LEXIS-NEXIS® Congressional Universe-Document

LEXIS-NEXIS® Congressional

May 26, 2000, Friday

SECTION: CAPITOL HILL HEARING

LENGTH: 18603 words

HEADLINE: HEARING OF THE SENATE GOVERNMENT AFFAIRS COMMITTEE

SUBJECT: EXPORT CONTROL IMPLEMENTATION ISSUES WITH RESPECT TO HIGH-PERFORMANCE COMPUTERS

CHAIRED BY: SEN. FRED THOMPSON (R-TN)

LOCATION: 342 DIRKSEN SENATE OFFICE BUILDING, WASHINGTON, D.C.

TIME: 10:08 A.M. (EDT) DATE: FRIDAY, MAY 26, 2000

WITNESSES: HAROLD JOHNSON, GENERAL ACCOUNTING OFFICE; ROBERT LIEBERMAN, DOD ASSISTANT INSPECTOR GENERAL FOR AUDITS; GARY MILHOLLIN, WISCONSIN PROJECT ON NUCLEAR ARMS CONTROL; AND DANIEL HOYDYSH, COMPUTER COALITION FOR RESPONSIBLE EXPORTS

BODY:
SEN. THOMPSON: All right, the committee will come to order, please. Welcome, everybody, to this hearing of the Committee of Governmental Affairs to consider export control implementation issues with respect to high-performance computers.

Today we're holding a hearing on export control implementation issues with respect to high-performance computers. High-performance computers represent a special challenge for our export control regime, because in many ways they're the king of dual-use technologies -- that is, technologies that are subject to national security export controls because they're easily usable for important civilian purposes as well as dangerous military purposes.

High-speed computing, of course, is vital to today's knowledge- based economy. Unfortunately, however, as the Cox report reminded us, powerful computers are also vital to such things as nuclear weapons development, the design and testing of ballistic missiles, and advanced conventional weapons, intelligence analysis code-breaking, military command and control, and cutting-edge warfare applications such as computer network attack. This is why high-performance computer export control issues are so important. We have to find an appropriate balance between promoting commerce and protecting our national security through export controls. If we get it wrong, however, we either strangle a crucial sector of our information-age economy or we help potential adversaries prepare to defeat our military forces in the field, hold our cities hostage to weapons of mass destruction, or cripple our government and economy through information warfare.

The debate over high-performance computer export controls is particularly important in the Senate this year because of two pieces of pending legislation that affect this balance between commerce and security. First, there's the Banking Committee's proposed reauthorization of the Export Administration Act, which appeared briefly on the Senate floor in March.

Of most direct relevance to computer export controls, this bill would have written categories of foreign availability and mass market status into the U.S. export control law. That law would require that any control items meeting these definitions -- mass marketing, foreign availability -- be made available for export without a license to essentially anyone in the world.

The second pending piece of legislation is the proposal to shorten the current 180-day period which Congress has in order to review administration decisions to decontrol computers at certain performance levels, which are usually measured in terms of MTGPS, or millions of theoretical operations per second. Both pieces of legislation are supported by U.S. computer exporters, but both have also raised serious concerns in the minds of officials concerned with ensuring that our national security export controls really do protect national security.

Our discussions today about high-performance computer export controls will help inform the Senate's consideration of this and other legislation. So I hope our discussion will help illuminate a number of subjects today. But there are a few that I think are particularly important.

Number one, is it possible, clearly and objectively, to make the kind of foreign availability and mass market status determinations that the computer industry wants to make the basis of removing controls on many high-performance computers? Second, according to what criteria have decisions to decontrol high-performance computers been made in the past, and how sound has their analysis been?

Three, even if coherent and objective foreign availability and mass market status determinations are possible, who should make them? Should this be left to the unilateral discretion of the Department of Commerce, or should our national security community, such as the Defense Department, have to agree to decisions to remove export controls of high-performance computers?

Number four, if foreign availability and mass market status decisions are inherently subjective, especially if they're left solely in the hands of the Commerce Department, is it wise to reduce the congressional review period for such determinations? At what point would a shortened review period effectively eliminate congressional oversight of these decisions?

Number five, how important are high-performance computer controls to problematic tier-three countries such as China to the U.S. computer industry? Does requiring licenses for these sales hurt our industry, given the major industrialized countries are subject to no high- performance computer licensing requirements, and most other countries are subject to restrictions only at much higher levels of computing power?

Number six, what effect would institutionalizing the concepts of foreign availability and mass market decontrols have upon other control technologies? What additional technologies would we have to make available without a license if we wrote these criteria into our export control laws?

This committee has been closely involved with non-proliferation policy and export control issues for many years. Senator Cochran's subcommittee has also done excellent work in this field in recent years. I look forward to hearing our testimony from four distinguished witnesses today who can help shed light on these and related export control issues as we continue our committee's involvement with these important national security issues in the future.

Senator Lieberman.

SEN. JOSEPH LIEBERMAN (D-CT): Thanks very much, Mr. Chairman, for calling this hearing today, which is another in a series that we have been holding over the past couple of years on the subject of export controls. As you've indicated, at issue here is how we in the Congress can balance our desire for the high-tech industry to remain healthy and robust against the risks of allowing potential adversaries access to technologies they may use against us.

Every time we visit this issue, I'm struck, as I know most of us are, by the paradoxes of the age in which we live, which are, I suppose, common to all ages of innovation, but particularly this one, where innovation is occurring so broadly and rapidly.

On the one hand, the technological innovation has significantly improved our lives, of course, by revolutionizing how we communicate and how we live, speeding up the transaction of business and broadening the information, education and entertainment options available to us and our children. Innovations that most of us could not literally have conceived of a generation ago have fundamentally changed our lives, and we are now so immune or so perhaps numbed by the pace of change that the remarkable and stunning very quickly becomes commonplace, even taken for granted.

On the other hand, the precise factors that have improved our lives have also exposed us to new dangers, because, however great technology's promise for good, the risk that it will be used for harm is also great. And we have seen this powerfully and painfully in the century just concluded.

This dichotomy is manifestly apparent with respect to high- performance computers. Levels of performance once powerful enough to qualify a product as a supercomputer now reside on top of our desks; indeed, our children's play stations. Yet the same power that has transformed our daily lives for the better also has potentially dangerous military applications.

So dealing with this paradox in the context of export controls on high-performance computers is particularly complicated and important, because not only does the technology change at head-spinning speeds, it is disseminated at head-spinning speeds. And the difficult question before us in Congress this year, and posed specifically in the legislation that Senator Thompson referred to, is whether we can find the appropriate balance between economic and technological dynamism and national security.

Mr. Chairman, these are extraordinarily important questions. They are of great consequence to our lives, to our livings and to our national security. And I look forward to hearing today's witnesses and talking with them, and hope that we can shed some light on these issues.

I should say, by way of disclaimer at the outset, protecting one of the witnesses, that I do not now or have I, to the best of my knowledge, ever been related to Robert Lieberman. (Laughter.) So -- SEN. THOMPSON: I'm sure he appreciates that. (Laughter.)

SEN. LIEBERMAN: He does. I wanted to clear his name here at the outset. He's not accountable for anything I have said or may say here today, but I welcome him and the other witnesses.

SEN. THOMPSON: Weld, we welcome all our witnesses today. We have some excellent ones; Mr. Harold Johnson, associate director for international relations and trade issues, National Security & International Affairs Division of the GAO. Mr. Johnson, do you have a statement you care to make?

MR. JOHNSON: Yes, I do, sir. I'm pleased to be here today to participate in this hearing, and my testimony is based on work that we've completed over the last approximately three years. We've issued several reports. We're currently doing some work for the Senate Armed Services Committee. That work is in process. So for the most part, I won't be discussing that but will rely on work that we've completed.

You have my prepared statement. I'd like to summarize just briefly a few points that are included in that. One deals with our concern that the executive branch has not fully assessed the national security risks associated with the export of high-performance computers. Second, I want to talk about how the executive branch is determining that export of computers at existing performance levels can no longer be controlled; and finally, a few observations on post- shipment verification.

Both you and Senator Lieberman have mentioned the balance that we attempt to strike between our commercial interests and our national security interests, and I won't comment further on that. One of the underlying problems that we see in trying to achieve this balance and manage the risks associated with export of high-performance computers is that the executive branch really has not clearly articulated the specific national security interests it is trying to protect at various computer performance levels. Nor has it stated how countries of concern could benefit from using such computers.

We believe that without a clear analysis and explanation of the national security interests in controlling the export of high- performance computers, the U.S. government really cannot determine what militarily critical computer applications need to be controlled; or second, the most effective way of implementing such export controls. If such an analysis were made, it might lead to a conclusion that the current reliance on MTOPS as the sole measure of computer sensitivity would no longer be appropriate. Indeed, with the rapid changes in computing architecture and the growth of what is called distributed computing, new approaches may be necessary to protect the national security interests in limiting potential adversaries' use of these machines in their research and development programs and in their deployed weapon systems.

In this regard, our September 1998 report recommended that the secretary of Defense make such an assessment of the national security threat and proliferation impacts of high-performance computers to countries of national security concern. We thought that, at a minimum, the assessment should address how and at what performance levels countries of concern use computers for military modernization and proliferation activities, and second, what impact such uses have on our national security interests.

I'd like to point out that a critical analysis of the national security applications of concern may lead to conclusions that are very different regarding the export control levels that are currently in place. Indeed, the executive branch may conclude that significant national security concerns involve computer performance levels that are at even higher levels than are currently controlled. But that analysis simply hasn't been done, so we don't know that.

Despite not having done the national security analysis, the executive branch has relaxed export controls on computers four times since 1993 because it believed that machines at the previously- approved levels had become so widely available in the market that their export was uncontrollable. And we fully acknowledge that the computer technology has grown exponentially. There's no doubt about that. However, it has not been possible for us to really adequately assess the administration's justification for relaxing high- performance computer control levels, because the term "widely available" and "uncontrollable" used in explaining the policy change has not been defined.

Commerce has recently defined controllability, and that definition includes the criterion of volume of sales. Nonetheless, the executive branch has relaxed controls based on anticipated, not actual, sales. The executive branch established new computer control thresholds based on technical performance ratings of those processors that computer manufacturers said would be the next mass-produced processor and on the estimated dates that they would be introduced in market rather than on actual volume of sales. For example, the control levels for tier-three countries announced by the president in July of last year roughly match the expected performance levels of computers using four and eight Intel Pentium processors that are expected to be on the market in July of this year.

Last November, we reported on changes in export computer control levels the president announced in July. We found that the administration's conclusion that the capabilities of high-performance computers and related components from both domestic and foreign sources are generally increasing. This conclusion was supported by evidence that they presented in the report. However, it was true in part because the United States does not generally control the export of computer processor components. No sources of this supply are U.S. companies.

Our earlier 1998 review showed that subsidiaries of U.S. computer manufacturers dominate the overseas high-performance computer market, but they must comply with U.S. controls. A 1998 study sponsored by DOD and Commerce similarly found that the United States had dominated the international computer market at least in the mid- and high-range performance categories.

Under current regulations, computer processors that perform up to 3500 MTOPS can be directly exported to civilian end users in tier- three countries, including China and Russia. In exports of these processors, the users in other tier-three countries, such as Israel and Saudi Arabia, are not subject to any MTOPS levels that require their license.

Exports of other key components for systems with four and eight processors are also generally not controlled, and these parts can be shipped to tier-three countries for civilian end users, who can then use them to assemble computers.

Just a brief comment on the government's end-use monitoring through post-shipment verifications. While post-shipment verifications are important in detecting and deterring physical diversion of computers, they simply do not verify computer end use. According to Department of Energy officials, it is quite easy to conceal how a computer is being used. And although it is possible to verify how a computer is being used by reviewing the internal operations of computer data, this is very costly and intrusive and requires some very sophisticated computer analysis.

With that, I'll conclude my summary and be prepared to respond.

SEN. THOMPSON: Thank you very much. Our next witness will be Mr. Robert Lieberman, assistant inspector general for audits, United States Department of Defense. Mr. Lieberman.

MR. LIEBERMAN: Thank you, Mr. Chairman. I appreciate the opportunity to be here this morning. In my written statement, I've attempted to recap the most important findings from recent IG reviews of the export control processes. Now I'd like to highlight four factors that my office believes merit consideration in terms of new dual-use export control legislation. I want to emphasize that these views are ours and don't necessarily reflect those of other IGs or DOD managers.

First, we believe that the Export Administration Act, expired in 1994, needs to be re-enacted rather than having the government continue to operate under the current patchwork of emergency declarations, other laws and executive orders. However, any legislation in this area is going to send very strong signals to every exporting country in the world. So it's imperative that the law be well thought-out and the entire spectrum of views here be carefully considered.

Second, it's vitally important that the export license review process be properly applied. By this I mean that it should not be easily circumvented. In accordance with that precept, I urge particular attention to formulation of the control list, commodity classification requests, determinations of foreign availability or mass market status, and other issues bearing on licensing exemptions. I'll return to those specific points in a moment.

Third, we believe that all available government expertise must be brought to bear on export license application reviews. Therefore, the current requirement in Executive Order 12981 for Commerce to refer all dual-use license applications to Defense for review should be made a matter of law by excluding it in a new EAA. Likewise, the exporter appeal process on licensing decisions should be formalized an a new EAA and provide for participation by all interested agencies.

Fourth, no program will be credible unless there are viable inter-agency dispute resolution procedures, with final adjudication by the president if necessary. We believe it is particularly important to provide statutory underpinning to the inter-agency dispute resolution process. Furthermore, we strongly recommend that a new EAA specify that this process be applicable to all inter-agency export control issues, including the composition of the control list, commodity classifications, terminations, licensing exemptions, et cetera.

Turning, if I may, to safeguards against circumventing the licensing process, I'd like to underscore our conclusion that the current process, wherein a DOD-developed list of militarily-critical technologies is integrated into the overall control list, is working reasonably well. No official except the president should be able to override the determination of the secretary of Defense that an item belongs on the control list.

Similarly, it is important for the national security community to be involved in the commodity classification process, which matches the prospective export item with an export control classification number. Those determinations are extremely important, because they indicate whether an item requires an export license for a given destination, and if so, whether it's licensable by Commerce or State.

On pages 14 through 16 in my written statement, I describe the joint IG review finding from last year that Commerce was referring very few commodity classification cases to Defense for review. This was occurring despite current policy that requires Commerce to share with State and Defense all commodity classification requests for items or technologies specifically designed, developed, configured, adapted and modified for military application. Of the thousands of requests received in a recent three-year period, only 12 were referred by Commerce to Defense for review. This is an issue that actually bears on export controls for both dual-use and munitions items.

Similarly, I'd like to emphasize the need for careful controls over any process for exempting items from licensing requirements because of foreign availability or mass-market status. Again, we believe that no determination to exclude or drop an item from the control list should be possible without Defense concurrence unless the president directs otherwise. We would not support any proposed legislative or regulatory language that would allow, for example, items that would help proliferate weapons of mass destruction to be exported without export licenses merely on grounds that similar items are available from other sources.

Finally, I think it bears noting that dual-use export license applications made up only 22 percent of the nearly 58,000 applications for export licenses received by the federal government last year. Most applications go through the munitions control process, and that's where the most concern about excessive delay and red tape appears to have been warranted.

That concludes my statement, Mr. Chairman. Thank you again for considering our views.

SEN. THOMPSON: Well, thank you very much. Our next witness is Mr. Gary Milhollin, Wisconsin Project on Nuclear Arms Control. Thank you for being with us.

MR. MILHOLLIN: I'm pleased to testify before this distinguished committee, Senator. In my written statement, I have requested that three items be submitted for the record. They're articles that I have recently written. I assume there's no objection to that.

SEN. THOMPSON: They'll be made part of the record without objection.

MR. MILHOLLIN: You have requested that I discuss foreign availability and mass-market status, in particular as concepts that would be -- whether these concepts are useful or not for use in export control implementation or policy. In order to respond to that question, I took five items that have been controlled for some time by the United States and our allies, and I compare the criteria for mass- market status and for foreign availability status to those items. And I've indicated in my written statement how that turns out.

I believe that all five of these rather sensitive things would be decontrolled under the sweeping language that this bill contains. I'm not sure that its drafters intended for this result to occur, but if you just look at the criteria and compare it, for example, to high- precision switches, these are switches that are incorporated into a nuclear weapon firing circuit.

Recently Saddam Hussein tried to obtain 120 of these switches as spare parts for kidney treatment machines. He didn't get them, at least according to Siemens, from whom he ordered them, but he certainly tried. And so what that shows you is that countries like Iraq are still trying hard to procure items that are controlled. And I think that if you look at the criteria and you compare it to high- precision switches, these switches would fit that definition. And the bill says that if they do, the secretary of Commerce must decontrol them and gives him no discretion.

And the same is true of many other items that we have controlled for a long time. Glass and carbon fibers are another example. These are used to make the rotors for centrifuges to enrich uranium for nuclear weapons. They're used for rocket cases. They're used for rocket nozzles. They're used for rocket nose cones. They've been controlled for a long time.

We apprehended a person here who was trying to send t is material to Cairo for use in a missile that the Iraqis were never successful in building. They were building it in cooperation with the Egyptians and the Argentines.

If that had succeeded, then when we deployed our troops in the Gulf War, it would have been a very different scenario. If Iraq had had the kind of missile that it was building with these fibers, the issue would have been different, let's say. So we're not talking just in theory here about dollars and cents. We're talking about actual threats to our troops.

Marraging steel is another item I looked at. Marraging steel as well is one of the few materials that can make high-speed rotors for centrifuges to enrich uranium. Marraging steel is also used in missile applications. We have protected it for a long time. We apprehended a Pakistani who was trying to export that to Pakistan sometime ago. It, too, in my judgment, would be caught by the sweeping language of this bill.

The other two things that I looked at were corrosion-resistant valves. Those are used to resist the corrosive material in uranium enrichment plants. Iraq and Iran, when they go the last step in building a uranium enrichment plant for nuclear weapons, will need lots of these valves. They can't build a plant without them. That's why they're controlled for export. If this language passed in its present form, I think these would be decontrolled.

High-performance computers also would fall under this category. And the reason for the presence in the bill of these concepts is because the computer industry has pushed for them to be included. I think it would be a very dangerous thing to decontrol high-performance computers just because they were made in large quantities domestically. We have always used -- the United States has always used its highest-performance computers for designing nuclear weapons and for cryptography. It's reasonable to expect other countries to do the same.

The Russians, after they illegally imported supercomputers from us -- that is, from IBM and Silicon Graphics -- announced that they were planning to use those computers to design nuclear weapons after the test ban came into effect, the moratorium in testing. So we know these items have great national security significance. To decontrol them under a vague criterion such as mass market status, in my opinion, would be a big mistake.

The other concept that you have asked me to discuss is foreign availability. That, too, would, I think, decontrol many things that its drafters did not intend to decontrol. Just for purposes of illustration, I compared North Korean rocket motors to the criteria in the bill for foreign availability. And if you look at those criteria, I think you will see that actual North Korean rocket motors would be decontrolled; that is, they are foreign-available under the definition in the bill.

The criteria say that for something to have foreign availability status, it ought to be available to controlled countries from sources outside the United States. North Korean rocket motors obviously are; lots of countries are buying them. They can be acquired at a price that's not excessive. They're available in sufficient quantities so that the requirement of the license or other authorization with respect to the export of such item is or would be ineffective.

I don't think the drafters of this bill intended to sweep in North Korean rocket motors, but it looks to me as if they have, and they're accepting a lot of other things as well. I don't think that the definition of foreign availability as now written into the bill is really tolerable. It would require the United States to decontrol things that our allies control under regimes that the United States has built up in the missile technology control regime, nuclear suppliers' guidelines. All these regimes have been built through U.S. diplomacy since World War II.

If we apply this language literally to the things now on the list of those regimes, our government would be required to decontrol a great many of them. This would leave our allies aghast and it would well, I don't want to go so far as to say it would make us into a rogue supplier, but it would certainly break our international obligations. And it would give a signal to the rest of the world that we really didn't care about export controls.

I think the reason that the bill is so sweeping is because it has adopted a principle that really is not sustainable, and that principle is that if somebody else is doing it, we should do it, too. The United States has never followed that kind of a principle in our own actions or in our diplomacy toward other countries. I had the dubious honor of being on CNN a lot during the Gulf War and testifying about Scuds and about other things that pretty much would be a big surprise to the world.

One of the things I remember was the Israelis holding up pieces of Scuds that they had found in the debris of destroyed buildings in Tel Aviv. They found German markings on some of those Scud pieces, Scud fragments. If you adopt an idea that our industry should be able to sell anything any other industry should sell, then you have to accept the idea that somebody's going to hold up a fragment with a U.S. marking on it. I can't believe our industry really wants that to happen.

We also should remember that a Scud supplied by Russia and enhanced in range by Germany killed our troops in Saudi Arabia sitting in their barracks. I can't believe that the United States would want our industry to be able to participate in the market that caused that to happen, even if it means losing sales and even if it means that the countries like Iraq, who are doing these things, can get it from somebody else.

You simply can't go down the road in which you say, "If somebody else is going to do it, our guys should be able to do it, too," unless you're prepared to sustain the criticism and the shame that would result from seeing your products used to achieve the things that were achieved by Saddam Hussein. So I think that's the main problem we're getting into. And so we have these arguments that if somebody else is going to do it, we should do it. And you just don't want to go there. It would make export controls, as a practical matter, impossible in the world if everybody adopted that point of view.

The last thing I'd like to mention here is the last portion of my testimony. Other portions of my testimony refer to things that have been covered by other witnesses. In the last section of my testimony, I recommended that one of the ways around the dilemma that Senator Lieberman mentioned would be simply to use transparency. That is, if we put more light on the export control process, I think it would cause us to do a better job. It would allow our government to deny things that are dangerous and allow legitimate trade to go forward.

What I have done is I have attached to my testimony a list. This is just the first step toward more transparency. I've attached a list of 50 Chinese companies that I believe, based on very reliable open- source information, are dangerous buyers for high-speed computers and for other dual-use technologies. I recommend that the committee submit those names to the State Department for review. And if the State Department agrees that they are dangerous buyers, then they should be put on the warning list to U.S. exporters.

I must say that I'm glad that Dan Hoydysh is here today, because when I interviewed him for an article in the Washington Post that I wrote not too long ago about this subject, he agreed that the industry would welcome more guidance on who the bad guys are, who are dangerous buyers. I'm not suggesting this list as an embargo list. I'm suggesting it simply as a warning list. And if you get an order from one of these buyers, you should check it out.

What I'm recommending is that it should trigger an export license application. I'm not saying that these recipients should be denied U.S. exports. I'm just saying that it merits a look if they're going to buy something that can conceivably contribute to a nuclear weapon or missile program.

Thank you very much.

SEN. THOMPSON: Thank you very much. Our last witness will be Mr. Daniel Hoydysh, co-chair, Computer Coalition for Responsible Exports. Mr. Hoydysh.

MR. HOYDYSH: Thank you very much, Mr. Chairman, for the opportunity to testify on this important subject. I have submitted my full testimony. And in the interest of time, I will just briefly summarize a few highlights.

Before I get to that, I would like to make just a couple of points in response to what my good friend Gary has said. One, I think I do believe that in the Export Administration Act, no control is automatic; that there's provisions for presidential overrides. And that's something that at least ought to be looked at carefully. And secondly, I don't believe any of the control provisions -- certainly we decontrol.

We certainly wouldn't advocate that they apply to any of the rogue terrorist nations; just to make those two points up front.

I would like to make a couple of other major points. The first one is that something often gets lost in the heat of debate, and that is that our industry cares very deeply about national security. We are responsible citizens of the United States and would not do anything to jeopardize the security of the country in which our workers and family lives.

We believe, however, that our national security is directly dependent on the technological leadership of the U.S. computer industry. To maintain this leadership, we must compete in the global market and we must export. Exports equal profits. Profits are used to fund R&D. And R&D drives technological leadership.

The U.S. computer industry is the world leader, and we want it to stay that way. But we do have substantial foreign competition. If I accomplish nothing else in this testimony, I would like to lay to rest the myth that there is no foreign competition for the business computers that we are talking about in terms of decontrol. According to a recent report by the International Data Corporation, four of the top 10 server vendors are foreign. They include companies from Japan and Germany and France.

We are now proposing that controls on supercomputers be abolished. Again, I would like to dispel the myth that this debate, at least in the computer industry, is about the export of supercomputers. We are proposing that restrictions be eased on business servers with two, four and eight processors. These machines are t e basic building blocks of the new digital Internet economy.

Supercomputers, such as those used for sophisticated nuclear simulations, consist of thousands of processors. For example, in the Sandia labs, Intel has installed a machine called the Askewed (ph) which has 9,632 processors. Recently the French Atomic Energy Commission ordered a supercomputer from Compaq for simulation programs to ensure the reliability and safety of the French nuclear stockpile without new nuclear tests. The Compaq system will use 2,500 alpha processors, will take a year to install, and operate roughly at 5 million MTOPS. Now, that is a supercomputer.

Finally, Fujitsu recently announced that it would provide the world's most powerful supercomputer to the Toyota Corporation for automobile design purposes. In its maximum configuration, this system has 512 vector processors and can operate at above 5 million MTOPS. And just as a sidelight, please note that this system is replacing the U.S.-made Cray supercomputer.

Well, we do not come to praise the export control system. We certainly don't come here to bury it. We support effective export controls. However, we think the current system is broken. It is broken because it is inefficient, it is ineffective, and it is counterproductive. It is inefficient because it takes too long to process export licenses. The reviewing agencies do not have the resources, either in personnel or equipment to do the job.

It is ineffective because it is largely unilateral. Our controls are much stricter than those of our foreign competitors. It is counterproductive because it wastes government and industry resources in trying to control the uncontrollable. Therefore, efforts to police truly sensitive items are diluted. And it undermines national security by undermining our technology preeminence.

Dr. Steve Bryan (sp), a respected expert on export controls, who served in the Reagan administration and was in large measure the architect of a lot of the systems that we have, described the system best when he testified before the House Armed Services Committee last year. And to quote: "I don't think there's any point in having an export control system that tilts at windmills. I think you have to have controls that make sense, that can be enforced, and that protect our strategic interests."

Another quote that is right on point in terms of evaluating the export control system is contained in this report which I recommend for the committee, the final report of the Defense Science Board and Task Force on Globalization and Security. The basic premise of this report is that rather than trying to restrict exports of widely available technology, we have to concentrate on trying to run faster than our adversaries. And a quote that is particularly on point here is that, from this report, "Protection of capabilities and technologies readily available on the world market is, at best, unhelpful to the maintenance of military dominance and at worst counterproductive by undermining the industry upon which U.S. military technological supremacy depends."

So what do we need? We need to fix the export control system. We need an efficient, effective and credible control system that reflects competitive and technological realities. In the short term, we would like to reduce the congressional review period from six months to 30 days. We also need to increase control thresholds now to reflect advances in technology and competitive realities.

In the long term, we want to work wit the executive branch and the Congress to develop an effective approach to controlling exports that fit national security concerns of the 21st century. This would require a thorough evaluation of the threats posed to the U.S. in this century, the effect of globalization of markets technology and knowledge, identification of choke-point technologies and techniques for how we can run faster than our potential adversaries.

Thank you very much.

SEN. THOMPSON: Well, thank you very much. This testimony, I think, from all of you really lays excellent groundwork for our discussion today. And it's a classic case of two competing interests. Both of them are valid interests. But I was just thinking yesterday about what was happening here in the process as we're trying to balance our commercial interests and our competitiveness and keeping our own capabilities where we want them to be, advancing, versus the national security.

And it seems to me all the movement -- we can argue about this later, but it seems to me all the movement seems to be on the side of the export industry. The administration, of course, periodically and quite often increases the MTOP levels. They were changed April '94, October '95, July of '99, February of 2000, and again August of 2000, as I understand it. So we're moving in that direction. We've gone from 2,000 MTOPS for military use in October of '95 to presumably 40,000 in August of 2000.

We might ask, compared to what, because you're talking about MTOP levels of millions. But we are moving certainly in that direction. Congress has a right to review that as to whether or not we're moving too fast or perhaps not fast enough. Up until, I believe, 1999, Congress had 18 to 24 months' review period. So until recently, we had two years. Now we've got six months.

Now it's being suggested by proposed legislation that we reduce that review level to 30 days. I think it's important to keep in mind, this has nothing to do with the holding up of an individual export. It just has to do with whether or not exports of particular levels even need licenses at all. So that's being reduced.

Then we have the Export Administration Act, which interjects new concepts in terms of statutory law, concepts allowed to be used in other ways by exporters who are denied licenses and so forth. But basically the concept and statutory law of mass marketing and foreign availability is new. And this would propose to take whole categories, even above the MTOP levels that are allowed, whole categories of items out of the control regime whatsoever on the basis that everybody's got them anyway.

So there's quite a bit happening here. And it seems to me that it's all moving in the same direction. Now, perhaps a case can be made that that's good and that that's valid. But if we err too far on one side, we are perhaps hurting ourselves somewhat commercially. If we err too far on the other side, we are perhaps hurting ourselves somewhat from a national security standpoint.

And one of the things that concerned me from your testimony, Mr. Johnson, is that as the administration makes this determination as to when and how much to raise these MTOP levels, they are not making a national security assessment as to that. It's strictly based on what is deemed to be controllable and uncontrollable. Is that correct?

MR. JOHNSON: That's basically correct. We have not done a national security analysis to know what impact the relaxation or the change in the control levels might have on our national security and how the recipient government countries may use the computers in their military modernization programs. And we think that that is a serious deficiency.

SEN. THOMPSON: The GAO has, of course, been dealing with this for some time, and you've had occasion to criticize the administration in times past because of some of the analyses and studies that they were relying upon, such as the Stanford analysis, in making their decisions to raise the MTOP levels.

MR. JOHNSON: Correct.

SEN. THOMPSON: So one of the things that we can look at, in trying to determine where we should go, how fast we should go, in determining, as the administration is increasing these MTOP levels -- and I'm certainly not arguing that they should not be increased. The question is, to what levels and how fast? Reasonable people can disagree on that.

But one of the benchmarks I think we can look at is the nature of the material they're relying upon in order to make those increases. And the fact of the matter is, they relied on in times past, in dealing with these nebulous terms of foreign availability or uncontrollability or what not, they relied on studies that you did not feel like supported the conclusions that the administration came up with. Is that not accurate?

MR. JOHNSON: Well, it was unclear whether the studies really supported the conclusion, because the studies themselves lacked empirical data to support the conclusion that was in the study, and mainly in the area of controllability. The study simply didn't have sufficient data to come to a conclusion that -- I think the initial Stanford study indicated that computers at 4,000 to 5,000 MTOPS were at that point in time, which was 1995, aren't controllable. And there simply was not data to support that. So whether or not they came to the right conclusion, we didn't reach that conclusion. They may have serendipitously come to that conclusion properly --

SEN. THOMPSON: It would seem to me, if these anecdotal evidence statements that we hear from time to time about the clear availability you know, you walk into Radio Shack, et cetera, et cetera. If that is so clear, you wouldn't think that they would be able to come up with a study that the GAO would say at least is a valid study in order to support that conclusion.

MR. JOHNSON: Well, at certain MTOP levels, I'm sure they could do that. But, I mean, we're talking about MTOP levels that are generally higher than what you would find at Best Buy or Radio Shack.

SEN. THOMPSON: And you're also talking about the administration deals in terms not just of what is perceived to be the case at the time of the analysis, but the anticipated availability.

MR. JOHNSON: That's a major concern that we've had. In the last couple -- in our current study as well as the study that we did of the president's July '99 report, that the decision was based on anticipated mass market rather than on what existed at the time the decision was made.

SEN. THOMPSON: And it seems to me -- correct me if I'm wrong, but it seems to be that this anticipated mass market, in turn, is based upon what our domestic producers intend to manufacture in the future.

MR. JOHNSON: That's correct. What they say they're going to produce and when they're going to --

SEN. THOMPSON: So foreign availability --

MR. JOHNSON: That's not a factor in that kind of judgment.

SEN. THOMPSON: Well, is controllability?

MR. JOHNSON: Well, projected controllability, yes. But suggesting that because they're going to have a particular type of processor available six months hence doesn't necessarily mean that we should be decontrolling now in anticipation that the processor will be available. If you're looking at what is mass market, I mean, that is something that exists. You can count -- I don't want to put numbers on what the criteria ought to be, but you can determine what a mass market is rather than what is anticipated.

SEN. THOMPSON: All right, let's make sure we're talking about the same thing. Let's talk about not what it ought to be or what you think it might should be or that. Let's talk about what the current situation is, as it's applied now, as these determinations are made to raise these MTOP levels. It's based in part on anticipated levels.

MR. JOHNSON: That's correct.

SEN. THOMPSON: And that, in turn, helps to reach a determination as to what's going to be controllable.

MR. JOHNSON: What the control levels ought to be.

SEN. THOMPSON: Ought to be.

MR. JOHNSON: Right.

SEN. THOMPSON: So it sounds to me like a self-fulfilling prophecy. If your ability to control or the controllability has to do with primarily on the basis of what our domestic manufacturers intend to produce, that seems to be a self-fulfilling prophecy. I mean, that begs the question. Should they be controlled? Should they be available? And certainly we have something to do with that. That's my assessment. I mean, that's my comment. Do you have any problem with that?

MR. JOHNSON: I think that's a fair analysis, yes.

SEN. THOMPSON: All right. One more thing. On the reduction of the time of the analysis, does the GAO -- you mentioned you're doing some work for Armed Services.

MR. JOHNSON: Right.

SEN. THOMPSON: Is part of that work an analysis of the last MTOP level proposal -- I'll call it -- with the administration --

MR. JOHNSON: Yes.

SEN. THOMPSON: -- increase?

MR. JOHNSON: It's an analysis of the president's February 2000 announcement that --

SEN. THOMPSON: I'll just ask you. Do you have any anticipated date of release of that?

MR. JOHNSON: Well, probably within four to six weeks.

SEN. THOMPSON: Within four to six weeks.

MR. JOHNSON: Right.

SEN. THOMPSON: So GAO does that. Do you traditionally do that? I mean, is this your first --

MR. JOHNSON: We've done this twice now.

SEN. THOMPSON: Okay.

MR. JOHNSON: And it's anticipated -- we've had some discussion at the staff level that GAO might be requested to do this on a routine basis.

SEN. THOMPSON: All right. Now, my information -- correct me if I'm wrong -- that from September of '93 through October of '95, the review time period was 18 to 24 months. From July of '99 till now, it's six months. And the proposed legislation would cut that review time back to 30 days. As the entity that is doing that review, what is your opinion of that?

MR. JOHNSON: I think 30 days would reduce unreasonably the amount of time Congress has to look at the president's report. In terms of our work, we don't require the full six months. We have been we've had this study going now for probably six or eight weeks. But if we had immediate access to information from the Commerce Department when the announcement is made, that would shorten our time frame. So I'm not suggesting that it remain six months. It can be shortened from that, possibly.

But I think 30 days would be overly restrictive for the Congress to deal with it.

SEN. THOMPSON: So you have had this review under review for about how long so far?

MR. JOHNSON: Probably about eight weeks.

SEN. THOMPSON: And you anticipate, you said a few minutes ago, how many more weeks?

MR. JOHNSON: I would say four to six weeks until the report is published.

SEN. THOMPSON: Mmm-hmm. (Acknowledging.)

MR. JOHNSON: But, I mean, under other circumstances, that time could be shrunken to some extent.

SEN. THOMPSON: All right. Now, that's just your time. That's not congressional review, analysis or hearings or anything else of your --

MR. JOHNSON: That's correct. That's our time.

SEN. THOMPSON: I see. All right. Well, I've taken up more than my time. Senator, go ahead.

SEN. LIEBERMAN: No problem. Thanks, Mr. Chairman. It's been a very interesting discussion.

Mr. Milhollin, let me start by asking you a question which goes back to something you said, and it at least helps me get into this discussion of the competing interests and values involved here. At one point you said -- and you quoted one of the common responses to this dilemma, which is, "Well, if everybody else is doing it, we should, too." And you were critical of that. And in one sense, of course, you're appealing to America's better nature, and we'd like to believe that we are not like everyone else, both in terms of values and hopefully the extent to which we're prepared to protect our national security interests.

But I want to just start my discussion with the panel by asking you whether that criticism of that response -- "If everyone else is doing it, we should, too" -- is -- is -- you mean it comprehensively. In other words, if you were convinced that, in fact, some high- performance computer was really quite widely available -- let's assume for a moment that the facts were proven -- but that it really could be used to endanger our national security, would you still say we shouldn't do it, in part on the -- and, of course, we all remember those moments during the Gulf War when the shards of different systems were held up, to avoid some measure -- you know, to have any blood on our hands.

MR. MILHOLLIN: I think -- I guess I would answer your question by saying first that it's not simply a moral position I'm taking, although I think it principally is -- that's most of it -- but also just functionally. You know, if every member of the regime operated on the assumption that everybody else was going to sell anything he didn't sell, it would be pretty hard to have a regime. It's really a question of sort of keeping the faith. And somebody has to be leader. We've always been the leader.

What we've done is primarily we've gone to our allies and said, "Here's what we think ought to be controlled." We do that in COCOM. We said, "Here's what we think is important. Here's what we think ought to be controlled. We're going to control this, and we hope that you will join." In fact, that was President Bush's approach to the Gulf War. I mean, we didn't wait for everybody else to decide, "Yeah, we're going to roll this back." President Bush said, "We're going to roll this back," and then he invited everybody else to come in and help out.

SEN. LIEBERMAN: Right.

MR. MILHOLLIN: As a practical matter, that's how you have to do it. So it's not just a moral issue. It's also a practical question of how you achieve things diplomatically. And unless somebody's going to step out there and take the lead, nothing happens.

SEN. LIEBERMAN: What if they don't follow on these commercial questions, on the sale of high-performance computers?

MR. MILHOLLIN: They will never follow 100 percent.

SEN. LIEBERMAN: Right.

MR. MILHOLLIN: What you have to do is you have to decide how much is enough. Under COCOM, the Russians could always get things. They could always -- if they wanted something enough, they could figure out a way to get it. But often -- and they didn't get training. They didn't get manuals. They didn't get spare parts. And six months later, it wound up being a piece of junk because they couldn't service it. They admitted that after the Cold War ended and there was sort of a look at how COCOM had functioned.

COCOM was a giant success not because it was air-tight -- we had the Toshiba case; we had lots of situations where people violated COCOM that undermined our industries. But overall, it worked. And, you know, if you visit the former Soviet Union now, you can see the impact it had on the infrastructure. And go to Russia and try to make phone calls from, you know, one village to another. It really did have a very big negative impact on Russia primarily, even though it didn't work altogether right; that is, it didn't work 100 percent. And so you will always have situations where somebody will not follow.

What I'm worried about is that we have to maintain faith here or we won't have anybody following. That's really the question. It's not the question whether you can get 100 percent compliance. The question is, if we decide that we're going to send the world a message that we don't care about this anymore, then we're certain to get zero compliance.

SEN. LIEBERMAN: That's very interesting. So is it fair for me to conclude that what you're saying is that even if a particular dual- use item is available in foreign markets to foreign countries, to countries that we would put in one of the tiers that we worry about -- T-I-E-R-S that we worry about -- that you would say that we should still try to control it even if that -- control its export from here even if that does some damage to our high-technology companies, because the effect will be that we will make it harder for those who could threaten us to get hold of it, so that this is a balance. And maybe there'll be some, you know, economic damage here, but when you balance it against the national security threat, because we are the leader, it's worth it.

MR. MILHOLLIN: Yeah, it's worth it. You're going to take some hits, you are going to take some losses. But nothing is free. So you have to be willing to -- you have to be willing to say to the U.S. industry you are going to lose some sales here and there from this system. But overall it's worth it.

There was a recent case in which a rather sensitive Chinese company was trying to buy a Fibaxis (ph) machine tool from us. And they didn't get it, I must admit, because I have an activist hat, and that happened to be exposed in the newspapers, and it made it much harder to approve. Well, I was told that a European company filled that order. I think -- I mean, I suppose that pro-export forces would say, Well, there's an example -- you know, it made it hard for us to approve this; it got held up. We didn't approve it, and in return you got tired of waiting and they bought it from somebody else. Well, I think that's a victory.

If this company is going to make missiles and military aircraft at this plant, and they are going to do it with a German or a French or a Swiss machine tool, I think it's better than having them do in ours, because if we even fill that machine tool, then the message would have been clear that -- and this was a very dubious end user -- the message would have been clear -- look, guys, you know, if America is -- if they're going to do it then the signal is we really don't care that much.

SEN. LIEBERMAN: So, and your reasons are both moral and functional or practical, both --

MR. MILHOLLIN: Yes.

SEN. LIEBERMAN: -- we don't want that on our hands, but also that so long as we exercise some restraint, even though in that case that Chinese company got what it wanted, we send out a message to the world that makes it less likely that this stuff will be more widely available?

MR. MILHOLLIN: That's right. The next time the Iranians want something, and we go to a European company, and say, We discovered that the Iranians were about to buy this from you, and we think you ought to stop it -- they're not going to say, Yeah, but what about the machine tool you guys just sold to the Chinese?

SEN. LIEBERMAN: Right.

MR. MILHOLLIN: And believe me, that happens. That happens all the time. So unless you are willing to be clean in your own behavior, you are not going to get anywhere with anybody else.

SEN. LIEBERMAN: Mr. Lieberman, what from a Defense Department perspective -- I know you are not here to speak for Defense -- but from within the purview that you have, how do you react to that standard that Mr. Milhollin establishes? I know from your testimony that you obviously feel the Department of Defense should be involved more in these export control decisions. But he's posing a tough standard I think. I'm interested in your reaction to him.

MR. LIEBERMAN: I believe that it serves no purpose to have any export control regime if we don't enter into that process with expectations of having pretty tough standards. I would point out that when a buyer decides to purchase a product they make their choice based on what they think the best product on the market is, and perhaps best price. So what we are talking about -- what we seem to be talking about here are selling products that could create national security threats; and we are providing the best product at the best price to whoever that other party is, which to me creates a problem.

You use the word "balance" in your opening statement, and clearly that's what we are talking about here. I believe that the current process is somewhat inefficient, and inefficiencies in the process can be fixed, because those are mostly bureaucratic procedures and researching questions that can be fixed.

SEN. LIEBERMAN: And some of the delay involved --

MR. LIEBERMAN: Yes, yes, absolutely.

SEN. LIEBERMAN: -- in reaching a decision.

MR. LIEBERMAN: But the basic feature of the existing review process, which is multi-agency deliberation over the wisdom of granting a license I think is really the thing that we need to retain. That's why I said that we need to be extremely careful about exempting products or classes of products from that process, because I think ultimately the process needs to be applied to anything where there is even a smidgen of a national security implication. That does not mean when something is applied and when something has to go through the process that a license is going to be denied. In fact, very few licenses are denied. So I think that's an important distinction that I would try to make.

SEN. LIEBERMAN: And I would take it that you believe that the bill before the Senate, 1712, is somewhat imbalanced, that it tilts too much toward the commercial interests?

MR. LIEBERMAN: Yes, that's been our testimony to the Senate Armed Services Committee, and there is some of that in my statement today, yes.

SEN. LIEBERMAN: Mr. Hoydysh, about how Mr. Milhollin's standard? I presume you find it too stringent, and in some senses unrealistic?

MR. HOYDYSH: Senator, before I get to that could I just take one point to deal with a factual issue that Senator Thompson raised earlier about the review period going from 180 days to 30 days? And Senator Thompson mentioned something about an 18-month or two-year review period. In my knowledge there was no review period. I spent seven years in the Reagan administration in the Export Control Bureau and the review period -- there was no congressional review period whatsoever. So I am not sure what it is factually that you are referring to.

SEN. THOMPSON: I think the difference has to do with policy and the law, as I look at this. My chart indicates that the 18 to 24 months was the policy during that period of time. Six months was put into law. So -- if there are conclusions we want to draw from that, I think that's what is the situation.

MR. HOYDYSH: To get back to the standard, Gary raises a very difficult question. I mean, moral questions are always very difficult. And I think the answer is in how you draw the balance and where you actually draw the line. I mean, we could all agree that no one wants to sell items to someone who is going to do damage to this country. In fact, we have -- the system as currently structured has safeguards built into it. All --

SEN. LIEBERMAN: Would you say that even if the item is available from other countries? In other words, that's part of the challenge that is put --

MR. HOYDYSH: Senator, we are not permitted under current law to sell to an end user in China, or anywhere else, if we have knowledge that that end user is going to use that equipment for proliferation purposes. And most of the enforcement cases that have been handled over the years generally result from tips that are provided by the industry. So with a few exceptions, which have been publicized in recent years and which are under investigation whatever is going on, the industry I think has a very good record on that.

The real question is: Where do you draw the line, and at what level do you have to either control things by having the government review each export, and where do you allow industry to make that ultimate choice?

SEN. LIEBERMAN: That's exactly the question. So, in other words, if Mr. Milhollin has drawn the line in one place, which is that even if it is available, a particular item is available in foreign markets, we ought not to selling it if we are reasonably confident that it's going to be badly used, not only for moral reasons but because we set a standard? So that's a tough standard. Where would you draw the line yourself?

MR. HOYDYSH: Well, the line would have to be drawn. First of all, I would not remove the requirement that if there was knowledge that the equipment was going to be used for some inappropriate purpose that we should not sell. And --

SEN. LIEBERMAN: Forgive me for interrupting, but how do we enforce that? How do we -- that's a reasonable standard, but how do we make it real?

MR. HOYDYSH: Well, in some cases it is easier to enforce. Most of the companies, most of our companies that deal in countries, like China for example, have a fairly complex process in terms of searching for customers. And generally -- generally we just don't go off and sell someone 50 boxes of something and leave it there. Generally it's involved in providing an airline reservation system or some kind of a banking system.

So we have a good idea of what the end use is. If somebody comes to us and says, I want you to help me automate the missile factory, we don't do it -- in fact, we are not permitted to do it. So there is just in the normal way of doing business a certain amount of security in how these products are used.

Where it begins to break down is if you have a product like the Macintosh Power G3, or whatever the nomenclature is, and you want to sell that in a Radio Shack or a Best Buy type environment in China, where you provide 50 of these to people who walk in off the street, as a practical matter it becomes almost impossible to monitor where those sales are going to go to. There is a big difference between delivering 150 boxes to the People's Liberation Army missile base and delivering them to Best Buy. So these are just practical issues, and at some point it simply becomes impossible to actually do it in practice, no matter how well intentioned the idea is.

SEN. LIEBERMAN: In your testimony you talked -- and we all have about the extraordinary advances, rapid advances in the capability of high-performance computers -- as now you mentioned we're into, you know, millions of MTOPS. But isn't it true that some of the applications that we made that are most significant of high- performance computers have been done at much lower MTOPS levels, some well within the limits that are now -- that are well under the limits we're now establishing? And the question is: Is the MTOPS number an adequate and appropriate standard to use?

MR. HOYDYSH: It is becoming I think clear to people in industry, and people at the Defense Department as well, that MTOPS alone may not be an adequate standard to measure the strategic significance of a computer. The computers that we are talking about are basically designed for transaction processing. That's why they have miniprocessors, so that Visa or a bank can handle a hundred thousand phone calls a minute coming in. They really are not designed to be used for military applications or for nuclear weapons, or any of the prohibited purposes. That's not to say that they can't be used, because anything can be used for that. But they really are not designed primarily -- there may be other technological parameters in addition to or in place of MTOPS that better measure what it is that we are concerned about. And I understand that the Commerce Department Technical Advisory Committee is looking at this, and also the Defense Department is looking at this.

SEN. LIEBERMAN: Well, that's a very important point, and obviously we would be interested in your results of that inquiry. It may help us come to a more practically effective standard.

Mr. Johnson, you said some things in your testimony I just want to ask you to amplify a bit. What's interesting maybe to us is that the executive branch hasn't clearly stated what the national security interest is in controlling exports of high-performance computers. Now, in a way this touches on the last point of exchange with Mr. Hoydysh, that maybe MTOPS are not the appropriate -- certainly not the sole standard for determining what should be an export. And I just wonder if you could talk about that a little more.

MR. JOHNSON: Sure. We have basically come to the same conclusion. In fact, another study that we have been requested by the Senate Armed Services Committee to do is to follow the studies that are ongoing within the industry, as well as Departments of Defense and Commerce, on what other standards might be appropriate to other MTOPS, because MTOPS clearly doesn't address the concern that has been raised about distributive computing; in other words, where you can line up several computers and tie them together and distribute the calculation process among them. It just doesn't address that issue.

But in terms of our concern that the Defense Department has not clearly addressed the national security interests it's trying to protect, obviously they have looked at how computers are used in their own processes, and have come to conclusions that there are a number of applications that are important applications that require from a very low level of performance to a high level of performance. Our concern is there are a number of applications, computer applications, that are of such critical importance that we need to do whatever is required to protect our ability to deal with those applications. And that is what the Defense Department has not done. They have been requested now through legislation to do that. I think the National Defense Authorization Act of last year laid that requirement on. My understanding is that they will have that study completed in August, and hopefully that will resolve that concern. But we have held is that if they looked at all the applications that are of extreme importance they may come to a conclusion that the level we are trying to control computers at now just doesn't make any sense. It may be much higher than what we are trying to control.

SEN. LIEBERMAN: If we --

MR. JOHNSON: It may be lower too, but --

SEN. LIEBERMAN: It may be lower. If we add in other standards, other factors to consider --

MR. JOHNSON: Right.

SEN. LIEBERMAN: Could you give us an example of one or two other factors that to you at this point seem relevant, besides the MTOPS standard?

MR. JOHNSON: Well, just basically looking at the architecture of the computer, what it is designed to perform --and I am not a technician myself -- but what the computer is designed, the application is designed to perform, would be one way of measuring it. I know it solves all kinds of problems, and we have already had some discussions with industry on that.

SEN. LIEBERMAN: Mr. Johnson, a final question. You also said that you thought that two very central terms to this discussion, particularly of the legislative proposal before Congress, are not adequately defined. That is, the terms "widely available" and "uncontrollable."

MR. JOHNSON: "Controllability."

SEN. LIEBERMAN: "Controllability." So tell us what's lacking. And if you had your druthers, you were drafting, how would you define those two critical terms?

MR. JOHNSON: I basically -- Commerce Department, in response to our raising that issue, did define "controllability," and I think their definition of "controllability" is not a bad standard. Unfortunately they didn't apply that standard. But in defining "controllability" they included factors like the volume of sales. And I think that is a critical aspect. I don't want to try and attach numbers to it. It's very difficult to do that, and it would differ depending on what the component is. But the way Commerce defined "controllability" to us, which implies widely available, is not a bad standard. And I think we have included that statement in our prepared testimony.

SEN. LIEBERMAN: Okay, thanks, Mr. Chairman. I am going to give it back to you.

SEN. THOMPSON: Thanks very much. We have been looking at the front end of the process as we increase the MTOPS levels and we propose to shorten the amount of time Congress has to review. But we also touched on the back end of the process, and that is who winds up with these so-called supercomputers. Everything we are doing is kind of based on an assumption that we have something to do about that, or that we can in some way affect that or control that whole tiered process -- tier III countries like China, we have a category for military use and a category for civilian use.

But in listening to you I was reminded of a point that the staff had made earlier to me, and that is the difficulty in dealing with a country like China in being able to rely upon an export to a civilian company with assurances that it will not have military use. There is also a Russian situation in the not-too-distant future. In 1996, both Silicon Graphics and IBM illegally exported high-performance computers to Russian nuclear weapon laboratories without licenses. They claimed that they had not known that these facilities were weapons labs, even though the two locations, Severodvinsk 70 and Arsama 16 (ph), which I have been to by the way, should have been well known to anyone with any knowledge of the Russian nuclear program. I don't know, it seems like I knew about Arsama (ph) a long time ago. I don't know about them.

After these illegal sales were revealed, the head of the Russian program bragged that he had planned to use these machines to design nuclear weapons. And you know, I guess it's impossible to keep something like that from happening every once in awhile.

But, again, we need to look at the process, because we are relying upon the industry to make those determinations. And that might be more than industry really has the capability of doing. It might be an unfair burden to be putting on some, and the industry might be tempted to hedge.

In the China situation there was a period of time there where they were allowing no post-shipment verification checks -- isn't that true?

MR. JOHNSON: That's correct.

SEN. THOMPSON: For a period of time up until the agreement, when, '98?

MR. JOHNSON: June '98. They would not allow us. Here we are, you know, trying to export these computers to them, and they would not allow us to check with regard to post-shipment verifications. And then we supposedly entered into an agreement with them in '98 that would allow post-shipment verifications -- is that correct?

MR. JOHNSON: Yes, that is correct. But they had to comply with certain requirements that were laid out in the agreement, and not all high-performance computers that were shipped without a license to the civilian sector complied; so that was also a program.

SEN. THOMPSON: Have you seen this agreement?

MR. JOHNSON: No.

SEN. THOMPSON: Who has seen this agreement?

MR. JOHNSON: Well, it is a classified agreement, and we do have access to classified information of course, but I have not personally read the agreement.

SEN. THOMPSON: Well, are you familiar with the Cox Report's reference to this?

MR. JOHNSON: Yes, I am.

SEN. THOMPSON: Is it not true that the Cox Report says there is such an agreement, that the administration would not release the agreement because the Chinese would not allow it, and that the Cox Committee had reviewed the agreement and found it to be wholly inadequate?

MR. JOHNSON: I read that in the Cox Report, yes.

SEN. THOMPSON: Do you know of any national security reason why the American people should not see the agreement that allows us to do post-shipment verifications for high-performance computers?

MR. JOHNSON: Not to my knowledge.

SEN. THOMPSON: Does anybody else know who might have access to this agreement, or know anything about what's in the agreement?

MR. : No, sir.

SEN. THOMPSON: Well, I think that this is something that we might want to inquire about, because a large part of what we are doing is supposed to be in reliance upon computers that are sent for civilian purposes, for example, wind up in civilian hands. And if the Cox Committee has concluded that this agreement is wholly inadequate, and the administration will not release the agreement because of the Chinese objections, I think that raises serious concerns, and I think it might be a good idea to perhaps inquire of the administration whether they would let us review that agreement for any legitimate national security purposes for withholding portions of it. And that certainly can be dealt with. But I see no reason when something like a post-shipment verification and the extent to which we should be able to rely upon who the real end user is going to be in any given situation, why that should be withheld from the American people.

Mr. Hoydysh, what is the economic effect of what we are talking about? I have seen numbers that seem to indicate that right now anyway there is a limited number of these high-performance computer sales to tier III countries. Obviously you have large domestic sales, you have large international sales, most of which are not controlled, because they are not of a certain level. Can you give us some feel in terms of numbers of sales or potential sales that we are talking about in terms of -- again, not saying that you cannot export some tier III countries, but that you have to go through a license process? I guess you have the delay issue, and then you have the denial issue, both. But can you give us some better idea as to what the commercial impact of this is for the computer industry, which clearly has, you know, millions of sales domestically and internationally?

MR. HOYDYSH: Senator, in terms of the absolute values and the absolute sales, this is not an overwhelming market for us; depending on the company, depending on how you slice it, it is anywhere 10, 15 percent of company sales -- that's all of tier III. Now, China is the fastest-growing market in Asia, and I believe is now probably after the Japan the second largest market. It certainly has tremendous potential.

We do not -- again, just to clarify, we do not object to licensing requirements for truly high-end systems. And in fact that those are either licensed -- in fact, I don't believe that any fully high-end system has ever been imported to China. What we are concerned about is competition at the lower end, the so-called commodity machines which are available from a wide variety of sources, including companies in China. And the problem that we have is, one is questions of delay -- even in the lower tier that aren't licensed you have a 10-day delay. But on top of that, the United States is the only country that requires our manufacturers, our vendors, to get an end user certificate from the Chinese government, so that a comparable sale from anyone else would not require an end user certificate. And this is a bureaucratic process that can take anywhere from two to three to six weeks.

SEN. THOMPSON: Have you been following any of the hearings and debates that we have been having here on the PNTR with regard to China, the national missile defense and the testimony that we have heard from this table from our intelligence officers, the CIA, giving their biannual estimates on weapons of mass destruction and nuclear proliferation, where they say that China still continually is the greatest proliferator of weapons of mass destruction and that they are continually supplying these rogue nations that are increasingly become a threat to this country with regard to biological, nuclear and chemical capabilities. We hear that testimony all the time. That's why I consider it more than a bureaucratic snafu to require some kind of end-user satisfaction with regard to the Chinese. And that's why it concerns me that the administration wants to keep under wraps the agreement the agreement that was supposedly entered into as to the way we are supposed to have some satisfaction on post-shipment verification.

So it is not just strictly a Chinese deal; it's a complicated world out there. And part of what is happening is that the Chinese are supplying dual-use items, people, technology, raw materials, components, to a host of rogue nations. Now, that is not your business, but that's our business. And I just want you to know that we are not trying to be unduly restrictive or anti-competitive. And we understand the genie is out of the bottle. But this is part of what we have got to balance, and this is why we have got to be careful as we on the one hand try to embrace these countries and trade and get along as best we can, but on the other hand be mindful of their threats, and our own intelligence, whether it be the Rumsfeld Commission or the Deutch Commission or our own intelligence assessments that are continually saying that this country is doing things that pose a threat to our national security, albeit in some cases in a roundtable way through these rogue nations. So that's a part of this process too, and that's got to enter into the balance. And it looks to me like that has front-end and back-end ramifications in terms of this process. And it is the process, it seems to me, that is most important here.

No one can sit here -- I can't sit here and say what the MTOPS level ought to be. But I don't think somebody within the bowels of the Department of Commerce ought to be the unilateral determinator of what that MTOPS level should be either. I think we need a process that includes all the relevant people at the table.

And a final point I'll make with this point here -- it seems to me that we shouldn't overlook the fact that our allies, our competitors in other countries, in these computers and so forth, they have licensing processes themselves. And when you are looking at something like foreign availability you are mass marketing. We are proposing taking whole categories of things, decontrolling them because of foreign availability.

And we are not even looking at the question of whether or not they are available perhaps pursuant to our competitor's licensing process. If they have a licensing process and they control these items, even if it is foreign-available, do we want to totally decontrol that when they have got a licensing regime and we will not have one anymore? Because they are going to immediately do away with their licensing regime, and it's going to be a race to the bottom. So those are the sort of things that concern me. I think I'm willing to state anybody can comment on any of that if you want to.

MR. LIEBERMAN (?): I would just make a comment on the question of foreign availability. I think that has to be split into two parts. There are two issues here. One, can other countries make these products? And I think that we can demonstrate very clearly that almost anyone can make them. There is no technological impediment to making it; it's an economic impediment. Everyone can make them, but not everyone can make money making them. So that's what keeps people from getting into the business.

The other question is whether they have equal export controls. My experience -- and I've been doing this for 17 years -- and I sat in COCOM for seven years -- that the -- our allies were kept in there only by the force of the will of the United States. If we had opened the door, they would have been out of COCOM way before. One of the big differences between COCOM, which at least worked fairly well, and today is there was then general agreement that there was a common threat. Right now there is little agreement on the common threat. There is agreement on the rogue nations, but there is no agreement that China poses a threat. In fact, the other COCOM countries explicitly -- the other Wassenaar countries explicitly rejected putting China as the target list.

Another complicating factor that one of our targets in tier III is a member of Wassenaar, and that in addition to that other members of Wassenaar are actually trying to get China to join Wassenaar. So if you have China and Russia as members of Wassenaar, which is the organization which is supposed to control exports to Wassenaar -- to these countries -- you end up with some very strange relationships and situations.

SEN. THOMPSON: Well, I -- it's interesting you should mention that, because I just came back a few weeks ago from a trip -- I went to Vienna, I talked to the Wassenaar people there. I talked to several of our allies about the Wassenaar arrangement and what they thought about it. I ran into some of the things that you are talking about. There is more than one view as to the COCOM situation as to who the leader was in disbanding that. And a lot of people think it was the United States; a lot of people think it should have been, and certainly something different should have come about.

So we have got something that really is dysfunctional in many respects, and that's the Wassenaar arrangement -- you are right -- Russia is a part of that. And you are right: our allies oftentimes, or we have particular problems with the French, amazingly enough, do not see eye to eye on many things. The question, number one, is what kind of example are we going to set? And, number two, what are we doing particularly with regard to these high-performance computers? I was surprised to hear from some of our allies while I was over there that the United States is leading the way in decontrolling these high- performance computer, much to the chagrin of some of our Japanese friends and our European allies, and that they still in some cases maintain some controls on these computers that we are not, that we are constantly the ones that are pushing the limit because of the competitive advantage we have there. So I don't think that that's a totally black-and-white picture.

The other thing I would ask is whether or not there is any validity to the notion that sure many, many countries have substantial capabilities in terms of high-performance computer, whether they are making them themselves or import, either legally or illegally, but that it is different than having a formal relationship where you are exporting mass quantities, and that where the recipient has the technical support and training. Does it now slow them down? And I think many times maybe this is what we are talking about while we are trying to deal with the national missile defense system and reconfiguring our military and all that -- perhaps we are just talking about slowing down the process really with regard to problem countries. Does it not slow down the process if you deprive them of the technical support and training? We deprive -- we maintain our ability to track by having a control system, track what's going out of the country. We don't decontrol. We don't give the technical support and training that would go with a traditional commercial transaction. Is there any validity to that concept, do you think?

MR. HOYDYSH: Yeah, absolutely, senator, there is validity to it. But just to put this in context, we are not asking to release all high-performance computers. We are only asking for easing of restrictions from the lowest level of high-performance computers, even if they can still be called high-performance computers. These are common business servers that are used in electronic commerce. And we have talked about a level of four to eight processors. Each of our companies make computers that have 32, 64 and above. And the highest computers, the most powerful ones, have thousands of processors. So we still believe in strict controls on that level of technology. And not even a question of licensing. We don't even think that the highest and should be exported, period. What we are talking about is the large volume lower end, which is absolutely essential, if China is going to develop its Internet infrastructure, if it's going to develop its e-commerce capabilities which would allow it to have more information, more interaction. These are kind of the backbone things for that system infrastructure. We are not talking about all computers. And just I would like to make that clear. We are talking about the lowest slice of technology that is widely available and --

SEN. THOMPSON: And we are not talking about stopping the sale of those computers; we are just talking about a review process.

MR. HOYDYSH: It's the -- and that's where the difficulty lies, because in this level of processor you are talking more and more about direct sales, about delivery in a matter of days. These are not things that take a long time to build. Most of these things are built within a few days of receiving the order. So speed of delivery is essential.

One of the biggest problems with the review process that we have is even though, again, I said it's 10 days on paper -- so even if it lasts 10 days, you have to add the Chinese end-user certificate problem to it. Then you have to add the fact that each of these right now requires by law visitation of some government official on top of that, versus someone who can deliver the same product at relatively the same price with the same performance, without all of this bureaucratic baggage. It makes our stuff less competitive, and in addition to which we cannot utilize third-party distributors, because we cannot ship the product into China unless we have the end user identified at the time of shipment, so that we are deprived of a whole channel of distribution of these things --

SEN. THOMPSON: There are a lot of distribution problems in selling goods to China that have nothing to do with our controls on this end. I don't --

MR. HOYDYSH: No, but this is -- this is a specific aspect of the way some of our companies do business. They identify someone who will provide the service, who will hold the product and distribute it to individual end users. We cannot use that channel.

SEN. THOMPSON: You mention that -- one more thing -- you mentioned your criteria seems to be the sell of processors. We have been talking about MTOPS levels.

MR. HOYDYSH: Well, I -- what I wanted to do was demystify the question of MTOPS, because everyone has fixated on the 2,000 MTOPS level which in the mid or early 1990s represented a powerful machine. Today you have a -- an Intel personal computer, the Apple personal computers that have MTOPS rating of almost 2,500. Plus, in addition to what some of the other folks here have testified, MTOPS may not be a valid measure of national security concern. That's -- SEN. THOMPSON: Just -- excuse me -- so what are you -- but that is, for better or for worse, the MTOPS level still is the criteria we're having to --

MR. HOYDYSH: Right, and --

SEN. THOMPSON: -- to deal with here. So what are you suggesting be decontrolled in terms of MTOPS levels?

MR. HOYDYSH: At MTOPS levels now, coming up with the newest processors that will be available later this summer --

SEN. THOMPSON: Again we're looking into the future a little.

MR. HOYDYSH: Well, but, you see, you are right -- we are looking at the future. But what makes it so much more difficult for us is because of the six-month delay, and because it takes at least three- plus months for an inter-agency process to come up with a number, we are required to forecast what would be available, anywhere from nine months to a year in advance. In the last go around we actually missed the fact that the Apple Macintosh arrived before that limit and couldn't be sold through these distribution channels. So that one of the reasons for shortening this six-month congressional review period is to actually make that forecast less prospective. We are not saying decontrol today that which will be available six months from now.

SEN. THOMPSON: I understand. I didn't mean to get you diverted. We'll get back to the MTOPS level. Can you translate what you would suggest --

MR. HOYDYSH: You're suggesting that the MTOPS level is somewhere on the order of -- for machines, if the MTOPS level was announced in July let's say, and it becomes available six months from now, which is still the current law. Then we need to have -- be able to sell four processor systems which are large-volume systems made with the new titanium microprocessor. And that number, and I could be off by several hundred, is somewhere on the order of 27,000 MTOPS -- that is a four-processor system.

Later on in the next year, in -- and this is January of 2001 -- mid July 2001 -- that number goes up to somewhere on the order of 33,- or 34,000 MTOPS. And I do --

SEN. THOMPSON: So I thought it was as of February of this year. You were at the 20,000 MTOPS level for civilian use anyway for tier III countries.

MR. HOYDYSH: But the level that we are talking about is the lower level. That's the level which below which government review is not required.

SEN. THOMPSON: Right.

MR. HOYDYSH: So right now that level is 6,500. And the civilian level is 20,000. But in effect above 6,500 we have to submit it to the government for a 10-day, so the government still has the ability to review the end user above 6,500 MTOPS. It's not something that we

SEN. THOMPSON: I thought it was February -- and maybe this is an announce date instead of an --

MR. HOYDYSH: It's an announce date. That doesn't --

SEN. THOMPSON: It was 12,500 for military.

MR. HOYDYSH: That becomes -- that becomes effective August because of the six-month delay. Any announcement in July would become effective --

SEN. THOMPSON: Thank you very much.

Senator Lieberman.

SEN. LIEBERMAN: Thanks, Mr. Chairman. I want to come back to Mr. Johnson and Mr. Lieberman briefly. Mr. Johnson, you said at one point in your testimony that post-shipment verifications are important, but if I heard you correctly they don't always tell us what the end use of the computer is.

MR. JOHNSON: That's correct.

SEN. LIEBERMAN: And so what I wanted to ask you was what system would you put in place or would you to help us better do verification after shipment to see exactly how these items are being used?

MR. JOHNSON: I think our conclusion has that post-shipment verification is an important process, because it does identify the location of where the computer is at, what kind of facility it's in. But you can't necessarily determine what it is being used for. That requires some highly trained technicians to be able to go in and be able to look at the data that is in the computer, the computer codes, programming and all to determine how that computer is being used. We don't have a fix for that, but we do think the process of just identifying, having that verification that the computer is there does at least help keep the system honest. There may be some occasions when the Department of Commerce would want to -- and I think it has on some occasions -- used highly-trained technicians from the national labs to look at how computers are used. But that would be one alternative. It's a very expensive process. These people are highly paid. And it takes time to do that.

SEN. LIEBERMAN: Is it clear that we have the authority under law to do that next level of post-shipment verification to see exactly how the computers are being used?

MR. JOHNSON: I'd have to research that. I think that we do have that authority, but whether or not we would be able to get the cooperation of the government to do that is another thing.

SEN. LIEBERMAN: In a way you're saying that the difference here is between determining where the computer ends up and how it is used.

MR. JOHNSON: How it is used, yes.

SEN. LIEBERMAN: Okay. I'd welcome any response you have to that in writing afterwards, which is whether the authority is there.

Mr. Lieberman -- every time I say that I feel as if I am having a conversation with myself -- (laughter) -- some very good conversations I have of course regularly. You talked about the fact that you don't want to see any items dropped from the control list without DOD approval at one point in your testimony. Help me remember to what extent DOD participates with Commerce in the construction of the control list; that is, the items, the dual-use items that are on the control list.

MR. LIEBERMAN: Well, currently DOD basically generates a national security list that is a list of militarily critical items, and gives that to Commerce to be incorporated into the Commerce control list. And we think that process works pretty well, so basically what we are suggesting is simply that that process be retained, the essence of that process be retained.

SEN. LIEBERMAN: Okay, and in the Department of Defense's work on constructing that list of items to be controlled, and you are really right at the heart of this dilemma that we've talked about all morning, which is here are these extraordinary capable computers and other items, and how do we determine how they are going to be used, and whether in fact they are. So how does the Department of Defense make that judgment? Is it a cautious judgment? In other words, is it a set of worst-case scenario judgment -- that here is something that of course can be used for peaceful commercial purposes. But in these circumstances it is possible that it could be used in a way that would threaten us.

MR. LIEBERMAN: Well, I would hesitate to make a general characterization like that. Certainly Defense is subject to the same pressures in terms of different opinions, different inputs from across the spectrum. Industry certainly provides input to the department. And right now a lot of the department's efforts to reengineer its own internal review processes for export controls are largely driven by complaints from industry that our process is inefficient and takes too long. So we are aware of that end of the spectrum.

And of course we have several agencies involved -- the intelligence community has certainly input. What we are talking about is a dynamic situation where would it make sense to control today may not make a whole lot of sense down the road. And in fact the control list does change over time. I think there is certainly a legitimate case to be made that the control list ought to be under constant scrutiny and evaluation from the standpoint of advancing technology.

SEN. LIEBERMAN: And maybe that's not happening frequently enough now or regularly enough now?

MR. LIEBERMAN: Well, I don't have enough knowledge of -- we really haven't made any attempt to look into individual determinations of what has gone on the list and what has come off the list. In fact, that's the primary subject of next year's inter-agency IG review.

You may recall that the authorization act last year requires the IGs of several federal agencies to look at this whole process annually for seven years. And this year we looked at what are called "deemed" exports. Next year we are going to be looking at the composition of the control list. And I hope that I can give you a much better answer perhaps this time next year.

SEN. LIEBERMAN: Fine.

SEN. THOMPSON: And -- excuse me -- and also that includes who decides what goes on and comes off of it?

MR. LIEBERMAN: Yes, sir.

SEN. THOMPSON: Okay. Thank you.

SEN. LIEBERMAN: We will look forward to that. Mr. Milhollin, I want to come back to something you said, which is that if the current definition of "foreign availability" I presume in 1712 continues, that we will in fact be required, the U.S. will be required to decontrol certain items that our allies now control, could you just develop that thought a little bit more?

MR. MILHOLLIN: Yes. If -- well, I first -- well, to begin with, there is a generally agreed list of things which we control in common with our allies for each kind of technology.

SEN. LIEBERMAN: Right.

MR. MILHOLLIN: I am sure the committee is familiar with those. The five items in my testimony that I selected for examples are controlled by our allies as well as ourselves. I think some of them are probably controlled for missile as well as nuclear reasons. In my judgment I think it would be very likely that foreign availability determinations would be made for all of them, because they are made by manufacturers in more than one country.

SEN. LIEBERMAN: Right. These are all again controlled now by our major allies and ourselves?

MR. MILHOLLIN: Yeah. And as you could probably find cases where foreign countries or countries that we are worried about, say, controlled countries, had managed to buy these things on the world market. So, again, if you come down to the position that if a controlled country can buy these things from somebody, then they should be controlled here, you run into the problem that you'd have to go down the whole control list to see which items are available to a rogue or some rogue supplier. Or, I'm sorry, available to a controlled country from a rogue supplier, and you would have to make a judgment in each case to what extent it's available. And our experience shows that the controlled countries can get some of these things some of the time from rogue suppliers. For example, the Pakistanis have been quite successful in importing missile technology of all kinds from China.

And Iran has been successful in importing poison gas technology from China. In fact, lots of countries have been successful in importing lots of things from China. And if you use that as a standard, then you are going to have decontrol a fair amount of items that our allies and we now control.

SEN. LIEBERMAN: Do you have a recommendation for a better definition of foreign availability?

MR. MILHOLLIN: Well, we have a foreign availability procedure now that has been criticized. I question whether -- it seems to me that if an exporter can go through the present process and prove that something is foreign available, then he is entitled -- then the exporter is entitled to some consideration. I haven't sat down and tried to draft standards of my own. I just -- I mean, it took me a fair amount of time to go through the standards that are in the bill and to compare these items to that standard. But I can say one thing, that the standard that the Banking Committee has adopted seems to me to be entirely too broad and too sweeping.

Senator, if I could I would like to comment on something that --

SEN. LIEBERMAN: Before you go -- let me just say if -- you know, if you have the time and the inclination, I think it would be very helpful if you had some suggestions about what a standard -- a better standard might be than the one that is in the Banking Committee bill.

MR. MILHOLLIN: Very well.

SEN. LIEBERMAN: Please go ahead with what you were going to say.

MR. MILHOLLIN: I was going to say a couple of things in response to Mr. Hoydysh's answers to the chairman's questions. The most recent data on the amount of supercomputer exports to tier III countries is about 5 percent. The most --

SEN. LIEBERMAN: Five percent of --

MR. MILHOLLIN: Five percent of the supercomputer market or the high-performance computer market.

SEN. LIEBERMAN: And that's the world market or the American share of the business?

MR. MILHOLLIN: The America -- I guess five percent of what we, the United States, exports.

SEN. LIEBERMAN: Okay.

MR. MILHOLLIN: Because we -- there are some numbers on that, and the most recent ones I've seen put the share at about five percent.

Second, I think we have talked a fair amount about delays. The Commerce Department is now meeting its time requirements in over 90 percent of its cases. So the Commerce Department now has a pretty good record of getting dual-use items turned around in a pretty good period of time. The primary reason for that is that we are only controlling about a tenth as much dual-use equipment as we controlled before -- during the Cold War -- that is, in about '89. We were controlling about 10 times as much as we are doing now. So with a lighter licensing burden, Congress is able to turn around the applications within its time restraints in about 90 percent of the -- over 90 percent of the cases.

And the third thing I'd like to point out is we are not talking about barring exports; we are talking about licensing them.

SEN. LIEBERMAN: Right.

MR. MILHOLLIN: And, again, over 90 percent of the applications are approved. So for Mr. Hoydysh's purposes, I would suggest to him that it's a good thing if you are exporting a sensitive item to get the government to tell you whether it might be going to the wrong place; that is, if I were an exporter and I had the government giving me a free bureaucrat -- would tell me within 10 days whether my customer was a problem, I think I would want to take the government up on that, rather than read in the New York Times or the Washington Post that my product had gone astray. I think we are providing a good service that is a 10-day review to tell an exporter, look, you know, there is a problem with this guy or there isn't. It seems to me an exporter would -- I don't understand why exporters don't want that service -- let's put it that way.

SEN. LIEBERMAN: Mr. Milhollin, I want to finally just ask you to respond to two other points made here, and similarly both by Mr. Hoydysh. But the first one is a general point that is certainly made by those who support the current movement of our export control system, which is to turn the national security argument around if you will, and say that at the heart of our national security today is our technological capability. Part of the way the high-tech industries in America stay strong is by enjoying a good share of the global market. And if in some sense export controls are applied so rigidly or demandingly that we deny them that market, that the effect will be that they will have less resources with which to develop the capabilities that make us a strong nation. So how do you respond to that?

MR. MILHOLLIN: I think that argument would be a valid argument if the countries we are worried about were a major part of their market. But in fact they are not.

SEN. LIEBERMAN: Including China?

MR. MILHOLLIN: Including China.

Again, the most recent figures I've seen show that tier III -- that is, the countries we are worried most about for supercomputer exports are taking about five percent of our sales. Now --

SEN. LIEBERMAN: Tier IV, what we might typically call the rogue nations --

MR. MILHOLLIN: That's right, they --

SEN. LIEBERMAN: -- Iraq, Iran -- and tier III is China, Pakistan

MR. MILHOLLIN: India, Israel, Russia, that sort of thing.

SEN. LIEBERMAN: Right, right.

MR. MILHOLLIN: I believe that in the supercomputer industry the companies -- there aren't very many companies --there are six, eight, ten -- they are going to survive or not depending on how they do in the big market; that is, the U.S. market, the Japanese market, the European markets, the markets for truly civilian applications of high- speed computing. They're going to make it or not with respect to each other; whether they -- depending on how they do in those markets -- not whether they make a marginal sale to tier III or not. So I think that it's a good argument that we have to be strong and maintain our competitive edge; but it's just that the numbers aren't there. Who makes it or doesn't is not going to depend on sales to tier III. That's my response.

SEN. LIEBERMAN: The second one was a very interesting exchange between Senator Thompson and Mr. Hoydysh, and it goes back in a way to something you said earlier about -- in the initial argument you made about America setting the standard, which is that we did it during the Cold War, that that's part of why COCOM worked and why there was naturally some leakage, nonetheless the former Soviet Union was impeded in its development of some sophisticated systems. And of course the argument would be, as it was made by Mr. Hoydysh, which is that the world has changed, and we're post-Cold War. Not only is it not a bipolar world anymore; but more to the point here, though we have a rough consensus with our allies about the rogue nations, the tier IV nations -- and again there's some leakage there about Iran, Iraq, Libya from some of our allies, in Europe particularly -- the real controversy seems to be over China, and our differing attitudes, notwithstanding some of the testimony today from you particularly about China's proliferation activities. So I wanted you to just respond if you will to -- I wanted to give you a chance to update your argument about the effectively of COCOM because of our American leadership in a world that is quite different from the one in which COCOM existed, and most particularly in which we seem to have some fundamental disagreements with our allies, sophisticated well- developed allies, about China.

MR. MILHOLLIN: I think that Mr. Hoydysh's point is a good one. He argues that we do live in a different world, and it's true -- there is less consensus and the targets of our activities are not as well defined. And, in particular, on China there is a debate. But you know there is also a debate on Iran. I've talked to German export control officials high up who don't see Iran as a threat. In fact, one of them told me Iran was his favorite country. We are in a world where one country's rogue is another country's good customer. So this whole effort is much more difficult, and it is going to require a much more aggressive and more effective diplomacy by us than in the old days when it was easier.

But if you look at the alternative -- do we have an alternative to doing it? That is, I don't think we do. I think we have to do the best we can in a new world which is more difficult. But I don't think we can just say, Well, gee, the world is really difficult now -- it's very dangerous -- we're just going to throw up our hands, and everybody is going to sell everything to everybody, and we're going to have total democracy in all the technologies that are necessary to build weapons of mass destruction. I fear that that's the tendency we are seeing. But I don't think we are ready to live in the world of 1914 in which everybody has the bomb. Nuclear weapons grew up during the Cold War, which was a pretty stable period, looking back on it now. If you postulate the kind of -- lots of countries with lots of different alliances that we had before World War II. And you imagine lots of those folks with nuclear weapons -- we're not ready for that. But I think that's where we are going. And what I am trying to argue is that we should slow it down as much as we can.

SEN. LIEBERMAN: Sure, understood. Mr. Hoydysh, do you want a word to respond?

MR. HOYDYSH: I would -- yes, very briefly. I am not going to argue about whether it's five percent or six percent of the market. If we believe and if we were convinced that what we were doing was hurting national security -- it wouldn't matter whether it was five, ten or fifteen percent of the market. We are convinced though that even the five percent, which is bound to grow -- tier III countries represent at least half the population of the world. If we cannot afford to give up those markets without having some serious impact on our technological leadership and in the health of our industry. I mean, five percent sounds like a small number. But what if someone proposed to cut the defense budget by five percent? That has significant impacts on R&D and significant impact on where we can compete. We are proposing what we are proposing because we think on balance it helps us more than it helps any potential enemies, and that in any case, even if we did not sell a single one of these items that they are talking about -- and I am not talking about high-end computers -- only the ones we are talking about decontrolling -- that the target countries could get as many of these as they wanted from other sources an we would have accomplished nothing other than losing five percent of the market.

SEN. LIEBERMAN: That frames the issue and the difficulty of our decisions. Thanks very much to all of you, and to you, Mr. Chairman. I think it's been for me a very helpful morning.

SEN. THOMPSON: Well, thank you. I think, you know, in conclusion, in listening to you and Mr. Milhollin, it seems to me what happened was that during the Cold War we had this pretty tough regime, this COCOM regime. The Cold War was over, we disbanded COCOM, and we had a lull period there. Now what has happened is that a new more diverse threat has emerged in terms of the rogue nations, and all we are left with is Wassenaar, which is very, very weak. And we are struggling to see how far much up we want to or can go in terms of something less than COCOM but more than Wassenaar. It seems to me like that's what we are struggling with.

One point I would like to make before concluding that I think is a very, very important one, on reducing this time to 30 days, a review that's 30 calendar days that is being proposed. If we were out of session, there would be no review time at all -- GAO wouldn't even get it -- presumably. So that's somewhat unusual, and I think absolutely undesirable.

But finally, on a note of harmony, I think that we had IG reports last year, and we had an array of all the inspector generals before us, who looked at our export situation with regard to various departments. There are clearly some things that we ought to be doing that we are not doing that are not -- or should not be controversial. We don't have enough licensing officers. They apparently are not sufficiently trained. The law requires training programs with these agencies. It's not being complied with. The law requires cumulative effect analysis that is not being done. Nobody knows what the cumulative effect of all this is. We look at these things one at a time. We have, as we do in other -- most all the other government agencies -- totally inadequate information systems. Our computers don't talk to each other with regard to this licensing process. Our law enforcement people who might have information on some of these people that our exporters are trying to deal with -- that's not integrated sufficiently. It's either not there, not used, no coordination. Real management problems. That's what we ought to be doing first, I think. There's an awful lot of stuff that we can do that would speed up the process and also improve the safety of the process and some of the things that we are concerned about. So that should be on the table also.

So with that, we will cease and desist. Thank you very, very much for this very enlightening hearing that we have had today, and your testimony. So, we are in recess. (Sounds gavel.)

END

LOAD-DATE: June 1, 2000