Hearing on Emerging Technology Issues and Reauthorization of the Export Administration Act


Prepared Testimony of Mr. Rhett Dawson
President
Information Technology Industry Council


10:00 a.m., Thursday, June 17, 1999

Good morning and thank you Mr. Chairman for inviting me to testify today. I appreciate your leadership on this issue.

I am Rhett Dawson, president of the Information Technology Industry Council.

ITI is the association that represents the leading IT companies. Our members include such companies as IBM, Intel, Cisco, Microsoft, Gateway, Dell, Compaq, HP and 3Com -- just to name a few.

Last year, our members had a combined worldwide revenue of more than $440 billion and we employed more than 1.2 million people in the United States.

The US IT industry is the envy of the world -- it is a perfect example of what can develop when given the freedom to innovate.

Today, I want to talk about how our industry and our government can work together to ensure that the US IT industry can retain its world leadership in information technology, while making sure we continue to protect our national security.

Let's focus on three areas on how we can change export control regulations:

National Security

Technology

What the Congress and the Administration Can Do

National Security

Last month the Cox Report was released and it gave us a clear picture on national security. We agreed with many of the reports findings:

Higher penalties for those who violate export control laws.

The need to re-enact the Export Administration Act to establish export control regime that can respond to technological changes and market realities.

And, the need for multilateral controls to protect sensitive technologies that could threaten our security interests.

But what we need is a level playing field where our foreign competitors are not permitted to take advantage of unilateral U.S. government strategies.

Our industry is committed to upholding and protecting our country's national security interests. We are not asking for, nor do we want, to do away with export control regulations for countries where true supercomputers must be controlled, clearly in terrorist countries but also those countries where technology, if it is not otherwise available, might prove threatening to the U.S.

The most appropriate and most effective export control threshold for these countries from a national security as well as a national economic perspective is one that draws the lines between computers that are commodities and those that are not. Drawing that line is what we hope you will consider doing as you move forward with the Export Administration Act.

The Cox Report has sparked a very important debate about the role technology plays in our national security. But it is important to keep in mind that even in the midst of the espionage case, Congressman Cox made sure to point out that technology should be used as a tool of democracy.

In late March, in the San Jose Mercury News, Congressman Cox wrote: "Encouraging exports to China that promote individual freedom and well-being is in the United States' national security interest......the U.S. should focus on unleashing the Internet as an engine of freedom in China."

This point is made even more clear in the best-selling book The Lexus and the Olive Tree by Thomas L. Friedman. He writes: "An Internet company formed in Chicago in 1998, called China Online, uses stringers inside China to gather market and other news. They file the information to Chicago via the Internet, and China Online then beams it back to China, again via the Internet. Among the things that China Online offers as a daily service is the black-market rate of the Chinese currency against the dollar in China's major cities. Its reporters go out into the market every day, check the rate with the underground dealers, and then file it to Chicago. This is very useful data for anyone doing business in China, particularly for Chinese. IT is something the Chinese government would never provide to its people, let alone to the world, but Beijing is now powerless to stop it."

This is something that is happening today and it is happening because people in China are getting the tools they need to communicate with the outside world.

I spent the last two years of the Reagan Administration in the White House. And something that I learned there is that democracy grows through engagement. It was the fax machine that helped bring down the Berlin Wall and I believe it will be Internet that will help bring democracy to China.

We believe that you can, and must, strike a balance that preserves our national security while maintaining the US technological leadership. To do this we hope you will closely examine the key question of foreign availability.

Next, I want to highlight just a couple short examples of why we need to recognize that technology is racing ahead of current control levels which means that export control threshold levels, so-called MTOPs, must be raised sooner, rather than later.

Real World Examples

ITI represents the leading IT companies. Many of our companies produce personal computers that are shipped around the world for use in the home and in the office.

When the new export control thresholds were set in 1996, because the processing capabilities were much lower, ordinary business computers -- computers with 2, 4, 6, and even 8 microprocessors could be exported to Tier 3 countries. This year, if no change is made to the current 2000 MTOPs level, all of these computers using new microprocessors will be controlled.

Gateway, a company in the home state of Senator Johnson, where you can log onto the Internet to build your own computer, will soon exceed the 2000 MTOPs level.

Apple Computer, another one of our member companies, will roll out its next generation computer later this summer. It too is expected exceed the 2000 MTOP level.

Dell and Compaq -- two companies in your home state of this CommitteeÕs Chairman, will soon bump up against the current threshold as they try to ship their products outside the United States.

But this is not just about computers. The Sony Play Station II -- which many of us have in our homes for our kids or grandkids -- will be required to go through the export control regulation process because it contains a chip that exceeds the current threshold.

Where will people around the world go to get computers if not from the United States? They will go to France, Japan or even China or the many other countries that have the ability to produce these products but not the regulatory hurdles that our country has imposed on itself.

This summer we are on a collision course. Without changing the existing control level, the United States IT industry could face some very formidable and real economic hurdles -- having consequences not only for our industry but also the overall U.S. economy.

Under these circumstances we have proposed to the Clinton Administration that the threshold for Tier 3 countries be increased from the current 2000 MTOPs level to 12,300 MTOPs by the end of this month. This level would allow for the export of widely available computers -- 1 to 8 processor business computers -- that are either on the market now or will be early next year from our foreign competitors.

In addition, we have proposed that the threshold for Tier 2 countries should be raised from 10,000 to 30,000 MTOPs. This change is consistent with the severe threat posed by these computers to U.S. national security interests and reflects the advances in technology that have occurred in the last three years.

Certain Tier 2 countries -- or key trading partners -- should be "graduated" to Tier 1.

The need for these changes is real and immediate. We hope Congress and the Administration will act -- quickly -- to avoid the collision with market realities that we are facing.

Support on the Hill and in the Administration

In meetings with Congress and the Administration we have received a lot of support for increasing the current threshold level. The CEOs of ITI's member companies will keep the pressure on Congress and the Administration to act soon.

Most importantly, we are pleased this Committee is holding this hearing and we are hoping that you work toward a distinction between a commodity, something that is difficult, if not impossible, to control, and a true supercomputer. That would be a positive, and important, development.

Conclusion

Thank you, again, for the opportunity to testify today.

We look forward to working with you to help ensure that the US technology industry continues to be a leader at home and around the world.

ITI Represents the Leading IT Companies:

3Com Corporation
Apple Computer
Cisco Systems, Inc.
Compaq Computer Company
Dell Computer Company
>Eastman Kodak Company
>Hitachi Computer Products (America), Inc.
IBM Corporation
Information Handling Services
Intel Corporation
Lexmark International, Inc.
Lucent Technologies, Inc.
Microsoft Corporation
Mitsubushi Electric America, Inc.
Motorola, Inc.
NCR Corporation
Panasonic Communications and Systems Company
Pitney Bowes, Inc.
Silicon Graphics, Inc.
Sony Electronics, Inc.
StorageTek
Symbol Technologies
Tektronix, Inc.
Tyco International
Unisys Corporation
Xerox Corporation



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