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Office of the Press Secretary

For Immediate Release January 10, 2001
                         TELEPHONE BRIEFING BY
                      CHIEF OF STAFF JOHN PODESTA,

1:37 P.M. EST

MR. PODESTA: Why don't I start. And I think Secretary DeLeon and Mr. Reinsch will be following onto what I am about to say. I will try to be relatively brief and I think we all will be, so that we can get to your questions. I believe you have paper in front of you, but as you know, the President today is announcing the sixth revision to U.S. export controls on high performance computers since 1993.

We have been controlling them, I think as most of you know, controlling high performance computer exports, using a hardware performance measure called MTOPS -- Millions of Theoretical Operations Per Second. Our policy goal in doing that was to limit the acquisition of high performance computing capabilities by potential adversaries and countries of particular proliferation concern, and to ensure that U.S. -- simultaneously ensure that the U.S. computer industry could compete in most foreign markets.

Until recently, we kept pace with growth in high performance computing hardware availability by periodically adjusting controls. As I've said, we've revised them five times between 1993 and the year 2000. At the President's direction, DOD has been reviewing alternatives to this control mechanism as the ability of the hardware and the availability of essentially commercial end technology was outpacing this methodology for being able to control high end computing performance.

He asked the DOD to review alternatives to these control measures since mid 1999. The review included relevant agencies and brought in private sector experts. That review concluded that our ability to control the acquisition of HPC capabilities by controlling computer hardware is already ineffective and it will be increasingly so within a very short time frame.

So we set about to focusing on enhancing the already strong controls on critical software applications, such as nuclear, military, radar cross section applications. Rudy can go into more. And based on this review, the President has decided to adopt a number of consensus -- and I say consensus, I mean consensus amongst the agencies recommendations -- from his national security agencies.

Again, if you have the fact sheet in front of you, you will note that what we are doing is combining the old their one which were essentially friends in our allied countries with Tier 2, the countries that posed a proliferation risk, into a new Tier 1. And those exports to the new Tier 1 countries won't require a license, although there will be some continued post shipment reporting requirements. And that change will be effective when Commerce publishes the rule, which we expect to do before we vacate the premises on January 20th.

We are moving Lithuania from Tier 3 to the now combined new Tier 1, based on improvements to its export control system, and continued good cooperation on export controls. That will be effective pursuant to legislation. That will be effective 120 days after notice goes to Congress, which will be in the next several days, I guess. And then we will raise Tier 3 licensing and defense authorization act notification level to 85,000 MTOPS. This is the performance level of uncontrolled computers the DOD has determined can be easily networked together by relatively unskilled individuals. That new level will be effective 60 days after notice goes to Congress.

Q Did you say 60 days?

MR. PODESTA: Yes, 60 days. Again, Congress changed that provision. It used to be six months. They shortened that time period to 60 days during the last year. And finally, we will maintain the virtual embargo on exports to terrorist countries.

Let me see, before I turn it over to Rudy, I just wanted to mention one more thing, which is that it is our recommendation that we will be making to Congress that we repeal the 1998 Defense Authorization Act provisions that require notification and licensing of certain computer hardware exports and waiting periods for adjustments in control levels, which eventually will permit the elimination of Tier 3 hardware controls.

I think I want to turn it over to Rudy for his comments, and maybe some comments on our ability to work towards strong controls on critical software applications from a national security prospective.

DEPUTY SECRETARY DeLEON: This is Rudy DeLeon at the Department of Defense. Let me just make some brief comments. High performance computing capability is -- this capability is linked to a healthy U.S. computer industry, and the ability of that industry to continue to produce products with increased capabilities. Computer hardware controls are no longer effective, and in fact, this intensifies American computer development.

Eighteen months ago we recognized that the MTOP metric was becoming ineffective, and we undertook a study to see if alternative measures could be developed. We found no effective hardware export control measures. However, after extensive review, determined that we could effectively control critical application software. So on software controls, effectively exploit high performance computing capabilities, one needs critical application software. Software cannot be produced over night. Much of it requires very extensive coding and data obtained from -- adjusting for validations.

We recently completed a study that recommends technical control measures for application software. The Secretary of Defense has allocated additional funding in the fiscal '02 budget that we're working on to implement these initiatives and further develop these technologies that will restrict adversaries from using and reverse engineering critical application software.

We have in play policy measures for controlling the release of our critical application software, which if adequately enforced, prevents dissemination to adversaries. We intend to introduce additional education and training to make measures even more effective.

So with this revised strategy, we will ensure the performance computing capabilities that are critical to national security will continue to be effectively protected. And I think on the basis of this reasoning, able to strongly --

MR. PODESTA: You just faded out, Rudy. Could you go back over that point again?

DEPUTY SECRETARY DeLEON: Which is the piece?

MR. PODESTA: Just the last sentence you were just about to do.

DEPUTY SECRETARY DeLEON: Just that with this revised strategy, we will ensure that those high performance computing capabilities that are critical to the national security of the United States continue to be effectively protected. And on the basis of this line of analysis, and after our studies, we strongly support the direction that the President is announcing today.


UNDER SECRETARY REINSCH: If I can add a little bit, as Rudy mentioned, this is first and foremost a national security decision. One element of this, as we've made clear -- one element that's central to our national security is maintaining the good health of the computer industry, so they can continue to make cutting edge products, which are useful for our military and intelligence establishments.

More than 50 percent of the sales of these companies come from exports. And so capturing market share abroad and staying on the cutting edge of the market is very important to them to. You would have to talk to the industry to get specific statements about likely impact. Our judgement is that this decision will have a favorable impact on their marketplace in several ways.

At the high end of these machines, you're talking about large servers. And these are servers whose primary applications are in financial services, banking and the like, essentially account customer maintenance, things like that. And also for inventory use for large retail establishments or manufacturing establishments, taking care of complex inventories where there might be multiple manufacturing locations is also a use of these servers. They also have applicability in automobile manufacturing and other kinds of manufacturing units, where there's a lot of machines that have to be controlled.

One area of very rapid growth for all those activities is in Asia and Southeast Asia, and these are primarily formerly two-tier countries. So we envision that combining the tiers into one will give our companies a substantial opportunity to market products at this higher end in countries where there has been a rapid growth in all of the sectors that I just described.

Q I was wondering if you could talk about the decision to collapse one and two, given some -- it just seems like a significant shift in attitude. Is that -- and also why this is coming out just now.

UNDER SECRETARY REINSCH: Well, I think the core of the decision here, frankly, is that the Defense Department came to the conclusion that we were not able to effectively control hardware. The technology is simply ubiquitous and out there, and that, in fact, our national security needs to be met through the other means that Rudy described.

Given that situation, the distinction between Tier 1 and Tier 2 is no longer particularly important. Now, we have a statutory requirement via the National Defense Authorization Act which, as John Podesta pointed out, the President is supposed to repeal, to maintain a control parameter for Tier 3. But the essence of this decision is that there is no longer utility to maintaining those parameters, and so the best way to implement that is to collapse the two tiers into one.

Q I just wanted to follow up on that, and maybe this is a question for Mr. Reinsch -- just to put this in sort of context for us and help us understand the importance of what you've done, merging one and two, that I would assume is more important for you than bumping up the MTOPS in the Tier 3 to 85,000 -- is that a fair presumption?

UNDER SECRETARY REINSCH: In the short term, yes. In terms of the Tier 2 market -- the Tier 3 market has consistently been in the 5-10 percent range of total sales. At the same time I should note that two of the most rapidly growing and largest economies of the world, India and China, are in Tier 3. So what we do in Tier 3 is not insignificant in commercial terms. But that's a little bit down the road. The immediate advantage I think will be in precisely where you said, in combining the two tiers.

MR. PODESTA: There was a separate question of why now. We have been on a track actually for some time, working with industry, to review -- especially because of what was a six-month and now a 60-day lag time in shipping to Tier 3 exports -- to review where we were to make sure that we weren't effectively impeding our computer companies from being able to compete in terms of shipping product to markets that was essentially off-the-shelf kind of standard product. And I think that we had gotten -- because the statute was on a kind of six-month review cycle, we were kind of on a six-month review cycle. And although we had proposed shortening that to 30 days, Congress ultimately settled on 60 days.

We're in the throes of doing our regular review of progress that was being made in the industry in terms of what they were shipping as essential commodity-style, off-the-shelf product, and that led to the timing taking place now, in January.

Q I want to ask about your stance that controlling of hardware is not as easy or may not be as effective as controlling software, when it seems that bits would probably flow through borders surreptitiously much easier than maybe crates of computers.

DEPUTY SECRETARY DeLEON: This is Rudy DeLeon. I think we spent much time looking at what a proper regulatory mechanism was. The industry is moving production where the MTOPS measure became meaningful. And as we looked at it further, application of the hardware that becomes critical for national security purposes -- it's not the hardware, but rather the software that allows you to do the applications that becomes critical.

Some significance -- (breaking up) -- transitioned in a decade from a era dominated by -- (breaking up) -- computers to a nation where computers and networks together can give you just as much -- (breaking up) -- ability. So what becomes critical in this environment are two things -- is there knowledge on the software through the applications of the software that allows hardware to do these computations. Then second, you have skilled people who know how to maximize software -- (breaking up) -- after examining it in great detail -- (breaking up) -- are very much committed to the national --

Q Rudy, you're breaking up. Could you repeat that?

DEPUTY SECRETARY DeLEON: What part? People here are very much dedicated -- (breaking up) -- national security interest came to the conclusion that hardware -- (breaking up) --

Q Rudy, you're breaking up, like the past three sentences.

DEPUTY SECRETARY DeLEON: Okay, I'll repeat it again. The dedicated people here that are really focused and concerned about national security issues came to the conclusion that it is the application software plus trained and skilled people who know how to utilize the capabilities that is embodied in the hardware, that that is the critical path.

Q Who makes this type of software? I mean, is there a small core of specialized developers?

DEPUTY SECRETARY DeLEON: This is a highly specialized software industry that is unique to the national security side.

MR. PODESTA: Yes, when Rudy is talking about controlling software, we're not talking about either going on-line or walking into a -- and buying something on a floppy disk. These are big, complicated, sophisticated programs that are done largely for our national security industry. And that, I think, goes back to Ted's original question, which is how do you control this stuff. Well, there are controls in place on that now and we're really after the most cutting-edge, I suppose, if you will, kinds of big programs.

Q Someone there mentioned the Tier 3 distinction might have been simply done away with. Could you elaborate on that a little more?

UNDER SECRETARY REINSCH: Yes, John mentioned it in the President's proposed repeal of the statute that requires it. But to go back to something that I said a couple minutes ago, once you come to the conclusion that the Defense Department has come to -- namely, the futility of hardware controls -- there is no longer a national security rationale for maintaining those controls on any countries except the embargoed states, the terrorist states.

We are required by law to maintain a control standard based on MTOPS for Tier 3. But the President has recommended that provision be repealed, and if the Congress were to do that, then the next administration would be in a position to remove the MTOPS limit on Tier 3 as well if it wanted to do so.

Q So this move today includes recommendations that Tier 3 be repealed --

UNDER SECRETARY REINSCH: Well, you have to phrase it a little bit differently than that. It contains a recommendation that the provisions in the National Defense Authorization Act to require a Tier 3 and an MTOPS limit be repealed.

Q In the paper you handed out, you noted that the Clinton administration recognizes that the incoming administration needs an opportunity to examine such a proposal and intimated there that you might be doing less than you might have done if you didn't have just two weeks left to go. Is there anything more that you would have liked to do or that you're recommending that the Bush administration do, aside from the congressional repeal?

MR. PODESTA: Well, if I'm not mistaken, the President-elect's over at the Pentagon as we speak, or has just left. (Laughter.) So I think that we want to brief their team about the study that was undertaken and coordinated interagency, but led by the Defense Department, and where we see the ability to be able to control the critical, from a national security perspective, technology going in the future, and also I think share our views on the necessity of keeping our own computer industry and our own software industry first in the world, because that is really another element of not only our continued economic performance, but our continued ability to provide the national security community with the highest level of capability and capacity.

And I think we want to share that with them, and they will have to kind of pick up this issue and pick up this ball and decide whether the suggestions we're making, for example, on these legislative proposals are wise and ought to go forward, and to -- hopefully, to continue the dialogue that I think we've had, which has been constructive with not only interagency, but with our high tech community.

Q Can I ask how broadly will the definition be of the restricted software -- and the national security and proliferation related software? That could theoretically be a pretty ambiguous definition.

UNDER SECRETARY REINSCH: If I can interject there -- and I think Rudy will comment, too -- I think we are talking about a universal software that is already classified, already controlled, already clearly defined.

DEPUTY SECRETARY DeLEON: It is already controlled from the -- regime, and that is because most of this application software is based upon empirical data that is classified.

MR. PODESTA: And we're not talking about expanding that.


Q But getting back to the next administration, in order to get rid of Tier 3, that's something that Congress would have to do, that hardware review. Or, is there something that, administratively, this administration or the next administration could do that would eliminate those regulations?

UNDER SECRETARY REINSCH: As a legal matter we have interpreted the NBAA to require the creation of a Tier 3 and a control of Tier 3 on the basis of a number of MTOPS. Now, Tier 3 was an administrative creation of the Executive Branch, as were Tiers 1, 2, 3 and 4, and it might have some utility that goes above and beyond computers. It's not the existence of a tier that is the important question as much as it is in the statute the requirement that exports to those locations be controlled on the basis of the number of MTOPS. And that's what we would propose repealing.

Q Who is saying this?

UNDER SECRETARY REINSCH: This is Bill Reinsch saying that.

Q Bill, for analogy's sake, so our readers can understand this, 85,000 MTOPS -- can you equate that to X-number of Pentium Xs linked together?


Q This won't allow the export of --

UNDER SECRETARY REINSCH: Well, two things. The President's decision doesn't include the export of individuals. It doesn't change anything with respect to the export of individual chips, which are also subject to their own MTOPS requirement, which is not the subject of this conference, so we haven't changed anything there. There is a limit on those, and I don't know the plural of itanium is -- itania or itaniums that go over 6,500 MTOPS would be subject to license one by one.

Computers that contain them would not come under this restriction as well, depending upon what their overall power was.

UNDER SECRETARY REINSCH: I'll be around if people have follow-up questions and want to call me at my own office, which is: 482-1455. I can follow up there if anybody is interested.

DEPUTY SECRETARY DeLEON: And this is Rudy DeLeon, and I'm reachable here at the Pentagon, and we have a team of people that can be available as well. Let me just say that on the issue that hardware controls are no longer effective, this is really a conclusion that DOD has come to. We're really looking for an alternative mechanism and we appreciate the support from the White House and the Commerce Department to find an alternative mechanism.

Q Thank you. Good-bye.

END 2:07 P.M. EST