TRADE - Lethal Exports

By Bruce Stokes, National Journal
© National Journal Group Inc.
Saturday, May 29, 1999

	      Despite the Cox Committee's assertions about China's 
alleged theft of bag-loads of America's high-tech jewels, the 
fact is that most of the U.S.-designed technology the Chinese 
have squirreled away in recent years they got the old-fashioned 
way: They bought it from us. Under current U.S. export-control 
rules, Beijing has legally acquired high-performance computers, 
advanced machine tools, and semiconductor-manufacturing equipment. 
	     And long after the espionage furor has subsided, the 
committee's investigation is likely to produce tougher 
restrictions on exports of high-technology products to China. It 
is also likely to raise the decibel level of the running debate 
between congressional conservatives and the Clinton 
Administration and the business community over the basic 
practicality of export controls and over the threats that these 
controls pose to America's cutting-edge industries. 
	     After more than a decade of easing controls to facilitate 
the exporting of made-in-America technology, the harsh judgments 
of the Cox Report (the findings of the House select committee 
chaired by Christopher Cox, R-Calif.) were probably inevitable. 
Beginning with the Bush Administration, the federal government 
has been cutting back the number of licenses required for the 
exporting of sensitive technologies. In total, the number of 
licenses for all technologies for all destinations has been cut 
by more than two-thirds. From 1996-98, China bought 450 high- 
performance computers from American firms, most without export 
licenses. In a world where commercial technologies can be (and 
routinely are) used to build weapons of mass destruction, it is 
not surprising that such purchases have revived long-suppressed 
fears about how China--since the fall of the Soviet Union, 
America's principal strategic rival--might use America's 
technological treasures against America's interests. 
	     In addition to driving the debate over what should be 
sold to China, the Cox Report will also shape a separate battle 
over relaxation of restraints on computer exports. It will 
influence Congress's long-delayed rewrite of the Export 
Administration Act, which defines U.S. export-control policy. The 
report will drive ongoing American efforts to strengthen the 
Wassenaar Arrangement, an international agreement that 
coordinates export-control policies among major industrial 
nations. 
	     Overly Progressive Adjustments? 
	     The Cox Committee recommendations on export controls are 
the latest chapter in a long-running debate over the appropriate 
balance between safeguarding national security and making the 
most of America's competitive advantages and advances. 
	     During the Cold War, exports of sensitive technologies 
were governed by the 1949 Export Control Act and the 
international Coordinating Committee for Multilateral Export 
Controls (COCOM), a coalition of U.S. allies. Over time, as the 
Cold War thawed and foreign markets became more important, 
controls were updated and liberalized. And since 1994, when the 
renamed Export Administration Act expired, even more-relaxed 
controls have been set by executive order. In 1996, the major 
industrial powers replaced COCOM with the far less restrictive 
Wassenaar Arrangement (named for a town in the Netherlands where 
the accord was reached). 
	     ''This process of progressive adjustment (of export- 
control levels), often criticized as 'relaxation of export 
controls,' is an unavoidable consequence of technological advance 
and globalization,'' write former Assistant Defense Secretary 
Ashton B. Carter and former Defense Secretary William J. Perry, 
in their recently published book, Preventive Defense: A New 
Security Strategy for America. 
	     Conservatives have long protested the squishiness of such 
rationales for liberalized controls. They argue that America's 
foes often have no other supplier for key technologies. And even 
if foreign nations can ultimately obtain such equipment, strong 
export controls delay that acquisition, preserving America's 
military advantage. 
	     This debate has now focused on China because that nation 
is the largest foreign market for American-made machine tools. 
It's also a major potential buyer of semiconductor-manufacturing 
equipment and a market that could readily absorb an estimated 
$1.8 billion in U.S. high-performance computers (HPCs)--defined 
as able to perform from 1,500-40,000 million 
theoretical operations per second (MTOPS) and commonly used in 
the United States as Internet servers and serious numbers 
crunchers. 
	     The Cox Report maintains that this gear, ostensibly 
earmarked for commercial uses, can be used to upgrade nuclear 
weapons, design advanced military aircraft, and improve China's 
military communications network. And while supporting the 
continued sale of high- technology equipment to China's 
commercial customers, the committee proposes lowering the 
performance level of computers that may be exported to China or 
denying licenses for them if Beijing does not agree to an end-use 
verification system, including unannounced U.S. inspections. 
	     Absent amid Cox's eye-catching allegations, however, is 
much supporting evidence of actual Chinese misuse of American 
computer technology. 
Sorry, No PlayStations 
	     It is far too early to know what Congress will do with 
the recommendations of the committee, more formally, the Select 
Committee on U.S. National Security and Military/Commercial 
Concerns With the People's Republic of China. The first clue may 
come in a largely unrelated debate that is rapidly coming to the 
fore over the performance threshold that triggers the need for an 
export license for computers. Currently, all U.S. sales to China 
of computers that operate at more than 7,000 MTOPS require an 
export license. Sales to the military require an export license 
for computers in the 2,000-7,000 MTOPS range. 
	     The computer industry maintains that these limits are 
rapidly being overtaken by run-of-the-mill technology. (See 
chart, this page.) The PowerPC chip used in an Apple computer 
will exceed 2,000 MTOPS this summer, industry sources say. The 
next new, improved Intel chip--to be up and running and out there 
for the buying next year--will clock out at about 2,600 MTOPS. 
Industry lobbyists paint scenarios in which executives taking 
lap-top computers overseas on business trips and children with 
Sony PlayStations bound for vacations abroad would need to stick 
export licenses in their briefcases and backpacks. ''It's not do- 
able to police commodity products that are made in the 
millions,'' an industry lobbyist says. 
	     But the scenario of the businessman in search of an 
export license is largely a fantasy, at least in the short run. 
The industry fails to acknowledge that the burden of obtaining an 
export license and the potential loss of sales is confined to 
transactions with military users in China, India, Pakistan, and 
the nations of the former Soviet Union. Computer exports to all 
other major industrial nations are already license free; and 
exports to Latin America, Korea, the nations of southeast Asia, 
and eastern Europe only require a license for machines that can 
exceed 10,000 MTOPS. 
	     The industry also argues that denying it access to the 
rapidly growing Chinese market simply means big-buck sales for 
their foreign competition. They assert that at least 25 non- 
American companies can now build advanced computers that compete 
for high-performance sales in China. Acer Inc., a Taiwanese 
assembler, already offers for sale on its Web site a computer 
with four Intel Pentium III chips, with a performance in the 
2,000 MTOPS range. Mainland China buyers can even click on a 
dedicated icon to get purchase instructions in their own 
language. 
	     Congressional skeptics respond that the industry 
exaggerates the foreign availability of computer technology. 
''The credibility of the computer industry on this issue is 
fairly low,'' says a staff aide to a conservative GOP lawmaker. 
	     Notwithstanding such concerns, 79 members of Congress 
have called on President Clinton to lift the MTOPS threshold. 
And, indeed, the Administration is expected to notify Congress 
before the end of July that it intends to raise the threshold. 
This notification will set ticking a six-month-long review by 
Congress before the new levels take effect. Even conservative 
opponents of less-restrictive export controls acknowledge that 
the MTOPS levels will be raised; the only question is how high. 
	     The Cox Committee recommendations add a new twist to the 
debate because they would effectively put China in a special 
category when it comes to high-performance computers, a singling 
out that the American business community opposes. The 
Administration fears that Congress could attempt to resolve this 
conflict simply by agreeing to raise MTOPS levels for other 
nations while pointedly forbidding a lifting for China. 
Chilled Bureaucrats 
	     The Cox Report may also lead to a  stricter process for 
granting export licenses. For now, applications are reviewed by a 
committee of representatives from the Commerce, State, Defense, 
and Energy departments, with the Commerce Department's agend 
presiding. In theory, if an agency isn't happy with a decision, a 
ruling can be appealed all the way to the Cabinet level, but this 
hasn't happened during the Clinton era. In 1995, the application- 
review process was shortened from 120 to 90 days, although most 
applications take far less time. And this year, in response to 
concerns that China had diverted commercial satellite technology 
to military uses, control over satellite exports was returned to 
the State Department. 
	     Reflecting allegations that Commerce has been lax in 
enforcing export controls, the Cox Committee recommends that the 
government take more time to review export license applications 
and would require that a consensus exist among reviewing agencies 
before licenses are granted. Administration officials argue that 
such reforms are undesirable because the need for consensus would 
give individual bureaucrats a veto without ever requiring them to 
justify their case. 
	     The industry's worst fear is that Congress will go 
beyond the Cox Committee recommendations and shift export-control 
responsibility for additional technologies--such as machine 
tools--to State, which is notoriously slow in sorting through 
applications. But the Cox inquiry may already have had a chilling 
effect on the bureaucracy. ''If I'm a career civil servant and I 
approve a license for China, my boss may get hauled up before a 
congressional committee,'' a senior Administration official said. 
''If I say no, nothing happens. In that environment, you won't 
see many more high-tech export licenses for China.'' 
	     The legislative vehicle for implementing the Cox 
recommendations could be a revived rewrite of the Export 
Administration Act, which may be marked up by the Senate Banking, 
Housing, and Urban Affairs Committee by July 4. The Cox Committee 
supports the law's renewal. At one point, the industry had hoped 
to use a revived law as a way to further ease export controls. 
Post-Cox Report, a loosening up is out of the question. 
Restrictions being kicked around by the Banking committee 
include: recorded votes on license applications to ensure 
accountability; a whistle-blower provision to encourage freight 
forwarders to police exports; and some kind of sanctions to 
encourage America's allies to take export controls more 
seriously. The Cox Committee also proposes stiffer penalties for 
companies that don't abide by controls. 
	     It's doubtful that any such recommendations will make it 
into the law books, at least by the conventional route. Reviving 
the act is not, as of now, on the radar screen for the House. The 
White House is not pushing hard for a rewrite. And, one high-tech 
executive said, ''industry is afraid that any bill will just get 
freighted up with a lot of Cold War stuff.'' 
	     Still, given the slippery ways of Capitol Hill, some of 
Cox's recommendations may slip through. Congress can always do 
what it did with satellite controls: Write China- and technology- 
specific amendments, based on the Cox findings, bind them up with 
all sorts of procedural requirements, and attach them to a must- 
pass appropriations bill. 
	     In the long run, the Cox Committee and those pushing for 
less-restrictive controls agree on one thing: Effective policing 
of high-technology shipments requires closer international 
cooperation among manufacturers. But that is easier said than 
done. 
	     Unlike the defunct COCOM, which gave each member nation a 
veto over others' sales of sensitive technologies, the Wassenaar 
Arrangement leaves export decisions to national discretion. 
Countries are not supposed to sell sensitive technologies that 
other Wassenaar members have declined to export, but this ''no- 
undercut'' agreement has not worked well in practice. 
	     With an eye on the current, year-long Wassenaar review 
being conducted by its members, the Cox Committee calls both for 
new binding international controls on all technology transfers 
that threaten peace and for legislation that requires the 
executive branch to encourage other computer-making countries to 
adopt U.S.-style policies toward exports of high-performance 
computers to China. In addition, the Administration is pushing 
for prior notification of exports. But European members of 
Wassenaar steadfastly refuse to regard China as a security 
threat. So, if the Cox proposals are meant to be more than mere 
exhortation, they raise the specter of an eventual, nasty 
confrontation with Europe. 
	     In the end, despite the connection between Chinese 
espionage and loose export controls drawn by the Cox ?ommittee, 
''You can have a very tough anti-espionage plan without 
tightening export-control policy,'' said Paul Freedenberg, former 
Commerce undersecretary for export administration in the Reagan 
Administration. Given the extent of the well-documented Chinese 
espionage and the widespread belief that China will use 
commercially available American technology to build weaponry, it 
may be difficult, if not impossible, for Congress to maintain 
that distinction.