Applications, Availability, and Importance of Exported Telecommunications Equipment

Broadband telecommunications equipment, such as ATM and SDH, have numerous civilian and military applications and are becoming increasingly available in China as it strives to improve its telecommunications networks to meet international standards. According to U.S. government officials, overall improvements to China’s telecommunications networks will likely benefit the Chinese military as well. Prior to the liberalization of exports of dual-use telecommunications equipment in April 1994, the export of ATM and SDH equipment to China would have required a validated license from the Commerce Department. According to these officials, the Chinese military is seeking to acquire ATM and SDH equipment, which may increase their operational readiness by the end of the next decade. Creation of the General License GLX

According to U.S. government officials, the Commerce Department created GLX in April 1994 to ease export restrictions and reduce administrative burdens on U.S. exporters. Because most of the telecommunications items on the list were covered by advisory notes, they became eligible for export under GLX. In 1993, SCM Brooks Telecommunications entered into a joint venture with Galaxy New Technology, a Chinese company controlled by the Commission of Science, Technology, and Industry for National Defense (COSTIND), an agency of the Chinese military, to form Guangzhou HuaMei Communications Limited. Civil End User Not Defined Under GLX

GLX allows the export of ATM and SDH equipment to China without a validated license, if the exports are going to “civil end-users for civil end-uses.” However, Commerce Department regulations do not define a “civil end-user” or offer any guidance on how an exporter is to determine who is a civil end user in China. U.S. company and government officials stated that determining end users in China is problematic because the Chinese military is often involved in commercial activities. Currently, there is no guidance or criteria available to exporters on how much military involvement in a commercial entity is needed before it is considered a military end user. However, in the export of telecommunications equipment to HuaMei, the Commerce Department did not have an opportunity to review the end user because prior government review is not required under GLX. Commerce noted that our suggestion that it assess the need to provide additional guidance to exporters on determining civil end users as it gains experience under CIV (formerly known as GLX) was helpful. To determine civil and military applications of ATM and SDH equipment, availability of the equipment, and the importance of those applications to China’s military, we interviewed officials from AT&T and SCM Brooks and obtained technical descriptions of the products and potential applications. To examine the process and rationale for liberalizing the export of broadband telecommunications equipment, we reviewed a chronology of the export of AT&T equipment.
Why GAO Did This Study

Pursuant to a congressional request, GAO reviewed the transfer of broadband telecommunication equipment to HuaMei, a joint venture between SCM Brooks Telecommunications, a U.S. limited partnership, and Galaxy New Technology, a Chinese company primarily owned by an agency of the Chinese military, focusing on the: (1) civil and military applications of the exported telecommunications equipment, its availability, and the importance of these applications to China's military; and (2) process and rationale for liberalizing the export of telecommunications equipment shipped to China.

What GAO Found

GAO found that: (1) there are numerous civil and military applications for broadband telecommunications equipment, such as Asynchronous Transfer Mode (ATM) and Synchronous Digital Hierarchy (SDH) equipment, including video-conferencing, remote command and control, and telemedicine; (2) since the liberalization of exports of advanced telecommunications equipment, such equipment is now readily available in China; (3) SDH equipment, in particular, is being manufactured and used to upgrade China's telecommunications networks to international standards; (4) according to U.S. government officials, the Chinese military is seeking to acquire ATM and SDH equipment, which may benefit its command and control networks by the end of the next decade; (5) furthermore, these officials stated that as China's telecommunications infrastructure is modernized, the Chinese military will also benefit; (6) the creation of the new General License category, GLX, by the Commerce Department in April 1994, allowed the export of ATM and SDH equipment to HuaMei without a validated license having to be issued by the Commerce Department; (7) ATM and SDH equipment were two of a number of dual-use telecommunications items that were included under GLX; (8) GLX includes many items that would have been typically approved for export to civil end users in the licensing process; (9) according to U.S. government officials, GLX was created in response to the end of the Cold War and the expiration of the Coordinating Committee for Multilateral Export Controls, to ease export restrictions and reduce administrative burdens on U.S. exporters; (10) determining who is a civil end user under GLX is the responsibility of the exporting companies; (11) however, this is particularly difficult in China because of the Chinese military's significant involvement in various commercial ventures; (12) there is no information readily available to exporters on how much military involvement in a commercial entity constitutes a military end user; and (13) based on this one case, GAO is not making any recommendations; however, as the Commerce Department gains experience under GLX, it may want to assess the need to provide additional information or guidance to exporters to help them determine when they should request a government review of an end user.