Index

Statement of Dan Hoydysh

Co-Chair of the Computer Coalition for Responsible Exports

Mr. Chairman, Members of the Committee.

Good Morning. My name is Dan Hoydysh. I am the Co-Chair of the Computer Coalition for Responsible Exports (CCRE) and am testifying today on CCRE’s behalf (I am also Director, Trade, Public Policy & Government Affairs of the Unisys Corporation). I want to thank you for providing me and the CCRE with the opportunity to share our views on U.S. computer export controls.

The CCRE is an alliance of American computer companies and allied associations established to inform policy makers and the public about the nature of the computer industry -- its products, market trends, and technological advances.

CCRE Members include Apple Computer, Inc., Compaq Computer Corporation, Data General Corporation, Dell Computer Corporation, Hewlett-Packard Company, IBM Corporation, Intel Corporation, NCR Corporation, Silicon Graphics, Inc., Sun Microsystems, Inc., Unisys Corporation, the American Electronics Association (AEA), the Computer and Communications Industry Association (CCIA), the Computer Systems Policy Project (CSPP), Electronic Industries Alliance (EIA), and the Information Technology Industry Council (ITI).

The CCRE is committed to promoting and protecting U.S. national security interests, and seeks to work in close partnership with the Congress and the Executive Branch to ensure that America’s economic, national security, and foreign policy goals are realized. CCRE believes that a strong, internationally competitive computer industry is critical to ensuring that U.S. national and economic security objectives are achieved and that U.S. economic and technological leadership is maintained.

The U.S. computer industry has a long history of cooperation with the U.S. government on security-related high technology issues. They take their responsibilities in the area very seriously. CCRE members strongly believe that U.S. national security is tied to U.S. technological leadership. U.S. computer companies also devote hundreds of employees and millions of dollars annually to complying with export control regulations. It is not our role, however, to define U.S. national security needs - - that is for the Congress and the Executive Branch. Rather, we do and will continue to provide the Congress and Executive Branch with information concerning the rapidly changing technology and international market conditions that we believe they will need to take into consideration in shaping up to date and effective U.S. export control policies for computers.

In our testimony today we want to make the following four key points: (1) the Administration’s July proposal to adjust the computer export controls is supported by the technological and market trends of the global computer industry; (2) the President’s July proposal should be implemented immediately as the present delay is hurting the U.S. computer industry with no apparent benefit to national security; (3) given the present experience with the 180 day delay in implementing the adjustments to the computer export controls, future Presidential proposals adjusting the export control thresholds should only be subject to a thirty day review period; and (4) given the trends in computer performance over the foreseeable future, a more responsive and efficient export control regime needs to be developed.

  1. The July Proposal to Adjust the Computer Export Controls is Supported by the Technological and Market Realities of the Global Computer Industry

In July, the President proposed raising the computer export control threshold for Tier III countries from 2000 MTOPS to 6500 MTOPS. Computers that will perform up to 6,500 MTOPS are widely available from U.S. and foreign manufacturers, as are the components and know-how to manufacture such computers or clusters of computers that will perform up to 6,500 MTOPS.

Computers that can perform up to 6,500 MTOPS are widely available because (A) of the increasing power of mass market microprocessors, that (B) are employed in increasingly common multiprocessor systems (with correspondingly higher performance levels), and (C) global computer market trends mean that multi-processor computers so widely available that many are now commodities.

  1. Increasing Processing Performance Trends Support the July Proposal to Adjust the Computer Export Controls

The recent increases in microprocessor performance are one of the main factors supporting the proposed adjustment. The performance of microprocessors (chips) -- the brains of the computer -- continues to improve dramatically. Gordon Moore, the former CEO of Intel once observed "that the power of semiconductor technology doubles every 18 months." However, the pace of technological advance is accelerating.

Since its introduction in March of 1999 the PentiumŪ III Xeon™ microprocessor has increased in power from 1167 MTOPS (500 MHZ) to 1710 MTOPS -- an increase in power of almost 50% in 6 months. In the year 2000, Intel projects that its mass market Itanium™ microprocessor will perform at 5622 MTOPS.

In addition to Intel’s mass market microprocessors there are two recently introduced microprocessors that perform above 2000 MTOPS. Both have been placed in mass market personal computers. Apple has introduced the widely available Power Mac G4 computer that uses the G4 microprocessor. The 450 MHZ G4 performs at 2775 MTOPS. Early next year the G4 will be sold with a 500 MHZ microprocessor that will perform at 3084 MTOPS.

IBM is also now selling its widely available Aptiva line of personal computers with a microprocessor, the 700 MHZ AMD Athlon, that performs at 2130 MTOPS.

B. The Trend of Increasing Performance Through the Use of Multiprocessor Systems Supports the July Proposal to Adjust the Computer Export Controls

Another major factor supporting the proposed adjustment is the increasing usage of multiprocessor computer systems. Multiprocessor systems are now widely available on the world market. According to projections in the Gartner Group Report, in 2000 over 4.3 million computers that can accommodate two processors, over 500,000 computers that can accommodate 4 processors, and over 125,000 computers that can accommodate 8 processors will be sold world-wide. The Gartner Group Report projects that by the end of 2000, the installed worldwide base of computer systems that can accommodate 2, 4, 6, and 8 processors should be approximately 14 million, while by the end of 2001 there will be over 20 million such computers installed worldwide.

The chart below and the following examples using Intel technology illustrate the dramatic increases in mass market multi-processor power that is resulting in an ever increasing number of computers performing in the range covered by the President’s proposal.

Today the 550 MHZ Intel Pentium III Xeon, which performs at about 1300 MTOPS, is the basic building bloc of multiprocessor servers using Intel architecture. A computer system using two 550 MHZ Intel Pentium III Xeon microprocessors performs at about 2400 MTOPS, while one using four microprocessors performs at about 4600 MTOPS, and one using eight microprocessors performs at about 9000 MTOPS.

In 2000, it is projected that the mass market 750 MHZ Pentium III Xeon microprocessors used in PCs will perform at 1750 MTOPS. A two-processor server using these commodity chips is projected to perform at 3250 MTOPS, while one using four of these microprocessors is projected to perform at 6250 MTOPS. , and systems with eight of those microprocessors are projected to perform at 12250 MTOPS.

Most significantly, however, in 2000, it is also expected that the Intel Itanium™ (formerly called the Merced) microprocessor will be available for use in multiprocessor servers using Intel architecture. The Itanium is projected to perform at 5622 MTOPS. A system with two Itanium microprocessors is projected to perform at 10996 MTOPS, while one with four microprocessors is projected to perform at 21748 MTOPS.

  1. Global Computer Market Trends of Increasing Use of Multiprocessor Systems Support the July Proposal to Adjust the Computer Export Controls

Any review of proposals to adjust computer export controls should take into account global computer market trends - both the foreign availability of multiprocessor computers, as well as the also the foreign capability to manufacture computers that would be subject to export controls. In addition, the overseas installed base of computers that would be subject to export controls is also relevant to the effectiveness of any export control regime.

(1) Foreign Availability and Capability

There are foreign computer companies that compete or are capable of competing with U.S. computer companies for sales of computers that perform above the level that is controlled by U.S. export controls. The table below clearly shows that foreign computer companies are competing in the server, workstation and PC markets.

 

 

TOP FOREIGN COMPUTER MANUFACTURERS

Based on Units Sold Worldwide in 1997

Company

Country

Worldwide Rank

Workstations

Worldwide Rank

Servers

Worldwide Rank

PCs

Acer Taiwan

18

 

7

Amdahl* Japan  

14

 
AST Research Japan    

14

Axil Korea

13

   
Comparex Germany  

16

 
Cetia France

14

   
Epson Japan

25

 

23

Fujitsu Japan

9

5

8

Groupe Bull France  

15

 
Hitachi Japan

11

13

17

Hitachi Data Systems Japan  

10

 
Japan Computer Japan

19

   
Legend China    

25

Mitsubishi Japan

24

19

 
NEC Japan

7

8

11

Olivetti Italy    

18

Samsung Korea

23

 

15

Sharp Japan    

20

Siemens Nixdorf Germany

15

6

12

Sony Japan

21

 

22

Tatung Asia/Pacific

12

   
TriGem Korea    

19

Toshiba Japan

20

21

6

Vobis Group Germany    

13

 

*Amdahl is owned by Fujitsu, but is located in the U.S. and subject to U.S. export control regulations.

The number of foreign computer companies and the number of products they offer that compete at higher performance levels is increasing all the time as computer technology continues to advance and is available overseas and at relatively low cost. The chart below shows the increasing number of foreign computer companies that are marketing servers and workstations that can perform in the range covered by the proposed adjustment to the computer export control laws.

Computer companies in France (Bull), Japan (Hitachi, NEC, Fujitsu, Mitsubishi and Toshiba), Taiwan (Acer and AST), Germany (Siemens and Comparex), and Italy (Olivetti) are all making 2 and 4-way multiprocessor computers. Many of these companies are already marketing or have announced that they will be selling 8-way computers (e.g. Bull, NEC, Hitachi, Fujitsu, and Siemens). For example, on August 24, 1999, Fujitsu issued a press release in which it announces that it will be shipping computers with 8-way upgradeable Intel Pentium III Xeon processors. It should also be noted that NEC, Siemens, Hitachi, Fujitsu, Bull, Acer, and Toshiba have indicated that they will be employing the Intel Itanium in multi-chip computers (a 2-way Itanium is projected to performs at 10,996 MTOPS, a 4-way is projected to perform at 21,746 MTOPS).

Indeed, the Gartner Group Report forecasts that next year foreign computer manufacturers will sell over 20,000 eight-way configurable computers, almost 140,000 four-way configurable computers, and almost 950,000 two-way configurable computers. In 2001, the Gartner report projects that over 1,300,000 two-way computers and over 150,000 four-way computers will be manufactured by foreign computer companies. Many of these foreign computer systems will be using mass market microprocessors that will have performances for 4-way configurations above 20,000 MTOPS.

In addition foreign end-users can also achieve high performance levels through networking commercial off-the-shelf inexpensive computers. Indeed, this view is supported by a statement from the Cox Committee Report:

According to officials at the Lawrence Livermore National Laboratory, networking represents only a ten percent additional cost over the cost of computing hardware for large systems. Thus, up to approximately 50,000 MTOPS, the computing capability available to any country today is limited only by the amount of money that is available to be spent on commercial-off-the-shelf networking.

(Cox Committee Report, Volume 1, Chapter 3/Technical Afterword, at 158). Furthermore, the Cox Committee Report notes that there are networking technology installations in 17 foreign countries, including India, Israel, and the PRC. (Id.)

This foreign availability and capability is a major factor that supports the President’s proposed adjustments to the computer export controls.

(2) Foreign Installed Base

As computer technology advances and is spread around the world, the installed base of computers that can perform above current export control thresholds will continue to grow. In addition to providing data on technology advances, the Gartner Group Report also provided data on international market trends. The Report shows that there is presently a large overseas installed base of servers and workstations, many of which perform in the range covered by the proposal. The chart below shows the increasing foreign installed base.

The Gartner Group Report forecasts that by the end of 2000, over eight million multiprocessor servers and workstations will have been sold overseas by U.S. and foreign computer manufacturers. The Report also forecasts that by the end of 2000, over one million computers that can be configured with up to four microprocessors will have been sold overseas. Most of those computers will operate above the present computer export control thresholds, and indeed many will perform above the President’s proposed export control thresholds or can be easily upgraded with the latest most powerful commodity microprocessors to perform above those levels.

Accordingly, the large installed base of computers outside the United States cannot be ignored when reviewing the President’s proposals. The larger the installed base -- the more difficult it is to implement an effective export control system.

The discussion above concerning the changing performance levels of microprocessors and computers over the next few years clearly shows the need for further adjustments next year. CCRE is committed to working with the Congress and the Executive Branch in determining the adjustment that will be necessary next year in light of the technological and market realities.

  1. The President’s Proposal Should be Implemented Immediately

We hope that this Committee will agree with us that ineffective unilateral US controls that provide a competitive advantage to foreign manufacturers will -- in the long run -- damage our national security by eroding our technological pre-eminence. It is our view that the President’s proposal to raise the computer control thresholds is a prudent response to technological, economic and competitive realities and therefore urge this Committee to support the immediate implementation of the proposal.

Tomorrow, October 29, 1999, will mark the 120 day anniversary of the President’s announcement of his proposal. The delay is hurting U.S. computer companies. Sales are being lost, market position is being hurt, long-term relationships with distributors are suffering, and our foreign competitors are positioning themselves to reap the benefits.

Not only are the prohibitions impacting the latest U.S. personal computer lines, such as the Apple G4 and the latest IBM Aptiva, but also many U.S. multiprocessor business computers that perform above 2000 MTOPS. (See Attachments) As a result, U.S. companies will lose valuable market share, customer loyalty, follow-on business (services, upgrades, successor computers), and suffer damaged reputation as companies unable to sell mass market computers in a timely fashion.

As we have explained, the systems covered by the proposed change are mass market computers that are widely available to Tier 3 customers from foreign companies. Thus the U.S. computer industry is suffering serious harm for no apparent national security benefit. We therefore urge this Committee to support efforts to immediately implement the President’s July 1, 1999, computer export control adjustment proposals.

III. The Process for Updating Export Controls on Computers Should be Streamlined

In 1997, the House Armed Services Committee correctly predicted that export controls on computers will need to be updated periodically. Consequently, this committee provided a means for adjusting those controls in the FY 1997 NDAA. That process, however, included a waiting period of 180 days. Recent experience has shown that such a long delay defeats the purpose of allowing the President to adjust the export controls, yet provides no corresponding national security benefit.

Adjustments to the computer export control laws are proposed following a determination that the adjustment will not harm the national security. Indeed, at the press conference following the announcement in July, Deputy Secretary of Defense Hamre stated that "every one of [DOD’s] concerns was accommodated [in the interagency process] and [that DOD is] satisfied that [DOD] can continue to protect the country."

A delay of six months has a very serious implication for an industry whose product introduction life cycles typically run three months. Furthermore, six months is too long for an industry that depends on its ability to beat its foreign competition to the marketplace with the newest technology. Important markets can be lost and the dominant position of the U.S. computer industry threatened through such a long delay. Our foreign competition is ready and willing to exploit such market opportunities. Once lost, it is far from clear that markets can be recovered.

A shorter time period for review will still give the Congress adequate time to review the national security ramifications of any changes in the U.S. computer export control laws. Additionally, there is no precedent for such a long review period . Even sales of items on the munitions list such as tanks, rockets, and high-performance aircraft require only a 30 day review period.

Many members of Congress have come to similar conclusions regarding the harm caused by the six month delay. Indeed, there have even been bills introduced to amend the six month delay. The Senate Committee on Banking, Housing and Urban Affairs, in its reported version an Export Administration Act, has unanimously recommended reducing the review period for adjusting computer export controls to 60 days. In addition, Representative Lofgren (D-CA) has introduced a bill, HR 2623, that would amend the FY 1998 NDAA by striking 180 days and inserting 30 days. In the Senate, Senator Reid also introduced a similar bill (S-1483).

    1. The Export Control System Needs to be Changed

As the present experience clearly shows, there is a need for a more efficient and responsive new computer export control system, beyond the immediate need to adjust the export control thresholds. A performance based computer export control system is proving difficult to administer given the rapid advances in computer performance levels and the wide availability of components and know-how. In light of this reality, we urge that the Congress and the Executive Branch, with the support and assistance of the computer and other hi-tech industries, to continue its bipartisan consideration of other methods of achieving the national security goals presently associated with computer export controls.