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1
It A
THE NATURE OF THE PROBLEM
The vigor of science and technology in the Western* democracies and
the greater economic vitality of these nations in comparison to the Soviet
bloc are sources of strength for the West in its continuing effort to
maintain its military security. The West benefits from open societies with
free and rapid exchange of scientific information and from competitive
industrial bases, both of which drive the development of new technolo-
gies. Many of these items are dual use in character that is, products or
data with both commercial and military applications. The Soviet Union
lacks the open communication and commercial advantages of the West
and seeks to compensate for them, not only by directing a greater
percentage! of its gross national product (GNP) to the development and
production of military equipment but also by aggressive attempts to
acquire and apply Western technology to its military programs.
These Soviet initiatives, in turn, pose a policy dilemma for the West
because the open communication and free markets that are fundamental
to the Western advantage in technology also facilitate the Soviet acqui-
sition effort. Government controls over technology transfers collide with
the character and principles of a free society, which are a source of so
*As used throughout this report, Western or West includes Japan.
tNearly three times that devoted by the United States.
28
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INTROD UCTION 29
much of our strength in competition with the Soviet Union. There is a
point at which interference with the free exchange of technology and
information in the West could be more damaging to Western societies
than the loss of technology under less-stringent controls.* The question
is: Where does that point lie? And is the damage from such interference
incremental and not evident until long after irreparable harm has been
done? Answers to these questions may not be conclusive, but they directly
affect our stales in the long-term competition with the Soviet Union.
Given what is known about Soviet technology acquisition activities, an
effective strategy for preserving the Western lead in military technology
logically must include two elements. First, it is essential to maintain the
vitality of the Western technological enterprise that is, to continue to
maintain technological leadership over potential adversaries. Second, it is
necessary to deny or at least impede access by potential adversaries to
militarily significant Western technology.! For a number of (primarily
military) technologies, such as stealth or antisubmarine warfare (ASW)
technologies, a clear and legitimate need exists for safeguards. Thus,
when undertaken in tandem with efforts to invigorate the technological
base, the denial strategy:
· makes it more difficult for the Soviet Union and its allies to upgrade
their military systems through information, technology, and products
acquired in the West; and
· requires the Soviet Union to commit substantial domestic resources
to military research and development (R&D) rather than applying tech-
nology acquired in the West or simply using the results of Western R&D
to avoid the costly "dead ends" that are an inevitable part of the
technological development process.
In recent years the United States has pursued its policy with respect to
national security export controls! during a period in which there have
been dramatic alterations in the economic and technological environment
-
*The private sector, which is a vital source of military technology, sees some controls as
essential and others as burdens. Government, on the other hand, does not incur directly the
costs imposed on industry and therefore is less inclined to consider them.
tThere is no standard, agreed-upon term for technology with military significance that is
subject to control. Thus, a number of modifiers are used interchangeably throughout this
report.
tThe term national security export controls is used here and throughout this report in the
same sense as that employed in the Export Administration Act of 1979, as amended. The act
authorizes such controls "to restrict the export of goods and technology which would make
a significant contribution to the military potential of any other country or combination of
countries which would prove detrimental to the national security of the United States."
National security export controls that relate primarily to military matters are distinguished
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30 BALANCING THE NATIONAL INTEREST
that existed in the first few decades following the end of World War II.
These changed circumstances have created a need for a broader definition
of national security, a definition that recognizes explicitly the importance
of maintaining the economic vitality and innovative capability of the
United States and indeed of all Free World nations. Because the world
economic and technological environment has changed, the panel believes
that U.S. national security can be ensured only through the adoption and
implementation of policies that simultaneously promote economic vital-
ity, strengthen alliance relationships, and continue the maintenance of
military preparedness.
Such a broadened definition of national security also must take account
of several important new factors in the international environment:
· Greater scientific and technological parity now exists among the most
advanced industrialized countries. In many important areas, the United
States-once preeminent in most major fields now shares technical
leadership with other countries and therefore depends and must build on
ideas and innovations developed abroad.
· Significant changes in the overall patterns of world trade are evidenced
by the rapid emergence of major exporters among the newly industrializing
countries (NICs), particularly along the Pacific rim. The result is that U.S.
companies now face severe competition at home, from import penetration,
and abroad, from an ever-widening circle of firms in both industrialized and
industrializing countries that are vying for global markets.
· Although in the United States the domestic market continues to ab-
sorb the majority of goods and services, foreign trade has become essential
to maintaining continued economic vitality. U.S. companies-especially
those operating in high-technology sectors are turning increasingly to
export markets. Transnational business organizations headquartered in
many industrialized countries have become commonplace to achieve
economies of scale, maintain levels of technological innovation, facil-
itate access to markets, and sustain profitable operations by dispersing
production in a manner that lowers factor costs (e.g., labor, raw materials,
etc.~.
· A variety of domestic and international factors have promoted a huge
increase in U.S. imports, which has in turn contributed to the foreign
trade deficit. Meanwhile, increasing competition for export markets
among the Western industrialized countries has created an atmosphere
that makes cooperation on export controls among those countries more
difficult to achieve.
from controls imposed for purposes of foreign policy or for protecting the domestic economy
from the short supply of specific items.
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INTRODUCTION 3 ~
Juxtaposed against these new global circumstances are the continuing
realities of the East-West political struggle and its inherent military
competition. In Europe, the North Atlantic Treaty Organization (NATO)
alliance continues to be the centerpiece of efforts to deter aggression by
the Soviet Union and the other Warsaw Pact countries. In Asia, the
United States maintains close diplomatic and military relations with Japan
and South Korea and is promoting closer ties with the People's Republic
of China and the Southeast Asian free market countries, in part to
discourage possible Soviet initiatives in that region.
In these circumstances the United States faces a policy dilemma of
considerable proportions. The Western alliances depend on technological
advantage to deter the Soviet Union and its allies. Moreover, Western
military technology derives increasingly from technical advances in the
commercial sector, advances that are the foundation for important dual
use technology advantageous to the West. Because the Soviet Union now
has attained numerical superiority over NATO in many important
military categories, the potential loss of dual use technology has
assumed greater strategic significance. Export controls are needed to
help prevent the rapid erosion of this advantage, an advantage stemming
in large measure from a vigorous, commercial high-technology sector
that depends on innovation, competition, and trade for its strength. The
rapid diffusion of technology, the importance of Western alliances, and
the international character of high-technology industry all mean that: (1)
export control can be neither perfect nor permanent, and (2) control
policies must not interfere unnecessarily with Western commercial
development and trade.
The Technology-Security Nexus
The Allied victory in World War II was made possible in large part by
the mobilization of the enormous manufacturing capability of the United
States. But outproducing the adversary as a military strategy presupposes
an extended conflict. Since World War II, the existence of nuclear
weapons has brought about an evolution of military thought. Much
current thinking is that the outcome of a future global war, whether or not
it involves the use of nuclear weapons, will depend more on the quality
and quantity of the weapons and other war materiel on hand (or readily
available for rapid mobilization and deployment) at the outbreak of
hostilities than on the industrial capacity, of either side, that can be turned
to military production.
At the same time the social and political structure of the Soviet Union
has permitted it to place continuing emphasis on its military posture.
Total uniformed personnel and the numbers of many types of military
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32 BALANCING THE NATIONAL INTEREST
equipment in the Warsaw Pact greatly exceed the numbers of comparable
personnel and equipment in NATO in the European theater. For example,
NATO placed its total rapidly deployable troop strength in 1984 at 2.6
million; the estimated Warsaw Pact rapidly deployable troop strength
stood at 4 million. NATO forces had 13,470 rapidly deployable main
battle tanks in 1984, as compared to an estimated 26,900 for the Warsaw
Pact; the total of rapidly deployable artillery and mortar pieces was
11,000 for NATO as against an estimated 19,900 pieces for the Warsaw
Pact. By all measures, therefore, the Western nations have been and
are likely to continue to be substantially outnumbered in conventional
military forces.
Therefore, the NATO countries have affirmed the importance of
maintaining a technological advantage to offset the numerical advantage
of the Warsaw Pact. But maintaining technological superiority in military
forces is not an easy task, due largely to competing demands for economic
resources that make it difficult for Western societies to sustain the
investment of sufficient resources in military R&D and procurement. In
recent years, spurred in part by burgeoning commercial markets for
high-technology goods, the West has been able to counter partially the
numerical advantage of the Warsaw Pact countries through rapid progress
in science and technology.
A primary example is the explosion in electronic technology, including
computers, that has occurred in commercial markets where many of the
products also have important military applications. The United States
has led but no longer dominates this revolution. Other Western indus-
trialized nations have participated in and, particularly in the case of
Japan, have taken the lead in selected areas. In addition, many newly
industrializing countries (for example, the free market countries of the
Pacific rim) are rapidly increasing their competence and are already
competing effectively, albeit primarily at the lower end of the technology
spectrum.
The Soviet Union and its Warsaw Pact allies, on the other hand, with
their controlled and sluggish civilian economies, have benefited much less
from technological progress in the commercial sector. The Soviet Union
has offset this disadvantage, however, by giving its military first priority
in the allocation of resources. The Soviets have developed and fielded in
large quantity some equipment in the European theater that rivals
comparable NATO systems in technical sophistication (although typically
such equipment is introduced later than in the West).
The Western technology lead in military equipment, then, is critical to
the maintenance of Western security. This lead is still significant and does
not appear to be decreasing, but it is vulnerable to policies that dampen
the continued development of the civilian market for high-technology
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INTROD UCTION 33
products in the United States and abroad and to procedures that inade-
quately control the flow of militarily significant technology to the Soviet
Union and its allies.
The Current Challenge
With increased awareness of Soviet efforts to acquire militarily signif-
icant Western technology has come a renewed emphasis on promoting
and protecting the West's technology lead. This emphasis extends to
military technologies and also to dual use technologies. The need to
Protect dual use technologies has created a new set of problems,
precipitated by the perceived incompatibility between the execution of
national security export controls and the realities of the global trading
system. Among the new challenges confronting the United States are:
· the growing lag over the past decade between the development and
application of new technologies in commercial products and the incor-
poration of the same or related technologies into military systems;
· the attitudes of some European countries that, unlike the United States,
see the political and economic advantages of certain types of trade with the
Eastern bloc (e.g., "Ostpolitik") outweighing potential damage to military
security;
· extension throughout the world of technology development and manu-
facturing capacity, both by U.S. and foreign multinational companies, which
has been driven by competitive pressures and has contributed to the growth
of technology-intensive industries outside the United States; and
· greatly intensified competition for domestic and world markets,
which has created an environment in which the negative effects of
national security export controls can be detrimental to the health of
elements of the U.S. economy.
The net result of these challenges has been a growing debate over how
to reconcile the conflicting values and objectives that are the basis for
U.S. national security export controls. On the one hand the United
States, as the leading free market democracy, is determined to protect
fundamental Western security interests by denying the Soviet Union and
its allies access to advanced technology that could substantially advance
Eastern bloc military capabilities. On the other hand the United States is
faced with expanding technological capabilities outside the CoCom*
countries and with the imperatives of the global economy factors that
-
*Japan and all of the NATO countries except Iceland are members of the informal,
nontreaty organization known as the Coordinating Committee on Multilateral Export
Controls (CoCom). (See further details in Chapter 4.)
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34 BALANCING THE NATIONAL INTEREST
make technology more broadly available and thus make it increasingly
difficult to maintain controls on any but the most critical high-technology
items. It was with a view to analyzing this conflict and its implications for
national security export control policy that this study was undertaken.
ORIGINS AND MANDATE OF THE STUDY
The current study had its origins in 1984 when the 98th Congress failed
to reach agreement on major new amendments to the expired Export
Administration Act of 1979. At the time, government and industry leaders
expressed mounting concern about the apparent polarization of attitudes
toward the national security export control issue and the seeming conflict
between the national interests in maintaining military security and pro-
moting international trade. Within the federal government the develop-
ment of policy for national security export controls continued to be
contentious and highly divisive along lines of agency jurisdiction despite
the existence of a senior interagency group charged with resolving such
differences. Within the private sector the trade associations representing
the industries most affected by the controls (e.g., electronics, computers,
and scientific apparatus) were concerned enough to form the Industry
Coalition on Technology Transfer to press the case for reform. There was
in sum a clear need to move beyond the existing impasse toward a
national policy that recognized fully the fundamental interests at stake.
Given the central role of science and technology in the national security
export control problem and the need for an independent assessment, the
National Academy complex* represented an appropriate institution to
undertake a comprehensive and objective assessment, especially in view
of several major studies it had completed on related topics. For example,
in 1982 the Academy complex's Committee on Science, Engineering, and
Public Policy (COSEPUP) convened a special panel to determine whether
U.S. security interests were being compromised by the open communi-
cation of the results of basic research. The report of the resulting study,
Scientific Communication and National Security2 (known as the Corson
report after its chairman, Dale R. Corson), which appeared in September
1982, laid the basis for the development and release in 1985 of National
Security Decision Directive (NSDD) 189. This directive restated the
importance to the national interest of maintaining the open communica-
tion of "fundamental" research within the constraints imposed by clas-
sification or other existing law. At the time of its report, however, the
*The National Academy complex includes the National Academy of Sciences, the
National Academy of Engineering, and the Institute of Medicine.
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INTROD UCTION 35
Corson panel indicated that there was another major dimension to the
problem that it did not have the opportunity to examine in depth: namely,
that of technology transferred as part of or in association with commercial
activities.
In other related activities, the Academy complex released a report in 1983
entitled International Competition in Advanced Technology: Decisions for
America,3 and in 1985 the National Academy of Sciences published the
proceedings of a special 2-day symposium, sponsored jointly with the
Council on Foreign Relations, entitled Technological Frontiers and Foreign
Relations.4 The leadership of the Academy complex decided to maintain its
commitment to the issue by considering the national security implications
of technology transfer beyond the stage of basic research.
There have of course been other studies of various aspects of the
national security export control problem undertaken outside the Acad-
emy complex. Among the earliest and most influential of these was the
1976 report of the Defense Science Board Task Force on Export of U.S.
Technology, An Analysis of Export Control of U.S. Technology- A DoD
Perspective,5 known as the Bucy report after its chairman J. Fred Bucy
(the major recommendations of that study are considered in Chapter 51.
More recently the Center for Strategic and International Studies (CSIS)
issued a report in 1985 entitled Securing Technological Advantage:
Balancing Export Controls and Innovation;6 and the Business-Higher
Education Forum published Export Controls: The Need to Balance
National Objectives7 in 1986. The current study builds on the intellectual
foundations of these past efforts, but it departs from or goes beyond them
in several respects.
To undertake the study, COSEPUP established the Panel on the Impact
of National Security Controls on International Technology Transfer. The
specific mix of individuals invited to serve on the panel was the result of
a search process by the presidents of the National Academy of Sciences
and the National Academy of Engineering with the object of ensuring
balance, depth of expertise, and objectivity. The panel includes many
individuals who have had substantial experience in government at the
most senior levels pertaining to national security affairs; a number of
others who have held senior posts in or contributed advice to the
Intelligence Community; and still others who possess substantial legal
expertise from relevant work both within and outside the government.
Many hold (or have held) leadership positions in high-technology indus-
tries. Four members of the current panel also served on the Corson panel
mentioned above.
COSEPUP charged the panel to "seek strategies to regulate the
international transfer of technology through industrial channels in such a
manner as to balance the national objectives of national security, eco
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36 BALANCING THE NATIONAL INTEREST
nomic vitality, scientific and technological advance, and commercial,
educational, and personal freedom."* The charge also stipulated the
following panel tasks: (1) examination of the global technological envi-
ronment, including the problem of controlling dual use technologies; (2)
assessment of the control problem for the CoCom countries in terms of
what was being lost through commercial channels, how it was being lost,
and to whom; (3) evaluation of the effectiveness of CoCom; (4) consid-
eration of the impacts on U.S. industry of current export control policies;
and (5) examination of the current export control policies and procedures
maintained by the U.S. government and by other CoCom and non-
CoCom countries. The panel responded to the COSEPUP charge by
mapping out and then pursuing an ambitious scope of work to fulfill its
mandate.
SCOPE OF THE PANEL'S WORK
To carry out its specified tasks the panel and its professional staff
undertook a broad agenda of research and briefings. The staff collected
and analyzed available public literature and a large volume of restricted
documents made available by the General Accounting Office and other
government agencies (see the annotated bibliography in Appendix H).
The panel invited representatives of all the federal agencies involved
directly in the formulation or implementation of national security export
control policy namely, the Departments of Defense, Commerce, State,
Treasury (U.S. Customs Service), and Justice to appear before it. In
addition the panel heard three classified briefings from the Intelligence
Community, including one requiring high levels of clearance, and a
briefing from the National Aeronautics and Space Administration
(NASA) on technology transfer issues associated with the proposed
space station. The panel's agenda also included a day of hearings
devoted to the views of industry, with testimony offered by officials
of both large and small companies representing a range of manufac-
turing sectors, and a series of discussions with individuals who have
had substantial experience with various aspects of national security
export controls. (Appendix G includes a list of briefers and contributors
and their affiliations.)
Two panel foreign fact-finding missions constituted a second element of
the study. In January 1986 delegations of the panel traveled to six
European countries: Austria, Belgium, France, Great Britain, Sweden,
and West Germany. In March 1986 other delegations visited five Asian
*Appendix A is the complete text of the COSEPUP charge.
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INTRODUCTION 37
countries: Japan, Hong Kong, Malaysia, Singapore, and South Korea.
In each country, panel members held frank and confidential meetings
with government officials, industry leaders, academics, and other in-
formed observers on export control matters. (Summary reports describ-
ing the panel's foreign fact-finding missions are Appendix B of this
volume.)
A third element of the study involved the commissioning of a series of
research reports prepared both by outside consultants and by the panel's
professional staff. Some of these reports developed and analyzed new
primary data; others reexamined existing problems from new perspec-
tives. These reports are included here (see Appendixes C and D) and in a
companion volume.
FOCUS OF THE STUDY
This study examines the current system of laws, policies, procedures,
regulations, international agreements, and organizations referred to
collectively as the national security export control regime that control
the international transfer of technology through industrial channels.
Where appropriate, it also recommends new approaches to balancing the
national policy objectives of national security, scientific and technological
advance, and economic vitality. In the course of its deliberations, the
panel found it both useful and appropriate to limit the focus of its effort in
the following respects:
· Concentration on impacts of controls on the Free World There is
widespread agreement in the West that the sale of sophisticated Western
technology to the Soviet bloc should be controlled. There is also
widespread agreement that trade among the Free World countries should
be restricted as little as possible. Consequently, it is generally accepted
that the decision to impose national security restrictions on trade within
the West should depend on whether such sales are likely to result, directly
or indirectly, in a transfer of militarily significant goods or technology to
the Soviet bloc. Thus, the focus of this report is on the effects of national
security export controls on the technological development and economic
vitality of the Free World countries.
· Focus on dual use goods and technology Soviet military capability
can be enhanced by the export of certain dual use goods and technology,
as well as directly by military hardware (i.e., munitions). The Export
Administration Act, as amended, establishes a system of national security
export controls that is intended to regulate the flow of dual use items.
Exports of military hardware are controlled under the terms of the Arms
Export Control Act; this part of the system appears to function well. The
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38 BALANCING THE NATIONAL INTEREST
current study focuses primarily on the problems associated with the
control of dual use items rather than of munitions.
· Diversion and espionage Items subject to U.S. national security
export controls are sometimes diverted from their approved destination
or end user, either directly or through intermediaries, to the Soviet bloc.
Preventing such diversions is a major objective of U.S. export (and
reexport) controls, and this problem is discussed extensively in this report.
Espionage is another extremely serious channel for the loss of militarily
critical technology and information; it is not, however, addressed in detail
here because national security export controls are unlikely to affect directly
the outcome of covert operations. The panel is deeply concerned, as are
most citizens, about the evidence of serious loss due to espionage; it is clear
that Soviet success in espionage can circumvent controls for commercial
dual use technology. This report, however, focuses on national security
export controls, which are only one element of the broader measures
required by the West to protect militarily critical technology.
· Other limitations At least three other important subjects were
determined to lie outside the panel's frame of reference. First, although
obviously an important determinant of technology lead in military sys-
tems, the panel did not examine in detail the problem of deficiencies in the
U.S. military procurement process. This matter has received substantial
recent attention,8 and, although the results were considered by the panel,
no additional analysis was deemed necessary or feasible. Second, the
panel was not charged to consider other applications of export controls,
including foreign policy and short supply constraints. Foreign policy
export controls in particular may occasionally become intertwined or
confused with national security export controls. One example is the case
of controls imposed on the export of pipeline technology to the Soviet
Union following the imposition of martial law in Poland. Foreign policy
controls were not examined by the panel, however, except to the extent
that they affect the effective functioning of the national security export
control regime. Finally, this report does not address the problems
associated with exports to particular nations outside the Soviet bloc such
as Libya or Syria.
Despite these necessary limitations in focus, the panel examined the
details of the national security export control system, considered a wide
spectrum of issues, and heard arguments for both expanded and reduced
national security export controls. It has examined these positions care-
fully with one goal in mind: to discern what types of national security
export controls are reasonable and practicable in light of the new
economic and technological realities that confront the United States in the
final years of the twentieth century.
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INTRODUCTION 39
ORGANIZATION OF THE REPORT
The panel's report comprises eight chapters and eight appendixes.
Chapter 2 provides evidence on the technology transfer problem at the
unclassified level, while Chapter 3 analyzes the changing global techno-
logical and economic environment in which national security export
controls must operate. Chapter 4 describes U.S. national security export
controls and lays out the dimensions of the multilateral control system.
Chapters 5 and 6 in turn assess the effectiveness of the U.S. and
multilateral national security export processes. The report concludes by
presenting the panel's findings and key judgments in Chapter 7 and its
recommendations in Chapter 8, followed by eight appendixes of supple-
mentary materials.
NOTES
1. U.S. Department of Defense, Soviet Military Power, 1985 (Washington, D.C.: U.S.
Government Printing Office, 1985), p. 77.
2. National Academy of Sciences, Scientific Communication and National Security (Wash-
~ngton, D.C.: National Academy Press, 1982).
3. National Research Council, Panel on Advanced Technology Competition and the
Industrialized Allies, International Competition in Advanced Technology: Decisions for
America (Washington, D.C.: National Academy Press, 1983).
4. National Research Council, Office of International Affairs, Technological Frontiers and
Foreign Relations (Washington, D.C.: National Academy Press, 1985).
5. U.S. Department of Defense, Office of the Director of Defense Research and Eng~neer-
ing, An Analysis of Export Control of U.S. Technology-A DoD Perspective (Report of
the Defense Science Board Task Force on Export of U.S. Technology) (Washington,
D.C.: U.S. Government Printing Office, 1976).
6. Stephen A. Merrill, ea., Securing Technological Advantage: Balancing Export Controls
and Innovation (Washington, D.C.: Center for Strategic and International Studies,
Georgetown University, 1985).
Business-Higher Education Forum, Export Controls: The Need to Balance National
Objectives (Washington, D.C., 1986).
8. See in this regard the President's Blue Ribbon Commission on Defense Management
(also known as the Packard commission), A Quest for Excellence: Final Report to the
President (Washington, D.C.: U.S. Government Printing Office, 1986).
7.
Representative terms from entire chapter:
export controls
