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THE WHITE HOUSE

Office of the Press Secretary

                         BACKGROUND BRIEFING
                                 BY
                   SENIOR ADMINISTRATION OFFICIAL

September 29, 1993

The Briefing Room

3:08 P.M. EDT

MS. VOLES: Let's start the BACKGROUND BRIEFING. [Name Delted] will kick it off and give a little overview on export control, and the others will come up and introduce themselves as they speak. They can all be identified as senior administration officials.

SENIOR ADMINISTRATION OFFICIAL: I will make a general comment, and then the people involved in this will be delighted to respond to anything you all would like. And really, the reason that I'm doing this is, this is -- to use an expression the President likes to use -- this is a big, big deal. And it may seem technical and it may seem arcane, but this is a very, very important development.

I was talking to the President about it this morning; we we're talking about a bunch of different things. And I said that I can remember when I was in the private sector. When you talk to people in the industries that are affected by this and you ask them what types of things were really impeding their business that came out of government, export controls was always right at the top of the list.

That was one reaction. The other reaction you got was there was nothing you could do about it. Governments just couldn't function -- there were too many agencies and there were too many people involved, and there was no way for government to function on this. So it was an enormous frustration to them.

When we first started out, it seems like a long time ago, I guess about eight months ago or so when this administration began, the President said two things to us that related to this. One is he said that he wanted us to take a look at regulatory structure, continue to pursue regulatory purpose, but where possible, get rid of as much as we could. In other words, simplify, expedite, pursue your regulatory purpose but within that framework eliminate all the regulatory impediment on business that you possibly could.

And secondly, he said, we want the agencies to work together and to work effectively and to work together toward a common objective. And as he said this morning, and most of you were probably there, this is really the culmination of those two perspectives.

He, as you know, feels very, very strongly about nuclear proliferation, export controls that are relevant to pursuing that policy being kept intact. But consistent with that, we're now able to eliminate export controls that affect about $24 billion worth of computer production at the present time. And that we can do on our own; we can do it right now. And as he said today, we are doing it. And subject to completing some negotiations, we can eliminate export controls affecting another $6 billion of computer production. So on the average you've got $30 billion of computer production that will be freed up from export controls.

It is, again to use an expression the President likes to use, a big, big deal. It is not technical, it is not arcane. It is very, very important for this economy.

One other comment I'll make and then I'll turn it over to the people who are involved in this -- as the President said this morning, if this economy is going to be what we want it to be, it's going to grow by exports. We are now in a global world. The President is very much an internationalist and a globalist, and he said, a free trader. The lifting of export controls is a part of a broader policy including NAFTA, GATT, the Japanese framework agreement, and all the various efforts that we're making to open up markets around the world and maximize our success as an exporting nation is something that the President is very much focused on.

With that, let me turn the podium over to the people who were working on this, and they'd be delighted to respond to anything you all would like to discuss with them.

Q Can you give us, let's say over the next three or five years, an estimate both in dollars and jobs created by this move in terms of enhanced export sales?

SENIOR ADMINISTRATION OFFICIAL: Let me give you the easy answer, then I'll ask somebody else who knows what they're talking about to give you what you really want.

We estimate there are about 600,000 jobs right now involved in producing the computers that are being -- they're subject to these export controls, or, to put it differently, are being freed up with respect -- this is a very big thing. I mean, it may not play as dramatically as NAFTA, which we think is exceedingly important, but it is really a very major economic step. And it's a tremendous accomplishment for the this administration.

Q But by how much will the 600,000 be increased?

SENIOR ADMINISTRATION OFFICIAL: Gentlemen. That's where I turn to somebody else. (Laughter.)

SENIOR ADMINISTRATION OFFICIAL: I think -- the answer is I don't have a specific number that I can give you. But what this permits these companies to do, obviously, is to become more competitive, because they don't have to get -- for many of these computers -- the $24 billion that are immediately freed from controls, they no longer have to go through that system. And that makes them better able to supply their customers, and that much more efficient. I can't put a number value on it, in part because it depends on what the companies do with this removal of this obstacle to their exports.

Q One further on this. One CEO told me that in his company, he expects 10 to 20 percent increase in foreign export sales because of this. Is that a fair ballpark estimate?

SENIOR ADMINISTRATION OFFICIAL: All I can really say is the CEO probably has the best sense of what effect it's going to have on his company.

Q Would you follow that with extrapolating that --

SENIOR ADMINISTRATION OFFICIAL: Over what period of time is saying that?

Q Over five years.

SENIOR ADMINISTRATION OFFICIAL: I think we'd be probably better off not commenting on something that we don't know. But I must say, this is a very substantial and very important development. It sounds low to me. And I don't have any empirical basis for that, it's just sort of instinctive. I was with somebody yesterday who was here because of the IMF meetings. It was the CEO of a very large European country. He was talking -- European company, rather -- he was talking about this, and he said, you know, this was something we never thought an American administration could get done and we're not very happy about it. So I think it's a very significant development.

Q Is there any mechanism for a continual review since technology has tended to outpace any of the restrictions? And did you all actually consider raising the threshold for computers and then back off from that at the last minute?

SENIOR ADMINISTRATION OFFICIAL: I'm going to leave you all to my colleague, the special assistant to the President and works for both the NEC and the NSC. So he combines economic --

Q Are you here to talk about the Tide Aid provision?

SENIOR ADMINISTRATION OFFICIAL: Yes. We can talk about that, too. Let me if I could invite up my colleague who works with the NSC. All of this on background, but I think he can help answer some of your questions.

Your first question, just to remind me was --

Q If there is any kind of mechanism for a continual review of the thresholds --

SENIOR ADMINISTRATION OFFICIAL: What we did do is go through an interagency process to bring these levels up to a level that I think now decontrols a number of the computers that because of the advances in technology really don't represent what we think of as a supercomputer, or don't represent technology that needs to be controlled. I think we're going to have to examine that point. But that -- there have been a number of proposals with regard to indexation and so forth and I think we're going to have to look at the whole question of what we do in the next steps.

My colleague, I think can talk about some of the other things we are doing in the nonproliferation world and COCOM and so forth.

Q Can I make -- it might sound like I know what I'm talking about -- but I barely do on this subject. Is there anything in there that would have you specifically go back and update numbers or --

SENIOR ADMINISTRATION OFFICIAL: No, what this does is set the new numbers at the goal of 500 M tops. You all know what --M tops is a million operations per second. It's the speed of a computer that measures -- it's, in effect, the accepted standard within the government for measuring the sophistication of a computer. And we're immediately moving computers to most world destinations to 194 M tops. We'd like to negotiate with Japan to raise it to 500. We would have been willing to move to 500, but our agreement with Japan precludes us from doing that unilaterally. So we need to approach them with the idea of raising that level, in effect.

Q something like that happen?

SENIOR ADMINISTRATION OFFICIAL: It's a little tough to give a precise estimate, but I would expect within the next month, certainly, we will be talking to them about how to do this. And they've already been informed of this development today.

Q You'll be seeking the 2,000 threshold for supercomputers with Japan as well, also?

SENIOR ADMINISTRATION OFFICIAL: That's right. We have a bilateral agreement with Japan right now that sets that supercomputer level at 195, so we would have to change that bilateral agreement to raise it to 2000.

Q How will you describe for those who aren't totally familiar with this, the level of sophistication, and who has more sophisticated computers than this and what are they doing with them?

SENIOR ADMINISTRATION OFFICIAL: There are people are more expert at this than I am, but it's my understanding that below 500 you're talking about very sophisticated personal computers and lower-level work stations. Beyond the 500, you're talk about more sophisticated work stations and supercomputers.

To give you some sense on the supercomputer level where this stands, we're raising the -- we would like and we're proposing raising the supercomputer level from the 195 to the 2000 M-tops. There are machines that have 20,000 M-top capacity, or 10 times more than the level that we're talking about raising it to.

Q What about COCOM? How many of these things have to be signed off by the other COCOM members? And do you see any problems there? And does this change the whole structure of COCOM?

SENIOR ADMINISTRATION OFFICIAL: This is, in fact, consistent with our overall approach to COCOM. And you've now had laid before you the third strand of what is intended to be a coherent approach to export controls, beginning on April 23, when the President talked about reforming and transforming COCOM, followed up on Monday at the U.N. General Assembly by making export controls a more effective part of our nonproliferation policy, and then today with these discrete actions. Many of the items that have been discussed today, will, in fact, need to be discussed in COCOM. And one of the rationales behind what was done today is to provide us with a stronger basis to move forward in negotiations now under way within COCOM to ensure that it is transformed into a robust regime directed toward new strategic threats.

Q Is there any objection from any of our partners in COCOM that any of these proposals.

SENIOR ADMINISTRATION OFFICIAL: Well, we have been discussing the COCOM reform process with them now for some period of time. The proposals which you are hearing today we have not explicitly addressed among our COCOM partners yet.

Q Are there major sort of infrastructure projects in the East bloc that U.S. companies will now be able to bid on and compete on that they weren't able to do so under prior restraints?

SENIOR ADMINISTRATION OFFICIAL: In the East bloc?

Q That are going to be affected by these changes that you're undertaking -- communications systems -- I don't know what the --

SENIOR ADMINISTRATION OFFICIAL: You said telecommunications?

Q Yes. I'm just asking --

SENIOR ADMINISTRATION OFFICIAL: To the extent that the changes that we are talking about today need to be discussed in the COCOM context, at the end of the day when we are able to agree with our COCOM partners on what those limits ought to be among the COCOM partner countries, that will affect the kinds of projects that people can bid on in the Eastern bloc.

Q But you're not there yet?

SENIOR ADMINISTRATION OFFICIAL: Correct. That's right.

Q For those of us who are technological ignoramuses, are you saying that supercomputers are still restricted? You've just changed the definition so that all these other --

SENIOR ADMINISTRATION OFFICIAL: Yes.

Q And if that's the case, could you explain what is the political reason to still restrict --

SENIOR ADMINISTRATION OFFICIAL: The supercomputers?

Q Yes.

SENIOR ADMINISTRATION OFFICIAL: Okay. There are sort of a couple of different categories here and it might be helpful to go through that to explain it.

We're decontrolling up to 194 M tops within the next couple days -- as soon as the regulations can be published. We're decontrolling those entirely, so with regard to those computers, you will not need to get a license at all. We'd eventually like to move that to 500. From 500 up to 2,000, assuming that the reform that we're talking about is in place, you'll still need a license, but you won't have many of the safeguards that apply to supercomputers. Above 2,000, you'll have to have those safeguards.

One example -- a strong example of those safeguards, for example, is to have a 24-hour guard around the supercomputer, okay? Now, for very high level computers shipped to sensitive locations you may need to have that and it may be worth it because it's a multimillion dollar computer. But for these lower level computers that are around the 200 level, they at this point are sufficiently low technology that it doesn't make sense to have those safeguards applied to those.

So the difference -- what the supercomputer definition adds is that you have to adhere to the safeguards that are applied to that machine.

Q And above 2000 you still need a licence?

SENIOR ADMINISTRATION OFFICIAL: You still need a licence and the safeguards would still apply.

Q And the reason for that is?

SENIOR ADMINISTRATION OFFICIAL: The reason for that is that those are more sophisticated computers where we do have proliferation or security concerns.

Q What's the timetable you have in mind in COCOM and what's the relationship between telecom and computers within COCOM and the playoff between countries?

SENIOR ADMINISTRATION OFFICIAL: We have, starting with the President's April 23rd announcement, first undertook an internal review just within the United States government on how to give expression to that desire to enlist the support of the former Warsaw Pact countries in a new effort to redirect COCOM to proliferationrelated threats. We have now moved beyond that to a series of discussions among some of our COCOM partners. We see this dialogue continuing over the next several months and would expect that at the end of that time we would have found some agreement as to what a future transformed COCOM might look like. And it would be at that time that we would, of course, address questions of telecommunications and computers. But in the meantime, while COCOM still lives, we would still be discussing those particular items, such as telecom and computers.

Q You're not moving up the 500 for several months then is what you're trying to say?

SENIOR ADMINISTRATION OFFICIAL: I did not say that. That is something we can't tell you with confidence because it's something we have to negotiate. I don't know exactly how long it would take, but we don't have a specific time line on that. But we would proceed with our COCOM partners on that.

Q In the COCOM negotiations, our trading partners have refused to go up to 50 M tops until the United States is willing to go up to a much higher level on telecommunications. The U.S. has refused so far. Are you now saying that you are willing to go up to 260 or something like that in telecommunications in order to get 194 or 500 on computers?

SENIOR ADMINISTRATION OFFICIAL: We are, of course, aware of the difficulty you cited, and that's genuine. Even as we have been working very hard among ourselves to think about where technology has taken us in terms of sensible levels for controlling computers, we have been undergoing a parallel review in the telecommunications area. The telecommunications area is, as you know, highly complex and we are going to be talking to our COCOM partners at the same time about telecommunications. So we recognize that in moving in one area, we will also be moving in another.

Q I just want to ask, the discussions on computers and telecom -- is that going to take place through the regular COCOM process or as part of this discussion of the new mechanism of the reform of COCOM? Are there going to be two tracks here? Are they going to both be --

SENIOR ADMINISTRATION OFFICIAL: It's not neatly divided into two completely discreet compartments. The same countries that are discussing one will be discussing the other. But I think that in taking this step now while COCOM still lives, frankly, one of the things we're thinking is by showing more progressive thinking, if you will, in this area, that we will be able to obtain greater credibility in arguing for a good follow-on regime.

Q Why is there a special deal with the Japanese historically, separate from COCOM? And if they agree to what you've asked, will that take you from low-level work stations, as you describe it, to what? A high-level work station?

SENIOR ADMINISTRATION OFFICIAL: If you'd like more of a history of the U.S.-Japan supercomputer agreement, maybe my colleagues could help you out with that. But basically in supercomputers, we had a separate agreement with the Japanese and that set it at 194. That is not a COCOM agreement; it's just a bilateral agreement with Japan. And therefore, changing that and bringing that to 2000 will, in effect, permit us to raise it to 500 for just computers and it will raise, of course, the supercomputer definition of 2,000.

Q Once again, in the context of lower-level work stations where we are now, how would you describe --

SENIOR ADMINISTRATION OFFICIAL: It would still move -- what it would move it is to -- you mean the 2,000 level, or do you mean the 500 level?

Q Any level.

SENIOR ADMINISTRATION OFFICIAL: The 500 level would take you to a level where the cutoff -- where short of lower PCs and -- higher-level PCs and lower-level work stations would -- you know, generally, obviously I'm generalizing -- would be below the 500 level. Above the 500 level would tend to be higher level -- higher capacity word stations, if that's right.

SENIOR ADMINISTRATION OFFICIAL: On page 55 of the report there's a chart that actually lists the different M top levels and specific products that are now on the market or about to be on the market by those levels to give you an idea of what actual impact this would have by product.

Q Where is that?

SENIOR ADMINISTRATION OFFICIAL: Page 55 of the report.

SENIOR ADMINISTRATION OFFICIAL: Do we have copies of the report we can -- let's make sure we get you copies of the report before --

Q Is that part of the Cold War legacy, or is there some other competitive reason for Japan being separate?

SENIOR ADMINISTRATION OFFICIAL: Initially, when that agreement was struck, Japan and the United States were the only two countries that manufactured computers at that level. But as technology has grown by leaps and bounds and that level has not changed commensurately, we find ourselves in a situation where it's not just Japan and the United States, but, in fact, it's becoming increasingly common for countries to be able to produce machines at that level obtaining very commonly obtainable chips that you could fit on a credit card.

Q I understand that about 40 percent of the application for relief to the Commerce Department to allow these exports have come from California. Does that reflect a similar ratio in terms of California's percentage of production of these high performance computers?

SENIOR ADMINISTRATION OFFICIAL: I really don't know how that cross-cut would come out. It's a little tough to say. I've heard the same figure. It's 40 percent of the licenses that need to be granted originate out of California. But whether -- I assume sort of what you're asking is sort of how does that cut in terms of the value and the sophistication of the computers. And I don't, at least, have any data on that. I can't help you with that.

Q Is that a ballpark quantitative measure?

SENIOR ADMINISTRATION OFFICIAL: I hate to sanction it because the answer is I just really don't know.

Q Just to clarify the earlier point, what are you freeing up now? Is it basically a lot of PCs and low-level work stations?

SENIOR ADMINISTRATION OFFICIAL: Yes. I mean, yes, let's be clear. When I described what's below what's at these levels, it's obviously a generalization and you should take it in that sense, obviously.

Q How does a Tide Aid program work? First of all, I assume it requires legislation because it involves money. Does this affect other foreign aid programs? Would exporters apply specifically for this kind of aid? How would the thing work?

SENIOR ADMINISTRATION OFFICIAL: It does not require legislation except through the normal budget process in that the proposal is to create a $150 million fund which will be taken from the existing 19 TBCC agencies. It is not something that affects existing other foreign aid programs because this is export promotion money being used to create the Tide Aid program, which is separate from any foreign aid programs that we currently have.

Q What's an example of how this would work?

SENIOR ADMINISTRATION OFFICIAL: An example of how it would work is right now, let's say that there is a major telecommunications infrastructure project that needs to be built in Indonesia, and we're finding that U.S. firms are competing against, let's say, French and German and Japanese firms for that, and that those countries are putting out an offer to the Indonesian government that they would provide certain kinds of concessionary financing if they would select a firm from one of those countries. This mechanism would then be available for the U.S. to come in and say we're going to match that so that U.S. firms wouldn't be disadvantaged in the competition.

Q So it's a subsidy?

SENIOR ADMINISTRATION OFFICIAL: That's right, it's a form of subsidy to combat that form of subsidy already being provided by our trading partners to level the playing field.

Q So it would require congressional authorization because it's an appropriation, correct?

SENIOR ADMINISTRATION OFFICIAL: Well, that's what I'm saying. Other than the budget process, there's no specific legislation required. But you're right, it would through the budget process, that's right.

Q So you're saying that you're taking money that's already available for export promotion and doing a particular kind of export promotion with that money?

SENIOR ADMINISTRATION OFFICIAL: That's right.

Q And you're also, therefore, not getting into the big thicket of whether this enormous multibillion dollar U.S. foreign aid program should be more --

SENIOR ADMINISTRATION OFFICIAL: That's correct. It doesn't deal with that specifically. This proposal is within the export promotion budgets of all the 19 agencies.

Q So this is in addition to the war chest that you have now, is that right? Or is some of it coming from that war chest?

SENIOR ADMINISTRATION OFFICIAL: Well, Ex-Im has some authority from the war chest that they have not been using because of some of the restrictive elements of the war chest. Part of that money, about $50 million of the $150 million will come from that. So it's an additional $100 million that will come from the other agencies.

Q What would the reservations that the President had that made him not sign off on Tide Aid until today?

SENIOR ADMINISTRATION OFFICIAL: I don't know of any reservations that he had, it's just the decision wasn't made. But I --

Q Were there agencies in the process that had reservations?

SENIOR ADMINISTRATION OFFICIAL: Pardon?

Q Were there agencies then within the process that did have reservations?

SENIOR ADMINISTRATION OFFICIAL: Well, I'd rather not talk about the recommendations made to the President because I think it's between him, but the fact is that the decision was made in the administration to go the route that my colleague just outlined.

Q Can you explain how this is different from a war chest and still it's the condition that has to be a competing offer from another country?

SENIOR ADMINISTRATION OFFICIAL: Not exactly. The war chest -- number one, the accounting on the war chest which is far more complex than I can understand, apparently makes it very difficult for Ex-Im to use it. But secondly, it is so restrictive, that it's essentially only used as a penalty to penalize violations of Helsinki for what are perceived to be violations of the Helsinki package by other nations.

This is going to be set up so that it's more flexible to be used generally to counter the Tide Aid strategies of other countries, but there will still be restrictions to make sure that any projects that it funds are economically sound, environmentally sound. This will not be used to fund white elephants.

Q with another countries on the table, the Tide Aid?

SENIOR ADMINISTRATION OFFICIAL: Exactly how that's going to work hasn't been worked out. What we're talking about now, as a general principle, is that it's used to counter the Tide Aid strategies of other countries in a matching fashion. It's not the same as, therefore, actually trying to penalize a violation of Helsinki. Any use of this $150 million will be totally in accord with the Helsinki package.

Q Is anything being done to ease some of the security safeguard plans on real supercomputers?

SENIOR ADMINISTRATION OFFICIAL: In this particular move, we are addressing the definitional question. And one of the things that has been difficult is that when we thought of supercomputers even a couple of years ago, you were talking about a very expensive, multimillion dollar machine that filled up a room. And you could justify safeguards that would cost sometimes even tens of thousands of dollars. Now, as technology has advanced, they're smaller to the point where they could fit on your desktop and cost tens -- or a few thousand dollars or a couple tens of thousands of dollars. So the principal thing that we are doing today is essentially trying to move -- reconcile that balance to what we traditionally thought of as supercomputers. We are always thinking about whether the safeguards plans that are in effect are the most useful and cost-effective for the machines that they are being applied against. But today's focus is principally on the question of definition.

Q I just wanted to make sure I understood clearly on the Tide Aid. Can Ex-Im initiate projects, or only match Tide Aid from other countries? Can this be used to initiate a project that a U.S. exporter desires?

SENIOR ADMINISTRATION OFFICIAL: Exactly how that's going to work isn't fully worked out, but my interpretation of it right now is that it does allow them to initiate it if they feel that doing that is the most effective strategy to counter the Tide Aid of another country. In other words, that doesn't mean that the other country has to have announced that they're actually going to put the Tide Aid in, in order to trigger Ex-Im's being able to use it. It's a much more flexible standard that anything that applied to the war chest.

Q Are you changing the nuclear referral list controls on computers by coming off the list, or is the standards for nuclear controls --

SENIOR ADMINISTRATION OFFICIAL: We have worked very hard -- let me just back up for those who are not specialists. Since 1978, the United States had imposed unilterally nuclear controls for dual-use commodities. And we were essentially stuck doing that unilaterally for about 14 years.

Finally, in the wake of the Gulf War, we were able to persuade 27 other governments to come along with us and control most, but not all, of these same items, and that is the nuclear suppliers group, and that is now part of the nuclear suppliers' guidelines.

The question is whether in those few areas where we were unable to persuade our allies to go along with us in controlling, what happens now? And I would say this to that question: The nuclear suppliers group will be meeting this autumn. We believe it is important by the time that we get to that meeting that we have reconciled whatever we're going to be doing with the nuclear referral list to whatever we're doing with the nuclear suppliers guidelines.

Obviously, what we're doing today in terms of proposing an increase in the level of decontrol to the extent that we negotiated through our COCOM partners would have an effect there. But that is one piece of a whole process that, frankly, in the next very few weeks, we're going to be coming to closure on.

For us at this juncture, we were very much focusing on these particular sectors of the American economy, seeing how we could arrive at numbers that made sense in terms of combining both our economic and our national security objectives and essentially the next phase of our work to see how we wed that into some of our multilateral obligations such as COCOM and the nuclear suppliers group.

Q Can you tell me now how much is still controlled by the nuclear referral list on computers?

SENIOR ADMINISTRATION OFFICIAL: As of now, we still -- as of today, we have the same set of controls on the nuclear referral list, except that that will now bump up for most free world destinations to 500 once we get past the 195 discussion with the Japanese.

THE PRESS: Thank you.

END3:39 P.M. EDT