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Economic Espionage, Technology Transfers and National Security

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S. HRG. 105-240 ECONOMIC ESPIONAGE, TECHNOLOGY TRANSFERS AND NATIONAL SECURITY HEARING before the JOINT ECONOMIC COMMITTEE CONGRESS OF THE UNITED STATES ONE HUNDRED FIFH CONGRESS FIRST SESSION JUNE 17, 1997 Printed for the use of the Joint Economic Committee U.S. GOVERNMENT PRINTING OFFICE WASHINGTON: 1997 cc45-1 19 For sale by the U.S. Government Printing Office Superintendent of Documents, Congressional Sales Office, Washington, DC 20402 ISBN 0-16-055880-8 JOINT ECONOMIC COMMITTEE [Created pursuant to Sec. 5(a) of Public Law 304, 79th Congress] HOUSE OF REPRESENTATIVES SENATE JIM SAXTON, New Jersey, Chairman CONNIE MACK, Florida, Vice Chairman THOMAS W. EWING, Illinois WILLIAM V. ROTH, JR., Delaware MARK SANFORD, South Carolina ROBERT F. BENNETT, Utah MAC THORNBERRY, Texas ROD GRAMS, Minnesota JOHN DOOLITTLE, California SAM BROWNBACK, Kansas JIM MCCRERY, Louisiana JEFF SESSIONS, Alabama FORTNEY PETE STARK, California JEFF BINGAMAN, New Mexico LEE H. HAMILTON, Indiana PAUL S. SARBANES, Maryland MAURICE D. HINCHEY, New York EDWARD M. KENNEDY, Massachusetts CAROLYN B. MALONEY, New York CHARLES S. ROBB, Virginia CHRISTOPHER FRENzE, Executive Director ROBERT KELEHER, Chief Macroeconomist HOWARD ROSEN, Minority Staff Director Preparedby Juanita Y. Morgan (ii) CONTENTS OPENING STATEMENTS OF MEMBERS Representative Jim Saxton, Chairman ........ .................. 1 Senator Jeff Bingaman, Ranking Minority Member ..... ......... 4 Senator Charles S. Robb ............... .................... 4 Senator Jeff Sessions .................. ................... 33 Representative John T. Doolittle ......... ................... 37 Senator Robert F. Bennett ............ ..................... 40 WITNESSES Statement of Dr. Peter M. Leitner, Author of Decontrolling Strategic Technology 1990-1992: Creating the Strategic Threats of the 2Is' Century ........................................ 4 Statement of Lieutenant General Robert L. Schweitzer, United States Army (Retired) .......................................... 10 Statement of John Fialka, Author of War by Other Means: Economic Espionage in America .................................... 15 Statement of Kenneth Flamm, Economist, Brookings Institution .. 20 SUBMISSIONS FOR THE RECORD Prepared Statement of Representative Jim Saxton, Chairman ..... 59 Prepared Statement of Dr. Peter M. Leitner, Author of Decontrolling Strategic Technology 1990-1992: Creating the Strategic Threats of the 215' Century............................................. 62 Prepared Statement of Lieutenant General Robert L. Schweitzer, United States Army (Retired) ................................... 119 Prepared Statement of John Fialka, Author of War by Other Means: Economic Espionage in America. .......................... 128 Article "Controlling the Uncontrollable," submitted by Kenneth Flamm, Economist, Brookings Institution .......................... 138 (iii) ECONOMIC ESPIONAGE, TECHNOLOGY TRANSFERS AND NATIONAL SECURITY Tuesday, June 17, 1997 CONGRESS OF THE UNITED STATES, JOINT ECONOMIC COMMITTEE, WASHINGTON, D. C. The Committee met pursuant to notice, at 10:05 a.m., in Room 138, of the Dirksen Senate Office Building, the Honorable Jim Saxton, Chairman of the Committee, presiding. Present: Representatives Saxton and Doolittle, and Senators Bingaman, Robb, Sessions and Bennett. Staff Present: Christopher Frenze, Mary Hewitt, Roni Singleton, Juanita Morgan, Howard Rosen, and John Blair. OPENING STATEMENT OF REPRESENTATIVE JIM SAXTON, CHAIRMAN Representative Saxton. Good morning. Thank you very much, everyone, for being here. The Joint Economic Committee sits in a very unique position and, I would suggest, an ideal position to evaluate past policy and those policies' impact on our economy, particularly in the context of the legislative intent of the authors. The areas of concern that I have learned of have occurred across several administrations in both the areas of high technology transfer and economic espionage. My goal is to shed light on these problems. I am sure that those responsible for these policies formulated them with the best of intentions. However, those intentions may not have manifested themselves as expected in this new age of changing reality of a former Soviet Union, an emerging Asia and a struggling, sometimes unstable Third World. I am pleased to welcome to the Committee an extremely knowledgeable group of panelists. Let me introduce them. Dr. Peter Leitner is the author of a new book entitled, Decontrolling Technology: Creatingthe Military Treatyfor the 21st Century. I would 2 like to make clear that Dr. Leitner will testify as the author of that book and not in his official capacity as Foreign Trade Advisor to the Department of Defense. Additionally, Dr. Leitner is the author of the book, Reforming the Law of the Sea Treaty, which also highlights concerns about mandated high-technology transfer. Dr. Leitner's professional background also includes serving as a senior licensing officer for U.S. exports to various proscribed countries, including China, Libya, Iraq, former Warsaw Pact countries, Iran and India. Dr. Leitner is currently DOD's representative to the interagency Subcommittee on Nuclear Export Controls. Our second panelist is Lieutenant General Robert Schweitzer, retired. General Schweitzer retired from the United States Army after 36 years of service with assignments, including Director of Strategy, Plans and Policy; Deputy Chief of Staff for Operations and Plans; National Security Defense Group Director; and, the Chief of the Policy Branch of SHAPE in Belgium. General Schweitzer has received numerous awards and decorations, including the Army Distinguished Service Cross, the Defense Distinguished Service Medal, the Army Distinguished Service Medal, three Silver Stars, two Defense Superior Service Medals, two Legion of Merits, the Distinguished Flying Cross, the Soldiers Medal, the Bronze Star with Valor device; three additional awards, the Air Medal with Valor device, seven Purple Hearts and two Army Commendation Medals. That's quite a list, Lieutenant General Schweitzer. And, we are pleased to have you here. General Schweitzer will testify about the proliferation of a devastating new weapon developed by the former Soviet Union and is currently in enhanced development today in Russia, with previous systems being sold by the Russians to a variety of countries. The weapon is the Radio Frequency Weapon, known as RF, on Electromagnetic Pulse weapon used, among other things, to cripple computer capability. It has only been in the last few weeks that some information has been declassified about EMI. Previously, only those with the highest security clearance even knew about this weapon system in any detail. Our third panelist is Mr. John Fialka. Mr. Fialka is a well-known and respected reporter for the Wall Street Journal. He is the author of War by Other Means, an important but disturbing book on high 3 technology transfer and Foreign Intelligence Services conducting espionage in the United States. After a brief stint at the National Petroleum Refiners Association, Mr. Fialka began his journalism career at the Baltimore Sun and then moved to the Washington Star. In 1981, Mr. Fialka moved to the Wall Street Journal and has worked both in the London Bureau and in his current position in Washington. He has been awarded numerous honors from such organizations as the American Bar Association, the National Science Writers Association, the National Headliner and Worth Bingham. Additionally, Mr. Fialka is the author of a book, Hotel Warriors, which is an analysis of the press coverage of the Persian Gulf War. Our final panelist is Mr. Kenneth Flamm. Mr. Flamm has been working as Senior Fellow at the Foreign Policy Studies program at the Brookings Institute since 1995, a position he held from 1987 to 1993. From 1993 to 1995, Mr. Flamm served as Principal Deputy Assistant Secretary of Defense for Economic Security and Special Assistant to the Deputy Secretary of Defense for Dual Use Technology Policy. At Brookings, Mr. Flamm has also focused much of his research on international competition in high technology industries. Let me add a final note. The people of our country owe a collective debt of gratitude to the men and women who serve this country in our law enforcement and intelligence services and, especially, those dedicated Asian Americans without which the security of this country could not be guaranteed. Over 20 countries conduct espionage against the United States. Let me make it perfectly clear that the criminal actions of a few do not reflect the character, honesty and loyalty of ethnic Americans without whom these illegal activities would not be countered. I look forward to the enlightening testimony from our panelists. And, at this time, I will turn to the Ranking Member for any comments he may have. [The prepared statement of Representative Saxton appears in the Submissions for the Record.] 4 OPENING STATEMENT OF SENATOR JEFF BINGAMAN, RANKING MINORITY MEMBER Senator Bingaman. Mr. Chairman, I don't have any comments. I am looking forward to hearing from the witnesses. And, I appreciate them all being here. Representative Saxton. Are there any other opening comments? Senator Robb. OPENING STATEMENT OF SENATOR CHARLES S. ROBB Senator Robb. Thank you, Mr. Chairman. I look forward to the hearing. As one who serves on all three of the National Security committees as well as the Joint Economic Committee, this is a particularly important topic for me. I will not be able to remain for most of the
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