Hearing on Reauthorization of the Export Administration Act:
Private Sector Views


Prepared Testimony of Ms. Karen Murphy
Director of Global Customs and Export Compliance
Applied Materials


10:00 a.m., Thursday, June 24, 1999

Good morning, Mr. Chairman and members of the committee. My name is Karen Murphy and I am the Director of Global Customs and Export Compliance for Applied Materials, Inc. [II am here today on behalf of Semiconductor Equipment and Materials International (SEMI), the trade association for our industry. SEMI represents over 1100 U.S. manufacturers of semiconductor production equipment and materials in 40 states. I also chair the Export Control Committee of the American Electronics Association, and am a member of the President's Export Council, Subcommittee on Export Administration.

I have a brief oral statement describing my company and industry, along with comments on the draft bill released last week by your committee. I ask that my longer written statement be made part of the record. Before commenting on the substance of the issue before us today, I want to thank you not only for all the hard work you and your committee have done so far, but also for giving me the opportunity to testify about an issue of critical importance.

My company, Applied Materials, is the world's largest maker of semiconductor manufacturing equipment. We had sales in 1998 of just over $4 billion. We are a global company headquartered in Santa Clara, California. We employ over 12,000 workers in facilities and offices throughout the United States, Asia and Europe. Our largest manufacturing site is in Austin, Texas, where we employ more than 2,700 people.

We develop and manufacture the tools that are used around the world to produce semiconductor chips. Our products are multi-million-dollar systems that combine physics, chemistry, materials science and other disciplines. Innovations in our machines have enabled semiconductor producers to improve chip productivity and performance while reducing cost per bit of information for more than two decades. An easier way to remember us is that Applied Materials makes the systems, that make the chips, that make the products, that change the world.

First, let me emphasize that our company and our industry has always been a strong supporter of U.S. export controls that benefit U.S. national security. We have worked hard to comply with these controls and to cooperate with the government in its efforts to ensure that critical technologies do not fall into the hands of our adversaries. As a market-leading, technology-driven company with more than 60 percent of its sales outside the United States, Applied Materials is vitally concerned with the U.S. export control system and its administration.

Unfortunately, we too often find ourselves disadvantaged by U.S. export control laws when competing against our Japanese and European rivals. Applied's competitors in Japan, for example, have a license authority known as a "general bulk license" (GBL). A GBL gives dual-use items immediate permission for export without additional paperwork or processing - in effect a single stop for multiple exports.

This ability particularly comes into play when looking at the China market. Our Japanese competitors have used this bulk license to ship all the tools necessary to equip Japanese semiconductor facilities in China. Meanwhile, Applied must obtain individual licenses, which adds months of delay and uncertainty, and requires significant additional documentation. With equivalent technology available from foreign suppliers, the end result is a loss of market share for Applied Materials with absolutely no benefit to U.S. national security. Some companies in our industry even need licenses to ship to friendly nations such as Israel and Taiwan.

These are just some examples of an all too common occurrence. As this committee has heard from numerous others, the U.S. export control system is in need of a substantial overhaul. SEMI strongly supports safeguarding U.S. national security through effective export controls. We believe a reauthorized EAA should, at minimum, embody the following three attributes:

Multilateral. Export controls must be multilateral if they are to serve a genuine national security purpose. Given the worldwide availability of technology, unilateral controls are ineffective at best and quite often harmful to the United States. This is certainly true in the semiconductor equipment and materials industry. Today, it is possible to make the most advanced semiconductors outside the United States without using a single piece of U.S. production equipment. As is demonstrated in the charts attached to my written statement, in every segment of the semiconductor production cycle U.S. equipment suppliers face significant foreign competition. The issue remains, as stated by Deputy Secretary of Defense Hamre: just because we can control an item, does not mean we should control it. We need to measure the cost to U.S industrial security in terms of lost sales and lost R&D revenues to maintain cutting edge technology versus the benefit to U.S. national security of retaining controls. We also need to take account of the economic and political benefits that accrue to the nation as a result of those exports: jobs and growth on the one hand, and the free flow of ideas and proliferation of democratic values on the other. While it is tempting in our case to try to control these tools because they are controllable, we do not advance national interests including national security if our foreign competitors can ship equivalent technology.

Effective. Attempts to control widely available technologies or goods are self defeating. Controls should be imposed only on those technologies that can be controlled and should be controlled - so-called "choke-point" technologies. Semiconductor manufacturing equipment does not fall under the choke-point category, given its inherently generic nature and lack of any direct contribution to military prowess. Despite the fact that semiconductor production equipment and materials are designed and utilized for production of mass market commercial chips, they are often lumped into the category of "militarily critical" items simply because they represent advanced technology. Furthermore, Applied Materials and other U.S. high-technology, commercially driven companies must invest heavily in R&D to remain competitive. The only way to do this is to have access to commercial markets around the world. Closing off markets and drying up revenue sources that drive technological innovation in U.S. companies is precisely the wrong way to enhance U.S. national security.

Evolutionary. As the current debate over the definition of a "supercomputer" and MTOP-levels illustrates, export control policies must be flexible and responsive to evolving technological and commercial realities. There has been little change in the export control parameters for the semiconductor equipment industry for the last ten years. Export control policies and procedures should be reviewed periodically for their overall impact on national security, U.S. competitiveness and other U.S. interests.

I would like to add my praise to that of my colleagues on the witness panel for the hard work and diligence this Committee and its staff have shown in tackling this difficult and complex issue. Further, I believe that the Committee's emphasis on the importance of multilateral controls and procedures to address foreign availability in the bill is very encouraging. However, our preliminary reading of the bill revealed several areas of substantive concern that we believe must be addressed. I am pleased that the Chairman indicated at the yesterday's hearing that we will have more time to provide suggestions and seek clarification from the Committee on these issues before proceeding to a mark-up of the legislation. We look forward to continuing to be part of that process.

Moving from the general to the specific, let me now comment on the draft Export Administration Act reauthorization legislation now being considered by the committee.

Foreign Availability (Sec. 302(c)): First, as I mentioned, we are pleased that the Committee has recognized in this section the principle that foreign availability from a country that is within an existing control regime such as Wassenaar is now a reality. However, SEMI urges the authors of the draft bill to include an explicit mandate, as in previous EAA bills, removing license requirements on items determined to be foreign available. The draft bill, as written, seems to only allow foreign availability determinations be "considered when developing the National Security Control List" (Sec. 301(c)(1)(A). This is an unsatisfactory result because it could lead to protracted licensing requirements, despite acknowledged foreign availability. How can that benefit U.S. national security?

We also are concerned that the draft bill grants certain federal departments the right to petition the President to suspend foreign availability determinations for two years in order to seek multilateral cooperation in removing any such foreign availability (Sec. 302(f)(2)(A)). Given the pace of technological change, this two year window is extremely problematic. Until a multilateral agreement is in place, foreign availability determinations should be permitted to stand. In two years, a foreign availability "win" may not matter - with today's competitive environment, a two year delay could be equal to a death penalty.

License Processing: We believe that the Committee is moving in the right direction with license processing in such areas as the mass market exemption. However, we are concerned that the procedures for determining a product's status are unclear, and that the bill inadvertently provides too much opportunity for bureaucratic delay. While we understand that the Committee's objective is to allow objections to be heard, we believe that the requirement for mandatory referral to all Departments and for consensus on all classification and licensing decisions would grind the pace of decision-making to a halt. We say this, not to be an obstructionist, but because of our experience in the trenches of the license application process. The Committee is drafting a new paradigm for export controls that seeks to support the new realities of our global economy. Unfortunately, we are afraid that many within the day-to-day licensing process do not share your vision, and consequently may use this consensus requirement as a means to slow the process or block action.

For example, we believe that semiconductor manufacturing gear is a perfect candidate for the expedited list under the criteria as outlined in the draft. Diversion of our tools is very difficult, not only because of the size of the gear and the need to work with many other tools in a complex fabrication process, but also because our companies provide extensive service and support for the equipment. In short, our engineers know where the tools are and how they are being used in a semiconductor fabrication facility. But achieving bureaucratic consensus on any item for the expedited list would likely be a major problem.

The notification in lieu of license provisions also raise questions. This new form of export authorization offers the Commerce Department certain flexibility in streamlining controls on items of limited risk. It may also alleviate some strain on the Department's licensing resources. It is important, however, that this pre-shipment notification requirement be used for its intended purpose - to remove licensing requirements where appropriate. Permitting this form of authorization to become a de facto licensing process, whereby items not previously subject to licensing now become subject to pre-shipment notification, would be a step backward.

Deemed Exports (Sec. 103(a)(11)(iv)): Unlike the EAA of 1979 or subsequent EAA extensions, the draft bill would statutorily define domestic transfers of technology to foreign nationals to be exports. The 1994 "deemed export" rule is overly broad. We believe that to be an export, there must be knowledge and intent to transfer technology outside the U.S. This arrangement worked satisfactorily during the Cold War, and there has never been a demonstrated need to change.

In summary, Applied Materials and SEMI can support enactment of a revised Export Administration Act if it will help clarify export control law, rationalize the regulatory framework and provide the flexibility that meets both national security and modern commercial and technological realities. We appreciate the opportunity to be part of this process.

Thank you, Mr. Chairman. I would be pleased to answer any questions you might have.



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