*EPF109 04/22/2002
Government Investigators Find Export Control Policy, Practices Flawed
(GAO report on U.S. semiconductor exports to China) (610)

By Nadine Leavitt Siak
Washington File Staff Writer

Washington -- The General Accounting Office (GAO) issued an 83-page report April 19 stating that current U.S. Government policies and practices are insufficient for making export-licensing decisions, particularly with regard to the export of semiconductors to China.

In the report, titled "Export Controls: Rapid Advances in China's Semiconductor Industry Underscore Need for Fundamental U.S. Policy Review," GAO researchers conclude that "U.S. agencies have not used the available analytic tools to serve as a basis for ... mak[ing] decisions on export licenses."

The report also says "U.S. export regulations governing China contain inherent inconsistencies and are based on outdated government assessments of the availability of technology from non-U.S. sources."

As a result, the report warns that "without an updated assessment, U.S. policymakers may find it increasingly difficult to justify licensing decisions and to strike the appropriate balance between national security risks and the economic interest in promoting sales of high-technology goods to China."

The report recommends that the "secretaries of commerce, defense and state reassess, document, and update as necessary U.S. policy and practices on exporting semiconductor manufacturing equipment and materials to China."

The agencies disagree with this recommendation, stating that their current policies and practices are sufficient for making export-licensing decisions to China.

The flaws GAO researchers found with current U.S.-China semiconductor export policy and practice include the following:

-- The Commerce Department has not conducted a "foreign availability" study on semiconductors since 1987. These "foreign availability" assessments are carried out by the Commerce Department to determine if items of comparable quality are available in quantities that would render U.S. export controls on the items ineffective.

-- The U.S. officials in China tasked with monitoring sensitive technology exports through end-use checks have not conducted any of these checks on semiconductor manufacturing equipment. In addition, the report states, "700 outstanding checks remain to be completed, checks on items other than high-performance computers continue to 'languish,' and the Commerce Department is unable to focus its efforts on the checks it considers the most strategic."

-- Despite major advances in semiconductor-related technology in the United States and in foreign countries, the Defense Department has not substantively updated the list of military-critical technologies pertaining to semiconductor equipment and materials since 1996. The Defense Department is authorized to compile this "Military Critical Technologies List" describing the performance parameters of critical technologies that the United States needs to ensure superiority of U.S. military systems. This is intended to serve, among other purposes, as a technical reference guide for the Departments of Commerce, Defense, Energy, State, and Treasury licensing and export control staff.

-- Department of Defense Directive 2040.2 states that the department shall "assess annually the total effect of transfers of technology, goods, services, and munitions on U.S. security." GAO researchers found, however, that neither the Department of Defense nor the Department of Commerce has conducted studies on the effect of exports of advanced semiconductor manufacturing equipment and material to China on U.S. national security.

-- According to GAO, Department of Defense Directive 2040.2 has not been updated since July 5, 1985, and many of its provisions are centered on the now-defunct Coordinating Committee for Multilateral Export Controls.

Semiconductors, or "computer chips," are critical components in everything from automobiles to weapon systems. The United States controls the export of certain technology, including some of the equipment and materials used to make semiconductors, to sensitive destinations such as China for national security or foreign policy reasons.

For the complete text of the GAO report, go to: http://www.gao.gov/new.items/d02620.pdf

(The Washington File is a product of the Office of International Information Programs, U.S. Department of State. Web site: http://usinfo.state.gov)

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