Thank you, Mr. Chairman, for the opportunity to discuss the Administration's policy on exports of high performance computers. I understand it is prompted by recent reports of the Russian acquisition of U.S.- manufactured high performance computers for use at the nuclear weapons laboratories at Arzamas-16 and Chelyabinsk-70. If these reports are accurate, such transfers would be contrary to U.S. policy and in possible violation of U.S. export control laws. I want to assure the Committee that we take these allegations very seriously and have initiated a full investigation into the matter in cooperation with the Customs Service and the Department of Justice. The Committee will, I hope, understand that I will not be able to comment on matters that are under investigation.
Let me begin by providing some background on the Administration's policy on computer export controls, which is designed to take into account technological advancements in the industry and the widespread availability of computers throughout the world, as well as our national security and nonproliferation concerns.
At the end of the Bush Administration, computers were controlled to most destinations at a level of 12.5 MTOPS (Millions of Theoretical Operations per Second), the level of commonly available personal computers at that time. Supercomputers were then defined at a level of 195 MTOPS. To put this latter number in perspective, high-end Pentium-based personal computers sold today at retail outlets perform at about 200 to 250 MTOPS. In view of this clearly outdated standard, and based on a unanimous recommendation by the Departments of Defense, State, Commerce, Energy and ACDA, the President in February 1994 raised the control level to most destinations to 500 MTOPS and raised the definition of supercomputers to 1,500 MTOPS.
In early 1995, further advances in computer technology were once again overtaking control thresholds. Accordingly, the Administration began another review of export controls and computers. Working with the Center for International Security and Arms Control at Stanford University, the interagency community reviewed national security applications for high-performance computers and assessed availability in the international marketplace. With the Committee's consent, I would like to submit for the record a copy of the report completed by Stanford. At the same time as the Stanford review, the Administration conducted its own internal review, led by the Department of Defense.
Let me briefly summarize the results of the Stanford review, the conclusions of which corresponded to and affirmed the Administration's own findings. Its basic conclusion was that computers with performance capabilities above 7,000 MTOPS are and will continue to be important for several national security applications, particularly designing stealth weapons and other advanced conventional weapons and supporting military operations through processing sensor data, augmenting command and control and by providing better weather prediction. In addition, computers with performance far above 10,000 MTOPS are essential for cryptology, both to decrypt messages and in designing encryption systems.
Finally, the most powerful high performance computers can be useful for maintaining confidence in nuclear stockpiles through extensive modeling and simulation. High performance computers are not needed for first generation weapons design; more advanced weapons design requires computers with a performance of at least 1,500 MTOPS when using nuclear test data and the resulting empirical models. However, without such test data, computers at any performance level would likely not be effective in designing advanced nuclear weapons.
However, the report also recognized the futility of trying to control the uncontrollable and concluded that at certain levels, target countries could obtain or develop their own computing capabilities with little difficulty. The study found computers to be largely uncontrollable at levels of around 4,000 MTOPS and projected that the uncontrollable level would quickly rise to 7,500 MTOPS by late 1996 or early 1997. Developments in parallel processing, which use interconnect technology and systems software to tie a group of much lower performing computers into a single network with supercomputer capabilities, suggest that it is virtually impossible to limit access to high performance computer capabilities.
Based on these findings, the Administration modified export controls on computers, as follows:
We also imposed special record-keeping requirements on exporters of high performance computers. Companies must maintain and provide upon request detailed records for shipments above 2,000 MTOPS to all destinations, and are required to report such data semiannually upon publication of the list implementing the Wassenaar Arrangement. In addition, exporters must take steps to ensure against illegal shipments to denied parties, military end users, and end users of proliferation concern. Finally, under the proliferation "catch-all" control, a license is required for the export of any item (including computers of any level) if the exporter knows the item will be used in proliferation-related activities as specified in the regulations, such as nuclear explosive activities, including research on, or development, design, manufacture, construction, testing, or maintenance of any nuclear explosive device or components or subsystems of such a device. We would not be prepared to approve a license for high performance computers for such purposes.
Let me note that our policy makes a distinction between civilian and military end users for those destinations where we have nonproliferation or security concerns, such as Russia and China. While no computer can be shipped without a license at a level exceeding 7,000 MTOPS to any end use or end user in those countries, we have maintained an even lower threshold (2,000 MTOPS) for military and proliferation end uses and end users.
Recognizing that there is no practical way to preclude problem end users from acquiring computers at these lower levels, especially as the ability to build computer networks and to create parallel processing systems spreads to non-western countries, we believe that attempting to review sales of this nature can be helpful in tracking military production activities in those countries and may give us the opportunity to distance the United States from military or proliferation-related development or production activities with which we do not want to be associated as a nation.
However, we should not be under any illusion that U.S. unilateral export controls on these low level items can be effective in stopping shipments of comparable items from third countries or from precluding their indigenous production. As the availability grows of powerful chips, which are produced in the tens of millions, and as advanced software design and production capabilities spread -- and I note that countries like India, China and Israel are rapidly becoming major software developers -- and as cross-border Internet access to high performance computers becomes more common, effective control of these systems will become increasingly problematic.
Commerce spends a great deal of time working with industry to educate them about their responsibilities and to help them to detect and prevent potential illegal export transactions. BXA has an aggressive outreach program which has trained over 8,000 exporters through approximately 85 seminars since October 1995. As a standard part of seminars, BXA provides guidelines, entitled Export Management System Guidelines, to assist firms in ensuring that their exports and export decisions are consistent with the Export Administration Regulations (EAR). The EAR also contain "Know Your Customer" guidelines and "red flag" indicators that are designed to assist exporters in complying with regulatory requirements.
In addition, our enforcement arm conducts a comprehensive outreach program with industry to discuss "red flags" -- signs of problem transactions. Agents in our enforcement field offices regularly meet with industry to alert them to potential problems and seek industry's cooperation. As part of this program, Commerce agents throughout the country conduct outreach visits to U.S. manufacturers of high performance computers, reminding them to continue their efforts to "know their customer," especially to destinations with a potential for diversion.
As part of the liberalization of export controls on computers, the Commerce Department has developed additional measures to inform exporters of their obligations and of potential proliferation and other security risks. BXA and the CIA's Nonproliferation Center (NPC) have developed a program for sharing information with U.S. companies, including those marketing high-performance computers. A computer industry-specific briefing was held March 1996, whereby officials from Commerce, the CIA, and other government agencies provided guidance regarding U.S. exporters' responsibilities to verify the activities of potential end users and to determine eligibility for license exceptions.
There is more that we are doing in the area of informing exporters about end users of concern. We have recently adopted a new interagency process for identifying and publishing the names of such entities. In addition to the February publication of Ben Gurion University in Israel, we expect to identify and publish more names in the near future.
I would not want to leave the impression that we will routinely publish the names of all entities of concern. Frequently, considerations of intelligence sources and methods will constrain our ability to identify publicly problem end users. Moreover, at times there may be overriding foreign policy or national security interests that preclude publication. We are forced to examine these requests on a case-by-case basis, but our policy, nevertheless, is to publish the names of entities of concern whenever possible.
With respect to our enforcement strategies, our Office of Export Enforcement screens every export license application against our watch list to ensure that all known information about end-users and end-uses is considered before a licensing decision is made. We constantly update our watch list using open sources, U.S. law enforcement and intelligence agencies, the business community and information developed by our own agents.
Often when we have a concern about a party to a license application, we conduct pre-license checks and/or post-shipment verifications to validate information on end-user reliability and to assure that after an export end-users comply with the terms and conditions of their licenses. Commerce conducts both pre-license and post shipment verifications in Russia and will continue to do so.
We have also had some success with BXA's pre-license check program in China for a number of years. BXA has a representative from our enforcement arm assigned to the Commercial Section of our embassy in Beijing who is responsible for handling all BXA issues in China, including pre-license checks. Having an experienced law enforcement officer handle these checks enables BXA to make much better licensing decisions with regard to China. However, despite repeated attempts, we have been unable to convince the government of China to allow us to conduct post shipment verifications. This means that BXA must deny some applications which might be approved were we able to conduct on-site checks after shipment.
I should also note another means of detecting potential diversions of high performance computers -- the need for these computers to be maintained, repaired, serviced and upgraded. Under U.S. export control regulations, it is a violation for any U.S. company or individual employed by a U.S. firm, to service a computer knowing that it was illegally acquired. While this does not stop a foreign party from attempting to attain this service, high performance computers require significant maintenance, and U.S. manufacturers are the best qualified to perform it. This gives us an additional means for determining the location of computers and some degree of insight into their use, including whether those end uses are in compliance with our regulatory requirements. As part of our information-gathering effort, we are asking companies to provide data on any servicing of computers previously exported.
As I said earlier, the President's policy on high performance computers went into effect in January, 1996. Our enforcement offices have been compiling data on all exports of high performance computers to all destinations since then to determine if any of these sales may have violated U.S. export control laws and regulations. Based on preliminary data, we have been informed that during the period of January 1996 through March, 1997, 1100 high performance computers, valued at more than $550 million, were exported from the U.S. Of these, 46 valued at $17.5 million, were exported to the People's Republic of China, and 8, valued at $19 million were exported to Russia.
Export controls are an important tool in our efforts to combat the proliferation of weapons of mass destruction and to promote our overall security and foreign policy objectives, but they are not without limitations. This is particularly the case with computers which are so widely available as to have become commodities in the international economy, and thereby effectively uncontrollable. We believe that is the state of the computer industry today, with a worldwide market of $91 billion.
Industry estimates that the computer liberalization in 1995 affected more than $10 billion in U.S. computer exports annually, supporting about 140,000 American jobs. These figures demonstrate the significant impact of computer exports on our economic competitiveness. Moreover, trying to control the uncontrollable is ineffective when the U.S. no longer possesses a monopoly on this technology. The way to preserve our security and our economic health is by competing, innovating, and staying ahead of the competition in the global marketplace. We remain committed to preserving our national security, nonproliferation and economic interests through a balanced and realistic export control policy.
In April of 2002 the Bureau of Export Administration (BXA) changed its name to the Bureau of Industry and Security(BIS). For historical purposes we have not changed the references to BXA in the legacy documents found in the Archived Press and Public Information.