Below are the first 10 and last 10 pages of uncorrected machine-read text (when available) of this chapter, followed by the top 30 algorithmically extracted key phrases from the chapter as a whole.
Intended to provide our own search engines and external engines with highly rich, chapter-representative searchable text on the opening pages of each chapter.
Because it is UNCORRECTED material, please consider the following text as a useful but insufficient proxy for the authoritative book pages.
Do not use for reproduction, copying, pasting, or reading; exclusively for search engines.
OCR for page 1
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
OCR for page 2
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).
OCR for page 3
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.
OCR for page 4
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.
OCR for page 5
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
OCR for page 6
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,
OCR for page 7
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
OCR for page 8
~ 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,
OCR for page 9
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
OCR for page 10
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.
OCR for page 11
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.
OCR for page 17
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
OCR for page 18
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.
OCR for page 19
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
OCR for page 20
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
OCR for page 21
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.
OCR for page 22
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.
OCR for page 23
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.
OCR for page 24
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
OCR for page 25
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.
OCR for page 26
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.
OCR for page 27
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:
export controls
