APPENDIX
D

Panel Foreign Fact-Finding Mission Reports

During the first half of 1990, delegations of panel members and staff traveled on fact-finding missions to five West European countries (Belgium, the Federal Republic of Germany, France, Switzerland, and the United Kingdom), to five Asian countries (Hong Kong, Japan, Korea, Macao, and Taiwan), and to Canada. The objectives of these missions were to seek the views of government officials, industrial leaders, academics, and others regarding (1) the U.S. national security export control regime, (2) the indigenous export control policies and procedures of each country, and (3) changes required in the multilateral control effort in view of the altered political-military circumstances in Europe and the growing threat of proliferation.

At each stop on a particular delegation's itinerary, the group received a briefing from the appropriate country team at the U.S. embassy. At the request of the panel, embassy control officers, who accompanied each delegation to meetings with government officials, generally were not present for meetings with private industry. All meetings were considered unofficial.

The three major sections of this report, one concerning each of the three missions, are based on the detailed trip notes prepared by the members of the particular delegation. Each section is divided into, first, a summary of the most significant generic policy issues that emerged from discussions during the mission and, second, a brief summary of the discussion with each group with which the delegation met.



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Finding Common Ground: U.S. Export Controls in a Changed Global Environment APPENDIX D Panel Foreign Fact-Finding Mission Reports During the first half of 1990, delegations of panel members and staff traveled on fact-finding missions to five West European countries (Belgium, the Federal Republic of Germany, France, Switzerland, and the United Kingdom), to five Asian countries (Hong Kong, Japan, Korea, Macao, and Taiwan), and to Canada. The objectives of these missions were to seek the views of government officials, industrial leaders, academics, and others regarding (1) the U.S. national security export control regime, (2) the indigenous export control policies and procedures of each country, and (3) changes required in the multilateral control effort in view of the altered political-military circumstances in Europe and the growing threat of proliferation. At each stop on a particular delegation's itinerary, the group received a briefing from the appropriate country team at the U.S. embassy. At the request of the panel, embassy control officers, who accompanied each delegation to meetings with government officials, generally were not present for meetings with private industry. All meetings were considered unofficial. The three major sections of this report, one concerning each of the three missions, are based on the detailed trip notes prepared by the members of the particular delegation. Each section is divided into, first, a summary of the most significant generic policy issues that emerged from discussions during the mission and, second, a brief summary of the discussion with each group with which the delegation met.

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment I. EUROPEAN MISSION* The delegation arrived in Europe on April 29, 1990, and on May 1 the United States announced its proposed changes for the administration of the Coordinating Committee for Multilateral Export Controls (CoCom) and its control lists. This timing provided the delegation with a unique opportunity to gauge the reaction of the Europeans to the U.S. proposal. GENERAL ISSUES The Need for Export Controls Almost no one with whom the European delegation met advocated the complete abolishment of export controls. Although there was general consensus that the Soviet and Warsaw Pact threat had diminished, most interlocutors thought that some controls should be retained. But it was abundantly clear that the West Europeans now viewed the Soviet Union in a different light and no longer viewed as credible the scenario that assumed a Warsaw Pact invasion of Western Europe. Moreover, much of Europe, especially Germany, was looking to the East as a potential marketplace. Thus, many expressed the view that some controls on very advanced technology should remain, but that the West and CoCom should decrease the number of items that are controlled to the proscribed nations. U.S. Proposal to CoCom The May 1990 U.S. proposal to modify the current CoCom control lists and its agreement to move toward a "core list" of controlled items was universally applauded in Europe. There was, however, concern about how far the United States actually was willing to go to decontrol the export of advanced technology to the former members of the Warsaw Pact. A recurring theme was the need to assist Soviet President Gorbachev in his attempts to restructure the Soviet economy. The Soviet effort will require a dramatic infusion of Western technology, especially in the field of telecommunications, and many of the Europeans were eager to provide such assistance and technology. *   The delegation was chaired by panel member Kenneth Dam and included panel members Boyd McKelvain and Granger Morgan, project director Mitchel Wallerstein, and staff member Thomas Snitch. (Mr. Dam did not participate in the meetings in Belgium, and Mr. McKelvain did not participate in the meetings in Great Britain.)

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment Concerns over U.S. Policy Throughout Europe there was strong adverse reaction to U.S. export control policy, in particular its extraterritorial aspects. The Europeans have major problems with U.S. controls on the reexport by any country of U.S.-origin items. Nearly all the Europeans with whom the delegation met thought their country was doing an adequate job of maintaining a domestic export control regime. They argued, therefore, that U.S. reexport controls on CoCom items were both unnecessary and an unneeded intrusion. In a sense, such controls were seen as a threat to national sovereignty and as driving a wedge between the United States and Europe. As U.S. allies, the Europeans found it hard to understand why the United States placed such controls on intra-CoCom trade. Although some believed that the nations of Europe would not give up their right to control exports, the overall feeling was that European integration in 1992 would increase pressure for the removal of intra-CoCom trade controls, except for munitions items. MEETINGS IN GREAT BRITAIN* Government Officials The delegation met with a group from the British government, including representatives of the Foreign and Commonwealth Office (FCO), the Ministry of Defense (MoD), and the Department of Trade and Industry (DTI). COCOM The FCO representative opened the meeting by discussing the current situation in CoCom. In his view, although it was difficult to measure the extent of the change in the threat from the Soviet bloc, it was clear that if CoCom was to remain credible in the eyes of the British business community, it would have to identify those technologies that should and could be controlled. CoCom had had 40 years of complicated lists that were difficult to understand and even harder to implement. The FCO representative also stated that a top-down approach to accelerating the streamlining of the CoCom lists was too cumbersome and no longer appropriate. Rather, a new, core list should be created from "the bottom up" and should not contain more than 12 categories of technologies to be controlled. The United Kingdom is a participant in the CoCom initiative for a common standard level of effective protection. The British have argued for the "de- *   The May 1990 U.S. proposal to CoCom had not been announced at the time of the meetings in Great Britain.

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment mystification" of what individual countries control within CoCom. This is clearly under way in regard to chemical weapons. The basic British policy is to "guard against the erosion of national confidence." The British also believe that some type of third country initiative* is better than no effort at all. However, they also believe other CoCom countries do not completely share their view and are allowing controlled technology to be reexported. DIFFERENTIATION The British stated that a core list should apply to all destinations, a view that is consistent with the British opposition to differentiation.† They acknowledged that the nations of Eastern Europe could still prove to be a vehicle for diversions of Western technology to the Soviet Union, but they countered that differentiation would only encourage the Soviets to increase their efforts to divert technology. The FCO representative said that guarantees from East Europeans against diversion must be considered suspect at best, and more likely worthless. As a result, verification schemes would be of little use. In practice, they could only be effective if they ensured that controlled items went to the proper end users, and such checks would have to remain in place for the lifetime of the equipment. The British government does not believe that such schemes would be cost effective, or that there would be sufficient financial resources for maintaining long-term verification measures. Moreover, the British argue that any type of end-use verification regime ultimately would result in an expansion of the United States' extraterritorial reach, which they already find unacceptable. It was noted that the United Kingdom, in effect, maintains a policy of differentiation between the Warsaw Pact countries and the People's Republic of China. The British acknowledged this, but they maintained that at the completion of a core list, British policies toward China would have to be reviewed, in consultation with the allies. However, if a "Green Line"‡ to Eastern Europe and the Soviet Union was established, it would presumably affect controls to China as well. *   Efforts to convince countries that are not part of CoCom and not proscribed by CoCom to cooperate with CoCom export control policies by preventing reexports of CoCom-controlled items. †   Differentiation is the concept under which the level of export controls imposed on importing countries is based on a given country's determination of the national security threat posed by the importing country. ‡   Refers to substantial relaxation within CoCom of the restriction on strategic technology exports to the People's Republic of China in order to assist China's modernization efforts.

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment LIST CONSTRUCTION The MoD representative suggested that the United Kingdom was taking a pragmatic approach toward construction of a core list. This entailed sitting down with technical experts and asking three basic questions: Is the technology static? Can it be controlled? Is it available in other countries and not under control? Based on these criteria, for example, some computer software should not be on a core list because it is so widely available in non-CoCom countries. The MoD representative also noted that, over the years, the CoCom lists had become more technically defined, which had led to an expansion of the lists. At the same time, the United Kingdom believes that sunset provisions, which provide for automatic decontrol at a specified time, are dangerous and that, in fact, items should be reviewed on a case-by-case basis. Thus, the current, reduced lists must remain in place until a core list is agreed upon. The CoCom unanimity rule must also remain in place because only consensus can keep the playing field level for all. PROLIFERATION CONTROLS The United Kingdom is a member of the Australia Group* (AG) on chemical weapons. The British vigorously watch trade in the precursor chemicals on the AG's control list and have added six more to that list; they have also established a warning list in an effort to work with the British business community. There are no chemical weapons related controls on process technology, but such technology may be controlled for other reasons. Because it would be impossible to create an all-encompassing chemical weapons control list, the British found it preferable to work with the business community to create a corporate watch process for chemical weapons control. The British said that they had begun a similar effort for biological weapons, and they will soon be circulating information to British industry to make companies aware of potentially risky sales. Finally, the British see the Missile Technology Control Regime (MTCR) as an adjunct to the Nuclear Non-Proliferation Treaty. At present, however, they consider the MTCR a weak instrument of control because of the lack of a permanent secretariat, among other reasons. Additionally, the fundamental issues surrounding missile technology control overlap with civilian outer space issues, and therefore, the British believe that it will be difficult *   A group of nations, under the leadership of Australia, that have agreed to restrict, if not ban, the sale of chemical weapons precursors.

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment to separate peaceful from nonpeaceful intentions in determining whether to impose controls. ENFORCEMENT The British Customs Department is the major export control enforcement unit. It is responsible for general enforcement, criminal investigations, and the routine administrative functions of customs work. The United Kingdom maintains, but does not publish, a ''gray list" of suspected violators. Penalties are divided into two types: Part I involves less serious violations, which carry a penalty on conviction of 2,000 pounds or three times the value of the seized export, plus up to six months in jail. Part II crimes are more serious; there is no limit on the cash penalty that can be levied and prison sentences can be up to seven years. These crimes come under a 20-year statute of limitations. The British representatives emphasized that the government does not maintain a denial list that would cause a convicted individual or firm to lose export privileges. The government believes that after the penalty has been paid, there is no need for additional, long-term recriminations. The British stated that, after the 1992 European market integration, the government will still maintain some form of national administration of export controls. The British see Article 223 of the Treaty of Rome as a warrant for the protection of national interests. The British are concerned that, although a liberal control regime may exist within the European Community (EC), it will be difficult to create a common external enforcement arrangement. They believe that the end result will be a control system that gravitates toward the least common denominator and not necessarily toward the most effective system. Parliament Member The delegation met with a senior member of the House of Commons, who is the chairman of a parliamentary group that had recently held hearings and released a report on the possibility of trade between Great Britain and Eastern Europe. He favored increased business cooperation with the Soviet Union and East European countries, and he urged that serious attempts be made to assist the Soviet Union to upgrade its domestic telecommunications systems. Industry Representatives The delegation met with a group of British industrialists who had recently formed a corporate organization that is a cooperative venture between two trade associations, the Electronic Equipment Association and the Telecom-

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment munications, Engineering and Manufacturing Association. The purpose of the group is to provide a forum for the development of ideas on export controls within the British business community. The Department of Trade and Industry sees the organization as a body that represents the general views of the British electronics and communications industries. The industrialists stated that strategic technology controls remain an essential element in the defense of the West, but such controls should cover only those items that may be relevant to the Soviet military effort. Moreover, items cannot be controlled by CoCom if they are readily available from other, non-CoCom sources. At the same time, the industrialists argued that export controls should not be used as a form of punishment against the West's adversaries, such as was the case with the Soviet Union after its invasion of Afghanistan. In fact, U.S. unilateral controls, and especially the U.S. insistence on reexport controls, amounted to little more than "damned interference" with international trade. The trade organization also criticized the extraterritorial reach of U.S. controls, saying that it had caused many firms to avoid working with U.S. firms for fear of changes in U.S. policy. The group thought that export controls should stop at the water's edge. The trade group believes that, in the future, Eastern Europe cannot be considered any more threatening than China. Yet, because China has received more favorable treatment from CoCom than Eastern Europe, the trade group has asked the British government to give the Soviet Union and the other Warsaw Treaty Organization (WTO) countries the same treatment as China. The organization also believes that a policy of differentiation is unnecessary because, in essence, the Warsaw Pact no longer exists. Further, the group believes that it is important to bring chemical weapons, missile technology, and nuclear trade into a CoCom-like framework. Finally, in the group's view, the act of European integration should create a unified market that is bound around its external border by an export control regime that is a "ring of steel." The industrialists saw telecommunications as a very high priority for the economic development of Eastern Europe. They saw trade in the telecommunications field as the carrot that could get the Soviet Union and Eastern Europe to move more rapidly on the political front toward greater democratization. Telecommunications technology, in which the trade group believes the West leads by 10 to 15 years, is precisely what spread the notion of democracy throughout Eastern Europe. And, while they acknowledge that the availability of foreign currency is a problem, the industrialists nevertheless believe that creation of a trans-Soviet communications link is a necessity. In regard to the interaction between the trade group and the British government, the industrialists reported that the organization's members serve on British delegations to CoCom and that the organization meets every six weeks with DTI for technical discussions. The purpose of these meetings is to

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment analyze matters that are currently under discussion in CoCom. The organization also prepares consensus position papers on export control issues for DTI. The members of the organization's CoCom and DTI advisory groups hold security clearances so that they can fully participate in all CoCom-related discussions. MEETINGS IN FRANCE Government Officials The delegation had a lengthy meeting with a senior official of the Ministry of Foreign Affairs (MFA) the day after the new U.S. proposal to CoCom was announced. The MFA official reported that a recent French strategic assessment had shown the following: Soviet military capabilities have not decreased, but Soviet intentions have become less threatening. The Warsaw Pact has, in effect, lost its cohesion. He then provided an overview of the French assessment of the key issues at hand: A strict control system must be maintained based on strategic realities. CoCom must be completely revamped if it is to remain in existence. The focus of CoCom must be on what should and can be controlled. In discussing Soviet technology acquisition efforts, the MFA official reported that the French have seen no change in the level of activity. He did note, however, that the Soviet intelligence networks in Poland, Hungary, and Czechoslovakia had not been disbanded, and therefore, it must be assumed that some former operatives were still at work. For the French the main question was still how to manage politically a policy of differentiation without making it appear that the West was trying to foster the collapse of the Warsaw Pact. And, although the theoretical concept of differentiation is viable in the French view, the basic objective of revamping the entire CoCom system must be paramount. In this regard, the French do not have any difficulty with the idea of a core list, but they do support the need to continue applying the rule of consensus in creating it. The French do not see how any real changes could take place in CoCom if 1 nation could effectively block the wishes of 16 others. The French do not understand the concern over exporting machine tools to the Soviet bloc, because such tools are so widely available. The officials also noted that telecommunication equipment is essential to infrastructure development in Eastern Europe. In this regard, the French do understand the objections of the U.S. intelligence community to the installation of fiber

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment optic systems in the Soviet Union. Nevertheless, because CoCom was not created to enhance the collection of intelligence against the Soviet Union, the loss of signal intelligence is a separate issue. The MFA official also addressed the question of greater transparency within CoCom. He stated bluntly that confidentiality within the organization was dead and that he saw no reason why final documents could not be given to the media. Indeed, the French government's inclusion of industry representatives in technical advisory meetings was designed to increase the transparency of the process. On the matter of alternative proliferation control regimes, the French government already maintains control lists for the export of munitions, nuclear items, and missile technology. The government would work to harmonize its efforts with those of the international community, but only on an informal basis. The French government was not willing to codify such arrangements at the time, and it saw no need to expand the responsibilities of CoCom into these areas. Industry Representatives The delegation had an informal discussion with a diverse group of French industrialists. They stated that the industrial sector can accept the notion of differentiation toward the Soviet Union as long as a strategic threat remains. Nonetheless, a movement was needed within CoCom toward shortening the control list. A troubling point that remained for the French was the U.S. reexport regulations and the entire issue of extraterritoriality. For example, U.S. regulations force a French firm to comply with both French and U.S. laws, which imposes a serious administrative burden on the firms. The industrialists pointed out that although the United States had moved to expand trade with the Soviet Union, it was imposing conditions on foreign companies that constrained their ability to do the same. They also pointed out that U.S. regulations are too complicated, are only provided in English, have been used to enable U.S. firms to maintain technological leads over foreign firms, and have forced foreign firms to "design-out" U.S. components. There was general discussion about the philosophy of export controls. The French emphasized the delineation between tangible and intangible controls: the United States enforced the latter, but the French government controlled only physical goods. As an example, it is difficult, if not impossible, to control visits or telephone calls about technical topics.* They also mentioned the differences between export of goods and the export of production technology. They were not prepared to control the export of all production *   The French, in any case, do not control technical data exports.

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment technology, but they thought certain restrictions should be applied to some technologies destined for the Soviet Union and Eastern Europe. The point was made that France must export to remain an economically viable nation. Over 50 percent of all manufactured goods produced within France are ultimately exported, because the domestic market is too small to be economically viable. This need to export is complicated by CoCom rules, by U.S. export control regulations, and by a general worry over U.S. foreign policy actions. The industry representatives noted that the French government maintains strict controls on the sale of military goods to Iran, Libya, and South Africa. In addition to the CoCom list, the government maintains and publishes a separate military list, with the result that every export of French military equipment to every destination is controlled by the Ministry of Defense. In discussing their interaction with the government, the industrialists said that industry representatives attend technical meetings of CoCom and that they are present to provide technical advice. During a CoCom meeting, industry representatives sit with the official delegation, but they do not speak for the government. They only converse with other members of the French delegation. Finally, the industrialists remarked that it has always appeared to them that the United States simply did not trust the French export control regime. As industrialists, they were willing to accept multilateral controls, even those imposed as a result of the European market integration. But they could never accept unilateral policy dictates, especially from the United States. They were willing to assist in reformulating the mission of CoCom, but they believed its future activities should be dedicated to the creation of a core list of controlled items. U.S. Representatives at CoCom Headquarters The delegation met with the U.S. representatives to CoCom at CoCom headquarters in the U.S. embassy annex in Paris. The United States currently contributes 25 percent of the annual CoCom budget. The U.S. delegation consists of 3 officers (2 from the State Department, 1 from the Department of Defense), 3 secretaries, and 2 embassy assistants (who log in license applications). The entire CoCom secretariat consists of 32 individuals. It was estimated that the United States may account for 99 percent of all new additions to the CoCom control lists. In general, over the years, the lists have become much more detailed in terms of performance characteristics. This, in turn, requires more technical participation by U.S. agencies in export control matters. About 1,500 exception cases were submitted to CoCom in 1988 and in 1989, nearly half of which were submitted by the United States, and many of those were related to the People's Republic of China.

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment Center for Study of Relation between Technologies and Strategies The Center for Study of Relation between Technologies and Strategies (CREST) is a university-based research center created in 1982 as part of the Ecole Polytechnique. The center is primarily involved with the evaluation of strategic technology for the French Ministry of Defense. For example, CREST has examined such issues as the nuclear hardening of microelectronics and hypersonic flight. A large portion of the discussion with CREST staff centered on the definition of the term "dual use." In particular, the members of CREST thought that it is becoming increasingly difficult to define almost any product as purely civilian. This lack of a precise definition is a crucial issue in the creation of a CoCom core list of controlled technologies. French Institute of International Relations A discussion with a staff member of the French Institute of International Relations covered a wide range of proliferation issues. It was noted that time is the key factor in slowing the pace of technology proliferation. In a sense, additional time would enable developing proliferation control regimes, primarily those concerned with chemical weapons and ballistic missile production, to develop and become codified. Organization for Economic Cooperation and Development A brief session was held at the Organization for Economic Cooperation and Development to discuss the activities of the recently established Center for Cooperation with Economies in Transition in Eastern Europe. The center planned to hold three international conferences in 1990–1991 focusing, respectively, on economic statistics, transitional issues, and taxation. These conferences are to be supplemented by seminars and workshops aimed at easing the transition from controlled to market economies for the nations of Eastern Europe. MEETINGS IN FEDERAL REPUBLIC OF GERMANY (FRG) Government Officials The delegation had an extensive meeting with representatives of the Economics Ministry, the Foreign Ministry, and the Ministry of Defense. The discussion covered a broad range of topics, which are summarized below.

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment which exports are laundered. Ultimate end users are falsified, goods are surreptitiously moved from one location to another, and there is little accountability or overall control. While citing the existence of the trading companies, most agreed there was little, if anything, that could be done to control them. VISIT TO MACAO The delegation made a one-day trip to the Portuguese territory of Macao. Macao's current status is that of a Portuguese-administered enclave of the People's Republic of China. Portugal will withdraw entirely in 1999. Even though Portugal is a member of NATO, export controls do not exist in Macao. The territory borders on one of China's special economic zones, and traffic flows freely from Macao to China. In addition, there is almost constant waterborne traffic between Hong Kong and Macao, and few, if any, customs inspections. Unlike Hong Kong, Macao appeared to the delegation to have little indigenous high-technology industry. MEETINGS IN THE REPUBLIC OF KOREA Government Officials MINISTRY OF FOREIGN AFFAIRS At a meeting at the Ministry of Foreign Affairs (MFA), officials confirmed Korea's willingness to adopt some form of bilateral export control relation with the United States. However, it appeared that negotiations toward a ''5(k) agreement"* had not progressed quite as far as previously had been claimed. Much of the meeting was spent talking about the Soviet Union, Eastern Europe, and North Korea. The MFA vice minister discussed the Korean perspective on the Soviet Union and Eastern Europe, which is very different from that of the United States. The United States has a global concern about Soviet strategic capabilities and the diversion of technology from Eastern Europe to the Soviet Union. South Korea is most concerned about North Korea and about the Soviets as the major arms supplier to the north. In light of the recent political developments in the Soviet bloc, South Korea views Eastern Europe as no direct threat and as a potential new market for cheap consumer and middle-technology items. Korea would like to improve relations with the Soviet Union and the Eastern bloc as an important way to get those countries to moderate their support for North Korea. Given the state of the North Korean economy, a cutoff of Soviet and East European aid, *   A bilateral export control agreement between the United States and a non-CoCom, non-Prescribed country.

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment especially the supply of weapons, would seriously hurt North Korea's ability to wage war. MINISTRY OF TRADE AND INDUSTRY The delegation also had two meetings at the Ministry of Trade and Industry. One was with the managers of the department that will handle export controls, and the second was with a large group of middle-managers who would be involved with policy implementation. Like the Taiwanese, the South Koreans think their manufactured products are "low tech" and therefore not subject to controls. It is not clear, however, whether they have seriously considered how their exports would be affected if the 5(k) agreement with the United States is implemented. The most interesting part of the second meeting was an expression of Korean interest in joining CoCom instead of simply having a memorandum of understanding with the United States. The Koreans believed that there were at least three potential advantages to such a step: (1) the government could lobby to make North Korea a proscribed country for all of CoCom, (2) the government could directly argue for the decontrol of what it wishes to sell, and (3) membership in a body of advanced countries would provide South Korea with an important form of international political recognition. The delegation found no evidence of Korean companies trying to downgrade the U.S.-manufactured content of their products in order to avoid the need to comply with U.S. export controls. However, there did seem to be an effort to increase the percentage of Korean-made components going into locally produced products, while decreasing the percentage of U.S.-made components. It appeared that this was being done for commercial and nationalistic reasons rather than to circumvent the U.S. control regime. CUSTOMS SERVICE The delegation met with a senior South Korean customs official, who said that his department would enforce whatever regulations were agreed to with the United States. He indicated that the Customs Service was still learning about checking shipments and enforcing export controls, but that progress was being made. The official gave examples of punishing exporters of illegally copied products that were shipped to the United States. U.S. Business Community Representatives of the U.S. business community raised a number of issues about South Korean business practices. They deplore (1) the lack of respect for intellectual property rights, (2) the government's "collusion" to help

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment Korean businesses gain advantages over foreign companies, (3) a nationally perceived need to export, and (4) an "umbilical cord" attitude toward Koreans living abroad. They also criticized the U.S. willingness to tolerate these practices. The South Korean government has long insisted on the heavy participation of Korean companies as the price U.S. companies must pay to do business there. Much of this participation has been in the form of joint production facilities in Korea or "set aside" agreements. Some U.S. companies are reluctant to issue licenses to Korean companies because they fear that there is no way they could enforce the conditions of the license and protect intellectual property rights. Korean Institute for International Economic Policy The delegation met with officials of the Korean Institute for International Economic Policy to discuss a broad range of economic issues, primarily the reporting of its results to the Korean government. The institute provided a review of a number of problems currently facing the Korean economy, including the following: A U.S. $14 billion current account surplus, which has generated excessive financial liquidity. Virtually no unemployment, which is forcing wage rates to rise and causing inflationary pressures. Growing internal market liberalization. A minimal appreciation of the Korean currency. To back up these assertions, the institute provided the delegation with a large amount of statistical data, much of it from the Korean Customs Department, which focused primarily on the consumer electronics and textiles industries. Visit to a Samsung Manufacturing Plant One member of the delegation visited the Samsung plant at Suwon, which manufactures computers, medical systems, consumer electronics, and miscellaneous electronics. It employs 35,000 people and covers 1.6 million square meters of manufacturing space. In addition to personal computers, Samsung expects to manufacture the Videotext system, an improved definition television (IDTV), and a picture-in-picture (PIP) system for supporting two or more pictures on a monitor screen.

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment MEETINGS IN JAPAN The delegation held a number of meetings in Tokyo. These included discussions with the Ministry of International Trade and Industry (MITI), the Ministry of Foreign Affairs, the Customs Service, the Center for Information on Strategic Technology, and the American business community. The insular features of Japanese society (including loyalty to major companies by lifetime employees) reduce the likelihood that there will be diversions of goods to proscribed countries. This applies less to the smaller manufacturers or trading companies, but it is still a factor. Because the system is based on culture and trust, Japan had, until recently, placed little emphasis on inspection and review for export licenses. The tradition has been to believe the word of the major companies and therefore licenses are quickly approved. The shock of the Toshiba-Kongsberg affair caused great embarrassment to the Japanese government. Since then, customs checks by the Japanese government have become more extensive, paper oriented, and bureaucratic. The government has noted that these efforts have had the effect of lengthening the export licensing process for all Japanese firms. Government Officials MINISTRY INTERNATIONAL TRADE AND INDUSTRY As a result of the Toshiba-Kongsberg affair, the Ministry of International Trade and Industry, the lead agency in Japan's export control regime, increased its staff devoted to export controls from 43 to 106 people, and has become more attentive to end-user and end-use statements. Approvals for MITI licenses (similar to U.S. distribution licenses) are now dependent on a company's past record of compliance. One message that was repeated several times during the delegation's meeting with MITI officials was that Japan does not a prove of reexport controls. The officials stated that this was a major impediment to U.S. exports to Japan and a great inconvenience to Japanese companies. They were especially critical of reexport controls applied to intra-CoCom trade. The officials urged that the United States should place more trust in CoCom members. Japan issues 30,000 export licenses per year to South Korea, Taiwan, Hong Kong, and Singapore. This is roughly 40 percent of all licenses issued. Japan hopes that there will be no diversions through those countries, and it would prefer not to have bilateral, 5(k)-like agreements with them. The MITI officials commented on the recent CoCom-mandated intensive streamlining of the computer, telecommunications, and machine tools lists, noting that they handle Japanese list reviews. They believe that there should be a nearly continuous, ongoing review, in addition to such special reviews.

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment The officials also said that they have a "system" for deciding on the control or decontrol of dual use items. When questioned further, they said that their guiding principles were strategic criticality and foreign availability and that they review performance parameters on an item-by-item basis. They also restated the "high-walls" principle (i.e., use of product characteristics to enhance the protectability of the product). Finally, they believe that priority should be given to the decontrol of finished products, and they seemed to be particularly concerned with machine tools. MINISTRY OF FOREIGN AFFAIRS The delegation met at the Ministry of Foreign Affairs (MOFA) with the chief of the Japanese delegation to the CoCom Executive Committee and with a member of that delegation. The delegation had wide-ranging discussions about the U.S. and Japanese positions on export controls. The MOFA officials believe that it is critical to streamline the control lists as soon as possible, with respect to both their length and their complexity. The MOFA officials noted that the Japanese government holds interagency meetings on export control matters on a frequent, but irregular basis, and usually at the director or deputy director level. Official national approval of CoCom list changes takes place at the MOFA vice minister level. Japan would like to see intra-CoCom trade simplified, but it is concerned about how to avoid the "weakest link" problem in CoCom after European market integration in 1992. JAPANESE CUSTOMS SERVICE The Toshiba-Kongsberg case improved the atmosphere in Japan for customs enforcement. In particular, Japanese customs officials have become more energetic. However, "sting operations" are illegal and are regarded very negatively. The Japanese also are not likely to give their export control policies any extraterritorial reach, although Japan was considering participating in the CoCom Third Country Cooperation initiative. The Japanese Customs Service has greatly expanded its staff and inspections since 1984. It also has improved its training methods, for example, sending customs officers to MITI so that they can learn to identify controlled equipment. In 1989, the Customs Service made special checks on 7 percent (450,000 instances) of export licenses. Twenty-five percent of those shipments were physically inspected. Customs also maintains a watch list of suspicious companies, and exports from those companies are more likely to be physically inspected. About 100 companies are on the national watch list; the companies

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment are graded "A," "B," or "C," reflecting the degree of suspicion. Also, each regional customs office maintains an additional local list. All reshipments of goods with high U.S. content require a MITI license, but the Japanese government does not attempt to control items once they leave Japan. When the Customs Service has a question about shipments for export, it checks with MITI for a definitive answer. This happens with some frequency because customs officers sometimes have trouble recognizing whether an inspected item is what it is claimed to be. Center for Information on Strategic Technology The Center for Information on Strategic Technology (CISTEC) was created in 1989 as a nongovernmental organization concerned with research and data collection on export controls. It provides information and analytic reports to Japanese industry and government. The center has 25 full-time employees, and it maintains a large number of technology-specific advisory committees composed of some 700 members of industry and the Japanese government (mainly MITI). Fifty percent of the center's funding comes from MITI. The center was not involved in the intensive CoCom list review for computers, telecommunications, and machine tools. The directors of export control affairs for three major Japanese companies attended the CISTEC meeting. They discussed how Japanese companies are very careful to observe both Japanese and U.S. export controls. However, all the industry representatives reiterated their displeasure about having to observe U.S. reexport controls. U.S. Business Community According to U.S. business representatives in Japan, the Japanese export control inspection system has changed dramatically since the Toshiba-Kongsberg affair. Pre-Toshiba, the license review was primarily to see that the application papers were in order. Post-Toshiba, much more attention is being paid to substantive issues, such as product content, final destination, and ultimate end user. At this time, Japan may be the best CoCom partner the United States has. This is the case for several reasons. First, Japan does not want any further trade friction with the United States and export controls are an issue on which friction can be relatively easily avoided. Second, there is a great deal of embarrassment in Japan over the Toshiba-Kongsberg affair. Third, the Toshiba-Kongsberg affair has generated some genuine concerns about national security related technology transfer. In addition, Japanese foreign policy controls on technology exports are similar to those of the United States, and the trend is moving even more in

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment that direction. The Japanese are strongly against nuclear proliferation and against selling technology with direct military application to countries that have or could potentially come into conflict (e.g., Iran and Iraq). The Japanese are also increasingly concerned about technology going to countries that support terrorists. The U.S. business representatives also said the Japanese are better at protecting their technology (from CoCom-proscribed countries or allies) than U.S. companies. In fact, they asserted that several U.S. companies have a long and unfortunate history of giving up their technology too readily and too cheaply. With the possible exception of some civilian nuclear power technologies, the group offered no examples of the Japanese developing any technologies or products primarily to avoid U.S. export and reexport controls. Some thought this might have been a secondary factor in a few cases, but that it would be hard to distinguish that motivation from others that are more basic. Finally, the U.S. business representatives thought that U.S. export controls were a secondary or tertiary factor with respect to the lack of U.S. competitiveness in Japan in particular and in the Far East more generally. Once again, basic structural and cultural asymmetries were cited as far more important. III. CANADIAN MISSION * On May 30 and 31, 1990, the delegation met with officials of the Canadian government, members of the Canadian exporting community, and staff of the U.S. embassy. The discussions covered a variety of topics, in particular the following: The effect of CoCom and U.S. foreign policy export controls on U.S.-Canadian relations. The Canadian government's administration of CoCom export controls. The future of East-West trade controls. The future of non-East-West trade controls. The input of Canadian industries into the export control process. The Canadian participants were well informed and clearly had an in-depth understanding of security-related trade restrictions. The Canadian officials explained the Canadian export licensing and enforcement processes and commented on U.S.-Canadian bilateral relations, as well as the state of CoCom. *   The delegation was headed by panel vice chairman General William Burns and included panel member John Ellicott and staff consultant Karin Berry.

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment The delegation was left with the impression that the Canadian government was willing to "go the extra mile" to achieve multilateral consensus, as long as the domestic imperative of demonstrating independence from U.S. policy was met. The Canadian government is also serious about proliferation controls and would continue to control Canadian exports conscientiously, even in the event of Quebec's secession. GENERAL ISSUES Two issues bearing on U.S.-Canadian relations were repeatedly brought up. First, the Canadians believe that the application to Canadian firms of U.S. foreign policy restrictions on trade with Cuba is not only irritating but an obstruction of what they perceive as legitimate trade. Second, the Canadians are also irritated by the U.S. requirement for an import document on Canadian munitions exports transiting the United States, particularly because the Canadians do not require import documents for U.S. munitions exports transiting Canada. Other matters of concern are U.S. controls on the reexport of Canadian goods with U.S. content; U.S. "unilateralism" in CoCom and in other control groups; and U.S. inflexibility in CoCom negotiations (e.g., large U.S. delegations with no authority to change the initial U.S. position). Although Canadian officials thought that the CoCom High-Level Meeting scheduled for June 1990 would resolve immediate problems in CoCom, they were concerned that the CoCom process is still too slow and inflexible. Moreover, they believe the process does not adequately address such issues as the unification of Germany, the increasing threat from missile proliferation, and the surplus of arms in Europe. MEETING WITH GOVERNMENT OFFICIALS The meeting with government officials was hosted by the Ministry of External Affairs. Economic and commercial policy staff members of the Export Control Division made presentations on the administration of Canadian export controls as background for the discussion. Officials from the Ministry of National Defense, the Royal Canadian Mounted Police, and Canada Customs also attended the meeting. Canadian export controls are administered under the authority of the Export/Import Permits Act. This act prohibits unilateral controls and requires that the control list be linked to CoCom. The government is working to update its legislation to take into account export controls based on such issues as human rights violations and missile/chemical proliferation. Given Canada's large aerospace and telecommunications industries, the government is particularly concerned with missile-related controls.

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment All export licensing is handled by the Ministry of External Affairs, although cases may be referred to the Atomic Energy Control Board or the Ministry of National Defense for review and recommendations. The Ministry of External Affairs may overrule recommendations, on notice, or forward disputes to the Canadian cabinet. Most, if not all, disagreements are resolved below the cabinet level. In addition, the ministry may determine whether a Canadian export with U.S. content requires U.S. authorization. Although U.S. regulations state a de minimus of 25 percent U.S. content for continued U.S. control, Canada considers 51 percent U.S. content to be the control de minimus. The Atomic Energy Control Board reviews applications for permits to export goods on the Nuclear Exporters Committee (Zangger) control list or the CoCom Atomic Energy List. The Ministry of National Defense reviews both missile-related and CoCom general exception cases. The National Defense official stated, however, that the ministry typically interacts more with other countries' defense ministries on missile controls than on CoCom controls. The Ministry of External Affairs also consults the Ministry of Defense in preparing the Canadian positions for CoCom list review. Neither the External Affairs nor the Defense ministry use any set criteria in determining what should be controlled or decontrolled. In the area of enforcement, the Royal Canadian Mounted Police (RCMP) is the federal enforcement authority and maintains all international contacts. Canada Customs polices the borders. Customs also maintains a command and control center with an elaborate computer network for tracking export and import information. The center is used to generate information for joint investigations with the United States and other CoCom countries and for domestic investigations. Both RCMP and customs officials stated that the new CoCom liberalization and decontrol will make enforcement more difficult because much of the paper trail that facilitates enforcement will be eliminated and they will have to re-train their personnel on the updated control list. Closer cooperation with industry, better understanding of foreign enforcement practices, and a possible control indicator on shipping documents were cited as means of improving enforcement. On a more conceptual level, Canadian officials anticipated that the upcoming CoCom High-Level Meeting would resolve immediate problems, but would not address other major issues looming on the horizon, for example, German unification and increasing chemical, nuclear, and missile proliferation. They expressed the view that, while it might be useful for CoCom to address proliferation issues administratively, it would be impossible for CoCom to change its political or diplomatic focus. They also believe that linking trade sanctions to compliance with export controls was counterproductive.

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment MEETING WITH INDUSTRY REPRESENTATIVES The representatives of Canadian industry were primarily senior officials within their respective companies, and they demonstrated a much greater understanding of export controls than that typically found among their U.S. counterparts. This was due, in part, to an industry-government employee exchange program that both industry and government believe is very beneficial. Canadian Export Association Approximately 20 Canadian firms were represented by senior executives in a meeting organized by the Canadian Export Association. In general, the group viewed export controls as a restriction on legitimate business, and they questioned whether export controls really address security concerns or are a mechanism for protecting markets. They believe that the primary determining factor in licensing a sale should be the end use, not the technical capabilities, of a product. They pointed out that the loss of profit and name recognition from forgone sales eventually precludes technological lead. Specific complaints voiced by the group included the time delays inherent in license review and the fact that differing interpretations of the CoCom Industrial List by member countries create an "unlevel playing field." The telecommunications representatives said that controls on computers were much more liberal than those on telecommunications due to pressure from U.S. computer exporters. The group also noted that U.S. and Canadian reexport restrictions were an irritant. The United States actually requires licenses for some reexports, but the Canadian government expects exports to be "significantly consumed" at the original export destination. The participants did not think that exporters should be responsible for the activities of the importers after completion of the initial sales transaction. On the positive side, the industry representatives thought that there had been significant improvement in both Canadian and CoCom licensing procedures in the past three years. They attributed much of the improvement in Canadian administration to the government-industry employee exchange program. As part of this program, an exporting firm may detail an employee to a government agency for up to three years. Government employees may similarly be placed in private firms. (The salary differential between the government and private sectors is minimal.) The exchange program allows the government to draw on specific, up-to-date expertise in a particular product category and enables industry to learn government procedures.

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment Canadian Aerospace Industries Association The delegation met with the president and two vice-presidents of the Canadian Aerospace Industries Association (CAIS). The Canadian aerospace industry is primarily a supplier industry for U.S. companies. The CAIS executives believe that U.S. export controls are more liberal than Canadian controls. They noted, however, that the United States has major problems in the areas of commodity jurisdiction and distinguishing between technical facts and policy factors. They also believe that more attention should be focused on the loss of technologies through joint manufacturing ventures and foreign ownership of local companies.