The $30 Billion Technology Drain

Another Congress has adjourned without passing export control law reform, and high-tech business says it is losing big

ongressional infighting and conflicting administration interests have stalled efforts to reform the nation's Cold War-era export control laws, which are holding up billions of dollars in high technology sales to foreign countries.

This is the third consecutive year export control reform legislation has been submitted to Congress but left on the cutting- room floor, leaving major sectors of the technology industry furious and frustrated.

Congress' inability to move on this issue "is extremely disappointing," said David Peyton, a vice president with the Information Technology Association of America. "We really need a stem-to-stern statutory overhaul and we are not getting it...not so far, anyway."

Failure to introduce a new export control framework is costing the high-technology industry as much as $30 billion a year, according to a book published last year by the Institute for International Economics. Obsolete legislation that will probably be extended to cover technology exports, the Export Administration Act of 1979, was conceived at the height of the Cold War - when an international consensus on restricting the flow of sensitive technologies to the Eastern Bloc was in place.

This consensus was embodied by the COCOM signatories, which included nearly all of the high-technology powerhouses of the world. This spring, COCOM expired, and with its demise, international agreements restricting the flow of technology anywhere are now basically moot.

But notwithstanding some administrative reforms, which have at least partially been the result of the legislative pressure, high-tech industry has been left to contend with a legal relic of the Cold War.

"The State Department and the Defense Department always cite national security reasons and always insist on having jurisdiction," said one industry source of the executive branch's objections to a more simple and less restrictive export policy.

"We understand that some countries should be embargoed and always should be embargoed and that is up to the government to determine," the source said. "But the issue is that there are currently limits on what we can sell to our closest friends and even some of our new friends. That seems a little out of sync with the realities of the world. If the process were straightforward, industry probably would not object [to the current situation]. But what happens in reality is that these licenses get kicked around all over the place and get delayed, and sometimes our competitors overseas get contracts simply because we can't get them processed through fast enough."

Moreover, restrictions based on the performance of certain technologies have prevented U.S. firms from putting their top technologies in some international competitions.

The environment has been particularly tough on the computer and telecommunications industries, said Joel Johnson, a vice president with the Aerospace Industries Association. Both are industries in which new generations of technology are constantly being introduced. Within his constituency, the manufacturers of satellite communications technology have been hindered most by the current environment.

Thus, at the beginning of the legislative year, an industry task force led by the National Association of Manufacturers (NAM) introduced a series of reforms which among other things called for:

  • Commodity jurisdictions - limiting the number of agencies that would have to approve an export licenses.

  • Indexing - the establishment of a multi-agency review body that would periodically evaluate the state of technology so that performance could be adjusted to reflect market realities.

  • License-free zones -- for the United States' closest trading partners and allies, which would include NATO countries and former signatories to COCOM.

But as Congress adjourned"the whole effort to have a fundamental reform of the system collapsed," said Howard Lewis, who spearheaded the effort for the association.

As incumbents went home to fight for their seats in local elections, many industry observers hoped for some new attitudes in key committees so far unable to push through a more competitive piece of legislation.

In the meantime, industry is going to take a wait-and-see attitude. "It is not clear to me where we are going with this next year. I think we are going to have to see what the new Congress is going to look like," Lewis said.

"Secondly, clearly what the administration wants to do in this area is going to be really important. They are essentially the 800-pound gorilla on the block. If they want to push a bill, then the rest of the gorillas are going to have to follow and play the game. But it is not clear to me the degree to which the administration is going to push a legislative reform effort."

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