The Second Stanford Study

Two of the three authors of the 1995 Stanford study were again engaged and funded by the Departments of Commerce and Defense to prepare a second paper as a contribution to the periodic review of HPC export controls.128

This paper, released in April 1998, concluded that rapid advances in computer technology were continuing. However, it also suggested that a proposed change in licensing procedure ó to review each HPC at its highest attainable level, rather than its configuration at the time of the export ó would remove the concern that HPCs were being upgraded without the knowledge of exporters or the U.S. Government.129

As of the date of this report, no further Executive branch action has been reported or notified to Congress concerning further revisions to export controls on HPCs.

Arms Export Control Act Provisions and International Traffic In Arms Regulations Currently Applicable to Computers

The Arms Export Control Act and International Traffic In Arms Regulations treat certain computers differently than the dual-use computers that are regulated by the Export Administration Act and Export Administration Regulations.130

The United States Munitions List, which is included in the International Traffic in Arms Regulations, controls computers that have been modified for rugged conditions and "Tempested" ó made ready for secure use ó specifically for military systems.131 It also controls software specifically designed for military uses and technical data, which is often paper converted to software.132

The State Department, which has license authority over Munitions List items, restricts the export of computers designed for military uses and does not distinguish among computers based on MTOPS or other performance measures.133

Concerns Over High Performance Computer Exportersí Ability to Review End-Users in the PRC Prompted the Requirement for Prior Notification

The January 1996 revisions to the Export Administration Regulations governing HPCs made several other important changes. Most importantly, they made exporters responsible for determining whether an export license is required, based on the MTOPS level of the computer, and for screening end users and end uses for military or proliferation concerns.134

Thus, U.S. companies that wish to export HPCs are authorized to determine their own eligibility for a license exception.135

Prior to this change, only U.S. HPC exports to Japan were allowed without an individual license. At that time, a violation of the Export Administration Regulations could be identified by an export of an HPC that occurred without a license.

Since the change, in order to prove a violation of the regulations, the Commerce Department must demonstrate that an exporter improperly used the Composite Theoretical Performance license exception and knew or had reason to know that the intended end user would be engaged in military or proliferation activities.136

Also, the revised Export Administration Regulations required that exporters keep records and report to the Commerce Department on exports of computers with performance levels at or above 2,000 MTOPS. In addition to existing record-keeping requirements, the regulations added requirements for the date of the shipment, the name and address of the end user and of each intermediate consignee, and the end use of each exported computer. Although these records have been reported to the Commerce Department on a quarterly basis for the past two years, some companies have reported inconsistent and incomplete data for resellers or distributors as end users.137

Since U.S. HPCs obtained by countries of proliferation concern could be used in weapons-related activities, the Congress enacted a provision in the Fiscal 1998 National Defense Authorization Act138 that required exporters to notify the Commerce Department of all proposed HPC sales over 2,000 MTOPS to Tier 3 countries. The Act gives the U.S. Government an opportunity to assess these exports within 10 days and determine the need for a license. Following such notification, the Departments of Commerce, State, Defense, and Energy, and the U.S. Arms Control and Disarmament Agency, can review a proposed HPC sale and object to its proceeding without an export license. The Commerce Department announced regulations implementing the law on February 3, 1998.139

A November 1998 Defense Department study, however, identified potential problems with the 10-day notification procedure. The study noted that the Defense Department provides comments on export notices referred to it regarding those end users for which the Defense Department has information. The study also noted that:

Furthermore, the Defense Department study expressed concern that foreign buyers might circumvent current Export Administration Regulations provisions requiring attestation to the buyerís knowledge that the export will have no military or proliferation end user or end use.141 By designating a company in the United States to act on its behalf, the foreign company could have its U.S. designee submit the HPC notification to the Commerce Department; the U.S. designee and not the foreign buyer would then be responsible for all compliance with notification procedures.142 The U.S. designee would be responsible only for shipping the item and would not take title of the item.143

Under the Export Administration Regulations, the U.S. designee could complete the notification to its knowledge, which might be useless if the U.S. designee is in fact ignorant of the actual end use. The Defense Department study noted the obvious problems with this system.

The study also observed that the 10-day notification period was insufficient to ensure that U.S. designees and foreign buyers are providing accurate and complete information.144

Finally, the Defense Department study warned that foreign buyers of U.S. computer technology might circumvent the notification procedure by notifying the Commerce Department that they are purchasing a system that is not above the 7,000 MTOPS threshold, but later upgrading the system with processors that are below the 2,000 MTOPS level. There would be no requirement to notify the Commerce Department of the acquisition of the lower than 2,000 MTOPS upgrades to the previously-notified system.145

The U.S. Government Has Conducted Only One End-Use Check for High Performance Computers in the PRC

The Fiscal 1998 National Defense Authorization Act now requires the Commerce Department to perform post-shipment verifications on all HPC exports of HPCs to Tier 3 countries with performance levels over 2,000 MTOPS.146

Post-shipment verifications are important for detecting and deterring physical diversions of HPCs, but they do not always verify the end use of HPCs.147

The PRC traditionally has not allowed the United States to conduct post-shipment verifications, based on claims of national sovereignty, despite U.S. Government efforts since the early 1980s.148 This obduracy has had little consequence for the PRC, since HPC exports have continued to be approved and, in fact, have increased in recent years.

In June 1998, the PRC agreed with the United States to cooperate and allow post-shipment verifications for all exports, including HPCs.149 PRC conditions on the implementation of post-shipment verifications for HPCs, however, render the agreement useless.150 Specifically:

• The PRC considers requests from the U.S. Commerce Department to verify the actual end-use of a U.S. HPC to be non-binding
• The PRC insists that any end-use verification, if it agrees to one, be conducted by one of its own ministries, not by U.S. representatives
• The PRC takes the view that U.S. Embassy and Consulate commercial service personnel may not attend an end-use verification, unless they are invited by the PRC
• The PRC argues scheduling of any end-use verification ó or indeed, whether to permit it at all ó is at the PRCís discretion
• The PRC will not permit any end-use verification of a U.S. HPC at any time after the first six months of the computerís arrival in the PRC

The Select Committee has reviewed the terms of the U.S.-PRC agreement and found them wholly inadequate. The Clinton administration has, however, advised the Select Committee that the PRC would object to making the terms of the agreement public. As a result, the Clinton administration has determined that no further description of the agreement may be included in this report.

According to Iain S. Baird, Deputy Assistant Secretary of Commerce for Export Administration within the Bureau of Export Administration, post-shipment verifications are conducted by the PRCís Ministry of Foreign Trade and Economic Cooperation for U.S. computers having over 2,000 MTOPS that are exported to the PRC. He says such verifications are done in the presence of the U.S. commercial attaché.151

Commerce reported on November 17, 1998, that no post-shipment verifications would be performed on HPCs that were exported to the PRC from November 18, 1997 through June 25, 1998 because the PRC/U.S. agreement applies only prospectively from June 26.

Since June 26, the Commerce Department reported, only one post-shipment verification has been completed and one was pending as of November 12, 1998. Commerce also stated that "Post shipment verifications were not done on most of the others [HPCs] because the transactions do not conform to our arrangement with the PRC for end use checks."152

Thus, post-shipment verifications will not be done on any HPCs exported to the PRC prior to the agreement, nor on any HPCs shipped that are exported in the future under the Composite Theoretical Performance license exception (that is, those between 2,000 and 7,000 MTOPS) to civilian end users.

According to Commerce Department Under Secretary for Export Enforcement William Reinsch, a pending regulatory change will instruct HPC exporters to seek end-use certificates from the PRC Government. Where PRC end-use certificates are obtained, this regulation purportedly would allow more post-shipment verifications to be requested consistent with the PRC-U.S. agreement.153

Reinsch stated that the PRC has indicated that it would be willing to issue end-use certificates. However, the PRC office in question reportedly has a staff of five, which would severely limit the number of post-shipment verifications it could implement.154

According to a September 1998 report from the General Accounting Office, U.S. Government officials agreed that the manner in which post-shipment verifications for computers traditionally have been conducted has limited their value because they establish only the physical presence of an HPC, not its actual use. In any event, according to national weapons laboratory officials within the Energy Department, it is easy to conceal how a computer is being used.155

Even when U.S. Government officials perform the post-shipment verification, the verifying officials have received no specific computer training and are capable of doing little more than verifying the computerís location. It is possible to verify an HPCís use by reviewing internal computer data, but this is costly and intrusive, and requires sophisticated computer analysis.156

The General Accounting Office report also noted that the U.S. Government makes limited efforts to monitor exporter and end-user compliance with explicit conditions that are often attached to HPC export licenses for sensitive end users. The U.S. Government relies largely on the HPC exporters to monitor end use, and may require them or the end users to safeguard the exports by limiting access to the computers or inspecting computer logs and outputs.157

The end user may also be required to agree to on-site inspections, even on short notice, by the U.S. Government or exporter. These inspections would include review of the programs and software that are being used on the computer, or remote electronic monitoring of the computer.158

Commerce officials stated to GAO that they may have reviewed computer logs in the past, but do not do so anymore, and that they have not conducted any short notice visits. They also acknowledged that they currently do not do any remote monitoring of HPC use anywhere and that, ultimately, monitoring compliance with safeguards plans and their conditions is the HPC exporterís responsibility.159

Some U.S. High Performance Computer Exports to the PRC Have Violated U.S. Restrictions

During the 1990s, there have been several cases of export control violations involving computer technology shipments to the PRC. One ongoing case concerns the diversion of a Sun Microsystems HPC from Hong Kong to the PRC.160

On December 26, 1996, a Hong Kong reseller for Sun Microsystems, Automated Systems Ltd., sold an HPC to the PRC Scientific Institute, a technical institute under the Chinese Academy of Sciences ó a State laboratory specializing in parallel and distributed processing. At some point after the sale but before delivery, the computer was sold to Changsha Science and Technology Institute in Changsha, Hunan Province. The machine was delivered directly to that Institute in March 1997.161

Automated Systems of Hong Kong claimed to Sun officials in June 1997 that it had understood that the Changsha Institute was "an educational institute in Wuhan Province providing technological studies under the Ministry of Education." The end use there, according to Automated Systems, was to be for "education and research studies in the college and sometimes for application development for outside projects." Sun was recommended to contact the end user, the Changsha Institute, for more specific end-use information.162

The HPC sale came to the attention of the Deputy Assistant Secretary for Export Enforcement, Frank Deliberti. He queried the U.S. Embassy in Beijing about the Changsha Institute. Deliberti gave the information he obtained to Sun Microsystems, which then initiated efforts to have its computer returned.163

During the same period, the Foreign Commercial Officer at the U.S. Embassy in Beijing consulted his contacts at the PRCís Ministry of Foreign Trade and Economic Cooperation. The Ministry denied that the Changsha Institute was affiliated with the PRC military.164

Subsequently, the Ministry called the FCO to inform him that the actual buyer of the computer was an entity called the Yuanwang Corporation, and that Sun Microsystems had been aware of this corporationís PRC military ties. Reportedly, Yuanwang is an entity of the Commission on Science, Technology, and Industry for National Defense (COSTIND). So far as the PRCís Ministry of Foreign Trade and Economic Cooperation reportedly could determine, the end-use statements that had been provided to Sun through Automated Systems of Hong Kong were totally fictitious. The Changsha Science and Technology Institute, according to the Ministry, did not exist.165

The official position of the Ministry of Foreign Trade and Economic Cooperation was that the PRC Government would not help to obtain the return of the computer. The role of the PRC Government, the Ministry asserted, had been merely to help two private parties rectify a misunderstanding. In any event, the computer was returned to the United States on November 6, 1997.166 The Commerce Department investigation reportedly is continuing.167

A number of other violations of U.S. laws and regulations concerning computers exported to the PRC have been investigated by the Commerce Department:

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