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Executive Summary ABSTRACT In this study the pane! was charged to examine the current system of U.S. and multilateral national security export controls and to seek strategies to regulate international technology transfer in such a manner as to achieve a desirable balance among the national objec- tives of military security, economic vitality, and scientific and tech- nological advance. Three general principles underlie this analysis- namely, that it should be the policy of the United States (I J to promote the economic vitality of Free World countries, (2) to maintain and invigorate the domestic technological base, and (3J to cooperate with its allies to impede the Soviet Union and other Warsaw Pact countries in their efforts to acquire Western technology that can be used directly or indirectly to enhance their military capability. The panelfinds that national security export controls, when devel- oped and implemented on a multilateral/ basis, are an appropriate policy response to two facts. One is that dual use technology that is, technology that has both commercial and military applications has become increasingly important to Western military security. The other is that the Soviet Union and its Warsaw Pact allies continue to pursue aggressive technology acquisition in the West. The pane! furtherfinds that efforts by the United States since the late 1970s to enhance the effectiveness of national security export controls were necessary in view of both intelligence on the nature and extent of Warsaw Pact 1
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2 BALANCING THE NATIONAL INTEREST technology acquisitions and the continuer! diffusion of technological capability outside the United States. Nevertheless, the pane! believes that U.S. control policies and procedures are in cianger now of overcorrecting in that they fad! to promote both military security and economic vitality, two objectives set forth in the statutes authorizing national security export controls. The pane! also finds that, although appropriate statutory authority appears to exist, the U.S. policy process for national security export controls lacks proper direction and affirmative leadership at the highest level of government. The result is a complex and confusing control system that unnecessarily impedes U.S. high-technology exports to other countries of the Free World and directly affects relations with the CoCom allies. Accordingly, the pane! recommends that the United States exercise stronger leadership in building a multilateral community of common controls for dual use technologies among cooperating countries, which will involve further strengthening of the CoCom mechanism, eliminating certain controls on trade among CoCom countries, and developing elective control arrangements with other technologically advanced nations. In the domestic context the pane] recommends that executive branch policy decisions on national security export controls accord greater importance than they currently do to maintaining U.S. technological strength and the economic vigor and unity of the Western alliance. INTRODUCTION The vigor of science and technology in the Western* democracies and the greater economic vitality of these nations in comparison to the Soviet bloc are sources of strength for the West in its continuing effort to maintain its military security. The Soviet Union lacks these advantages; it seeks to compensate for them by directing a substantial portion of its gross national product to the development and production of military equipment and by making aggressive attempts to acquire and apply Western technology to its military programs. Although the prime targets of the Soviet acquisition program are military hardware and technology related directly to military systems, dual use products and technology! available for sale in international markets also constitute major targets. The importance of dual use technology to Western economic vitality poses a policy dilemma for the West in turn: The open communication * As used throughout this report, Western or West includes Japan. tItems that have both commercial and military applications (e.g., microelectronic components or computers of certain performance parameters).
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EXECUTIVE SUMMARY 3 and free markets that are fundamental to the Western advantage in technology also facilitate the Soviet acquisition effort. Given what is known about the scope and extent of these Soviet activities, the West must pursue a dual strategy of continuing to maintain its technological leadership over potential adversaries while also denying-or at least impeding their access to militarily significant Western technology. This study had a twofold objective: (1) to examine the current system of laws, regulations, international agreements, and organizations-de- fined collectively as the national security export control regime* that control the international transfer of technology through industrial chan nels; and (2) where appropriate, to recommend new approaches to achieve the interrelated national policy objectives of military security, scientific and technological advance, and economic vitality. To achieve this objective the panel and its professional staff undertook a broad agenda of research and briefings. · Pertinent public literature was analyzed as well as restricted docu- ments from the various federal agencies involved in export control policy formulation-e.g., the Departments of Defense, Commerce, State, Trea- sury (U.S. Customs Service), and Justice. · Representatives of these agencies briefed the panel, as did the Intelligence Community in classified session. · The panel also heard the views of industry (including a broad range of sectors and firm sizes) and held a series of discussions with individ- uals well-versed in aspects of the national security export control regime. · Delegations of the panel traveled to six European countries (Austria, Belgium, France, Great Britain, Sweden, and West Germany) and five Asian countries (Japan, Hong Kong, Malaysia, Singapore, and South Korea) for frank and confidential meetings with government officials, industry leaders, and other informed observers on export control matters. · The panel commissioned a series of research reports, prepared both by outside consultants and by the panel's professional staff. Some of these studies developed and analyzed new primary data; others reexam- ined existing problems from new perspectives. From these efforts has come a set of general principles and specific prescriptions for developing a more balanced and effective national *The panel was not charged to consider other applications of export controls including foreign policy and short supply constraints. Thus, although foreign policy controls may occasionally become intertwined or confused with national security controls, they are examined here only to the extent that they impinge on the effective functioning of the national security export control regime.
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4 BA LANCING THE NA TIONAL INTEREST security export control regime. The panel's findings and recommenda- tions are set forth in the concluding sections of this summary. The three general principles that underlie the panel's analysis propose that it should be the policy of the United States · to promote the economic vitality of Free World countries, · to maintain and invigorate the domestic technological base, and · to cooperate with its allies to impede the Soviet Union and other Warsaw Pact countries in their efforts to acquire Western technology that can be used directly or indirectly to enhance their military capability. As a general policy, the United States should strive to achieve clarity, simplicity, and consistency in its national security export control proce- dures, as well as in the multilateral CoCom* export control structure, and broader consensus on the need for national security export controls among the Free World nations that use and produce dual use technology. To achieve these ends the United States should develop policies and procedures that emphasize efficiency and effectiveness rather than total comprehensiveness. THE TECHNOLOGY TRANSFER PROBLEM Intelligence information reviewed by the panel including some at high levels of classification indicates that the Soviet technology acquisition effort is massive, well financed, and frequently effective. Militarily significant Western technology has flowed to Warsaw Pact countries in recent years through three primary channels: · espionage the theft of classified information or items of relevance to military systems; · diversion- shipment of militarily significant dual use products and technology to unapproved end users, either directly through the export of controlled products without a license (i.e., smuggling), or indirectly through transshipment using a complex chain of increasingly untraceable reexports (i.e., legal transshipment of products or components by firms operating in countries that do not impose controls); and · legal sales direct trade with the Soviet bloc, usually after receipt of a license. Such trade also may include some reexports. As in other areas of intelligence, data on Soviet acquisition of militarily sensitive technology are incomplete and fragmentary and often become *CoCom, or the Coordinating Committee on Multilateral Export Controls, is an informal, nontreaty organization composed of Japan and all the member nations of the North Atlantic Treaty Organization (NATO) except Iceland.
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EXECUTIVE 5 UMMAR Y 5 available relatively late in the development of national security export control policy. Nevertheless, available evidence including the so-called "Farewell" papers, which are actual Soviet documents obtained by French intelligence services in 1981 detailing the plans, organization, and financing for technology acquisition efforts in the West indicates that, by the Soviets' own estimates, approximately 70 percent of the items they target and eventually acquire in the West are subject to some form of national security export control. There is also growing concern in the Intelligence Community about the extent to which the Soviet Union and other Warsaw Pact countries have been or may be able to obtain controlled technology in Free World countries that do not cooperate in national security export controls. This concern applies both to the industrialized neutral countries of Europe and to some of the more advanced newly industrializing countries (such as India, Singapore, and Brazil). It is only on rare occasions- for instance, when isolated examples of specific Western components, or copies of them, appear in Soviet military equipment that the Intelligence Community can declare without reser- vation that the application of Western technology has contributed sub- stantially to Soviet military developments. As a result, assessing the impacts of technology acquired by the Soviets is subject to considerable uncertainty. In general, it appears that the loss of a few items does not raise significant risks. Although the Soviets may attempt to reverse- engineer a technology (i.e., use an item obtained in the West as a basis for producing the technology themselves for their military systems), the panel has come to believe that this process is generally unproductive for many types of items (for example, high-density semiconductor devices). Nevertheless, certain key items of process control or manufacturing hardware (known as keystone equipment) can provide the Soviets with substantial leverage even if only a few are obtained-because these items facilitate the production of quantities of other hardware. Conse- quently, a prevalent judgment in the United States is that the emphasis of national security export control policy properly should be on constraining the flow of manufacturing equipment (specifically, some types of turnkey plants and know-how related to that equipment) rather than on the end products of the manufacturing process. Although there are some cases in which different conclusions can be drawn, on the basis of available information the panel has determined that for most types of dual use technology the Soviet Union is approximately 5 to 10 years behind the West and does not appear to be closing the gap. The situation is different for military technology. Although the West remains generally ahead in the most advanced systems, the Soviets' great emphasis (relative to that of the United States) on the development and
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6 BALANCING THE NATIONAL INTEREST production of military hardware results in fielded equipment that in specific cases is as modern as that deployed in the West. However, as indicated in the 1986 Packard commission report A Quest for Excellence: Final Report to the President, it is important to understand that this fact may rehect delays in the U.S. procurement process rather than a failure of export controls. Despite years of effort, then, the Soviets continue to lag the West technologically, and this gap may actually be widening due to Soviet dependence on generally outdated Western equipment and technology (particularly in the field of computer science). Although it would be foolhardy for the United States or other CoCom nations to facilitate Soviet access to militarily critical technology, the panel considers it unlikely that an influx of Western technology will enable the Soviet bloc to reduce the current gap substantially-as long as the West continues its own rapid pace of innovation. There are other facets of the technology transfer problem that also warrant attention. Intelligence evidence on the extent of unwanted West-East technology transfer must be juxtaposed against the fact that the United States is now confronted with a dramatically altered economic and technological environment-an environment substantially different from that existing for most of the post-World War II period. The panel reviewed in this regard the implications of the following five major developments. 1. The character of the international marketplace is evolving in such a way that diffusion of technology is rapid and global in scope. Factors promoting this diffusion include the tendency among multinational cor- porations to locate research, development, and production facilities around the world and the existence of indigenous capability in many developing countries. Massive amounts of information must be trans- ferred by such companies as they attempt to control and coordinate their international efforts. 2. There is a growing global market for dual use products, most of which embody advanced technology. The high-technology sector de- mands heavy investment in research and development. The rapid tech- nological advances promoted by this investment are tending to push commercial development of technology ahead of military development- a reversal of the pattern established after World War II. Acceleration of commercial development, coupled with a lengthening of the U.S. military procurement cycle, has resulted in the increased availability of dual use products embodying technology more sophisticated than that deployed by the military. 3. Because trade is a steadily growing part of U.S. economic activity,
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EXECUTIVE S UMMAR Y 7 policies that affect it are increasingly important to the overall U.S. economy. The United States is the single largest international trader, reporting exports of $360 billion in 1985. U.S. exports to CoCom countries represented over 60 percent of that total in 1985; in contrast, exports to Soviet bloc countries represented less than 1 percent of U.S. exports for that year. Trade policies that might diminish West-West trade thus have greater potential to damage the U.S. economy than do those that might reduce exports to the Eastern bloc. Although export controls are not a leading cause of the recent decline in U.S. high-technology performance, they may contribute to lost sales and to an environment that discourages export activities by U.S. firms. 4. U.S. dominance over advanced technology is declining. The United States now faces stiff competition in almost every high-technology sector from companies in both developed and developing countries with non- U.S.-source technology. The growing technical sophistication of such countries is the result of long-term efforts to develop and enhance indigenous technical capability. (In a growing number of cases, the commitment of resources by such countries now surpasses that for similar efforts made by the United States.) The newly industrializing countries currently do not possess sufficient indigenous high-technology capability to compete at the cutting edge of most industries, but many are beginning to make great strides toward this goal and are already effective compet- itors at somewhat lower but still technologically sophisticated levels. Thus, the United States cannot succeed in its efforts to block Soviet acquisition of militarily sensitive Western technology unless it has the full cooperation of the (increasing number of) other technologically advanced countries that may represent alternative sources of supply. 5. Maintaining the vitality of all the Western economies has assumed greater importance for the national security of the United States. To the extent that technological and economic leadership is now shared with the other principal CoCom countries namely, Japan, the United Kingdom, France, and the Federal Republic of Germany- it is essential to the national security interests of the United States, for both military and trade reasons, that the economies of these countries remain strong. THE CURRENT NATIONAL SECURITY EXPORT CONTROL REGIME The national security export control authority exercised by the execu- tive branch is substantially unchanged in its basic legal structure from that originally granted by Congress in 1940 as an extraordinary war power. Two laws provide the primary statutory mandate. The Arms Export Control Act of 1976 requires government approval for the import and
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~ BALANCING THE NATIONAL INTEREST export of military weaponry and services. The Department of State implements the act through the International Traffic in Arms Regulations (ITAR); ITAR is based on the U.S. Munitions List, which is maintained by the Department of Defense (DoD). The Export Administration Act (EAA) of 1979, as amended, controls dual use goods and technologies that could make a significant contribution to the military capabilities of a potential adversary. EAA, which is implemented by the Department of Commerce through the Export Administration Regulations (EAR), also authorizes controls that may be necessary to serve U.S. foreign policy goals and to ensure the domestic availability of resources in short supply. The regulations implementing the national security export control regime are extensive and complex. Many federal departments and agen- cies share administrative responsibility for their implementation and participate in the export control policymaking process. The roles of the executive branch agencies are assigned variously by legislation, - by regulation, or by executive order. In general, the Commerce Department regulates exports of commercial equipment and technology, while the State Department controls exports of military equipment and technology. DoD advises both agencies on the strategic significance of commercial and military exports. The Department of Commerce and the U.S. Customs Service share responsibility for enforcement of national security export controls. Multilateral agreements and procedures play an essential role in deny- ing militarily useful technology to potential adversaries. In fact, the heart of the national security export control regime is a set of restrictions on exports to the Soviet bloc, which is maintained on a multilateral basis through the Coordinating Committee on Multilateral Export Controls (CoCom), of which the United States is a founding member. CoCom administers three lists of controlled items: munitions, nuclear energy, and dual use. Many but not all the items on the U.S. Control List parallel items found on the CoCom dual use list (known as the International List). The United States also has bilateral agreements or arrangements with a number of non-CoCom countries that provide for varying degrees of cooperation on national security export controls. ASSESSMENT OF THE CRITICAL ISSUES National security export control policy should be the result of a process that weighs the benefits of controls in relations with potential adversaries against their costs in terms of the domestic economy and relations with allies and friendly trading partners. The potential benefits of controls derive from two factors: (1) they make it more difficult for the Soviet Union and its allies to upgrade their military systems through information,
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EXECUTIVE SUMMARY 9 technology, and products acquired in the West; and (2) they require the Soviet Union to commit substantial domestic resources to military research and development instead of using acquired Western technology to shortcut the technological development process. Both the costs and benefits of controls are difficult to assess with precision. There is evidence that controls do slow Soviet acquisition efforts and increase the price of the items they acquire, a conclusion supported at the unclassified level by the Farewell papers (see p. 5), which indicate that during the Tenth Five-Year Plan (1976-1980) the Soviet acquisition program satisfied more than 3,500 specific collection requirements for hardware and documents for the 12 Soviet industrial ministries. The documents also indicate that for 1980 alone the Soviet Union allocated (in rubles) substantially more than $1 billion for the collection of Western documents, blueprints, test equipment, and other hardware. There are also data that suggest that most of the benefits of controls are concentrated in a relatively narrow range of products and technologies. This range includes advanced equipment for manufacturing high-density semiconductors, automated process equipment for the fabrication of specialized metals and composites, very-high-speed computers, ex- tremely precise test instruments, and aircraft components that can be readily adapted to military uses. The potential costs of controls also are hard to measure because they derive from the web of competitive and cooperative relationships among Western countries. Nevertheless, the panel did consider it important to attempt an estimate of those costs to the U.S. economy that are associated mainly with current features peculiar to the U.S. national security export control system. Of principal concern are the present and future sales and market share (both West-West and West-East) and reduced investment in research and development that U.S. producers of goods and technologies may lose or forego-without the compensating national security benefits of denying the Soviets embargoed technology- as a result of how the U.S. control system is designed and administered and of how it compares with the control systems of other countries with competitive suppliers. For example, reduced revenue from lost sales and market share may translate into less investment, a lower growth rate, and reduced innovation, with resulting adverse effects on both the commercial and military sectors. In addition, technology controls also have created friction among the Western allies friction that may interfere with their successful collaboration on weapons development, production, and stan- dardization, or on other matters bearing directly on East-West relations. In contrast to their benefits the costs of export controls are spread across an enormous volume of transactions representing a large share of
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10 BALANCING THE NATIONAL INTEREST U.S. trade. Based in part on data provided by the Commerce Department, the panel estimates that 40 percent approximately $62 billion-of all U.S. exports of nonmilitary manufactured goods in 1985 were shipped under a license requiring prior approval. In addition, U.S. controls extend to sales by U.S. foreign subsidiaries and independent foreign companies using products, components, parts, services, and technology of U.S. . - origin. In an effort to assess the operation and some of the ejects of export controls, the panel analyzed a sample of licenses* for goods classified by level of military sensitivity using administrative criteria developed in U.S. government deliberations and/or CoCom negotiations. The analysis showed that the broad control net is heavily weighted with transactions involving items of less than critical military importance with customers in friendly Western countries. Ninety percent of individual license applica- tions are for exports to Free World countries. One-third of these applications are for items that may be exported to CoCom countries under a general license and even to Soviet bloc destinations without prior CoCom approval. Roughly two-thirds of license applications are for items sufficiently lacking in military importance that they may be shipped to the People's Republic of China (PRC) without prior CoCom approval. Only about 13 percent of the applications are for very sensitive items that require an individual U.S. license to all countries (i.e., they are not eligible for export under a bulk license) as well as CoCom approval for shipment to the bloc or the PRC. The sheer volume of transactions subject to government review and approval sharply limits the ability of licensing officers to focus on more critical items. Data obtained from the Commerce Department indicate that individual license applications for exports to the Warsaw Pact and to Western countries that exercise little control and are therefore potential points of diversion-appropriately receive more scrutiny than those for exports to CoCom destinations. But the current control regime does not apply similar discrimination to sales within the West of products having greater and lesser military significance. The adverse competitive effects of export controls could be alleviated by the establishment of a community of common controls in dual use technology (i.e., a set of trade relationships unimpeded by national *The panel requested and was granted a "national interest exception" under Section 12(c) of the Export Administration Act permitting its consultants unprecedented access to Commerce Department license files and data bases, subject to strict observance of confidentiality of business information. The subsequent analysis conducted by consultants was of a sample of 1,618 processed license applications categorized by Commerce Department license officers.
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EXECUTIVE SUMMARY 11 security restrictions) among cooperating Free World countries. Such an arrangement does not now exist. U.S. national security export controls encompass more products and technologies, are generally more restric- tive, and entail more administrative delays and shipper uncertainties than those of the other major CoCom countries. Only the United States requires foreign resellers, even in countries that are our closest allies, to obtain the prior approval off to account periodically tithe U.S. government for reexports of U.S.-origin products, U.S.-origin parts and components incorporated into foreign equipment, and foreign products manufactured with U.S.-origin technology. These controls appear even more restrictive in light of the fact that many controlled products are available from or through non-CoCom countries with few or no restric- tions. There is both anecdotal and statistical evidence that the relative stringency of U.S. controls is, with increasing frequency, causing Free World customers to turn to non-U.S. suppliers or to begin to explore alternative sources including internal development. Respondents to a panel survey of U.S. companies,* reflecting on their experience during the 12 months prior to May 1986, perceived the control system as frequently having significant adverse effects on their business: · 52 percent reported lost sales primarily as a consequence of export controls; · 26 percent had business deals turned down (in more than 212 separate instances) by Free World customers because of controls; · 38 percent had existing customers actually express a preference to shift to non-U.S. sources of supply to avoid entanglement in U.S. controls; and · more than half expected the number of such occurrences to increase over the next 2 years. In addition, the panel has documented that U.S. exporters already have lost business to suppliers in other technologically advanced nations because of unilateral controls on analytic instrument exports and on independent foreign distributors and equipment manufacturers operating under U.S. distribution licenses. In the first instance, the short-run loss attributable to export controls is about 10 percent of the value of U.S. exports; in the second instance, the loss to date is smaller. But over time, as the relative restrictiveness of U.S. controls becomes more consequen *The sample of companies surveyed was oriented toward firms in the electronics (equipment and components), aircraft (airframes, engines, and parts), instrumentation, and machine tool sectors. The 170 respondents accounted for roughly $36 billion of foreign sales in 1985 or approximately 28 percent of estimated total U.S. high-technology sales.
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EXECUTIVE SUMMARY 17 role in upgrading or modernizing Soviet military systems. Although internationally coordinated efforts are necessary to counter the use of diversions or legitimate trade for such purposes, export controls are not a means for controlling espionage, which alone accounts for a high proportion of successful Soviet acquisition activities. 2. Despite systemic difficulties, Soviet technical capabilities have success- fully supported the military objectives of the USSR. Because the Soviet system does not enjoy the benefits of a robust commercial sector, it is at a fundamental disadvantage in terms of the promotion of technological innovation. Nevertheless, the Sovi- ets have demonstrated an effective technical capability to meet their military objectives. IV. DIFFUSION AND TRANSFER OF TECHNICAL CAPABILITY 1. Wide global diffusion of advanced technology necessitates a fully multilateral approach to controls. Because advanced technology has now diffused so widely, na- tional security export controls cannot succeed without the follow- ing: (1) an effective CoCom process by which the other major CoCom countries accept responsibility for regulating exports and reexports from their territory of CoCom-controlled technology to non-CoCom Free World countries; and (2) the adoption by the more advanced newly industrializing countries of CoCom-like standards for their own indigenous technology. 2. Controls on the employment of foreign nationals in the U.S. R&D infrastructure must be used selectively and sparingly. Foreign nationals now play a significant role in U.S. domestic R&D activities as well as in the laboratories of U.S. foreign subsidiaries. Such individuals contribute significantly to U.S. tech- nological innovation and hence promote the national interest. Spar- ing use should therefore be made of existing legislative authority to restrict technical exchanges or to limit full participation of foreign citizens in the U.S. R&D community. It is particularly important to distinguish, as appropriate, between citizens of nations to whom exports are proscribed and citizens of all other nations. V. FOREIGN AVAILABILITY AND FOREIGN CONTROL OF TECHNOLOGY 1. The congressional mandate for decontrol of items based on foreign availability is not being fulfilled. The lack of action on foreign availability is inconsistent with the intent of Congress as expressed most recently in the Export Admin
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BALANCING THE NATIONAL INTEREST istration Amendments Act of 1985. In those cases in which there is foreign availability of U.S.-controlled items, U.S. industry is un- fairly placed at a competitive disadvantage with respect to firms from other countries that are not similarly constrained. This disad- vantage can lead to the erosion of competitive market advantages previously enjoyed by U.S. industry and in some cases to the permanent loss of U.S. markets. 2. Control of "technological commodities" is impractical. The control of goods for which the volume of manufacture is so large and the scope of marketing and usage so wide that they have become "technological commodities" (e.g., some classes of per- sonal computers or memory chips) is not practical. Decontrol of such goods to all Free World destinations is, in some cases, the only appropriate solution. 3. Bilateral agreements with Free World non-CoCom countries must protect all CoCom-origin technology and must control similar indige- nously produced goods. Over the short term, bilateral agreements that restrict only the reexport of U.S.-origin technology unfairly disadvantage U.S. com- panies in international trade. Over the long term, these agreements with non-CoCom countries will not promote the effectiveness of the CoCom export control system unless they restrict the reexport of technology from all CoCom sources as well as technology produced indigenously. 4. Other CoCom countries must be more vigilant in preventing diver- sions of both CoCom-origin and indigenously produced technology. Some members of CoCom could substantially improve their efforts to prevent diversions of CoCom-origin products and technol- ogy being exported to third countries. Since compliance with U.S. reexport controls is not likely to become politically acceptable in most CoCom countries, some compromise solution must be reached. 5. The extraterritorial reach of U.S. controls damages allied relations and disadvantages U.S. exporters. The extraterritorial reach of U.S. reexport controls is anathema to most U.S. trading partners. Moreover, many foreign governments do not agree that the United States has jurisdiction over the actions of their citizens outside U.S. territory. The extraterritorial extension of U. S. controls is viewed by these governments as a direct challenge to national sovereignty and a clear violation of interna- tional law. It is seen as additional evidence of mistrust by the United States of the capacity of these governments to further the West's common interest in preventing the diversion of militarily important goods and technologies.
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EXECUTIVE S UMM~ Y 19 VI. EFFECTIVENESS OF THE MULTILATERAL PROCESS 1. The United States must clearly distinguish foreign policy export controls from national security export controls. There is much less consensus among the CoCom allies on the use of trade restrictions for foreign policy reasons than on controls in the interests of national security. Thus, to the extent that the United States fails to distinguish clearly between the two, allied cooperation in support of consensual national security objectives is undermined. 2. The impact of controls on advantageous scientific communication and transfer within the Western alliance must be minimized. Because open scientific communication and trade within the West are as important to maintaining Western technology lead as is controlling the flow of technology to the Soviet bloc, U.S. policy should lend equal emphasis to both objectives. 3. The CoCom countries should take specific steps to bolster the efficiency and electiveness of multilateral controls. Among the most important issues now facing CoCom are: (a) reduction in the overall scope of the list, (b) modification of the procedures for decontrolling items from the International List of dual use items, and (c) provision of greater transparency in CoCom decision making. 4. The CoCom process would benefit if all country delegations had balanced economic and defense representation. The U.S. delegation to CoCom, unlike those of other member nations, includes a significant contingent of defense officials. A balance of economic and defense representation on all CoCom delegations would enhance CoCom unity and the usefulness of the CoCom process, in part by helping to resolve conflicts between competing economic and military objectives. 5. Foreign perceptions of U.S. commercial advantage derived from export controls impede multilateral cooperation. There is a widely held view in Europe and the Far East that the United States uses its national security export controls to afford commercial advantage to U.S. companies. Although the panel found no substantive evidence to support this view, the existence of these perceptions makes it difficult to gain effective multilateral cooper- ation. 6. Unilateral controls are of limited efficacy and may undermine allied cooperation. The imposition by the United States of unilateral national security export controls for dual use items can be justified only as a stopgap measure pending negotiations for the imposition of multilateral controls or in rare cases in which critical national security concerns
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20 BALANCING THE NATIONAL INTEREST are at stake requiring unilateral restrictions. It must be recognized that, except when used as a temporary measure, the application of unilateral controls undermines the incentive of the allies to develop a sound basis for multilateral restriction. VII. ADMINISTRATION OF U.S. NATIONAL SECURITY EXPORT CONTROL POLICIES AND PROCEDURES 1. The lack of high-level oversight and direction degrades the effective- ness of U.S. controls. The administrative structures established by the executive branch have not proven effective in resolving the frequent policy differences among the three principal line agencies (the Departments of State, Defense, and Commerce). The White House has intervened only intermittently and then primarily to contain interagency conflict rather than to provide adequate policy direction. The lack of higher-level oversight and direction results in duplication of effort, uncertain lines of authority, serious delays in decision making, and underutilization of information-sharing capacity. 2. Unequal effort by and resources of the three principal line agencies have led to conflict, confusion, and unbalanced policy. DoD's determined efforts to reinvigorate the national security export control regime have been useful in raising the general level of awareness in the United States and in other CoCom countries. But this increasingly active DoD role also has led to an imbalance in the distribution of government effort and resources. Although DoD has created a new dedicated agency for technology security, neither the Department of Commerce nor the Department of State has been able to implement equally effective measures. The result is a lack of balance in the interagency policy formulation process and an ineffi- cient licensing process. 3. Shifts in responsibility within the line agencies may preclude broadly informed and balanced policy judgments. Reorganization initiatives in a number of the principal line agen- cies tasked with managing export controls have resulted in a shift of responsibility away from organizations with expertise in technology development and international trade and toward those whose prin- cipal and often only concern is technology control. Although there have been positive ejects of this shift in responsibility, there has been a loss of sustained technical input into the policy process for national security export controls. 4. Current licensing requirements, classification procedures, and propri- etary controls for technical data are both appropriate and adequate. Although technical data that are not publicly available require a
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EXECUTIVE SUMMARY 21 validated license for export to the Soviet bloc, data exports to other destinations for the most part are eligible for a general license. The need for the unhindered exchange of large volumes of data in international commerce and research indicates that a strict system of control is neither feasible nor desirable. Existing licensing require- ments, classification procedures, and proprietary controls offer sufficient protection. Controls on unclassified DoD technical data have a chilling effect on the U.S. R&D community and should be imposed sparingly. The Department of Defense Authorization Act (DAA) of 1984 permits DoD to impose restrictions on domestic dissemination or export of DoD-funded or DoD-generated technical data whose export would otherwise require a validated license under EAR or ITAR. Such restrictions have the erect of creating de facto a new category of unclassified but restricted information. These new, more comprehen- sive technical data restrictions have had a chilling effect on some professional scientific and engineering societies that have elected voluntarily to close certain sessions. It is the panel's judgment that imposing controls on technical data that are broader than those now in effect is not warranted by the demonstrable national security benefits. 6. The congressional mandate for integrating the Militarily Critical Technologies List (MCTL) into the Commerce Department Control List practically cannot be accomplished. The MCTL has been used inappropriately as a control list, and its annual revision has resulted in a voluminous itemization of many important technologies without apparent prioritization. Because the Departments of Defense and Commerce maintain fundamentally different objectives in their list development exercises, the congres- sionally mandated task of integrating the MCTL into the Commerce Department's control list practically cannot be accomplished. 7. The complexity of U.S. export controls discourages compliance. The complexity of U.S. controls discourages compliance, espe- cially by foreign firms and small- to medium-sized U.S. companies. For example, the Export Administration Regulations constitute nearly 600 pages of rules and procedures. These could be reduced and simplified substantially and made more "user friendly." 8. There is a need for high-level industry input in the formulation of national security export control policy. There is a need for an effective mechanism within the government to provide meaningful input from the private sector on the formula- tion of a coordinated national security export control policy. Such a group must be constituted at sufficiently high corporate levels to reflect major industry concerns, and it must be able to have an impact on the actual policy process.
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22 BALANCING THE NATIONAL INTEREST 9. Voluntary cooperation from industry is important to the enforcement of export controls. Voluntary cooperation by U.S. industry-particularly companies with overseas subsidiaries-is important to export control enforce- ment, especially in the identification of violations. Companies fre- quently have knowledge otherwise unavailable to the government of possible violations by other firms. 10. Adequate information to evaluate the impact of national security export controls is not maintained by the U.S. government. This study has revealed serious shortcomings in both the quality and quantity of information maintained and analyzed by the U.S. government on the coverage, operation, and domestic and global impacts of national security export controls. In the absence of better information, it will continue to be difficult for policymakers to arrive at more informed and balanced judgments as to the advisability of controls. 11. A comprehensive cost/benefit analysis of controls currently is infea- sible. Despite some preliminary efforts to assess the competitive ef- fects of national security export controls, a comprehensive empir- ical analysis of the costs and benefits is precluded by the lack of data, by the complexity of the system, and by a variety of qualitative judgments that must enter into any evaluation. There is little doubt that, without the heightened attention to these issues initiated in the early years of the current administration by DoD, the problem of Western technology diversion to the Soviet Union would by now be considerably worse. But the panel is concerned that this policy "correction" useful and necessary as it was should not now overshoot the mark. The panel wishes to reiterate therefore its concern about the continuing lack of balance within the policy process for national security export controls regarding the representation of technical, national security, economic, and domestic and international political interests. This balance should be developed and maintained within each agency, among agencies of the U.S. government, and among countries participating in CoCom.
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EXECUTIVE SUMMARY 23 RECOMMENDATIONS OF THE PANEL The panel makes two basic recommendations, together with a series of corollary prescriptions. I. STRENGTHEN THE COCOM MECHANISM The panel recommends that the United States take the lead in further strengthening the CoCom mechanism so that it can function as the linchpin of a fully multilateral national security export control regime for dual use technologies. Under current and prospective global circum- stances, such a multinational system is essential to achieve maximum export control effectiveness without impairing Western economic vitality. To strengthen the current multilateral control regime will require greater harmonization of the current U.S. approach and those of our technolog- ically advanced allies through closer consultation and the adoption of policies that promote cooperation. The two most immediate objectives are: (1) to limit the coverage of the U.S. Control List and the CoCom International List to those items whose acquisition would significantly enhance Soviet bloc military capabilities and that are feasible to control, and (2) to obtain agreement on a common approach to reexports of CoCom-origin items. The United States should strive to create a community of common controls in dual use technology that is, a set of trade relationships unimpeded by national security restrictions among those Free World nations that share an expressed willingness to adhere to common or equivalent export control restraints on the transfer of strategic and control- lable goods and technologies to the Soviet Union and its Warsaw Pact allies. Accordingly, the panel recommends the following changes in U.S. policy. 1. Control Only CoCom-Proscribed Items As a general policy, the United States should seek to control only the export of CoCom-proscribed items and then only when they are destined for a proscribed country or for a non-CoCom Free World country that has not entered into an agreement* to protect CoCom- proscribed technology. 2. Within CoCom, Seek Control on Exports to Third Countries With respect to CoCom, the United States should negotiate agreements with member countries regarding control of exports and reexports from their territories to third (i.e., Free World non *Such an agreement might be implemented either through a formal memorandum of understanding or an informal arrangement that achieves the same result.
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24 BALANCING THE NATIONAL INTEREST CoCom) countries, thereby obviating the need for U.S. reexport authorizations. For those CoCom countries with which agreement on the control of exports to third countries can be achieved, the requirement to obtain validated licenses should be eliminated- except for the export of extremely sensitive high-level technology (e.g., supercomputers). For those CoCom countries unwilling to agree to or unable to implement such controls, the present system of validated licenses should be retained. 3. Negotiate Comprehensive Understandings with Third Countries With respect to non-CoCom Free World countries, the United States should, in coordination with other members of CoCom, negotiate comprehensive understandings or equally effective infor- mal arrangements considered acceptable by the Department of State that specify controls on the export of all CoCom-proscribed goods and technology (including those produced indigenously) to the Warsaw Pact countries or to other noncooperating third countries. A graduated scheme of incentives should be developed for non- CoCom Free World countries that agree to less than comprehensive controls. Those third countries that have agreed to comprehensive arrangements should be accorded full "CoCom-like" treatment; that is, they should not be subject to U.S.- validated license or reexport authorizations as soon as they can demonstrate their ability and willingness to enforce the control agreement. 4. Remove Items Whose Control Is No Longer Feasible Regardless of the rate of progress on CoCom and third country negotiations, the United States should actively seek to remove from both the U.S. Control List and the CoCom International List items whose control is no longer feasible because of their widespread production, distribution, and sale throughout the world. (See also Item II.4 on p. 27.) 5. Maintain Unilateral Controls Only on a Temporary Basis or for Limited, Unique National Security Circumstances Regardless of the rate of progress on CoCom and third country negotiations, the United States should eliminate the use of unilateral national security export controls except in those circumstances in which active efforts are under way to negotiate multilateral controls within and outside of CoCom in which case unilateral controls could be maintained on a temporary basis or in those situations in which unique national security circumstances warrant the imposi- tion of such controls for limited periods of time. The panel wishes to emphasize, however, that the phrase "unique national security circumstances" does not justify retaining the present U.S. unilateral Control List. Rather, the panel recommends that controls be estab
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EXECUTIVE SUMMARY 25 fished on a multilateral basis. In the rare case in which a CoCom country may believe that critical national security concerns are at stake, it may wish to reserve the right to establish a unilateral restriction on its domestic industry. This exception should be used sparingly. 6. Eliminate Reexport Authorization Requirements in Countries Partic- ipating in a Community of Common Export Controls on Dual Use Technology To further the objective of developing a community of common controls on dual use technology among cooperating countries of the Free World and to encourage international cooperation and trust, the United States should eliminate any requirement that a buyer must seek authorization for a reexport that is subject to CoCom or "CoCom-like" controls by the country initially exporting the prod- uct or technology..For effective enforcement, reliance should be placed instead on the cooperating governments. 7. Maintain Current Control Procedures on the Transfer Within CoCom of Sensitive Information, Technical Data, and Know-how The United States should continue to rely on current security classification procedures and the protection afforded by general license GTDR (technical data restricted) or by proprietary interests to control the transfer within CoCom of information, technical data, and know-how that are considered militarily important. 8. Reduce the Scope of the CoCom List and Modify CoCom Decision- Making Policies and Procedures There are a number of steps that the United States together with its CoCom allies should take to improve the efficiency and effectiveness of the multilateral process. The most important of these are to reduce the overall scope of the CoCom International List to improve credibility and enforcement and to add a 4-year "sunset provision" that would cause the automatic removal (unless they were periodically rejustified) of lower-level CoCom items. 9. Maintain a Clear Separation Between National Security and Foreign Policy Export Controls Existing statutory authority describes separate systems and pro- cedures for-the control of exports for foreign policy versus national security reasons. Therefore, because many of our CoCom allies continue to disagree profoundly with some unilateral U.S. foreign policy trade sanctions, the U.S. government should maintain the clearest possible distinction between the administration of national security and foreign policy controls.
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26 BALANCING THE NATIONAL INTEREST II. ACCORD GREATER IMPORTANCE IN U.S. NATIONAL SE CURITY EXPORT CONTROL DECISIONS TO MAINTAINING U.S. TECHNOLOGICAL STRENGTH, ECONOMIC VITALITY, AND ALLIED UNITY The panel recommends that executive branch decisions concern- ing national security export controls accord greater importance than they currently do to maintaining U.S. technological strength, economic vigor, and allied unity. Ultimately, an effective multilateral national security export control regime can be established only through the commitment and support of the President and Congress. Nevertheless, the decision- making and advisory mechanisms of government also must be constituted and tasked appropriately to facilitate the effective implementation of the policy approach proposed above. To this end, the panel recommends the following specific changes in U.S. policy and procedures. 1. Balance the Protection of Military Security with the Promotion of National Economic Vitality Through Affirmative Policy Direction The President should require that the National Security Council (NSC) implement the existing policy mandate (as set forth in the Export Administration Act of 1979, as amended), which calls for both the protection of military security and the promotion of national economic interests. NSC should provide regular, affir- mative policy direction to the responsible line agencies, a recom- mendation that can be accomplished by staffing the NSC properly to deal with these matters and by assigning a senior NSC staff member specific responsibility for bringing agency representatives together to resolve policy differences. The panel further recommends that the secretaries of commerce and treasury participate in NSC meetings at which export control matters are to be addressed. 2. Provide Sufficient Resources and Authority to the Departments of Commerce and State to Allow Them to Fulfill Their Roles in the Export Control Process To establish a more balanced policymaking process within the federal government, the Departments of Commerce and State should be allocated sufficient resources dedicated to the implemen- tation of national security export controls. In particular the Com- merce Department should upgrade significantly the capacity and sophistication of its automated systems and the quality of its in-house technical and analytic expertise. It is also essential that the State Department vigorously exercise its traditional role of ensuring that the U.S. government speaks with a single, coherent voice when dealing with foreign governments and foreign firms on these matters.
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EXECUTIVE S UMMAR Y 27 3. Restore Technical Judgment and Overall Balance to the National Security Export Licensing Process The locus of responsibility and decision making within DoD has shifted from the office responsible for research and engineering to the office responsible for policy. As a result, there has been a significant reduction in the weight accorded to technical factors and a resultant imbalance in the policy process. It should now be the goal therefore to reestablish a major role for the technical side of DoD and to reduce the DoD role in detailed license review as parallel steps are taken within the Commerce Department to further strengthen its licensing procedures. 4. Implement the Decontrol Procedures Required by Law When Foreign Availability is Found to Exist The lack of action by the federal government on foreign availabil- ity determinations is contrary to the mandate of the Export Admin- istration Act of 1979, as amended. This is due in part to the fact that no specific time lines for the completion of foreign availability determina- tions have been specified in legislation. At the very least the Export Administration Act should impose reasonable time lines on all respon- sible agencies. Because the process for determining foreign availability is not now functioning effectively, there is a need for effec- tive remedial action by both the executive and legislative branches. 5. Withdraw the Statutory Requirement to Integrate the MCTL into the Commerce Department's Control List Congress should withdraw the statutory requirement for the integration of the Militarily Critical Technologies List into the U.S. Control List. The fundamentally different nature and functions of the two lists the former an exhaustive list of all technologies with military utility and the latter a specific list of items requiring an export license make this goal unattainable. 6. Provide Effective, Two-Way Communication at the Highest Levels Between Government and the Private Sector A mechanism should be established (or upgraded) to provide effective, two-way communication between the highest levels of government and of the private sector on the formulation and implementation of coordinated national policies that balance mili- tary security and economic vitality. To this end the panel recom- mends that senior policy staff of the Executive Office of the President meet periodically with the President's Export Council and/or other respected representatives of the private sector and inform the President of the concerns of this sector regarding the domestic and international commercial impacts of national security export controls. It may be necessary for Congress to establish a mechanism to ensure appropriate consideration of industrial con- cerns in the formulation of national security export control policy.
Representative terms from entire chapter: