U.S. Export Policy Toward the PRC
High Performance Computers
After Tiananmen Square in June 1989, COCOM did not adopt any further favorable treatment applying specifically to the export of items to the PRC. And as a result of the transfer of ballistic missile technology by the PRC to Pakistan in May 1991, President Bush imposed restrictions on the export to the PRC of computers above a composite theoretical performance of 41 MTOPS (millions of theoretical operations per second) in June 1991.211
In May 1992, the United States imposed foreign policy controls on "supercomputers" (defined then as 195 MTOPS and above).212 This decision was based on a 1991 bilateral agreement with Japan, the other major supercomputer exporting country.213 Supercomputers are also subject to special safeguard conditions.
President Clinton wrote to a number of industry leaders who attended a White House luncheon in mid-September 1993 regarding the issue of export controls. In his letter to Edward McCracken, Chief Executive Officer, Silicon Graphics, the President stated:
As a part of [the Trade Promotion Coordinating Committee] process, the National Security Council has led an effort to develop specific export controls reforms . . .
I am optimistic that the steps we take will help liberalize controls on many of our most competitive exports, while protecting important national security concerns . . .
I am also engaged in seeking major reforms to COCOM, which should lead to significant liberalization of controls on computers, telecommunications and machine tools . . .214
The first Trade Promotion Coordinating Committee report, "Toward a National Export Strategy," which was issued by Secretary of Commerce Brown in September 1993, indicated that the Clinton Administration was planning to make a number of proposals to COCOM, including:
- Proposing an increase in the level of computers that would not require an export license to most destinations from 12.5 MTOPS to 500 MTOPS
- Proposing an increase in the definition of a supercomputer from 195 MTOPS to 2,000 MTOPS and an update to the safeguard requirements for supercomputers215
Discussions were held within COCOM during December 1993 and January 1994 regarding computers.
The COCOM member countries reached an agreement in January 1994 to raise the level of computers that would not require an export license to most destinations, including the PRC, from 12.5 MTOPS to 260 MTOPS. On February 24, 1994, Commerce published in the Federal Register an amendment to the Export Administration Regulations that reflected this COCOM decision.216
The February 1994 Federal Register notice also lifted the licensing requirement for computers with a performance level of 500 MTOPS or less that were exported to "free world countries" as listed in the Nuclear Nonproliferation Special Country List.217 And it raised the supercomputer threshold from 195 MTOPS to 1,500 MTOPS and above.218 Prior to February 1994, exporters were required to obtain a Commerce Department license to export to most destinations computers with a performance level of 12.5 MTOPS or more.219
On March 30, 1994, one day before the demise of COCOM, the Administration announced that it would be taking another step to "balance" the proliferation of dangerous weapons and sensitive technologies with U.S. economic growth: removing the licensing requirement for the export of computers and telecommunications equipment with less than 1,000 MTOPS to civil and nonproliferation end-users in the formerly COCOM-controlled countries (except North Korea), effective April 4, 1994.220 This included the PRC, the former Soviet Union, and countries in Eastern Europe.221
The administration indicated that this action was consistent with national security requirements, because licenses still would be necessary for the export of "high-end" computers and for the transfer of such items to military end-users.222
In October 1995, the President announced that further changes in export controls for high performance computers would be made to "balance" national security and nonproliferation interests with the rapid developments in computer technology. Also, the Clinton administration cited the need for a computer export control policy that would remain effective for 18 to 24 months.
The computer export control changes were based on a study prepared by Seymour Goodman and others with the Center for International Security and Arms Control at Stanford University.223 The study was performed under a sole-source contract awarded by the Bureau of Export Administration within the Department of Commerce. The cost of the contract was approximately $60,000, which was funded by both Commerce and Defense.224
The Department of Defense did not prepare a formal threat assessment related to changes in the export control policy for high performance computers to the People╠s Republic of China. However, Mitchel B. Wallerstein, then Deputy Assistant Secretary for Counter-Proliferation Policy at the Department of Defense, remembers a conversation with his Joint Staff counterpart:
I will say that he had concerns, but he made it clear that on the whole, given the alternatives, that he felt that the risks were not unreasonable.225
The concept underlying the Clinton administration╠s 1995 decision to liberalize computer export controls based on the level of computer performance that would be available 18 to 24 months in the future is called "forward looking foreign availability" by Reinsch.226 He explains that this concept was applied to computers "because of the applicability of Moore╠s law." Moore╠s law █ devised by Gordon Moore, one of the founders of Intel █ essentially is that microprocessor capabilities double every 18 months. The concept of "forward looking foreign availability" has not been applied by the Department of Commerce to the liberalization of controls on items other than computers.227
Neither Reinsch nor other Commerce officials were apparently aware of the PRC╠s possible use of HPCs in nuclear weapons development when the policy decision to liberalize computer export controls was made. Commerce published the changes in computer export controls as amendments to the Export Administration Regulations in the Federal Register on January 25, 1996.228 The Federal Register notice stated that, in developing these reforms, the Administration has determined that computers capable of up to 7,000 million theoretical operations per second (MTOPS) will become widely available in open international markets within the next two years [i.e., by January 1998]. The Administration has also determined that computers with performance capabilities at and above 10,000 MTOPS have a significant number of strategic applications.
The revised Export Administration Regulations identified four Computer Country Groups for export controls on computers:
- Tier 1 █ most industrialized countries. Exporters may ship computers with any level of performance without a license to these countries. The exporter is required to maintain records and must submit certain information to the Commerce Department if requested regarding shipments of computers with 2,000 MTOPS and above.
- Tier 2 █ countries with mixed proliferation and export control records. Exporters may ship computers up to 10,000 MTOPS without a license to these countries. The exporter is required to maintain records on computer exports at 2,000 MTOPS and above, and to submit this information to the Commerce Department if requested. Exports of computers over 10,000 MTOPS require a license from the Commerce Department. (Hong Kong is included in Tier 2.)
- Tier 3 █ countries posing proliferation, diversion, or other security risks. Exporters are allowed to ship computers up to 7,000 MTOPS without a license to these countries. The exporter must obtain a license from the Commerce Department to export computers above 2,000 MTOPS to military and proliferation end uses and end users, or to export computers above 7,000 MTOPS for all end uses and end users. Also, exporters must maintain records of exports of computers from 2,000 MTOPS to 7,000 MTOPS. (The People╠s Republic of China is included in Tier 3.)
- Tier 4 █ terrorist countries. A license is required for exports or re-exports of any computer, regardless of MTOP level, to Cuba, Iran, Iraq, Libya, and North Korea. Exports or re-exports of computers to Syria and Sudan with a performance of 6 MTOPS and above are permitted with a license from the Commerce Department. (Cuba, Iran, Iraq, Libya, North Korea, Sudan, and Syria are included in Tier 4.)229
The National Defense Authorization Act for Fiscal Year 1998 required that exporters provide advance notification to the Commerce Department for the export or re-export of a high performance computer over 2,000 MTOPS and up to 7,000 MTOPS to end users in Tier 3 countries.230 The PRC is included in the list of Tier 3 countries. Prior to this Act, the Export Administration Regulations allowed exports of high performance computers up to 7,000 MTOPS to civil end-users in the PRC with no notice to Commerce.
Under the 1998 Act, the Commerce Department is required to notify the Departments of Defense, Energy, and State, and the Arms Control and Disarmament Agency within 24 hours of receipt of advance notification from an exporter.231 If within nine days Defense, Energy, State, or ACDA provides specific objections in writing to Commerce, then Commerce is to inform the exporter by the tenth day after receipt of the advance notification that an export license will be required for the proposed export.
The 1998 Act provides that the President can revise the composite theoretical performance threshold level of 2,000 MTOPS regarding export of computers to Tier 3 countries. This would take effect 180 days after the President submits a report, with a justification for the revision, to the appropriate congressional committees.
Finally, the Act requires the Commerce Department to perform post-shipment verifications on all exports of high performance computers over 2,000 MTOPS to Tier 3 countries.
In addition to high performance computer export controls, the Clinton administration has undertaken export licensing liberalization efforts in a number of other categories, including:
- Semiconductor manufacturing equipment
- Telecommunications equipment
- Nuclear-controlled items (e.g., oscilloscopes)
In January 1994, Commerce╠s Bureau of Export Administration published the first quarterly edition of "Deregulation in Export Controls," which measured the "progress being made in eliminating dual-use licensing obstacles." 233
Under COCOM, export controls on machine tools did not change significantly from the mid-1970s until 1990. In 1990, the COCOM member countries agreed to a U.S. proposal █ the "core list" proposal that is discussed above █ that resulted in significant reductions in the COCOM Industrial List, including those relating to machine tools.
This relaxation in export controls permitted about 75 percent of advanced machine tools produced in the United States to be exported without a license. Prior to the 1990 COCOM changes, only about 10 percent of these did not require a license.234
For the most part, the 1990 export control changes pertained to the degree of positioning accuracy of the machine tool as measured in microns (that is, millionths of a meter). In general, the pre-1990 COCOM controls required an export license for machine tools that had a positioning accuracy exceeding 10 microns.235 Depending on the type of machine tool, the post-1990 COCOM controls █ generally continued under the Wassenaar Arrangement █ require an export license if the machine tool has a positioning accuracy exceeding 6 microns. 236 Grinding machines are controlled at 4 microns.237
Machine tools capable of simultaneous five-axis motion were controlled under COCOM, and remain so under the Wassenaar Arrangement.238
Under the Wassenaar Arrangement, certain dual-use commodities, including machine tools, require the unanimous consent of the member states to renew the controls that are currently in effect.
Unless changed or extended again, the current export control criteria for machine tools will remain valid until December 5, 2000.239
Treatment of Hong Kong
In 1992, the United States granted preferential licensing treatment to Hong Kong as a result of its designation as a COCOM "cooperating country." 240 The same year, the United States expressed its support for Hong Kong╠s autonomous status in the United States-Hong Kong Policy Act of 1992.241
The 1992 Act called upon the U.S. Government to continue to treat Hong Kong as a separate territory in regard to economic and trade matters. It also provided for Hong Kong╠s continued access to sensitive U.S. technologies for so long as such technologies are protected.
The result of the 1992 Act has been to continue a less restrictive export control policy for Hong Kong than for the rest of the PRC. Many more dual-use items may be exported to Hong Kong without prior Commerce review than may be exported to the PRC without review. Even when prior review is required, Commerce more readily grants export licenses to Hong Kong.
In contrast, more categories of dual-use items require prior review before export to the PRC, and the U.S. Government has refused to export certain items to the PRC that would have been allowed to go to Hong Kong without prior review or approval.242
Hong Kong reverted to the PRC in July 1997 under a negotiated arrangement between the PRC and the United Kingdom. Under the terms of a 1984 Joint Declaration, Beijing and London pledged that Hong Kong would become a Special Administrative Region of the PRC with a "high degree of autonomy" for 50 years. The U.S. Government has made clear its intent to change its export control policy towards Hong Kong only if there is evidence that Hong Kong authorities are unable to operate an effective export control system. The U.S. Government has pledged to monitor various indicators of Hong Kong╠s autonomy in export controls.243 The Commerce Department has reported to the General Accounting Office that it has established comprehensive benchmarks and gathered baseline information on each benchmark, and that it intends to evaluate this data on a monthly basis.244
State Department officials Lowell and Biancaniello say that the current level of diversion activity in Hong Kong is consistent with that which occurred in the period prior to Hong Kong╠s reversion to PRC sovereignty. However, Biancaniello says that checks are done more to ensure that all pre-reversion policies were still in place.245
The more relaxed controls on the export of militarily-sensitive technology to Hong Kong have been allowed to remain in place even though Hong Kong was absorbed by the PRC and PLA garrisons took control of the region on July 1, 1997. U.S. trade officials report that no inspections by the Hong Kong regional government nor by any other government, including the United States, are permitted when PLA vehicles cross the Hong Kong border.
Various U.S. Government analyses have raised concerns about the risk of the diversion of sensitive U.S. technologies not only to the PRC, but to third countries as well through Hong Kong because of the PRC╠s known use of Hong Kong to obtain sensitive technology.246 Some controlled dual-use technologies can be exported from the United States to Hong Kong license-free, even though they have military applications that the PRC would find attractive for its military modernization efforts.
The Select Committee has seen indications that a sizeable number of Hong Kong enterprises serve as cover for PRC intelligence services, including the MSS. Therefore, it is likely that over time, these could provide the PRC with a much greater capability to target U.S. interests in Hong Kong.
U.S. Customs officials also concur that transshipment through Hong Kong is a common PRC tactic for the illegal transfer of technology.247
John Huang, Classified U.S. Intelligence, and the PRC
In late 1993, the U.S. Department of Commerce hired John Huang as the Principal Deputy Assistant Secretary of Commerce for International Economic Policy.248
Prior to starting at the Department of Commerce, Huang had been the Lippo Group╠s principal executive in the United States. Lippo╠s principal partner in the PRC is China Resources (Holdings) Co., a PRC-owned corporation based in Hong Kong.249
According to Nicholas Eftimiades, a Defense Intelligence Agency analyst writing in his personal capacity, and Thomas R. Hampson, an investigator hired by the Senate Governmental Affairs Committee, China Resources is "an agent of espionage, economic, military, and political." 250
China Resources is also one of several PRC companies (including China Aerospace Corporation) that share a controlling interest in Asia Pacific Mobile Telecommunications Satellite Co., Ltd (APMT).251 The PRC-controlled APMT is preparing to use China Great Wall Industry Corporation to launch a constellation of Hughes satellites on PRC rockets.252 The launches scheduled to date have required Commerce Department approval and presidential waivers of the Tiananmen Square sanctions.253
While at the Department of Commerce, Huang was provided with a wealth of classified material pertaining to the PRC, Taiwan, and other parts of Asia. He had a Top Secret clearance, but declined suggestions by his superiors that he increase that clearance to the Sensitive Compartmented Information (SCI) level (the level held by his predecessor).254
Between October 1994 and November 1995, Huang received 37 briefings from a representative of the Office of Intelligence Liaison at the Department of Commerce.255 While Huang╠s predecessor was briefed weekly, Huang received approximately 2.5 briefings per month.256
The vast majority of Huang╠s briefings focused on the PRC and Taiwan, including "raw intelligence" that disclosed the sources and methods of collection used by the U.S. intelligence community.257 The Office of Intelligence Liaison representatives indicated that Huang was not permitted to keep or take notes on raw intelligence reports and did not ask many questions or otherwise aggressively seek to expand the scope of his briefings.258
During the briefings, Huang reviewed and commented on raw intelligence reports about the PRC. Huang also signed receipts to retain finished intelligence products. The classified finished intelligence that Huang received during his tenure at Commerce included PRC economic and banking issues, technology transfer, political developments in the PRC, and the Chinese Communist Party leadership. Huang commented on or kept copies of materials on these topics.
Huang was also given access by the Office of Intelligence Liaison to diplomatic cables classified at the Confidential or Secret level.259 Specifically, 25 to 100 classified cables were set aside for Huang each day.260
No record exists as to the substance of the cables that were reviewed by Huang.259 Huang could have upgraded the level of the cable traffic made available to him to include Top Secret information, but never did so.262
Huang also had access to the intelligence reading room at the Commerce Department, as well as to classified materials sent to his supervisor, Charles Meissner,263 who had a higher level clearance.264 The three Office of Intelligence Liaison representatives who were interviewed by the Senate Committee on Governmental Affairs indicated that they were not personally aware of any instance in which Huang mishandled or divulged classified information.265
Huang maintained contact with representatives of the Lippo Group while he was at the Department of Commerce. During the 18 months that he was at Commerce, Huang called Lippo Bank 232 times, in addition to 29 calls or faxes to Lippo Headquarters in Indonesia. Huang also contacted Lippo consultant Maeley Tom on 61 occasions during the same period. Huang╠s records show 72 calls to Lippo joint venture partner C. Joseph Giroir.266
During his tenure at the Commerce Department, Huang used a visitor╠s office across the street at the Washington, D.C. branch of Stephens Inc., an Arkansas-based brokerage firm with "significant business ties to the Lippo Group." 267 Stephens employees indicated that these visits were short in duration.268 Huang used this office "two, three times a week" most weeks, making telephone calls and "regularly" receiving faxes and packages addressed to him.269
No one at the Commerce Department, including Huang╠s secretary, knew of this additional office.270
Huang met with PRC Embassy officials in Washington, D.C. on at least nine occasions. Six of these meetings were at the PRC Embassy.271 When informed of these contacts, Jeffrey Garten, the Department of Commerce Under Secretary for Trade Administration, was "taken aback" to learn that Huang ever dealt with anyone at the PRC Embassy.272 The purpose of the contacts is unknown.
On December 1, 1998, the Select Committee served Huang with a subpoena through his attorney. On December 3, 1998, Huang╠s attorney indicated that Huang would only testify before the Select Committee pursuant to a grant of immunity.273 The Select Committee declined to immunize Huang from prosecution, and Huang refused to appear before the Select Committee, invoking his Fifth Amendment rights.
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