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THE FUTURE OF THE
EXPORT ADMINISTRATION ACT
SUBCOMMITTEE ON INTERNATIONAL ECONOMIC POLICY AND TRADE
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTH CONGRESS
MAY 13, 1997
Printed for the use of the Committee on International Relations
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COMMITTEE ON INTERNATIONAL RELATIONS
BENJAMIN A. GILMAN, New York, Chairman
WILLIAM GOODLING, Pennsylvania
JAMES A. LEACH, Iowa
HENRY J. HYDE, Illinois
DOUG BEREUTER, Nebraska
CHRISTOPHER SMITH, New Jersey
DAN BURTON, Indiana
ELTON GALLEGLY, California
ILEANA ROS-LEHTINEN, Florida
CASS BALLENGER, North Carolina
DANA ROHRABACHER, California
DONALD A. MANZULLO, Illinois
EDWARD R. ROYCE, California
PETER T. KING, New York
JAY KIM, California
STEVEN J. CHABOT, Ohio
MARSHALL ''MARK'' SANFORD, South Carolina
MATT SALMON, Arizona
AMO HOUGHTON, New York
TOM CAMPBELL, California
JON FOX, Pennsylvania
Page 3 PREV PAGE TOP OF DOCJOHN McHUGH, New York
LINDSEY GRAHAM, South Carolina
ROY BLUNT, Missouri
JERRY MORAN, Kansas
KEVIN BRADY, Texas
LEE HAMILTON, Indiana
SAM GEJDENSON, Connecticut
TOM LANTOS, California
HOWARD BERMAN, California
GARY ACKERMAN, New York
ENI F.H. FALEOMAVAEGA, American Samoa
MATTHEW G. MARTINEZ, California
DONALD M. PAYNE, New Jersey
ROBERT ANDREWS, New Jersey
ROBERT MENENDEZ, New Jersey
SHERROD BROWN, Ohio
CYNTHIA A. McKINNEY, Georgia
ALCEE L. HASTINGS, Florida
PAT DANNER, Missouri
EARL HILLIARD, Alabama
WALTER CAPPS, California
BRAD SHERMAN, California
ROBERT WEXLER, Florida
STEVE ROTHMAN, New Jersey
BOB CLEMENT, Tennessee
Page 4 PREV PAGE TOP OF DOCBILL LUTHER, Minnesota
JIM DAVIS, Florida
RICHARD J. GARON, Chief of Staff
MICHAEL H. VAN DUSEN, Democratic Chief of Staff
Subcommittee on International Economic Policy and Trade
ILEANA ROS-LEHTINEN, Florida, Chairperson
DONALD A. MANZULLO, Illinois
STEVEN J. CHABOT, Ohio
TOM CAMPBELL, California
LINDSEY O. GRAHAM, South Carolina
ROY BLUNT, Missouri
JERRY MORAN, Kansas
KEVIN BRADY, Texas
DOUG BEREUTER, Nebraska
DANA ROHRABACHER, California
SAM GEJDENSON, Connecticut
PAT DANNER, Missouri
EARL F. HILLIARD, Alabama
BRAD SHERMAN, California
STEVEN R. ROTHMAN, New Jersey
BOB CLEMENT, Tennessee
TOM LANTOS, California
BILL LUTHER, Minnesota
MAURICIO TAMARGO, Chief of Staff
Page 5 PREV PAGE TOP OF DOCYLEEM D.S. POBLETE, Professional Staff Member
AMOS HOCHSTEIN, Democratic Professional Staff Member
JOSE A. FUENTES, Staff Associate
C O N T E N T S
Mr. Thomas E. McNamara, Assistant Secretary for Political Military Affairs, Department of State
Mr. William A. Reinsch, Under Secretary for Export Administration, Department of Commerce
Dr. Mitchel B. Wallerstein, Deputy Assistant Secretary of Defense (Counterproliferation Policy), Department of Defense
Dr. Paul Freedenberg, International Trade Consultant, Baker and Botts, L.L.P. and former Under Secretary of Commerce, Bureau of Export Administration
Mr. Joel Johnson, Vice President, International Aerospace Industries Association
Mr. Peter F. McCloskey, President, Electronic Industries Association
Hon. Ileana Ros-Lehtinen, Chairman, Subcommittee on International Economic Policy and Trade
Mr. Thomas E. McNamara
Mr. William A. Reinsch
Dr. Mitchel B. Wallerstein
Dr. Paul Freedenberg
Page 6 PREV PAGE TOP OF DOCMr. Joel Johnson
Mr. Peter F. McCloskey
THE FUTURE OF THE EXPORT ADMINISTRATION ACT
TUESDAY, MAY 13, 1997
House of Representatives,
Subcommittee on International Economic Policy and Trade,
Committee on International Relations,
The Subcommittee met, pursuant to notice, at 2:40 p.m. in room 2172, Rayburn House Office Building, Hon. Ileana Ros-Lehtinen [chairwoman of the Subcommittee] presiding.
Ms. ROS-LEHTINEN. The Subcommittee will come to order.
Thank you so much for being with us today on this very timely topic that we will be exploring this afternoon, for the control and regulation of dual-use commodity exports and arms exports are indeed important to our country's national security and foreign policy. However, these limitations, deemed by many as necessary, must be carried out in a way which allows as free and as competitive a trade in U.S. goods as possible.
As a result, it is natural for conflicts to develop in the policy and process aimed at controlling munitions and dual-use items while promoting U.S. economic expansion and global trade. Part of the purpose of today's hearing is to focus on recommendations our witnesses have for successfully resolving these jurisdictional disputes and definitional problems.
The original Export Administration Act of 1979 was based on legislation passed at the onset of the cold war. Certainly, the global political and socioeconomic landscape has changed dramatically over the course of the last decade, creating a new need for approaches that will address the current reality and the full spectrum of U.S. interests.
Page 7 PREV PAGE TOP OF DOC When the Export Administration Act expired in 1990, President Bush followed precedent and extended existing export regulations by issuing an executive order invoking emergency authority contained in the International Emergency Economic Powers Act to control financial and property transactions. Congress later issued two temporary EAA extensions in 1994 which terminated International Emergency Economic Powers Act-based controls. However, after the second extension also expired in August 1994, President Clinton reimposed controls.
There have been several attempts made at rewriting the Export Administration Act with the most recent being H.R. 361, the Omnibus Export Administration Act of 1996, which was passed in the House in July of last year. Some credited it with providing greater transparency on U.S. export control laws while mandating tighter restrictions of exports and re-exports to terrorist nations and rogue regimes. It was praised by some for adding controls on countries not supporting multilateral efforts to counter the proliferation of weapons of mass destruction.
Supporters argued that the measure was well-balanced, addressing regional and global proliferation threats while streamlining and modernizing antiquated export control procedures instituted in the cold war era.
Critics, however, including some Members of this Subcommittee who participated in the debate, argued that adoption of these provisions would not lead to significant changes to what is still a cumbersome and bureaucratic export control apparatus. They focused on the greater reliance on unilateral controls by the United States than by other countries; on definitional problems, and on the issue of foreign availability.
The trade-driven arguments and business perspectives, then and now, tend to rest on economic history which has shown that export controls can only be successful under certain conditions. They are most likely to succeed when the major supplier countries can all agree to impose controls. On the other hand, they are likely to fail when supplier countries are not united in support of controls, and when the controlled good remains available to the target country.
Page 8 PREV PAGE TOP OF DOC Despite past efforts and current discussions, a consensus is far from being reached as to the form that EAA legislation should take and whether it is the most appropriate structure for administering export controls.
Some suggest that policymakers must go a step further and determine if export controls in and of themselves are an appropriate policy response to the actions of foreign countries.
In this hearing we will try to examine the issues ranging from reauthorizing to rewriting of the Export Administration Act to the liberalization of export controls in general to multilateral issues and broader concerns.
In the end, we hope that this hearing will produce suggestions for a mutually beneficial and satisfactory approach which can properly safeguard our national security and foreign policy concerns, while allowing as free and competitive trade as possible for American industries.
And now, I would like to recognize Mr. Sherman for any opening remarks that he might have.
[The prepared statement of Ms. Ros-Lehtinen appears in the appendix.]
Mr. SHERMAN. Thank you, Madam Chair.
We are the world's only superpower and with that comes the responsibility for trying to control all bad actors around the world. But we are not the world's only superpower when it comes to technology or economics, so we have the responsibility of being the world's only superpower net, not the authority to be the world's only superpower when it comes to joint technology. So we are in the unenviable position of controlling our own country and their exports, often without the support of our allies or without the universal support of our allies, and if there is only one major industrial country that chooses to go into a market, that may be enough to allow rogue States to get at the technology they are seeking.
Page 9 PREV PAGE TOP OF DOC I for one want to hear about our efforts to involve our allies and make sure our restrictions on our companies don't exceed those imposed on not just some but all of the companies in all of the industrialized countries.
I would hope that this dichotomy where other countries call upon us to defend peace and security around the world but don't want to follow our lead when it comes to these technological issues is explored more aggressively by the State Department and by those who speak out on public policy matters.
Ms. ROS-LEHTINEN. Thank you so much. Mr. Bereuter.
Mr. BEREUTER. I have no opening statement except to welcome our witnesses and thank them for their time in coming to share their ideas and concerns with us.
Ms. ROS-LEHTINEN. Thank you so much.
I will be glad to introduce our first panel. First, the Assistant Secretary of State for the Bureau of Political Military Affairs, Thomas McNamara.
Before being named to his current position, he served as U.S. ambassador to Colombia. Assistant Secretary McNamara has also served at the National Security Council as Special Assistant to the President for National Security Affairs and his overseas experience has included assignments in Paris, Moscow, and Zaire.
Assistant Secretary McNamara has extensive experience with politico-military affairs. During his career, he has been involved in numerous major arms control issues, serving in embassies, on negotiating delegations, and in the Department of State and Arms Control and Disarmament Agency.
We will then hear from Bill Reinsch, who currently serves as the Under Secretary for the Bureau of Export Administration in the Department of Commerce.
As head of this bureau, he is charged with administering and enforcing the export control policies of the U.S. Government. Before joining the Department of Commerce, he served on the staffs of several Members of Congress who were extensively involved with international trade issues. He just testified before the Subcommittee late last week and we are happy to have him back.
Page 10 PREV PAGE TOP OF DOC The final witness for this panel will be Deputy Assistant Secretary of Defense for Counterproliferation Policy, Dr. Mitchel Wallerstein.
Prior to joining the Department of Defense, he served for 3 years as the executive officer of the National Research Council of the National Academy of Sciences. While at the National Research Council, he directed a series of highly acclaimed policy studies on national security export controls. He has served for 5 years on the faculty at MIT, and currently teaches as an adjunct faculty member at the Johns Hopkins University School for Advanced International Studies.
We all thank our witnesses for being here today. Thank you. Mr. Ambassador.
STATEMENT OF THOMAS MCNAMARA, ASSISTANT SECRETARY OF STATE, BUREAU OF POLITICAL MILITARY AFFAIRS
Mr. MCNAMARA. Thank you, Madam Chairman. I would like to thank you for the opportunity to testify on these issues before the Committee and to note that I have a statement which I would like to have submitted for the record.
Ms. ROS-LEHTINEN. Yes, of course, without objection, we will be glad to place all of your statements in the record.
Mr. MCNAMARA. And I would simply summarize the contents of that statement very briefly.
I am pleased that the letter of invitation framed the issues in the very broad terms that it did, calling for an examination of feasible alternatives to the EAA. In view of the failure to pass the EAA bill last time, despite serious efforts both in the Congress and the Administration, I think it is time to look at our strategy and intent and examine it for the future.
Since the expiration of the EAA in 1994, we have been operating under the authority of the International Economic Emergency Powers Act, IEEPA, which, in fact, contains authority sufficient to meet our national security and foreign policy objectives with respect to export controls. The Department of State, however, recognizes that this is not an ideal situation and that we should be looking for an adequate substitute for IEEPA.
Page 11 PREV PAGE TOP OF DOC In such a balanced substitute, the Administration would like to see the most effective tools we can have to limit appropriately the exports to countries on the terrorism list and to countries of concern, to be able to adequately contribute to our nonproliferation goals and objectives, nonproliferation of weapons of mass destruction and means to deliver them, and also meet our restrictions with respect to multilateral export control regimes.
I would like to point out that although we were unsuccessful in getting the act passed in the last session, the Administration has nonetheless moved forward with respect to regulatory changes and reforms in very significant areas, and I believe that we have made some substantial achievements.
We have liberalized computer controls so that there is now a new threshold set up for high-end computers. We have liberalized control of telecommunications equipment. We have taken the license review process and made it much more efficient and rapid. We have taken civilian communications satellites and hot section aircraft technology and moved it from the Munitions List to the Commodity Control List at the Department of Commerce. We have also established and have up and running the Wassenaar Arrangement, which is a group of 33 countries committed to controlling the export of arms and dual-use technology with the aim of preventing transfers that threaten regional peace and stability. There are other efforts we have had under way that have also been successful.
With respect to H.R. 361, the Administration did feel that the bill required some necessary modifications to ensure that our national security and foreign policy interests were fully protected. I would like to briefly review those concerns which can be summarized in three categories.
First, we felt that H.R. 361 was defective with respect to the policy regarding terrorist States. To meet the objectives in our terrorism policy, the Administration requires flexibility to regulate exports to countries on the terrorism list and to be able to exercise that flexibility to reflect unusual or changed circumstances with respect to those countries. We believe that H.R. 361 did not provide the Administration with that needed flexibility in these areas.
Page 12 PREV PAGE TOP OF DOC Second, with respect to judicial review, we believe that H.R. 361 was defective in that it is very important to clarify the scope and limits of judicial review so that it is limited to procedural and nondiscretionary executive actions. Review should not subject the Administration's national security and foreign policy decisions to inappropriate examination by the courts.
Finally, H.R. 361 contains some constitutional concerns regarding the President's authority to conduct diplomatic relations as well as one that would limit the President's authority to act on advice from members of his Cabinet and, therefore, be unconstitutional.
I would like to conclude with those remarks and be glad to answer any questions that come up during the course of the hearing.
Ms. ROS-LEHTINEN. Thank you so much. We will begin the round of questioning when the three panelists are done.
[The prepared statement of Mr. McNamara appears in the appendix.]
Ms. ROS-LEHTINEN. Mr. Reinsch.
STATEMENT OF WILLIAM REINSCH, UNDER SECRETARY OF COMMERCE, BUREAU OF EXPORT ADMINISTRATION
Mr. REINSCH. Thank you.
Since its August 1994 expiration, we have maintained our controls on exports of dual-use goods and technologies through a combination of emergency statutory authority, executive orders, and regulations. Reauthorization of an EAA that takes into account the end of the cold war is long overdue. In addition to helping exporters by bringing the law up to date with current global realities, it is also essential that we enact a new law in order to minimize the possibility of legal challenges under the current emergency authority and to enhance our credibility in international fora.
Page 13 PREV PAGE TOP OF DOC I hope you will agree with us on the need for a new EAA and on the general agreement between the Administration and the House on the basic features of such a bill.
Continuing to operate under emergency authority raises the possibility of increasing legal and political complications. Operating under authority of IEEPA, as we have done on a number of occasions, including for the past 2 1/2 years, means that we are functioning under certain legal constraints such as significantly lower penalties. Functioning under emergency authority also leaves important aspects of our system for controlling the export of dual-use goods and technologies, such as keeping exporters' sensitive business information confidential, and administering the antiboycott provisions of the EAA increasingly at risk of legal challenge. In addition, operating under emergency authority can undercut our credibility as a leader of the world's efforts to stem the proliferation of weapons of mass destruction.
I don't want to overstate that case because we thus far have not faced these complications, and we will continue to pursue our export control policies despite them. But at a minimum they are likely to consume increasing amounts of resources that can certainly be better used to administer and enforce the export control system more effectively.
Some of these same issues also militate against a simple renewal of the expired EAA. For example, although greater than the penalties available under IEEPA, the old EAA penalties have been substantially eroded by inflation. In addition, the EAA of 1979 was a cold war statute that simply does not reflect current geopolitical realities. Its basic national security control authorities are predicated on the existence of a multilateral regime, COCOM, that ended more than 3 years ago. A renewal of the EAA of 1979 is not much better than operating under IEEPA.
In February 1994, we proposed a revised EAA. Our goal was to refocus the law on the security threat the United States faces into the next century, the proliferation of weapons of mass destruction, without sacrificing our interests in increasing exports, reducing our trade deficit, and maintaining our global competitiveness in critical technologies.
Page 14 PREV PAGE TOP OF DOC To meet that goal, our proposal emphasized the following principles: Establish a clear preference for multilateral export controls exercised in conjunction with the nonproliferation regimes; increase focus on economic security by strengthened discipline and unilateral controls; simplify and streamline the export control system; strengthen enforcement; provide exporters with expanded rights to petition for relief from ineffective controls; and allow exporters greater opportunity to seek judicial review of certain Commerce actions.
H.R. 361 made several needed and significant improvements to the EAA of 1979, which were similar to those in the Administration's proposal. These improvements included control authority updated to address current security threats, increased discipline and unilateral controls, and enhanced enforcement authorities. The House bill also contained provisions consistent with recent licensing process and commodity jurisdiction reforms.
We did have concerns, however, about several of the House bill's provisions. Specifically, the terrorism provision would have significantly reduced the Administration's flexibility to regulate exports to countries on the terrorist list to reflect unique or changed circumstances, such as permitting the supplying of U.S. Government (diplomatic, military, or humanitarian) operations in those countries.
The unfair impact provision was a step backward from the Administration's proposal to clarify exporters' rights to petition for relief from burdensome or ineffective control requirements. Authorization of private actions for antiboycott violations could compromise enforcement of the antiboycott provisions of the EAA; and the judicial review provision could have inadvertently allowed inappropriate judicial review of U.S. foreign and national security policies.
In addition, certain provisions of the bill raise constitutional concerns regarding the President's authority to conduct diplomatic relations and act on advice from members of his Cabinet.
Page 15 PREV PAGE TOP OF DOC An EAA that allows us to most fully and effectively address our security concerns while maintaining a transparent and efficient system for U.S. exporters is essential to protect our national interests. As I have discussed, the Administration and the House, in H.R. 361, agreed to many of the most salient issues, such as focusing on multilateral controls, further discipline on unilateral controls and the licensing process, and enhanced enforcement. These reforms would facilitate the proper balance for controlling dual-use items while minimizing the burden on U.S. exporters.
I urge you to take up reauthorization of EAA, and we look forward to working with you to achieve a consensus that meets all of our interests. Thank you.
Ms. ROS-LEHTINEN. Thank you so much.
[The prepared statement of Mr. Reinsch appears in the appendix.]
Ms. ROS-LEHTINEN. Mr. Wallerstein.
STATEMENT OF MITCHEL WALLERSTEIN, DEPUTY ASSISTANT SECRETARY OF DEFENSE, COUNTERPROLIFERATION POLICY, INTERNATIONAL SECURITY POLICY
Mr. WALLERSTEIN. Thank you, Madam Chairperson. It is a pleasure to be here today on behalf of the Department of Defense to explain our view of the continuing role of export controls.
Because of the increasingly diverse regional threats to our national security interests, the United States must demonstrate leadership by maintaining a strong and effective export control system as part of a broader nonproliferation strategy. In this regard, the Department of Defense supports effective export controls not only on armaments, such as advanced weapons platforms, but also on dual-use goods and technologies such as advanced machine tools that are needed to manufacture, maintain, and use these arms.
Page 16 PREV PAGE TOP OF DOC We have the responsibility to protect the U.S. national security in its broadest sense, but we also wish to provide the most advanced equipment to our fighting men and women, and also to protect their safety on the battlefield.
As we all know, U.S. forces performed brilliantly in Desert Storm. The experience of Desert Storm demonstrated the importance of advanced technology to maintaining conventional superiority on the battlefield. But Desert Storm also demonstrated the importance of export controls because they are essential to maintaining our technology lead in key military systems.
The Department of Defense would like to emphasize three major principles that we believe should be kept in mind in fashioning a new Export Administration Act. First, there is a need for a strong policy basis on which to control and, as may be required, to condition or deny sensitive exports for reasons of national security or foreign policy to any destination.
Second, there is the need for substantial Administration flexibility in both establishing and implementing controls. And third, there is the need to maintain sufficiently broad emphasis for imposing unilateral controls under certain circumstances while we endeavor at the same time to make such controls more effective by multilateralizing them to the greatest extent possible.
Ambassador McNamara has already made reference to the fact that the multilateral export control framework has recently been enhanced by the establishment of the Wassenaar Arrangement on Export Controls for Advanced Conventional Arms and Dual-Use Goods and Technology. This arrangement complements other existing multilateral nonproliferation regimes specifically directed at curtailing the spread of weapons of mass destruction and their means of delivery.
A principal objective of this new regime is to identify and block many potential new proliferation problems before they become a major threat to security. However, it is also fair to say that the Wassenaar Arrangement is a work in progress and it will take committed U.S. leadership to make it work.
Page 17 PREV PAGE TOP OF DOC For the Department of Defense to fulfill its responsibility to protect national security, an Export Administration Act should be aimed to effect more multilateral controls by, among other things, emphasizing U.S. Government efforts to upgrade other nations' export control systems and more rigorous rules and procedures of nonproliferation regimes. In this regard, I might note that we have been working under the Nunn-Lugar legislation to work with the Customs and border officials of many States of the former Soviet Union to help them learn to control the flow of goods and technology across their borders.
Also, such legislation should include a statutory basis for proliferation-based controls on end use and contain a prohibition on any export that would materially contribute to nuclear, biological, or chemical weapons programs. Moreover, legislation should establish a statutory framework of U.S. export controls that highlights the existing multilateral nonproliferation groups, including the Nuclear Suppliers Group, the Missile Technology Control Regime, the Australia Group for chemical and biological exports, and the Wassenaar Arrangement that I previously mentioned.
The Department of Defense has fully supported all previous attempts by this Administration and the Congress to rewrite the Export Administration Act, and it has worked with other agencies and the Congress in an effort to fashion a statute that would strike the right balance between national security and trade opportunities for U.S. exporters in an ever more competitive international marketplace.
In the absence of the current EAA on the books, the Department of Defense has worked diligently within the interagency to follow the President's direction to implement the provisions of the previous Export Administration Act under his authority under IEEPA.
I will conclude my statement there, Madam Chairperson.
Ms. ROS-LEHTINEN. Thank you so much.
[The prepared statement of Mr. Wallerstein appears in the appendix.]
Page 18 PREV PAGE TOP OF DOC Ms. ROS-LEHTINEN. We will begin our questions with Mr. Bereuter.
Mr. BEREUTER. Thank you. Welcome to all of you.
Under Secretary Reinsch, we shared a lot of time over the years in the conferences on the Export Administration Act and I know it is said that it went on so long one time that people met, were married, conceived and delivered children in the course. I notice you have two children but I won't push you on further explanation of what might have happened there. Anyway, you served the late Senator Heinz very ably.
Mr. REINSCH. Thank you.
Mr. BEREUTER. I would like to ask you in particular about something we are likely to hear from our next panel. As I understand it, they refer to what they term the reluctance of the U.S. Government to publicly announce the end users of concern. They claim while the government publishes some list of problem end users, many other names are kept secret from exporters.
How would you respond? What is the criteria used to determine which names are published and which are not?
Mr. REINSCH. That is a very good question, and we have made a good bit of progress on it in the last several months. As of last December, we established a process for resolving the question of what would be published and when the items would be published, and we have begun a process of publication. The first name we published was Ben-Gurion University. Yesterday, we published an Indian entity. We have a longer list which we hope to have published in the next couple of weeks if we can finish it off.
The biggest issue that tends to be a problem for us is sources and methods. Sometimes the means by which we know what we know are such that we don't want to reveal even what we know because it would compromise sources and methods. I think your work on the Intelligence Committee would give you a clear sense of that.
Page 19 PREV PAGE TOP OF DOC There are sometimes other factors too, among them the diplomatic consequences of announcing that someone is a bad entity, and I can tell you each of the times we have published someone, there has been that kind of a reaction, usually from the government of the named country.
We are committed, however, to trying to do a better job of this, because we agree with the exporters that they have a right to this information. It is simply what we have to do for them to give them what they need to know, whether they should come in and seek a license or not. And we have accelerated our efforts. As I said, we should have a longer list in the next couple of weeks.
Mr. BEREUTER. Thank you. I understand it is a difficult situation but if we could understand the criteria you are using I think that would be helpful, even if you don't explain exactly who the end user is that you are most concerned about.
This would be for Ambassador McNamara, and perhaps Mr. Reinsch, but you, Ambassador, said H.R. 361, the bill of last session, the judicial review provision would have allowed inappropriate judicial review of U.S. foreign and national security interests.
I am wondering if you could make recommendations as to what specific changes might alleviate your concerns about this subject?
Mr. MCNAMARA. Well, we did make such recommendations and they had to do with allowing for the judicial review with respect to the process and the procedures as opposed to judicial review of the judgments that have to do with national security and foreign policy.
I think I can probably summarize it very briefly by saying that as H.R. 361 is currently constructed, given the limitations that have been placed on the foreign policy aspects of it, or I should say the foreign policy criteria, it would be possible for an exporter to go to the courts with respect to a judgment as to whether or not a particular country was, in fact, a potential proliferant of weapons of mass destruction or the means of delivery, and put into the courts a question on our judgment as to where the proliferation dangers exist around the world. It was in that area and some other similar areas that we pointed out last year that were of major concern to us.
Page 20 PREV PAGE TOP OF DOC Mr. BEREUTER. I will yield my time to someone else here shortly, but I wonder in the meantime if you would have someone here look at the specific subsection you believe caused this result and give those to us before the end of your testimony today, if at all possible.
Mr. MCNAMARA. Sure.
Ms. ROS-LEHTINEN. Thank you so much, Mr. Bereuter. Mr. Sherman.
Mr. SHERMAN. Mr. Reinsch.
Mr. REINSCH. Yes, sir.
Mr. SHERMAN. You seem to indicate that it would be inappropriate for us to have a private right of action to enforce our antiboycott legislation.
Did I hear you correctly and can you tell me why providing another enforcement mechanism would make a law weaker?
Mr. REINSCH. Yes, sir, this was debated before this Committee last year because that was a provision that was added, actually not added; there was an attempt to remove it from the bill, as I recall.
It has been our view and our experience in enforcing this law now for nearly 20 years that a private right of action would in all likelihood result in less enforcement rather than more for the following reason: If you provide a private right of action in the absence of a government determination that a violation has occurred, which is what the provision would permit, you are guaranteed, I think, over a period of time of getting conflicting district court decisions all over the country with respect to what does and does not constitute a violation.
We think that would have a significantly adverse effect on our enforcement. If you have a district court ruling, for example, that something is not a violation, that would effectively preclude us from investigating it under the statute on our own.
We think it would be inevitable that you would have district court rulings based on very similar, if not virtually identical, facts coming to opposite conclusions in this case which we think would paralyze the enforcement process.
Page 21 PREV PAGE TOP OF DOC We also think since the statute requires a significant reporting responsibility in terms of filing boycott requests and boycott-related information with the government, the government really ends up being one of the largest repositories of information that would be relevant in a private suit. Providing that information to private parties would, first of all, subject us to some discovery which would make our own internal efforts to enforce the same case that was proceeding in private practice much more difficult. It would also be a drain on our resources; our agents would be testifying instead of investigating.
Mr. SHERMAN. Thank you, although that is the first time I have heard the Administration say they feel bound by a direct court decision to stop whatever it is that the court found to be acceptable.
Mr. REINSCH. Well, we wouldn't stop, Mr. Sherman. The biggest problem, and if you go through the act you will see why this would be likely, it would be only a matter of time before you had two district courts coming to opposite conclusions on the same set of facts, and that would make it difficult for us to move forward.
Mr. SHERMAN. Well, I have seen Administrations when they wanted to do something simply feel that a single district court decision to which they are not a party not be binding on them. I have seen them do that with circuit court opinions and, in fact, the IRS today is enforcing tax laws all over the country in ways that this or that circuit court has determined to be inappropriate. The only thing they will do is adhere to a circuit court's opinion in that circuit.
But I would like to move on to another issue, and that is I would like Dr. Wallerstein to bring to our attention the two or three most damaging or disappointing actions taken by our allies in allowing high technology material to go to the wrong countries.
Mr. WALLERSTEIN. In the period before the Persian Gulf war, there were a variety of circumstances which arose where
Page 22 PREV PAGE TOP OF DOC Mr. SHERMAN. Are there any examples over the last 2 years?
Mr. WALLERSTEIN. Since the advent of the Wassenaar Arrangement, which has taken place during this period, we have moved rapidly to try to establish common lists of controls, and we believe that our major partners in Wassenaar, which are now 33 member States, are adhering in good faith to those controls. Of course, from time to time we have reason to demarche those countries on various information that may come to our attention, but I cannot point to you any specific examples of egregious disregard for those controls.
Mr. SHERMAN. Well, if the Wassenaar controls have been sufficient, then why shouldn't we as a matter of legislation simply provide that the only controls applicable to U.S. manufacturers are those provided for and enforced under Wassenaar? If Wassenaar is being adequate for our allies, why do we need something tougher for U.S. manufacturers?
Mr. WALLERSTEIN. Well, for one thing, as I said in my testimony, the United States must be the leader in this procession, if for no other reason because of our global security responsibilities.
Mr. SHERMAN. So it is acceptable for a Japanese country to sell something that leads to an American soldier being killed?
Mr. WALLERSTEIN. No, not at all. That is not what I was saying. What I was saying is we must be the leader.
Mr. SHERMAN. Well, why would we need stricter restrictions on our companies than those that we are able to get the other 32 countries to accept?
Mr. WALLERSTEIN. Because there may often be times when they are working through diplomatic channels to get those other 32 countries to accept our view of the reasons why something must be subject to control.
There also at times may be foreign policy reasons why items must be subject to control, and I would defer to my State colleague on that matter. But the main point here is that, because we are a technology leader and because we have global military responsibilities, we will usually be the first to recognize which technologies, which items must be subject to export controls. We will then work assiduously on a multilateral basis to broaden that as quickly as possible.
Page 23 PREV PAGE TOP OF DOC Mr. SHERMAN. So the concept is restrict American countries first, give companies in our country a window to exploit opportunities for a while, all for reasons that I don't think have ever been really explained adequately.
I know we are the world's only superpower, but why other countries would benefit from our efforts around the world and yet have the right to undermine them is confusing to this particular freshman.
With that, I will conclude my remarks.
Ms. ROS-LEHTINEN. Thank you so much. Mr. Chabot.
Mr. CHABOT. I thank the Chairman, and any of the gentlemen who would like to answer, I would be more than happy to hear what anyone would say.
Would you agree, without compliance of the other countries, as perhaps Mr. Sherman mentioned, that U.S. security objectives cannot be met when the products are available from other sources? I would like to hear any answer.
Mr. REINSCH. In general, I would certainly agree. I would also observe that availability is a more complex topic than is ordinarily assumed. The mere fact that somebody else sells something that they say is the same doesn't mean it is the same and doesn't mean it is available in the same way. So in principle, you are correct, but actually making judgments about what is out there being sold is more complicated than it may seem on the surface.
Mr. MCNAMARA. If I could make a comment or two about both of these related questions, the first point I would make is there is a phenomenon which is very common in international affairs. It is particularly common in some of these arrangements and regimes that have been established, what one might call the least common denominator approach.
In general, these regimes operate on a principle of unanimity or consensus. If, in fact, the United States were by law restricted to imposing only the sanctions which were multilaterally acceptable within these regimes, it is almost certain that what we would find is this least common denominator approach coming into effect. A country that wished to sell something and didn't have quite the same interest as the other members of the regime in restricting its sale would simply hold out and not agree. By breaking consensus, and waiting us out so that the unilateral control would come to an end, as it would under the House bill of last year, or when the pressure within the United States for breaking the unilateral control reached such a point, one country would have succeeded in reducing and getting that particular item or that category of items off the list.
Page 24 PREV PAGE TOP OF DOC What we find very useful is the fact that, as Dr. Wallerstein pointed out, our leadership ability very often gives us the ability to go to these other countries and jawbone them, lobby them, to see this in a way that would lead to a consensus within these regimes. Rarely are we totally and completely unsuccessful, and what would really undermine our efforts in this regard would be a strict term set by legislation which another country would then know they simply had to wait out.
Second, with respect to the approach that we have in these regimes, it is generally the case that the United States sets the standards in these regimes. That is to say it is we who are taking the lead. Virtually every one of these regimes was started at the initiative of the United States, and is maintained at its current level of efficiency and effectiveness because the United States participates. That is one of the benefits and also one of the duties and obligations that come from being the world's only superpower. That standard-setting role would be seriously undermined if we didn't have this ability to go ahead with unilateral controls and then bring others along with us.
Mr. CHABOT. Let me just follow up here, and then I will conclude.
I was under the impression that essentially what was happening was that the United States, both for our own security and the security of the rest of the world, was being the leader in this area, was trying to avoid sales of materials and goods and products that might lead to nuclear proliferation or rogue regimes getting things that we would prefer them not to get, and therefore, because we were doing the right thing and we were making it difficult for our businesses to sell to these rogue States or people we didn't think ought to get certain products, that other countries were stepping in with their businesses, France and whoever, and ultimately these countries would get what they needed anyway and build exactly what they would have built, whether our businesses had gotten the sales or whether somebody else got the sales. And that was one of the reasons that we were considering this legislation.
Page 25 PREV PAGE TOP OF DOC I guess one other thing I wanted to ask, Dr. Wallerstein, you mentioned that theI want to make sure I got the pronunciation rightWassenaar, that it was working pretty well for the most part for the last couple years.
Are there any dissenting views on that, that perhaps it is not working as well as you have espoused today?
Mr. WALLERSTEIN. Actually, I said it was a work in progress, and the Wassenaar regime has only been stood up in the last year. It is working but there is more that we can do to make it work better, to increase the transparency (and Ambassador McNamara may wish to address this), of the States to each other regardless of what their practices are. The objective would be to arrive at consensus as to what items should be on the multilateral lists.
I would also like to come back to your comment about what the rogue States can obtain. I think, in fact, that recent history has demonstrated we have had quite a remarkable degree of success in preventing rogue States from obtaining much of what they need to develop nuclear and biological weapons. As you may know, President Kennedy predicted that by the 1970's there would be more than 20 nuclear States, and of course there are only 5 declared States and only 3 threshold States, plus some other wannabes.
But the fact is that through our multilateral cooperation and as a result of some of the revelations that have come out in the years preceding Desert Storm about assistance to Libya and of course to Iraq, many of our close allies have reexamined their own export control policies and substantially tightened them. There are a number of countries that I can name by name in this regard, including Germany and the United Kingdom. So I think we have substantial success. As the Ambassador said, it is a credit to our leadership that we are having this.
Mr. CHABOT. Thank you.
Ms. ROS-LEHTINEN. Mr. Manzullo.
Mr. MANZULLO. Thank you very much.
Page 26 PREV PAGE TOP OF DOC I have got a question for Dr. Wallerstein. Does the United States allow export of five-axis machine tools to China?
Mr. WALLERSTEIN. Actually, I really should defer to Under Secretary Reinsch on this, because it is his agency which has that responsibility.
Mr. MANZULLO. You know that is a loaded question; don't you?
Mr. REINSCH. Yes, and I was waiting to hear Dr. Wallerstein's answer.
Generally speaking, there are a number of control parameters for machine tools besides the number of axes, although five axes are the most sophisticated kind.
Generally speaking, individual licenses would be required for shipment to China, so yes, they are controlled. If you are asking are those licenses generally approved or are they generally denied, which is a separate question from whether they are required or not, the answer would be that like a lot of things in China, the denial rate is going up and it is going up sharply.
Mr. MANZULLO. And yet Germany readily sells that to China; isn't that correct?
Mr. REINSCH. That is what the industry tells us, yes.
Mr. MANZULLO. And Germany is a partner or signatory, one of the 33 signatory nations?
Mr. REINSCH. That is correct.
Mr. MANZULLO. One thing about COCOM is you can remember what it was. Wassenaar, it is not working?
Mr. REINSCH. Well, this goes back to something Mr. Chabot said, too. I think it is a complicated question. There is a good bit of consensus on what we are controlling, and on the common objectives of the regime, and Ambassador McNamara is right, our leadership has brought us a good ways down the road, although there is some distance to go. There are some areas, particularly rogue nations, aided in part by U.N. sanctions, like Iraq and Libya but also North Korea, where there is a great deal of commonality among all members of Wassenaar. You don't find much deviation, and you don't find people trying to supply these countries. There are some countries where our policy is slightly different from some of our allies; China is one and Iran is another one. There are some differences of degree with respect to those countries and the extent to which some of our allies control items that we control.
Page 27 PREV PAGE TOP OF DOC Mr. MANZULLO. So the foreign availability exception, if you want to call it that, really doesn't come into consideration of a sale like this?
Mr. REINSCH. Well, the industry could seek the use of that exception by petitioning for us to look at it. Thus far, they have not done that.
Mr. MANZULLO. What we see happening is China will engage in business talks with both Germany and the United States over the purchase of the exact same item, made by a German partner of an American manufacturer. And the Chinese will say, well, because of the hoops through which we have to go in order to be able to purchase that machine from American manufacturers, the very same machine, we are going to purchase it from your German company. And they get the machine anyway. The machine is going there.
I would much rather see it being built by American manufacturers, American employees, American technologies, than the very same machine being sold to China by Germany. Obviously, this is not a munitions list or it would be an export control issue; it is a machine that obviously has dual-use technology.
Mr. MCNAMARA. Can I make a point? I think we are looking at this much too much in black and white, decision/nondecision. For example, with respect to machine tools, if we look back over the last 10 or 15 years, we will see that every one of these control regimes, and Wassenaar is no exception, started off relatively weak with some coordination and some commonality of policy among the members but not complete commonality and not complete understanding as to what the other countries were doing. Over time, in each one of these control regimes, the Missile Technology Control Regime, the Chemical Weapons Convention, the Australia Group, and the Nuclear Suppliers Group and these others, over time they have become much stronger. Countries have become much more confident that they can precisely work together in these areas to control dual-use items as well as munitions. So I think to declare Wassenaar unsuccessful at this early stage simply because there are these
Page 28 PREV PAGE TOP OF DOC Mr. MANZULLO. Well, I didn't say it was unsuccessful, I said it wasn't working.
Mr. MCNAMARA. Well, to say it is not working is to say it is unsuccessful. It is working but not 100 percent of the time, and it is not working as well as we want it to. We can make it work better, and I think over a period of time it will work better.
Mr. MANZULLO. Based on the testimony here, for example, I have got Chinese, five-axis installations on the years 1993, 1994, 1995, and 1996, and the supplier nations were Switzerland, Italy, Germany, Spain, Sweden, selling five-axis machines to China. They are getting these through our allies, our NATO allies and allies in the Wassenaar Agreement.
What bothers me, we heard this talk last year, especially the defense, the United States has to be a leader. Leader in what? Making sure that foreign countries or our allies that belong to NATO and the Wassenaar Agreement end up making the sales and we don't?
Mr. MCNAMARA. Well, the limitations with China are not arising out of Wassenaar. They are arising out of our own legislation that has to do with China. China is a not a country that we have agreed with the other 33 partners will be one of those subject to special controls.
Mr. MANZULLO. I appreciate your clearing that up, Ambassador. What is the legislation to which you are referring?
Mr. MCNAMARA. I believe there is other legislation on the books with respect to Tiananmen sanctions and other things with China.
Mr. MANZULLO. Could you, after the hearing, provide us with exactly what that legislation is?
Mr. MCNAMARA. I will try to do that.
Mr. MANZULLO. Thank you.
Ms. ROS-LEHTINEN. Thank you so much.
Page 29 PREV PAGE TOP OF DOC Ms. ROS-LEHTINEN. Mr. Moran.
Mr. MORAN. Madam Chairman, thank you. I was tardy and therefore I will yield my time.
Ms. ROS-LEHTINEN. Thank you.
Mr. Sherman, you had another question and so did Mr. Bereuter.
Mr. SHERMAN. When our export control regime was developed, we were well ahead of our allies, both technologically but especially in the technologies relevant to military activities, because dual use was not as important. Now we are only slightly ahead in many of these areas, and I would like to address the Ambassador because he has put forward a theory that we lead with our chin, that is to say, if we prohibit the export of something that the other 32 countries do not, that that will cause them to follow.
My concern is if our company is slightly ahead technologically or in price, and we prohibit the export, that means that some French company is likely to get the contract or some German company or whatever. I will use France in this example. So that creates a strong constituency in France to not agree to eliminate or to prohibit that export. If on the other hand we were going to allow the export from the U.S. company unless and until all countries joined with us, then there wouldn't be a countervailing powerful political force in France trying to derail our efforts at Wassenaar. Every time we punish our own company, we don't just punish our own company, we reward the second place finisher, the company in some other country that gets the contract.
I wonder if we wouldn't be an awful lot more effective in getting consensus if we adopted a policy that we would not restrict unless and until they restricted along with us. Ambassador?
Mr. MCNAMARA. That is certainly a policy that could be adopted. It is not the policy of this Administration, and it hasn't been the policy of any previous Administrations.
Page 30 PREV PAGE TOP OF DOC My response would be that would certainly lead to the least common denominator approach in these things and would reduce the likelihood of our being able to convince others to control important technologies. There is a certain short-term price that one pays when one tries to get other countries to follow one's lead in controlling dual-use technologies, but the fact is that in most cases we do get them to follow our lead. I would go back to the Missile Technology Control Regime, for which I was the first negotiator for the United States We had very few countries, in fact there were only seven.
Mr. SHERMAN. Ambassador, the point I was making here is that we would deincentivize a powerful political force in whatever company was supplying the goods if they knew it was an American company that would get the contract if the contract went forward at all.
Have you experienced circumstances where a particular country is trying to move slowly at Wassenaar or allow a particular good to be exported to a particular country because there was a particular company in that supplier country that got the contract or thought they were going to get the contract?
Mr. MCNAMARA. What I have seen is that when the United States, for very reasonable and explainable conditions, restricts the export of a particular commodity or group of commodities, that we are more likely to get others to follow us in that regard than if we go ahead and sell the technology ourselves. If we sell it, they will simply say we can do it because the United States is doing it. The United States, having set the standard that selling that commodity or particular category of commodities is good or OK, they are going to go ahead and the chances of their ever restricting that commodity is substantially less than if for a period of time we do not and then attempt to convince them.
Second point, it is true that there is an economic incentive, particularly on the part of the company, to get the product sold even when the United States is not selling it. But, in fact, we deal mostly with governments, and governments of other countries also have some of the same concerns that the United States has about regional stability, about nonproliferation. And by working with the governments, we can very often get them to restrict the company's activity. And we do. We are not 100-percent successful, and I know that I could sit and draw up the same list as all of us here can of cases where we have been unsuccessful, but there are a number of cases where we are successful and items that are not controlled by a country or a group of countries in some of these regimes are now controlled by others because they followed our lead. We were able to convince them that this was the right way to go and that we and the others within the regime or within the group would, in fact, adhere to a common standard.
Page 31 PREV PAGE TOP OF DOC If we surrender at the beginning and simply go to the marketplace with them, then there is virtually no chance that we are going to get them to step up to the difficult decision of imposing controls, even though economically the easy way to go is to let the product out.
Mr. SHERMAN. Thank you.
Ms. ROS-LEHTINEN. Thank you, Mr. Bereuter.
Mr. BEREUTER. Thank you. I do have a couple of questions, but Mr. Manzullo thought, Mr. Wallerstein, that you had a followup to his question.
Mr. WALLERSTEIN. I would just supplement with respect to the machine tools.
That is a very interesting example you chose, Mr. Manzullo, because in fact machine tools are, first of all, an item which is absolutely essential to the manufacture of other military systems, and indeed the five-axis numerically controlled items are among the most important for creating things like stealth capabilities, all sorts of specialized airframe construction in aeronautics and so forth. So this is technology that we do consider very important.
By the same token, it is important to point out, as I think my colleagues already have, that China is not a target of the Wassenaar Arrangement. In fact, unlike COCOM, its predecessor, Wassenaar does not have a target list of countries. Wassenaar talks about denying technology to countries whose behavior is or becomes a source of proliferation concern. And as countries change their behavior, they would no longer be subject to those controls.
And following up on Mr. Sherman's question in the same vein, it is important to bear in mind that we are not talking about a very large number of countries. Indeed, it is a very small number of countries that for most of the world we are not controlling. We are talking about only a small number of countries who by their behavior have demonstrated that they are seeking to acquire weapons which our forces might have to face on the battlefield. It seems to me that this is not a very high price to pay to ensure the safety of our forces and, indeed, the protection of our national security interests.
Page 32 PREV PAGE TOP OF DOC Mr. BEREUTER. I have what might be characterized as a big-picture question, and it is this, to any of you, gentlemen.
Given our current export control framework, IEEPA plus the Wassenaar Agreement, are you confident that you have the statutory base and the administrative structure to protect our national interests and to preserve our economic, technological base?
Mr. REINSCH. All of us have suggested that we have some growing concerns about our ability to sustain that in the absence of permanent or long-term authorization, Mr. Bereuter.
I look at it primarily from an enforcement point of view, and as long as we are taking enforcement action against the things that happened prior to the expiration of the last act, there isn't any question. But the longer we go under IEEPA, which has a different enforcement construct, lower penalties and doesn't mention things like temporary denial orders, our tools are brought into question.
Now, thus far, we haven't lost, but we worry that ultimately we might, and that would make it difficult for us to sustain the network of controls that we have got in the event of legal challenge, and that would compromise our national security.
I will defer to Ambassador McNamara if he wants to add something.
Mr. MCNAMARA. No, I think that is quite a good summary. We do have sufficient authority under IEEPA. In the long term, we would prefer very much to have those authorities, if you will, put into permanent legislation via a new EAA. But there were problems which we specifically told the Committee about and went over in great detail with the staff last year with respect to H.R. 361. It was quite clear that for the short term at least we preferred IEEPA over the H.R. 361 version that was on the table for discussion.
Mr. BEREUTER. Do you say this in light of the prospects that we are going to indeed have rapid technological advances?
Page 33 PREV PAGE TOP OF DOC Mr. REINSCH. I am sorry?
Mr. BEREUTER. Do you say you make that statement even though we have the high prospect, even the certainty of rapid technological advances?
Mr. REINSCH. Yes, definitely we say that. Although that gives me the opportunity to mention another caution, and that is at least the last four Administrations, and when I was on the Hill, as you mentioned, consistently expressed concern about congressional efforts to build into statute control levels, control rules or control parameters for precisely the reason you just mentioned.
Technology changes faster than the Congress can amend its laws, and we have consistently argued that what Congress is best at doing is setting broad policy frameworks and leaving it to the Administration of the moment to decide precisely what level of computer performance or machine tool axis, whatever, is controllable.
Mr. BEREUTER. One followup question. Silicon Graphics has of course exported computers and computer technology to Russia, supposedly acquired by them for weather forecasting but in fact the National Security Committee or perhaps committees in the Congress believe that this technology, these computers are being used or likely to be used, one or the other, for nuclear weapons modeling.
Therefore, how would you justify or attempt to justify further liberalization of our dual-use technology?
Mr. REINSCH. Well, I have to be careful in my response, Mr. Bereuter, because the matter is under investigation, and I don't want to get into too many specifics about the particular case.
Let me say in that circumstance the end user in question was clearly identified, a nuclear weapons research facility, and I don't think there was much doubt about what the nature of the end user was. But that is a question that will come out in the investigation.
Page 34 PREV PAGE TOP OF DOC I think the answer to your question as far as computers are concerned is really determined by what we studied in 1995, assisted by the Stanford study in 1995, when we produced the policy that has us where we are now, and that is availability, which is the question that has been bandied about via your questions, that is, what computer levels of performance are essentially widely available. This is a technology that is moving very fast.
The President concluded that he foresaw by this point in time, roughly 18 months after the decision he made in 1995, that computer technology would be widely available up to the 7,000 MTOP range, which is where we are now, and judging by what I hear from the industry now suggests that that was about on target and we are about there.
Does that mean that you can do things at lower levels of performance that we wish you couldn't do? Yes. You can build a nuclear bomb without any computer, and you can certainly build a nuclear bomb at levels well below 2,000. That is all out the door.
What we are going to continue to do through the new study that is going on right now, which isn't going to be finished until the end of the year so this is not a near-term issue in that sense, is to review availability and critical military functions that we don't want to lose our unique hold on. And based on that, we may make some decisions about changing control parameters or we may not.
Mr. BEREUTER. I want to thank you for your indulgence.
Mr. MCNAMARA. Could I
Ms. ROS-LEHTINEN. Perhaps you would address it when he asks one last question of the panelists, Mr. Manzullo, and then we will move on.
Mr. MANZULLO. I appreciate your indulgence.
Between 10 and 15 percent of all exports of machine tools come from Rockville, Illinois, which is a district I represent. I have a very distinct interest in this. I guess when you talk about the five-axis machines, five-axis machine does nothing new in technology, it just does it faster. Because all the different angles that you talked about on the aircraft, et cetera, can be done with a one-axis machine. It just takes longer to do it.
Page 35 PREV PAGE TOP OF DOC We went through the same arguments back when I was first elected and the MTOP level on supercomputers was 1,500, and that is when Korean manufacturing lost that big contract to India, because of the war going on India said forget it, not only made their own, started exporting all over the place. So I guess when we are drafting this legislation, in a supercomputer, it does nothing new, it just does it faster.
So we have gone from 1,500 MTOPs to 7,000 MTOPs in a matter of 4 years because the Administration has recognized exactly what I just said. It is nothing new; it is just faster. And I think we should take a look at that with regard to machine tools. Whether you can build something in 5 months or 1 month I really don't think should be a reason for prohibiting that particular machine tool from being exported. Just my opinion, of course.
Mr. WALLERSTEIN. Mr. Manzullo, I would be very happy to provide you with some additional information on the desiderata we use on machine tools.
I do differ somewhat on your assessment that it is only a matter of speed. Certainly, we have looked at those issues both with respect to machine tools and computers, and there are certain critical national security applications where a five-axis machine tool does have significant qualitative advantaging over a four-axis machine tool. This is not to say that you can't accomplish the objective with a four-axis tool, but you accomplish it with greater precision, greater efficiency, greater reliability. There are other characteristics. We have looked at this extensively and we would be happy to talk to you about it.
Mr. MANZULLO. Thank you.
Ms. ROS-LEHTINEN. Mr. Ambassador, you wanted a followup statement.
Mr. MCNAMARA. I just wanted to respond to Mr. Bereuter's request for the citations to the H.R. 361. The primary ones are 105(a) and 106(a).
Ms. ROS-LEHTINEN. Thank you.
Page 36 PREV PAGE TOP OF DOC Thank you so much, to all the three panelists who appeared before us today. We thank you for your testimony.
In the interest of time, as the witnesses for our second panel get settled, I would like to proceed with their introductions.
We will first hear from Dr. Paul Freedenberg, who has been an international trade consultant with the law firm of Baker and Botts in Washington since May 1st, 1989. He specializes in general international trade issues as well as technology transfer, export licenses, export financing, export enforcement, and both foreign and domestic banking and investment issues.
Previously Dr. Freedenberg served as the first Under Secretary for Export Administration in the Department of Commerce, and prior to that as Assistant Secretary for Trade Administration.
Ms. ROS-LEHTINEN. Dr. Freedenberg has published and coauthored numerous articles on export policies and international banking.
He will be followed by Mr. Joel Johnson, who serves as the vice president of the International Division for the Aerospace Industries Association of America, which represents 50 of the major manufacturers of the industry. Prior to joining the association, Mr. Johnson was executive vice president for the American League for Exports and Security Assistance.
Mr. Johnson also serves on the Senate Foreign Relations Committee as a professional staff member and as chief economist for the Foreign Assistance Subcommittee. Previously, he served as a member of the Secretary of State's policy planning staff, as Deputy Director of the Office of Trade Policy and Negotiations at the Treasury Department, and in a wide array of other positions in the field of international economic affairs.
Last, we will hear from Mr. Peter McCloskey, the president of the Electronic Industries Association. As the association's chief staff officer, he oversees the activities of the national trade organization, representing the full spectrum of U.S. manufacturers in the more than $342-billion electronics industry.
Page 37 PREV PAGE TOP OF DOC Prior to joining the association, Mr. McCloskey served as president of the Computer and Business Equipment Manufacturers Association, now called the Information Technology Industry Council, and as president and chairman of the board of the Farrington Manufacturing Company.
His professional experience has also included various management positions with IBM, a private law practice, and service as a first lieutenant in the U.S. Marine Corps.
My son just joined the Marine Corps. He starts boot camp at the end of this month. So you will have to tell us all about it. Thank you.
Ms. ROS-LEHTINEN. Dr. Freedenberg.
STATEMENT OF PAUL FREEDENBERG, INTERNATIONAL TRADE CONSULTANT, BAKER AND BOTTS, AND FORMER UNDER SECRETARY OF COMMERCE, BUREAU OF EXPORT ADMINISTRATION
Mr. FREEDENBERG. Thank you.
Madam Chairman, Members of the Subcommittee, I am pleased that you asked me to testify on the subject of the reauthorization of the Export Administration Act. It is a subject with which I have more than a passing familiarity. Indeed, I first dealt with this issue in 1979 as a member of the Minority staff of the Senate Banking Committee, as Senators Jake Garn and John Heinz considered proposals to adapt export controls to the challenges of the 1980's.
I addressed the export control issue again in 1981 as staff director of the Subcommittee on International Finance after the Republican victory in the Senate.
The EAA was revised again in 1985, and it was last revised in 1988 as an amendment to the Omnibus Trade Act, when I testified for the Reagan Administration as Under Secretary of Commerce for Export Administration. The EAA, which emerged from that legislative process, is, in essence, the same act which our government utilizes as the basic authority to control exports today.
Page 38 PREV PAGE TOP OF DOC While regulations have been cobbled together in order to adopt EAA to the current world situation, the act is badly in need of revision. And more significantly, I would add, and most embarrassingly, as a result of the inability of Congress to agree on the content of a new EAA, the 1990's have seen our Nation operating under the emergency powers of IEEPA for a longer period of time than under the statutory authority of the Export Administration Act. This ad hoc approach to export controls has been utilized during the very time when our government has been lecturing other governments on the need to improve their export control systems and to pass laws to provide statutory authority of the enforcement for export controls.
Madam Chairman, there is a real danger that if the committee of jurisdiction cannot produce legislation, the job will be done piecemeal by other committees and by amendments to various pieces of legislation not within the jurisdiction of this Committee. Given the history of the legislative deliberations on the EAA during the 1990's, this may seem like the only way that any revisions will be made to the Act. But based on my experience, both as a legislative aide and as an export control official, I don't believe that a piecemeal approach to revising the Export Administration Act will provide the coherence that the government needs in order to administer export controls for the remainder of this century.
The major problem which we face in the international context is that the United States no longer has a strong multilateral export control organization that it can turn to to enforce the rules of the game. COCOM, which existed for 45 years, is no more.
And I thought I would spend the balance of my time, since I know you are very tough on the 5-minute rule, discussing some points that were raised by the last panel. I think a major point that has to be made was made by them, which is that Wassenaar, the successor to COCOM, is aimed at the rogue States. It is not aimed at, for example, China. There is no consensus on China, and, therefore, when we try to impose export controls on China, we don't get the cooperation of our allies.
Page 39 PREV PAGE TOP OF DOC The reason and the key difference is we do get cooperation with regard to the rogue States, and we have been generally successful with regard to Iran and Iraq, Libya, North Korea.
But when we turn to China, first of all, since Wassenaar was not created to deal with China, it is simply used as a guide for licensing. And that, I think, explains the questions that Mr. Manzullo and Mr. Chabot asked, which is if you have it as a guide, the United States can use it in one manner, and the allies can use it in another. And I think in my testimony I show that the United States has used it in a very rigorous way, has been very tough in imposing licenses based on the guidelines that are established under Wassenaar, but the allies have not.
The U.S. licensing system is a very long, difficult process, frequently with a turndown at the end. The allied system, if you look at the export statistics, is a much more liberal system. And the unit value of the machine tools that have been exported to Chinaaccording to export statistics that are available internationally, show that they have been approving much more sophisticated machine tools.
That is just one example of the problems we have in trying to use a Wassenaar licensing system, which is aimed at rogue States, and apply it to what is essentially a unilateral control system for China. And, in fact, there are no legislated unilateral controls against China. There have been unilateral controls in the past against China. There are not unilateral controls today. And that is one of the problemsthat is one of the reasons that Ambassador McNamara was stumped, because they don't exist. It did exist. It doesn't exist today, except those licenses that are very rigorously enforced by the Defense Department.
I see the red light is on. I just want to add one other thing. We do have a problem with regard to the list of bad end users, the so-called ''is informed'' list that Under Secretary Reinsch referred to. The problem is it is not very long. One name. That is not very long by definition. It has been doubled lately to two names.
Page 40 PREV PAGE TOP OF DOC But I would think that, with the number of bad end users out there and potential bad end users, the major reasons we find that it is so short is either diplomatic, or intelligence, sources and methods. I should think we should be able to overcome those objections and come up with a much longer list. And I will conclude on that.
Mr. FREEDENBERG. Thank you so much, Dr. Freedenberg. And we will be glad to put your testimony as well as the other panelists for the record without objection.
[The prepared statement of Mr. Freedenberg appears in the appendix.]
Ms. ROS-LEHTINEN. Mr. Johnson.
STATEMENT OF JOEL JOHNSON, VICE PRESIDENT, INTERNATIONAL AEROSPACE INDUSTRIES ASSOCIATION
Mr. JOHNSON. Thank you, Madam Chair. I am pleased to have the opportunity to be here this afternoon with you representing the Aerospace Industries Association.
As you all know, currently industry must operate under two main export control laws, the EAA and the Arms Export Control Act, both under the jurisdiction of the International Relations Committee. Both were written during the cold war at a time when we dealt with a bipolar world, when military technology was relatively distinct from commercial technology, and when advanced technical knowledge was essentially the province of the industrial democracies and the Soviet bloc.
Today, the cold war is over. Technology and knowledge have become widely dispersed, and the distinction between military and commercial technology is increasingly blurred.
The philosophical underpinnings, legal structure and administrative framework for U.S. export controls have not changed at a comparable pace. As a result, from our perspective, there are too many export licenses required and too many agencies involved in the review and administration of such licenses. I think that it is, therefore, appropriate that your Subcommittee is taking a broader look to start these hearings as to where we go from here.
Page 41 PREV PAGE TOP OF DOC There would seem to be three principal reasons for imposing export controls. First is obviously arms, which is not the province of the EAA. It involves security, foreign policy, and public perception. We obviously want to help our friends protect themselves. We don't want to compromise U.S. weapons systems, let alone see them used against us. We all recognize weapons are not toasters. There will always be a separate statutory framework for weapons, which will be different than for other kinds of products.
Second, national security. We wish to withhold certain technology from a number of States where the technology might be used for purposes such as design and production of weapons systems. Thus a new system would presumably need some controls focused on security, but with greater emphasis on multilateral controls and on industry safeguards than is currently the case.
And, finally, there are foreign policy concerns. We have historically imposed controls to either pressure countries or punish them. A new legal framework would almost certainly include such controls, but these ought to be sharply limited with the safeguards I will note below.
Assuming we can reach agreement on categories of export controls, I think a strong argument can be made that all such controls ought be consolidated under a single permanent act. Furthermore, Congress might examine whether one agency, most likely Commerce, could serve as an administrative shop for export licenses. This would provide an industry with a one-stop shop for license applications and hopefully lead to a single computer system and a reduced number of forms and data collection.
I should note that assigning Commerce or any other agency the responsibility to receive and process export licenses would in no way preclude other agencies from retaining policy involvement or even final authority over specific types of license applications. From industry's perspective, too much time is expended by government officials and our own employees handling license applications for exports of parts, technical data, and end items which are of a routine nature to countries which are certain to be approved.
Page 42 PREV PAGE TOP OF DOC We might look at three approaches to alleviate that problem. First, greater use of program licenses in which, when a license is granted for a sale of a specific end item, the license would also provide authority to allow a company to report after the fact on all subsequent shipments of parts and technical information related to the sale.
Second, license-free regions. One might look again at the notion of license-free regions for areas which have comparable export controls as the United States, such as the Australia Group, the European Union, and the Wassenaar Arrangement for certain products.
And, finally, self-policing. The government licensing agency might certify individuals in at least some companies to issue licenses for certain casesproducts such as spare parts, and technology and equipment required for a joint program. And we can come back to that later.
Finally, I would just note that for industry, if there is new legislation or even an extension of current legislation, there are several safeguards we would certainly like to see as a sine qua non included. First, foreign availability. Except under very unusual circumstances, generally related to lethal equipment, U.S. companies ought be allowed to sell products which are or are expected to be available from other sources.
Second, contract sanctity. Companies ought be able to honor existing contracts except when multilateral sanctions cut off all contracts.
Third, support of formerly exported products. This is particularly important to the aerospace industry. In general, companies ought to be able to support products already in the hands of other countries, even if new sales are prohibited. That is particularly important for us in areas such as safety of flight.
Next, multilateral versus unilateral. It is no surprise that industry feels very strongly that multilateral controls are the way to go, not unilateral.
Economic impact. One of our concerns, I think, about export controls is that they are essentially an unfunded mandate. Essentially industry and labor pay the price of a policy in which we have very little role of setting. One might have the CBO do a review of the cost of such controls and at least provide worker training and relocation expenses to workers dispossessed by controls, just as we do for imports.
Page 43 PREV PAGE TOP OF DOC Finally, time limits. Economic sanctions ought to have some built-in end point so that we don't have to seek a political way to end them, especially if they haven't worked.
I have tried to follow your staff's advice and speak quickly and I am happy to answer questions afterwards. Thank you, Madam Chairman.
Ms. ROS-LEHTINEN. Thank you so much.
[The prepared statement of Mr. Johnson appears in the appendix.]
Ms. ROS-LEHTINEN. Mr. McCloskey.
STATEMENT OF PETER F. McCLOSKEY, PRESIDENT, ELECTRONICS INDUSTRIES ASSOCIATION
Mr. MCCLOSKEY. Thank you, Madam Chairman. I appreciate the opportunity to testify. EIA has consistently advocated changes to the export controls regime in order to make the system more efficient and more responsive to the competitive needs of the high-technology industry. This is especially important, as our high-technology industry has become more essential to the Nation's overall economic well being. In particular, our industry accounted for $122 billion in exports last year.
Over the next few months, this Subcommittee may be considering a rewrite of the Export Administration Act. At this time, many EIA member companies are concerned that such an effort to rewrite the Export Administration Act would be counterproductive. We believe, however, the value of this legislative effort lies in its ability to produce measurable improvements to the export control system.
As a result, we believe that several broad principles should be adhered to in the revising of the current system. First of all, the system must provide the means of accommodating the rapid pace of technological change.
Page 44 PREV PAGE TOP OF DOC Second, our policymakers should resist the use of unilateral controls and, instead, pursue multilateral export controls.
And, third, the export control system needs to recognize that many high-technology products subject to U.S. export controls are, in fact, produced by other countries.
And, finally, our government needs to recognize that despite recent reforms, the burden of export compliance placed on the exporter over the past few years has created an enormous disadvantage for U.S. companies competing abroad.
One of the most challenging problems facing our government is the question of how to address the rapidly changing nature of today's high-technology products. In times past, the new technology could capture a market for years before it was surpassed by newer and more sophisticated products. Today product life cycles are infinitely shorter. Our export control system must be able to address these changes in a manner that allows our companies to market competitive products through indexing to account for technological changes.
Importantly, we support the Commerce Department and the efforts that have been commissioned over the past several years to examine computer export controls. These studies examine the current state of technological advance in the computer industry and also foreign availability of these products. We were greatly disturbed that the House National Security Committee is conducting hearings which appear to challenge the findings of these thoughtful studies. We hope that your Committee will take part in this debate.
Of paramount importance for you and your committee to consider are the imposition of economic sanctions. These types of controls are probably the most detrimental to our industry, because they punish U.S. high technology manufacturers, while allowing foreign firms to conduct business as usual.
If unilateral controls are to be used at all, we propose that you consider a finite period of their use while our government is negotiating with foreign governments on a broader multilateral implementation. If multilateral agreements cannot be reached, then the unilateral controls should be discontinued after a defined period, and U.S. producers allowed to export without restriction.
Page 45 PREV PAGE TOP OF DOC During the large part of the post-World War II period, the United States was a leader in many high-technology products. As a result, our industry has held a monopoly in the development and the manufacture of sophisticated computer and electronic products. Today, however, many countries in the developing world support industries that are highly competitive in the international marketplace and produce high-quality, high-tech products. And the United States no longer has that monopoly. EIA believes that the U.S. export control system must account for this foreign availability from overseas sources.
Encryption is an example where U.S. policy does not account for foreign sources of technology. While there have been recent changes to encryption controls that relax some export controls, there still is limited recognition of the availability of encryption overseas. Additionally, current regulations place controls on exports of many consumer electronics products that could potentially stifle the development of new and exciting technologies for home use.
We believe it is important to recognize the many bureaucratic barriers that our companies face in exporting their products overseas. In particular, our industry is required to engage in export compliance activities that are extensive, costly, and time-consuming. These activities, while necessary in some instances, are being placed on the exporter by the government with no regard for their ultimate effect on legitimate sales. One principal problem is the reluctance of our government to identify problem end users through official publication.
It is important to note that our companies want to be compliant with the law and do not want to export the technologies to end users who will use the products for illicit purposes. However, their desire to be compliant is frequently thwarted when the U.S. Government does not provide adequate information of those end users of concern.
As our Nation faces the dawn of a nearly borderless market in the 21st century, we stand at a vital crossroad in our ability to serve as a supplier of the most competitive and advanced products and services. Our long conflict with the East bloc is over, and it is now time to adjust our international trading policies and practices accordingly. Economic competition is one of the premier challenges facing our industry. Our export control system must adjust to meet them. Thank you.
Page 46 PREV PAGE TOP OF DOC [The prepared statement of Mr. McCloskey appears in the appendix.]
Ms. ROS-LEHTINEN. Thank you so much for excellent presentations. We will begin our round of questioning with Mr. Blunt.
Mr. BLUNT. Thank you, Madam Chairman. I just have a couple of questions here.
Mr. McCloskey, you think that the export controls are becoming more restrictive, or does the rapidity of technological change make it seem more restrictive?
Mr. MCCLOSKEY. I think it is the latter. I think technology moves very, very quickly. We see it being applied in areas that aren't in the what you consider the highest-tech products anymore. Web TV is an area that came under concern recently. The satellite dishes that receive direct broadcast satellite use encryption in them and can't be exported currently. These are examples of consumer products that are now impacted by export controls that you wouldn't think would apply.
Mr. BLUNT. So it is not as much the way that we are doing this now is more oppressive than it was, but it just is in such a different marketplace. Is that how you analyze this?
Mr. MCCLOSKEY. Well, I think that and also the shortened life cycle of products. I know of a particular case a couple of years ago where a company was manufacturing a product and wanted to ship it to Australia. And the time line in getting the export approval was such that he missed the whole season, lost his opportunity to gain market share, and lost significant business.
Mr. BLUNT. You mentioned in your testimony just a moment ago that we should do licensing through indexing to account for technological changes. Who would actually create that index, and how do you envision that working?
Mr. MCCLOSKEY. Well, I think that is more the approach that has been used on the computer exports, recognizing that the speed of computers changes every year, that to have restraints in place that freeze technology would make no sense at all, and you have to recognize that that does change and adjust our policies to provide that. I think that can be done internally or with scientific advice from advisory panelists.
Page 47 PREV PAGE TOP OF DOC Mr. BLUNT. Much the same way we handle the computer
Mr. MCCLOSKEY. Right.
Mr. BLUNT [continuing]. Indexing the computer technology now.
Mr. MCCLOSKEY. Right.
Mr. BLUNT. Mr. Johnson, you have talked about weapons some, and certainly that is a significant concern in this whole area. What criteria should we use for technology that can go into weapons? How do you ensure that we solve the dual-use problem and still allow our folks to compete at the maximum possible way without endangering our security or without providing weapons to countries where we don't want to do that?
Mr. JOHNSON. I don't think you will probably ever solve the dual-use problem. What I was alluding to is that I think we still have too many dual-use items that are treated as munitions items in our system, and they ought be moved. It is the lethality, in a sense, of weapons that requires them to be treated very differently than dual-use items where we have had most of our problems for products such as encryption, commercial satellites, et cetera, which have been treated as weapons for far too long rather than moved over to a dual-use category, where at least you are then treating them as you do other commercial products.
And weapons, besides the lethal implications of weapons, there is the front page of the newspaper test. Even though a U.S. weapon may be no different than you can get at any corner supermarket, you can't have U.S. weapons being used against our guys or in some certain kinds of domestic strife.
When it comes to communications satellites, when it comes to fiber optics, this sort of thing, it seems to me, you have to grin and bear it and say, if everyone else is selling that stuff, probably U.S. competitors should not be restrained either, even though some of that stuff may be used in ways we wish it wouldn't.
Again, I think that there is no clean break, but if you look at the original legislation, the Arms Export Control Act, the munitions list, I think the intent of Congress in the 1970's was pretty clear that what that law was supposed to control were weapons of destruction, not this whole gray area which they created a separate law for.
Page 48 PREV PAGE TOP OF DOC Mr. BLUNT. Yes. And you are basically saying once in the dual-use technology, that you have technology that is generally available, then it should go off any list we have, that only our exclusive technology should be held back?
Mr. JOHNSON. Yes, unless you can effectively control it unilaterally where we are the only people who have it, or unless you can obtain effective multilateral controls; that is to say, other people that are likely to export that technology agree with us that, for certain countries, or for all countries, that technology should be contained among those people who have it.
Mr. BLUNT. Right.
Dr. Freedenberg, just one last question, and it would be for you. And that would be: You mentioned the bill last year, H.R. 361, would be a good starting place. Is there any obvious failure there, any obvious gap that this Committee ought to be looking at when you look back at H.R. 361 to make it better than it was last year?
Mr. FREEDENBERG. There are a number of areas. I don't want to go into great detail, but I think it is a good starting point there. In the area of foreign availability, it didn't really go as far as I thought it should have, nor did it have the right structure. It does have to be adjusted in the area of judicial review. I think the clarifications that were talked about by the Administration make sense.
There are a number of other areas that you have to fix, but you are talking about something that essentially is the work of two Congresses, that was produced unanimously by this Committee, passed unanimously by the House, and then you are going to throw it out. It doesn't make sense to me, particularly when you have a situationI think Secretary Reinsch was very careful about thisbut we do have a very tricky situation with regard to the authority of the government to control exports. If it is so important, we really have to reach some consensus and give them that authority in a clear manner.
Page 49 PREV PAGE TOP OF DOC Ms. ROS-LEHTINEN. Thank you so much.
Mr. BLUNT. Thank you.
Thank you, Madam Chairman.
Ms. ROS-LEHTINEN. Mr. Sherman.
Mr. SHERMAN. I know Dr. Wallerstein, before he left, used a minute of his time to wonder whether it was worth some small price in order to make sure that our soldiers and sailers were safe. And I just want to comment that if I thought the kinds of controls he was advocating actually made our service people more safe, I would certainly be for them.
I put forward, and the last panel simply didn't respond to it, the theory that unilateral controls actually endanger our soldiers and sailors, because they act as a powerful political deterrent in some foreign country to the support by that country of multilateral controls.
This might be something you would want to submit in writing to us, because it asks for specifics, and I know you are here talking about policy in general, whether anyone on the panel can give us an example of where a foreign company has a contract today because our laws prevented U.S. companies from competing, and where either that company or the country in which they are located has thwarted or at least tried to thwart multilateral export controls in that area.
Mr. FREEDENBERG. I submitted a list that the Cincinnati Milicron representative, who was just back from China, had of 15 sites in China where foreign machine tools were in sitesin factories in Chinawhere they would have been, he believes, denied by the U.S. export control officials.
And, indeed, with regard to many of them, there weren't even requests made to the U.S. companies, even though they're very competitive, because the Chinese knew that they have too much trouble and too much time getting a license from the United States.
Page 50 PREV PAGE TOP OF DOC So, basically, not only do you have this product in the Chinese factory, but we don't really know much about it. What is happening, or where and how it is being used.
There is an intelligence aspect to this, just simply knowing that the machine is there, what it is doing, and essentially its context is that we really lose. So we lose two ways. And longer term, we lose the place in a very, very important market. It is the number 1 machine tool market in the world today. You can create parameters that limit the export of machine tools there, but you don't want to create them unilaterally. You want to get multilateral agreement on it.
Mr. SHERMAN. Doctor, I am sure there are many examples where we have lost jobs as a result of our export controls. And as you point out, when we lose the job to export that one particular machine tool or that one particular contract, we also lose the intelligence, and we lose long-term foot-in-the-door access to that market.
But my question was more, to follow up on your example, is there then evidence that the machine tool industry of France or Germany or Japan has been lobbying their government to allow them to have continued access to, in this example, the Chinese market? Or perhaps someone on the panel can give us a real-life example of where one of your foreign competitors is lobbying to keep markets open.
Mr. FREEDENBERG. We had examples. I will give one for the aerospace industry, since I used to be in charge of export controls. We had examples where the Spanish were selling transport planes that Lockheed couldn't sell, and they definitely didn't want to reach agreement on that subject because they had a great market. And I had the French representative to COCOM come up to me and thank me profusely for our export controls, obviously jokingly.
Mr. SHERMAN. So we have a situation where not only do we lose the jobs, but if our objective was to deny transport planes to the Chinese
Page 51 PREV PAGE TOP OF DOC Mr. FREEDENBERG. Yes!
Mr. SHERMAN [continuing]. In this example or some other country we would like to deny some technology to, we have a situation where, instead of the Spaniards being passive in any Wassenaar discussion or other intermultilateral discussion on the subject, they have a strong reason to seek through dilatory tactics to prevent multilateral sanctions or controls, because their company is getting the jobs.
Mr. JOHNSON. I was in Europe 3 weeks ago and was warmly thanked by both the president of the German and the British aerospace industries for export controls in several areas that have gained them business. They were not being entirely facetious.
Mr. SHERMAN. So not only are we being thanked for giving them these jobs, but, presumably, when we do have those discussions at Wassenaar, that the Germans, Spaniards, and French are not working with us to try to prevent the foreign country from obtaining the goods, but rather love the current system just the way it is, which is the target country gets the goods, and the French, Germans, or Spaniards get the jobs.
Mr. JOHNSON. If I can only just add one quick comment to that. When you have an industry like ours where you sell a product that is in inventory for 20 to 30 years, when you miss one sale, you may be out of the market for 2 to 3 decades.
Mr. FREEDENBERG. Yes.
Mr. JOHNSON. So some things turn over in 18 months. Our products don't. Once an airline standardizes or somebody standardizes on a piece of equipment, it doesn't matter whether we change our minds 2 years later, we are out of there.
Mr. SHERMAN. I hope that you would go back to your offices and try to come up with examples, not only where we lost the contract and where you gentlemen had the opportunity to be thanked, but rather where the companies that did get the contract or the countries in which they are located became advocates for the present system, that system being U.S. controls and the absence of multinational controls.
Page 52 PREV PAGE TOP OF DOC And I call this leading, but leading with our chin. I know that Mr. Bereuter, I think, asked this question of one of the panelists, but I would hope that you would submit to us in writing the changes that each of the organizations that you represent would like to see in H.R. 361, so that when we start down that road, we start where the last Congress was, but we also know where the organizations that you represent would like us to go.
Ms. ROS-LEHTINEN. Thank you.
Mr. MANZULLO. Thank you, Madam Chair. I am always interested in how we can have you three gentlemen here testifying on behalf of a bill and the three gentlemen before us. I sometimes wonder if I am in the same Congress, if we are talking about the same things.
And when I see the different charts as to the United States losing world share in exports, for example, to China, with that equipment being readily available through other countries, and perpetuating statements such as a simple five-axis machineI mean all that is is that is five cutting knives. It is five cutting knives that are set at five different angles that hone a piece of metal at the same time. That is all that it is. There is nothing more to it than that.
And then you were all around at the time that we had the testimony here with Cray Manufacturing, where they put on a little demonstration and said, this is how we build a supercomputer. And they took a chip, and they put it into another computer and said, well, this is a supercomputer. And then the statement came forth that you could control a missile with a Commodore 64.
And I just think that somewhere that there is a giant disconnect between the government putting these controls on and what is actually going on in the world marketplace.
Paul, I have got a question for you. Could you define a machine tool for me?
Page 53 PREV PAGE TOP OF DOC Mr. FREEDENBERG. That is a tough question. Basically it is just an automated tool that makes other tools. It doesn't have to be automated, but it is essentially an automated tool that makes other tools or other manufactured products.
Mr. MANZULLO. OK. And I would accept that as a good working definition. The question that I hadI think it was Dr. Wallerstein, who was on the endabout United States ban on five-axis machines and other countries selling those, do you recall the question?
Mr. FREEDENBERG. Yes, I do.
Mr. MANZULLO. Good. Would you answer that question?
Mr. FREEDENBERG. Well, basically what we are talking about, I thinkwe are not talking about one axis, we are talking about the cutoff at five-axis versus four. You can do the same thing with a four-axis machine or a three-axis machine. You just have to move the product around a little bit to change its position so that you can cut it. It is a little bit more difficult to cut it or bore or press.
Mr. MANZULLO. But you can still do it.
Mr. FREEDENBERG. But you can still do it. And the question really becomes really accuracies. And there are obviously certain accuracies that the Nuclear Suppliers Group says we shouldn't allow nonnuclear States, or potential nuclear proliferants, to get ahold of. And those are things that are set out in the Nuclear Suppliers Group list, and that is something the machine tool industry has suggested as a model for a control list.
When you use the Wassenaar list, you are using something which is aimed at these rogue States. It is being used for China, but it is not being used by all the States in the same manner for China. That is how you end up losing the market, because we are the ones that are using it in a tight, restrictive way. And the proof is out therethat our allies are using it in a much less restrictive way.
Page 54 PREV PAGE TOP OF DOC And I would love to say diplomatic demarches or overtures would obtain allied cooperation. They used to be called by Richard Pearl ''de marshmallows'' because of the way we did them, not very hard or very tough. But the problem is, if we had a tough, aggressive policy of trying to get our allies to go along with this, that is one thing. If you look at Wassenaar, it really doesn't have much structure at all. And if another country sells something that we refuse to sell and that we have told them that we refuse to sell, they don't have to tell us until 60 days after they have done it. That is the rule of Wassenaar. That is not a very tough system. So we have a system created which really encourages other countries to take advantage of our restraint.
Mr. MANZULLO. This was Mr. Sherman's conspiracy theory of international agreements, that other countries were getting together and purposely making our laws very complicated so that they would have more market share than us.
Brad, I don't know if that was a good characterization of it, but it certainly would make sense to keep our laws as complicated as possible.
Mr. FREEDENBERG. It is not our law. That is a problem. It is an international agreement.
Mr. MANZULLO. International.
Mr. FREEDENBERG. Sort of gentleman's agreement. And it is a gentleman's agreement in which many gentlemen act like cads. I mean, we don't have cooperation. It is not a treaty. It is not a tough organization. It is a gentleman's agreement, with yearly meetings where we talk about general subjects. It is nothing like what COCOM was.
Mr. MANZULLO. Well, how, in your estimation, because we are considering a new legislation, would you draw the bill?
Mr. FREEDENBERG. I think it is very tough. I think we want to avoid unilateralism and have tough standards on it. I recognize there are times you need to act and set an example, but I think you need to have very tight restraints on that. I think you have to force the Administration, legislatively force them to negotiate. You can't force them to be successful. But I think you have to force them to go out there and push other countries to try to go along with our international leadership, and I don't think Wassenaar is a good example of our success in this area.
Page 55 PREV PAGE TOP OF DOC I think there are a number of other ways one could do it, but there is no easy solution to this problem, particularly when there is no consensus on China. I think we have to be careful about China. China has some potentials for the future. But we are talking about now, and we are talking about still acting within limits. And it is not sensible for to us have one set of limits and everybody else to have another set.
Mr. MANZULLO. Mr. Johnson, same question.
Mr. JOHNSON. I think Paul probably has taken much of the words out of my mouth. I was thinking when you talked earlier about doing things simply, I thinkas a guy in the aerospace industrymy favorite scene from Apollo 13 is, at the height of a crisis, the guy pulls the slide rule out. And you know, I think we forget we put men on the moon, built the SR71 and our nuclear industry with slide rules.
You know, it is a matter of speed. It is a matter of accuracy. But almost anything any of these countries aspire to is still at the slide rule level that we accomplished in this country with those kinds of technologies.
I think one reason we overlook things that went on in Iraq is that no one looked down low enough, because most of our guys are educated using advance computersmy kids don't know how to use a slide rule, but you can do the job that way. And I think we do tend to lose sight sometimes of what it is we are actually trying to prevent from happening out there and whether any of these export controls have a whole lot to do with it.
Mr. MANZULLO. Peter, you have got a degree in physics, you are an attorney, you run a manufacturing company, you are head of the EIA. You have got quite a background in this. How do you draw legislation like this?
Mr. MCCLOSKEY. Well, I think the first thing you do is you put a time limit on any unilateral control. I think you have to make it finite. I understand we are going have to lead, and we are going to have to show by example. But if it isn't working, then I think we have to lift unilateral restrictions. And that is the pressure that Congressman Sherman was really talking about. I mean, he felt we ought to do it simultaneously. I think that is the right way to do it, but I don't think you can necessarily get there.
Page 56 PREV PAGE TOP OF DOC But if you pressure them by having a finite period in your law that says unilateral controls can only be imposed for a 90-day period, during which time we will negotiate with our multilateral partners to accept the same standard, then there is pressure for them to do it at that particular point in time, and I think we can do it.
I agree 100 percent, by the way, with your comments about computers. I programmed the earliest computers and a lot of later ones, and they don't do anything different. They just do it faster, in parallel perhaps, but you can solve the same problems by and large. Not real-time problems. You can't solve a problem on aiming an intercept on a missile perhaps with the oldest version, but pretty much later versions that are pretty old can do that job.
Mr. MANZULLO. Thank you.
Ms. ROS-LEHTINEN. Thank you.
Mr. BEREUTER. Thank you, Madam Chairman.
Gentlemen, I apologize for missing your testimony. I tried to catch up with it, but I had to manage a bill on the floor.
I have a couple simple questions, maybe not so simple, to answer; I don't know. Based upon what I have heard here today and what I have read, is the Wassenaar Agreement in our national interest or contrary to our national interest?
Mr. FREEDENBERG. I think it is in our national interest, but not in the form that it is in. I mean, Dr. Wallerstein said it is a work in progress. Unfortunately, the progress is too slow, and in the process, I think, we lose the urgency of the subject. We lose cooperation of our allies, and we essentially are using it for the wrong purposes.
If we could get our allies to agree that the parameters of Wassenaar are supposed to be with regard to China, we would have a very effective tool for dealing with China. Unfortunately, we don't have that.
Page 57 PREV PAGE TOP OF DOC So, as a result, Wassenaar essentially gives us, perhaps, a false sense of security. I don't see what we have gained so far from it.
Mr. BEREUTER. Dr. Freedenberg, nice to see another survivor of the conference.
Mr. FREEDENBERG. Yes. Yes.
Mr. BEREUTER. Interminable conferences in different capacities. But none of us have aged.
Mr. FREEDENBERG. Right.
Mr. BEREUTER. But it is in the shape it is right now. I am asking you to make a judgment today as it is operating. Is it contrary to the national interest?
Mr. FREEDENBERG. It is contrary to the national interest if it is used beyond the four pariahs where there seems to be agreement. And it is being used. In that case, it is contrary. For the four pariah countries, it is adequate, and it works in a way.
Mr. BEREUTER. Mr. Johnson, would you like to answer? Is the current Wassenaar Agreement, as it is implemented today, contrary to our national interest, or is it even contrary to our national interest beyond the pariah four?
Mr. JOHNSON. I find myself again basically agreeing with Paul, that if we enforce or we carry out the Wassenaar Agreement beyond what any of our partners do, we are basically undertaking a unilateral disarmament and hoping people follow us. And I don't know many examples where unilateral disarmament got an adversary or even a friend to join with you. Generally they regard this as an opportunity. As I have said often before, I think many of our European friends see our unilateral actions as marketing opportunities, not as actions to be shared.
Mr. BEREUTER. What conclusion
Page 58 PREV PAGE TOP OF DOC Mr. JOHNSON. If Wassenaar disappeared tomorrow, it would not hurt our feelings, I think.
Mr. BEREUTER. I am pushing you to say, if that is the way it is working today, is it contrary to our national interest?
Mr. JOHNSON. Outside of the pariah four, yes.
Mr. BEREUTER. Thank you.
Mr. McCloskey, same question.
Mr. MCCLOSKEY. I would agree.
Mr. BEREUTER. Dr. Freedenberg, could you, in a sentence or two, for distribution to the American public in two sentences or less, tell us why COCOM collapsed.
Mr. FREEDENBERG. Collapsed because essentially a lack of an enemy. We went from a clear, palpable Soviet threatalthough we might have overestimated itbut certainly a clear, palpable Soviet threat to a diffuse view of the allies regarding where the next problems were going to come from, and no agreement about China.
Mr. BEREUTER. Would we be better off with COCOM revisited if, in fact, it was directed at pariah States?
Mr. FREEDENBERG. I think, ironically, the Russians wanted to join COCOM because it was restrictive, and they ended up joining Wassenaar, which has not much value whatsoever. So, yes, we would be better off with COCOM, and certainly would be a tool for acting multilaterally if we reached agreement about political ends vis-a-vis, for example, China.
Mr. BEREUTER. Thank you.
Thank you, Madam Chairman.
Ms. ROS-LEHTINEN. Mr. Chabot.
Mr. CHABOT. I thank the Chairman, and I apologize to the members of the panel for having to run out. We have got markup going on in the Judiciary Committee as we speak here, and there is a vote. I have got to vote.
Page 59 PREV PAGE TOP OF DOC I will submit my questions that I was going to ask in writing, and I apologize. I appreciate your time here. The timing couldn't have been worse.
Ms. ROS-LEHTINEN. Thank you, Mr. Chabot. We will give those questions to the panelists. And if you could respond.
[At press time the information had not been received.]
Ms. ROS-LEHTINEN. I just have two general questions for the three of you. In Mr. Johnson's testimony, he had said that the license application process should be consolidated under one agency, the Department of Commerce, and with other agencies retaining policy involvement.
How else could the legal framework of export administration be streamlined in order to avoid duplication of past and also to avoid an overlapping and confusing regulatory system? How can it be made more efficient?
Mr. FREEDENBERG. I think that what Mr. Johnson suggests would be a very big step forward. I think you have essentially dispersed dualing bureaucracies right now, and just consolidating the licensing within one agency would be a big help.
Having run that one agency, I have some confidence it could do the job. But, again, the question is policy. Any major policy decision can be made with inputs from the various other departments that have equities in a decision. They don't need to have their own licensing operations.
Ms. ROS-LEHTINEN. Mr. Johnson.
Mr. JOHNSON. Obviously this only works if we simply haven't added another layer of bureaucracy. But I mean the point is I think Commerce tends to have greater stability, it has more personnel, it has more modern communication systems, and it is used to doing data collection and processing.
I mean, institutionally, this is not something the State Department enjoys doing, and you are probably never going to get the resources there.
Page 60 PREV PAGE TOP OF DOC We face a dilemma in which our licenses over on that side are taking about 10 to 12 days to process ifthey don't refer to them any other agency. And for my companies, more than half the licenses are staffed out and take over 60 days. This is in a world in which our customers want a part in 48 hours, from the time they send an e-mail. That is when they want it delivered.
The other thing that has changed is both communications and transportation in which our military and our airlines increasingly want us to hold the inventory and get it to them when they want it. Yet we face licensing systems in which we can't get into a typing pool in under 3 days. Wherein, on the commercial side of our business, we are delivering products around the world in 48 hours from the time the e-mail comes in. You just have a disconnect, and something has to be fixed.
Ms. ROS-LEHTINEN. Mr. McCloskey.
Mr. MCCLOSKEY. I concur, particularly if it is in the Commerce Department.
Ms. ROS-LEHTINEN. And you had said, Mr. McCloskey, thatwell the other panelists as wellthat we need to negotiate a multilateral implementation of controls, if they are to be used at all. However, what options are available to the U.S. Government if our allies do not respond accordingly and don't want to negotiate such terms with us?
Mr. MCCLOSKEY. Well, I think, first, you have got to look at your product that you are talking about. We are talking about dual-use products for the most part here. And in that situation, if it is a commodity that can be purchased elsewhere in the world, I think they have just got to realize that there is no value to restricting it coming from the U.S. source, and there is probably some harm rather than good.
Mr. FREEDENBERG. We also have the legacy of COCOM. When there was a unit veto, and we did establish it unilaterally, we were very, very tough, very rigorous, and we were veryand at times overbearing.
Page 61 PREV PAGE TOP OF DOC Our allies don't want to go back to that situation, and unless they perceive a threat, unless they agree on the threat, they are not going to follow our lead. And there is very little we can do other than economic pressure, and then that is counterproductive.
So we are really in a situation where we have to win with the force of our argument, butand, of course, sometimes it can go up to the Secretary or the Presidential level if it is important enough. And that has happened, for example, on Iran. But you can't use that on every case, which means we better cut back on the number of controls that we have, because we are not going to get cooperation otherwise.
Ms. ROS-LEHTINEN. Well, thank you so much.
I would like to thank the panelists for your testimony. Our Subcommittee obviously will be exploring this issue further along, and let's hope that we get it through this time.
The Subcommittee is now adjourned. Thank you.
[Whereupon, at 4:40 p.m., the Subcommittee was adjourned.]
A P P E N D I X
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