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BALANCING THE NATIONAL IN rEREsT US. Naiior~ Security Export Controls and Garbed Economy Compenhon Panel on the Impact of National Security Controls on International Technology Transfer Committee on Science, Engineering, and Public Policy National Academy of Sciences National Academy of Engineering Institute of Medicine NATIONAL ACADEMY PRESS Washington, D.C. 1987
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NATIONAL ACADEMY PRESS · 2101 Cons~dtudon Avenue, NVV · Washington, DC 20418 The National Academy of Sciences (NAS) is a private, self-perpetuating society of distinguished scholars in scientific and engineering research, dedicated to the furtherance of science and technology and their use for the general welfare. Under the authority of its congressional charter of 1863, the Academy has a working mandate that calls upon it to advise the federal government on scientific and technical matters. The Academy carries out this mandate primarily through the National Research Council, which it jointly administers with the National Academy of Engineering and the Institute of Medicine. Dr. Frank Press is President of the NAS. The National Academy of Engineering (NAE) was established in 1964, under the charter of the NAS, as a parallel organization of distinguished engineers, autonomous in its administration and in the selection of members, sharing with the NAS its responsibilities for advising the federal government. Dr. Robert M. White is President of the NAE. The Institute of Medicine (IOM) was chartered in 1970 by the National Academy of Sciences to enlist distinguished members of appropriate professions in the examination of policy matters pertaining to the health of the public. In this, the Institute acts under both the Academy's 1863 congressional charter responsibility to be an adviser to the federal government and its own initiative in identifying issues of medical care, research, and education. Dr. Samuel O. Thier is President of the IOM. The Committee on Science, Engineering, and Public Policy is a joint committee of the National Academy of Sciences, the National Academy of Engineering, and the Institute of Medicine. It includes members of the councils of all three bodies. INTERNATIONAL STANDARD BOOK NUMBER 0-309-03738-7 LIBRARY OF CONGRESS CATALOG CARD NUMBER 87-60020 Copyright ~ 1987 by the National Academy of Sciences No part of this book may be reproduced by any mechanical, photographic, or electronic process, or in the form of a phonographic recording, nor may it be stored in a retrieval system, transmitted, or otherwise copied for public or private use, without written permission from the publisher, except for the purposes of official use by the United States Government. Printed in the United States of America
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Pane' on the Impact of National Security Controls on International Technology Transfer LEW ALLEN, JR. (Chairman), Vice President, California Institute of Technology, and Director, Jet Propulsion Laboratory (former Chief of Staff, U.S. Air Force, and member of the Joint Chiefs of Staff [1978-19821; former Director, National Security Agency [1973-19771) DANIEL BERG, President, Rensselaer Polytechnic Institute THOMAS A. CHRISTIANSEN, Manager, International Trade Relations, Hewlett-Packard Company; member of the Subcommittee on Export Administration, President's Export Council W. DALE COMPTON, Senior Fellow, National Academy of Engineering (former Vice President of Research, Ford Motor Company) RICHARD N. COOPER, Boas Professor of International Economics Department of Economics, Harvard University (former Under Secretary of State for Economic Affairs [1977-19811) JOHN M. DEUTCH, Provost, Massachusetts Institute of Technology (former Under Secretary, Department of Energy [1979-19801) HERBERT M. DWIGHT, JR., Chairman and Chief Executive Officer, Spectra-Physics, Inc. ALEXANDER H. FLAX, President Emeritus, Institute for Defense Analyses (former Assistant Secretary of the Air Force for Research and Development [1963-19691; former Chief Scientist, U.S. Air Force [1959-19611) JOHN S. FOSTER, JR., Vice President, Science and Technology, TRW Incorporated (former Director, Defense Research and Engineering, Department of Defense [1965-19731; former Director, Lawrence Livermore National Laboratory, and Associate Director, Lawrence Berkeley National Laboratory [1961-19651) FREDERICK W. CARRY, Vice President, Corporate Engineering and Manufacturing, General Electric Company MARY L. GOOD, President and Director of Research, UOP Incorporated, Signal Research Incorporated; member, National Science Board RUTH L. GREENSTEIN, Vice President and Treasurer, Genex Corporation (former Associate/Deputy General Counsel, National Science Foundation [1981-19841) B. R. INMAN, Chairman and Chief Executive Officer, Westmark Systems, Inc. (former Director, National Security Agency [1977-19811; former Deputy Director, Central Intelligence Agency [1981-19831) MELVIN R. LAIRD, Senior Counselor for National and International . . .
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Affairs, Reader's Digest Association (former Counselor to the President for Domestic Affairs [1973-19741; former Secretary of Defense [1969-19731; former Member of Congress [1953-19691) JOSHUA LEDERB ERG, President, Rockefeller University (Nobel laureate [19581) FRANKLIN A. LINDSAY, Chairman, Vectron, Inc.; Chairman, National Bureau of Economic Research JOHN L. McLUCAS, President and Chairman of the Board, Questech, Inc. (former Executive Vice President and Chief Strategic Officer, COMSAT; former Administrator, Federal Aviation Administration [1975-19771; former Secretary of the Air Force [1972-19751) RICHARD A. MESERVE, EsQ., Partner, Covington and Burling (former legal counsel to the President's Science and Technology Adviser [1977-19811) G. WILLIAM MILLER, Chairman, G. William Miller and Company, Inc. (former Chairman and Chief Executive Officer, Textron, Inc.; former Chairman, Federal Reserve Board t1978-19791; former Secretary of the Treasury [1979-19811) LEIF H. OLSEN, Chairman, Leif H. Olsen Associates (former Chief Economist, Citibank, Inc.) RUDOLPH A. OSWALD, Director, Department of Economic Research, AFL/CID; member, Advisory Committee on Trade Negotiations, Office of the U.S. Special Trade Representative Staff MITCHEL B. WALLERSTEIN, Project Director and Associate Executive Director, Office of International Affairs SUSAN R. McCUTCHEN, Administrative Assistant STEPHEN A. MERRILL, Senior Staff Consultant STEPHEN B. GOULD, Staff Consultant GEOFFREY M. HOLDRIDGE, Staff Consultant LOUISA KOCH, Staff Consultant DELIA E. STOEHR, Consultant LEAH C. MAZADE, Editor 1V
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Committee on Science, Engineering, and Public Policy GILBERT S. OMENN (Chairman), Dean, School of Public Health and Community Medicine, University of Washington H. NORMAN ABRAMSON, Executive Vice President, Southwest Research Institute FLOYD E. BLOOM, Director and Member, Division of Pre-Clinic Neuroscience and Endocrinology, Scripps Clinic and Research Foundation W. DALE COMPTON, Senior Fellow, National Academy of Engineering EMILIO Q. DADDARIO, Esq., Wilkes, Artis, Hendrick, and Lane GERALD P. DINNEEN, Vice President, Science and Technology, Honeywell, Inc. RALPH E. GOMORY, Senior Vice President and Director of Research, Thomas J. Watson Research Center ZVI GRILICHES, Professor, Department of Economics, Harvard University ARTHUR KELMAN, Wisconsin Alumni Research Foundation, Senior Research Professor of Plant Pathology and Bacteriology, Department of Plant Pathology, University of Wisconsin FRANCIS E. LOW, Institute Professor, Department of Physics, Massachusetts Institute of Technology EDWARD A. MASON, Vice President for Research, Amoco Corporation JOHN D. ROBERTS, Gates and Crellin Laboratories of Chemistry, California Institute of Technology KENNETH J. RYAN, M.D., Kate Macy Ladd Professor of Obstetrics and Gynecology, Harvard Medical School; Chairman, Department of Obstetrics and Gynecology, Brigham and Women's Hospital LEON T. SILVER, Professor of Geology, Division of Geological and ' Planetary Sciences, California Institute of Technology HERBERT A. SIMON, Professor of Computer Science and Psychology, Department of Psychology, Carnegie-Mellon University Ex Officio FRANK PRESS, President, National Academy of Sciences ROBERT M. WHITE, President, National Academy of Engineering SAMUEL O. THIER, President, Institute of Medicine ALLAN R. HOFFMAN, Executive Director BARBARA A. CANDLAND, Administrative Coordinator JOANNA MASTANTUONO, Senior Secretary v
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Sponsors This project was undertaken with both public and private sector support. The following agencies of the federal government provided support for the study: the Department of Commerce, the Department of Defense, the Department of Energy, the Department of State, the National Aeronautics and Space Administration, and the National Sci- ence Foundation. The following private organizations provided support for the study: the American Association for the Advancement of Science, the American Electronics Association, the American Geophysical Union, the American Institute of Aeronautics and Astronautics, the American Physical Society, the American Vacuum Society, the Armed Forces Communications and Electronics Association, the Computer and Busi- ness Equipment Manufacturers Association, the General Electric Com- pany, the German Marshall Fund of the United States, the Institute of Electrical and Electronics Engineers, the National Society of Professional Engineers, the Optical Society of America, the Semiconductor Industry Association, and the U.S.-Japan Friendship Commission. The project also received support from the National Research Council Fund, a pool of private, discretionary, nonfederal funds that is used to support a program of Academy-initiated studies of national issues in which science and technology figure significantly. The NRC Fund con- sists of contributions from a consortium of private foundations including the Carnegie Corporation of New York, the Charles E. Culpeper Foun- dation, the William and Flora Hewlett Foundation, the John D. and Catherine T. MacArthur Foundation, the Andrew W. Mellon Foundation, the Rockefeller Foundation, and the Alfred P. Sloan Foundation; the Academy Industry Program, which seeks annual contributions from companies that are concerned with the health of U.S. science and technology and with public policy issues with technological content; and the National Academy of Sciences and the National Academy of Engi neering endowments. . V1
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Preface The United States in cooperation with its allies has imposed controls since 1949 on exports to the Soviet bloc of commercial goods and information that would be of significant value to Warsaw Pact military systems. Since the late 1970s, there has been significantly increased concern in the United States about Soviet success in acquiring and applying this commercial Western technology, a concern that was trans- lated into a vigorous effort to improve the effectiveness of national security export controls. The Department of Defense spearheaded this initiative, which has resulted in substantial strengthening of controls on dual use technology (i.e., items with both commercial and military application), primarily under the authority of the Export Administration Act of 1979, as amended. These stricter controls, however, have caused broad concern about unintended effects that may dampen the vigor of U.S. research and technology development and unnecessarily impede trade in high-technology goods. In 1982 a panel of the National Academy complex (now known as the Corson panel after its chairman Dale Corson) examined the effect of national security export controls on the communication of basic scientific research. The results of that study led to an executive branch policy intended to minimize restraints on the vital free flow of scientific results and research findings. During the ensuing period, representatives of industry and research institutions in the United States expressed misgiv- ings about the effect of export controls on the U.S. international compet- itive position, and this national controversy also required an objective · . V11
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viii PREFACE examination. As a result the leadership of the National Academy complex decided in 1984 to organize a second panel to examine the effect of export controls on commercial trade in high-technology goods and information and on the vigor of U.S. high-technology industry. The new panel recognized from the outset that Western military security depends in part on the technology advantages of the West as compared to the Soviet Union and that some restrictions on the flow of technology of military importance are indeed necessary. Furthermore, the panel was aware of the vital importance of maintaining the West's technological advantage through continued technological progress. It also took note of the fact that a 1976 study of the Defense Science Board (known as the Bucy report) had provided much of the theoretical basis from which to examine the current situation. The panel found it appropriate to narrow and focus its efforts. Although controls for foreign policy purposes, controls on transfer of nuclear technology, and controls on arms transfer are all part of the total U.S. export control policy, in accordance with our charge we have focused on national security export controls (as specified by the Export Administra- tion Act of 1979, as amended) imposed on dual use technology. More- over, although certain countries other than the members of the Warsaw Pact are affected by U.S. national security export controls, we have focused primarily on issues relating to the Soviet Union and its Eastern bloc allies due to their central importance to the problem. We also have given particular attention to the role of friendly and neutral Free World nations that are not members of CoCom (the Coordinating Committee on Multilateral Export Controls), countries that may now or in the future be sources of indigenous technology and potential channels of West-East technology transfer. The panel shares the concerns of many regarding the health of U.S. high-technology industries and the effect on national security of declining U.S. leadership in various sectors. We have, for example, taken note of other recent studies that address the loss of manufacturing capability in the semiconductor industry and the problems associated with defense procurement. Our focus in this study and the overall effect of export controls-does not minimize the importance of other measures needed to retain and improve the vitality of high technology in the United States and its contribution to U.S. military security. Perhaps not surprisingly the panel found the central problem of this study to be extraordinarily complex and initially difficult to grasp in its totality. Moreover, we determined that reliable quantitative data regard- ing the effectiveness of controls and the impact of controls on economic development and trade continue to be very difficult to obtain. Never- theless, at the conclusion of its efforts the panel was convinced that it had
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PREFACE iX reviewed and considered sufficient information to justify its findings and recommendations. It was unanimous in the adoption of these views. It is clear that, for this complex problem, there are valid competing interests to be weighed in considering the course of action that will be most effective in enhancing U.S. national security. The panel hopes that this report serves to identify and explain these important issues and that our findings and recommendations will be useful to those who bear the responsibility for formulating and implementing wise policy. The panel is grateful for the assistance provided by the liaison repre- sentatives of the various federal agencies and by the hundreds of individuals and private organizations, both in the United States and abroad, who cooperated in providing information for this study (see Appendix G). We also wish to thank the professional staff, directed by Mitchel Wallerstein, which so ably organized the panel's briefings and foreign fact-finding missions and laboriously wrote and rewrote the many preliminary drafts of this report. Finally, I personally wish to thank the members of the panel for their dedicated service in this lengthy and sometimes contentious effort. LEW AEEEN, JR. Chairman
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Contents EXECUTIVE SUMMARY Introduction, 2 The Technology Transfer Problem, 4 The Current National Security Export Control Regime, 7 Assessment of the Critical Issues, 8 Findings and Key Judgments of the Panel, 15 Recommendations of the Panel, 22 INTRODUCTION............................. The Nature of the Problem, 28 Origins and Mandate of the Study, 34 Scope of the Panel's Work, 36 Focus of the Study, 37 Organization of the Report, 39 Notes, 39 2 EVIDENCE ON THE TECHNOLOGY TRANSFER PROBLEM ............................. Introduction, 40 Intelligence Evidence on Soviet Technology Acquisition, 41 Espionage, 42 Diversions, 42 X1 . 28 .. 40
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Xl1 CONTENTS Legal Sales, 44 The Significance of Various Channels of Loss, 45 Soviet Utilization of Acquired Western Technology, 45 The State of Soviet Science and Technology, 49 Implications of Intelligence Evidence, 51 Notes, 52 3 THE CHANGING GLOBAL ECONOMIC AND TECHNOLOGICAL ENVIRONMENT ....... Changes in the International Marketplace, 54 Growing U.S. Interaction in the Global Economy, 56 The Challenge to U.S. High-Technology Leadership, 59 Notes, 68 4 THE DIMENSIONS OF NATIONAL SECURITY EXPORT CONTROLS.................... Historical Background, 71 U.S. National Security Export Controls, 75 Administration of U.S. Controls, 93 Multilateral National Security Export Controls, 97 The Control Systems of Other Western Nations, 99 Notes, 101 AN ASSESSMENT OF U.S. NATIONAL SECURITY EXPORT CONTROLS...................... Introduction, 103 Effectiveness of National Security Export Controls, 106 The Efficiency of Export Control Administration, 111 Competitive Effects of Controls, 116 Technical Data Controls, 126 Use of the Militarily Critical Technologies List, 128 The Policy Process and the Balancing of U.S. Interests, 129 Notes, 133 6 AN ASSESSMENT OF THE MULTILATERAL EXPORT CONTROL SYSTEM ........... Progress in CoCom, 136 CoCom Deficiencies, 137 U.S. Policy and International Cooperation, 144 Negotiations with Non-CoCom Free World Countries, 148 . 54 .. 70 · . . . 103 . 135
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CONTENTS xiii 7 FINDINGS AND KEY JUDGMENTS OF THE PANEL . . 150 The Practical Basis for National Security Export Controls, 150 Considerations Influencing National Policy, 151 Soviet Technology Acquisition Efforts in the West, 154 Diffusion and Transfer of Technical Capability, 155 Foreign Availability and Foreign Control of Technology, 156 Effectiveness of the Multilateral Process, 158 Administration of U.S. National Security Export Control Policies and Procedures, 160 RECOMMENDATIONS OF THE PANEL. Preamble, 167 Recommendations, 168 Coda, 177 APPENDIXES 167 A. COSEPUP Charge to the Panel 181 B. Panel Foreign Fact-Finding Mission Reports 183 C. Operation and Effects of U.S. Export Licensing for National Security Purposes 221 Stephen A. Merrill, Senior Staff Consultant D. Estimate of Direct Economic Costs Associated with U.S. National Security Controls William F. Finan, Quick, Finan & Associates 254 E. Glossary 278 F. List of Acronyms 285 G. List of Briefers, Contributors, and Liaison Representatives . . . 288 H. Bibliography. ........................... 297 INDEX . . . 311
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