EXPORT ADMINISTRATION ACT: AGENDA FOR REFORM HEARING BEFORE THE SUBCOMMITTEE ON INTERNATIONAL ECONOMIC POLICY AND TRADE OF THE COMMITTEE ON INTERNATIONAL RELATIONS HOUSE OF REPRESENTATIVES NINETY-FIFTH CONGRESS SECOND SESSION

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85-00003R000100040009-4
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 63
• Document Creation Date: December 21, 2016
• Document Release Date: October 23, 2008
• Sequence Number: 9
• Publication Date: October 4, 1978
• Content Type: OPEN SOURCE

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EXPORT ADMINISTRATION ACT:
AGENDA FOR REFORM
HEARING
SUBCOMMITTEE ON INTERNATIONAL ECONOMIC
POLICY. AND TRADE
OF THE
COMMITTEE ON
INTERNATIONAL RELATIONS
HOUSE OF REPRESENTATIVES
NINETY-FIFTH CONGRESS
Printed for the use of the Committee on International Relations
U.S. GOVERNMENT PRINTING OFFICE
35-832 0 WASHINGTON : 1978
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COMMITTEE ON INTERNATIONAL RELATIONS
CLEMENT J. ZABLOCKI, Wisconsin, Chairman
L. H. FOUNTAIN, North Carolina
DANTE B. FASCELL, Florida
CHARLES C. DIGGS, in., Michigan
ROBERT N. C. NIX, Pennsylvania
DONALD M. FRASER, Minnesota
BENJAMIN S. ROSENTHAL, New York
LEE H. HAMILTON, Indiana
LESTER L. WOLFF, New York
JONATHAN B. BINGHAM, New York
GUS YATRON, Pennsylvania
MICHAEL HARRINGTON, Massachusetts
LEO J. RYAN, California
CARDISS COLLINS, Illinois
STEPHEN J. SOLARZ, New York
HELEN S. MEYNER, New Jersey
DON BONKER, Washington
GERRY E. STUDDS, Massachusetts
ANDY IRELAND, Florida
DONALD J. PEASE, Ohio
ANTHONY C. BEILENSON, California
WYCHE FOWLER, JR., Georgia
E (KIKA) DE LA GARZA, Texas
GEORGE E. DANIELSON, California
JOHN J. CAVANAUGH, Nebraska
WILLIAM S. BROOMFIELD, Michigan
EDWARD J. DERWINSKI, Illinois
PAUL FINDLEY, Illinois
JOHN H. BUCHANAN, in., Alabama
J. HERBERT BURKE, Florida
CHARLES W. WHALEN, in., Ohio
LARRY WINN, in., Kansas
BENJAMIN A. GILMAN, New York
TENNYSON GUYER, Ohio
ROBERT J. LAGOMARSINO, California
WILLIAM F. GOODLING, Pennsylvania
JOEL PRITCHARD, Washington
SUBCOMMITTEE ON INTERNATIONAL ECONOMIC POLICY AND TRADE
JONATHAN B. BINGHAM, New York, Chairman
ANDY IRELAND, Florida CHARLES W. WHALEN, JR., Ohio
WYCHE FOWLER, in., Georgia PAUL FINDLEY, Illinois
E (KIKA) DE LA GARZA, Texas
JOHN J. CAVANAUGH, Nebraska
R. ROGER MAJAa, Subcommittee Staff Director
THOMAS E. PorovlcH, Minority Staff Consultant
VICTOR C. JOHNSON, Subcommittee Staff Associate
PAULA BELENAP, Subcommittee Staff Associate
CAROL PAGE ROVNER, Staff Assistant
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CONTENTS
WITNESSES
Wednesday, October 4, 1978: Page
Fredrick W. Huszagh, executive director, Dean Rusk Center for
International and Comparative Law, University of Georgia-------- 1
George Bardos, chairman, Ad Hoc Committee on the Export Admin-
istration Act, Computer and Business Equipment Manufacturers
Association------------------------------------------------- 15
James A. Gray, president, National Machine Tool Builders' Associa-
tion-------------------------------------------------------- 18
MATERIAL SUBMITTED FOR THE RECORD
List of CBEMA member companies__________________________________ 18
Report on "Simplification of the Export Administration Regulations,"
submitted by the Secretary of Commerce pursuant to section 114 of the
Export Administration Amendments of 1977------------------------- 45
"Special Report on Multilateral Export Controls," submitted by the
President pursuant to section 117 of the Export Administration Amend-
ments of 1977--------------------------------------------------- 52
(HI)
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EXPORT ADMINISTRATION ACT: AGENDA FOR
REFORM
HOUSE OF REPRESENTATIVES,
COMMITTEE ON INTERNATIONAL RELATIONS,
SUBCOMMITTEE ON INTERNATIONAL
ECONOMIC POLICY AND TRADE,
Washington, D.C.
The subcommittee met at 3:12 p.m. in room 2200, Rayburn House
Office Building, Hon. Jonathan B. Bingham (chairman of the sub-
committee) presiding.
Mr. BINGHAM. The Subcommittee on International Economic
Policy and Trade will be in order.
We do expect some other members, but we also expect some votes
on the floor and, therefore, in fairness to our witnesses I think we
should proceed.
The subcommittee's major focus of attention next year will be on
the extension and revision of the Export Administration Act. I plan
to introduce a bill for this purpose in January, on which the staff will
begin work immediately following adjournment.
The subcommittee will take extensive testimony on this subject
next year. However, to help us in our efforts over the remainder of
this year, we have asked three witnesses to give us a preview of their
recommendations for improving the export-licensing process. They
are : Mr. George Bardos, chairman of the Ad Hoc Committee on the
Export Administration Act of the Computer and Business Equipment
Manufacturers Association; Mr. James A. Gray, president of the
National Machine Tool Builders' Association; and Dr. Fredrick W.
Huszagh, executive director of the Dean Rusk Center for International
and Comparative Law at the University of Georgia.
Welcome to the subcommittee, gentlemen. We look forward to
your testimony.
Mr. Huszagh, we can go for about 8 minutes now and then we will
have to suspend, unfortunately.
STATEMENT OF FREDRICK W. HUSZAGH, EXECUTIVE DIRECTOR,
DEAN RUSK CENTER FOR INTERNATIONAL AND COMPARATIVE
LAW, UNIVERSITY OF GEORGIA
Mr. HuszAGH. Thank you, Mr. Chairman.
We are very pleased to be asked to comment on how the Export
Administration Act could be improved with change in the future and
how regulations adopted pursuant to the statute might be improved.
First, a few comments on why the center, being an academic and
research institution, is interested in such changes.
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The declining rate of growth in this country will require that
government produce government products more efficiently. The
Export Administration Act is a good example of a government product
in need of amendment to comport with contemporary standards of
efficiency and effectiveness.
Absent such amendment, we feel our citizenry will lose confidence
in government and our competitive position in the world markets
will deteriorate along with our leadership in foreign affairs and our
national security.
Without more, I shall outline the major points of my prepared
testimony.
Mr. BINGHAM. I appreciate that.
Mr. HuszAGH. I assume my prepared testimony will be put in the
record.
Mr. BINGHAM. Yes. Without objection, your entire statement will
appear in the record and we would appreciate it if you would sum-
marize it.
Mr. HUSZAGH. First, I believe evolving case law as well as past
and current political theory suggest free trade by U.S. citizens is a
fairly fundamental right. If this right is abridged by Government or
by other citizens, they have some burden of proof to justify such
abridgements. National security and foreign affairs are important
national concerns but so are the citizens' rights. There should be a
proper balancing of these interests.
Second, as government gets more complex, more decisions will be
committed to an interagency decisional process. This process must be
developed to approximate the sophistication of intra-agency decision-
making. I do not believe that is the case now with the Export Admin-
istration Act.
Third, government decisions, especially in the executive branch,
cannot ignore external costs. If decisions are made to bar export of a
product, government should calculate the total costs of that decision
in terms of lost sales or loss of opportunities for businesses to enter
into the export market generally. Failure to properly acknowledge the
full costs of government decisions will cause deteriorating citizen
confidence in government action.
PROBLEMS IN THE ADMINISTRATION OF THE ACT
The Export Administration Act as now administered creates several
problems. First, many decisions take time and create a lag in the sale
process. A growing body of research suggests such time delay factors
adversely affect our competitive position.
Second, decisionmaking under the act, especially concerning place-
ment of products on the validated license list, creates an uncertainty
that makes it very difficult for new-to-export companies to under-
take the investment necessary to develop markets in many foreign
countries. Consequently, they refrain from entering foreign markets
and focus on domestic markets that are safer and involve less risk.
Third, the tying of licensing decisions to keystone technologies may
further inhibit those U.S. products having the strongest competitive
position in world markets. Research suggests that the level of R. & D.
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in products correlates directly with competitive position in foreign
markets' early phases of the product life cycle. If the United States fully
capitalizes its leadership in terms of R. & D. regarding foreign markets,
it will better capture foreign markets and thus limit the market avail-
able to non-U.S. manufacturers. Consequently, many foreign manu-
facturers will not be willing to undertake the R. & D. necessary to
compete vigorously in such markets. Unfortunately, our export
licensing regulations restrict most exports of our highest technology
products having the greatest potential competitive edge in foreign
markets, an edge that will not last indefinitely.
Fourth, although the Export Administration Act seeks several
objectives, it does not require they be achieved simultaneously.
In my opinion, every major decision made under the act should
simultaneously seek to satisfy objectives of foreign affairs, security,
and trade promotion.
Mr. BINGHAM. Excuse me. I apologize to all three of you but I am
going to have to leave to vote. There will be a series of votes, so I
think we'd better recess for approximately half an hour.
[Whereupon, a brief recess was taken.]
Mr. BINOHAM. Please proceed, Mr. Huszagh.
Mr. HUSZAGH. We recommend this subcommittee consider several
amendments to the Export Administration Act during the coming
months. These recommendations deal with the problems I have
previously outlined.
First, the act's policies section should make clear priorities regarding
objectives. If free trade is a right or something near to it, then the
policies section should indicate the burden of proof is on those trying
to encroach on that right for national defense and foreign policy
reasons.
Second, special consideration should be given to the processes by
which export products are moved on and off the validated license list.
This process, despite the presence of advisory groups, is pretty much
an internal government process. It is frequently controlled by national
security rather than trade expansion interests. Affected parties in the
private sector have little opportunity for a hearing adequate to
understand the arguments that are being made and to counter those
arguments with arguments of their own.
Third, we feel government processing of individual applications
for validated licenses should be limited to only two or at most three
decisionmaking levels. At the operating committee level, a formula
ought to be devised that permits simultaneous consideration of
foreign policy, national security, and trade promotion issues, and
results in all cases in a decision to deny or approve. Parties not satis-
fied with the decision should have the right to appeal to a Cabinet
level group consisting of the Departments of State, Defense, and
Commerce. To the extent other Government entities like the Depart-
ment of Energy have an interest in a case, they should be required
to plead that interest through one of those three Departments on the
basis of the priorities set forth in the preamble of the Export Admin-
istration Act.
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We feel this decisional process will substantially reduce decision
delay and will preclude many cases from being vehicles for resolving
policy disputes between agencies. Jurisdictional disputes between
agencies ought not be weighed routinely at the cost of individual
citizens.
Fourth, the act should be designed to accommodate changes in
priorities over time in terms of economic versus security issues.
Continual resort to the legislative arena should not,be necessary, and
thus we recommend adoption of internal processing approaches that
will automatically handle these adjustments in policy.
Finally, I am concerned that continued, increased reliance on
interagency decisionmaking will circumvent the budgetary oversight
power Congress now has over decisions processed through agencies.
when the decisions are made external to agencies, Congress may re-
tain some monitoring capacity through the legislation itself, but it
loses much control associated with the very powerful tool of the
appropriation process.
[Mr. Huszagh's prepared statement follows:]
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PREPARED STATEMENT OF FREDRICK W. HUSZAOH, EXECUTIVE DIRECTOR, DEAN
RUSK CENTER FOR INTERNATIONAL AND COMPARATIVE LAW, UNIVERSITY OF
GEORGIA
Export trade has always been a vital, though small, component of
the nation's financial health, but the balance of trade surpluses of the
sixties, as well as our own internal growth, have allowed the federal
government to pursue political and security objectives without concern
for their impact on export performance. Export control structures have
developed which ignore the necessities of a dynamic and competitive
export trade. Our present export laws and regulations are insensitive
to basic realities of export trade. They fail to recognize fundamental
differences in types of products and market characteristics. They are
blind to the basic business processes by which American businesses
evaluate and 'undertake risks in pursuit of trade expansion.
In contrast, countries reliant on export trade are sensitive to the
characteristics of their exporters, products, and world markets. They
can and do recognize important distinctions among product needs and
market requirements. Thus, these countries insure that their export
industries remain competitive in world markets.
Last spring, in testimony before the Subcommittee on International
Finance of the Senate Committee on Banking, Housing & Urban Affairs,l
I outlined the escalating conflict between elements of our "permanent
government," that part of the Executive Branch which remains through
changes in Presidents and administrations. With each element pursuing
different policy objectives, the result not only inhibits trade directly,
but also creates an environment of uncertainty dampening business inter-
est'in entering, expanding or maintaining export trade.
The Export Administration Act of 1969, as amended, is an excellent
illustration of how conflicting agency objectives, supported by con-
flicting Congressional mandates, operate directly and indirectly to
impair our export vitality. Testimony before this Subcommittee and
others, indicates that the goals of export control are pursued'with
questionable effect and notable inefficiency. These goals are normalS.
pursued with substantial indifference to the fundamental American com-
mitment to free trade. Inflation and slow industrial growth require the
government to act with greater effect for less cost. Legitimate govern-
ment goals must be achieved with a minimum of undesired side effects.
Shifts in emphasis among government goals must be accommodated contin-
uously without repeated resort to legislative eform.
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During the forthcoming legislative session, this Committee will be
presented with a unique opportunity to give U.S. export trade a sharply
higher priority in our national policy. I believe this can be achieved
through techniques which do not impair other components of national
policy and which set a model for both efficient and responsive govern-
ment.
II. REFERENCE POINTS FOR REVISION OF THE EXPORT ADMINISTRATION
ACT
In areas where the permanent government has become ensconced it is
difficult to achieve a major change from past behavior through legis-
lative action. The export licensing area is no exception.
The original Export Control Act of 1949 imposed limits on U.S.
exports to bar military or strategic materials from communist countries.
In 1962, the law was expanded to include exports of economic signifi-
cance as well. These provisions resulted in administrative mechanisms
and procedures which gave the highest priority to national security
objectives.
In 1969, Congress sought to reduce these export restrictions by
declaring that it was U.S. policy to encourage trade, to oppose restric-
tive trade practices fostered by foreign countries, to further U.S.
foreign policies concerning international responsibilities, and to guard
against short supply and abnormal foreign demand. Unfortunately, these
expanded objectives have not displaced the permanent government's
preference for maintaining national security as the highest priority.
Further, it did not deter other elements of government from deploying
these restrictive mechanisms to pursue non-security objectives which
were of particular interest to them but perhaps of marginal utility to
the country as a whole. Thus, past events created a mechanism that gave
highest priority to restriction of exports, and no subsequent action has
been able to dislodge this preference.
Federal regulation of export transactions has expanded considerably
from its original concern with national security to include boycotts,
sensitive payments, technology transfers, and alleged human rights
violations. The complexities of these regulations and the randomness of
their application make the exporting environment extraordinarily uncertain
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for all classes of exporters--new-to-market, new-to-export and old-to-
export. These exporters are frequently unable to predict whether they
will have the opportunity to amortize necessary investments in export
activities.
Sound government, if it is to foster a sustained and expanding
export trade, cannot be oblivious to the uncertainty generated by the
unpredictable pursuit of government objectives. The "black box" oper-
ation of the present regulations, especially when biased with goals that
inherently restrict foreign trade, increases costs and delays without
necessarily enhancing legitimate regulatory goals. These delays often
result directly in loss of sales. The escalating administration costs
associated with these regulations; increase the price of our exports in
competitive markets. The associated confusion has made commitments to
exporting too risky for new-to-export candidates. Even old-to-export
companies are being forced to reconsider the nature of their commitment
to export trade in areas and commodities covered by these regulations.
Legislative initiatives responsive to exporters' needs must reflect
the legitimate concerns of the elements of the permanent government now
involved, and balance them against the peculiar burdens imposed on
export trade. There are several burdens which must be given special
attention.
First, the internal procedures for considering validated licenses
require a consensus among interested agencies before such a license is
issued. This process delays licensing decisions and obscures these
decisions from the view of those most interested in them--the exporters.
These delays and the "black box" processing impede exporter negotiations
with potential foreign buyers, especially those buyers who have
alternative foreign sources of supply. Our export companies are at a
significant competitive disadvantage in those areas where time and
certainty are a component of the purchase decision.
Secondly, the lack of clarity in the criteria used to make these
decisions, as well as the insertion of new criteria dealing with evol-
ving foreign policy interests, produces an uncertainty that may directly
inhibit company interest in exporting to particular markets, or export-
ing particular products. The Dresser case and Oshkosh Truck case as
well as situations in Latin America dealing with human rights violations
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are vivid illustrations of how discontinuities can be created in the
export licensing environment which make responsible business decisions
extremely difficult and risky.
Thirdly, the current licensing procedures and proposed revisions
which focus on "keystone technologies" (revolutionary technologies as
compared to evolutionary technologies) may well place the greatest
impediments on the very sectors of our economy which have the greatest
opportunity for significant exports abroad. A number of studies have
established that research and development is directly correlated to
export performance.2 Unfortunately, the American industries having the
highest levels of R & D expenditures are often the industries subject to
the most burdensome controls under current and proposed policies in
terms of delay and uncertainty.
It is a specific objective of some participants in the licensing
process to retard transfers of new technology. These technologies are
likely to be the ones in which we have the greatest competitive advan-
tage, and the opportunity to achieve dominance in foreign markets.
Market dominance by the U.S. exporter reduces the market potential for a
foreign competitor, making it more difficult for the competitor to
amortize the R & D costs necessary to duplicate the American product.
On the other hand, if we continue to retard our exports in the most
dynamic areas of innovation, our own exporters will have less opportu-
nity of amortizing their own R & D costs. This leads to a reduction of
domestic R & D, and a reduction of our own technological lead. Ulti-
mately, this vicious cycle can affect not only our economic vitality,
but also our military strength.
Apart from the above national security, foreign policy, and eco-
nomic aspects of our licensing policy, we believe this Committee must
become concerned with the legitimacy of the process by which government
controls exports. Free trade is a fundamental tenet of American philo-
sophy, yet it must now sustain the burden of proof as against security
and foreign policy interests. Those most affected by the process have
minimal access to it. They must frequently endure delay in silence,
without explanation, and must accept denial with a minimum of recourse.
These are not conditions which may long endure if cherished elements of
our constitution are to remain vital. The actions of permanent gov-
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ernment must remain accountable to the tenets of our constitution, and
it is Congress's obligation to insure that they remain so accountable.
Nowhere are they less accountable than in processes like those dealing
with export licensing.
Administrative regulations promulgated under the Export Adminis-
tration Act of 1969, as amended, require all commodities and manufac-
tured items having potential strategic importance to comply with the
terms of either a general or validated license. Goods on the general
license list may be exported without approval, but the exporter must
observe certain limitations, maintain required records, and make per-
iodic filings. Goods on the validated license list may not be exported
without specific approval by the Department of Commerce, and compliance
with a variety of limitations, recordkeeping requirements, and report
procedures. An analysis of our interview data, Congressional hearings,
government reports and scholarly literature suggests these regulations
are implemented as described below.
During the course of any year, there is considerable administrative
action that moves items from the general license list to the validated
license list. Less frequently are items moved from the validated license
list to the general license list. The decision to impose validated
license requirements on particular goods is not subject to the due pro-
cess requirements associated with adjudication or rule-making in normal
administrative proceedings.
Once an application for a validated license has been filed, it is
evaluated by the Commerce Department staff to determine if a validated
license can be issued automatically under the existing staff criteria
agreed upon by all of the relevant agencies.
If this staff approval cannot be given, the matter is set for
review by the Export Administration Operation Committee, composed of a
chairman employed by the Department of Commerce, and representatives
from the Departments of Commerce, State, and Defense. Other departments
such as Energy and NASA participate in the event that items come within
their interest areas. This committee meets weekly and handles approximately
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fifteen cases per week. The chairman summarizes the important issues
presented by the application, and then each department representative
may make general comments. Subsequently, a tentative vote is taken, and
if there is not consensus to issue a license, the Operating Committee
chairman seeks to identify the reason for a lack of consensus and deter-
mines if there is a basis for resolving these difficulties. If they can
be resolved, a consensus is reached and a validated license issued or
denied.
In the event consensus is not reached, the matter is referred to
the sub-ACEP level, which is a committee composed of deputy assistant
secretaries from each of the cognizant departments. This group meets
monthly and acts on consensus only. In the event consensus is not
achieved at this level, there are provisions for submission to the ACEP
committee composed of assistant secretaries, but in actuality this
committee seldom functions. Consequently, where consensus cannot be
reached at the deputy assistant secretary level, items are referred to
the Export Review Administration Board, composed of cabinet level of-
ficers. Here again the group has seldom met in formal session in the
past few years, but has discussed issues at meetings convened for other
purposes.
In the above procedures, the lack of consensus at any level has the
effect of deferring decision until a later date. Of course, if there is
agreement to deny the license, this process is terminated and the appli-
cant has limited appeal rights.
The foregoing description suggests several amendments to Title I of
the Export Administration Act. At a minimum, the amendments should
improve the focus of the Declaration of Policies, better define criteria
for constructing the control lists, and restructure the processes for
approving validated licenses.
In the Declaration of Policies, we believe that the objective of
encouraging exports should be established as the paramount objective.
Foreign policy, short supply, and national security objectives should be
achieved at the expense of export expansion only in cases where facts
indicate this is the best course of action for both the short and long
term. In essence, the Declaration of Policies should place the burden
of proof on those who would limit exports.
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For the control lists, the Act should be amended to clearly indi-
cate that a decision to bring items under the Act, or to move them
from a general to validated license list, is a rule-making process which
requires some opportunity for a hearing. If the decision to place a
product on the validated list is made more formal, many of the monitoring
and assessment objectives sought by the periodic reports now required
will be met automatically, and the burden of proof requirements imposed
on those seeking national security and foreign policy objectives can be
safeguarded.
Implementing regulations for this amendment might require consider-
ation of how additions to the list will affect the processing of other
applications, and how the delay imposed by addition to the list will
affect U.S. export competitiveness in various regional markets.3 This
requirement will encourage cognizant government agencies to limit their
restrictions only to specific countries rather than apply them generally
to broad categories. Furthermore, we would propose that the regulations
should require periodic (biennial) review of all items on the validated
license list. Their continuation on the list would have to be justi-
fied, and affected parties would have an opportunity to be heard on the
issue.
Thirdly, the Act should be amended to specifically require that
validated licenses be issued according to procedures that provide for a
relative weighing of export, national security, and foreign policy
objectives. The Act should also insure that decisions for approval or
denial will be made within a brief period, and not continually delayed
by the lack of consensus. This statutory amendment should be supported
by regulatory amendments which would establish a voting process at the
lowest decisional level that would insure an automatic decision by the
Operating Committee. Both private and public sector parties would have
the right to appeal the decision to a higher level with the burden of
proof resting on those advocating export restraints. The next level
would involve the Secretaries of State, Defense, and Commerce, with
other departmental and White House officials participating in an ad-
visory capacity. The appeal procedures would be streamlined and would
not contain all of the safeguards provided for in the Administrative
Procedure Act. Presumably, the President could personally override the
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decision of this cabinet level group in exceptional cases.
Overall, the procedures sought by the proposed amendment would
allow most cases to be resolved at the lowest level possible. However,
it would also permit agencies to use select cases to test the current
relative importance of export, security, and foreign policy objectives
and the concomitant distribution of power among the various agencies.
Such continued review opportunities help avoid the current situation.
The national security concerns that were paramount in the 1960's have
been allowed to dominate export decision-making well into the 1970's,
even though the national security concerns have lost much of their
importance when compared to our export and balance of trade concerns.
Our review of personal interviews conducted this summer, Congres-
sional testimony, and the extensive literature on East-West trade and
export licensing, makes it clear that the proposed changes are needed
and feasible. However, at least four streams of research should be
undertaken, and the results made available before Congress amends the
Export Administration Act.
First, there should be quantitative measurement of how elements
of the licensing process affect both the willingness of American com-
panies to export and the competitiveness of American exports. This
measurement should distinguish the effects according to the type of
market, type of product, and the period of the product life cycle.
Second, there is a need to determine if inter-agency procedures can
be adopted which properly, balance evolving national interests, which
provide affected private parties with safeguards concerning a fair
hearing on their request, and which result in more open, efficient,
and effective government.
Third, extensive analysis must be made of the various parties and
interests in the permanent government as well as those of elected posts,
to determine if proposed inter-agency procedures adequately reflect the
substantive and procedural interests of various agencies and individuals
involved.
Fourth, there must be a perceptive analysis of the constitutional
standing of the various national interests affected by export controls.
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Administrative implementation of the Export Administration Act places
the burden of proof on those seeking to export, thus, making exporting
a privilege rather than a right. I feel both the evolution of case
law, and the political theory underlying our government place this
approach at the margins of the constitution. The priority we advocate
for export trade will reverse this drift to the margins and reaffirm the
basic tenets of our Constitution. Congress has become increasingly
sensitive to the encroachment of government on basic freedoms. The
outlined amendments are consistent with this trend, and if pursued,
should stimulate government action that is efficient, effective, and
proper.
If the above-noted research discloses that current export licensing
procedures do substantially impair overseas competitiveness of products
where we have the greatest comparative advantage, and do inhibit com-
panies from expanding into export markets, our adverse balance of trade
requires legislative reform. If the research also discloses models for
reform that adequately protect critical security and foreign policy
interests without imposing significant impediments to current U.S.
export trade and its future growth, legislative reform should adopt such
models despite the political implications within the permanent govern-
ment.
Apart from these pragmatic reasons for reform, the continued
strength of our constitutional system requires Congressional action.
that restores the "right to trade" to'a position of prominence among our
fundamental rights and reaffirms that private parties substantially
affected by government action have meaningful opportunities as to time,
place and manner, to contribute to the decision, insuring that such
action reflects a balanced assessment of all private and public in-
terests involved. Toward these ends we recommend serious attention be
given to the following types of amendments to the Export Administration
Act of 1969, as amended.
First, the Act's Declaration of Policies could be clarified to
stress the importance of exports and indicate the flow of exports can be
limited for foreign policy and national security reasons only if there
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is clear demonstration that benefits of such limitations exceed the
costs. Second, amendments could better define the criteria to be used
for constructing the control lists for both general and validated
licenses. Third, amendments could be made to insure the decisional
process on actual licenses is not delayed beyond a specific period
without detailed disclosure on the reasons for delay. Fourth, the Act
could be amended to streamline the issuance of validated licenses so
that a .decision to deny or approve a license would be made in the first
instance, thus permitting both public and private parties dissatisfied
with the decision to commence an.appeal and assume the burden of proof
of overturning the initial decision. fifth, the Act could be redesigned
to assure that the licensing criteria can be changed if circumstances
demand. For example, through administrative procedures, it should be
possible for the parties to ignore precedent in the event there are
sudden shifts in economic growth. Finally, the statute could be amended
.to facilitate better external monitoring and assessment of these pro-
cesses by Congress, the President, and the Courts.
1 Hearings on Export Policy before the Subcommittee on Interna-
tional Finance of the Senate Committee on Banking, Housing & Urban
Affairs, 95th Cong., 2d Sess., pt. 6 (1978).
2 See V. Hirsch, The Export Performance of Six Manufacturing
Industries: A Comparative Study of Denmark, Holland and Israel
(Praeger: 1971); International Economic Report of the President, 120
(Washington, D.C.: U.S. Government Printing Office, 1977).
3 Greg Conderacci, "To Have Impact on Huge U.S. Trade Gap," The
Wall Street Journal, September 27, 1978, p.2.
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Mr. BINGRAM. Thank you very much, Mr. Huszagh.
We will hear next from Mr. George Bardos.
STATEMENT OF GEORGE BARDOS, CHAIRMAN, AD HOC COMMITTEE
ON THE EXPORT ADMINISTRATION ACT, COMPUTER & BUSINESS
EQUIPMENT MANUFACTURERS ASSOCIATION
Mr. BARDOS. Mr. Chairman and members of the subcommittee,
I am George Bardos, vice president for the Control Data Corp. and
chairman of CBEMA's Export Administration Act Subcommittee.
Accompanying me is John Collins of IBM World Trade, and chair-
man of CBEMA's International Trade Regulation Subcommittee.
Just a comment about CBEMA. The Computer and Business Equip-
ment Manufacturers Association (CBEMA) represents the leading
manufacturers of computer and business equipment. Last year the
combined revenues of CBEMA member companies increased to more
than $40 billion, of which $16 billion were derived from international
sales. CBEMA members contributed more than $2.4 billion to the
U.S. balance of trade with exports of $4 billion as compared to $1.6
billion of imports in 1977.
Our member companies employ a total of 750,000 people in the
United States. Typically, our members receive from 30 percent to
over 50 percent of their revenues from overseas operations.
CBEMA and its member companies have participated actively in
the review and revision of the Export Control Act of 1949, which led
to the passage of the Export Administration Act of 1969. We partici-
pated also in the 1972, 1974, and 1977 extensions and amendments
of that act. We are pleased to appear before the Subcommittee on
International Economic Policy and Trade to relate our concerns about
the current law and to suggest areas of change and revision for the
subcommittee's consideration, regarding the Export Administration
Act of 1969 as amended, which is scheduled to expire in September
1979.
We have actively participated most recently with the act in 1974
and 1977, and we are pleased to appear before this subcommittee
and suggest areas of change and revisions for the subcommittee's
consideration.
RECOMMENDATIONS
Our industry would like to take the opportunity at this time to
present three specific recommendations which we believe will signifi-
cantly improve the export licensing aspects of this act.
Currently, under U.S. law, all commodities require an export
authorization. The recommendations and revisions we propose will
improve the predictability of this process without diminution of
national security purview.
There are two categories of export licenses, general, and validated.
General licenses for exports-where- a company does not need to
apply in advance for Government preapproval-are representative of
the first category of licenses. Validated export licenses-where a com-
pany must make an application to the Government for each individual
case which may or may not be approved-are representative of the
second category of licensing.
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Under the general category, the Government specifies in advance
what the rules are; then exporters are responsible for obeying the rules,
and the Government monitors compliance and penalizes violators.
However, when trading with controlled countries, industry is required
to presubmit certain end-use and end-user information.
Under the validated category of export licenses, private industry,
and individuals submit requests for export licenses to the Government
describing each transaction in advance, then the Government approves
or disapproves the proposed transactions.
Now this latter form of licensing requires a significant amount of
Government resources and places a much heavier paperwork burden
on both Government and industry. Additionally, it results in uncer-
tainty as to what will or will not be approved along with protracted
leadtimes between the application for approval and the actual com-
pletion of that review.
The CoCom control list is not the same as the U.S. control list
although the same descriptions are used, such as computers, pe-
ripherals and disks. The levels of performance of these items are the
determining factor as to whether they are CoCom controlled or can be
licensed at U.S. discretion. Only a small portion of the total list;
namely, the higher performance levels, do in fact require CoCom
approval. The majority of items, and therefore the majority of the
current caseload can and are being approved at U.S. discretion with-
out submission to CoCom.
It is desirable to minimize the number of cases that will require
validated licenses without endangering national security. This could
be done by issuing more general licenses, which will result in reduced
paperwork and minimize delays and uncertainties. Thus, predicta-
bility, which is so vital for the U.S. exporter, will be achieved.
Our proposal has two key features:
First, we recommend the validated license procedure-that is, the
case-by-case prior approval-be limited to those cases that require
CoCom approval.
The effect of this would be that all other cases that can now be
approved at U.S. discretion without CoCom approval would fall under
the general license procedure, and not require case-by-case prior
approval.
Thus, attention would be focused on the exceptional cases, with a
greater emphasis toward reducing less sensitive products to a qualified
general license and elimination from the list altogether.
Based upon the experience of our industry, we estimate that this
procedure would reduce the caseload and attendant paperwork up to
80 percent without jeopardizing national security and would permit
the United States to concentrate only on CoCom-related cases. Sig-
nificant savings in cost and manpower to both industry and Govern-
ment would result.
In addition, the advantages of greater speed and predictability
would have positive effects upon U.S. employment and the balance
of trade.
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. 17
TIME LIMIT OF LICENSING DECISIONS
Second, we recommend retention of the provision that requires
cases submitted for validated license approval be determined in 90
days, but add automatic escalation to a secretarial level committee
if a decision has not been reached at that time. Further, the higher
level decision must be completed in another 45 days, and if the case
is still unresolved, the President be given 45 additional days to reach
a final decision. Any application for a validated license that has not
been approved or disapproved within 180 days from the date of receipt
would then be presumed conclusively to be approved.
This process will eliminate the protracted delays we have con-
tinually experienced and which have added to the uncertainty and
unpredictability of exporting, costing the U.S. economy in lost busi-
ness and jobs.
There are additional features of our recommendations which I will
mention, but not describe at this time, such as the need for an Industry
Advisory Committee for industry to interact with the Government to
provide consensus on foreign availability of products, to emphasize
the desirability of indexing and updating of CoCom control levels,
and the need for a forum for discussing problems and difficulties of
the export process.
We are prepared to work closely with you and your staff on the
Export Administration Act and related issues.
We also encourage you and your subcommittee to provide the
necessary oversight responsibility for the execution of the provisions
of this act.
In closing, I would like to summarize CBEMA's position:
The Computer and Business Equipment Manufacturers Association
represents an industry which employs almost three-quarters of a
million persons in the United States. Last year, when the U.S. trade
deficit reached nearly $27 billion the industry made a positive contri-
bution of $2.4 billion to the U.S. balance of trade. The industry's deep
and increasing involvement in international trade has led us to con-
clude that the U.S. Government and the U.S. industry have definite
and distinct roles to play in achieving a sound international trade and
monetary position.
The role of the Government is to maintain a sound domestic
economy and to encourage and reinforce the efforts of U.S. companies
trading abroad. On the other hand, industry must cooperate with the
Government while seeking maximum return on its international busi-
ness activities. An important aspect of international trade is the
opportunity for job creation; this opportunity is vital to the United
States. U.S. export activities must be balanced between economic,
national security, political, and technological factors. Continued com-
munication and cooperation between Government and industry, we
believe, are the keys to long-range success in international trade and
in supporting a sound domestic economy. The export administration
process has too frequently in the past depended on uncertainty and
delay to implement the views of the controllers. A turnaround in the
international trade position depends on many factors not the least of
which is swift and predictable export administration.
Thank you.
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18
[A list of CBEMA member companies follows:]
CBEMA MEMBER COMPANIES
3M Co.
A. B. Dick Co.
AMP Inc.
Acme Visible Records, Inc.
Addmaster Corp.
Addressograph Multigraph Corp.
Bell & Howell Co.
Burroughs Corp.
Control Data Corp.
Dennison Manufacutring Co.
Dictaphone Corp.
Digital Equipment Corp.
Eastman Kodak Co.
GF Business Equipment, Inc.
General Binding Corp.
Harris Corp.
Hewlett-Packard Co.
Honeywell Information Systems Inc.
K/Tronic, Inc.
Lanier Business Products, Inc.
Liquid Paper Corp.
Micro Switch, Division of Honeywell,
Inc.
NCR Corp.
North American Philips Corp.
Olivetti Corp of America.
Pitney Bowes.
Royal Business Machines, Inc.
Sanders Associates, Inc.
Sony Corp. of America.
Sperry Univac.
Sweda International.
TRW Communications Systems &
Services.
Tab Products Co.
Tektronix, Inc.
The Standard Register Co.
Uarco Inc.
Xerox Corp.
Mr. BINGHAM. Thank you, Mr. Bardos.
Mr. Gray.
STATEMENT OF JAMES A. GRAY, PRESIDENT, NATIONAL MACHINE
TOOL BUILDERS' ASSOCIATION
Mr. GRAY. Thank you, Mr. Chairman.
My name is James A. Gray. I am president of the National Machine
Tool Builders' Association (NMTBA). With me are James H. Mack,
NMTBA Public Affairs Director, and Edward J. Loeffler, NMTBA
technical director.
Mr. BINGHAM. Excuse me, Mr. Gray. Would you like to have your
entire statement inserted in the record and summarize it?
Mr. GRAY. Yes; thank you.
Before proceeding with our suggestions for revisions to the legisla-
tion, we would first like to mention the recent International Machine
Tool Show as a source of information for the U.S. Government author-
ities who are involved with export licensing. The International Ma-
chine Tool Show was held in Chicago, Ill., at McCormack Place from
September 6 to September 15. The show area covered 640,000 square
feet of space, making it the largest industrial show ever held in the
United States. Over 97,000 registrants at the show saw all types of
American and foreign machine tools-from the simplest to the most
sophisticated.
The exhibits included machines from the Socialist countries of
Eastern Europe and the People's Republic of China as well as from
Western Europe, India, Japan, and South America-some 32 different
countries.
Today Congressman Dan Rostenkowski, of Chicago, made a very
important statement on the House floor, and I ask that Mr. Rosten-
kowski's comments be inserted in the record at this point.
Mr. BINGHAM. Without objection.
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19
[The statement may be found in the Congressional Record of
October 5, 1978, on p. H11774 (proceedings of the House continued
from the Record of October 4, 1978).]
Mr. GRAY. Attendance at the show was a wonderful opportunity
to examine at first hand these machine tools and accessories, and to
talk to the salesmen and sales engineers in detail about each product.
It was our hope that many of the government authorities involved
with the processing of validated export licenses would attend the
show in order to make a comparison between the equipment we are
trying to ship and the equipment being manufactured overseas, in-
cluding equipment manufactured in the controlled countries.
Since the Departments of Defense and Energy have been the major
objectors to granting export licenses for machine tools in the past,
it is hoped that they sent numerous representatives who work on
licensing problems to observe the equipment that we have long claimed
is available from the Socialist countries-equipment that is becoming
comparable to our own. This subcommittee may wish to question the
DOD and DOE licensing officials as to how much interest they showed
in updating their files,on the availability of all types of machine tools
manufactured in the Socialist countries, as well as in the rest of the
industrial world.
As an example of equipment available from the Socialist countries,
the Hungarian exhibit presented a 3-axis computer NC machining
center on which the control was as advanced as many of those pro-
duced in the western world. Incidentally, the Hungarians candidly
admitted-and I quote :
We were not allowed to purchase suitable machines and controls from the
western nations and so we had to develop our own. Now we will compete with
you in the world market.
When asked if the control contained a microprocessor, their repre-
sentative replied, "Yes." When queried as to where the Hungarians
were able to obtain microprocessors, he answered, "At any shop in
Western Europe." .
As this subcommittee is well aware, microprocessors, and the equip-
ment in which they are used, are the subject of rather acrimonious
debates among Government people as to whether they should even
be allowed to be shipped from this country.
And now to proceed with our reasons for changing the existing
legislation.
Section 4 (b) (2) (b) provides that the President may deny a license
for national security reasons even if he determines that machines are
available without restriction from sources outside of the United
States in significant quantities and comparable in quality to those
produced in the United States. We would like to see that the legisla-
tion includes some specific criteria for determining whether foreign
availability of comparable quality and quantity exists.
In the same section it is suggested that specific criteria be included
for determining whether national security controls should be imposed,
even though foreign availability has been established.
In addition, it is suggested that this section be improved by re-
quiring the President to not only "initiate" but conclude successful
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20
negotiations with the governments of the appropriate foreign countries
for the purpose of eliminating such availability. A reasonable period
of time-such as 6 months-should be required for the conclusion of
the negotiations.
Section 4(d) states that: "Nothing in this act or the rules or regu-
lations thereunder shall be construed to require authority or permission
to export, except where required by the President to effect the policies
set forth in section 3 of this act." This section has been misinterpreted
by some to mean that no export may be shipped without a Presidential
determination that a license should be granted. The wording of this
section should be changed to make it clear that Congress encourages
U.S. exports and makes export controls the exception rather than the
rule.
DELEGATION OF AUTHORITY
Section 4(e) states that: "The President may delegate the power,
authority, and discretion conferred upon him by this act to such
departments, agencies, or officials of the Government as he may deem
appropriate." We suggest that the President be prohibited from
delegating licensing authority to any agency, the head of which is
not subject to Senate confirmation.
Section 4(g)(1) reads in part: "It is the intent of Congress that
any export license applications required under this act shall be
approved or disapproved within 90 days of its receipt."
The current bureaucratic interpretation of the paragraph is that if
there is not enough time to process an application-and there seldom
seems to be-the applicant is merely notified that an extension of
time is required. It is suggested that the legislation be changed to
require that exact and complete technical circumstances for the delay
be submitted to the applicant.
The current section 4(g)(3) states: "In any denial of an export
license application, the applicant shall be informed in writing of the
specific statutory base for such denial." This provision has also been
circumvented by broad and almost meaningless general statements for
denial, such as "national security."
Attempts to obtain further information are usually fruitless. The
legislative provision should be changed to not only require the specific
statutory basis for a denial but also the exact technical reasons for
that denial.
Sections 4(h) (1) and 4(h) (2) assign to the Secretary of Defense
the responsibility for reviewing license applications where the "export
of such goods and technology will make a significant contribution to
the military potential of such (a controlled) country."
Delays of up to 2 years have been experienced in the processing of
license applications, and a great deal of the blame lies with the De-
partment of Defense.
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In order to speed up the licensing process, we recommend that the
use of "precedents" in the licensing of similar exports be allowed. That
is, instead of requiring a complete review of each licensing process, we
recommend that the use of "precedents" in the licensing of similar
exports be allowed. That is, instead of requiring a complete review of
each license application on a case-by-case basis, authority be given
to the Department of Commerce to approve license applications for
machines which have been previously approved for shipment to the
controlled countries. Subsequent licensing for similar machine tools
would, of course, be subject to the appropriate end-use control.
Also to speed up the license processing, it is suggested that the
Operating Committee decisions be made on a two-thirds vote of the
departments and agencies that are members of the Operating Com-
mittee. This would improve the present situation whereby a unanimous
vote of the departments and agencies is required.
However, it is recognized that, in some instances, national security
considerations may still be considered by DOD to be of strong concern
and, consequently, the following legislative suggestions are offered.
If the DOD position is in the-one-third or less-minority on the
Operating Committee, DOD would be allowed 5 working days in
which to file a written notice of objection stating that DOD wants
to pursue the case on a higher level. If no written statement is re-
ceived by the Operating Committee within the 5 days, the license
would be issued. But if the statement of objection is filed, DOD
would have 30 days in which to appeal the case to the President.
The President would then be allowed an additional 30 days in which
to prepare a final ruling on the case.
In section 4 (h) (4) (A) the term technology is defined. This def-
inition has proven inadequate and it is suggested that a new def-
inition e written based on that given by Mr. J. F. Bucy of Texas
Instruments Inc., during his testimony before the Senate Permanent
Subcommittee on Investigations in May 1977.
FOREIGN POLICY CONTROLS
It is well known that the administration has been exercising control
over U.S. exports, for reasons ofl foreign policy. ! While the are not
necessarily 'in agreement with this precept, we recognize that the
Congress may wish to acid some further foreign policy controls into
the future legislation.
There may be times when sanctions may be justified in puI rsuit
of foreign policy goals, but we don't believe that export controls
are an efficient manner in which to apply those sanctions. In industries
such as the'machine tool industry, where long leadtimes prevail,
these sanctions may be particularly inefficient because the foreign
policy may shift before the equipment is finally manufactured.
Other forms of sanctions, or "leverage," may be much more effective
than a restriction on some exports.
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We recommend that, if Congress considers changing the adminis-
trative authority for licensing controls based upon foreign policy
considerations, the same foreign availability restrictions be imposed
thereon as are imposed upon national security controls. We recommend
that it must also be shown that the proscribed exports significantly
contribute to a foreign country's pursuit of military policies which
are significantly detrimental to the foreign policy of the United
States.
We further recommend that the controls be administered by the
Commerce Department in cooperation with the State Department.
When a license is withdrawn after prior issuance, a manufacturer
may be faced with a large financial loss because he has proceeded to
manufacture the machines in reliance upon a license having been
granted. It is suggested that some recourse of indemnification be
provided for the manufacturer who is faced with such a problem
COCOM
The record before this subcommittee in the Cyril Bath case and in
other testimony shows clearly that CoCom has not met its intended
goals.' CoCom has most decidedly not been an effective means of deny-
ing the availability of high-technology equipment to controlled coun-
tries. NMTBA recommends that CoCom should either be made more
effective or should be eliminated entirely.
Since it is thought in many Government circles that the CoCom
agreement does serve some purpose, we recommend that the agree-
ment be elevated to treaty status, subject to Senate approval. Further,
it is suggested that the appropriate congressional committees be
authorized to review on a regular basis the State Department's conduct
of CoCom negotiations and foreign and U.S. exception request reviews.
In addition, the same time limitations should be placed upon U.S.
review of foreign exception requests as are now placed upon the review
of U.S. license applications.
COMMODITY CONTROL LIST
Finally, we would like to see the legislation strengthened in several
areas to cover administrative details which have proven troublesome.
Notably, the Commodity Control List, as issued by the Department
of, Commerce on behalf of the U.S. Government, should be required
to spell out exactly the criteria for each item contained therein.
It should then be mandated that only the provisions printed in the
Commodity Control List shall be considered when a license application
is processed. The information required to be submitted with a license
application shall be restricted to cover only those items specifically
called for in the Commodity Control List; no other items, other than
end use or foreign availability information, shall be required to be
submitted with a license application.
Thank you for the opportunity of appearing before the subcom-
mittee again. We will be glad to answer any questions you may
propose.
[Mr. Gray's prepared statement follows:]
1 See Export Licensing : Foreign Availability of Stretch Forming Presses," hearing
before the Subcommittee on International Economic Policy and Trade, Nov. 4, 1977.
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23
PREPARED STATEMENT OF JAMES A. GRAY, PRESIDENT, NATIONAL MACHINE TOOL
BUILDERS' ASSOCIATION
Good afternoon, my name is James A. Gray, I am President
of the National Machine Tool Builders' Association (NMTBA). With
me are James H. Mack, NMTBA Public Affairs Director, and Edward J.
Loeffler, NMTBA Technical Director.
We would like to thank you for again giving us the
opportunity to testify before this Committee on the subject of
export legislation -- a subject which is of major importance to
our industry.
As mentioned in earlier testimony, NMTBA is a national
trade association comprised of about 400 companies accounting for
some 90% of the United States machine tool production. Over 70%
of these companies have less than 250 employees, while the entire
industry has approximately 90,000 employees.
In previous testimony we dwelt on the difficulties our
members have had in obtaining export licenses for the shipment of
machine tools to controlled countries. We attempted to show why
the COCOM controls are working only to the disadvantage of
American industry. Furthermore, we tried to show that the Export
Administration Act is not being followed by the various U. S.
government departments and agencies as was clearly mandated in
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the amendments to the Act made in 1977. The fact that the intent
of the amendments have been circumvented has been brought sharply
into focus by a review of Congressional committee reports,
discussions with committee staff members, and additional discussions
with congressmen and senators who were involved in writing the
amendments.
We have also had the opportunity to observe, first
hand, the licensing difficulties when we have been involved on
Today, with your permission, we would like to change
the thrust of our testimony and suggest specific changes in the
legislation. we will limit our complaints to brief explanations
for the suggested changes. The conclusions we have drawn, and
the suggestions we will make, are not primarily the throughts
of the NMTBA staff, but have come from discussions with our
member companies and with various committees of the NMTBA that
have been charged with the task of overseeing the problems
connected with export controls and with the administration of
those controls.
Before proceeding with our suggestions for revisions
to the legislation, we would first like to mention the recent
International Machine Tool Show as a source of information for
the U. S. government authorities who are involved with export
licensing. The International Machine Tool Show was held in
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Chicago, Illinois at McCormick Place from September 6th to
September 15th. The show area covered 640,000 square feet of
space, making it the largest industrial show ever held in the
United States. Over 97,000 registrants at the show saw all
types of American and foreign machine tools -- from the simplest
to the most sophisticated. The exhibits included machines from
the Socialist countries as well as from western Europe, India,
Japan, and South America.
Attendance at the show was a wonderful opportunity to
examine at first hand these machine tools and accessories, and
to talk to the salesmen and sales engineers in detail about each
product. It was our hope that many of the government authorities
involved with the processing of validated export licenses would
attend the show in order to make a comparison between the
equipment we are trying to ship and the equipment being manu-
factured overseas, including equipment manufactured in the
controlled countries. Since the Departments of Defense and
Energy have been the major objectors to granting export
licenses for machine tools in the past, it is hoped that
they sent numerous representatives who work on licensing
problems to observe the equipment that we have long claimed
is available from the Socialist countries -- equipment that is
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becoming comparable to our own. This subcommittee may wish
to question the DoD and DOE licensing officials as to how
much interest they showed in updating their files on the
availability of all types of machine tools manufactured in
the Socialist countries, as well as in the rest of the industrial
world.
As an example of equipment available from the socialist
countries, the Hungarian exhibit presented a 3-axis CNC machining
center on which the control was as advanced as many of those
produced in the western world. Incidentally, the Hungarians
candidly admitted -- and I quote -- "We were not allowed to
purchase suitable machines and controls from the Western nations
and so we had to develop our own. Now we will compete with
you in the world market". When asked if the control contained
a microprocessor, their representative replied "Yes"! When
queried as to where the Hungarians were able to obtain micro-
processors, he answered, "At any shop in Western Europe".
As this subcommittee is well aware, microprocessors, and the
equipment in which they are used, are the subject of rather
acrimonious debates among government people as to whether
they should even be allowed to be shipped from this country.
And now to proceed with our reasons for changing the
existing legislation. All section numbers refer to the Export
Administration Act of 1969 as amended in 1972, 1974, and 1977.
For clarity, the suggestions are given in order of the section
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numbers in the legislation, rather than in order of importance.
Section 4(b)(2)(B) provides that the President may
deny a license for national security reasons even if he deter-
mines that machines are available without restriction from
sources outside of the United States in significant quantities
and comparable in quality to those produced in the United States.
We would like to see that the legislation includes some specific
criteria for determining whether foreign availability of compar-
able quality and quantity exists. Our members have, in the
past, submitted large quantities of catalogs of foreign manu-
facturers, as well as articles and pictures from trade journals,
with their license applications. This material has been
considered inadequate by the U. S. government for proving
foreign availability. Numerous executives from our'member
companies, upon returning from visits to factories in the
controlled countries, have offered to submit sworn affidavits
attesting to the equipment they have seen installed in these
countries. The U. S. agencies involved with processing the
licenses have never seriously considered that such affidavits
might serve to prove foreign availability and have never asked
for them. It has been suggested by government officials that
copies of sales proposals, purchase orders, or shipping documents
might be of interest to them; this is obviously impractical as
neither the buyer nor the seller of the equipment would seriously
entertain a request for submission of such information.
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In the same section it is suggested that specific
criteria be included for determining whether national security
controls should be imposed, even though foreign availability
has been established. The national security of this nation
is not enhanced if the subject equipment is freely supplied
by a foreign nation. Rather, the national security of this
nation is improved if our machine tool factories are kept
operating at a high rate of production, thus enabling them to
better meet their fixed expenses as well as to keep a trained
workforce together.
In addition, it is suggested that this section be
improved by requiring the President to not only "initiate" but
conclude successful negotiations with the governments of the
appropriate' foreign countries for the purpose of eliminating
such availability. A reasonable period of time -- such as
six months -- should be required for the conclusion of the
negotiations. Any more protracted time period would only
result in the loss of the order for which the application was
made and would render further negotiations academic. Require-
ments should be added that the negotiations should receive
adequate publicity so that all parties involved would know
the status of these actions.
Section 4(s) states that "Nothing in this Act or
the rules or regulations thereunder shall be construed to
require authority or permission to export, except where required
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by the President to effect the policies set forth in Section 3
of this Act". This section has been mis-interpreted by some
to mean that no export may be shipped without a Presidential
determination that .a license should be granted. The wording
of this section should be changed to make it clear that Congress
encourages U. S. exports and makes export controls the exception,
rather than the rule.
Section 4(e) states that "The President may delegate
the power, authority, and discretion conferred upon him by this
Act to such departments, agencies, or officials of the govern-
ment as he may deem appropriate". We suggest that the President
be prohibited from delegating licensing authority to any agency,
the.head of which is not subject to Senate confirmation. By
this means the Congress will be able to maintain a closer
control over the administration of the export legislation, and
may more easily determine that the Congressional mandates are
being followed.
Section 4(g)(1) reads in part, "It is the intent of
Congress that any export license applications required under
this Act shall be approved or disapproved within 90 days of its
receipt". Although the inclusion of this provision was an
improvement over past legislation, and the intent of the Congress
was thought to be clear, subsequent actions of the bureaucrats
has made a farce of the provision. The current bureaucratic
interpretation of the paragraph is that if there is not enough
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time to process an application -- and there seldom seems to
be -- the applicant is merely notified that an extension of
time is required. No reason is necessarily given for the
required extension and if the applicant were to insist on
adherence to the 90 day provision his license would be denied
immediately. It is suggested that the legislation be changed
to require that exact and complete technical circumstances
for the delay be submitted to the applicant. In this way the
applicant would be informed as to the precise reasons for the
processing delay and could immediately submit additional
material to substantiate his case, if necessary.
The current Section 4(g)(3) states, "In any denial
of an export license application, the applicant shall be
informed in writing of the specific statutory base for such
denial". This provision has also been circumvented by broad
and almost meaningless general statements for denial, such as
"national security". Attempts to obtain further information
are usually fruitless. The legislative provision should be
changed to not only require the specific statutory basis for
a denial but also the exact technical reasons for that denial.
Sections 4(h)(1) and 4(h)(2) assign to the Secretary
of Defense the responsibility for reviewing license applica-
tions where the "export of such goods and technology will make
a significant contribution to the military potential of such
(a controlled) country". The Act further states that the
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Secretary of Defense shall reply within 30 days after-the
notification of a request for a license. Delays in the
processing of licensing applications have been mentioned
previously but here is another place where long delays occur.
Delays of up to two years have been experienced in the pro-
cessing of license applications, and a great deal of the
blame lies with the Department of Defense. Again, if a
license applicant were to press for quick action on his
application the result would be an even quicker denial. In
order to speed up the licensing process, we recommend that
the use of "precedents" in the licensing of similar exports
be allowed. That is, instead of requiring a complete review
of each license application on a case-by-case basis, authority
be given to the Department of Commerce to approve license
applications for machines which have been previously approved
for shipment to the controlled countries. Subsequent licensing
for similar machine tools would, of course, be subject to the
appropriate end-use control.
Also to speed up license processing, it is suggested
that the Operating Committee decisions be made on a 2/3 vote
of the departments and agencies that are members of the Operat-
ing Committee. This would improve the present situation whereby
a unanimous vote of the departments and agencies is required.
However, it is recognized that, in some instances, national
security considerations may still be considered by DoD to be
of strong concern and, consequently, the following legislative
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suggestions are offered. If the DoD position is in the (1/3
or less) minority on the Operating Committee, DoD would be
allowed five working days in which to file a written notice
of objection stating that DoD wants to pursue the case. on a
higher level. If no written statement is received by the
Operating Committee within the five days the license would be
issued. But if the statement of objection is filed, DoD would
have 30 days in which to appeal the case to the President.
The President would then be allowed an additional 30 days in
which to prepare a final ruling on the case.
In Section 4(h)(4)(A) the term technology is defined.
This definition has proven inadequate and it is suggested that
a new definition be written based on that given by Mr. J. F.
Bucy of Texas Instruments Incorporated during his testimony
before the Permanent Subcommittee on Investigations (Govern-
mental Affairs Committee, U. S. Senate) in May, 1977. Mr. Bucy's
statement was: "Technology is not science and it is not
products. Technology is the application of science to the
manufacturing of goods or the producing of services. It is
the specific know-how required to define a product or service
that fulfills a need, and to design and manufacture it. The
product is the end result of this technology, but it is not
the technology."
Section 5(c) deals with Department of Commerce
Technical Advisory Committees. Since the passage of the Export
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Administration Amendment of 1977 there has been some improve-
ment in the operation of the Numerically Controlled Machine
Tool Technical Advisory Committee. However, we respectfully
suggest that this subcommittee may wish to question members
of-other Technical Advisory Committees as we are aware that
some of the members of other committees are far from satisfied
with the operation of their particular TACS.
We now have a number of suggestions which we have
not tied in directly with specific sections of the existing
legislation. Nonetheless, we feel that these are important
and should be given due consideration by this subcommittee.
It is well known that the administration has been
exercising control over U. S. exports for reasons of foreign
policy. While we are not necessarily in agreement with this
precept, we recognize that the Congress may wish to add some
further foreign policy controls into the future legislation.
There may be times when. sanctions may be justified in pursuit
of foreign policy goals, but we don't believe that export
controls are an efficient manner in which to apply those
sanctions. In industries such as the machine tool industry,
where long lead times prevail, these sanctions may be parti-
cularly inefficient because the foreign policy may shift
before the equipment is finally manufactured. Other forms of
sanctions, or "leverage", may be much more effective than a
restriction on some exports. In addition, some sanctions often
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prove to be counter-productive in that the country against
which the sanctions are applied reacts in a manner not foreseen,
.and the exportation of other commodities to that country are
adversely affected.
We recommend that, if Congress considers changing
the administrative authority for licensing controls based
upon foreign policy considerations, the same foreign availabil-
ity restrictions be imposed thereon as are imposed upon national
security controls. We recommend that it must also be shown
that the proscribed exports significantly contribute to a
foreign country's pursuit of military policies which are signi-
ficantly detrimental to the foreign policy of the U. S. We
further recommend that the controls be administered by the Commerce
Department in cooperation with the State Department.
Because of licensing delays already mentioned,
numerous of our companies have been placed in a rather precarious
financial position because they have, in good faith, proceeded
to order long delivery items and, in some cases, completed the
assembly of machines only to learn that their licenses have
been denied or have been withdrawn after prior approval. It
is recognized that it is strictly a business decision as to
whether to proceed with the purchase and/or construction of
equipment while a license application is pending. Hence we
feel nothing can be done' about this problem other than to
vastly improve. the time for license processing. However, when
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a license is withdrawn after prior issuance a manufacturer
may be faced with a large financial loss because he has
proceeded to manufacture the machines in reliance upon a
license having been-granted. It is suggested that some
recourse or indemnification be provided for the manufacturer
who is faced with such a problem.
The record before this subcommittee in the Cyril
Bath case and in other testimony shows clearly that COCOM
has not met its intended goals. COCOM has most decidedly not
been an effective means of denying the availability of high
technology equipment to controlled countries. NMTBA recommends
that COCOM should either be made more effective or should be
eliminated entirely. Since it is thought in many government
circles that the COCOM agreement does serve some purpose, we
recommend that the agreement be elevated to treaty status,
subject to Senate approval. Further, it is suggested that
the appropriate Congressional Committees be authorized to
review on a regular basis the State Department's conduct of
COCOM negotiations and foreign and U. S. exception request
reviews. In addition, the same time limitations should be
placed upon U.S. review of foreign exception requests as are
now placed upon the review of U. S. license applications.
The members.. of COCOM interpret the COCOM regulations
differently and, it is alleged, more loosely. For example,
it is noted that the so called "Administrative Notes" in the
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COCOM Regulations are observed in this country to require a
license following procedures as stringent as for complete
COCOM control. But, in the other COCOM countries, licenses
are granted very freely under the Administrative Notes.
In addition, several major manufacturing countries
are not parties to the COCOM agreement and trade freely with
Finally, we would like to see the legislation
strengthened in several areas to cover administrative details
which have proven troublesome. Notably the Commodity Control
List, as issued by the Department of Commerce on behalf of
the U..S. government, should be required to spell out exactly
the criteria for each item contained therein. i
It should then be mandated that only the provisions
printed in the Commodity Control List shall be considered
when a license application is processed. We have seen some
instances where a government official has stated that a
license application should be denied because, in his opinion,
the equipment proposed for sale is "too much for the stated
end purpose". This is a judgment factor which should not be
allowed. The information required to be submitted with a
license application shall be restricted to cover only those
items specifically called for in the Commodity Control List;
no other items, other than end use or foreign availability
information, shall be required to be submitted with a license
application.
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37
Also, the wording of the CCL is sometimes subject
to broad and varied interpretation. For example, item 1091A(b)
requires a license for "Equipment, which according to the
manufacturer's technical specifications can be equipped with"...
some other embargoed item. The intent of the wording is
to limit the shipment of machine tools without numerical controls
to, obstensibly, prevent the application of NC at some later
date. However, this has been a very troublesome phrase. A
simple comparative example of the effect of this phrase would
be the purchase of an automobile which can be ordered with a
6 or 8 cylinder engine. If the car were bought with a 6
cylinder engine it might, under this CCL provision, be denied
an export license because it "can be equipped with" an 8 cylinder
engine, assuming that the 8 cylinder engine was embargoed. The
point is that any piece of equipment can be upgraded if one
takes the time and has the money to spend.
Thank you for the opportunity of appearing before
the subcommittee again. We will be glad to answer any questions
you may propose.
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Mr. BINGHAM. Thank you, Mr. Gray.
Mr. Huszagh, it is very easy to say that our desire to increase our
exports should be balanced against a decision to say no to an appli-
cation for an export license on national security grounds. I think this
balance occurs today in a way, but the difficulty as I see it, and the
difficulty that I don't think you address in your testimony, is that
this is really a case of comparing apples and oranges.
How do you measure, on the one hand, the desirability of certain
exports from an economic point of view as against, on the other hand,
a national security problem arising from our contributing to the
capability of potential enemy power?
Mr. HuszAGH. Well, I think that decision obviously has to be
made at some level. Certainly as people debate these issues or they'
are debated in Congress or before the President, he must make those
decisions, and he does on an everyday basis. .
I think the problem is the way the process is now structured.
Complete deference is given to national security claims. When such a
claim is made, there is not an examination of it by those parties most
affected. That is the private sector.
We certainly impose these tradeoff requirements, through the
National Environmental Policy Act on all sorts of Government action
dealing with environmental questions versus economic growth. I don't
see why the same tradeoff approach cannot be imposed on export-
licensing decisions. More importantly security risks reflect increased
deference not to immediate security risks but to a desire to delay
the Russians in allocating resources to security interests. I think that
is getting pretty obtuse for blind defense, although it is an important
consideration. It deserves serious consideration, but I don't think it
deserves consideration in isolation.
Mr. BING}HAM. I am not saying that this is impossible. Maybe it
should be attempted. Aren't you suggesting that we should have some
kind of quantitative measure applied to both sides of the equation
and some way of relating the two? In a given case you try to relate the
economic considerations to some sort of scale, and I suppose the
larger the transaction, the more important from the point of view of
our exports. It is not so easy to say how you can put on a scale the
various degrees of danger, if you will, that a given export might pose
for the national security.
Mr. HuszAGH. Well, it is not easy, but there are ways of assigning
to certain kinds of technologies greater weight to a vote by the Defense
Department than by the Commerce Department or the State Depart-
ment but then a vote should be taken without a unanimity require-
ment for permit approval. Congress ought, to direct some Gov-
ernment agency or a group of private and public sector interests to
seriously attempt to work out such a tradeoff formula for various
technologies.
When NEPA first took hold, everybody threw up their hands and
said you could not compare apples and oranges. With some effort,
however, we have managed to develop some criteria for trading off
apples and oranges.
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Mr. BINGHAM. I think your approach is sound and that we should
really look at it very carefully. As I recall the hearings last year and
the year before, it became fairly apparent that national security
considerations were not absolute. Really, all we were doing was slowing
down the development of the countries in a particular field, maybe
delaying their acquisition of a particular type of computer, say a year
or two, but not preventing it. So I think you have a good point. The
problem is, I think, both in the minds of the administration and in the
minds of a great many Members of Congress, when you say something
is dangerous for national security, then that becomes a consideration
overriding everything else.
Mr. HuszAGH. Well, I don't wish to be facetious, but assume the
Defense Department were given a budget, an amount that they could
draw on. If they made a defense decision with a significant impact on
export trade, they could draw on that budget to compensate for the
trade impact. I suspect they would suddently start considering these
things very differently.
Mr. BINGHAM. One point you make intrigues me, and I don't recall
seeing this stated the way you did, that almost by definition the type
of products where we have the best competitive edge, the type that
are farthest advanced in terms of technology, are the products of
which people say, well, we should not export those to Eastern Europe
because. that will damage our security. There is a relationship there
that tends to defeat one purpose or the other.
Mr. HuszAGH. I certainly agree and would be glad to submit to the
staff more elaborate details on the whole question of productive cycle.
American companies have the greatest competitive edge in the first
part of a product cycle, where R. & D. is intensive. American com-
panies are not getting a chance to effectively exploit their competitive
edge caused by early R. & D. investments, especially when they are
subjected to the uncertainty resulting from foreign affairs issues being
.rolled into the control structure. If companies do not have adequate
time to amortize their R. & D. investments, I am afraid they will just
stop making the investments. A review of comments of chief executive
officers of some of our largest corporations indicates they are very
pessimistic about future investments. However, they'make the invest-
ment decisions. Consequently, they are stating a self-fulfilling
prophesy.
Mr. BINGHAM. Mr. Bardos, I am very much interested in your
proposal for putting all of the U.S.-discretion cases under general
license where they are not CoCom cases. What arguments do you
anticipate would be made against that proposal, and how would you
suggest that they be dealt with?
Mr. BARnos. Well, one of the considerations that the export process
looks at in the evaluation of validated license is who is the end user
and what is the end use, and requires that end user to sign an end-use
statement guaranteeing civil end use.
In other words, nonmilitary, nonstrategic. Also he can't reexport it
and so on.
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As part of this submission the way it is today the Government looks at
those end users and at that end use and then agrees and then permits
us to ship to those end users with that prescribed end use and one of
their concerns is that if they don't have that information that some of
this material, some of this equipment can go to users that they don't
want it to go to.
My suggestion is we will continue to submit that type of informa-
tion. We will continue to send a list of the prospects and customers
that we intend to ship to. Here are signed statements of those trading
officers guaranteeing this and we will submit that in advance and then
from that list we can then ship on our own authority as long as we
guarantee it will be to that set of customers with that end use.
So I think that will considerably allay any of their concerns because
really what we are dealing here with are not strategic materials at all
but those that are not even of high enough performance to go to
CoCom.
So as long as the Government has control over the end use and end
user, they should not have any complaint about this.
Mr. BINGHAM. And in the particular field that you are interested in,
would there be many cases in that category?
Mr. BARDOS. Of the cases that we have today, 80 percent under
this recommended procedure would not have to be case-by-case, not
have to go to CoCom and could be approved. You won't even need
approval, it would be under general license and we could ship. So we
really believe this would be an 80 percent reduction in a caseload
without any impact or any change to the levels.
LICENSING DELAYS
Mr. BINGHAM. I believe you suggested that today there is typically
a delay of more than 90 days. I don't think that is fair from my recol-
lection of the statistics. I think a large proportion of the applications
are processed under that time limitation. We tend to hear about the
others. My recollection is that a very high percentage get processed
on time.
Mr. GRAY. Mr. Chairman, I think I made that statement, and in
the case of machine tools, a vast majority of 90-day delays are
positively the case.
Mr. BARDOS. I will speak for CBEMA as well as for Control Data.
We never have anything less than 6 months, never. Never.
Mr. BINGHAM. That is something we have to check into again. I am
considering the totality of the applications.
Mr. GRAY. There is another point on that. When they give you those
statistics, they include in those statistics the validated license for
equipment going to England, France, Germany, Japan, and the
Western countries. That is why the figures are skewed.
Mr. BARDOS. Yes.
Mr. BINGHAM. Mr. Whalen.
Mr. WHALEN. Mr. Huszagh, you really put your finger on the prob-
lem that has existed all these years; that is, we have conflicting objec-
tives in this legislation. We are concerned about increasing exports
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but at the same time in this legislation we express concern about our
own strategic needs. As long as these conflicting objectives exist, I
think we are going to continue to encounter these problems.
I think you have also indicated that one of the problems is that there
is an incentive to limit exports. I wonder if you, Dr. Huszagh, can give
us any indication as to how the system might be changed to provide
an incentive to trade.
Mr. HUSZAGH. Well, a formula could be employed by the operating
committee that differentiated among product categories exported to
specific market areas. We should emphasize those markets where our
products will be most competitive for the longest period in the product
cycle. With such priority product/market pairings, we could then
assign a very high priority to the export value versus the security
value. If there is a significant security risk presented by exporting
computers to the Philippines, it may well be worthwhile for the
Commerce Department to have monitoring facilities outside Washing-
ton in the Philippines to reduce such risks and thus be able to target
our most competitive products to major markets. If we do not make
these product and market distinctions, we cannot allocate our resources
efficiently. If you try to control everything centrally, you are going
to incur enormous inefficiencies.
Mr. WHALEN. Both of the industry spokesmen have made certain
recommendations. What, in your respective opinions, are the main
problems that really have given rise to these recommendations?
We will start with you, Mr. Bardos.
Mr. BARDOS. Well, I didn't count the number of times I said
"predictability," perhaps I should, but that is the key to our problem.
We cannot predict what it is we can and can't do. We cannot guarantee
things to customers. We cannot assure customers of deliveries in any
kind of time scale. We cannot plan our factory, our production. We
cannot realistically as business people know what we are going to do.
Predictability is the problem.
The licensing process itself generates that uncertainty and that
lack of predictability. So my major thrust is to improve that by
reducing the caseload-make it simple, make it clean, make it direct
and make it predictable.
Mr. WHALEN. To what extent have your products been denied in
terms of sales?
Mr. BARDOS. Well, I would like to answer that perhaps with a
little piece of what Mr. Huszagh said. We manufacture high technology
products, the vast majority of which we do not market into Eastern
countries.
Mr. WHALEN. You just don't even ask.
Mr. BARDOS. We don't talk about that. We are marketing products
in this country and in Europe 10 and 20 times the speed we are talking
about here. We only market those products that are either small in
performance or so past its technological life that they have no military
significance and all we ask is that it be sightly higher in performance
than what they already have so we have a little bit of competitive
edge and we don't believe that within that limit, within that list,
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there are any military implications and that this long delay just
deprives us and the country from what we think are legtimate, good,
sound principles.
Mr. WHALEN. So the list is an important factor?
Mr. BARDos. Absolutely. And it really takes a year for every com-
puter for which we have ever got an export license.
Mr. WHALEN. Has the answer been in most instances favorable?
Mr. BARDOS. Most of the time I would say-and I hate to quote a
statistic off the top of my head but I would say 90 percent of the time
we do get a positive answer. Very seldom do we get a denial. Very
seldom.
Mr. WHALEN. Mr. Gray, how about in terms of the industry you
represent?
Mr. GRAY. The machine tool industry is placed at a great competi-
tive disadvantage. About 45 percent of all the machine tools that were
consumed outside of the United States in 1977 were consumed by the
Socialist countries. U.S. machine tool exports accounted for only 2
percent of these countries' imports. West Germany, Japan, France, and
Italy are getting a substantial share of the business. They all are
signatories to the CoCom agreement. That is one of the problems we
have.
Mr. WHALEN. That is due to CoCom decisions or to our own trade
policy?
Mr. GRAY. The U.S. machine tool industry is becoming an unreliable
supplier, as far as Socialist countries are concerned. It takes too long
to get a license. They are on a 5-year plan, and when you are building
factories you want to know that when a machine is due in a factory it
will be there. We may not even have the license by the time. the
equipment is due to be delivered.
Some of the machines are special. We cannot take the chance on
building it unless we do have a license. As a result of the Dresser
controversy, our industry is becoming more and more concerned about
the license being pulled back once it has been granted. We are con-
cerned about becoming an unreliable trading partner.
With respect to national security, the machine tool industry is at
the very base of our national defense structure, because you cannot
have any guns or planes without a machine tool making it or making
the machine it was made of. If we don't make those profits, so we
can reinvest money in research and redevelopment, we are going to
become a second class industry. Our country cannot afford that. It is
in our national interest to keep this industry strong.
Mr. WHALEN. You have indicated that companies operating in other
western industrialized states are not encountering those delays?
Mr. GRAY. That is right. I met with the president of a German
conglomerate. They have several large machine tool companies. In
West Germany, they submit a request for a license. If it is not denied
within a short period of time, it is assumed that the license is granted.
At least that is what our German competitors tell us about the way it is
done there. I know foreign companies don't have the problem or the
expense we have. To get a license the international trade director or
sales executives of a U.S. company-many of whom are small busi-
nesses-might have to come to Washington a half a dozen or a dozen
times. That is not true in other countries.
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Mr. WHALEN. Just to restate an earlier question, is part of our
problem also due to the fact that we have certain restrictions in our
laws for most favored nations that aren't existent in other countries?
Mr. GRAY. No, that has not been a. factor in keeping us out of the
market. We had a little problem in Hungary but that has been re-
solved. Jackson-Vanik has certainly taken the American tool industry
virtually out of the Soviet market. But the basic problem has been
the fact that there is not a uniform interpretation of the CoCom reg-
ulations by the various countries. We are very strict in the United
States, and the other countries are not.
Mr WHALEN. Thank you, Mr. Chairman.
Mr. BINGHAM. Mr. Gray, what do you think of Mr. Bardos' sug-
gestion that only those items that are on the CoCom list would require
a validated license?
Mr. GRAY. Absolutely. We frankly don't have that problem. I be-
lieve that all the machine tools that are restricted now are on the
CoCom list. The unilateral list for machine tools has been eliminated.
Mr. Bardos has not had that experience.
Mr. BINGHAM. I understand that the NSC has now taken on a
direct role in export licensing decisions. Is that your understanding?
Mr. BARDOS. Yes.
Mr. BINGHAM. What do you think of it?
Mr. BARDOS. Well, I am not very happy about that for several
reasons, one of which is they get into the act, if you will pardon the
phrase, after everything has been done. We have several cases that
had rigorous review, took 8 to 9 months, were finally agreed by every
agency to be approved that there were no military security implica-
tions and after all that was done it was then sent to NSC and then
they looked at it for another 2 or 3 months and still we cannot com-
municate with them like we can communicate with the other agencies.
We don't know what their concerns or their problems with the re-
views are and we don't feel that we have any degree of interaction or
partnership or understanding and so it is very unsettling.
Also, if they are making foreign policy determinations, I think we
should know what they are. I think they should set rules or publish
information so that we can follow. We have no particular concern that
if the United States feels a certain way about a certain product or a
certain. country that they cannot restrict exports for those reasons but
they should state that, publish that, air that, and let us understand
that so we can then go about our business with that in mind..
We don't feel that happens with the NSC. For example, we under-
stand they reversed a case for Tass with the Univac computer and
subsequently the Russians went out, shopped, got bids from four other
countries and I hear today the French got the business. That just
seems to be an unusual way of proceeding.
Mr. BINGHAM. We attempted to deal with a number of these prob-
lems in the 1977 amendments. For example, you would make some
changes in the 90-day requirement. Have they been
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Mr. BARDOS. The 90-day requirement has really been totally cir-
cumvented. I have here typical letters that we get from the Commerce
Department. They are normal letters. They all say, "This is to advise
you that we have not been able to process it in 90 days." Their citation
is section 4(G) of the act, that is all it says. It says, "At the present
time your application is undergoing review by one or more agencies."
It does not say what the problem is. It says they expect it to be
another 60, 45 or 90 days and at that time we received no current
information or reporting whatsoever.
So the 90-day clause as we see it is totally not followed, not effec-
tively followed. It may be according to the paperwork but that is all.
Mr. GRAY. They could follow it, but it would mean a denial, if
they do it within the 90 days, in most instances.
Mr. BARDOS. Well, I don't know if it would mean a denial. I think
they would have to do their homework and make their decision on
time. They just put it off. There is no pressure, there is no time cutoff.
There is no reason to make these decisions promptly and accurately
yes or no and get on with it so they just languish forever.
Mr. BINGHAM. Just a minute.
Mr. BARDOS. That is unfair. I retract "forever."
Mr. BINGHAM. You know that most of the decisions that really
drag, drag on because of a difference of opinion among different agencies.
Mr. BARDOS. Yes, you are right. There are the difficult cases that
take a long time and are going to take longer than 90 days and may
take longer than 180 days, yes, and I am really not complaining about
those as much as about the other 80 percent that take just as long
that are not difficult at all and not sensitive at all and they mix
them all together.
Mr. GRAY. Mr. Chairman, we dealt with that in our testimony.
We suggested that the legislation be changed to require that exact
and complete technical circumstances for the delay be submitted to
the applicant in the case of a license that requires more than 90 days.
FOREIGN AVAILABILITY
Mr. BINGHAM. What would happen /if we required that foreign
availability be an absolute bar'to the denial of a license?/
Mr. BARDOS. I'm sorry, I don't understand the question.,
Mr. BINGHAM. If the product or its equivalent i6 actually available
in other markets, that means that the license could not be denied
because of national security implications.
Mr. BARDOS. Well, that would certainly be helpful. The problem is
we in industry that deal in that part of the world feel we have a very
good understanding of what foreign availability is and we do not have
concurrence with the Government as to what really is available either
in the Western markets or in the Eastern markets.
One of the recommendations we are making is some sort of committee
that can come up with a consensus that says, Yes, this is the level
that is out there or the level is higher or lower than that so that we all
have an understanding of what is available and set the proper limits.
Mr. BINGHAM. I'm sorry. I am going to have to interrupt you again.
With your permission we may submit some additional questions in
writing. We would also urge you to let us have your written suggestions
for amendments.
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Without objection, we will include in. the record two reports re-
ceived by this committee as required by the Export Administration
Amendments of 1977, "Simplification of the Export Administration
Regulations," and "Special Report on Multilateral Export Controls."
[The information follows:]
REPORT ON SIMPLIFICATION OF THE EXPORT ADMINISTRATION REGULATIONS, SUB-
MITTED BY THE SECRETARY OF COMMERCE PURSUANT TO SECTION 114 OF THE
EXPORT ADMINISTRATION AMENDMENTS OF 1977
Section 114 of the Export Administration Amendments of 1977
amended Section 7 of the Export Administration Act of 1969
by adding the following new subsection:
(e) The Secretary of Commerce, in consultation with
United States Government departments and agencies
and with appropriate technical advisory committees
established under Section 5(c), shall review the
rules and regulations issued under this Act and
the lists of articles, materials, and supplies
which are subject to export controls in order to
determine how compliance with the provisions of
this Act can be facilitated by simplifying such
rules and regulations, by simplifying or clari-
fying such lists, or by any other means. Not
later than one year after the enactment of this
subsection, the Secretary of Commerce shall report
to Congress on the actions taken on the basis of
such review to simplify such rules and regulations.
Such report may be included in the semiannual re-
port required by Section 10 of this Act.
The following is a report of the actions taken pursuant
to Section 114. It is divided into two parts: simpli-
fication and clarification of the Commodity Control
List and simplification and clarification of the Export
Administration Regulations.
COMMODITY CONTROL LIST
The Commodity Control List (Section 399.1 of the Export
Administration Regulations) includes all commodities
under the export licensing jurisdiction of the Department
of Commerce. Its content is governed by (a) agreements
reached in the international control structure known as
COCOM on what commodities should be controlled multi-
lateral) in the interests of our mutual security needs
and b determinations reached by the, Department of
Commerce, in consultation with its advisory agencies,
on what commodities should be controlled unilaterally
for national security, foreign policy or short supply
reasons.
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Historically, the Commodity Control List (CCL) has been
tied to the Census Bureau's Schedule B, a numerical code
used to classify exports for statistical reporting pur-
poses. The tie-in was based on the premise that exporters
or their freight forwarders must select for Census purposes
the proper Schedule B number for their commodities prior
to export and that this number would provide a ready clue
as to where the commodity would appear on the CCL. In
short, use of the Schedule B was intended to facilitate for
.exporters the job of determining whether the commodity to
be exported would require a validated export license or
could be exported under a general license authorization.
In the fall of 1977, the Bureau of the Census announced
that a major revision of the Schedule B would be issued,
to be effective January 1, 1978. It was apparent that
this major revision would render the tie-in between the
Schedule B and the CCL inoperative unless the latter were
completely revised before that date. Faced with this need
to revise the CCL and the legislative mandate to simplify
its regulations and control list, the Department took a
close look at the desirability of retaining the Schedule B
concept for its CCL. Our initial impression was that a
CCL based on the multilateral COCOM list format would be
simpler and shorter, since in many instances a single COCOM
list entry covered several Schedule B-based entries. For
example, there were 22 entries on the CCL covering one
COCOM entry for lasers and laser systems.
Consultation with Industry and Other Agencies
In investigating the feasibility of moving to the simpler
COCOM format, the Department first consulted its technical
advisory committees, whose industry members generally come
from high technology firms that produce commodities under
validated license control. Almost without exception, their
reaction was to favor the COCOM format. However, they
warned that a change to the COCOM format might adversely
affect freight forwarders and firms that export commodities
produced by others. Because these firms generally do not
have the technical expertise needed to review the CCL
entries for control purposes, the possibility existed that
they would prefer to retain the Schedule B tie-in. .
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Inquiries with members of this group, however, indicated
rather conclusively that the Schedule B-based CCL had be-
come so technical that freight forwarders, for example,
had to rely heavily on the exporter or supplier to advise
them of the proper CCL entry. In other words, the premise
that originally led to the decision to base the CCL on the
Schedule B had lost its validity.
The Department then consulted its advisory agencies and
obtained their concurrence to a decision to abandon the
Schedule B concept and adopt the COCOM-styled format.
An. Export Administration Bulletin was issued in November,
1977, announcing that, effective January 1, 1978, a re-
vised CCL based on the 0000M format would become effective.
A preliminary version of the new CCL was included in the
Bulletin so that exporters could become familiar with it.
A correlation between the old CCL numbers and the new, was
included to assist exporters in preparing for the transition.
The revised CCL was published officially December 29, 1977,
and became effective January 1, 1978.
The CCL in the COCOM format now contains approximately 200
entries with no reduction in the kinds of commodities subject
to validated license',controls. This contrasts with the old
CCL that had more than 700 entries.
The issuance of the new CCL was accompanied by a short
narrative which, in simple language, explained what the CCL
is and how to use it. It takes a novice exporter, step-by-
dtep, through the exercise of determining whether a particular
export transaction requires a validated license from the
Department.
Advisory Notes
The simplified CCL has been well received-by the export trade.
The change to the-000OM format also permitted the Department
to issue advisory notes for selected CCL entries that cover
multilaterally controlled commodities. These advisory notes,
issued in May, 1978, identify commodities that are more likely
than others to be approved for export to Communist countries..
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EXPORT ADMINISTRATION REGULATIONS
Efforts to simplify and clarify the substantive portions of
the Export Administration Regulations (Parts 368 through
390) proceeded along two fronts. The first was to identify
specific portions of the Regulations or procedures that
needed simplification or clarification,.or even revocation.
The second was to seek means to rewrite the entire Regulations
in plain English.
With respect to the first stage, the Office of Export
Administration (OEA), the Departmental unit assigned responsi-
bility for administering the Export Administration Act of 1969
as amended, had identified two major areas that were in need
of simplification and certain individual portions of the
Regulations that it believed also could be improved. Not
content with its own appraisal, however, the OEA requested
each of its six technical advisory committees and the Sub-
committee on Export Administration of the President's Export
Council to identify portions of the Regulations or procedures
that had proved bothersome to them. It also requested advice
from the National Committee on International Trade Documenta-
tion, a non-profit organization devoted to simplifying and
improving international trade documentation procedures. The
latter responded by requesting its Technical Committee on
U.S. Export Regulations and Procedures to work with the OEA
on this project.
The two major areas identified by OEA were (a) the need for
a simplified procedure to authorize exports for the servicing
of equipment previously exported or reexported to Communists
destinations and (b) the need to revise the technical data
regulations (Part 379) so as to make them more easily
understood.
Simplified Servicing Procedure
The problems of servicing equipment previously exported to
Communist destinations were discussed at'.,meetings of the
Subcommittee on Export Administration of the President's
Export Council and comments received were considered in
drafting proposed changes in the Regulations. Inasmuch as
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the Computer Systems Technical Advisory Committee had estab-
lished a Subcommittee on Licensing Procedures, an initial
draft of the proposed changes was submitted to that Sub-
committee for review and comment along with a general request
for advice on simplification and clarification of the Regula-
tions. From this came recommendations from the full Com-
mittee. Included in the recommendations were six specific
suggestions for revising the servicing draft. Four of the
six suggestions were incorporated in a revised draft. Action
on the others has', been deferred pending further discussion
in the Subcommittee on Licensing Procedures.
This revised draft was then reviewed by a member of the Sub-
committee on Export Administration and again revised to in-
corporate advice received. At this point, the proposed re-
vision was presented to the interagency Operating Committee
of the Department's Advisory Committee on Export Policy.
Changes suggested by representatives of the advisory agencies
were accepted. Because the new servicing procedure will.re-
quire certain reports from exporters, approval of the Office
of Management and Budget is required before the reporting
requirements may be imposed. As of the date of this report,
publication of the new servicing procedure in the Export
Administration Regulations is awaiting this OMB approval.
Revision.of Technical Data Regulations
With respect to simplifying the technical data regulations,
the Computer Systems Technical Advisory Committee's Sub-
committee on Licensing Procedures was requested to review an
OEA draft. Although no formal report has been submitted by
the Subcommittee to its parent Committee, the minutes of the
Subcommittee meetings reveal that the draft was considered
by the group to be an improvement in clarity and understanding.
However, there were two Subcommittee recommendations which,
if accepted, would involve substantive changes in the technical
data regulations. One would remove a time limit on the supply
of maintenance repair and operational data to Communist
countries under general license. The other would eliminate
the current requirement for the return.of validated licenses
once the technical data are exported or the license expires.
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Although there had been no formal transmittal of these
recommendations to OEA, it was decided to pursue the two
issues immediately. The impact of the proposed change in
removing the general license time limit is being explored
with the principal government departments that advise the
Department on these matters. The proposal to eliminate
the requirement for the return of validated licenses was
discussed at a recent meeting of the Subcommittee on Export
Administration. As of the date of this report, both issues
are unresolved.
Other Revisions
As mentioned earlier, certain individual portions of the
Regulations. had been identified by the OEA as in need of
improvement. In certain instances, comments from the public-
reinforced this view. The following actions have been take}:
o Two special licensing procedures, the Time
Limit license and the Periodic Requirements
license, were found to be obsolete and have
been discontinued.
o The requirement that an Application Processing
Card, Form DIB-623P, be submitted with each
export license application has been eliminated.
o The provisions of General License GLC and GATS,,
both of which dealt with the departure of civil
aircraft from the United States, were consolidated
under General License GATS. General. License GLC
was thereupon deleted from the Regulations.
o The export license shipping tolerance provisions
were simplified and clarified.
o The Service Supply procedure was revised to pro-
vide for a two-year extension in lieu of a one-
year extension. Editorial changes were made in
the provisions of two other special licensing
procedures, the Project License and Distribution
License, to conform to the revisions in the
Service Supply procedure.
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More remains to be done. The NCITD Technical Committee on
U.S. Export Regulations and Procedures, for example, has
begun the task of clarifying and simplifying the special
licensing procedures in Part 373 of the Export Administration
Regulations. The Committee also has forwarded other recom-
mendations, including a suggestion that,a summary of each
Part of the Regulations be published to enable users to
determine quickly whether the Part pertains to a particular
question. This has been accepted for implementation. Other
suggestions and recommendations submitted by the technical
advisory committees and their members and from the export
trade generally have been reviewed. Those accepted will be
addressed by the OEA Procedures Staff in the months to come.
Plain English Project
The second stage in simplifying and clarifying the Export
Administration Regulations involves an effort to rewrite
the entire body of the Regulations in plain English. On
a day-to-day basis, we make a concerted effort to write all
regulations in a simplified and straightforward manner.
Considerable resources are invested in this effort. One
example is the new set of boycott regulations issued under
Title II of the Act. They have generally received commenda-
tion for their clarity and the guidance which they give.
A rewrite of the entire set of Export Administration Regula-
tions has to be addressed separately from the day-to-day
work of preparing Regulations to implement policy decisions
and simplifying procedures of immediate concern. To this
end, the OEA has held preliminary discussions with com-
mercial firms that specialize in preparing legal forms,
insurance policies and government regulations in plain
English. If funds permit, it is contemplated that a firm
will be hired, not only to rewrite the current Regulations
in plain English, but also to train the OEA Procedures
staff to continue writing regulations in this style.
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SPECIAL REPORT ON MULTILATERAL EXPORT CONTROLS, SUBMITTED BY THE PRESIDENT
PURSUANT TO SECTION 117 OF THE EXPORT ADMINISTRATION AMENDMENTS OF 1977
The following report is submitted in response to Section 117
of Public Law 95-52 (Export Administration Amendments of
1977).
Since the late 1940's, the United States and 15 of its Allies
have acted in concert to control their exports of strategic
items to the USSR, countries under Soviet domination, and
Communist countries in East Asia. This multilateral coordina-
tion of export controls, which is pursuant to the Export
Administration Act of 1961 and the mutual Assistance Control
Act of 1951, is the responsibility of an organization known
as the Coordinating Committee, or COCOM, headquartered in
Paris. The members of COCOM are the NATO countries (except
Iceland) and Japan.
COCOM's main purpose is to achieve parallel administration
of export controls. Its methods include: agreed strategic
criteria; detailed lists of embargoed items; procedures for
multilateral review of those lists; and procedures for ruling
on individual cases as exceptions from the embargo.
The COCOM List
Comprehensive reviews of the COCOM List take place every three,
or four years. One is scheduled to begin in October 1978.
Changes in individual items on the COCOM List may be proposed
for Committee consideration at any time.
The COCOM members have agreed that the purpose of the embargo
is to restrict the exports of goods and technology which
would make a significant contribution to the military poten-
tial of the Communist world and thus have an adverse effect
on the security of the member states. The members have
agreed to control goods and technologies in the following
categories: those which are principally used in peacetime
for the development, production, or use of arms; those from
which technology of military significance might be extracted;
and those of military significance in which the proscribed
destinations' have a deficiency.
Under the procedure for periodic list reviews, each member
may submit "o.riginal proposals" four months in advance of the
review. "Counterproposals" may be submittedi45 days in
advance. Two or more members may agree on the submission of
"revised proposals" at any time during the 10-month review.
Any member may submit a "proposal for consistency" at any
time that it appears that a change in one item would renuire
a change in another for technical consistency.
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If an item has been in commercial use in the West for five
years, an "Original proposal" to decontrol that item will be
considered approved unless a counterproposal is submitted.
Such proposals become effective 30 days after they are approved.
Other agreements reached during the list review become effec-
tive b0 days after the end of the review.
In 1954 and 1958, major reductions were made in the COCOM
Lists. Since then, list reviews have simply updated the
items of advanced technology which are controlled. The
process of considering which items meet the strategic criteria
has been repeated many times over the years. As a result,
changes during list reviews are now seldom dramatic. A few
items are deleted and a few new ones added. But most of the
.changes consist of modernizing the technical descriptions to
reflect technological' progress.
The Mutual Defense Assistance Control Act calls for the
Administrator of the Act to determine which items are strategic
and for the U. S. to"seek multilateral coordination of export
controls. The Mutual Defense Assistance Control Act List is
substantially the sa;e as the COCOM List.
Exceptions Recuests
About 1,000 "exception cases," valued at about $200 million,
are now reviewed by COCOM annually (the figure for 1977 was
$214 million). The U. S. submits almost half of these cases,
and many of the others include U. S.-origin components.
COCOM disapproves approximately 2 to 4 percent of these requests,
another 3 to 5 percent are withdrawn, and many more are
revised to take into account changes recommended during the
Committee review process. About half of the cases, by value,
are computer-related. Many of the others are also in the
electronic area.
This is a heavy caseload from the perspective of time required
for careful review. However, the total is small in comparison
with overall East-West trade. The value of COCOM exception
cases in the 1970's has been running at a rate of less than
1 percent of exports from COCOM member countries to COCOM
proscribed destinations.
Process for COCOM Decisions on Exceptions
in considering an exceptions recuest, the Committee examines
the particular circumstances of the case in the context of
the strategic criteria for export controls. Domestic political
and economic factors in the exporting country or international
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political factors in the importing country may be considered
if they are relevant to the security of member countries.
However, the principal determining factor is a judgment of
minimal. risk of diversion to significant military use.
All COCOA decisions are based on the rule of unanimity.
Thus, exceptions are not considered approved until all members
wishing to express an opinion have informed the Committee
that they have no objections.
Member positions are due within three weeks of submission of
the case. However, extensions are granted if more time is
needed for review. On the average, U. S. cases are processed
by COCOM within 20 days of submission (another 18 days,
on the average, is regoired for transmittal to and from
Paris). In reviewing cases submitted by other members, the
U. S. takes care to be consistent with action on related or
similar U. S. cases.
Uniformity of Interpretation and Enforcement
Other COCOM countries consider that U. S. policy on controls
is overly restrictive. They have not cema.itted themselves by
treaty. or formal international agreement to the embargo, and
there are no internationally agreed sanctions for deviations
from it.
The participating countries sometims differ in their inter-
pretations of the export controls agreed to by the Committee.
Some embargo list definitions are complex. They suffer from
translations into foreign languages.
Where participating countries have acted contrary to U. S.
interpretations of Committee agreements, the U. S. has sought
to restore an agreed interpretation. In some instances, our
view has prevailed. In others, uniformity of interpretation
has eventually been achieved through an agreed relaxation of
the embargo. The differences often occur at the borderline
of embargo cutoffs. With the evolution of technology in the
East as well as in the West, embargo relaxations are, for the
most part, a question of timing. If our Allies permit ship-
ment of an item which we regard as embargoed, or at an earlier
time than we'believe is justified, they of course enjoy a
competitive advantage thereby. However, now that the U. S.
is submitting about half of the exceptions requests, many of
them breaking new ground, our Allies understandably complain
that we seem to be using the embargo for our commercial
advantage, even though that is certainly not our intent.
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Diversions of embargoed items, in violation of the export
controls of the member countries, are also of serious concern.
As part of the cooperative export control efforts, we have
shared with other COCOM governments information concerning
such violations.
Despite the variations of interpretation and enforcement,
there is a durable uniformity among COCOM members on basic
principles. All agree that strategic items should not be
shipped to the East. All agree that coordination of national
controls and parallel administration of those controls are
essential. And all agree that the embargo must be based on
consensus.
Although non-aligned Western countries do not participate in
COCOM, they do maintain some form of national controls. More-
over, many of their industries use U. 5.-origin parts or
technologies subject to U. S. controls. Exports from subsidiaries
of U. S. companies located in such countries are also controlled
by the U. S., as are reexports of U. S. products by any
foreign company. The extraterritorial reach of U. S. controls
is a source of friction in our relations with some of our
closest friends; but evasion of these controls is rare.
In some instances, approval of an exception request is con-
ditioned on post-sale visits designed to provide assurance
that the item continues to be used at the stated location for
the stated civil purpose. In one such case the post-sale
visit was not in fact permitted; we have advised the govern-
ment of the exporting country that we would not approve a
similar future request. In other cases the safeguards system
seems to be working well. Presumably, this is largely because
the importing countries do not want to jeopardize future
purchases or the supply of spare parts for past purchases.
The effectiveness of multilateral coordination of national
export controls is not likely to be improved through greater
formalization of the international machinery. COCOM has sur-
vived as a reasonably effective organization for a far longer
period than many others based on more formal instruments.
Because of political sensitivities in member countries, some
of them might find it difficult, if not impossible, to
participate in a more formalized export control organization.
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The COCOM strategic criteria, list review procedures, and
exceptions procedures have been modernized to parallel policy
and procedural provisions in U. S. legislation and to empha-
size technology controls as much as possible. Enforcement of
controls by our COCOM partners could be improved, although it
is not Xet clear what additional resources or other measures
might be appropriate. It may be that U. S. enforcement could
be strengthened with greater resources, but further evaluation
of staffing and other requirements is still necessary.
The effectiveness of controls could be improved by further
refinements of the embargo list. Updating definitions would
improve coverage of new technologies. Freeing items which
have become less critical from control would further the U. S.
objective of encouraging trade. It would also reduce the
caseload of exceptions requests. Current efforts along these
lines are being pursued in cooperation with industry, working
primarily through the Technical Advisory Committees established
by the Export Administration Act.
Statistical Analysis of COCOM Exce
Exports approved by COCOM as exceptions from the embargo
have increased in the last 10 years. The value per year of
approved cases in millions of dollars (at current prices)
has been:
1967 11
1968 8
1969 19
1970 62
1971 56
1972 124
1973 106
1974 119
1975 185
1976 162
1977 214
While the value of exception cases approved has increased
substantially in the past 10 years, the amounts are still
very small compared to total exports. For example, from
1965 to 1975 total exports from COCOM countries increased
from $120 billion to $568 billion, and the share of those
exports going to COCOM-proscribed destinations increased
from $4 billion to $32 billion.
The value of COCOM-approved cases is so small that one or
two large transactions, reviewed because of the presence of
some embargoed components, often skew the data.
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The continuing factor which affects these statistics most
significantly is the procedure whereby COCOM reviews a large
number of cases involving computers for which there are many
bona fide civil uses. Computers consistently account for
more than half of the total value of COCOM-approved cases.
Value ($ millions)
23
1971. 21
1972 66 39
1973 80 50*
1974 120 66*
1975 147 64*
1976 123 52
1977 168 63
*Omitting two exceptionally high value cases in 1973 and
one each in 1974 and 1975 which would distort the figures.
None of these four high-value proposed exports actually
took place.
The 1977 figure of $214 million represented 836 approved
cases, of which 358 cases at $55 million were submitted by
the U. S. The U. S. accounted for more of the approved cases
than any other country, but the value of the cases approved
for Germany ($64 million) exceeded the value of the cases
approved for the U.. S. ($55 million). Poland was the recipient
for the highest number of cases (210), but the value of
approved exports for the USSR was the highest ($78 million).
During the year the Committee completed action on 867 excep-
tion requests, disapproving 31 valued at $19 million. Another
44 valued at $7 million were withdrawn.
The Coordinating Committee operates on the basis of unanimity,
giving each member a right to deny an exception request by,
formally objecting to it. During 1977 the U. S. availed
itself of this right in 30 cases valued at just under $18.8 million..
The U. S. also entered objections to parts of specific equipment
contained in seven exception requests. Most of these objections
were directed at relatively small-value cases involving
advanced integrated circuits, precision electronic testing
equipment, or. sophisticated computer peripherals. Four cases
to which the U. S. objected involved the shipment of nickel
powder to various destinations in Eastern Europe in quantities
that were believed to be too easily diverted to strategic
uses.
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Among the more substantial cases to which the U. S. objected
were three proposals involving the transfer of advanced
technology. The objection to a $5.6 million proposal to
transfer power transistor production equipment and technology
to the Soviet Union was that the equipment and technology to
be provided would permit a significant expansion of Soviet
.capabilities to manufacture reliable high-quality devices for
military as well as civilian uses. The reasoning for objecting
to a sale of know-how and equipment for the manufacture of
radio link equipment to Hungary was that such a transfer
would significantly reduce the technology lead of the West in
an area which is of particular military importance.\ The U. S.
objected to a proposal, to sell know-how and manufacturing
equipment for the production of advanced metal oxide semi-
conductor integrated circuits to Romania because this trans-
action'would have made a significant contribution to the
development of an integrated circuit industry in Eastern
Europe.
The U. S. also objected to a proposal to sell the Soviet
Union a $3 million consumable electrode vacuum arc furnace
because of the possibility of diversion to the production of
super alloys for strategic purposes. A sale of a $1.7 million
hybrid computer system to the Soviet Union was also objected
to by the U. S. on the ground that the end users did significant
strategic work for the Soviet armed forces.
The 981 new requests presented to the Committee during 1977
were up from 926 the year before. These figures are down
markedly from the record 1,276 cases set in 1975 (just prior
to the April 1976 revision of the embargo list).
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Case 1:- Suspect end-user
A. U. S. firm was denied a license to export equipment of lower
performance than others which had been previously approved for
export to a proscribed destination. The reason for the denial
was that the stated end-user was an institute engaged in
research of a highly strategic nature, whereas end-users for
the approved higher-performance exports were clearly engaged in
predominantly civil activities. The U. S. applicant suspected
that competitors in other Western countries would get the busi-
ness. Our consultation with the governments of other potential
supplier countries resulted in a reasonable degree of assurance
that this was not likely to happen.
Case 2: Too hich performance for stated end-use
A. U. S. firm was denied a license to export equipment of about
the same performance level as other equipment previously
approved for export to a proscribed destination. The reason
for the denial was that the equipment proposed for export had a
higher performance than required for the stated application.
The unused capacity could have been made available for other
less benign purposes. Lower performance equipment was substi-
tuted and approved.
Case 3: Equipment for semi-conductor production
Several U. S. applicants have been denied licenses to export
equipment for the production of integrated circuits even though
the technology is 10 or more years old, and stated end-uses
were to make devices for televisions and other civil items.
This is because of the broad range of strategic uses for such
circuits and the backwardness of Soviet technology. The USSR
and the PRC have been partially successful in obtaining such
equipment from the West surreptitiously. Following U. S.
approaches to the countries of origin, there has been a con-
siderable tightening of compliance in those countr}es.
Case 4: Dualiuse
The U. S. has denied the export to proscribed destinations of
equipment used in underwater sounding for petroleum research
because it also has military applications. Another western
country, which had sold or leased comparable equipment,
tightened controls as a result of a U. S. approach.
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60
Mr. BINGHAM. Mr. Huszagh, Mr. Bardos, Mr. Gray, thank you
very much.
The subcommittee stands adjourned.
[Whereupon, at 4:35 p.m., the subcommittee adjourned.]
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