Hearing on Establishing an Effective Modern Framework for Export Controls.

Mr. Chairman, Members of the Committee.

Good Morning. My name is Dan Hoydysh. I am Director of Trade, Public Policy & Government Affairs at the Unisys Corporation. I also have the privilege of serving as Co-Chair of the Computer Coalition for Responsible Exports (CCRE) and am testifying today on CCRE’s behalf (a curriculum vitae is attached). I want to thank you for providing me and the CCRE with the opportunity to share our views on U.S. computer export controls.

In our testimony today, we want to raise several key points concerning S. 149, the Export Administration Act of 2001, focusing on what we consider to be the heart of the bill—Section 202—which empowers the President, Secretary of Commerce, and Secretary of Defense to review and update the National Security Control List to decide whether or how an item can be effectively controlled. CCRE wishes to emphasize that: (1) the benefits of Section 202 will not extend to our industry unless the computer control requirements in the National Defense Authorization Act (NDAA) are repealed; and (2) Section 202 can be strengthened by (a) requiring the Secretary of Commerce to review the National Security Control List on a continuing basis, and (b) clarifying that a relevant Risk Assessment Factor is whether the capability or performance provided by an item can be effectively controlled.

CCRE is an alliance of American computer companies and allied associations established to inform policymakers and the public about the nature of the computer industry—its products, market trends, and technological advances.

CCRE members include Apple Computer, Inc., Compaq Computer Corporation, Dell Computer Corporation, Hewlett-Packard Company, IBM Corporation, Intel Corporation, NCR Corporation, SGI, Sun Microsystems, Inc., Unisys Corporation, the American Electronics Association (AEA), the Computer and Communications Industry Association (CCIA), the Computer Systems Policy Project (CSPP), the Electronic Industries Alliance (EIA), the Information Technology Industry Council (ITI), and the Semiconductor Industry Association (SIA).

CCRE is committed to promoting and protecting U.S. national security interests, and seeks to work in close partnership with the Congress and the Executive Branch to ensure that America’s economic, national security, and foreign policy goals are realized. CCRE also believes that a strong, internationally competitive computer industry is critical to ensuring that U.S. national and economic security objectives are achieved and that U.S. economic and technological leadership is maintained.

The U.S. computer industry has a long history of cooperation with the U.S. government on security-related high technology issues. They take their responsibilities in the area very seriously. CCRE members strongly believe that U.S. national security is tied to U.S. technological leadership. U.S. computer companies also devote hundreds of employees and millions of dollars annually to complying with export control regulations. It is not our role, however, to define U.S. national security needs—that is for the Congress and the Executive Branch. Rather, we do and will continue to provide the Congress and Executive Branch with information concerning the rapidly changing technology and international market conditions that we believe they will need to take into consideration in shaping up-to-date and effective U.S. export control policies.

CCRE would like to begin our remarks today by thanking this Committee for its leadership in pushing forward with its agenda for meaningful export control reform. It has been a long road, and we appreciate the Committee’s legislative efforts in recent years, including its efforts in connection with S. 1712, the Export Administration Act of 1999. Like S. 1712, the bill now before this Committee—S. 149, the Export Administration Act of 2001—reflects several positive elements for reform.

At the heart of S. 149 is Section 202, which we believe is the key to implementing effective national security controls. Section 202 empowers the President, Secretary of Commerce, and Secretary of Defense to review the National Security Control List and determine whether an item can and should be controlled. The decision of whether or how to control an item is the most fundamental, threshold step in export control administration. In making this risk assessment, the President needs to consider not only U.S. national security goals, but rapidly changing developments in technology and international market conditions. For precisely this reason, Section 202 is designed to provide the President with the authority and flexibility needed to implement up-to-date and effective export control measures.

Notwithstanding the promise of Section 202, its application to computers is seriously undermined by another statute, the National Defense Authorization Act (NDAA), which imposes mandatory, rigid controls on high performance computer (HPC) exports. As a general rule, it is a bad idea to legislate static technological standards to address dynamic technological challenges. The NDAA violates this principle by requiring the President to use the MTOPS (millions of theoretical operations per second) metric to measure computer performance and set export control thresholds based on Country Tiers. Although the Department of Defense and the General Accounting Office now consider the NDAA approach to be "ineffective," the NDAA severely limits the authority of the President to determine both what computers should be controlled and how they may be controlled. CCRE believes that the flexibility contemplated in Section 202 will be essentially nullified in relation to computers unless S. 149 also repeals the NDAA computer provisions. Put another way, if the NDAA computer provisions are not repealed, the computer industry would be the only industry that is essentially read out of Section 202.

We wish to emphasize that a decision to repeal the NDAA’s computer provisions will not alter the way in which computer exports are currently controlled under the Export Administration Regulations (EAR). If the NDAA computer provisions are repealed, the current MTOPS-based regime will continue to remain in place and controlled computers will remain on the National Security Control List. What would change, however, is that the President, Secretary of Commerce, and Secretary of Defense would be empowered to reassess the effectiveness of these controls in the future pursuant to the Section 202 framework.

The need for Presidential flexibility in administering computer export controls is especially clear in light of recent reports by the Department of Defense (DoD), General Accounting Office (GAO), and Defense Science Board (DSB), all of which conclude that the rigid MTOPS-based approach required by the NDAA is obsolete and fails to advance U.S. national security. A recent DoD report concludes, for example, that "MTOPS has lost its effectiveness as a control measure . . . due to rapid technology advances." On this point, DoD has emphasized that:

Controls that are ineffective due to market and technology realities do not benefit national security. In fact, they can harm national security by giving a false sense of protection; by diverting people and other finite export control resources from areas in which they can be effective; and by unnecessarily impeding the U.S. computer industry’s ability to compete in global markets.

The GAO’s report to the Senate Armed Services Committee similarly concludes that the MTOPS standard is "outdated and invalid" and that "[t]he current export control system for high performance computers, which focuses on controlling individual machines, is ineffective because it cannot prevent countries of concern from linking or clustering many lower performance uncontrolled computers to collectively perform at higher levels than current export controls allow." Finally, the Defense Science Board echoes this same analysis, warning that "[c]linging to a failing policy of export controls has undesirable consequences beyond self-delusion."

In essence, U.S. defense and security experts now agree that the NDAA’s MTOPS regime is outmoded and needs to be dismantled. The recommendations of the DoD, GAO, and DSB highlight the President’s need for administrative authority to design and implement the most appropriate types of controls to advance U.S. national security for all dual-use items, including computer systems. CCRE believes that this can only be accomplished if the NDAA computer provisions are repealed.

Section 202 can also be strengthened in two important ways. First, Section 202 can be more effective if it requires the Secretary of Commerce to continuously review the coverage of the National Security Control List to ensure that its controls are frequently updated to account for rapidly changing technological and market realities. On this point, we note that while Section 211(a) requires the Secretary to review on a "continuing basis" the foreign availability and mass market status of items subject to a license, Section 202 requires only that the Secretary conduct a "periodic review" of the National Security Control List. This distinction is sharp—"periodic" review is generally less frequent than "continuous" review—and the heart of an effective control system should be an updated determination of whether an item should be controlled in the first place. For this reason, Section 202 can be more effective if it requires the Secretary to conduct continuous rather than periodic review of the National Security Control List.

Finally, CCRE believes that the Risk Assessment Factors identified in Section 202(b) would benefit from greater elaboration. Section 202(b)(2)(C) states that among the risk factors that the Secretary shall consider are "[t]he effectiveness of controlling the item for national security purposes of the United States, taking into account mass-market status, foreign availability, and other relevant factors." While the catch-all "other relevant factors" is conspicuously broad, we believe that this provision should prominently list an additional factor central to the concept of controllability—whether the capability or performance provided by the item can be effectively restricted.

The plain language of the bill wisely recognizes that the foreign availability or mass market status of an item is not the only consideration relevant to an item’s controllability. Consider, for example, that while various U.S. computer systems have not yet attained mass market status, the equivalent computing power can be easily achieved by "clustering" several widely-available, low-level systems. In this regard, the Department of Defense, General Accounting Office, and Defense Science Board agree that while the most advanced stand-alone high performance computers may be controllable, high performance computing is not. For precisely this reason, CCRE believes that explicit among Section 202(b)’s Risk Assessment Factors should be the consideration of whether the capability or performance provided by the item can be effectively controlled.

In summation, CCRE believes that with S. 149, the Committee is moving forward in the right direction. In particular, we believe that the review mechanism provided in Section 202 has great potential to provide meaningful export control reform. Unfortunately, however, the promise of Section 202 will not be delivered to the computer industry unless the NDAA computer provisions are repealed. If the NDAA computer provisions are not repealed, the President will remain confined within the MTOPS straitjacket and will lack the administrative authority necessary to implement the most appropriate types of national security controls for computers. Section 202 can also be strengthened by requiring the Secretary of Commerce to review the National Security Control List on a continuing basis, and by clarifying that a relevant Risk Assessment Factor is whether the capability or performance provided by an item can be effectively controlled.

CCRE remains committed to working with the Congress and the Executive Branch in helping to formulate solutions that effectively advance U.S. economic and national security interests. We thank the Committee for its attention to these important issues.

Curriculum Vitae of Dan Hoydysh

Dan Hoydysh is Director of Trade Policy and Government Affairs for the Unisys Corporation. He is responsible for maintaining liaison with the Congress and the Executive Branch on trade issues that affect Unisys business objectives.

Dan also serves as Co-Chair of the Computer Coalition for Responsible Exports (CCRE), an alliance of American computer companies and high-tech trade associations established to inform policymakers and the public about the nature of the global computer industry—its products, market trends, and technology advances.

Before coming to Unisys, Dan worked for the Bureau of Export Administration (U.S. Department of Commerce), where he was responsible for developing export control policy for computers and negotiating multilateral export control agreements.

Dan has a Masters Degree of Science in Atmospheric Physics from New York University and a J.D. degree from the Columbus School of Law (The Catholic University of America).

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