[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]
HEARING ON A NEW ACT FOR A NEW WORLD ORDER: REASSESSING THE EXPORT
ADMINISTRATION ACT
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
INTERNATIONAL ECONOMIC POLICY AND TRADE
OF THE
COMMITTEE ON
INTERNATIONAL RELATIONS
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
FIRST SESSION
ON
__________
MARCH 3, 1999
__________
Serial No. 106-49
__________
Printed for the use of the Committee on International Relations
U.S. GOVERNMENT PRINTING OFFICE
60-295 CC WASHINGTON : 2000
COMMITTEE ON INTERNATIONAL RELATIONS
BENJAMIN A. GILMAN, New York, Chairman
WILLIAM F. GOODLING, Pennsylvania SAM GEJDENSON, Connecticut
JAMES A. LEACH, Iowa TOM LANTOS, California
HENRY J. HYDE, Illinois HOWARD L. BERMAN, California
DOUG BEREUTER, Nebraska GARY L. ACKERMAN, New York
CHRISTOPHER H. SMITH, New Jersey ENI F.H. FALEOMAVAEGA, American
DAN BURTON, Indiana Samoa
ELTON GALLEGLY, California MATTHEW G. MARTINEZ, California
ILEANA ROS-LEHTINEN, Florida DONALD M. PAYNE, New Jersey
CASS BALLENGER, North Carolina ROBERT MENENDEZ, New Jersey
DANA ROHRABACHER, California SHERROD BROWN, Ohio
DONALD A. MANZULLO, Illinois CYNTHIA A. McKINNEY, Georgia
EDWARD R. ROYCE, California ALCEE L. HASTINGS, Florida
PETER T. KING, New York PAT DANNER, Missouri
STEVEN J. CHABOT, Ohio EARL F. HILLIARD, Alabama
MARSHALL ``MARK'' SANFORD, South BRAD SHERMAN, California
Carolina ROBERT WEXLER, Florida
MATT SALMON, Arizona STEVEN R. ROTHMAN, New Jersey
AMO HOUGHTON, New York JIM DAVIS, Florida
TOM CAMPBELL, California EARL POMEROY, North Dakota
JOHN M. McHUGH, New York WILLIAM D. DELAHUNT, Massachusetts
KEVIN BRADY, Texas GREGORY W. MEEKS, New York
RICHARD BURR, North Carolina BARBARA LEE, California
PAUL E. GILLMOR, Ohio JOSEPH CROWLEY, New York
GEORGE RADANOVICH, California JOSEPH M. HOEFFEL, Pennsylvania
JOHN COOKSEY, Louisiana
THOMAS G. TANCREDO, Colorado
Richard J. Garon, Chief of Staff
Kathleen Bertelsen Moazed, Democratic Chief of Staff
------
Subcommittee on International Economic Policy and Trade
ILEANA ROS-LEHTINEN, Florida, Chairperson
DONALD A. MANZULLO, Illinois ROBERT MENENDEZ, New Jersey
STEVEN J. CHABOT, Ohio PAT DANNER, Missouri
KEVIN BRADY, Texas EARL F. HILLIARD, Alabama
GEORGE RADANOVICH, California BRAD SHERMAN, California
JOHN COOKSEY, Louisiana STEVEN R. ROTHMAN, New Jersey
DOUG BEREUTER, Nebraska WILLIAM D. DELAHUNT, Massachusetts
DANA ROHRABACHER, California JOSEPH CROWLEY, New York
TOM CAMPBELL, California JOSEPH M. HOEFFEL, Pennsylvania
RICHARD BURR, North Carolina
Mauricio Tamargo, Subcommittee Staff Director
Jodi Christiansen, Democratic Professional Staff Member
Yleem Poblete, Professional Staff Member
Camila Ruiz, Staff Associate
C O N T E N T S
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WITNESSES
Page
Hon. Ileana Ros-Lehtinen, a U.S. Representative from the State of
Florida, Chairperson, Subcommittee on International Economic
Policy and Trade............................................... 6
Hon. Christopher Cox, a U.S. Representative from the State of
California..................................................... 6
Hon. Norman D. Dicks, a U.S. Representative from the State of
Washington..................................................... 9
Mr. William Reinsch, Undersecretary of Commerce, Bureau of Export
Administration................................................. 28
Mr. Richard Hoglund, Assistant Commissioner for Investigations,
U.S. Customs Service........................................... 32
Hon. Toby Roth, Former Member of Congress, President, The Roth
Group.......................................................... 39
Mr. Dave McCurdy, Former Member of Congress, President,
Electronic Industries Alliance................................. 41
Mr. Joel Johnson, Vice President, International Division,
Aerospace Industries Association............................... 43
Dr. Paul Freedenberg, Director of Government Relations, The
Association for Manufacturing Technology....................... 45
APPENDIX
Prepared statements:
William A. Reinsch............................................... 62
Richard J. Hoglund............................................... 67
Toby Roth........................................................ 74
Dave McCurdy..................................................... 82
Joel Johnson..................................................... 94
Dr. Paul Freedenberg............................................. 100
HEARING ON A NEW ACT FOR A NEW WORLD ORDER: REASSESSING THE EXPORT
ADMINISTRATION ACT
----------
Wednesday, March 3, 1999
House of Representatives
Subcommittee on International Economic Policy and
Trade
Committee on International Relations
Washington, D.C.
The Subcommittee met, pursuant to call, at 2:33 p.m., in
room 2237, Rayburn House Office Building, Washington, D.C., the
Honorable Ileana Ros-Lehtinen (Chairperson of the Committee)
presiding.
Present: Representatives Ros-Lehtinen, Manzullo, Chabot,
Rohrabacher, Burr, Menendez, Sherman, Delahunt, and Hoeffel.
Ms. Ros-Lehtinen. The Subcommittee will come to order.
The exports of dual-use commodities have been and continue
to be of critical concern to the national security interests of
the United States. In light of recent developments related to
the transfer of satellites and possible missile-related
technology to China, apprehensions have mounted about the
possibility of U.S. exports contributing to the military
potential of pariah states and what role the Export
Administration Act plays in this scenario.
Initially, at the onset of the cold war, concerns over the
transfer of superior technology to governments, factions or
individuals may have threatened the collective interests of the
United States and its trading partners and it led to the
development of unilateral and multilateral export controls to
ensure that dual-use technologies with potential military
applications did not fall into the wrong hands.
The Export Administration Act of 1979, based on legislation
drafted at the onset of the cold war in 1949, had, as part of
its original purpose, the tasks of restricting the export of
technology and dual-use items, of guarding the domestic economy
from scarcity and inflation, of furthering U.S. foreign policy
and of protecting U.S. National Security.
This was achieved through a somewhat complex licensing
system that allowed the United States to monitor proliferation
and the movement of goods into the Soviet bloc nations.
Since 1990, when the Act expired, there have been several
attempts made at rewriting the Export Administration Act of
1979. These efforts to develop legislation to meet the needs of
a rapidly developing marketplace and of a new world order have
failed to pass through both houses of Congress.
Since then, the Act has been maintained through a series of
Executive orders issued through the International Emergency
Economic Powers Act. In a post-cold war era, many have argued
that there is a need to find a new approach to export controls
that deal with today's political realities and increasingly
globalized marketplaces, one which shifts the focus from the
previous Soviet threat to the existing menace of terrorism and
proliferation of weapons of mass destruction and one which
balances the foreign policy benefits and the economic costs.
While there is debate over whether there can be coexistence
between industry interests and their desire to enhance export
competitiveness and national security priorities are promoting
effective and non-proliferation policy, lawmakers must look at
a way to try to reconcile both goals.
The dilemma we face is how to restrict the spread of
potentially destructive technologies, while preserving the
ability of U.S. technology exporters to develop their civilian
technology markets.
There are those who stress the benefits of export controls
and who argue that the economic sacrifices, including reduced
exports, are worth the price of ensuring U.S. National Security
and that exporters are paying the burden of doing business with
possibly dangerous commodities.
Others suggest that new or modified unilateral export
control must withstand a cost-benefit analysis, whether the
costs of the proposed control on American industries and our
economic competitiveness exceed the value to the foreign policy
or national security priorities.
Critics of current U.S. export control laws say that the
current policies promote interagency grid lock, causing
conflicts between the various responsible licensing
administrations and their enforcement goals, and that the
solution to a more effective export control mechanism lies in
streamlining the process and concentrating regulatory authority
in fewer agencies.
Still there are those who claim that providing greater
transparency on U.S. export control laws while maintaining
tighter restrictions on export to terrorist nations would be a
more effective approach to bring export control laws up to par
with today's current global realities.
Opponents of stricter expert controls have pointed to the
foreign availability of many of these dual-use items and claim
that some export controls hurt America's competitiveness,
because, in effect, we are unnecessarily limiting our access to
certain foreign markets and allowing our competitors to
benefit.
Others yet point to what they call a lack of effective
unilateral controls. Those who criticize unilateral controls
claim that they are ineffective and that only multilateral
controls, such as missile technology control regime or other
acts where allied countries to seek to coordinate export
controls are actually the effective tools in non-proliferation.
Supporters of unilateral export controls, however, argue
that the United States cannot risk our security interests as we
wait for our allies to decide whether or not to place similar
controls on their export markets.
Former President George Bush, in outlining the importance
in developing a new Export Administration Act, spoke about some
of the key considerations we should look at when drafting new
legislation. He said American exporters are entitled to prompt
review of export license applications submitted to the U.S.
Government based on our commitment to an open International
Trading System and the need to ensure America's
competitiveness.
While he also emphasized that these changes did not signal
a lessening of our determination to weigh cautiously the
licensing applications, raising potential non-proliferation or
broader national security concerns.
This is the challenge that we face today while considering
the future of export control structure of the Administration
and the reauthorization of the EAA. We must carefully evaluate
the arguments and counter-arguments to find a solution that,
first and foremost, safeguards our U.S. National Security and
promotes our foreign policy objectives, yet also addresses
market demands and incorporates U.S. trade and commercial
concerns.
We look forward to the testimony and the recommendations of
our very esteemed witnesses that they will offer us today as we
begin the reauthorization process.
With that, I would like to turn to my colleague,
Congressman Menendez.
Mr. Menendez. Thank you, Madam Chairlady. I look forward to
today's hearing. I have a full statement for the record, which,
in the interest of time, I would ask to submit. But I do want
to make some prefatory comments that as we embark on what I
hope will be a successful conclusion which will ultimately
conclude in having an Export Administration Act passed through
this House and the Senate and get signed by the President.
I think that the Congress has acceded authority to the
executive branch by not acting and in doing so, under the
Constitution, which clearly gave the Congress the authority to
deal with questions of commerce that are not acting, has
created an abdication of what is, I think, an incredibly
important interest that the Congress should be pursuing and an
incredibly important right under the Constitution that the
Congress should be exercising.
I'm also concerned, as any one of us who sits on this panel
or in this Congress are, about the concerns of national
security, as well as economic development and opportunity, that
in an ever-changing world, in an ever-changing economic reality
of the United States needs to have, and the balance that is
struck there is, of course, of incredible importance to us.
However, I hope that we do not, by virtue of our concerns,
our legitimate concerns in the context of national security, do
not move the pendulum so far as to snuff out the very economic
vitality of those commercial enterprises that, in fact, in my
mind, assist America in being safer.
Ultimately, the companies that are, in fact, doing the
research and development that the United States, as a
government, is not doing is, in fact, crucial to the type of
competitive advantage that the United States has had in
technology against any other ally or any other potential enemy
of the United States, and it is that competitive edge that is
ultimately fueled not necessarily by Government research, but
by the research and development of the very private sector who
falls within the am bit of the Act and ultimately who, if we go
overboard on, we will, in essence, hurt ourselves in the
context of national security.
So therefore, it's part of our dilemma. I think that there
are issues that we can all universally agree upon up front and
they include, of course, the questions of penalties. On the
side of penalties, we have a regime presently operating under
Executive order that I think gives very little teeth to the
type of enforcement that we would want to see, as well as a
regime that we're working under that ultimately creates, I
think, a very significant problem for the enforcement, the
intelligent enforcement of our law, and that spreads us so thin
in pursuing avenues under the present regulations that do not
create a meaningful enforcement regime that can really serve
the national interests and the national security interests of
the United States.
Having said that, I want to thank you colleague Norm Dicks
Chris Cox for their work in making sure that the national
security questions which are vital to all of us have been
looked at deeply. I look forward to their testimony.
I do intend to have some questions for them based upon some
of the recommendations I've seen and how we can work together
to strike that balance that protects the national security of
the United States, but that understands that the commercial
enterprises that are subject to this regime ultimately, also
are part not only of economic vitality, but of helping the
national security of the United States be further secure in the
days ahead.
Ms. Ros-Lehtinen. Thank you, Mr. Menendez. The Vice Chair
of our Subcommittee, Mr. Manzullo.
Mr. Manzullo. Thank you very much. Madam Chair, I commend
you for holding this hearing today, and I can't think of an
issue that is more critical to the economic vitality of this
nation than the reauthorization of the Export Administration
Act.
Bottom line is this. Unless we do something, it's very
conceivable that 13 of our largest computer manufacturers will
be manufacturing not in the United States next year, but in
Europe and Asia.
Because of the vision that was put in the Defense
Authorization bill that requires a license for computers that
have 2,000 MTOPS and above, we are in the process in the
country of sending hundreds of thousands of high-paying jobs
overseas.
Second, we have to come to an understanding that computers,
that satellites, that machine tools, that electronic equipment
is sophisticated, but it's not unique. If we don't sell it,
then the French or the Swiss, the Fins, the Radians, the
Germans, or the Japanese or the Canadians will do it.
If we do not do this bill correctly, it's close-up time for
hundreds of thousands of jobs in this country. This is so
absolutely totally critical. We have to take a look at what it
means to have something called foreign availability.
Does it do any good for this country to deny the sale of a
machine of several million dollars based upon some foreign
policy objective, then to have the French move right in and
sell the very same machine to the people who want to buy it? It
does two things. The up-front injury is obviously apparent,
because we lose the sale of that machine. The second thing is
it paints the American manufacturers as inherently unreliable
suppliers.
Third, on top of the problems with the EAA, we fight
continually with the Export/Import Bank that tries to pride
itself upon some type of cloak of humane justice, at the same
time while not allowing firms such as Caterpillar to get Ex/Im
loans to the three gorgeous dam projects. Our own American
Government ends up having the Chinese buy those machines from
Japan as opposed to the United States.
We are our own worst enemy when it comes to export policy.
We can have an aggressive and victorious and profitable export
policy and, at the same time, guard very carefully our national
security interests.
Madam Chair, I look forward to working with you on coming
up with a bill aimed toward that effect.
Ms. Ros-Lehtinen. Thank you, Mr. Manzullo. Mr. Hoeffel.
Mr. Hoeffel. I have no comment. Thank you.
Ms. Ros-Lehtinen. Thank you. Mr. Chabot. Mr. Delahunt.
Mr. Delahunt. Just briefly. Before we begin, I really want
to publicly state what I've said to both Mr. Dicks and Mr. Cox
privately, that I was--it was very refreshing, during the
course of your efforts, which I know were considerable, that
the issue did not become politicized as a result of the work
that you did, that there were no leaks.
I would say, given my short time here in this institution,
it was unusual, but it reflected well on both of you and you
brought great credit to Congress as an institution by your
conduct and other Members of the Select Committee.
I just wanted to say that, and one other item. Tomorrow,
listening to my colleagues on the Subcommittee, in the same
room, this happens to be a Subcommittee room usually utilized
by the Intellectual Property Subcommittee of the Judiciary,
that Subcommittee I also serve on, and we'll be dealing with
the issue of encryption.
That, I think, last year, had in excess of 250 co-sponsors;
co-sponsored, again, in a bipartisan way between the lead co-
sponsors being Representative Goodlatte and Representative
Lofgren.
I think really what we're talking about is whether Mr.
Manzullo very accurately and articulately described as this
need to, at some point in time, resolve this anguish we have,
and I know it's a difficult balance between our security
concerns and our need to be competitive internationally. And I
dare say that when we pick up the barons on a monthly basis and
discover that our trade imbalance is ever increasing, that we
have to keep that in mind, because the one account where we
have the advantages in the high tech area--and I just want to
make that observation without reaching any conclusions.
But, again, to both of you, congratulations on the work
that you did.
STATEMENT OF THE HONORABLE ILEANA ROS-LEHTINEN, A U.S.
REPRESENTATIVE OF CONGRESS FROM THE STATE OF FLORIDA, CHAIRMAN
OF THE SUBCOMMITTEE ON INTERNATIONAL ECONOMIC POLICY AND TRADE
Ms. Ros-Lehtinen. Thank you so much. We're so pleased to
have before our Subcommittee two of our colleagues.
Representative Chris Cox is the highest Ranking Californian in
Congress. He's Chairman of the House Policy Committee and the
fourth Ranking Member of the leadership, behind the Speaker. He
currently serves as Chairman of the Select Committee on U.S.
National Security and Military Commercial Concerns with the
People's Republic of China, as well as on the Committee on
Commerce and its various Subcommittees.
Before he was elected to Congress in 1988, he served as
Senior Associate Counsel to President Reagan, advising the
President on a broad range of policy matters, and prior to his
White House career, Congressman Cox, along with his father, a
retired publisher, founded a company that provided a complete
English translation of the former Soviet Union's leading daily
paper.
From 1978 to 1986, he specialized in Venture Capital and
Corporate Finance with the International Law Firm of Latham &
Watkins, where he was a partner in charge of corporate
development and a member of the firm's national management.
Representative Norm Dicks is a former Vice Chair of the
Select Committee of the U.S. National Security and Military
Commercial Concerns with the People's Republic of China. He
received a rare first-term appointment to the House
Appropriations Committee and currently serves as a Senior
Member.
He is a Member of three Appropriations Subcommittees,
including Defense Military Construction and the Subcommittee on
the Interior, where, this Congress, he became the Ranking
Democratic Member.
Prior to his successful run for Congress in 1976,
Congressman Dicks was a legislative assistant and later AA to
Senator Warren Magnuson.
We welcome you both. Thank you. Chris, you may begin.
STATEMENT OF THE HONORABLE CHRISTOPHER COX, A U.S.
REPRESENTATIVE OF CONGRESS FROM THE STATE OF CALIFORNIA
Mr. Cox. Thank you very much. I certainly feel very welcome
here and I want to first thank the Chairperson for her
introduction and, also, immediately recognize that Mr. Manzullo
has put the potato on the fork for us. That is the issue that
we've got to deal with today.
I deal with it, as Mr. Delahunt does, in part, by having
signed on as original co-sponsor of the bill that you're going
to consider in here tomorrow on encryption. Nothing that I have
seen as Chairman of the Select Committee, which completed its
work prior to the commencement of this Congress, caused me to
be anything other than enthusiastic for that piece of
legislation.
The Select Committee, as you know, was established a
resolution that you all voted on the floor last June. It was a
nearly unanimous vote in support of investigating matters that
had been brought publicly to the attention of the Congress.
Mr. Bereuter, who is not here, but is a Member of this
Subcommittee, as well as the Full Committee did a splendid job
serving as one of the Members on this Committee.
As Mr. Delahunt pointed out, our report was unanimously
delivered. Norm and I don't agree on everything. We didn't
during the pendency of our Committee. The same could be said
for every single Member on the Republican and Democrat sides.
We have intramural, as well as interpartisan disagreements. But
we agreed on everything in our report and all of its
recommendations and we did so because the facts that we
uncovered in our investigation are compelling and they carry
grave consequences.
The Export Administration Act figured in our
recommendations. The Act, as several of you have outlined in
your opening statements, long since expired. It's been carried
on after some brief extensions in 1993 and 1994, under the
President's Executive order authority, pursuant to IEEPA.
The penalties, as you have also alluded to, under IEEPA,
are significantly less than those that were enforced when we
had an Act and that would be enforced if we simply reauthorized
the Act.
I'm used to playing with accompaniment.
The Export Administration Act carries a maximum criminal
penalty for an individual of $250,000 and up to 10 years in
prison. But under IEEPA, the maximum penalty is just one-fifth
of that, $50,000. The maximum criminal fine for an
organizational violator, and typically we're dealing with firms
that are involved in these things, is the greater of $1 million
or five times the value of the export, under the Export
Administration Act; not treble, but quintuple damages. But
under IEEPA, the maximum fine is only half of that $1 million
base or $500,000 for an organization and there is no quintuple,
treble or any other multiple of an export fine.
The civil penalties, likewise, $100,000 under the Export
Administration Act, but the maximum of $11,000 under IEEPA, and
you can imagine how silly it is to have an $11,000 penalty for
something that requires Federal prosecution even to bring to
the penalty phase.
So we on the Committee recommended what came rather clearly
and obviously to all of us, and that is that Congress ought to
restore the Act and its penalties, because, as Mr. Menendez
pointed out in his opening remarks, to a substantial degree,
our enforcement is rendered toothless.
Licensing procedures are governed by Executive order,
dating back to 1995. The established time lines for processing
export license applications and reviewing departments and
agencies and procedures, resolving differences among the
agencies regarding the disposition of license applications, are
all covered by EO-12981.
Presently, under that regulation, the Defense Department
has only 30 days to provide a recommendation to Commerce, not
the Committee, but the department, to approve or disapprove
every license application, no matter how complex. And I can
tell you that right now we are disserving both the national
security interest and our commercial interest by overloading
that system. It doesn't work and it is very, very easy to
imagine ways to improve upon it.
The Select Committee recommends that the current licensing
procedures be modified to provide longer review periods, when
deemed necessary by a reviewing department or agency on
national security grounds, in light of the volume and
complexity of licensing activities.
Presently, when departments and agencies are not in
agreement regarding a license application, the Commerce
Department makes the final decision on every license, subject
only to appeal by other departments or agencies.
The Select Committee recommends approval of a license
application that requires a consensus by reviewing departments
and agencies, subject to appeal procedures.
The new procedures and deadlines for processing Commerce
Department Export License Applications were instituted in late
1995. They place National Security Agencies under significant
time pressures. Commerce officials acting alone are less likely
to have the expertise for identifying national security
implications of export of militarily useful technologies.
While National Security Agencies may be informed of
applications, due time is needed for their consideration. The
time-frame for consideration under the current system is not
always sufficient for DOD to determine whether a license should
be granted or if conditions should be imposed.
In addition, the intelligence community has sought a role
earlier in the licensing process in order to evaluate the
technology and the end user.
The Select Committee recommended that Congress and all of
you here in this Subcommittee work to establish a mechanism to
identify on a continuing basis those control technologies and
items that are of greatest national security concern. With
respect to those technologies and items, it is our
recommendation that there be longer review periods and a
consensus.
But with respect to other currently controlled technologies
and items that are not of greatest national security concern,
currently licensing procedures should be modified to streamline
the process and provide greater transparency, predictability
and certainty.
There has been some public comment, press comment and
television comment on the recommendations of the Select
Committee. I hasten to add that the Select Committee has not
issued its recommendations and what is out there is only part
of the picture.
In particular, several of our recommendations, bearing
directly on what you are considering, are more fully and
understandably described in our report, which presently remains
classified. Even more importantly, the basis, the reasons for
those recommendations remain classified, and so it's impossible
to have a dialogue or a discussion of, on the one hand and on
the other hand, about these things, so long as that
classification remains in place.
Tomorrow, Representative Dicks and I will brief your Full
Committee in a closed session so that we can go into those
reasons, but for today, of course, we are in open session and
so we are left with only the highest gloss on our work.
But we very much appreciate the time to introduce you to
our thinking on the subject. I would yield to the distinguished
Ranking Member on the Select Committee, Mr. Dicks, with respect
to whom I have the very same high praise that Mr. Delahunt
shared with us a moment ago.
STATEMENT OF HONORABLE NORMAN D. DICKS, A U.S. REPRESENTATIVE
OF CONGRESS FROM THE STATE OF WASHINGTON
Mr. Dicks. Thank you, Madam Chairperson. I appreciate being
here today and I have enjoyed very much working with Chris Cox
on this important subject and I was pleased that we were able
to come to a unanimous conclusion.
Obviously, there are differences of opinion on certain of
these issues, but we tried to work it out in a way that, in the
midst of the impeachment proceedings, to try and demonstrate
that Congress could work on a serious issue without necessarily
breaking along partisan lines, though we certainly had our
differences.
I would just say that I come from Washington State and
there is no state in the country--we lead the Nation in export
because of the Boeing Company and I have always been a person
who has believed that we needed to have a policy of engagement
and that we needed to trade with the rest of the world, and my
record in Congress has been that.
On the other hand, I would just say to my good friend Mr.
Delahunt that there are differences of opinion on the issue of
encryption. Washington State also is the home of Microsoft, a
very important company in our State and they have a very
definite view on that.
The Intelligence Committee, last year, on a unanimous vote,
all 17 Members, took a position very different from the
Goodlatte legislation on the basis of law enforcement equities,
particularly those of the FBI, and Mr. Louie Freeh has very
strong views about this and I would encourage, in your
deliberations here, that you listen to what he has to say, as
well, because there are very important national security and
foreign policy reasons for looking at this thing carefully and
trying to get the rest of the world to look at this issue
carefully.
But that's not what we're here about today. I just wanted
to make a very brief statement. I appreciate the opportunity to
appear with the Chairman in support of reauthorization of the
Export Administration Act.
As Mr. Cox has indicated, the Select China Committee felt
strongly that continuing to implement export control through
the emergency authorities, which have been in place since 1994,
was unwise. Chairman Cox noted that the penalty authorities,
both civil and criminal, under the International Emergency
Economic Power Act, IEEPA, were substantially lower than under
the Export Administration Act of 1979.
Even if it were possible simply to reinstate the EAA
penalty levels, sufficient correction would not result since
the effect of those levels has been seriously eroded by two
decades of inflation.
If penalties are to be of assistance in conforming
behavior, they must be meaningful. Currently, deterrence is not
enhanced by the available penalty authorities. I understand
that there are authorities other than those related to
penalties which are either restricted or susceptible to being
questioned under the existing export control framework.
Resolving those matters is important, but perhaps not as
important as having an Export Administration Act
reauthorization serve as the basis for a serious debate within
Congress and between Congress and the executive branch about
export control policy.
Much has changed certainly since 1979, but even since 1996,
when the House last voted on export control issues, I think we
need to carefully consider how to balance best national
security concerns, particularly on dual-use items, with the
legitimate concerns of U.S. businesses seeking to sell their
products overseas.
I must say that our Committee struggled with this, too,
because I think all of our Members are very concerned about
allowing the United States to export around the world. At the
same time, we want to be very careful that sensitive
technologies not be inadvertently turned over to potential
adversaries, especially with the problem of proliferation, in
that some countries get these technologies and then they go on
to other countries which could be even more dangerous.
So we think this is a very important issue. It's one that
we struggled with and debated, but I thought that the
recommendations that we made were pretty solid and I would hope
that, as we get this thing declassified and we can share more
of this information with you, you will see the basis for the
recommendations that we did make.
On the subject of high speed computers, we know that's a
very sensitive issue. We know that that's very important to our
country, as well. There were some reasons why we did what we
did, that we simply can't talk about in this particular forum
because of classification levels. But at some future point, we
want to engage everyone, so that you can have the best
information and you can see what we developed and then draw
your own conclusions.
Thank you very much.
Ms. Ros-Lehtinen. Thank you so much to both of you
gentlemen. I just have two questions and if you could stick
around for a few minutes while the Members ask, and we
understand the classified nature of your report. So whatever
you could answer would be great.
Your report includes recommendations for current licensing
procedures and you talked about it in your presentation to be
modified in order to provide longer review periods when deemed
necessary for controlled technologies and for items of greatest
national security.
What specific recommendations would you offer? What items
would you consider to be in that category of greater national
security concern and do you believe that any reviewing agency
should be able to ask for a longer review period or should it
be limited to a specific longer review period, and what happens
if what you talked about, Chris, about consensus, if it cannot
be achieved, as is so often the case in the governmental
infrastructure, what would happen?
Mr. Cox. Well, Madam Chairman, our approach would do two
things. First, it would attempt to separate out those items
that we know are the subject of espionage, that are the subject
of collection, that are the focus of military acquisition by
countries of concern and countries with proliferation records,
from our standpoint.
The second thing that it would do is take that core, which
is a subset of what presently now is controlled, and
essentially go back to the system of a few years ago, where not
just the Commerce Department, but also the State Department and
the Defense Department, and I would, for a variety of purposes,
which to include somehow in that mechanism the Intelligence
community, have not just a heads-up, but an opportunity to be
involved in a meaningful way.
We have said two things. First, we want longer review times
for those essential things and, second, we want a fast track
for many other things. We're in many ways, in many respects,
always trying to fight the last war, and the same can be said
about the way that we run our exports.
But as I said in my opening comments, the present system is
the worst of both worlds. It is woefully inadequate when it
comes to protecting our national security. It is woefully
inadequate when it comes to giving us a competitive edge vis-a-
vis our trading partners, because the process chews up time and
all of that time and paperwork doesn't result normally in the
kind of quality review that it should.
So we need to decide what we really care about, put more
resources there, and focus attention on our real national
security concerns.
Ms. Ros-Lehtinen. Thank you. Norm?
Mr. Dicks. Basically, what we tried to say was that there
ought to be a way to make a judgment here about which of these
items are of the most concern, take a little more time on
those, and the ones that are of less concern, then you could
have an expedited procedure.
Now, we left that up, frankly, to the Administration to
decide at what point you'd make that cutoff.
The other thing is, I think a thorough review of the timing
process here and whether agencies can stop the clock, how
that's done, those are the kind of things that we think are
necessary.
We also think that there ought to be consensus on issues
that are sensitive on national security grounds rather than
allowing for a majority vote process which, as we understood
it, currently exists. So those are just a few of the things
that we felt. But we also felt that in areas that were less
sensitive, we ought to have an expedited procedure.
We don't want to hold up industry here, but we want to be
careful, because there was some indication that there were
times when, a little more time, we might have ascertained that
we had a problem and that the agencies felt, the Defense
Department and the State Department felt rushed on some of
their judgments about certain sensitive technologies.
Ms. Ros-Lehtinen. In order to meet those----
Mr. Dicks. To meet time lines.
Ms. Ros-Lehtinen. One more question. Should reauthorization
of the EAA wait for the results of the investigation by various
agencies into the adequacy of current export controls that
would protect against the acquisition of militarily sensitive
U.S. technology by the PRC or by other countries and how would
an EAA protect against the foreign acquisition of such
sensitive technology by other countries?
Mr. Cox. Well, our investigation is, in fact, complete. Our
existence presently is solely for the purpose of working out
with the Administration a declassified version of our report,
but our staff, which once numbered 45, is now to about a half
dozen now and we are working only on making the report
available in public form.
And so for Members and for the Congress, it is possible now
to see the results of our report and to see our
recommendations. The EAA, therefore, should not await any
further proceedings from this Committee, but perhaps there is
other information that you'd wish to have before you proceeded
in the Subcommittee.
I would also say, in answer to the second part of your
question, that reauthorization of the Export Administration Act
gives us an opportunity to protect the national security and to
enhance our export position and our competitive position in the
world, because it will, by definition, if we do a good job of
it, be a modernization. And the Act, in addition to bringing
penalties up to date, needs some modernization, as we indicated
in our recommendations.
I stated, rather elliptically, that the Intelligence
community wishes to be brought in earlier and that we think the
Intelligence community ought to be brought in earlier, but we
did not recommend that the Intelligence community be one of the
reviewing agencies, the consensus of which is required. Rather,
we made a separate recommendation in our report that within the
executive branch, the Intelligence community share information
with those people who have responsibility for export
Administration.
We found not just evidence, but serious problems because
information about theft of our technology was not shared, for
example, with the Secretary of Commerce or the entire
Department of Commerce that's responsible for administering our
export regime. That simply cannot stand.
Ms. Ros-Lehtinen. Thank you, Chris.
Mr. Dicks. I support the Chairman's comments here. I don't
think there is any reason to hold up. Frankly, I think the fact
that we didn't have an Export Administration Act may have sent
the wrong signal to the business community.
Part of the problem here, frankly, is that there were some
mistakes made by major companies in terms of the licensing
process and those things are being investigated by the
executive branch.
There was kind of an attitude that we're going to relax the
rules a bit here and that's when we get in trouble. When the
private sector, if they know what the rules are and know that
the government is going to enforce those rules, then I think
they'll abide by them and respect them. And in this case, there
is evidence that there were problems there.
So I think quite the contrary. I think getting on with
this, get this thing done, sends a very powerful message that
we're serious about this subject matter and we want them to be.
Ms. Ros-Lehtinen. Thank you so much. Mr. Menendez.
Mr. Menendez. Thank you. Let me just--I want to pursue just
one line of questioning which I think is within the public
purview, and that is on your recommendation of having a--
requiring a consensus for the agencies in the license approval.
Now, some people have characterized this, including the
Administration, as suggesting a return to the old system which
resulted in licenses sometimes just being vetoed without
adequate cause; in short, a system in which everyone could say
no, but no one could say yes, and a process which did not serve
the dual interests that we've all talked about here today.
Can you give us a sense of why you think that that
recommendation versus the Administration's current default to
decision process is a wiser one and where, my understanding is,
under the present process, dissenting agencies can raise their
objections all the way up to the President.
My concern is that we can have a situation here in which
there is a virtual one agency veto in this process and I'm not
quite sure of the appeal process you all laid out, to the
extent that there is one.
I'm wondering, is there any case in which an agency's
concerns were not adequately considered through the current
process.
Mr. Cox. Well, the answer to the last question is easy. The
answer is yes. There are a number of examples of mistakes being
made and it isn't so much a case of the formal process not
being observed. Rather, it is the cumbersome nature of the
current or the post-1995 process in which there was a
theoretical appeal to the President, but in which, frankly,
trains left the station and national security was not looked
after.
I said earlier and I want to reemphasize that this system
shortchanges both national security and our commercial
interests. It is hurtful to both of them. The notion is that if
we let Commerce be the final say on these things, that we will
vindicate our commercial interests, but in truth, we haven't
done that. In truth, there have been delays. In truth, there
has been a lot of paperwork. In truth, a lot of focus has been
placed where it ought not to have been placed and things that
ought to have been looked at after were not looked after.
So we can say that while there is an attempt made to
resolve the different interests by placing one or another
agency in charge, in this case, Commerce, that we have caused
some rough justice, but rough justice ought not to be what
we're after here.
The law of averages isn't good enough. If sensitive
technology is exported, it doesn't take but a few times for
that to come back and bite you. You want to make sure you're
looking where you're supposed to be looking.
So I think we can do a much better job than presently we do
and I don't think there is any question that you don't resolve
these issues by saying that Commerce is going to be king or
national security is going to be king. That's not the way to go
about it.
Mr. Menendez. And that's not my sense of it. My sense of it
is that through a process in which any agency--in my
understanding, there is no agency that has ever sought an
appeal up to the President. So I'm not quite sure how it is
that it didn't work if people had an appealable process. But my
concern----
Mr. Cox. That's precisely my point. That point was made
many times in----
Mr. Menendez. My concern is, how is it that--you know, we
can all sit in a room and we can be locked in and at the end of
the day, one of us may just simply not agree, and how do we go
beyond that. I mean, that's my concern.
I understand we want safeguards, but I'm just concerned
this is overly broad.
Mr. Dicks. As you can imagine, trying to do all this in 6
months, we had to be kind of instant experts in some areas and
I would characterize this as one of them.
In fact, I think on this question, this is something your
Committee should take a very careful look at. We've raised the
issue for you. I think you need to look at this and work out a
process that you think protects national security and, at the
same time, allows these decisions to be made.
I do believe we have an appeal process that would raise
this to a higher level of authority if there wasn't a
consensus. So the lack of consensus wouldn't mean you wouldn't
get a decision. It would just have to go up to a higher
authority, which, under the present procedure, would have--the
same--the difference was that, as we understood it, there was a
requirement for a majority vote.
We felt that if the Defense Department or State Department
were outvoted, here you've got the national security issue not
being maybe given the credence.
Now, they obviously could have raised it in an appeal to a
higher level. But I guess my urging here today would be take a
real careful look at this area. This is one that needs
attention and when you have more time than we did, I think you,
frankly, can do a better job.
Mr. Menendez. Thank you.
Mr. Cox. One final point, if I may. As I said earlier, the
other agencies, the National Security Agencies, under that
system introduced in late 1995, were pressured for time. So
while there is a theoretical appeal, there isn't necessarily
preparation for that appeal.
If we have a lot of time to look at everything in a fulsome
way, we're probably looking at too many things, by the way, and
so we want to circumscribe that universe that gets this special
attention.
But we know if we bring to bear the significant
intelligence information that we have, we know that we'd be
wise to spend our time in certain areas as against certain
other areas. And at least in those areas where we face
significant threats, we would like to see some national
security input at the front end and not time-limit it
arbitrarily.
Mr. Menendez. It's interesting how you said it, because in
1996, when the Congress voted on this, both the National
Security Committee and the House International Relations
Committee moved in a different way, which was to shorten the
time periods, not lengthen them.
So I think these are two of part of a very significant
serious----
Mr. Cox. Which we also are recommending. That's a very
important part of our recommendations. We have recommended a
fast track for a significant number of these things.
Ms. Ros-Lehtinen. Thank you so much. Mr. Manzullo.
Mr. Manzullo. Thank you. I read the report and I want to
commend you for the work that you did on it. Let me present to
you a live scenario and see how you would fashion the re-write
of the Export Administration Act to it.
As I said in my opening statement, any computer with MTOPS
in excess of 2,000 to be sold to a tier three country would
have to have a validated export license. The new Pentium chip,
Pentium 3, has 1,200 MTOPS. IBM, the new IBM PC will have two
of those chips. That's two times 1,200, that's 2,400 MTOPS. The
Dell workstation will also have two of these, that's 2,400
MTOPS.
Those two companies supplied the BXA last year for about
300 sales to tier three countries. This next year, it's
estimated that there will be 34,000 applications before BXA in
order to sell these computers.
How do you re-write the Export Administration Act to make
sure that our computers are sold to tier three countries as
opposed to these tier three countries buying the very same
machines, possibly manufactured by our own manufacturers
overseas, because of presence of foreign availability?
Mr. Cox. Two points. First, you would have a remarkably
difficult time writing the Export Administration Act if you had
to include an MTOPS level in the statute. That is not where the
requirement comes from and it has to be adjusted from time to
time because of the pace, rapid pace of development of this
technology.
All that we require from a national security standpoint is
to keep a technological lead in weapons development and
deployment and, second, to make sure that we are not shipping
tools and, for some purposes, computers are tools, that are
used in ways that are otherwise preventable to deploy and
proliferate weapons of mass destruction.
So you're left with the problem. It is a subjective
problem. It's one that probably the Act cannot satisfactorily
address in the statute. It hasn't in the past. But you're also
guided by some general principals and we will be able, as
Representative Dicks mentioned in his opening remarks,
tomorrow, when we go into closed session, talk to you
explicitly about our recommendations in this area and the
reasons for them.
There are some very, very explicit things that you need to
know about.
Mr. Manzullo. Mr. Dicks, did you want to comment on that?
Mr. Dicks. This was one of those areas where there was a
lot of angst and we struggled with this. The problem here is
that at the low end, you're absolutely right. There are all
these other countries that produce these. As I remember the
numbers, it's under 7,000 that can be exported for non-military
purposes.
One of the things that we did feel strongly was that there
has to be some ability to do meaningful end-use verification to
make certain that if they bought these things and said it's
going to the cultural or the academic institute, that these
things don't wind up being used for other non-allowed purposes.
So we understand the difficulty of getting this done. In
fact, the Administration has attempted to try to set up an end
use regime and that's something that you may want to look at as
well here.
I do think there are some questions as you get to the
higher levels where, in fact, you're going to have national
security problems and that's one area where you need to get the
intelligence information.
Mr. Manzullo. The M top levels were written into the
Defense authorization bill. At 2000, we're frozen. We're frozen
with this. This is something--it's not a matter of taking a
look at. I think technology has out paced much of the need for
these types of restrictions. When Cray tried to sell their
super-computer, which is a computer which just does regular
functions at a faster speed, to India, the licensing
requirement took so long, India did reverse technology, made
the computer, canceled the contract and started exporting
elsewhere.
And I don't care if it's with computers or if it's with
communication satellites or if it's with machine tools. This
problem is endemic because I think what we should start with,
re-writing the bill, is with foreign availability, then work
backwards on it.
Mr. Dicks. That's going to be your challenge and you can
take a look back and forth, and good luck.
Mr. Manzullo. Thank you. Thank you, Madam Chairman.
Ms. Ros-Lehtinen. There you go. That's what you get for
putting the potato on the fork. Mr. Delahunt.
Mr. Delahunt. Yes, thank you, Madam Chairman. I want to go
back to the--I had the same question that Mr. Menendez put
forth in terms of the consensus issue. Given the inherent
condition of bureaucracies to require a consensus raises a
level of concern.
It's as if it were a veto, if you will, and raises a level
of concern with me that it would really encumber this process.
To pick up a point made by Mr. Cox, if you brought in--and
I don't know whether, in your opinion, this would obviate the
need for the consensus, but it's my understanding that
historically the intelligence community has never played a role
in this review and process.
And if they were factored in at an earlier point in time,
at the beginning, if that could be the case, I just simply
don't know, would----
Mr. Dicks. On that point, just on that point.
Mr. Delahunt. Sure.
Mr. Dicks. Both the State Department and the Defense
Department have the benefit of intelligence information as they
make their recommendations.
Mr. Delahunt. But I think what Mr. Cox was alluding to was
to have actually representatives from the intelligence
community there participating at an earlier stage in the
process itself.
Mr. Cox. But in the manner that Mr. Dicks just described,
our Committee's concern was that that process, which was
supposed to work that way, isn't functioning that way and
information that ought to have been shared with the State
Department, with the Defense Department and the Commerce
Department and so on was not.
Mr. Delahunt. Well, let me ask both of you. If it worked,
would that obviate the need to, in your opinion, to have this
consensus process?
Mr. Cox. We did not suggest an extra seat at the table for
the intelligence community, requiring their explicit consensus,
and we think it can work through the other cabinet departments.
Mr. Dicks. If you have a need for consensus and there isn't
consensus and you can raise it to a higher level of authority
to get a decision, to me, that sends a message to the higher
level authority; they could not reach a consensus here, but now
we have to decide this and you get the Assistant Secretaries
and then the Deputies and then it goes to NSC and finally to
the President.
To me, that makes sense, something like that makes sense.
Mr. Delahunt. I hear you, but I think Mr. Manzullo is right
and, again, I'm just concerned that these various agencies,
innately conservative as they are and not wanting to be
vulnerable to unfavorable public exposure at some point in
time, are going to say, well, when they sit down among
themselves, hey, let's nix this one. They can appeal.
And we find ourselves, in terms of competition, as Mr.
Manzullo indicated, the technology is moving so rapidly that
I'm concerned we're going to lose our competitive edge.
Mr. Cox. If I may say so, this gets awfully easy if you're
using a Pentium computer as your example. Paperwork that slows
down the export of PC's is, I hope, a straw man. We oughtn't to
be in favor of that.
But I will say that there are plenty of examples in the
current regime where things that ought to be no-brainers are
slowed up and that's the problem. The problem is we are
shortchanging both the national security and our commercial
interests and, therefore, you are right to focus on behavior by
people who work in the system.
How do they really work? One of the problems that we
observed is that at the Commerce Department and at the State
Department, the staffing is inadequate.
Mr. Delahunt. That was going to be my question.
Mr. Cox. First of all, they're undermanned, they're under-
powered, and the people in many cases lack the training that
they need in order to carry out these responsibilities.
Congress is uniquely situated to address these problems and
we hope that that's one of the things that we can do, put
resources to bear and also do it wisely. Don't have an army of
people looking at things that don't need that kind of review.
I agree, for example, with Mr. Manzullo that we can be
sensitive when we set up--whether we even want to use M top
levels forever, because there are some shortcomings with that
measure, as you know, whether we can set up flexible systems
that can change those standards as need be.
And you are right that on one occasion, Congress did, for
tier three countries, write the standard into law. I think
that's a mistake. Fortunately, there, is an opportunity for the
President to change that, although he has to notify Congress
first, but that's the only occasion when that's happened and I
think we ought to, when we re-write the Export Administration
Act, keep the system of doing it by regulation.
Mr. Dicks. Another possible way, as we said, we think there
ought to be a division between those very sensitive items and
the ones that are less sensitive.
You might just have consensus required on the most
sensitive one as one way to make sure that national security is
protected. That's one way you might deal with this.
Mr. Delahunt. The problem is drawing the line and writing
that into statutory language. I don't see how we do it.
Mr. Dicks. Well, you might give that responsibility to the
Administration and then have oversight.
Ms. Ros-Lehtinen. Thank you. Mr. Chabot.
Mr. Chabot. Thank you. Chris, you mentioned in your
testimony that right now the Defense Department has to respond
in about 30 days. Is that correct?
Mr. Dicks. We think that's the answer.
Mr. Chabot. I thought you said basically that it goes to
Commerce and the Defense Department has 30 days and they're
saying they need more time essentially to review these things.
My concern was that there are some things that I kind of----
Mr. Dicks. They can be extended, too. I'm advised that
whatever time-frame it is, it can be extended if they've got a
real heartburn problem.
Mr. Chabot. And my concern for the idea of extending times,
although I'm certainly willing to listen to this and I'm sure
that's one of the reasons we're having these hearings and
discussing the whole issue, is that I basically believe that
bureaucracy by its very nature will have a tendency to expand
to whatever time you give it, just as government has a
tendency, I think, to expand as large as you'll allow it to.
I believe that if we leave a lot of the money from the
surplus here in Washington, we'll spend it, and that's why I'm
for tax cuts, just basic beliefs that I have.
But I'm just wondering how do you make sure that if we
expand that time that the Defense Department has to review
these things, that it doesn't basically get kind of put on the
back burner. I mean, it happens in offices all the time where
you have to do something within a certain amount of time.
You'll take the time. You need to do it. But if you know you
don't have to do it for a certain period of time, you have a
tendency to put those things off.
I'm just wondering. And as has been mentioned here, some of
the technology advances so rapidly and companies want to do the
sale and if the U.S. company can't get it done, then it's going
to go to some French company or something else is going to
happen.
So I'm just wondering how you address just bureaucracy's
tendency to take up as long as you'll give it to accomplish a
given task.
Mr. Cox. As we were just discussing, first of all, you need
to improve that bureaucracy. It is, at present, inadequate. It
is both under-powered, undermanned, and under-trained. If you
don't have the right people looking at these problems, then any
length of time is going to be inadequate.
But you also have to have enough people to do it. The
testimony that we received concerning the average backlog of
the average person working on these things is enough to lead
you to conclude the whole system is an accident waiting to
happen and that there is a great deal of happenstance about
whether or not a review is adequate.
So that for the price of being held up while in the midst
of competitive bid overseas, a firm might have done nothing to
contribute to the national security, and that shouldn't be.
Mr. Dicks. Let me just read you a couple of sentences out
of the report. This is the Administration's response, but I
think there is a better understanding of what has just been
discussed.
In fact, agencies, on average, consistently conduct their
reviews in less time than they are permitted by current
Executive order. Existing procedures also allow for time
extension, when requested. For example, a request by an agency
for additional information about a license application stops
the clock and agencies also have found that they can obtain
additional time for review by escalating cases.
However, we believe that allowing an agency to stop the
clock indefinitely would return the dual-use licensing system
to the days of unjustified delays that the executive branch and
the Congress worked hard for over a decade to reform.
So at least at the executive branch, I think there is some
sensitivity to this and, again, I think this is, not shifting
the responsibility, but our investigation is over. You're going
to now have to take what we've said and what the Administration
has said and listen to all these very impressive witnesses out
here and make up your mind about whether you think the existing
system works and should be changed or not.
But we just want you to know that we think that there are
some areas of very sensitive matters that may need additional
time and we don't want to close that off.
Mr. Chabot. Thank you very much.
Ms. Ros-Lehtinen. Thank you. Mr. Sherman.
Mr. Sherman. Thank you, Madam Chairwoman. So far, we've
been focused on the procedural standards, which agency will
have to give its consent, consensus, the length of time. I
think we also need to focus on whatever substantive standards
we provide.
Not that we can fix them in stone and certainly we're not
going to be the ones to apply them. The technology is changing
too quickly. But I hope that we will direct the agencies to
look at whether certain items could be exported and we could
still protect our national security interest by taking
particular procedures or requiring them to be taken by the
company involved.
For example, if we're concerned about satellite technology,
not rocket technology, but the technology to build the
satellite coming into Chinese or other potentially unfriendly
hands, that we would require perhaps U.S. Government employees
to be in physical control of that satellite until it was in
outer space.
I hope, also, that we will direct the Administration and
all the various agencies to ask the question not only is this
device potentially helpful to a potential adversary, but, also,
can that potential adversary or other country that we don't
have total faith in obtain the technology from another source,
because we should not be punishing American workers for the
fact that--I'm going to mispronounce the name--Wassenaar hasn't
been an overwhelming success and it is up to our State
Department to negotiate with other developed countries mutual
limits on exports rather than punish American companies and
workers.
For example, I see a situation where we're dealing with
encryption where the same encryption technology, and you
gentlemen may know more about this than I do, seems to be
available from dozens of other sources outside the United
States, and yet we persist in limiting its export.
There was some comment about the budget of those who
administer our export program and I don't know if this was
within the purview of your Committee, but perhaps you should
comment on whether we've adequately appropriated funds and
whether we should be imposing additional fees in order to make
it more of a self-funding program.
Mr. Cox. Well, your recommendation with respect to the
protection of satellites is almost to a T what we recommended
in our report. There are some very concrete and simple and
understandable steps that our government can take and that
Congress can take to make that broken system work.
But, frankly, to a degree that even people in industry did
not appreciate, the system that we all thought we had is not
the one that actually we have had. And, therefore, we're all in
agreement that that's the system we ought to have. It's just a
question of putting it in place.
Your comment with respect to Wassenaar is also right on the
money. When a company comes to you, as a Member of Congress,
and says Congressman, if we don't sell that, then Germany is
going to, more often than not, that's correct.
It didn't use to be so, but in 1994, the United States led
the agreement to disband COCOM on the theory that the cold war
was over and we didn't need a multilateral regime any longer.
But the truth is there are other different threats, if not
the Soviet Union, indeed there is a very related cognate, the
problem that presently we face with Russian proliferation, if
not Russian accidental launch.
Yet we have completely unilateralized the regime and you
were right to say that Wassenaar has not worked in that
respect. It has not and one of our recommendations is that the
executive branch lead an international effort to increasingly
multilateralize this effort, so that self-abnegation is not
required.
Self-abnegation doesn't even work. It amounts to nothing
more than that and is a further example of having the worst of
both worlds continuing to do nothing for the national security
and, at the same time, disadvantaging our competitive position
in world markets.
Mr. Sherman. I would add that you also provide the
financing and the incentive for those foreign competitors that
might be a few months behind us in developing militarily useful
technology to then move equal or ahead of us in that
technology, since we provide them with markets, with needs, and
with capital that gets the genie even further out of the
bottle.
I don't know if either of you have a comment, though, on--
--
Mr. Dicks. Let me just make one brief comment. I think
there would be a little difference in the review of history
here about COCOM. I think the Administration and others would
say that a number of allies wanted COCOM to be ended and the
United States resisted that for a significant period of time
and then finally it acquiesced to it, I guess.
The second point is that the strengthening of the new
agency is a prerequisite of our recommendation.
Mr. Sherman. What about the funding of our administrative
enforcement and licensing department?
Mr. Cox. I think we both agree on that. As we've said
several times, we've got to make sure that we have adequate
resources to do this job.
If you're going to have a regime of export Administration,
you can't do it only partially.
Mr. Dicks. And we saw some major problems in defense and
made recommendations about that and the strengthening of DITSA,
the agency that is supposed to overview this when you're
dealing with a satellite. Also, there is probably some help
needed at the State Department, frankly, to go through these
applications.
Mr. Sherman. I want to thank the Chairwoman for not having
those green and yellow lights.
Ms. Ros-Lehtinen. They're not working. I wish I did.
Mr. Sherman. Noticing that my time has not expired.
Ms. Ros-Lehtinen. After my questions, of course, that's
when I would put them on.
Mr. Sherman. Focusing, again, on the satellite issue, I
just want to comment that there was a report in the Washington
Post that Hughes was being punished by the State Department for
daring to come to Congress and advocating that the turf for
licensing satellites be vested in Commerce, and I hope very
much that that report is inaccurate.
I would hate to think that a particular company faces
tougher scrutiny. I mean, there are other things Hughes did for
which tough scrutiny might be called for, but the idea that
they would be faced with tougher scrutiny because of their
political position here before the Congress seems absurd.
I would also point out that if the whole China satellite
concern was not about the satellites, but was about the rocket,
and there the problem we had was that U.S. entities had an
economic incentive to evaluate and even an economic incentive
to correct the Chinese space launch capacity.
I would point out that U.S. companies, I think, are still
free to ensure launches from China. No technology is being
exported there. And yet that would provide the same kind of
economic incentive, could lead to the same kind of post-
disaster insurance investigation with the same risk of
communication through investigation.
And that the focus may not be on where the satellite is
built, but rather making sure that no U.S. entity involves
itself in asking questions of the Chinese as to why their
rocket was unsuccessful or why it wasn't more successful,
because asking questions is a way that it inevitably conveys
information.
I want to know whether your Committee is focused on
preventing the reason for U.S.-China communication about their
rockets and prevent outlawing that communication or whether the
focus is just on whether a U.S.-built satellite is going up on
a Chinese rocket.
Mr. Cox. The former and not the latter, notwithstanding our
vote in the House, it was not the recommendation of our Select
Committee that we outlaw foreign launches. Rather, we wanted to
make sure that the promised regime of security is, in fact,
delivered.
I would also say that we recommended that--and found that
it is in the national security interest that the United States
increase its domestic launch capacity. But here we had no
silver bullet and if you can define ways to do that in addition
to the very general things that we discuss in our report, you
will have advanced the ball greatly.
But nobody disagrees with this, of course, but it was not
essentially the focus of our Select Committee. Nonetheless,
were we to have expanded launch capacity in the United States,
there would still be demands placed, for example, by the
People's Republic of China, as a condition of purchasing the
satellite that we use their launch vehicle, and some of those
tying arrangements are trade matters that can be looked at in
that context.
Mr. Sherman. Mr. Dicks.
Mr. Dicks. The other thing I would point out is that there
are major problems with that. When we had several accidents,
that there was supposed to be a post-crash discussion that had
to be licensed, and then the question of not licensing it is
where we got into some trouble.
So this is a discussion--I mean, it's something that we
brought up in our report. Obviously, this is under
investigation by the Justice Department and it's a very serious
matter. But you're right, there is an incentive.
I mean, it's old American know-how. You want to try to help
fix the problem. But in these cases, you have to have a license
in order to do that and the question is, in these cases, the
licenses were not obtained. So this is a serious problem.
Mr. Sherman. Madam Chairwoman, I see the red light is on
and my time has expired.
Ms. Ros-Lehtinen. Thank you. Mr. Burr.
Mr. Burr. Thank you. Chris, you mentioned training, under-
staffing. Let's assume for a minute that we were able to
address those needs. Can I assume that you still suggest that
there has to be structural changes? And I guess the follow-up
would be to Mr. Sherman. He mentioned turf. Do we have a turf
war between the agencies who have some piece of the
decisionmaking problem?
Is that as much the problem as structure?
Mr. Cox. To answer your first question, if we were
successful in addressing, and I hope we will be in the short
run, the problems of under-funding and under-staffing,
inadequate personnel, in the export license review process, we
would still have the question of who sits at the table and
whose expertise is being tapped in order to make these
decisions. And structural reform, I think, therefore, is
necessary and should be addressed in the Export Administration
Act.
In answer to your second question, of course, there is a
turf battle going on. When you have a number of cabinet
departments, which, after all, are themselves enormous
bureaucracies, there is going to be a turf issue.
I can say, from having served in the executive branch in
the White House, that this is not a Democrat or Republican
issue; that these are intra-administration issues that antedate
the Clinton Administration and there will always be a tug-of-
war among national security interests, commercial interests,
State Department interests, Pentagon interests, and
intelligence community interests, because that's the nature of
our Federal system.
And Congress, in its oversight capacity and here in its
legislative capacity, has to take these things into account
when we design a system that in the end will not be perfect,
but that will work better than presently what we've got.
Mr. Burr. Norm, you mentioned the intelligence in put that
was available, but not supplied, I think, in some of the things
that the Select Committee----
Mr. Dicks. We wanted to make sure that each of the entities
share the intelligence information that is available prior to
making a decision and we want them to know about these things
so that they can have the benefit of that.
Mr. Burr. Had that--based upon your findings, had that been
shared to the degree you think should have been appropriate,
would some of the mistakes that you found not have happened?
Mr. Dicks. Well, my own judgment is that not all the
intelligence was shared and because it was--you know, it
happened over a period of time and maybe they just didn't look
at it the same way. When we saw it, when we gathered all this
information, we could see the picture, and maybe we saw it more
clearly than they did.
But we were concerned about that and, frankly, as a person
who served for 8 years on the Intelligence Committee and 4
years as the Ranking Member, not all this information was
shared with the Congress, as it's required to be under the law.
That's another issue that we raised.
But I think it's important for these agencies that are
making these issues, especially on the very sensitive issues,
to have the benefit of the intelligence information. We want to
ensure that that happens.
Mr. Burr. Does the consensus, Chris, that you talked about
within this decisionmaking body, would it assure us that the
see no evil, hear no evil attitude of possibly one of the
agencies won't exist?
Mr. Cox. I don't think so. No system is going to guarantee
against problems that arise as a result of the people involved.
And if you have the wrong people, they will--or if you have
people who are the right folks, but they're over-tasked, they
haven't had a chance to look at things as they should, you're
going to have imperfect results or dangerous results.
And I think it's important to point out that it doesn't
much matter, from a national security standpoint, whether
you've got someone who is willing to hear no evil or see no
evil or who is being tendentious or is not fulfilling his or
her responsibility, on the one hand, or if you've got somebody
who is the best person you can possibly find, adequately
trained and is overworked and operating under unrealistic time
constraints, if the result is that something gets sent overseas
for military purposes, even though we didn't intend it for that
purpose, what's the difference, from a national security
standpoint.
I don't care about the motive or how it happened. We just
need to make sure the system doesn't operate that way.
Mr. Burr. I thank both of you for the commitment on the
Select Committee.
Ms. Ros-Lehtinen. Thank you. Mr. Rohrabacher.
Mr. Rohrabacher. Thank you very much. I'm sorry that I was
late for this hearing. It seems that I am the Chairman of a
Subcommittee on Space and Aeronautics and, by the way, for the
last 10 years, I have been pushing to try to bring down the
cost of the American space launch and that hearing, what was on
reasonable rockets, which is finally coming about, which has
something to do with the issue we're talking about today, and
there was another hearing dealing with Afghanistan which most
of you know that I have been deeply involved with, as well.
Mr. Dicks. We're working on those up in Washington State.
Mr. Rohrabacher. As long as you're not working on the
Afghans up there in Washington State.
People have been dancing around some central questions and
I really would like to put them on the record.
The last time we loosened the restrictions and the controls
on technology exports, and it was done and, by the way, I went
along with it, because I was assured by those people who were
advocating this, those people, technology industry giants who
came here and gave us their word that not one bit of technology
would be transferred, that all these safeguards would take
place.
I mean, we were promised this. This was something that was
sworn and the systems were going to be back up. The last time
we did that, and, of course, we're talking about the situation
permitting the Chinese to launch our satellites, did that
result in damaging United States national security?
Mr. Cox. I'm sorry. Can you----
Mr. Rohrabacher. Did the last time that we loosened--I
mean, I hope I--the last time that we loosened the restrictions
by permitting this leeway for the communist Chinese to launch
American satellites, did that result, maybe not intentionally,
but was the result of that loosening a damage, a severe
damaging of our national security?
Mr. Cox. Well, only to the degree that Mrs. O'Leary's cow
caused the great fire. It was certainly that without which, but
I don't know that it was designed in such fashion----
Mr. Rohrabacher. I'm not asking for any suggestion that
somebody intentionally designed this in order to permit weapons
of mass destruction technology to fall into the hands of a
potential enemy of the United States.
But can we say with certainty--and I think, by the way,
this is the part of your report you've already released and I'm
just asking you to restate it--that American lives have been
put in jeopardy and our national security has been damaged
because of the loosening of controls of the technology dealing
with satellite launches in the communist China.
Mr. Cox. To more fully explain, if, at the time, we had
instead passed a law that said there will be no foreign
launches in any country in the world, then, by definition, none
of these things that occurred would have happened and that
would have been one way to prevent it. I think that would have
been overkill.
But it's in that sense that it's a necessary, but
ultimately insufficient cause of all that followed. What
actually happened was sufficiently complex that you would need
to explain it with a number of things, not just Congress'
choice there, because our report, as we will be able to tell
you more fully tomorrow, describes ways in which the system was
abused.
So the system itself can't be fully to blame, except to the
extent that somebody was able to take advantage of it.
Second, our Select Committee quickly moved beyond the issue
of satellites into things which we all agree were much more
grave in their consequence to the national security, and so
we're going to direct your attention after a very short of
period time beyond that to these other things.
Mr. Rohrabacher. Mr. Dicks, would you like to answer that?
Mr. Dicks. Let me give you my take on this. First of all,
before and after, the United States possesses overwhelming
military superiority. I have served for 20 years on the Defense
Appropriations Subcommittee. We have 18 Trident submarines, we
have three intercontinental bombers, we have 500 Minuteman-3s,
and 50 MX missiles.
At the end of the day, after all whatever happened happened
here, they have 18 single warhead ICBM's with--and warheads are
not made into the rockets. Now, yes, some things happened here
that should not have happened.
If this system had worked the way it was designed, there
would have been not transfer of technology whatsoever to the
Chinese. Because of the post-accident launch discussions,
that's where we got into some trouble, and there is a debate
about how important whatever that technology was that was
transferred was and there's a debate about just how significant
it was.
Some people view it as being more important than other
people do. Now, I would argue that----
Mr. Rohrabacher. Chris just suggested it was like Mrs.
O'Leary's cow kicking over the lamp.
Mr. Dicks. Let me just say this. There was some
inappropriate transfer of technology. But did it change the
overall balance? Not in the near term. Now, can it have long-
term significance? We'll have to wait and see.
Mr. Rohrabacher. I guess my question isn't whether the
overall balance or any of these other things, everybody is
dancing around the question on, but is it that difficult to
suggest that we, by transferring technology to the communist
Chinese, that they are able to use on their rockets, that
damages American security?
I read the official release from your report and you were
very clear that that's the case.
Mr. Cox. That's why it's easier for you to understand it
and it will be easier for us to answer your questions much more
directly if we can tell you the facts that we came up with and
people can infer then what they wish. But we have said publicly
that even with respect to just the four corners of the
satellite issue, that in consequence of those events, the
national security was harmed. There is no question.
Mr. Rohrabacher. Thank you for that direct answer.
Mr. Dicks. It's a question of degree. Again, I don't want
us to overreact. I think the worst thing we could do is to try
to overstate this. I mean, yes, some harm occurred. Now, was it
a catastrophic in this area? I would not say it was
catastrophic.
Mr. Rohrabacher. Mr. Dicks, if, in the future, we come to
some sort of confrontation with communist China and some
American technology has been used to upgrade the capabilities
of a communist Chinese rocket that ends up being shot at the
United States, that will be a catastrophe.
Mr. Dicks. Of course it would be, but I--we have lived
under a world where the Soviet Union had forces that were
equivalent to ours. They were deterred for 30 years because of
our deterrent.
So I look at this from a perspective of does it make a
great deal of difference in terms of the deterrent. Our
deterrent is----
Mr. Rohrabacher. Mr. Dicks, using your example, wouldn't it
be called treason if somebody, during the cold war, would have
given missile technology to the Soviet Union?
Mr. Dicks. Of course it would be.
Mr. Rohrabacher. Of course it would have been treason. But
now everybody is dancing around it because this Administration
labels communist Chinese as our strategic partners.
Mr. Dicks. Congressman, there was no missile technology----
Mr. Rohrabacher. I know. It was rocket technology, right,
and rockets versus missiles. Missiles, of course, shoot nuclear
weapons and they're painted in this camouflage and rockets
shoot up satellites and they're painted in pastel.
Mr. Dicks. All I'm saying to you----
Mr. Menendez. Would you yield a minute for a question?
Mr. Dicks. All I'm saying to you is just----
Mr. Rohrabacher. One moment.
Mr. Dicks--[continuing]. Is just weigh this and look at the
facts and don't overreact here. The world that Ronald Reagan
helped create and when you two were down at the White House, we
still have a very strong military capability. I'm not going to
bed worried about what happened here. I don't like it and it
should not have happened, but it did not effect the overall
military balance.
Mr. Rohrabacher. Mr. Dicks, we don't have a missile defense
system to stop these rockets which Ronald Reagan tried to
build, and, in fact, during the cold war, at least with the----
Mr. Dicks. Deterrence worked.
Mr. Rohrabacher. OK. Yes, deterrence worked with the Soviet
Union, which didn't--which really cared about whether----
Mr. Dicks. They had thousands of weapons that----
Mr. Rohrabacher. Which whether or not the Soviet Union
cared about the mad deterrents because they cared about losing
50 or 100 million of their people. The communist Chinese, as we
know, may not have the same notion about their own population
that the Soviet leaders had.
The deterrence--to help the communist Chinese improve the
reliability of their rockets in order--their missiles or
rockets or however you want to define it, in order to cheapen
the cost and to hold down the cost of putting up an American
satellite, wouldn't you call that, if that would have happened
with the Russians, that we actually transferred some of that
technology, just to bring down the cost of putting up those
satellites, that would have been looked at as highly, let's
say, not dishonest, but let's say disloyal to our country?
Mr. Dicks. We probably wouldn't have entered into that kind
of a relationship in the cold war with the Soviets.
Mr. Menendez. Would the gentleman yield? Just for my
edification.
Ms. Ros-Lehtinen. Mr. Menendez, if you could go by the
Chair, that would be great. Yes. Mr. Menendez.
Mr. Menendez. Well, I'm just asking the gentleman to yield.
I think that's within the rules of the Committee.
Are you talking about the decisions made in 1989 by Ronald
Reagan and then put into effect by George Bush to go ahead and
have launches? Is that the question that you're putting to the
witnesses?
Mr. Rohrabacher. Is that what you're asking me?
Mr. Menendez. Yes. Is that the question that you're
concerned about in the context of rocket launches, whether or
not that was a right decision?
Mr. Rohrabacher. OK. Answering my Member's question or my
colleague's question, the fact is that Ronald Reagan, you're
right in remembering, that before Tiananmen Square and before
the communist Chinese massacred the democracy movement in that
country, yes, Ronald Reagan thought better cooperation was
important and there were restrictions placed on that
cooperation.
No. I'm asking what happened when this Administration and
the industry today called for Ronald Reagan's restrictions to
be lifted and it resulted in what? It resulted in communist
Chinese rockets being provided American technology to improve
their reliability and their ability to carry payloads and their
ability to hit their targets.
This is a catastrophe and I do believe it could be--yes, it
could be compared to Mrs. O'Leary's cow. Mrs. O'Leary's cow
knocked over that lamp and that cow burned down and killed
thousands of people in Chicago.
Well, I would hate to see a conflagration, a nuclear
conflagration caused by a modern day Mrs. O'Leary's cow, which
is in the form of a communist Chinese rocket hitting southern
California.
Mr. Dicks. All I'll say to my friend, and I appreciate his
commitment, I believe that the United States has an adequate
deterrent that we can deter them from ever doing what the
gentleman has suggested. And I hope someday we have a national
missile defense system.
But, again what happened here, you're going to have to look
at it and decide how significant you think it was. There is a
dispute about that. Some people view it--and I would argue--I
would argue that, yes, some technology was transferred; the
significance of that and the damage to the country, we're going
to do an assessment. We're having an assessment done of that.
So we'll all get the information. I don't think it's going
to change the overall strategic balance.
Ms. Ros-Lehtinen. Thank you so much.
Mr. Dicks. And I feel very comfortable with it.
Ms. Ros-Lehtinen. Thank you, Congressman Cox, and thank
you, Congressman Dicks, for an excellent presentation. Our
Subcommittee looks forward to continuing to work with you on
this very important issue. Thanks Chris, thanks Norm.
Our second set of panelists, we are pleased to have
testifying before us Bill Reinsch, Under Secretary for the
Bureau of Export Administration for the U.S. Department of
Commerce.
As head of the Bureau of Export Administration, Secretary
Reinsch is charged with administering and enforcing the export
control policies of the U.S. Government, as well as its anti-
boycott laws, and is part of an interagency team helping Russia
and other newly emerging nations developing effective export
control systems.
From 1991 to 1993, Secretary Reinsch served as Senior
Legislative Assistant to Senator Rockefeller, responsible for
trade, International Economic Policy, Foreign Affairs and
Defense, and served on the staff of the late Senator Heinz.
Secretary Reinsch has served as an adjunct Associate
Professor at the University of Maryland's University College,
at the School of Management and Technology, since 1990.
We welcome the Secretary here today.
Also testifying will be Richard Hoglund, the Deputy
Assistant Commissioner for the Office of Investigations of the
U.S. Customs Service. Commissioner Hoglund's investigative and
management experience covers all areas of customs enforcement,
including investigations on narcotics, money laundering, export
controls and trade abroad.
Mr. Hoglund served as special agent in charge in Detroit
and during this period he also served several long-term
assignments in my hometown area of south Florida for Operation
Florida. He has previously served as Senior Special Agent and
Group Supervisor and Mr. Hoglund began his Federal law
enforcement career as a U.S. Sky Marshal in 1971, the same year
he became a U.S. Customs Special Agent.
We welcome both of you here today. Secretary Reinsch.
STATEMENT OF THE HONORABLE WILLIAM REINSCH, UNDERSECRETARY OF
COMMERCE, BUREAU OF EXPORT ADMINISTRATION;
Mr. Reinsch. Thank you, Madam Chairman. I've been told that
you run a tight ship and I'm going to try to briefly go through
my statement and I'd ask----
Ms. Ros-Lehtinen. I'm powerless without my buttons here.
Mr. Reinsch. I would ask that the full statement be put in
the record.
Ms. Ros-Lehtinen. Of course, we will be glad to enter both
of your testimonies in the record.
Mr. Reinsch. What I would like to do today is first
describe why we need the EAA, and then talk briefly about H.R.
361, which is the legislation passed in the House in 1997, and
which is very similar to legislation the Administration
proposed in 1994.
Currently, we are operating under emergency authority, as
was noted in the last panel. Doing so means functioning under
certain legal constraints and leaving important aspects of our
control system at risk of legal challenge.
In addition, it can undercut our credibility as leader of
the world's efforts to stem the proliferation of weapons of
mass destruction.
In some significant areas, we have less authority under
IEEPA than under the Export Administration Act of 1979.
Foremost among these, as Congressman Dicks mentioned, are the
penalty authorities, which are substantially lower, both
criminal and civil, than those for violations that occurred
under the EAA.
However, even the EAA penalties are too low and have been
eroded over the past 20 years by inflation. The
Administration's bill, as well as the bill passed by the House
2 years ago, significantly increased the penalties. We rely on
the deterrent effect of stiff penalties. The longer we are
under IEEPA or even the old bill, the more the deterrent
erodes.
Another limitation of IEEPA for us concerns police powers,
the authority to make arrests, execute search warrants and
carry firearms of our enforcement agents. Those powers lapsed
with the EAA of 1979. Our agents must now obtain special deputy
U.S. marshal status in order to exercise these authorities and
function as law enforcement officers.
While this complication can be overcome, has been, doing so
consumes limited resources that would be better used for
enforcement. Both the Administration's bill and H.R. 361
continue those powers, as well.
Finally, the longer the EAA lapse continues, the more
likely we will be faced with challenges to our authority. For
example, IEEPA does not have an explicit confidentiality
provision like that in Section 12(c) of the Export
Administration Act or similar provisions in the
Administration's proposal and the House bill 2 years ago.
As a result, the department's ability to protect from
public disclosure information concerning license applications,
the licenses themselves and related enforcement information is
likely to come under increasing attack on several fronts.
Similarly, the absence of specific anti-boycott references
in IEEPA has led some respondents in anti-boycott cases to
argue thus far unsuccessfully that BXA has no authority to
implement and enforce the anti-boycott provisions of the Export
Administration Act and our regulations,
On a practical note, we are also finding that the
Congressional requirement to conduct post-shipment visits on
every computer over 2,000 MTOPS exported to 50 countries is
rapidly becoming a major burden, for precisely the reasons that
Mr. Manzullo referred to in his question. It forces us to
divert enforcement resources to visit computers that do not
need to be seen, with the result that we have fewer resources
left to focus on real enforcement problems.
Unlike the computer export notification provision in the
same law, the visit provision cannot be adjusted by the
President to take into account advancing levels of technology,
so we must seek relief from Congress on this issue.
The lapse of authority also has policy ramifications.
Although we've made great progress in eliminating unnecessary
controls, while enhancing our ability to control sensitive
exports, exporters have the right to expect these reforms to be
certain and permanent, as they would be if they were embodied
in legislation.
In addition, failure to enact a new EAA sends the wrong
message to our allies and regime partners, whom we have been
urging to strengthen their export control laws. We have also
been working with the former Soviet Union in Warsaw pact
countries to encourage them to strengthen their export control
laws and our credibility is diminished by our own lack of a
statute.
I would comment, in passing, Madam Chairman, that we have
with us today, as they have been visiting BXA this week,
representatives from the Russian DUMA and other representatives
of the Russian Government who are here precisely to discuss
export controls and have an exchange of views and to learn from
us about our system and also give us an opportunity to learn
from them about their system.
They're sitting back there listening to the exchange taking
place so far.
Now, let me comment on--I thought I'd alert you to that,
for future reference. Let me comment on legislation. In
February 1994, the Administration proposed a revised EAA. Our
overall goal was and remains to refocus the law on the security
threat the United States will face in the next century--the
proliferation of weapons of mass destruction in a more
complicated era than we faced during the cold war, while taking
into account the growing dependence of our military on strong
high technology companies here at home, developing state-of-
the-art products, and, in turn, those companies' need to export
to maintain their cutting edge.
Mr. Menendez, in his opening comments, I think, summarized
the same line of reasoning more effectively than I can here.
Let me focus my remaining remarks on legislation that this
Committee reported and the House passed in 1997 that was
authored by former Congressman Roth, who I believe will be a
Member of the next panel, and will also discuss it with you.
Its structure reflected new challenges resulting from the end
of the cold war and, in many respects, it was similar to the
legislation, as I said, that we proposed.
Its basic control authorities were multilateral and
unilateral, instead of the national security-informed policy
authorities of the EAA in 1979. Its new structure explicitly
recognized the preference for compliance with international
regimes that the U.S. either is a Member of or may help create
or join in the future. It also provided for increased
discipline on unilateral controls and I want to note, in
passing, Madam Chairman, the Administration would likely want
to suggest some changes to this provisions to ensure that
unilateral export controls are available when they're in the
overall national interests, consistent with the position we
have taken on sanction reform before this body.
But in general, we agree with the need to exercise
discipline in the application of such controls.
The House-passed bill also supported the Administration
reforms of the licensing and commodity jurisdiction processes.
The standards for license processing were consistent with the
1995 Executive order, which provided for a transparent time-
limited review process that permitted all pertinent agencies to
review any license application and raise issues all the way to
the President, if they desired.
This default to decision approach has replaced the black
hole into which licenses often fell, improving the system's
responsiveness to exporters, while also providing broader
interagency review of license applications that enhance our
ability to meet our national security, foreign policy, non-
proliferation goals.
On that point, Mr. Chairman, if I could comment on two
points that Mr. Cox made on the processes issues. He is correct
that the Executive order that I have just referenced gives the
other agencies 30 days to review licenses. In fact, every
agency takes considerably less time than that. The Pentagon, in
the last fiscal year, averaged 14 days to complete its license
reviews and the State Department did better than that, they
averaged 11 days.
In addition, as Mr. Dicks pointed out, the Executive order
provides explicit authority to stop the clock, if you will,
should there be a license that raises unusual issues and where
more information is needed.
One license that has been in the news lately, and I get
depressed when I see this in the news, because they're not
supposed to, which was the Hughes APMT license. That one has
been pending for about a month, which is well outside the time-
frame that we prefer and well outside the Executive order, but
I think also we have complicated--we have a process that can
accommodate and provide more time.
And that, in fact, the agencies now are doing their routine
work in less than half the time that the Executive order
allows.
I would also make the point on process that the proposal to
act by consensus, which is a term for giving any agency a veto,
which does, in fact, do what I think Mr. Menendez or Mr.
Manzullo said, coming back to the anyone can say no, and no one
can say yes system, would also have the practical effect of
eliminating the one part of our process where the intelligence
community is represented full-time.
That is the senior level working level review licenses,
where the agencies all meet and discuss and the intelligence
community is generally there and inputting into the process.
If we went to a consensus approach, what we would get is
objections from agencies without discussion and escalation to
the political level, missing the most rigorous level of review
that is done.
That is why the Administration made the comments in
response to the recommendations that Mr. Dicks read in his
testimony or in his response.
Let me say, finally, about the House bill, that we do have
some concerns, we have had some concerns about H.R. 361's
terrorism, unfair impact, anti-boycott, private line of action,
and judicial review provisions, as well as certain
Constitutional issues that we believe the bill raises. Those
are outlined in my written statement and rather than take up
your time, I will pass over that and refer you to that.
Let me also point out that we are, at the request of the
Senate Committee and also at the request of staff here,
undertaking review of our own bill, as well as the House-passed
bill, and we will report to Congress with any post-
modifications or changes that we might have.
In conclusion, let me say that we believe an EAA that
allows us to fully and effectively address our security
concerns, while maintaining a transparent and efficient system
for U.S. exporters, is essential.
As I discussed, the Administration and the House, 2 years
ago, agreed on most of the important changes to bring the law
up to date in light of current economic and proliferation
realities. Our preference is that you take up reauthorization
of the EAA that would build on a consensus already achieved.
I can understand, however, given your heavy agenda of other
matters, that we may find it difficult to devote the time and
attention needed to produce such a bill, which, to say the
least, has not been without controversy in the past, and it
sounds, from the previous panel, may not be without controversy
in the future, and under these circumstances, I want to
indicate that we will be prepared to discuss with the Committee
some extension of the expired EAA to remedy some of the short-
term problems I discussed, particularly in the penalties area.
That is not a substitute for full reauthorization, which we
still want, but it would better enable us to do our business
more effectively if Congress feels it needs more time to do it.
Thank you, Mr. Chairman.
[The prepared statement of William Reinsch appears in the
appendix.]
Mr. Manzullo--[presiding]. Thank you, Mr. Reinsch. Mr.
Hoglund.
STATEMENT OF THE HONORABLE RICHARD HOGLUND, ASSISTANT
COMMISSIONER FOR INVESTIGATIONS, U.S. CUSTOMS SERVICE
Mr. Hoglund. Good afternoon, Mr. Chairman and Members of
the Subcommittee. It is a privilege to appear before the
Subcommittee today to discuss Customs' unique role in enforcing
U.S. export controls and the enactment of a new Export
Administration Act.
Customs is a leader in enforcing U.S. export controls. We
are at the forefront of the Administration's efforts to prevent
the proliferation of weapons of mass destruction and
conventional arms, combat international terrorism, and force
U.S. economic sanctions and embargoes against countries which
support international terrorism and threaten global security.
Customs is principally responsible for the enforcement of
all U.S. export controls. This includes the controls found in
the Arms Export Control Act, which governs exports of arms,
military equipment and other munitions; the export
administration regulations, which regulate the export of dual-
use strategic technologies; the International Emergency
Economic Powers Act, in trading with the Enemy Act, which
regulate economic and other transactions with specified
countries and groups as an instrument of U.S. foreign policy.
Customs' export law enforcement has evolved as the threats
we face in international trade have evolved. Through the
1970's, the threat chiefly involved belligerent countries
trafficking in arms. Beginning in the early 1980's, the Soviet
Union and its allies began a massive coordinated effort to
acquire sophisticated western technologies for use in building
their military establishments.
To respond to this threat, Customs Initiated Operation
Exodus, an intensified enforcement program to prevent the
illegal export of munitions, strategic technologies, and
shipments destined for sanctioned and embargoed countries.
Our objectives are to disrupt illegal international
trafficking in sensitive and controlled commodities through the
interdiction of illicit shipments and to dismantle criminal
trafficking organizations through the arrest, prosecution and
conviction of export violators.
Since its inception in 1981, Operation Exodus has resulted
in the seizure of over $1.2 billion in merchandise being
exported in violation of U.S. export controls. Customs is the
only Federal law enforcement agency with border search
authority. Only Customs may search without a warrant
passengers, conveyances and cargo entering and leaving the
United States to ensure full compliance with all U.S. import
and export requirements and to uncover violations.
Customs' automated systems are key tools in our
interdiction and investigative efforts. The Automated Export
System, or AES, is now operational at all ports in both the air
and sea environments. AES is a new and powerful tool not only
in the processing of trade data and the collection of export
statistics, but also in the identification of potential
violations of possible U.S. export controls.
Customs' successes in conducting proactive investigations
of criminal export violations continues our tradition of
leadership in export enforcement. For example, in fiscal year
1998, we arrested over 450 criminal export violators, secured
over 280 indictments, and obtained over 300 convictions for
export violations. These included obtaining the conviction of
two individuals in Oregon on their attempts to export chemical
weapons precursors to Iran; one corporation for illegal exports
of computer workstations to a Russian nuclear weapons factory,
laboratory; and, a U.S. corporation for the illegal export of
$3 million worth of aircraft parts to Iran.
In the past 2 weeks alone, we've arrested two individuals
for attempted illegal exports of sophisticated airborne
navigation equipment to China and obtained the conviction of a
third who was sentenced to 24 months imprisonment for
violations of the Arms Export Control Act.
Now, let me turn to Customs' views on enactment of a new
Export Administration Act. First, let me say that Customs does
not set Administration policy on which commodities should be
controlled for export to which countries. That responsibility
lies with the Department of State, the Department of Commerce,
the Department of Defense, and other agencies.
Customs' role is to enforce U.S. export controls through
the processing of export documentation, the examination and
clearance of exported merchandise, the seizure of merchandise
exported in violation of U.S. export controls, and the
investigation of criminal violations of our export control
statutes.
That being said, Customs supports passage of a new Export
Administration Act as a way of enhancing our ability to enforce
U.S. export controls.
The Congress last considered passage of an Export
Administration Act in 1996. That proposed legislation was
introduced before the Congress as H.R. 361. Customs supports
the penalty provisions set out in Section 110 of H.R. 361 and
the authorities for Customs' investigations and seizures
related to export violations set out in Section 113.
We believe that similar provisions should be incorporated
into any new Export Administration Act which may now be
considered by the Congress.
Customs suggests that the Congress consider four additional
provisions which would close enforcement loopholes and enhance
our export enforcement abilities.
The first deals with statutory authority to examine
outbound mail. Current restrictions on Customs' ability to
search outbound mail limit our ability to interdict strategic
commodities and technical data being illegally exported through
the mails from the United States. Statutory language to clearly
authorize Customs to search outbound mail would deny
international criminals and terrorists' use of the U.S. mail to
avoid U.S. export controls.
A second enhancement would be the inclusion of an attempt
provision as a violation of a new Export Administration Act. As
I stated earlier, one of Customs' objectives in export
enforcement is the interdiction of merchandise being illegally
exported from the United States.
The inclusion of an attempt provision in any new Export
Administration Act would make clear that a substantive
violation of the Act has occurred when Customs is successful
interdicting strategic goods before they leave the U.S., in
addition to actual consummated export.
Third would be statutory authority for Customs to ship
inoperable control items to countries sponsoring terrorism in
an undercover capacity in furtherance of a law enforcement
investigation.
Fourth would be enactment of a Customs criminal statute
covering exports contrary to law and parallel to the existing
smuggling statute, Title 18, United States Code 545. This
particular provision is currently contained in Senate Bill S.
5.
In closing, I appreciate the opportunity to appear before
you today. The United States Customs Service enjoys a unique
role in export enforcement, preventing the proliferation of
weapons of mass destruction, protecting the American public
from the threat of international terrorism, enhancing regional
and global security through combating illicit trafficking in
arms, and implementing U.S. foreign policy through out
enforcement of economic sanctions and embargoes against
countries which support international terrorism and suppress
freedom around the world.
We are proud of our role in enforcing U.S. export controls
and we support your efforts to enact legislation to give us the
tools to protect the security of all Americans and make the
world a safer place in which to live.
Thank you, and I would be pleased to answer any questions
you might have.
[The prepared statement of Richard Hoglund follows:]
Mr. Manzullo. Thank you very much. I'm going to waive any
questions I have and I'm going to defer to Mr. Menendez and
hold everybody to the 5-minute rule.
I don't have a light, but I do have a gavel. So I will tap
at 4 minutes. At 5 minutes, I'll lower the gavel. Mr. Menendez.
Mr. Menendez. Mr. Secretary, let me thank you for your
testimony. I have a couple of questions, if you can work with
me to see if I can get through them in my 5 minutes.
Regarding the satellite license that was processed by the
Commerce Department that were the subject of investigation by
Representative Cox's Committee, were there any disputes among
agencies regarding whether to license the satellite launches?
Mr. Reinsch. No, sir. All agencies concurred in the
issuance of that license.
Mr. Menendez. So they all concurred. There were no policy
objections that were overridden by the Department of Commerce.
Mr. Reinsch. No. Every satellite license the Department of
Commerce has issued has had the concurrence of the State
Department and the Defense Department.
Mr. Menendez. With reference to the volume of cases that
Commerce processes annually, could you give me a sense of it?
Mr. Reinsch. We are hovering between ten and 11,000
licenses per year currently.
Mr. Menendez. And of these, what percentage of the licenses
are reviewed by other agencies?
Mr. Reinsch. Subsequent to the Executive order in 1995,
right now, it is around--well, I can give it to you exactly. In
fiscal year 1998, it was 85 percent and in fiscal year 1997, it
was 91 percent. That were referred to one or more other
agencies.
Mr. Menendez. So that in other words, you don't have
exclusivity an overwhelming amount of the time.
Mr. Reinsch. Prior to the Executive order in fiscal year
1991, it was 21 percent, but before we issued the EO, it was
around 50 to 54 percent. It's been climbing into the upper 80's
and 90's every since.
Mr. Menendez. Now, let me ask you. You heard Mr. Cox and
Mr. Dicks and you heard some of my questions. Could you give us
a sense, I think you refer to it in your testimony, I'd like
you to elaborate, what would be, in fact, the result if we were
to adopt, as proposed, the changes that they have suggested
concerning, in essence, this process in which all of the
agencies would have to reach consensus or, in essence, the veto
of any individual?
Mr. Reinsch. That particular proposal, Mr. Menendez, I
believe, would cripple the process. What you would have is--let
me go back. The reality of this process is that to the extent
that there is disagreement over the issuance of the license, it
most often is amongst individuals at low to mid working levels,
and as the process works its way up in each agency's own
building, it goes through a variety of changes and by the time
you get to senior levels, most of the time, there is a
consensus.
So 90 percent of our licenses are handled by consensus,
without having to get to political levels of resolution.
If you are going to effectively give every agency a veto,
which is what consensus would permit, what you are doing is
telling low level officials who might dissent from their own
agency's position, not to mention any collective position, they
can put in a veto of a license and prevent consensus, that
would force these issues to be taken essentially to the
assistant secretary level for resolution, which would force
senior officials to spend a much larger amount of their time
than they do working on these.
And from out standpoint, it would eliminate the most
rigorous level we have. The senior working level, where all the
agencies get in the same room and actually debate these things
and argue them out and have the Intel community there on scene
supplying the information.
Mr. Menendez. The last question I have for you is with
reference to--and I think our Russian colleagues left, but I
had this question anyhow, so I'm going to ask it, whether they
are here or whether they're not.
Despite Russia's pledges upon joining the Wassenaar
agreement not to export missile technology to Iran, the
Administration has had to sanction Russian entities for this
reason.
So give us a sense of what's the value of having Russia as
a member of such an arrangement if it does not achieve our goal
of limiting exports in this particular case to Iran and give us
a sense of this multilateral effort which has, seems to me, had
to have virtually no real consequence.
Mr. Reinsch. These regimes, we never get the full level in
negotiation and, again, we have to spend time, whether it's the
missile technology control regime or the nuclear suppliers
group, regimes that are generally thought of as being mature
and effective.
It took them a long time to reach that point. It's going to
take Wassenaar some time to reach that point. We are better off
with Russia in than out. They learn the standards, they learn
what's expected of them, they subject themselves to pressures
not only from us, but from the Germans, the French, the British
to conform to those norms and standards.
They subject themselves to regular meetings in which they
learn what it is and why and what they're expected to do about
it, and generally it helps them upgrade.
It's for the same reason that we have an extensive program
with them, which is why these people were here this week to
exchange views and help them develop a system of their own.
It's been my view that while we do have policy differences with
them and while we have sanctioned them, as you point out, there
are also a number of situations in which things are leaked out
of their borders that their government would have stopped had
they had the capacity to do so and had they known about it.
What Wassenaar does is help give countries the tools that
they can use to prevent, at a minimum, that part of the problem
and also to subject them to multilateral pressure to deal with
the first part of the problem, namely, their policy.
Ms. Ros-Lehtinen--[presiding]. Thank you so much. Thank
you, Mr. Menendez, and I want to thank our Vice Chair for
taking over and I hear that he instituted a strict 5-minute
rule. Good for you. No more Ms. Nice Guy. With that in mind,
Congressman Rohrabacher.
Mr. Rohrabacher. Right. Thank you. Are our Russian friends
still here? No, they left. That's right. They heard I was going
to ask them up.
To our friend Mr. Hoglund, U.S. customs investigated the
transfer of rocket technology to communist China. Was there a
recommendation made by U.S. customs that charges be brought
against Americans involved with transferring rocket technology
to the communist Chinese?
Mr. Hoglund. We have an active investigation. It is before
a Federal grand jury and when that is concluded, we'd be
pleased to provide the outcome of that, but currently that's
under active investigation.
Mr. Rohrabacher. Is it against the rules to relate whether
or not you have recommended a prosecution or not?
Mr. Hoglund. Well, we wouldn't recommend. We would present
the facts to the United States Attorney. It would be presented
to a Federal grand jury and then that is where the
recommendation would come from.
Mr. Rohrabacher. Well, in your investigation, did you find
that American technology, rocket technology had been
transferred to the communist Chinese in a way to upgrade the
capabilities and effectiveness of communist Chinese rockets?
Mr. Hoglund. I really would not feel comfortable answering
that, although the newspapers suggest that that the Office of
Defense trade controls penalized companies in regard to that
issue.
Mr. Rohrabacher. And was there, to your knowledge, a
recommendation by members of the Administration that a
licensing of a satellite launch by an American company be
denied because it would undercut a prosecution of an American
corporation for transferring rocket technology to the communist
Chinese?
Mr. Hoglund. I am not familiar with that. I am personally
not familiar.
Mr. Rohrabacher. You're not familiar with that.
Mr. Hoglund. No, sir.
Mr. Rohrabacher. It was in the newspaper. I'm surprised
that that wouldn't be something----
Mr. Hoglund. I can get you a better answer.
Mr. Rohrabacher. I would like to have a better answer on
that. So if you could get it to me with 24 hours, would that be
OK?
Mr. Hoglund. Sure.
Mr. Rohrabacher. Or how about a half an hour? All right.
Again, people are dancing around the issues here. Everybody is
afraid here, it seems to me, to look each other in the face and
say that some American corporations may not keep the national
security interest of the United States in mind when they're out
to make a buck. Surprise, surprise.
Has it been your experience at Customs that we can trust
American companies to watch out for American security over and
above their own profit?
Mr. Hoglund. It's our experience that in virtually every
area we investigate and enforce, that there is a profit motive
virtually all the time.
Mr. Rohrabacher. And the things that you're investigating
sometimes are very heinous violations of our national security,
is that not correct?
Mr. Hoglund. They can be, yes.
Mr. Rohrabacher. Listen, I don't know why everybody--you
know, nobody wants to tell their friend at the country club
that they betrayed the United States of America. That's what it
comes down to here.
Folks, we're talking about--yeah, I'm not talking about
whether or not the Chinese are going to end up with the same
kind of ballistic missile system that they had in the Soviet
Union. People can dance around this all they want. What we're
talking about is whether it's possible that a communist Chinese
rocket, using American technology, now has a greater chance of
landing a nuclear weapon and killing millions of Americans,
making that conflagration caused by Mrs. O'Leary's cow in
Chicago look like petty ante arson.
This is a very serious issue and it does not lend itself to
the--frankly, the dancing around that I've seen here today and
this obfuscation that's being done by people who are trying to
protect this Administration for some very terrible decisions.
Mr. Hoglund, does the fact that this Administration, even
after evidence continues to mount that the Chinese communists
have been systematically trying to get their hands on American
technology of weapons of mass destruction, doesn't the fact
that we continue to label that regime as America's strategic
partners undercut the efforts to prevent American corporations
from inadvertently perhaps giving weapons technology to the
communist Chinese?
Mr. Hoglund. I really don't feel I'm qualified to answer
that.
Mr. Rohrabacher. All right. Thank you very much.
Ms. Ros-Lehtinen. Thank you so much. Thank you to your
panelists for being here with us today and we also look forward
to working with you. Thank you.
Oh, I'm sorry, Mr. Manzullo. I thought when you were
chairing that you recognized yourself.
Mr. Manzullo. That's fine. Go the next panel.
Ms. Ros-Lehtinen. We will hear from our third set of
panelists. Former Chairman of this Subcommittee, Toby Roth, who
served as a Member of Congress for 18 years, until January
1997. He currently serves as President of the Roth Group, a
political consulting firm here in D.C. The former
Representative of Wisconsin's 8th Congressional District also
served as Senior Member of the House Banking Committee and was
a founding Member of the Conservative Opportunity Society.
He is a frequent guest expert on public affairs programs.
He will be followed by another former colleague, Dave
McCurdy, current President of the Electronic Industries
Alliance. Mr. McCurdy served as Chairman and Chief Executive
Officer of the McCurdy Group, a business consulting and
investment practice.
Mr. McCurdy served the 4th District of Oklahoma for 14
years and during his tenure in Congress, he attained numerous
leadership positions, including serving as Chair of the House
Permanent Select Subcommittee on Intelligence, Chair of the
Subcommittee on Military Installations and Facilities of the
House Armed Services Committee, and was a Subcommittee Chairman
of the House Science Committee.
Next is Joel Johnson, who serves as Vice President of the
International Division for the Aerospace Industries Association
of America, AIA, which represents 50 of the major manufacturers
of the industry. Prior to joining AIA, Mr. Johnson was
Executive Vice President for the American League for Exports
and Security Assistance.
Mr. Johnson also served on the Senate Foreign Relations
Committee as Professional Staff Member and as Chief Economist
for the Foreign Assistance Subcommittee.
Previously, Mr. Johnson served as a member of the Secretary
of the States Policy Planning Staff and is Deputy Director of
the Office of Trade Policy and Negotiations at the Treasury
Department, and a wide array of other positions in the field of
International Economic Affairs.
Following Mr. Johnson is Dr. Paul Freedenberg, the
Government Relations Director for the Association for
Manufacturing Technology. Dr. Freedenberg was appointed by
President Reagan to serve as the Undersecretary for Export
Administration at the Department of Commerce.
Dr. Freedenberg was Staff Director of the Senate
Subcommittee on International Finance and since 1989 he has
been an International Trade Consultant with the Law firm of
Baker in Washington, D.C., specializing in general
international trade issues, as well as technology transfer,
export licensing, export financing and enforcement.
We welcome all of you and look forward to your testimony.
Congressman Roth.
STATEMENT OF THE HONORABLE TOBY ROTH, FORMER MEMBER OF
CONGRESS, PRESIDENT, THE ROTH GROUP
Mr. Roth. Thank you very much, Madam Chair. It's great to
be back in these familiar surroundings, with Members of the
Committee that I enjoyed so much working with.
It's my pleasure to be here today. With the time
constraints, Madam Chair, I ask that my entire testimony be
entered into the record, so I can abbreviate my remarks.
Ms. Ros-Lehtinen. Thank you. Without objection, we will be
glad to enter all of your testimonies and we've got our
enforcer here behind me, Mauricio ``The Body'' Tomargo.
Mr. Roth. As you said, Madam Chair, I spent 18 years as a
Member of this Subcommittee, two as its Chairman. I devoted
much of time to analyzing and attempting to improve the Export
Administration Act.
I leave to others whether I can claim any particular wisdom
when it comes to the EAA, but no one can doubt that I have a
lot of experience, good and otherwise, in exploring the byways
and the highways.
By way of clarification, although I'm a consultant whose
clients include firms in high tech sectors, I appear here today
representing no one but myself. Since leaving Congress, I have
gained additional knowledge of the industry's perspective, but
most of what I believe I can offer as a function of the years I
spent serving in this House and on this Subcommittee.
Some of us have a question whether the EAA is needed at
all. We had been surviving adequately under the International
Economic Emergency Powers Act, IEEPA, for nearly 5 years. So
would say some individuals, so why open the Pandora's box and
write a new EAA.
I respectfully disagree. For one thing, IEEPA is largely a
blank check for the executive branch. Even if we believe that
the current Administration has taken a reasonable and balanced
approach to the export controls, there is no guarantee that
that will continue under this or under a new Administration in
the future.
Second, it is Congress' job to determine how Government
regulatory programs should operate. Congress advocates that
responsibility when it throws up its hands and leaves
everything to the President.
So I believe strongly that we should have an EAA and should
not continue to rely on IEEPA.
My most important recommendations, Madam Chair and Members
of the Committee, are these. Export licenses should be required
only for goods and technologies that are controllable from a
practical standpoint, are not available to our foreign
competitors, and would make, if placed in the wrong hands, a
significant and material contribution to the weapons
proliferation or other legitimate stated purpose of control.
If items such as personal computers and mass market
software, with 128-bit encryption, are widely and easily
available domestically, export controls will not keep them away
from anyone who wants to obtain them. The same is true for
items that are available from foreign competitors whose
governments do not, in fact, impose controls as stringent as
those imposed by the United States.
Second, the EAA should discourage the imposition of
unilateral export controls and other unilateral export
restraints. Faced with misconduct by Foreign Governments,
public officials, like our Congressmen, all too often have seen
the imposition of export controls as the only available
alternative to sending in Marines, at one extreme, or to do
nothing on the other.
When governments whose exporters supply identical goods and
technology refuse to go along with our controls, however, the
effect is like damming up half a river. For the most part, the
misbehaving government that is the target of our ire, merely
turns to industrialized countries to supply its needs, while
American workers and business people end up suffering.
This hardly seems like sound thinking to convince a Foreign
Government to change its ways.
Third, the sluggish export control system should rule
swiftly on license applications and requests for policy
determinations. Inordinate delay in approving an export license
and costs to a U.S. exporter a sale just as surely as a license
is denied. The Commerce Department has been doing a good job of
managing the dual-use licensing system and should remain in
charge.
The FAA should restrict, if not the EAA, let me say that,
the EAA should restrict, if not eliminate the extra-territorial
application of the United States Export controls. The United
States takes the position that an item made in this country
remains subject to our export jurisdiction forever, no matter
how long it may have been exported and no matter how many non-
Americans may have owned it.
This is inconsistent with international standards. This
hearing marks the beginning of a lengthy process and I hope
that it will produce a new EAA, one that--an EAA reflecting the
realities of the millennium and not the cold war.
Now, in 1996, this Subcommittee and the House of
Representatives passed a bill with your help, a great EAA bill.
It was applaud by all. The President applauded it, the people
here in the House passed it under suspension, we had people in
the Senate all agree. There was only one Senator put a hold on
the bill at the end and that is why this bill was not enacted
into law.
Let me say that President Clinton and Sandy Burger and Tony
Lake did a great deal to make this bill possible. We met with
the President three different times. The House passed it, the
Senate, because of one Senator, it was not passed.
I hope that this Committee and this Congress will now move
forward and complete that job.
Had we done so, I think many of the problems that we have
today would have been eliminated.
Thank you very much, Madam Chairman.
[The prepared statement of Toby Roth appears in the
appendix.]
Ms. Ros-Lehtinen. Thank you so much. Mr. McCurdy.
STATEMENT OF THE HONORABLE DAVE McCURDY, FORMER MEMBER OF
CONGRESS, PRESIDENT, ELECTRONIC INDUSTRIES ALLIANCE
Mr. McCurdy. Thank you, Madam Chair. I, too, would like for
my statement to be admitted into the record, and I want to
state, just first of all, how pleased I am to be back.
This is my first return to the House after 4 years and I
can't think of a finer Subcommittee or group of people to be
with. As the Chairwoman knows in the annual congressional
baseball game, she was always the most feared batter that I
ever faced in all those years, had the smallest strike zone and
was one of the most courageous and fearless.
Ms. Ros-Lehtinen. The game has not improved in your
absence, unfortunately. I wish it would have been your fault,
but.
Mr. McCurdy. And let me congratulate Mr. Menendez for his
steady rise in the leadership, as well.
Madam Chair, I'm delighted to be here today as representing
the Electronic Industries Alliance, over 2,000 member companies
which makes it the premier trade association for the high
technology industry.
During my 14 years of tenure in this body, I served as
Chairman of the House Intelligence Committee and, as well as
Subcommittees in the Armed Services Committee and the Science
and Space Committee.
I continue to serve now as a commissioner on the--and you
have to forgive the title of this commission, but it's the
Commission to Assess the Organization of the Federal Government
to Counter the Proliferation of Weapons of Mass Destruction.
For over a year now, we've been reviewing the tremendous
destructive potential of chemical and biological and nuclear
weapons land their proliferation of that.
But the task of the commission, I must say, was to look at
the organization of the Federal Government. And what we heard
earlier today from both Mr. Cox and Mr. Dicks seems to be--and
those are two of my best friends and people that I respect the
most in the House.
But some of the statements that came forward with regard to
the need to actually bifurcate the decisionmaking process as
opposed to centralize is just the opposite direction that most
people are looking at how to organize the Federal Government to
combat the proliferation of technology and of weapons of mass
destruction. So it seems somewhat contradictory.
But since I do serve on that commission and, based on my
past experience, I'm very concerned about export controls for
our national security. However, I also recognize the severely
limited effectiveness of export controls.
Madam Chair, I have the privilege of representing the most
innovative, yet competitive industry in the global economy. Our
companies operate globally and they face intense international
competition. The fact is the days when U.S. companies dominated
the high technology industry are over. Similarly, the days when
the domestic U.S. market could sustain the industry are also
over.
It has become almost clich that the global economy is a
fact of doing business for us and is a critically important
concept to keep in mind as we formulate public policy in this
area.
As any successful CEO will tell you, competing, indeed
surviving in the global economy means exporting. The phenomenal
success of U.S. technology industry comes from its
entreprenurialism, its aggressiveness, its willingness to
compete, all those free market forces that drive innovation.
In this kind of business environment, tapping new markets
before competition does is the key to success. As you can see
on the chart behind me, our industry will export over $150
billion in goods this year. This is more than one third of what
our industry produces.
The chart also demonstrates how fast technology is changing
and becoming pervasive throughout the world. This is especially
true in the area of semiconductor speed, where Moore's law
defines rapid pace of change.
Congress has a critical role to play in overseeing this
country's export control system and we encourage efforts to
take a fresh look at the system, with an eye toward updating it
to reflect technological and political realities of the post
cold war world.
It is a daunting challenge and with that in mind, I would
like to lay out three very broad principals and I think the
three Members that are present today have expressed those, as
well, what should guide our thinking on export control issues.
The first principal is that U.S. export controls must
reflect the new commercial and political realities of the post
cold war world. The cold war export control regime was based on
then, and it was an accurate premise at that time, that if you
prevent U.S. companies from exporting a product to specified
destinations, you will have denied that destination of the use
of that product or technology.
This premise no longer holds. Whereas U.S. industry used to
have a monopoly over the development and production of high
technology products, many of which were directed by the Federal
Government, many countries today produce the same or often
better commercial technologies as U.S. manufacturers.
The governments of our competitors do not place the same
restrictions on their export activities. When U.S. companies
are impeded from selling abroad, our competitors are willing
and able to fill the void.
The second principal is that the current model for
administering U.S. export control law is appropriate and
effective in protecting national security. And I agree with my
colleague, Mr. Roth, on that point.
Currently, there are two systems for administrating export
controls, both of which provide for interagency review of
license applications.
Now, there's certainly room for improvements in the license
review process, but essentially they're appropriate as separate
functions. The Commerce Department's review system ensures that
legitimate commercial exports are permitted, to the extent
possible, without interfering or threatening U.S. National
Security or Foreign Policy interest.
The State Department review system ensures that military
exports promote our national security and foreign policy
objectives.
The third principal is that our industry strives to be
compliant with the relevant export control laws. In fact, the
industry devotes significant resources to be compliant. Many of
our companies have elaborate and expensive export control
compliance systems that include numerous highly trained staff.
I brought with me the regulations that our companies must
adhere to and there are a stack of books there. They are very
complex and sometimes difficult to comply with.
Madam Chair, in closing, I'd like to call your attention to
my written testimony, which describes a number of specific
export control issues of concern to our industry.
I hope these comments are useful for you as you continue in
this effort, and certainly I'd be happy to entertain any
questions.
[The prepared statement of Dave McCurdy appears in the
appendix.]
Ms. Ros-Lehtinen. Thank you, Dave. Mr. Johnson.
STATEMENT OF JOEL JOHNSON, VICE PRESIDENT, INTERNATIONAL
DIVISION, AEROSPACE INDUSTRIES ASSOCIATION;
Mr. Johnson. Thank you, Madam Chairwoman. As an ex-staff
person as opposed to an ex-member, I'm particularly sensitive
to the Congressional hook and will be very brief.
Obviously, Aerospace, too, is extremely sensitive
concerning export controls. We exported about $59 billion last
year and with a net of about $37 billion, the largest net
exporter of any sector in the U.S.
It's certainly timely to turn to the issue of EAA. I would
hope that this also would begin a process of laying the
groundwork for a major overhaul of the overall export control
legislation, regulation and administration that would be
appropriate for the 21st century.
Your Full Committee is the only Committee that can look at
the full range of export controls, including both the AECA and
the EAA, and that, I think, is extremely necessary.
I touch in my testimony on how times have changed. We
clearly don't have a consensus among the industrial democracies
that we had during the cold war. That's particularly true with
respect to China. The distinction between military and
commercial technology is increasingly blurred and the rate of
change of technology is ever more accelerated.
Our military is increasingly dependent on the commercial
sector for its requirements and, in turn, high technology
commercial sectors are dependent on the international
marketplace for their economic health.
I might note, in the case of Aerospace, as opposed to 10
years ago, when 65 percent of our customer base was the U.S.
Government, today it's 40 percent. Of the remaining 60 percent,
75 percent is for export.
Meanwhile, we have too many export control systems
requiring too many licenses, with too many bureaucratic actors
involved in decisionmaking. It seems to me that we do need to
take a long-term look at the process, but in the short term, it
clearly makes sense to try to pass an interim EAA, perhaps for
a 3-year time span.
The industry would certainly support such a move if such an
act contained a number of safeguards, many of which have been
referred to already. Let me touch very briefly on the ones that
are critical to us.
First, obviously, foreign availability. If all the control
does is shift the source of supply, you are punishing the
American supplier, not the person that you are trying to
affect.
Second, contract sanctity. In general, companies ought to
be able to carry out existing contracts, except in the context
of multilateral controls that cutoff everybody's contracts.
Third, support of formally exported products. This is
particularly important for us in the realm of safety. People
who fly commercial airplanes often have U.S. and Foreign
citizens on them, even when they do come under some kind of
export controls. They fly over many countries' air space.
You cannot pull an airliner in trouble off to the side of
the road and wait for a wrecker to appear.
On multilateral versus unilateral controls, obviously, as
anyone in industry will say, we much prefer multilateral
controls and believe there should be some unit on unilateral
controls.
I'd note that H.R. 361 is somewhat misleading in that it
has a multilateral section which in turn pertains to a whole
slew of unilateral controls and unilateral sanctions, which
would not be emulated by our industrial partners.
Economic impact. Export controls, I think, are sometimes
politically attractive because they're essentially one of the
last unfunded mandates. They don't show up in the Federal
budget. They're simply imposed on industry and workers. It
seems to me that a CBO review of what the costs of export
controls would be perhaps appropriate, and enough said on that.
Time limits on controls, as I already alluded to. When the
intended results of controls don't occur, there is no
politically easy way to get rid of those controls. The EAA that
was passed in 1996 does have at least some automatic time
endings for those controls unless the President extends them,
and I think that's probably appropriate.
Finally, licensing processing time. This was discussed
considerably earlier. It is terribly important in the
commercial arena. You can make time deadlines. I had a company
tell me 2 days ago that because they could not get a license
within 35 days, even to respond to a request for a study from
Intelstat, the study went to the Germans.
Some of us in the room are old enough to know that the
Germans not only know something about satellites, but know
something about rockets, and I'm not sure how U.S. security was
improved by turning that study over to our European
competitors.
I think H.R. 361 did address most of these issues. There
are certainly some limitations to it. But its not a bad
starting point.
I would hope that the comments in the larger testimony will
be useful to the Subcommittee and the Committee, and I will
cutoff there before the hook comes.
[The prepared statement of Joel Johnson appears in the
appendix.]
Ms. Ros-Lehtinen. Thank you. Dr. Freedenberg.
STATEMENT OF DR. PAUL FREEDENBERG, DIRECTOR OF GOVERNMENT
RELATIONS, THE ASSOCIATION FOR MANUFACTURING TECHNOLOGY
Dr. Freedenberg. As the last one up, I will be even
briefer, because I recognize it's been a long day.
My testimony deals with the problems for U.S. companies
created by the current multilateral export control structure.
Wassenaar, which has replaced COCOM, causes a great deal of
problems, particularly with regard to China. COCOM worked
reasonably well and had a clear enemy. The Wassenaar
arrangement works poorly and there is absolutely no consensus
with regard to China. China is the one area which you would
expect an export control system to deal with, and yet
Wassenaar, when it was formed, as I understand it, our
negotiators specifically said it does not deal with China. It
deals with the pariah states.
That put the United States in a very uncomfortable
position, because the United States, one gets the impression
the United States has a fairly easy export control system on
companies. I represent the machine industry. We've had an
average of five licenses per year over the last 5 years. That's
25 total. That's a fairly tough system.
And we're not making judgments about any individual
license, but clearly it's not a system that lets everybody slip
through. It also is a system which, if you compare it with our
allies, the allies are able, and I put some data in my
testimony, the allies are able to get licenses, allied
companies and allied countries, such as Germany, Italy, France,
et cetera are able to get their licenses through the system in
somewhere between 10 days to a month.
The U.S. system--well, it was many months and sometimes as
long as a year. So again, one would hope there would be some
time limits put in. It's a very difficult thing to impose.
There is a particular problem because China is the largest
capital goods market and what they have, following the
Aerospace representative, is that we see that Boeing is
increasingly placing its Aerospace contracts, large portions of
those contracts offshore.
With the current U.S. export control system, those
Aerospace parts are likely to be made on European machine
tools. They're going to be made, the Chinese are going to get
those machine tools, but they're going to be European. That's
something that needs to be addressed.
There is very little chance, under the current
circumstance, that the Wassenaar allies would go along with our
own tightening, but one of the things I think we need to do is
take a very serious look at Wassenaar, decide where our
negotiating strategy is, and go back and reopen the issue.
I have three recommendations in my testimony and the first
and the most important is that foreign availability provisions
ought to reflect the system that we currently find ourselves
in. We find ourselves, under the export control system that I
enforce, from 1985 through 1989, foreign availability had to be
found outside the system.
Under the current system, because Wassenaar is so loose and
because we operate under national discretion, a system of
national discretion, foreign availability can be found from
within the international--the multilateral system. That is,
there can be, for example, machine tools supplied from other
Wassenaar members and I think we need to have a provision, and
actually H.R. 361 has a fairly strong provision, I would
recommend adopting that, which recognizes that foreign
availability can exist, in fact, from within a system.
The other two recommendations I have, and I will conclude
with those recommendations, are I agree with Secretary Reinsch
that if we were go to go a consensus system, unless we're very
clear what we mean by consensus, it could easily lead to a veto
and we could end up with deadlocks, with the lowest common
denominator determining whether licenses go forward.
That would--as I've said, the current system isn't exactly
an easy one. For the machine tool industries, there's been very
few licenses granted. If we were go to go to a sort of veto
system, we think those few licenses that were granted, there
would be even less in the future.
Finally, with regard to the recommendation for surprise
inspection as a precondition for selling computers, we have
to--I think the likelihood is that the Chinese would refuse
this. If we don't want to be selling computers to China, that's
one thing. I think we ought to have a debate about that
subject.
But I happen to know the United States has a very strong
position on surprise inspections by foreign countries, as well.
That's an issue that went into the chemical weapons convention.
We're not going to expect other countries to accept provisions
that we will not accept ourselves.
Now, that doesn't mean--that's something that we have to
take into consideration if we're serious about dealing with
China.
I think I will stop there.
[The prepared statement of Paul Freedenberg follows:]
Ms. Ros-Lehtinen. Thank you, Paul. I just have a few
questions for you.
Mr. McCurdy, you had stated in your testimony, written
testimony, that if we treat China as an enemy, then it will
become an enemy, and some would say that the Chinese communist
party and the Chinese leadership have declared themselves as
enemies of the United States.
In fact, on December 18th, the President of China gave a
reform speech to 6,000 communist party government and military
officials, stating, quote, ``The Western mode of political
systems must never be copied. China should try to minimize the
impact of international risk and decadent thoughts and
lifestyles.''
His comments are directed not only at the United States,
but all western countries.
Would you suggest that the U.S. should remove all export
restrictions currently imposed on China and how can the U.S.
develop beneficial trade relations with China while
safeguarding our U.S. security interests in the region?
Mr. McCurdy. Well, thank you, Madam Chairman. I think the
Chinese President also directed that statement at his own
people. There is a great deal of change underway in China
itself.
We've seen dramatic improvement in their own emerging
market system and they are opening up to the world as we've not
seen in the past.
Now, I testified the other day at the International Trade
Commission on China's accession to the WTO. I did so with the
condition that it be done on commercially viable terms. I don't
believe that we ought to be negotiating among ourselves, but
that the Administration should be taking those points to the
negotiating table and trying to get the best agreement they
possibly can out of the Chinese, and those will be
liberalization of their system and the market.
The comment I made, Madam Chair, about self-fulfilling
prophecy is that if we do not reach out, there are plenty of
countries that are willing to do so.
If it's a unilateral decision on our part to declare that
China cannot be--or cannot take the right fork in the road,
proverbial fork in the road, to be in a more open system, one
that can a more legitimate player on the international arena,
then we may have the adverse consequence of actually pushing
them in the wrong direction.
So I believe that we have tools available to influence much
of their decisions.
Am I saying we should have no controls? Absolutely not. We
believe there should be controls. We do have regimes. We have
the missile technology control regime. We have other areas that
we should be looking very seriously at and there needs to be
pressure brought to bear on those.
But it's not a one size fits all type of position. As we
indicated and I think each of the panelists have indicated that
there is increased trade opportunities for the U.S. firms in
China. It will be the largest market. There are opportunities
that we think advance U.S. long-term national security
interest, but also economic security interest by advocating
greater cooperation.
And it's going to take a long time to do it.
Ms. Ros-Lehtinen. Great. Thank you, Dave. Dr. Freedenberg,
you state in your testimony that without a clear U.S.
technology transfer policy toward China, that it would be
difficult for us in the U.S. to draft and enact a new EAA.
What are your initial recommendations on this?
Dr. Freedenberg. I think one of the problems, and I tried
to get at it in my brief summary, is there really is an
ambivalence about China. China is seen as a technology transfer
risk and it's clear that we have rules about it and that we
enforce those rules, in fact, as I was pointing out in a much
more rigorous way than our allies.
On the other hand, the Administration has also pushed very
hard for U.S. companies to get a piece of a very large market.
I think it's--I don't have a great deal of recommendations in
my testimony. I don't have a number right now. I'd say it's the
sort of thing where we need to most importantly look at foreign
availability, give companies a legitimate right to petition the
government to demonstrate that these products are available in
sufficient quantity and comparable quality to the Chinese as a
significant factor for the government to take into account when
they make licensing decisions.
That's really not the case with regard to China right now
and I provide statistics in my testimony that show that there
are very large numbers of European, for example, in the area
that I know, in European machine tools going into China, with--
and those--that has never been used as an argument for allowing
U.S. companies to sell to those entities.
Ms. Ros-Lehtinen. Thank you, Paul. Mr. Menendez.
Mr. Menendez. Thank you. Gentlemen, let me thank you all
for your testimony. I was reading through some of it, your
extended testimony.
I have heard today, in broad strokes, sometimes
alternatively categorized your respective industries as either
incredibly important not only for economic purposes, but for
national security purposes, or money hungry treasonist
entities.
Could you give me a sense of, on a serious note, what is
the--what is the value beyond the economic values, which I
think everybody can ascertain, what do the values of some of
the industries you represent mean to us in terms of national
security?
Mr. McCurdy. Congressman, we represent almost the full
spectrum of the electronics industry, from those that are
involved in telecommunications, again, a very vibrant area that
we see, consumer electronics, components which are the
essential elements for any final system, all the way through
the manufacturers of electronics for U.S. Government
activities.
There are a couple points that I'd like to make. One is
that the--when I was--and Toby and I were up here, it seemed
that the U.S. Government was providing a lot of the leadership
in technological development, in R&D activities, and they were
leading the entire economy. That's no longer the case.
As a matter of fact, in 1997, we passed an important
threshold. There are now more--there's more commercial money
being spent in space than there is government.
So, again, the innovation, and we see, as the world
actually becomes a smaller place, because now we have
communication satellites circling the earth, providing
tremendous communication.
And that freedom of information, for those of us who had
very extensive careers combating the former Soviet Union and
the tyranny that was involved in that system, we believed that
greater information, greater openness, giving the citizens the
tools to reach out and access information was going to change
that system.
We find the same today. If you look at this chart on
internet users, talk about a vehicle to open up societies, this
is the best. It's instant access to all kinds of information,
both good and bad. But they're going to have a hard time
blocking that and I think that's critical.
But the industries that I represent and we, as an
association or an alliance represent perhaps the most vibrant
industries in the world today. We are now--we've moved from the
industrial age to the information age. We're really moving into
the digital economy and the digital age and the technological
development is at such a rapid pace, you talk about Moore's law
doubling the semiconductor speed every 18 months, mentioned
earlier, Mr. Manzullo, about the MTOPS, the incredible change
in speed there.
I don't have it with me today, but I carry a little chip
that's about the size of a quarter, which is a micro storage
device that has the equivalent of 340 megabytes, a little thin,
little chip, the equivalent of 246 floppy disks.
We now see fast cards and electronic cards. Again, the
technology is changing. Not only the ability of this country to
expand and the global economy to expand and for us to see the
success of it, but also improve the quality of people's lives.
When we actually see growth rates remaining relatively low
in the consumer sector, it's the one sector where the prices
continue to drop and it's one of the most price-sensitive areas
of the economy. Again, electronics, it improves.
And the last point I'd say is that in a way, ironically, it
may be the private sector that is now subsidizing government
technology because if these large defense firms that are
providing information services, electronic systems to the
Federal Government, if they don't have a vibrant market, then
they're not going to continue the R&D rate that they're
currently pursuing.
And the Government has not ante'd up at a rate which we
think is in our long-term best interest. So the irony is that
rather than the Federal Government subsidizing industry to take
the lead in technology and technological development, it may be
the reverse.
Mr. Roth. If I can just quickly add to that, Congressman
Menendez. When I came to this Committee, I was one of the
people that said, hey, let's not let anything be sold overseas.
We're going to keep everything from the Soviet Union.
But as time went on, I realized that that was the wrong
approach. I learned from people like Paul Freedenberg and
others and good people like Roger Majack that you've got to
look to the future and the way you look to the future, you've
got to take a look at this technology. Technology is not a
static thing.
What's a state-of-the-art today, 5 years from now is going
to be obsolete. So what you want to do--this was the conclusion
I came to--is that you've got to protect the tip of the
iceberg, the most sophisticated technology, but the rest of it
you want to let go, because you want to keep the state of
technology in this country.
But once you deny our business to sell overseas and other
companies, whether the German or French or whoever it might be,
step in, then we will no longer keep that edge. And what gives
us our protection is the edge, and that's why we want to keep
that. Something like going pheasant hunting. I don't know. When
I first went pheasant hunting, I couldn't get a pheasant and
the reason was I was always aiming at the bird and then 1 day a
guy came and said you've got to swing that shotgun and stay
ahead of the pheasant at all times in order to hit it, and
that's the analogy for technology.
You've got to stay ahead of the curve and once you don't,
then you're going to lose.
Mr. Menendez. I appreciate your answers. I hope you don't
carry that chip with you when you go abroad. You take it out of
your suit, you might be an export----
Mr. McCurdy. It's commercial available.
Mr. Menendez. Is that right? OK. Let me ask you one other
question, for any of you wish to answer. If the current
controls are continued, if we do not have a new Export
Administration Act, what impact does this have on U.S.
industries, their ability to export, as we turn the century?
Mr. Roth. You're going to let the companies overseas
become--have the state-of-the-art technology and then we will
no longer have the leverage that we've had ever since I came to
Congress.
Mr. McCurdy. I would agree with that. But, again, in light
of the testimony earlier today from Mr. Cox and Mr. Dicks and
what Toby just said earlier about the tip of the iceberg, and
the Secretary made the comment as well, you're talking about 11
or 12,000, I think was the number, applications for license and
such a small percentage are those that are truly involved in
the very sensitive areas.
You have a munitions list. It's very clear, very precise.
There are some who would argue that that needs to be expanded
perhaps. The gray area obviously is in the dual-use
technologies and in the computer areas. Mr. Manzullo, I
believe, last year or in the last Congress, considered removing
controls on computers.
I mean, again, what is the--it is very, very difficult to
define some of the dual-use areas and I think we have to keep
that in mind as we look at this export regime.
It would be a mistake, I think Congress would be abdicating
its responsibility if it did not reauthorize the law and make
it a post-cold war, modern, realistic regime or system that,
rather than inhibit our ability to succeed abroad, but actually
increase it.
Mr. Johnson. To add to that, I think we have, after all,
survived 4 years without one. We could probably go on a bit
longer. I think perhaps one of the crucial problems is not
reauthorizing, but one of not having the debate within
Congress, but to have greater consensus within Congress as to
what export controls are all about.
The dangers that we have gotten into in the last few months
in the last Congress, was that there clearly was no consensus
and there was a tendency to run this way and that way. And that
leaves us in an even greater area of grayness and uncertainty
as to our future and our ability to plan two, three, or 5 years
ahead.
So I think the debate itself will be extremely useful. As
we look around, with Congressman Roth here, there aren't very
many people who have gone through this debate in Congress. The
last EAA, there were five or ten people in Congress who were
here when that passed.
The Senate hasn't discussed this subject for a decade or
more. I think you need that discussion to help bring to the
table these issues and build a greater comfort level within the
Congress and within industry as to where we're going.
Dr. Freedenberg. The other point is you really can't have a
system long-term that is based on a COCOM international system.
That doesn't exist anymore. You have a system that is much,
much different in terms of how we interact with our allies, how
we deal with the essential problem, which is China.
We've heard the debate about China. China is not dealt with
adequately within the current multilateral system and, in fact,
that causes great problems for our companies. Keeping our
companies out doesn't necessarily help things and, in fact, it
can harm us in the long run.
But we have to make a decision on what technology we want
to go, under what circumstances, and that's really a debate
that this Act really ought to stimulate and it's something that
would be, I think, very helpful to undertake.
Ms. Ros-Lehtinen. Thank you, Mr. Menendez. Mr. Manzullo,
I'd like to recognize you for your questions, and if you could
Chair the rest of the meeting.
Toby, Dana and I concluded that you should have aimed that
shotgun at Mrs. O'Leary's cow, thereby sparing Chicago. You
missed your true calling.
Mr. McCurdy. Thank you, Madam Chair.
Mr. Manzullo--[presiding]. Thank you for testifying. Toby,
I want to just publicly thank you for the inspiration and the
guidance that you've given to me personally as a role model and
a mentor in this very, very difficult area.
I want to talk about jobs. I want to get right down to why
we are here. I am terrified. I wish that every member could
read especially Mr. Freedenberg's statement on the disgrace,
the national disgrace of this country, which has the finest
machine tool producers who are being shut out of the markets in
China, on the five-axis machines. We're having problems getting
four-axis machines into India.
I want your estimate as to the number of jobs, I hope some
press is left here--I'm sorry--still here--on the basis of a
billion dollars of exports equals 20,000 jobs. I want to know
what our present policy is doing to send U.S. jobs abroad.
Dr. Freedenberg. China is the largest overseas market for
machine tools, interestingly, but there is a real problem when
you can't sell sophisticated machines, which is the other part,
they don't want to take that approach.
Mr. Manzullo. Replacement parts, updates, right.
Dr. Freedenberg. I will get you the estimates. The
substantial point is the U.S. machine tool industry, which is
at a disadvantage in the 1980's, is now very competitive,
exports fully a third of its output in the 1990's, and China is
the largest market.
That is very important and it's going to become a much
larger market. Boeing estimates, I think, 25 percent of their
sales may be to China over the next decade. It's a very
substantial commercial market and you want to--and those planes
are going to be built increasingly on Chinese--at least parts
of those planes.
Mr. Manzullo. Dr. Freedenberg, can you give us a dollar--
the word has to get out and if we can use this as a platform,
the word has to get out as to what we're doing to destroy our
jobs.
Dr. Freedenberg. One example we have is China is--we have
10 percent of the Chinese market and currently we have 20
percent of the South Korean market. The differential, there
close to the same levels of economic development in terms of
the sorts of products they're trying to produce, automobiles,
aircraft parts, et cetera.
But that differential can be--I will get you the exact
numbers.
Mr. Manzullo. OK. Congressman McCurdy, do you want to take
a stab at that, starting with computers and anything else?
Mr. McCurdy. Certainly, Mr. Chair. I believe the real
problem that you state is one that we use quite often, and that
is that for every billion dollars in exports, you're looking at
20,000 U.S. jobs. As I indicate in my statement, we exported,
in the electronics sector, $150 billion worth of systems and
technology and products.
I think there has been a lot of focus on China itself. I
don't think anyone is up here saying that China is an easy
market. China is a very difficult market and there is a lot
that has to be done. There's a lot of effort that has to be put
in by the Administration and by the U.S. Government to try to
open that market more successfully.
But it is clear that our competitors see that as one of the
biggest opportunities in the world today and they are without
any hindrance, without any limitations, spending the time and
money in technology and investments to have the foothold in
that market.
Mr. Manzullo. What are we losing in terms of items that
could be sold to countries that--a foreign availability, but
which we can't sell because of our licensing requirements?
Mr. McCurdy. In those areas, in some of the dual-use
technologies, where there is foreign availability, it is clear
that if we do not have access to that market, if we do not have
a presence in that market, that market will in fact go to
competitors.
There is no guarantee, even if we had a perfect export
control regime, that we would be the dominant player in that
market. I think our technology is better, higher quality, and
more competitive in price, and, therefore, should be the
commodity or product of choice, but that's not a guarantee.
If you look at who is doing business in China, but also
throughout Asia and throughout the emerging markets around the
world, all the major foreign competitors are there, especially
in the telecommunications area, that we also represent.
Mr. Rohrabacher, I think, is aware as well that that is one
of the--when they deregulated and are deregulating in foreign
countries the telecommunications sector, that opened up the
opportunity for the creation of thousands, of hundreds of
thousands of jobs for U.S. telecommunications manufacturers.
When we are denied access to some of those markets, that
has an adverse impact on those companies.
Mr. Manzullo. Toby, did you want to respond to this?
Mr. Roth. No. I think Mr. McCurdy has put it very well and
I associate myself with his remarks and the other remarks of
the panelists made here today.
Mr. Manzullo. Applied Materials, which manufacture
semiconductor manufactured equipment, lost a $3 billion sale to
China due to export controls. NEC of Japan picked it up. I
have--the district that I represent is one of the most
exporting and very high in machine tools and the worst that
could occur now is a drying up of machine tool exports, the
same thing that happened in 1981, and that's when we led the
Nation in unemployment at 26 percent.
Dr. Freedenberg. Let me give you just one example of
something I've done. When I was over in Japan, I talked with a
number of export control officials and I said, one of the--
you've actually had fairly good arrangements with the Japanese
in the area of super-computers. We had a bilateral agreement
that worked fairly well. I suggested to the Japanese that we
ought to begin bilaterally talking about what the limits ought
to be on China, get some understanding among ourselves so that
we don't undercut each other with--in the area of export, and
then try to expand it informally within the Wassenaar
agreement.
You can't have China, now that Russia is a part of us now,
you can't have China officially as the objective, but you can
get some understandings on what the export control levels ought
to be. We really don't have those, and as a result, the U.S.
Government from time to time can come down very hard on a U.S.
company and have absolutely no assurance that their foreign
competitor won't get the deal.
On the case you're talking about with Applied Materials,
that's exactly the case. It's exactly the same specifications
for the equipment that went in to China from NEC that would
have come from the United States. That doesn't do us any good.
That's a very good example of what we need to get some
understandings with our allies about. So the export controls
are not a factor with regard to the----
Mr. Manzullo. What I would like to see, maybe Mr. McCurdy
and Dr. Freedenberg, I would like to see a letter, perhaps a
joint letter or individual letter--I want to quantify, present
to the American people, present to the Members of Congress that
because of this policy, the number of jobs that we are losing.
China has 300 cities in excess of one million people. Twenty-
five percent of those cities do not have airports. China is in
the process of building I think right now 13 or 14 airports in
the southern part of that country, with a goal of a new airport
in every city. I mean, the opportunities for sales there and
elsewhere are ripe.
Mr. Delahunt.
Mr. Delahunt. Thank you, Mr. Manzullo.
Let me just approach this from a different angle, and if my
questions or observations appear to be naive, it's a reflection
of my--the fact that I'm brand new to this Committee. But I
find his conversation interesting.
Help me walk through. If--and I think this goes to the
issue that Mr. Manzullo expressed his concern about. But if an
American company makes a decision--or can an American company
create a subsidiary and situate a plant or locate a venture,
whether it's a joint venture, whatever the mix may be, in China
to avoid the export control regime that currently exists? Is
that doable under mergers and acquisitions, not only in this
nation, but at, you know, the international level? How does
this issue mesh in with the globalization, if you will, of our
economy?
Dr. Freedenberg. You can use foreign technology, and
frequently the foreign technology is comparable. So you can--
I've seen U.S. companies end up, because of a sanction or a
particular U.S. law, simply shift to a foreign operation,
which, as long as it's not using exclusively U.S. technology--
very frequently Europeans have their own technology that's
comparable----
Mr. Delahunt. What concerns me is in terms of the national
security interest, how would, again, this consolidation into
national--I mean, we see the emergence of the multinational
now. I mean, in terms of compliance, I mean, in the real world,
you know, you talk about exclusive U.S technology. I mean, that
gets real murky when we're talking about, you know,
multinational corporations.
Mr. McCurdy?
Mr. McCurdy. Well, Mr. Delahunt, a couple thoughts on that
question, which I think is a good question. Many of the
competitors that our industry faces are European. Many of those
competitors have huge ownership positions by their governments,
and their governments are actively out there supporting their
export and their activities, whereas in our free market system,
in our free enterprise system, government doesn't own, you
know, an equity position in the companies, and it--but in many
ways is restricting some of its ability to compete.
I was asked to give a speech recently at the U.S. Chamber
of Commerce on industrial espionage, and as former Chairman of
the Intelligence Committee, I had some recollection of some of
the activity of some of our so-called friends and allies with
regard to U.S. businessmen and business people traveling abroad
and some of the risks that were associated there.
The second point is as far as the mergers, there's a limit
to how large a corporation can really grow and be effective. I
think you'll see a cycle----
Mr. Delahunt. I'm waiting for that time.
Mr. McCurdy. I think you'll see a cycle, actually, where
there will be more and more spinoffs. A number of the--the
beauty of the U.S. system and U.S. industries--and it is true
they are global in their span. As I said earlier, a third of
their products are now exported. The beauty is the
entrepreneurism, the innovation, the incredible rapid pace of
market development and time to market. You don't see that
anyplace else, and that's the advantage we have. But if you
slowed that down, if you take that portion away from us, then
all of a sudden, the others have a chance to catch up.
Mr. Delahunt. You know, I don't disagree. I guess what I'm
trying to do is say that--I'm trying to buttress or support
your perspective here by saying, I mean, joint ventures, there
are so many different mechanisms to achieve certain ends that
it causes me concern.
Let me just pick up on one point that--I think it was Mr.
McCurdy that said this earlier, about--in terms of--your
concern is, of course, that if export controls are so
cumbersome, that we lose in terms of our technological edge
because the investment in terms of R&D simply won't be there.
You gave the example of public versus private satellite
technology.
Have you seen evidence of that already happening?
Mr. McCurdy. Oh, without doubt, yes. I mean, there is----
Mr. Delahunt. Because I think you made the comment about--
and I was really taken aback by it, is that you now--I think
your statement was that some of our global competitors are in
fact ahead of us in terms of state-of-the-art technology. Maybe
I'm reading into something that----
Mr. McCurdy. They're comparable in many areas. There is no
longer--we enjoyed the greatest era of prosperity after World
War II because we were the dominant player, we had the leading
technology, we had the infrastructure, we had the education
system, we made the investments, and there really wasn't a
competitor.
In this multipolar world that we live in today that is
highly competitive, there are huge investments countries have
taken on as a system to develop technology that, in fact, can
compete. They subsidize their companies, they subsidize the
exports. In the aviation section, you see it everyday.
And one point that my friend from California made earlier
about industry, let me just say this where I respectfully
disagree on one point. It's the U.S. businesses that in fact
are concerned about long-term security, and they have been good
citizens.
There's always an exception, there will be mistakes made,
but I don't think it's because of greed. If anything, Mr.
Rohrabacher, I believe that that incentive is what made this
system so successful. That's what free enterprise is all about,
that's what we're supporting. And it can operate in conjunction
with national security. That's why you have a munitions list,
that's why you should--ought to focus on those areas that are
specific to threats that may, in fact, come back to haunt us.
Mr. Delahunt. Just one more question real quickly, because
the focus has been on China today, and I understand that, but
also on the Asian continent, we have a country the size of
India. Any comments on, you know, the impact of the current
system as it relates to how we do business, exports, in India.
I think, you know, there's--that's an immense nation,
obviously.
Mr. Johnson. In our industry is a good example of sort of
unintended consequences. Because of the Glenn amendment and
because of moving communications satellites to the munitions
control list, we could not sell a commercial satellite launched
on a Delta 2 rocket to India or Pakistan today, and there is no
Presidential waiver authority. We have turned that market over
to the Europeans until the Congress does something about the
Glenn amendment. No one intended on doing that, but that's what
happened to us.
So you undercut--I don't mean you specifically--they--the
system has undercut both the launch industry and the satellite
industry in the United States because of sort of unintended
consequences of treating commercial items as a military item.
Not the military--I mean.
The other point I would have liked to have made in terms of
trying to figure out jobs, it's a very complicated issue. One
reason we focused on China is because if you take away that
large market and you give it to the Europeans, there's a
monopoly, then a number of things happen in other markets, and
that's really part of the measure.
I remember when we did export sanctions and we denied
Caterpillar sales of 700 pipelaying units to Russia. Comotzo
moved in and within 2 years were marketing heavy construction
machinery in the United States, and if you ride down the road
today, you'll see Komatsu heavy equipment. It wasn't there
until we did that. But you give a guy a free market with a
monopoly price, bad things happen elsewhere. He's got a cash-
flow to develop the next generation of products to get out
there and market what you've taken away from the Americans.
I have a company that is in the satellite area being told--
it was a supplier of components to French Company Alcatel--that
they were going to design out American components now that
we're on the munitions list because our strings on munitions
don't stop.
Mr. Manzullo. OK. Mr. Rohrabacher, I want to end at 10
minutes to six.
Mr. Rohrabacher. OK. Well, I don't think I have that much
time, but----
Mr. Manzullo. Oh, OK.
Mr. Rohrabacher. Let me just note in terms of the jobs
issue, I noticed Mr. Freedenberg sort of hedged when he
realized he was about to disclose that Aerospace jobs were
being lost in order to sell your equipment to make other
equipment.
Dr. Freedenberg. Yes.
Mr. Rohrabacher. Who loses? The American Aerospace workers
in my district, that's who loses.
Dr. Freedenberg. I understand that entirely. In fact,----
Mr. Rohrabacher. Right.
Dr. Freedenberg.--I worked very hard first against offsets,
which is essentially what----
Mr. Rohrabacher. Yes. Let me just----
Dr. Freedenberg. I understand.
Mr. Rohrabacher--[continuing]. Be very clear as I talk
about losing jobs, the Chinese understand exactly how to create
jobs in China and not in the United States, and part of the
bit--the crux of this issue that we're talking about today was
the Chinese insisting to these Aerospace executives that if
you're going to, you know, launch your satellites, you've got
to do it on our rockets, and then you've got to improve our
rockets, and then these executives get lured into this because
of the vision of the China market.
The vision of the China market, they say, you know, China
is the market of the future and it always will be. In our whole
history, we've had people talking about the China market. The
bottom line is, can you--can any of you gentlemen tell me who
buys more from us? Who's bought more from us in the last 10
years--the 20 million people in Taiwan or the billions of
people on the Mainland? Well, you know the answer: it's the
people in Taiwan.
The fact is that up until recently, Taiwan bought more from
the United States every year than the entire Mainland of China.
That's not to mention these other countries. This is little
Taiwan.
We have people who are stumbling over themselves in order
to do business in a way that could jeopardize the national
security of our country in order to get a part of the China
market. Well, this dream is causing great damage to the
security of our country. People can dance around the issue all
they want; the crux of the matter is, we all know that
Communist China could well be at war with the United States
within 10 years unless there's some change of dynamics.
Everybody knows that. Everybody is afraid to say it, afraid to
talk about it.
What are you going to do? Are you going to say that China
is going to be on a list? We're talking about the COCOM lists
of the past. Are we going to knock it out? Everybody is afraid
that, well, then maybe we destroyed our possibility here of
being not only in the market, but we've destroyed the
possibility of reaching out to China and letting them evolve
toward democracy. Well, it's baloney.
Sometime, somewhere, people are going to have to come to
the realization the people who control China hate the United
States, they hate everything we stand for. When our businesses
go over there and sell them our rocket technology or set up
factories so that they're going to be able to compete with our
Aerospace industry, they think we're weaklings and they despise
us and they think we're degenerates because we are ending up
giving their country in the long run the leverage they need to
dominate the United States of America. If you don't think
that's the attitude of these people, you haven't studied what
these people are all about.
Now, I understand this dream that you've got. We're going
to do more business with them because we have all these
computers over there, and through the Internet, we're going to
open up their eyes. I hate to tell you this, Communist people
are not our problem--I mean, the Chinese people are not our
problem. The Chinese people don't want a boot of oppression in
their face forever. They don't want that. The Chinese people--
Tiananmen Square spoke what they wanted. But you have a
ruthless, factious state regime of people who know everything
about the United States--they don't need the computers to find
out--who are committed to what? To making $50-, $60- to $100
billion dollars in surplus with our trade with them every year
in order to do what? To put our people out of work, not to give
work to our people, to make sure that they can compete with our
Aerospace industry and every other industry, and eventually to
produce weapons of mass destruction that will threaten us.
That's what they're doing. They're upgrading their military
every year for the last 5 years in ways that put our country in
jeopardy.
And the reason there's so much to-do about this issue is
when we loosened our restrictions, with my approval, I might
add, based on the same arguments that you've presented us
today, what happened? No, Mr. McCurdy, I'm afraid that those
business executives that watch out for America weren't watching
out for America.
I've investigated this myself for 6 months. I went to the
contractors, I went to the subcontractors. People in those
companies went to me and told me they were embarrassed and they
were ashamed of their company for what they had done, and I
won't name the companies that we're talking about, they were
ashamed because they had spent the cold war trying to protect
our country by developing the technology we needed for our own
defense. And when Aerospace workers come to you on the side and
tell you they know that they're company is engaged in something
that is damaging to our national security, a Member of Congress
better well pay attention to what's going on.
I'm sorry for getting upset, but that's just me.
Mr. McCurdy. No, we appreciate your fervor, Mr.
Rohrabacher. But if I may, just on one point, I think you have
to be very careful when you categorize all of industry or all
of an entire sector of the economy with a statement that, you
know, so-called friends at the country club--in fact, it's U.S.
industry that enabled this country to have the strongest
defense----
Mr. Rohrabacher. Sure.
Mr. McCurdy--[continuing]. Without equal, without par.
Mr. Rohrabacher. Dave, I think you can look at the record
and I don't I've ever used the word all or industry or
everybody in industry. In fact, I said earlier a member of the
country club, and that doesn't mean everybody who is a member
of the country club.
What happens when you're part of a little clique like this
is you overlook something that your buddies have done. You
say,----
Mr. McCurdy. Well, Mr. Rohrabacher----
Mr. Rohrabacher--[continuing]. Well, this guy has done--I'm
not saying everybody has done it.
Mr. McCurdy. Mr. Rohrabacher, we're not here to defend a
particular company. If, in fact, there were violations, there
is a system that will take care of that. What we're here to say
is that don't let an exception--an exception--destroy what has
been the fuel that has run one of the most dynamic engines of a
modern economy ever in history.
Mr. Rohrabacher. Sure.
Mr. McCurdy. We have that today and we don't want to--and
it's not foolproof, it's not free of potential risk. This is
still a fairly volatile economy, and if you, in fact, are--if
we're not careful and just take it for granted that this
innovation and entrepreneurisum will go on forever, and that
this phenomenal growth will go on forever, I think that's a
dangerous assumption.
So all we're arguing for is that don't impose a system that
was directed at an exception on the entire system and an
industry that is--shares your patriotism and your concern----
Mr. Rohrabacher. Dave, when I left this room, I went up to
my office to talk to some people in Boeing Corporation, OK, and
one of the things we just happened to talk about was that
they're finding out all of these sales to China weren't turning
out so profitable after all for their aviation industry. They
got stiffed. And what happened when they got stiffed? They
didn't order all the planes, but they got all the equipment,
didn't they, all those machine tools. So where do we end up? We
end up with American workers who we're supposed to watch out
for, we've given them all the tools they need to compete with
our people to put our people out of work. Who's watching out
for America?
What we're doing is we're letting these big companies go
for the vision of a--not a long-term profit, but a short-term
profit, because you can make a 25 percent profit if you get the
right deal in China, where over in the United States, you know,
maybe you'd only make 7 percent.
One last thought, and then I'll----
Mr. Manzullo. I've got to get back to my office.
Mr. Rohrabacher. I agree with Mr. Manzullo in that we
should not be restricting----
Mr. Manzullo. This is a slow motion.
[Laughter.]
Mr. Rohrabacher. We should not be restricting sales of
American technology that can be done--bought on the market. I
agree with that.
Mr. Manzullo. Amen. This Committee is adjourned.
[Whereupon, at 5:50 p.m., the Subcommittee adjourned.]
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A P P E N D I X
March 3, 1999
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