law prohibits me from doing in public session, as you know. I gather one of your private sector witnesses this morning did not feel constrained by the law, which I think is unfortunate, but I am.
 Page 90       PREV PAGE       TOP OF DOC

    It is our belief that in those particular cases, the end users—I am sorry—the exporter probably would have applied for a license from day one because of the nature of the end user, but in a sense, the notification process means they do not really have to make that decision because your process says you have to notify anyway and that effectively then puts on the government the burden of deciding when a license is needed or not.

    I think it is not really correct or fair to the companies to assume that in the absence of your process they would never file any license applications. We did have cases that you are well aware of in Russia where we thought they should have and they did not, so I cannot tell you that the companies are 100 percent prescient on this but neither, I think, is it fair to assume that their compliance would be zero if they did not have the notification process.

    The CHAIRMAN. Mr. Skelton.

    Mr. SKELTON. Let me ask you a similar question I submitted to the panel this morning. In your opinion, how much time is required for Congress to conduct a good review?

    Secretary REINSCH. Well, I speak from the perspective of someone who was up here for 20 years in various capacities doing this kind of thing. My personal view is that given what I think you ought to do as part of that, I think it can be done in 30 days.

    Now if the committee in its wisdom wants to—
 Page 91       PREV PAGE       TOP OF DOC

    Mr. SKELTON. What happens if the clock starts ticking at the day before Thanksgiving? We are not around.

    Secretary REINSCH. Well, that is a two-part question, Mr. Skelton.

    Mr. SKELTON. Well, just answer that question.

    Secretary REINSCH. The staff is around and I think the people that probably would conduct your study and review are around and able to do it. The question is if your conclusion was that we made a mistake, would you be in a position to do anything about it 30 days after the day after Thanksgiving, and the answer to that is probably no, you would not be around to do anything about it.

    Mr. SKELTON. So 30 days would not be adequate.

    Secretary REINSCH. Thirty days would not be adequate for you to take an action. I do think that 30 days would be adequate for your committee staff and members that were accessible to review the matter and come to a conclusion.

    Mr. SKELTON. Mr. Reinsch, some of them do take off for Thanksgiving and Christmas and New Year's, as well.

    Secretary REINSCH. Well, I am delighted to hear that. I must say I am not sure that yours do because they seem to always be around.
 Page 92       PREV PAGE       TOP OF DOC

    Mr. SKELTON. Well, I try my best to keep them here but some of them just insist.

    Let me ask you this. There was some testimony this morning about the term and measure of MTOPS not being the best way to measure. Could you address that so a country lawyer can understand, please?

    Secretary REINSCH. Yes, sir. I am aware of this morning's discussion. I had several people alert me to this.

    Each time we have reviewed this we have looked at other ways of doing it and I have said before publicly and privately that we are not wedded to MTOPS as an answer. MTOPS is an artificial construct that is not used in marketing these things and the industry does not particularly like it.

    Mr. SKELTON. Do you have a better idea?

    Secretary REINSCH. Not yet. I know the idea that was suggested this morning was to go by the number of processors.

    Mr. SKELTON. That is correct.

    Secretary REINSCH. And let me say two things about that. It is a very interesting idea. We considered it before. We did not exactly reject it. In fact, what we did was embody that thought in an MTOPS formula. 12,300 is eight times one Pentium III, and that is how we got to 12,300, by making the same assumption that I understand Mr. Bryen made this morning, that eight-processor and below models could not effectively be controlled.
 Page 93       PREV PAGE       TOP OF DOC

    So what we simply did was rather than say eight processors, we said well, what is eight times the current performance capability and we will pick that MTOPS number.

    I would just observe, and I am agnostic on this point, that if you do it by processors rather than MTOPS, you start out at the same place that we are but you end up with a significantly greater liberalization because eight processors with the Pentium III comes out to be 12,300 MTOPS. Eight processors with the Merced, now called the Itanium, the thing that Intel is coming out with next summer, would be over 40,000, but it is still eight processors.

    So if you are prepared to accept that kind of ramp-up in capability, even though the number of processors has not changed, controlling by processors is, I think, an equally effective way to go and I think it is a fair point to say that if your assumption is that you can do eight processors without substantial vendor support, they are widely available, they meet all those criteria, that is going to be true whether it is an Itanium or a Pentium or whatever it is. But the committee should understand that that embodies in it a substantial increase in capability that might or might not be where this Administration will end up.

    Mr. SKELTON. Thank you so much.

    The CHAIRMAN. Mr. Hayes.

    Mr. HAYES. Thank you, sir.

    Let me preface my question by saying my technological capabilities are better suited to this than some of the equipment you are talking about.
 Page 94       PREV PAGE       TOP OF DOC

    For my edification, based on the retail marketplace, what can be purchased by anyone anywhere over the counter, what is the ceiling that presently exists, the ceiling under which people that we do not want to give aid and comfort to with any kind of military hardware or software, what is the ceiling out there now that they can go to the marketplace and purchase equipment that we are talking about?

    Secretary REINSCH. Well, as a general matter we concluded that that level has really reached 6,500 MTOPS or to use the concept that I was just talking about with Mr. Skelton, that level has really reached eight-processor models.

    Now if you are an Iraqi or an Iranian, that number is probably lower because particularly in the case of Iraq, you are subject to a U.N. embargo and no one is supposed to trade with you, so there are special circumstances like that.

    Saying that an item is uncontrollable at 6,500 MTOPS, which is what we say, is not the same thing as saying every single individual in the world can walk down the street and buy one. It is logically more complicated than that. But what it does mean is that people, and particularly governments that are determined to get them, can do so relatively easily at that level.

    Mr. HAYES. That was not quite as clear as I hoped it would come out.

    These gentlemen who have spoken already, everyone in the room and those not present share the same belief, that we should do nothing to help our enemies or potential enemies around the globe, so I think unanimity there is concrete. There is no question about it.
 Page 95       PREV PAGE       TOP OF DOC

    In another presentation, again talking about computers and software, some private providers outside of the defense context were talking about similar terms and I got the impression that you could buy in the personal computer retail market 100,000, 200,000 MTOPS capability equipment without any real difficulty. Am I mistaken? Did I miss something there?

    Secretary REINSCH. Well, we would not agree with that. I would like to have a conversation with those people and learn a little bit more about what they were talking about. Certainly that would not be true for a personal computer. I mean we are at the point right now where PCs are getting into the 2,000, 3,000 MTOPS range. The items that the notification process really works for historically have not been PCs, although that is beginning, but servers and work stations. The server being the kind of thing that runs your office email system, that would be a server. Or a work station on which you would do computer-aided design and things like that for designing anything from a house to a military item—it is the work stations and the servers that are really caught in the more than 2,000 MTOPS and less than 10,000 or 20,000 MTOPS market and those are individual items but they are not the kind of thing that you would just walk out to a store and buy. It is a little more complicated than that.

    And at the 100,000 to 200,000 MTOPS level, I would dispute anybody who said that it is that simple.

    Mr. HAYES. Let's go down another road. You were referring to the screening process and I do not think anyone has any problem with the screening process. We all think it is wise to do that. But you said under the present system, 2,500 screenings resulted in nine rejections. It would appear that this present screening process is not operating at maximum efficiency. People are possibly, and correct me if I am wrong, tied up examining things that they really do not need to examine.
 Page 96       PREV PAGE       TOP OF DOC

    2,500 versus nine. Just in an ideal world, what should that ratio be to show that we are examining the right kinds of products, if that is a legitimate question?

    Secretary REINSCH. That is a very interesting question and we have not really asked it of ourselves, Mr. Hayes, because the law does not give us that flexibility. It is a fair point. If of all those, that is the number you are coming out to, what is the utility of it?

    I can say that to put it in a slightly different perspective, the number that were objected to if you will by a single agency was higher than the nine. I mean the number that was objected to by somebody were 189 out of that 2,500. Some of them are still pending. So 189 were objected to.

    Now what happens when there is an objection is that means that the applicant has to come back in and submit a license application. A lot of them just do not do that and it sort of vanishes into the ozone. Of the ones that did, nine were denied, which is a very small number.

    Mr. HAYES. One more quick question, Mr. Chairman. His answers are more complex than my questions.

    Am I hearing you say that 6,500 MTOPS is a very reasonable, safe, common-sense number based on today's marketplace and national security?

 Page 97       PREV PAGE       TOP OF DOC
    Secretary REINSCH. Yes. How is that for a shorter answer?

    Mr. HAYES. Thank you.

    The CHAIRMAN. Mr. Smith.

    Mr. SMITH. Thank you.

    First of all, I want to thank the Administration for what they have done. I happen to think you are moving in the right direction and making sense out of a policy that was really outdated and I think updating it to match the technology is the correct way to go. I may be in the minority in that viewpoint on this committee but I do agree with it.

    Also I have some questions on the 30-day versus six-month notification process. As I understand it, that clock has already started ticking when the decision was made. I think you said it runs out on January 24, is that correct?

    Secretary REINSCH. 23rd, yes.

    Mr. SMITH. So we are currently in that six-month notification process. In fact, one of the things that I wanted to have submitted for the record is a copy of the amendment that the chairman and the ranking member got passed for the fiscal year '98 budget requiring the review of these exports, which requires a report. That report has already been submitted. It was mentioned this morning. One of the people who testified that this had not even been studied yet, that is not true. The Administration has sent it over and I have attached a letter with a copy of that report for everybody to have a look at.
 Page 98       PREV PAGE       TOP OF DOC

    So in essence, the process has already started. I guess maybe I am missing something but if we were to come in now and say that it ought to be 30 days—actually, I should ask permission of the chair to submit that for the record.

    [The information referred to can be found in the Appendix.]

    Sorry, bad timing on my part. I will get back to that.

    Secretary REINSCH. I think he will probably say yes.

    Mr. SMITH. Never mind.

    My question is if we came in right now and said okay, it should not be six months, it should be 30 days, arguably has that not already passed, or do we have to start from when we would say it would be 30 days?

    Secretary REINSCH. Well, since we have asked for an amendment, you could write it either way. My view would be, Mr. Smith, it has already passed. We are in the 94th day or whatever day we are on. It is about the 94th day and I would say if you changed it to 30 days, time is up.

    Mr. SMITH. And I am sorry that Mr. Skelton had to run to another meeting; I will talk to him and his staff about it. But I think the Thanksgiving-Christmas issue really is not an issue for us because I would hope, since this process had already started, that there are people on the national security committees who are reviewing the report that has been submitted and they are already moving forward to try to determine whether or not your decision is wise.
 Page 99       PREV PAGE       TOP OF DOC

    Secretary REINSCH. If I may, I am glad you brought that up again because I was not quick enough to make the more important point to Mr. Skelton and perhaps if you can relay it, I would appreciate it.

    What the President said in this regard was that we have committed to review this issue every six months. What that means is July and January. We have now put ourselves on a schedule that we are determined to meet, which would preclude the day after Thanksgiving being a problem. We expect these things to, if we have a change to make, we expect to make it in January and we expect to make it in July. July you may run afoul of the August recess, I suppose, but I think that is a more flexible issue than the question of end of session.

    So I do not think that would be a problem.

    Mr. SMITH. And I think it is very important that members know that because I think you are right. If we do not update this, and this is something that I have been working on—and Mr. Chairman, I would ask, I have a letter here with a copy of an administration report, if I can get that submitted for the record with your permission?

    The CHAIRMAN. [Nods.]

    [The information referred to can be found in the Appendix.]

    Mr. SMITH. Thank you. I think it is really important that we do that because the backlog that comes in November and December is going to be a major problem and I hope we step up to that before we go home, hopefully in the next week or so.
 Page 100       PREV PAGE       TOP OF DOC

    Other than that, not really so much a question but just unfortunately I had meetings this morning and did not have an opportunity to make a statement or ask questions of the earlier panel but I really think this policy makes sense and it disturbs me a great deal that a lot of members on this committee do not. I frankly do not understand their argument.

    I understand the first part of it. The first part of it is high-performance computers or just computers can have national security implications. No question. As you mentioned in your testimony, computers with as little as 500 MTOPS have helped us develop some of our most advanced weapon systems. The F–117 if my reports are correct, was developed with computers of 100 MTOPS. If we are talking 2,000, obviously there are defense implications. No question.

    But the other part about it is because of where the technology is going and maybe the industry has not gotten there as fast as they thought they would but they are getting there pretty fast. We now have a situation where it is not a server or a work station. You can buy a PC, a laptop, with over 2,000 MTOPS capability. You can buy it retail. As somebody testified this morning, you can buy it from six or seven different companies outside of the United States of America over the Internet with 24 hours delivery.

    And one quick point about Iraq. You mentioned that Iraq cannot do that because they have sanctions against them. Theoretically Iraq cannot buy a spiral notebook from people because of those sanctions, so it is not peculiar to computers. We have sanctions against doing business with them, period.

 Page 101       PREV PAGE       TOP OF DOC
    Secretary REINSCH. That is correct.

    Mr. SMITH. So it is there and the computers are out there and available just retail. If you walk into a store, want to buy a computer over the counter and have to go through the Department of Commerce, the Department of Defense, that does not make any sense whatsoever.

    So they are out there and I guess I would ask the people who are not here, where do you disagree with that? I mean are these computers not available or what? They are available. They are out there.

    And I guess the final point, which is the one we never get to because we get stuck on the fact of how dare you export something that could have national security implications, is the point that you made very well in your testimony, that us, being the United States of America, maintaining leadership in this technology area is critical not to our commercial industry, not just to our commercial industry, but to our national security. If we cease to be the leaders in technology and somebody else moves past us, it is precisely our national security that will suffer because of the working relationship that the Defense Department has with U.S. companies that they do not have with German or Japanese or Chinese companies.

    So it is a national security issue. We seem to be thinking that as long as we err on the side of not selling this stuff, we are then erring on the side of national security. That is dead wrong. We are erring in a direction that because of the changing world is going to do the most to jeopardize national security.

 Page 102       PREV PAGE       TOP OF DOC
    So I applaud the Administration moving in the correct direction and I, for one, would like to work with you precisely for national security reasons.

    Thank you, Mr. Chairman.

    The CHAIRMAN. Thank you.

    Mr. Chambliss.

    Mr. CHAMBLISS. Thank you, Mr. Chairman.

    For somebody who has less than a minimal amount of knowledge about this issue, I am fairly fascinated with it because I think it is a fairly interesting area of national security.

    I want to make sure I understood what you said in response to the last short question and short answer from Mr. Hayes. Basically are you saying that any computers who have 6,500 or less MTOPS, basically there is no national security problem and those should be available to anybody?

    Secretary REINSCH. The best answer to that I think was Deputy Secretary Hamre's when he was asked that question, which is we cannot say that there is no national security problem because they have military applications below that level. What we can say is that at that level and below, we can manage the national security problems that might occur.
 Page 103       PREV PAGE       TOP OF DOC

    Mr. CHAMBLISS. One thing that has always bothered me about this, particularly when we were discussing it last spring, I guess, I understand there are national security implications and obviously we have to be concerned about that. Mr. Smith is absolutely right.

    But by the same token, when we turn around and we put our business hats on, are we being real presumptuous that we are the only people in the world that manufacture these computers or are they available out there to every one of our Tier III countries from other sources? What is your answer to that and how do we deal with that?

    Secretary REINSCH. Well, if we were the only ones, we could deal with it. Thirty years ago on a host of technologies we were the only ones. In this case, as I think my testimony indicated, of the 170 companies we found that account for three-quarters of the world's supply of computers, 120 of them are outside the United States. Twenty-eight of them are in countries that do not adhere to the multilateral control regimes that control these items.

    So you are talking about a substantial number of producers who do not have multilateral obligations, do not necessarily and, in fact, do not empirically do what we want them to do as far as sales are concerned.

    I can give you perhaps one of the most interesting examples. The nice visual would be to bring a laptop here and call down an Internet web page but there is a company in Taiwan, a Taiwanese computer company, which is not only marketing four-processor Pentium III computers, which means computers that are under 6,500 but well over 2,000. They not only are marketing them but they are setting up manufacturing facilities in China.
 Page 104       PREV PAGE       TOP OF DOC

    So this is what is happening with this technology. The technology is not ours alone. Where we are relatively unassailable except for the Japanese are with the economics. We can make these things better, faster and cheaper than anybody else and, as a result, we dominate the world, and I hope and think, make a lot of money. People do not try to make the high-end to compete against us because they cannot do it as cheaply.

    If we drop out of a market or if we take ourselves out of a market with export controls, the Koreans, the Taiwanese, the Germans, a number of others will step in and they will step in and make the products that they do not make now because without us in the marketplace, they can make those products and they can make money at those products.

    If you ask me frankly what the biggest challenge we have with China is, which has been a concern of this committee I know and a well taken one, a concern for all of us, in the computing area it is not an export at all. It is indigenous Chinese production. You know, more than half of the PC market in China now comes from indigenous Chinese companies. And the American companies—I do not think anybody asked them that this morning but the American companies are losing market share in China at the low end, the PC end.

    Now if you look at any other industry, if you look at textiles, if you look at steel, if you look at the history of what happens in developing countries is they move up the value-added chain. They start out with the cheap stuff and they start making the more expensive stuff. That is going to happen in computers in China, just like it has happened in all the other things they make. They have taken over the low end in their own country. Give them a year or two and they will be selling work stations and servers of their own, and that is what we ought to be looking at.
 Page 105       PREV PAGE       TOP OF DOC

    Mr. CHAMBLISS. Is there any control in place that would be able to track or, if needed, prohibit the sale of a supercomputer over the counter, whatever the maximum MTOPS you can buy over the counter, to somebody who then takes it to a friendly country and it goes from that country to one of our Tier III countries? Is there anything to control or track that in place?

    Secretary REINSCH. Yes. Our rules would prohibit that. Our rules would provide that if a computer were exported legally to the first place, if they wanted to re-export it to an unacceptable location it would be subject to the same requirements as if it were going directly from here. That is what our rules say. I mean the reality, as you can imagine, is that when you are in a third country, the item is there; we are here. We do not always find out about those things.

    Up to a point, we get good cooperation in some cases from our European friends and allies and we get very good cooperation on what we refer to as the terrorist states—Iran, Iraq, Libya, North Korea, Sudan, Syria, Cuba, countries in that category. We get much less cooperation on China because they do not regard China as a proliferation threat in the same way that we do, and that is a significant difference between us and our allies.

    Mr. CHAMBLISS. I do not guess there is any practical way to control the sale over the counter to somebody who exports into a friendly country and they maintain a terrorist operation with the use of that computer in that friendly country and I know we are bound to have some of that out there.

 Page 106       PREV PAGE       TOP OF DOC
    Secretary REINSCH. We have a rule that was promulgated in the Bush Administration, which is known as EPCI, the enhanced proliferation control initiative, and it contains what is called a catch-all provision, and we have prosecuted people under this provision. This is not by any means a dead letter.

    What it says is that if you know or have reason to know that your customer, your end user is engaged in proliferation activities, you have an obligation to come in and seek a license, which we can then say yes or no to. And companies do that. I mean this is not something that is honored in absentia. And, as I said, we have prosecuted people here on this successfully. So it works.

    Is it perfect? I doubt it. I mean that is asking me to sort of establish the negative. I do not know what I do not know. But it works and our enforcement people—and the Congress have been good to us, not as good as I would like but good to us in giving us additional resources to beef up enforcement—spend a lot of time figuring out who questionable end users are and tracking this sort of thing down.

    Mr. CHAMBLISS. Thank you, Mr. Chairman.

    The CHAIRMAN. Thank you.

    We are here, of course, to look into this whole matter and see where we go from here. A lot of us thought there was justification for the law that was passed back then and in that law a provision was made for just what is happening today—additional notifications and license review and all the rest, those kinds of things. Provision was made for the President to be able to increase the threshold and we would have a chance to come back and disagree with that if we wanted to.
 Page 107       PREV PAGE       TOP OF DOC

    So we understood that there would be these kinds of situations arising. And Mr. Skelton and I have sent a letter to the President, as you know, asking about 12 questions, which we hope he can get to us by the first of November. I understand you are probably the ones who are getting all these answers up for the President.

    Secretary REINSCH. Most of them. My people are hard at work even as we speak.

    The CHAIRMAN. And I was just wondering how far along you are on that.

    Secretary REINSCH. I hope we meet your deadline, Mr. Chairman. I have been out of town so I cannot say for certain. We have the questions; we are working on them. Most of the ones that ask for data are ours. Some of them are, of course, policy questions and that answer will come from the White House.

    The CHAIRMAN. And as a practical matter, of course, the deadline, January 23, I guess—

    Secretary REINSCH. Yes, sir.

    The CHAIRMAN. —means that we are going to be out of session until about that time after we leave here and we will be leaving here in a hurry, so as a practical matter I doubt if we will have a chance to respond one way or the other. So things are going to go on from there.
 Page 108       PREV PAGE       TOP OF DOC

    But the bottom line is that we are trying to see at the same time what kind of changes we need to make in the law, if any, and I do not know that anyone has said that we should just eliminate the law, go back to what we had before with no controls, just set up for Tier I, Tier II and Tier III countries and it would only apply to Tier III countries this number of MTOPS, the threshold. Of course, that is being increased right now because of the President's actions that he is entitled to do.

    What would you recommend at this point that we do to change the law, modify it? You say you need more people to handle the applications. Is that part of the answer, that we need more people? Do we need more time to consider them? Just eliminate the law? What do you think?

    Secretary REINSCH. Well, let me say you are obviously making a good faith effort to grapple with a hard question, Mr. Chairman, and I appreciate that. I think it is appropriate now, a couple of years down the road, to do that and look at it.

    Obviously it would be simple for me to say we would like it to go away but I think that I am happy to make a good faith effort to work with you to take a look at this.

    Clearly I think that on the notification side, the process works as long as we are adjusting the levels appropriately upwards that allows us to stay sort of even with the flow of notifications coming in. If we get behind, then we get swamped and there is a lot of people disadvantaged.

 Page 109       PREV PAGE       TOP OF DOC
    So as long as we can maintain equilibrium through upticking the standards, I think that is all right. I think where we are right now is that the six-month waiting period threatens to disrupt that equilibrium and that is really why we have recommended a shorter period.

    Now I think it would be fair for you to come back and say well, if that is so, why did you not have brains enough to do this in March so that the six-month period would be up now? That is a fair point and we did not. It takes a while for us to do this sort of thing, too, and we wanted to gather all of our data.

    I think what worries us is we are a little bit behind the curve in terms of what is happening in the marketplace. There are only two ways to, I think, catch up. One is if you shorten the waiting period and make things a little bit simpler or we effectively would be forced to take bigger bites, bigger leaps in January because if we know what we are doing in January is not going to be effective until July, we have to anticipate that and take a bigger bite and then in July take another bigger bite, whereas if we thought it was going to be effective sooner, we might have come to a different conclusion.

    So you might just think about that piece of it as we work through this.

    I think the other thing you might consider from a drafting perspective is that the way the law is drafted, you have given yourselves six months to review the decision and presumably the implication, of course, is that that gives you time, if you do not like it, to take appropriate action.

    What you have not given yourselves is the opportunity to say positively that you do approve of what we have done and that you want to terminate the waiting period. There is no mechanism for doing that. And in a way, I think one of the things that led the President to suggest a shortening of the waiting period is we do not have any other device to deal with a situation in which you might think we did the right thing. And if you think we did the right thing and we think we did the right thing, why do we have to wait for six months, which I think is a fair point but law does not provide any flexibility there.
 Page 110       PREV PAGE       TOP OF DOC

    And then finally, as I said before and I want to tell you a little story, if I may, I think the visit issue has been the most problematic for us, not only from a resource point of view but if you think about it, it has actually in some respects I think pushed us further from your goal.

    The Chinese, and we will talk about China specifically, have actually increased their cooperation with us significantly in this area recently and we have done quite a number of visits. In fact, we have someone out in a different part of China this week doing an additional number and I would be happy to provide you with—well, we are going to give you a report next month, I think, and that will give you complete numbers but you will not see one in the China column. You will see a bigger number.

    But in the process, we have discovered something that we had not expected, which is now we have to ask them for every one, to visit every one. Now you know and I know and they know that we do not have enough people or money to visit every one and they do not have enough people and money to visit every one, either.

    So by having to ask them to visit every one, what we have effectively done is put the decision on which ones get visited in their hands, not in our hands, because they pick and choose and they say well, we will do these 10 this week and two weeks from now we will do these five over here and they will say we cannot do the rest because we do not have enough time and we do not have enough money. I mean we cannot say that. So we chalk up 15, if that is the number, and say we have done 15.

 Page 111       PREV PAGE       TOP OF DOC
    If we could pick and choose ourselves, my people are professionals at this. They could pick out the ones that are iffy, the ones that are problematic or the ones we would like to look at, and we could ask the Chinese to do those. And then if they said no to those, then we would know something and we would know they were hiding something and we could do something about that.

    But in the current situation, we do not know anything when they say no because we have made an unreasonable request from their point of view and we know they are going to say no to some number of them. And what we have essentially ceded to them is the opportunity to make the choice of which ones we see and which ones we do not see, and my investigators do not get to make that choice anymore.

    And I would assume, not having seen the ones we visited, I assume we are visiting all the ones that check out. And, in fact, they all have checked out in China, and we have done a lot more.

    So you might want to think about that, that this is one of those cases where I think I would encourage you to have confidence in our professional investigators, who are—they all go down to the FBI place in Georgia, get trained. I mean these are professional people. They have the same kind of training as other law enforcement officers. They know what they are doing and I would urge you to have confidence in their ability to select the ones that are problematical and not force us to not only spend a lot of time and effort doing the ones that do not matter but really to give effectively to the Chinese the opportunity to make the choice.

    So we urge you for flexibility there. You already gave us some by letting us uptick the standard and we really appreciate that.
 Page 112       PREV PAGE       TOP OF DOC

    The CHAIRMAN. GAO says that there are two diversions being investigated now. Are those in China?

    Secretary REINSCH. No, they are not. I would be pleased to tell you where they are privately, Mr. Chairman, but I could not do that publicly.

    The CHAIRMAN. I understand. But no one is advocating that we go back and abolish the law completely, are they?

    Secretary REINSCH. Well, I have in the past, Mr. Chairman—

    The CHAIRMAN. You have? I did not remember that.

    Secretary REINSCH. In the interest of comity, because you have been so nice to me today, I will not say that again today.

    The CHAIRMAN. You mean you were in favor of shipping to Tier III countries where it was in the worst interest of national security?

    Secretary REINSCH. I am in favor of working with you to develop a law that will allow us to do our job better and make you feel that our national security is fully protected.

    The CHAIRMAN. Well, I appreciate that. I really do. And the country, incidentally, the national security of the country.
 Page 113       PREV PAGE       TOP OF DOC

    Secretary REINSCH. I am corrected; you are right.

    The CHAIRMAN. Well, I appreciate this; I really do, the time and effort you are spending, also the work you are doing in getting these questions answered for us because we will come back and get into that later on, I guess, after we come back from the break.

    Secretary REINSCH. We will get them to you as soon as we can, Mr. Chairman.

    The CHAIRMAN. I appreciate that. And you have been a great help to us in the work of our committee and I appreciate it. I cannot say that we are always going to agree, as you well know from the past, but we try in our way and this total law was an effort to do something that we thought needed to be done and, as I said, we provided ways in the law to have these things happen. Maybe we do need to tighten a few screws, unloose a few screws or do something to make it more acceptable to people and facing the realities of life that have brought us to where we are today.

    But I appreciate what you have done to help us and we will be back in touch, as we say around here. Thank you.

    Secretary REINSCH. Thank you.

    The CHAIRMAN. If there are no other questions, it looks like I have it. The committee will be adjourned.
 Page 114       PREV PAGE       TOP OF DOC

    [Whereupon, at 3:27 p.m., the committee was adjourned.]


October 28, 1999
[The Appendix is pending.]