LEXIS-NEXIS® Congressional Universe-Document
LEXIS-NEXIS® Congressional
Copyright 1999 Federal Document Clearing House, Inc.
Federal Document Clearing House
Congressional Testimony
June 17, 1999
SECTION: CAPITOL HILL HEARING TESTIMONY
LENGTH: 4727 words
HEADLINE: TESTIMONY June 17, 1999 MICHAEL C. MAIBACH VICE PRESIDENT OF GOVERNMENT
AFFAIRS INTEL CORPORATION
SENATE BANKING, HOUSING
& URBAN AFFAIRS EXPORT ADMINISTRATION ACT REAUTHORIZATON
BODY:
Hearing on Emerging Technology Issues and Reauthorization of the Export
Administration Act Prepared Testimony of Mr. Michael C. Maibach Vice President
of Government Affairs Intel Corporation June 17, 1999 I am Michael C. Maibach,
Vice President of Government Affairs for Intel Corporation. I am here today
representing the Computer Coalition for Responsible Exports (CCRE). I want to
thank you for providing me and the CCRE with the opportunity to share our views
on the significance of the computer industry to the United States and how U.S
export controls can be better formulated to respond to the technological and
market realities of this industry. The CCRE is an alliance of American
computer companies and related 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, the Computer and
Communications Industry Association (CCIA), the Computer Systems Policy Project
(CSPP) and the Information Technology Industry Council (ITI). My company,
Intel, is the world's largest semiconductor manufacturer and a major supplier
of information technology building blocks to the global computer and
communications industries. We provide our customers with chips, printed circuit
board assemblies and software that are the
"ingredients" of personal computers ("PCs"), servers and workstations.
Our flagship business involves the mass production and sale of the Pentium
family of processors and other microprocessors, which are frequently described
as the
"brains" of a computer because they control the central processing of data in
computers. In 1998, our sales exceeded $26 billion. Today I would like to
focus on the following four topics: The value of computers and related
technology to the economy and overall well-being of the United States; The
balancing of national security with economic, political, and other export-
related benefits; The controllability of computers and related technology from
an export standpoint; and An approach for removing export controls on
commodity-level computers and microprocessors. I. The Economic Value of
Computers 1. The Computer Industry is Vital to the Health of the U.S. Economy
Growth. For the last 50 years, the U.S. computer industry has been a principal
engine of economic growth in the United States, and
increasingly the world. The U.S. computer industry is a premier example of
American innovation and leadership. It has become a primary source of increased
prosperity and job creation. By improving the efficiency, competitiveness, and
profitability of U.S. industries, the computer industry has become central to
the United States overall productivity. The information technology industry,
which is driven by computer technology, has come to contribute nearly 35
percent of real economic growth in the United States. The U.S. computer
industry is essential to continued U.S. technological leadership and global
competitiveness. Innovation. The computer industry is in a constant state of
change, with new products and competitors emerging almost daily. Illustrative
of this march of technology is that over 75 percent of the revenues of computer
companies come from products that did not exist two years before. R&D. The computer industry keeps the United States
competitive through its commitment to research and development. In 1997 CCRE
companies alone invested approximately $14 billion in R&D. Of the top eight U.S. companies investing in R&D, five were in the computer industry or related fields, including IBM,
Hewlett- Packard, Motorola, Lucent Technologies, and Intel. Revenues. The
Department of Commerce indicated that in 1998 U.S computer companies' worldwide
sales of computers and computer hardware alone totaled more than $230 billion.
Moreover, sales of software and computer services in 1998 generated another
$152 billion. The estimated value of the U.S. information technology industry
in 1998 was a staggering $680 billion, or approximately 8 percent of the
nation's total gross domestic product. Cost Reduction. Information technology
helps to control inflation. While computing power more than
doubles every 18 months, the cost of computing drops 25 percent annually.
Average annual productivity growth in the United States has moved from 1 to 2
percent as information technology has increased efficiency. Due largely to
computers and other information technology, the U.S. economy can now grow at 3
percent, rather than 2 percent, without generating higher inflation. This extra
1 percent growth per year translates into a gross domestic product increase of
$1.1 trillion in ten years. Employment. U.S. computer companies create
high-quality, high- paying jobs. The average job in the U.S. computer industry
pays nearly twice as much as the average non-computer-related job. The computer
industry alone directly employs more than 500,000 in the United States. Another
3.8
million are employed in computer- related fields such as software design and
production, telecommunications, and other information services. 2. The
Computer Industry Contributes Significantly Throughout the U.S. Economy and
Society The impact of the U.S. computer industry extends deeply into the U.S.
economy and society, with products and services that are essential to everyday
life. Many vibrant industries trace their improved efficiency, competitiveness,
and profitability directly to the computer technology upon which they rely.
Indeed, health care, manufacturing, defense, agriculture, entertainment,
education, finance, retail -- and just about every other sector of the U.S.
economy -- are dependent upon the important contributions of computer
technology. The computer industry has been at the forefront of helping the
United States to improve productivity and lead the world in innovation and,
ultimately, knowledge. The explosion of the internet is a prime example of how
computers contribute to the economy and affect the everyday life of millions of
individuals. Internet use is growing 20 percent monthly and it is estimated
that there will be nearly 330 million users of the internet (1 in every 15
people) by next year - and a projected 1 billion by 2005. Commerce over the
internet, including retail, financial, and business-to-business services, is
projected to reach $350 billion in the U.S. alone by 2001. The internet's
rapid growth is generating huge global demand for personal computers and other
commodity-level computers. This includes rapidly increasing demand for
commodity-level workstations and servers, which are needed to expand the
worldwide information infrastructure. As Intel chairman Andy Grove points out,
we are headed toward
"a world of one billion connected computers." The computer industry is central to ensuring that the U.S. economy remains
vital and strong as the country enters the
next millenium. The Department of Labor estimates that employment in the
computer and data processing services industry will experience substantial
growth over the next ten years. During this time, the three fastest growing
individual occupations all will be directly related to the computer industry.
Each of these occupations -- database administrators, computer engineers, and
systems analysts -- will more than double in employment size. To continue to
create jobs for the future and contribute to the overall economic health of the
United States, U.S. computer companies need the freedom to innovate, grow, and
export. To survive in today's fast-paced global environment, U.S. computer
companies must anticipate market changes and bring new products to market
faster than their foreign competitors. 3. Exports Are Crucial to U.S. Computer
Industry Innovation and Leadership The U.S. computer industry operates
throughout the
world in terms of its customer base, competition and technological expertise.
Computers and computing power are increasingly accessible to individual,
business, and government consumers throughout the world. Today, the U.S.
computer industry competes in more than 160 countries. Exports are vital to
the industry. For example, in 1997, exports accounted for over 54 percent of
CCRE members' revenues. While the United States remains the largest single
market for computer sales, worldwide demand continuously grows stronger. It is
estimated that by 2000, 72 percent of the world's computers will be installed
outside of the United States. In 1997, over 80 million personal computers were
sold throughout the world. In 1997, of the 2.5 million servers and workstations
sold worldwide, more than 1.6 million of them were sold outside of the United
States. U.S. leadership in the
computer industry is being challenged by foreign companies in all product
categories -- from the PC to the supercomputer. The continued ability to
provide cutting-edge products to the world market will be critical to the U.S.
industry's ongoing success. Indications that foreign competitive threats are
mounting is evidenced by the following statistics (as measured in number of
units sold worldwide): 14 of the top 25 manufacturers of workstations are
foreign; 10 of the top 25 manufacturers of mid-range, mainframe and upper range
servers are foreign; 15 of the top 25 manufacturers of personal computers are
foreign; Foreign competition exists even for the most powerful supercomputers -
3 Japanese companies (Hitachi, NEC, and Fujitsu) manufacture half of the top 25
most powerful computers in the world. Computer power is ubiquitous,
irrespective of where computers are manufactured or sold. The ability to
design, assemble, and manufacture
computers is increasing significantly all over the world. Information on
computer design, assembly, and enhancements is readily available on the
internet. Moreover, widely available microprocessors, printed circuit board
assemblies, interconnects and other computer components are easily assembled
into functioning computers. Foreign countries thus already possess or can
obtain the technological wherewithal to produce powerful computers. II.
Balance of National Security, Economic and Other U.S. Interests Export control
determinations inevitably require a balancing of many considerations. Paramount
among these is national security. But national security alone does not capture
the nation's overall interests. Economic, political and other interests also
bear on export control decisions. At least since World War II, the U.S. export
control system for industrial or dual use items has utilized an interagency
mechanism to seek to balance U.S. interests in export control determinations.
The ultimate responsibility for balancing U.S. interests in export control
decisions must rest with the government. While industry should not presume to
intrude on the government's decision-making prerogatives, it is essential that
there be a decision-making process that ensures that all of the nation's
interests are fully taken into account. In particular, three points bear on
achieving an appropriate balance of U.S. interests in making export control
determinations. 1. The U.S. Can Benefit Enormously From The Global
Dissemination Of Information Technology As has already been noted, the economic
value of computers and information technology to the United States economy is
substantial, whether in the form of growth and productivity gains or new ways
to learn, communicate and do business. The companies that generate this
economic value, whether large or small, inevitably must
operate on an international scale. Exports represent almost 60% of Intel's
sales, and they are a significant portion of the sales of the vast majority of
computer and information technology companies. Restrictive export controls
therefore can impose a substantial cost, not only on individual companies, but
on our nation. Equally important, they can restrain U.S. leadership in
technology development and retard or distort the creation of value that flows
from technology. Restricting technology exports not only has an economic cost,
but carries a cost in national security terms as well. U.S. defense capability
depends importantly on technological capability, from advanced weapons to
precision-guided munitions. Restricting U.S. exports cuts into the ability of
U.S. companies to sustain and advance technology development. This directly
threatens U.S. leadership in applying technology to
defense needs. 2. There Are Substantial Political Benefits To Global
Dissemination Of Information Technology The dissemination of information
technology around the world provides a major impetus for democratic discourse
and democratic values. Information technology is distributed, dispersed and
accessible. It represents a compelling means to empower the individual. A
well-informed citizen is the foundation of a democratic society. The number
one reason for buying a personal computer today is the drawing power of the
internet. The internet is inconsistent with government based on fear and
misunderstanding. 3. Export Controls Must Be Selective to Be Effective Several
features of modern information technology run counter to effective export
control. High volumes, modularity and networking all work against the ability
of an export licensing system to contain products within national boundaries.
An export control system
will be oppressive and self-defeating if it tries to restrict those exports
which are not capable of being effectively controlled. III. Controllability of
Computers Today's computer industry presents new and fundamentally distinct
challenges for the U.S. export control system. The increasingly decentralized
and globalized nature of the industry - characterized by mass production, wide
distribution, and ease of access to computing power - is at odds with the
centralized nature of the U.S. export control system. The overwhelming
penetration of personal computers, workstations, servers and microprocessors
into what has become a global information infrastructure makes these products
both uncontrollable and unworthy of control. Several key features and trends
contribute directly to this uncontrollability. 1. Microprocessors
Microprocessor technology is evolving at an incredibly rapid pace. Since the
last revision to export control levels for computers in 1996, the computing
power of widely
available microprocessors has increased five fold. Today, a $1,500 laptop has
as much power as a multi-million dollar
"supercomputer" of the 1980s. This rapidity of technological development and innovation will
continue, if not accelerate, for years to come. For instance, it is expected
that by next year, a single microprocessor will contain 50 million transistors.
This number could reach 1 billion by 2012. This compares with just 275,000
transistors per chip fifteen years ago. As microprocessor performance has
improved, costs have dropped by nearly 25 percent per year, making new
technologies accessible to a broad customer base. Higher performance at lower
cost means that technology advances are occurring at a heightened pace. The
MTOPS (millions of theoretical operations per second) level for the Pentium
III,
introduced in February 1999, is twice that of the Pentium II, introduced less
than two years earlier. By the second half of this year, the Pentium III will
have nearly tripled the MTOPS level of the top of the line Pentium II.
Currently the Pentium III performs at about 1,200 MTOPS. Next year, Intel
projects that its Merced microprocessor will perform at 5,622 MTOPS,
representing more than a quadrupling of computing power over the next 18
months. The progression of microprocessor performance is illustrated in the
following chart: Microprocessors are sold worldwide in mass volumes and through
multiple distribution channels. Intel, for instance, ships globally roughly 2
million microprocessors every week and is increasing capacity to support
worldwide demand for its products. These products are sold into a global
network of upwards of 50,000 distributors and dealers.
Volumes should increase significantly in the years ahead, given projections of
strong growth in the world microprocessor market over at least the next 5
years. 2. Computers The performance and versatility of commodity computer
systems has increased exponentially over the past twenty years. These machines
now play an integral role in U.S. business services, manufacturing, education,
and entertainment. In the mid-1990s, the internet transformed the computer from
a productivity and entertainment tool to a communications and information
resource. During this time, the price of commodity computers has plummeted
dramatically. This computing revolution is reflected in the fact that the
worldwide consumption of computers has surpassed that of both the automobile
and television. Increases in computer performance have paralleled those of
microprocessors. Computer systems incorporating more than one microprocessor
are now widely available on the world market. In 1997, there were global
sales of over 1.8 million computers that can accommodate two processors, over
400,000 computers that can accommodate 4 processors, and over 100,000 computers
that can accommodate 8 processors. Annual sales are projected to be in those
same ranges over the next several years. By the end of 1999, the installed
worldwide base of computer systems that can accommodate 2, 4, 6, and 8
processors should be approximately nine million. The effect that these
"multiprocessor systems" have on available computing power is reflected in the following chart. Even
with these tremendous advances, the power of the computers described above
pales in comparison to the power of true supercomputers, which perform at over
one million MTOPS. The following chart clearly shows the significant difference
between supercomputers and the high-volume, commodity computers described
above. Foreign computer companies compete or are capable of
competing with U.S. computer companies for sales of computers that perform
above the export control limits imposed by the United States. The following
table demonstrates the extent to which 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
The number of foreign computer companies and the number of products they offer
that compete at the performance level at which U.S. computers are controlled is
increasing all the time as computer technology continues to advance and become
available overseas and at relatively low cost. The following chart shows the
increasing number of foreign computer companies that are marketing servers and
workstations that can perform above the current control threshold. As an
example of this foreign capability, dual-processor motherboards are widely
available at low cost from countries such as Taiwan, allowing powerful
dual-processor systems to be easily assembled for approximately $2,000. In
addition, four-way multiprocessor technology is easily and cheaply available
throughout the world, allowing for the production of systems that will be able
to perform above the current
computer export control thresholds. Within the next twelve months, eight-way multiprocessor technology
is also projected to be widely available. Furthermore, the
"know-how" to assemble from commodity parts computers that can perform in excess of the
present control thresholds is currently widely available. Indeed, it is
forecasted that foreign computer manufacturers will sell in 1999 over 20,000
eight-way configurable computers, over 120,000 four-way configurable computers,
and over 650,000 two-way configurable computers. Many of these systems will be
able to
perform above the current 2,000 MTOPS control threshold. This foreign
availability and capability must be considered when formulating an effective
multilateral (or unilateral)
computer export control regime. 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. There is presently a large overseas installed
base of servers and workstations, many of which either perform close to or
above the current export control thresholds. The following chart illustrates
this increasing foreign installed base. By the end of 2000, it is forecast
that over eight million multiprocessor servers and workstations will have been
sold overseas by U.S. and foreign computer manufacturers. It is also forecast
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 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
formulating a multilateral (or unilateral)
computer export control regime. The larger the installed base -- the more difficult it is to implement
an effective export control system. IV. Immediate Action Needed to Keep Pace
With Technology Currently, the export control threshold for computer systems is
2,000 MTOPS for the most sensitive destinations, that is, the so- called Tier 3
countries. Over the next twelve months the performance level of commodity
computers will reach 12,300 MTOPS. These computers will be widely available in
large volumes in world markets and manufactured and sold
by numerous foreign (non- U.S. capital affiliated) companies. These computers
and their components will also be distributed and sold through both direct and
indirect channels, such as third- party resellers, retail stores, as well as by
phone and through the internet. There are also multiple alternatives to service
by the original manufacturer, and they are small enough to be easily shipped.
Since components are widely available around the world, 8 microprocessor
systems can also be easily assembled by third parties. Thus, it is imperative
that the current control threshold be raised to 12,300 MTOPS. V. Export
Control Exemption for Commodity-Level Computers There is a growing consensus
that the current export control system for computers is heading for a serious
collision between controls and commodity products that cannot be effectively
controlled. A new export control system needs to be designed to take into
account the substantial
technology and market changes that have occurred, and will continue to occur,
in the worldwide computer industry. The current export control system for
computers was designed for an industry and technology that resulted in the
manufacture and sale of thousands of computers, and for a time when the U.S.
computer industry controlled the market. The current system is not capable of
working effectively when worldwide sales are in the hundreds-of-thousands, and
when there are numerous foreign competitors. Under these circumstances, the
most appropriate and most effective export control system from a national
security as well as a national economic perspective is one that is based on
drawing the line between computers that are commodities and those that are not.
Commodity computers are simply beyond the reach of effective controls. The
goal of a commodity-based export control system would be to use a range of
criteria to arrive at what constitutes the performance level (MTOPS)
for a commodity computer. In order to keep pace with changes in technology and
market forces, the commodity determination should be made frequently and at set
intervals (such as every six months). The determination should also be
conducted in a prospective manner, in other words, looking forward over an
upcoming time period, such as 180 days, rather than looking backward. In
addition to these scheduled determinations, the regulations should provide for
an
"as-needed" review. When technology and market forces move faster than can be anticipated
by the biannual review process, U.S. computer manufacturers should be able to
request an out-of-cycle review. The principal criteria should be- production
and sales volumes of all computers worldwide with a comparable level of
performance as measured by MTOPS (the commodity threshold should be 100,000
global sales); or the capability of foreign (non-U.S. capital affiliated)
companies to manufacture and sell computers with the comparable level of
performance as measured by MTOPS in commodity volumes. If it is determined
that 100,000 or more of all computers configured for a certain number of
microprocessors are manufactured and sold worldwide and that foreign companies
are capable of manufacturing and selling such computers, the level of
performance (MTOPS) would be determined by calculating the MTOPS level using
the performance of the highest performing microprocessor deemed to be mass
produced. (This formulaic approach is necessary to prevent discrimination
between similar and competing products that are not identical.) Other
attributes that might be considered include: (1) distribution and sales
channels (the ability to purchase the computer and/or its components through
third-party resellers, retail stores, as well as by phone and through the
internet); (2) service and maintenance (there are alternatives to using the
manufacturer); (3) ease of transport; or (4) ease of assembly (because of the
worldwide availability of components,
a user could by-pass the manufacturer and assemble a computer capable of
providing essentially the same level of performance). The basic principles
behind a commodity
computer export control exemption should also apply to microprocessors and other microcircuits. The
computer industry and the semiconductor industry are interdependent and
mutually supportive. As I have described, microprocessors are sold worldwide in
high volume and through thousands of distribution channels, placing them beyond
the reach of effective controls. For any microprocessor exemption to be
workable, fair, and consistent with current U.S. export control policy, several
principles should apply: eligibility based on the sale or production of a
hundred thousand units; this volume assures a large and varied market.
determinations of eligibility made on a prospective 6-month basis as evidenced
by sales orders or objective production ramp-up criteria. determinations
applicable on an industry-wide basis. clustered competing products are treated
identically. ensure broad eligibility for mass market components used in
commodity computers. permit mass market determinations upon request. implement
the proposal as part of a regulatory action. There is growing support for a
commodity-based export control system for computers and other information
technology, including microprocessors. CCRE believes that the Administration
should on its own initiative take regulatory action to implement immediately a
commodity exemption for computers, microprocessors, and other microcircuits.
CCRE would support a grant of authority to implement a commodity exemption in
the reauthorization of the Export Administration Act. However, we should
caution against specifying too much detail in legislative language in light of
the unpredictable and quickly changing nature of technology development.
LOAD-DATE: June 18, 1999