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7 Findings and Key Judgments of the Pane! Based on the research initiatives and deliberations undertaken in pursuit of its charge, the panel reached unanimous agreement on a series of principal findings and key judgments. These are grouped below under seven major headings: (1) the practical basis for national security export controls; (2) considerations influencing national policy; (3) Soviet technology acquisi- tion efforts in the West; (4) diffusion and transfer of technical capability; (5) foreign availability and foreign control of technology; (6) the effective- ness of multilateral procedures for national security export controls; and (7) administration of U.S. national security export control policies and procedures. These findings and judgments are reflected in turn in the recommendations that appear in the final chapter of this report. THE PRACTICAL BASIS FOR NATIONAL SECURITY EXPORT CONTROLS The fundamental objective of the national security export control regime maintained by CoCom is to deny-or at least to delay- the Soviet Union and its Warsaw Pact allies access to state-of-the-art Western technology that would permit them to narrow the existing gap in military systems. Yet, there are no well-defined criteria that can be used to determine whether a given technology will enhance significantly the Soviet military capability. For example, many technologies for which the military application is not self-evident can contribute to improving the quantity and quality of military goods. But many of these technologies 150
FINDINGS AND KEY JUDGMENTS OF THE PANEL 151 also can be used for enhancing production in civilian sectors of the economy. Some observers see development of the civilian sector in the Soviet Union as offering long-run hope for ameliorating the Soviet threat to Western society. Others believe, however, that enhancing even civilian production will indirectly enhance Soviet military capability by relieving pressure on the general economy. Such differing assumptions and viewpoints inevitably give rise to divergent judgments, divergent even on the extent to which a given technology can enhance directly the military capability of the Soviet Union and its allies. Without well-defined, agreed-upon criteria, it is conceptually impossible to draw a definitive line above which technology is critical and below which it is not-either for military capability or for industrial productivity. But for an export control system to be operation- ally effective, such a line must be drawn always recognizing that its location remains a matter of judgment. Determining the precise location of the line should be governed by the underlying objective of making the system effective in actually denying specific technology to the Soviet bloc. That in turn requires at a minimum a system that has the cooper- ation of all technologically advanced countries in the Free World and one that is comprehensible to the technologically advanced firms whose cooperation is essential to make the system work. Thus, adopting, as a basis for national security export controls, the policy objective of constraining exports of Western technology that could have a significant impact on Soviet bloc military capabilities is problematic because it offers no precise identifiable threshold or definition of military criticality. Without more precision, policy implementation must depend on the world view of the decisionmaker. One individual might try to restrict only items destined directly for military systems; another might also want to restrict such items as numerically controlled production lines-no matter how benign the output-because manufacturing capability is important to military production. Yet another might want to restrict sales of subsidized grain because the Soviet resources freed in the process could be used to further military objectives. This conceptual vagueness can be surmounted in practice by establishing a definition that permits effective and practical implementation with our allies. In a practical sense this means restricting controls to technologies that are easily identified with military uses. CONSIDERATIONS INFLUENCING NATIONAL POLICY 1. Technology Lead Is Vital to Western Security and Must Be Main- tained Western security depends on the maintenance of its technology lead in military systems over potential adversaries. This lead can be
152 BALANCING THE NATIONAL INTEREST sustained only through a dual policy of promoting a vigorous domestic technological base and impeding the outward flow to the Warsaw Pact of technologies useful in military systems. Pursuit of this strategy is based on a recognition that maintaining the technol- ogy lead of the West depends on continued Western technological progress. Such progress in turn can be ensured only through active and full exchange of technical information, both among scientists and engineers within the United States and among the Western countries, and by maintaining healthy Western economies. The panel recognizes that, while continuing to out innovate potential adversaries, it is also necessary for the United States and its allies to develop more rapid and efficient military R&D and procurement processes-as recommended in the recent report of the President's Blue Ribbon Commission on Defense Management (the Packard commission), A Quest for Excellence: Final Report to the President. 2. Export Competitiveness Is Essential to the Health of the U.S. Domestic Economy Export markets have become increasingly vital to the U.S. domestic economy. Exports now represent a significant and growing percentage of total sales in a number of key industrial sectors (the portion of U.S. manufactured goods that were exported rose from 9 percent in 1960 to 25 percent in 1980 before declining to 18 percent in 19851; and they are especially critical to the success of high- technology enterprises (the high-technology sector accounted for 42 percent of manufactured exports in 19851. In some industries, remaining competitive in world markets is essential to maintaining their share of the domestic market because foreign competitors that dominate the international market may in some cases enjoy econo- mies of scale not available to U.S. producers limited to domestic sales. Larger volumes of production result in lower average unit costs and also allow research and development expenditures to be amortized over a higher sales volume. Ultimately, these scale economies enable the transnational firm to develop superior prod- ucts, reduce manufacturing costs, and gain worldwide market share. These realities are not yet fully reflected in the policies underlying current U.S. national security export controls. 3. The Scope of Current U.S. National Security Export Controls Under- mines Their Electiveness U.S. national security export controls are not generally perceived as rational, credible, and predictable by many of the nations and commercial interests whose active cooperation is required for an effective system. The panel also concurs with this judgment. The
FINDINGS AND KEY JUDGMENTS OF THE PANEL 153 scope of current U.S. national security export controls encompasses too many products and technologies to be administered effectively. In particular, the U.S. government has not provided a justification for the continued control of low-level technologies (e.g., some classes of memory chips) traded outside the Communist bloc, technologies that may be of marginal military significance and that in some cases are available worldwide with little or no restriction. The panel requested but did not receive information from the Department of Defense on the military significance of such technologies; it therefore was unable to evaluate the rationale for control of low-level items. However, during its two foreign fact-finding missions (see Appendix B), the panel did determine that many low-level products restricted by the United States are in fact available in other countries with little or no restriction. 4. U.S. National Security Export Controls Impede the Export Sales of U.S. Companies National security export controls impede the ability of U.S. companies to compete in world markets. There is limited but specific evidence that export controls have negatively affected U.S. export- ers in the following ways: · export sales are lost because of delays in the licensing process or are foregone because of uncertainty as to whether a license will be approved; · U.S. producers, especially small- to medium-sized firms, are deterred from exporting by the complexities and delays of the control regime; and · foreign customers are discouraged from relying on U.S. suppliers due to uncertainties about future license approvals, follow-on service, spare parts and components, and possible reexport con- straints, choosing instead to seek more dependable non-U.S. sources. Once changes in buying preferences occur, large invest- ments of time and effort may be required to reverse them. 5. Pragmatic Control Lists Must Be Technically Sound, Narrowly Fo- cused, and Coordinated Multilaterally The control criteria developed in 1976 as part of the report of the Defense Science Board task force (i.e., the Bucy report), although theoretically sound, have not always proven useful to the implemen- tation of national security export controls. After extensive deliber- ation the panel abandoned its efforts to develop an alternative approach. The considerations that must govern control decisions make it difficult to achieve a comprehensive solution within a simple set of criteria. In the panel's view, the preparation of the control lists must be a dynamic process that takes into account advice provided by
~54 BALANCING THE NATIONAL INTEREST technical advisory groups and that is constrained by the need to be clear, to focus control efforts more narrowly on fewer items, and to coordinate U.S. action more closely with that of our CoCom allies. 6. The Extraterritorial Aspects of U.S. Controls Engender Mistrust and Weaken Allied Unity The cohesiveness of military alliances is important to Western security and depends on a high level of cooperation and coordination among the participating nations. Several elements of U.S. national security export controls, especially the requirement for reexport authorization, are having an increasingly corrosive effect on rela- tions with the NATO allies and on the close bilateral relations that exist with Japan and certain other friendly countries. These controls are now viewed abroad as a signal of U.S. mistrust of the will and capacity of allies and other friendly countries to control the flow of sensitive technology to the Soviet bloc. This atmosphere of mistrust provides the Soviets with opportunities to take advantage of differ- ences among the allies over export control issues that is, to use this divisive issue as a "wedge" between the United States and its allies. SOVIET TECHNOLOGY ACQUISITION EFFORTS IN THE WEST 1. Available Evidence on Soviet Technology Acquisition Efforts Rein- forces the Need for Effective Multilateral Export Controls The panel reviewed a substantial body of evidence-both classi- fied and unclassified-that reveals a large and aggressive Soviet effort to target and acquire Western dual use technology through espionage, diversions, and to a lesser degree legitimate trade. There is limited but specific evidence on the means by which Soviet acquisitions are accomplished; there is also evidence to support the conclusion that such acquisitions have in some cases played an important role in upgrading or modernizing Soviet military systems. Effective, internationally coordinated export controls are necessary to counter the use of diversions and legitimate trade for such purposes. However, export controls are not a means for controlling espionage, which accounts for a high proportion of the successful and significant Soviet technology acquisition efforts. Thus, export controls must be viewed as one component in a more comprehensive program for controlling technology losses. 2. Despite Systemic Difficulties, Soviet Technical Capabilities Have Suc- cessfully Supported the Military Objectives of the USSR The Soviet system does not enjoy the benefits derived from the robust commercial sector found in the West. This places the Soviets
FINDINGS AND KEY JUDGMENTS OF THE PANEL 155 at a fundamental disadvantage vis-a-vis the West in the promotion of technological innovation. Nevertheless, the Soviets have demon- strated an effective technical capability to meet their military objec- tives, which has been achieved by prioritizing the allocation of resources and key people to military R&D projects and to programs devoted to the acquisition of foreign technology and its incorpora- tion into military systems. DIFFUSION AND TRANSFER OF TECHNICAL CAPABILITY 1. Wide Global Diffusion of Advanced Technology Necessitates a Fully Multilateral Approach to Controls Advanced technology has diffused widely throughout the indus- trialized countries and is becoming increasingly available in some of the more developed newly industrializing countries (NICs). As a result, U.S. control policies can no longer be based on the assump- tion that the United States holds a monopoly on nearly all dual use technologies essential to the most advanced weapons systems. The United States now must have the cooperation of other technologi- cally advanced countries to succeed in blocking Soviet acquisition efforts. National security export control efforts cannot succeed unless two conditions are met: (1) there is an effective CoCom process in which the other major CoCom countries accept respon- sibility for regulating their exports (including reexports from their territory) of CoCom-controlled goods and technology to third coun- tries; and (2) the more advanced NICs adopt CoCom-like standards for their own indigenous exports. 2. Controls on the Employment of Foreign Nationals in the U.S. R&D Infrastructure Must Be Used Selectively and Sparingly The movement of technical personnel between countries is an- other means of diffusing technology. 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 contrib- ute significantly to U.S. technological innovation and hence promote the national interest. Efforts to use existing legislative authority to restrict technical exchanges and more specifically to limit the full participation of foreign citizens in the U.S. R&D community should therefore be used sparingly. It is particularly important that such efforts distinguish, as appropriate, between citizens of nations to whom exports are proscribed and those of all other nations. They should also reflect the varying levels of sensitivity of the specific facilities or activities in question. It would be especially damaging to
156 BALANCING THE NATIONAL INTEREST U.S. interests both at home and abroad if high-technology industries were prohibited from employing, in unclassified dual use areas, tal- ented people from other countries. Similarly, in the panel's view, increased barriers based on citizenship to easy exchange among employees of multinational firms would be a major source of concern and could well slow the pace of U.S. technological innovation. FOREIGN AVAILABILITY AND FOREIGN CONTROL OF TECHNOLOGY 1. The Congressional Mandate for Decontrol Based on Foreign Avail- ability Is Not Being Fulfilled The panel finds that the foreign availability provisions of the law are not being effectively implemented. The Export Administration Amendments Act of 1985 requires the Commerce Department to remove (i.e., decontrol) an item from the U.S. Control List once it has been determined to be available abroad beyond the control of CoCom and if it has been impossible, within a period of 18 months, to eliminate or restrict its foreign availability. Industry had expected that foreign availability determinations would open a number of markets that are currently inaccessible because of concerns about unwanted technology transfer. But in the 4 years that the Depart- ment of Commerce's Office of Foreign Availability and its predeces- sor have been in existence, there have been only 3 positive foreign availability findings (out of 20 assessments by the office) leading to preliminary decontrol decisions. Thus, as currently administered the foreign availability program has had virtually no impact on the objective of achieving decontrol. The panel therefore finds that the lack of action on these foreign availability determinations is inconsistent with the provisions of the Export Administration Act of 1979, as amended. This may be attributable in some measure to the fact that no time constraints are specified in the legislation for the government processing of foreign availability claims (see the discussion in Chapter 51. Substantive disagreements between the Departments of Commerce and Defense, both over the evidence of and detailed criteria for foreign availability determinations and over the strategic importance of maintaining con- trol over particular items, have thwarted decisive action. Although the Department of Defense has a legitimate role to play in providing technical input to the foreign availability process, it has acquired de facto veto authority over Commerce Department foreign availability determinations with which it does not agree-a role not prescribed within the provisions of the Export Administration Act.
FINDINGS AND KEY JUDGMENTS OF THE PANEL 157 In those cases in which foreign availability of U.S.-controlled items exists, U.S. industry is unfairly placed at a competitive disadvantage with respect to firms of other countries because U.S. sales are constrained by export controls, whereas its competitors' sales are not. During the often lengthy delays (as much as 2 years or longer in some cases) that occur while the U.S. government considers foreign avail- ability petitions by industry, foreign sales may be hampered. This can lead to the erosion of competitive market advantages previously enjoyed by U.S. industry and in some cases to the permanent loss of 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 and memory chips) is not practical. The capability to develop and mass-produce products embodying advanced tech- nologies is no longer unique to the CoCom countries and will become even less so in the years to come so that control at the source may not always be feasible. And even within CoCom the sheer volume and geographic distribution of daily commercial trans- actions and warehousing of such products make control efforts impracticable. Thus, given the volume in which technological com- modities are produced and the growing number of entrepot points that are unrestrained by the CoCom rules, decontrol 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 Control Similar Indige nously Produced Goods The United States, with the support of CoCom, has achieved some success in pursuing bilateral agreements with friendly non- CoCom countries as part of the CoCom "third country initiative," which is designed to obtain cooperation in protecting CoCom- controlled items. Although awarding "CoCom-like status" to coop- erating countries is in principle a desirable approach, agreements that in practice restrict only the reexport of U.S.-origin goods and technology and do not restrict similar items produced indigenously or obtained from other CoCom sources unfairly disadvantage U.S. companies in international trade without achieving the intended export control objective. Unless these agreements with non-CoCom countries restrict the export of technology from all CoCom sources, as well as that produced indigenously by non-CoCom countries, they will not promote the electiveness of the CoCom system.
i 158 BALANCING THE NATIONAL INTEREST 4. Other CoCom Countries Must Be More Vigilant in Preventing Diver- sions of Both CoCom and Indigenously Produced Technology For the CoCom system to be effective, all CoCom countries must control the export of their indigenous technology with equal vigor. Currently, some members of CoCom could substantially improve their efforts to prevent diversions of CoCom-origin products and technology exported to third countries. Although compliance with U.S. reexport controls is not likely to become politically acceptable in most CoCom countries, some compromise solution must be reached. At a minimum, CoCom countries should be encouraged to undertake more rigorous enforcement of prelicense and postship- ment checks and better screening of license applications against lists of known or suspected diverters. 5. The Extraterritorial Reach of U.S. Controls Damages Allied Relations and Disadvantages U.S. Exporters As the panel learned directly in its European and Asian study missions, the extraterritorial reach of U.S. reexport controls is anathema to most U.S. trading partners. Most foreign countries do not accept that the United States has jurisdiction over the actions of non-U.S. citizens outside the territory of the United States, and they view assertions of this jurisdiction as clear violations of their national sovereignty and of accepted principles of international law. Moreover, data from the Department of Commerce suggest that in fact compliance with U.S. reexport control requirements by foreign citizens is exceedingly poor. These controls are seen by our allies as reflecting mistrust of their capacity to further the West's common interest in preventing the diversion of sensitive products from their territory to the Soviet bloc. The panel finds that U.S. reexport controls work primarily to the disadvantage of U.S. companies because they provide incentives for foreign companies to seek non-U.S. sources of supply. Reexport controls typically present thorny legal issues, are ineffective, and have a corrosive effect on the Western alliance. In light of these facts, substantial alteration of U.S. reexport control policy is warranted. EFFECTIVENESS OF THE MULTILATERAL PROCESS 1. The United States Must Clearly Distinguish Foreign Policy Export Controls from National Security Export Controls There is a substantial consensus-both domestic and interna- tional-on the need for more narrowly defined national security export controls. There is much less agreement on the appropriate
FINDINGS AND KEY JUDGMENTS OF THE PANEL 159 ness of trade restrictions for foreign policy reasons and even less on the specific foreign policy objectives that would warrant restrictions. To the extent that the United States fails to distinguish clearly between national security and foreign policy export control objec- tives, allied cooperation in the national security export control regime is undermined. 2. The Impact of Controls on Advantageous Scientific Communication and Technology Transfer Within Western Alliances Must Be Minimized Although it is essential for the United States to limit militarily significant transfers from allied countries to the Soviet bloc, continued open scientific communication and trade within the West are equally important to maintaining the Western lead over the Soviet Union in science and technology. Therefore, U.S. policy should have a twofold objective: to facilitate mutually advantageous scientific communication and technology transfer within its alliances and to limit militarily significant transfers from the allied countries to the Soviet bloc. 3. The CoCom Countries Should Take Specific Steps to Bolster the Efficiency and Electiveness of Multilateral Controls The persistent efforts of the United States over the past 5 years to strengthen CoCom and improve its operational efficiency and effec- tiveness have produced positive results. Further efforts, however, will be required on the part of all participating countries to bring about greater harmonization of national policies and to work toward a more rational and fully multilateral-system of national security export controls. Among the most important issues now facing CoCom are: (1) reduction in the overall scope of the International List to improve its credibility and facilitate its effective enforcement, (2) modification of the procedures employed for decontrolling items on the International List, and (3) greater transparency in CoCom decision making to reduce private sector uncertainty in international business decisions. 4. The CoCom Process Would Benefit If All Country Delegations Had Balanced Economic and Defense Representation The U.S. delegation to CoCom includes a significant contingent from the Department of Defense, but most other CoCom members are represented at CoCom meetings principally by their economic and trade ministries. The panel finds that a balance of economic and defense representation on all the CoCom delegations would enhance CoCom unity and the usefulness of the CoCom process, in part by helping to prioritize and resolve conflicts between competing eco- nomic and military objectives. On the other hand, the panel also
160 BALANCING THE NATIONAL INTEREST finds that the Department of State has failed to exercise leadership within the U.S. delegation to CoCom, sometimes permitting other agencies to overstep the bounds of their advisory role. 5. Foreign Perceptions of U.S. Commercial Advantage Derived from Controls Impede Multilateral Cooperation There is a widely held view in Europe and the Far East that the United States uses its national security controls to afford commer- cial advantage to U.S. companies. Upon investigation, the panel found no substantive evidence to support this view. On the contrary, the evidence suggests that U.S. trade interests are harmed by these constraints. Nevertheless, the existence of such perceptions abroad makes it more difficult to gain effective multilateral cooperation on national security export controls. 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 items of dual use technology can be justified only as a stopgap measure pending negotiations for the imposition of multilateral controls or in rare cases in which the United States determines that critical national security concerns are at stake and unilateral restrictions are required. It must be recognized, however, that except when used as a temporary measure until consensus can be achieved within CoCom, the application of unilateral U.S. export controls undermines the incentive of the allies to develop a sound basis for multilateral control. And it is only through multilateral regulation that an effective export control system can be achieved. ADMINISTRATION OF U.S. NATIONAL SECURITY EXPORT CONTROL POLICIES AND PROCEDURES 1. The Lack of High-Level Oversight and Direction Reduces the Effec- tiveness of U.S. Controls The management of national security export controls within the U.S. government involves a fundamental overlap of jurisdiction among the three principal line agencies: the Departments of Com- merce, Defense, and State. The administrative structures estab- lished by the executive branch have not proven effective in resolving in a coherent and timely fashion the frequent policy differences that occur among these agencies on matters relating to national security export controls. The policy vacuum created by the lack of higher-level oversight and direction results in unclear and sometimes conflicting policies, long delays in reaching closure,
FINDINGS AND KEY JUDGMENTS OF THE PANEL ~ 6 ~ uncertain lines of authority, 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 The Department of Defense's determined efforts to reinvigorate the national security export control regime have been useful in raising the general level of awareness of the need for national security export controls among government agencies, high-technol- ogy industry, the governments of friendly countries, and world public opinion. But the aggressiveness with which these matters have been pursued also has had its costs. The exclusive DoD focus on tightening export controls without balanced input from other agencies concerning the possible economic and long-term national security consequences has resulted in a failure to bring the objec- tives of military security and economic vitality into balance. As a result, conflicts have arisen among the responsible agencies over the control and direction of U.S. export control policy; industry has been confused and alarmed by present and contemplated policy changes; and allies have become annoyed and in some cases have misunderstood the application and intent of U.S. policy. The increasingly active role of the Department of Defense in this area in recent years also has led to an imbalance in the distribution of government effort and resources with regard to the implemen- tation of national security export controls. The Department of Defense has upgraded its capabilities by creating a new dedicated agency that is able to devote considerable manpower and financial resources to analytical activities and case review. Despite some recent reorganization, neither of the other two major concerned agencies the Department of Commerce and the Department of State has been able to implement equally effective measures to upgrade its human and technical capabilities and office automation. The result is a lack of balance in the interagency policy formulation process and an inefficient and unnecessarily slow 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 agencies also have resulted in a shift of responsibility for managing export controls from organizations with expertise in technology development and international trade toward those whose principal and often only concern is technology control. A case in point is the Department of Defense, where the responsibility for export control decision making has been relocated from the Office of the Under
162 BALANCING THE NATIONAL INTEREST Secretary of Defense for Research and Engineering to the Office of the Under Secretary of Defense for Policy. Although there have been positive effects of this shift in responsibility, the loss of sustained technical input has been significant. The most important areas of technology (e.g., electronics) are changing rapidly, and their international character is extremely dynamic. Thus, the internal policy process within the line agencies responsible for national security export control matters must be capable of striking an adequate balance between the application of stricter controls and the promotion of trade and open scientific communication, all of which help foster the economic and technological strength upon which our defense ultimately rests. 4. Current Licensing Requirements, Classification Procedures, and Pro- prietary Controls for Technical Data Are Both Appropriate and Adequate Although technical data that are not publicly available require a validated license for export to the Soviet bloc, data exports to other destinations for the most part are eligible for a general license. Thus, data that are not classified or otherwise subject to restrictions imposed by contractual undertakings with the government can be exported to Free World destinations. The need for the exchange of large volumes of data in international commerce and the desirability of wide-scale exchange of information among the international research community indicate that a strict system of control is neither feasible nor desirable. The costs of a comprehensive system of validated licenses would be enormous, and even if such a system were supported, it would be doubtful whether effective control could practically be achieved. Although national security and corporate interests may not always be coincident, substantial national security protection is afforded by the fact that data proprietary to U. S. corporations, including militarily significant data, are carefully controlled already for commercial rea- sons. The fact remains, however, that much nonnuclear information is developed entirely under private auspices and therefore cannot be controlled by the government except through a secrecy order imposed by the Commerce Department's Patent and Trademark Office. Other government efforts to restrict the dissemination of privately devel- oped information have been futile and at times counterproductive. 5. 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
FINDINGS AND KEY JUDGMENTS OF THE PANEL 163 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;* this is a new, more comprehensive restriction on technical data both within the United States and abroad. As a result, these restrictions also have had a "chilling effect" on some professional scientific and engineering societies that have elected voluntarily to close certain sessions or in a few cases entire meetings to foreign nationals-including those from CoCom and other friendly countries (except by special prior a~range- mentWin anticipation of possible conflict with DAA provisions. It is the panel's judgment that broader controls on technical data are not warranted by the demonstrable national security benefits and that the system of security classification has been and remains the most appropriate mechanism for restricting access to technical information considered critical to the security of military equipment and systems. In those circumstances, however, in which unclassified technical data arising from DoD-funded research have particular military signifi- cance, the selective use of restrictions on data dissemination may be appropriate. In such cases the controls should be built upon contrac- tual agreements. 6. The Congressional Mandate for Integrating the MCTL into the Com- merce Department Control List Practically Cannot Be Accomplished In the 6 years since its first release on a classified basis, the Militarily Critical Technologies List has been used inappropriately as a control list, and its annual revision has resulted in a volumi- nous itemization of many important technologies without apparent prioritization. Because the Departments of Defense and Commerce maintain fundamentally different objectives in their list develop- ment exercises the former to identify those technologies with military significance and the latter to identify items subject to licensing-the congressionally mandated task of integrating the MCTL into the Commerce Department's Control List cannot practically be accomplished. 7. The Complexity of U.S. Export Control Policies and Procedures, Such as the Export Administration Regulations, Discourages Compliance The complexity of U.S. national security export controls dis- courages compliance, especially by foreign firms and small- to *This mandate is further expanded by the recent directive of the President's national security adviser authorizing all agencies of the federal government to create a new restricted category of information known as '~sensitive."
~64 BALANCING THE NATIONAL INTEREST medium-sized U.S. companies. One obvious example are the Export Administration Regulations, which currently amount to nearly 600 pages of rules and procedures. This document could be reduced and simplified substantially and made more "user friendly." There also is no effective means whereby a small or new exporter-or a foreign firm can get an advisory opinion quickly from the government on any aspect of export controls for exam- ple, which control category a given product falls under or even whether an item is subject to export controls at all. 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 govern- ment to provide meaningful input from the private sector on the formulation 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. This might be accomplished through a variety of mechanisms, including the President's Export Council. Currently, however, the council does not have significant influence at senior policy levels of the government. 9. Voluntary Cooperation from U.S. Industry Is Important to the Enforcement of Export Controls Voluntary cooperation by U.S. industry, particularly companies with overseas subsidiaries, and other commercial entities is impor- tant to the effective enforcement of export controls, especially in the identification of violations. U.S. companies frequently have knowledge otherwise unavailable to the government of possible violations by other firms. Some degree of positive feedback from government agencies on the usefulness of information provided by industry would help to ensure continuing active cooperation. 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. The Department of Commerce, for example, has not used its own data bases to measure the effectiveness of its licensing activities or the impact of national security export controls on firms of different sizes and on different industrial sectors. There also appear to be serious statis- tical discontinuities between the licensing application data main
FINDINGS AND KEY JUDGMENTS OF THE PANEL 165 tained by the Department of Commerce and the trade data recorded by the Bureau of the Census. As a result the government currently has no accurate means of tabulating the value of shipments made under export licenses or of sorting dollar values of exports accord- ing to type of license. It will continue to be difficult for policymak- ers to arrive at more informed and balanced judgments as to the advisability of controls in the absence of this type of information. The panel notes that the Department of Commerce already is required under the terms of the Export Administration Amend- ments Act of 1985 to report annually to the Congress on the impact of national security export controls. Such reporting, however, has so far failed to produce the data necessary to measure actual impacts on the U.S. economy or on specific industrial sectors. 11. A Comprehensive Cost/Benefit Analysis of Controls Currently Is Infeasible Despite some initial attempts to assess the competitive effects of national security export controls, a comprehensive empirical anal- ysis of the costs and benefits of controls currently is precluded by the lack of data, by the complexity of the system, and by a variety of qualitative judgments that must enter into an evaluation. Most affected industries have not maintained data on the economic costs of controls, although some are now beginning to do so. Likewise, comparable methodological and data problems are encountered in attempts to assess the military significance of specific controlled items or the potential savings to the defense budget of continuing to control them. The process of international technology transfer requires constant monitoring and periodic modification as conditions warrant to maintain the proper balance between promotion of national economic vitality and protection of military security. Failure to do so can result in frequent and unpredictable changes in policies and procedures (i.e., controls). In the late 1970s the U.S. government reacted to mounting evidence of Soviet bloc technology acquisition efforts and to the emergence of new sources of militarily significant dual use technology by largely revamping and revitalizing the U.S. and CoCom national security export control sys- tems. 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," as useful and needed as it was, should not now overshoot the mark. Although the new, more stringent controls may restrain the
|66 BALANCING THE NATIONAL INTEREST flow of militarily significant technology to the Warsaw Pact countries, this success is likely to be achieved at an unacceptably high price in terms of economic vitality and allied cohesiveness. The panel wishes, therefore, to reiterate its concern about the continu- ing 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. Equilibrium among these interests, supported by adequate data, standards of mea- surement, and reliable intelligence information, should be developed and maintained within each agency, among agencies of the U.S. government, and among countries participating in CoCom. In the final chapter of this report, the panel sets forth a series of recommendations for changes in the existing national security export control regime. These changes are designed to bring better balance to the development and management of our future course of action on this important national and international matter.
