oversight

Hong Kong's Reversion to China: Effective Monitoring Critical to Assess U.S. Nonproliferation Risks

Published by the Government Accountability Office on 1997-05-22.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                   United States General Accounting Office

GAO                Report to Congressional Requesters




May 1997
                   HONG KONG’S
                   REVERSION TO CHINA
                   Effective Monitoring
                   Critical to Assess U.S.
                   Nonproliferation Risks




GAO/NSIAD-97-149
             United States
GAO          General Accounting Office
             Washington, D.C. 20548

             National Security and
             International Affairs Division

             B-275463

             May 22, 1997

             The Honorable Floyd D. Spence
             Chairman, Committee on National Security
             House of Representatives

             The Honorable Benjamin A. Gilman
             Chairman, Committee on International Relations
             House of Representatives

             Hong Kong will revert to Chinese sovereignty on July 1, 1997, after over a
             century of rule by the United Kingdom. As the reversion date approaches,
             increasing attention has focused on how the territory will fare under China
             and how U.S. economic and security interests could be affected. U.S.
             economic presence in the territory is substantial, and Hong Kong’s fate has
             significant implications for broader U.S.-China relations.

             You asked us to focus on one key issue—whether U.S. export control
             policy toward Hong Kong will adequately protect U.S. national security
             and nonproliferation interests after Hong Kong’s reversion to China. You
             raised concerns about the potential risks and consequences of continuing
             to export sensitive technologies to the territory after reversion, given
             China’s past proliferation behavior. This report outlines (1) how U.S.
             export controls are currently applied to Hong Kong as compared with
             China, (2) planned U.S. export control policy toward Hong Kong after
             reversion, and (3) possible safeguards and monitoring efforts to protect
             U.S. nonproliferation interests.


             The People’s Republic of China and the United Kingdom agreed to the
Background   terms of Hong Kong’s reversion in their 1984 Joint Declaration. The
             declaration calls for Hong Kong to become a Special Administrative
             Region of China that will “enjoy a high degree of autonomy” except in the
             conduct of defense and foreign affairs. Under the “one country, two
             systems” formulation, Hong Kong will remain a separate customs territory
             and retain its status as a free port. Hong Kong’s status is to remain
             unchanged for 50 years. China’s National People’s Congress subsequently
             enacted the “Basic Law of the Hong Kong Special Administrative Region of
             the People’s Republic of China” to codify in Chinese law the status of
             Hong Kong and to implement the understandings in the Joint Declaration.




             Page 1                           GAO/NSIAD-97-149 Hong Kong’s Reversion to China
B-275463




The United States-Hong Kong Policy Act of 1992 (P.L. 102-383, Oct. 5,
1992) articulated U.S. support for full implementation of the Sino-British
Joint Declaration. The act called upon the U.S. government to continue to
treat Hong Kong as a separate territory with respect to economic and trade
matters and to support Hong Kong’s continued access to sensitive
technologies so long as such technologies are protected. Furthermore, the
act directed that U.S. laws continue to apply to Hong Kong on or after
July 1, 1997, in the same manner as before that date. Nevertheless, under
the act, if the President determines that Hong Kong is not sufficiently
autonomous to justify different treatment from China under a particular
law, he may change the way in which that law is applied to Hong Kong.
Finally, the act required the Secretary of State to provide Congress with
periodic reports on conditions in Hong Kong, including any significant
problems in cooperation between Hong Kong and the United States on
export controls.1

The U.S. government controls exports of dual-use items (items primarily
for civilian use but that also have potential military applications) and
munitions items (defense articles and services) with the goal of protecting
U.S. national security and nonproliferation interests. The Commerce
Department is responsible for administering controls over dual-use items,
which are grouped into categories such as “telecommunications software”
and “lasers and optical equipment.” Pursuant to the Export Administration
Regulations, items are controlled for various reasons, including national
security; missile technology; and nuclear, chemical, and biological
weapons proliferation concerns. High-performance computers are also
controlled. Generally, exporters must apply to the Commerce Department
for a license to export controlled items. In reviewing license applications,
Commerce—in consultation with the Departments of State, Defense, and
Energy and the Arms Control and Disarmament Agency, which are
authorized to review these applications—assesses the risk the items could
pose to U.S. national security and nonproliferation interests and approves
or disapproves exports accordingly. In some cases, depending on the item
involved and the country of destination, an exporter may not be required
to obtain prior Commerce approval to export the items. The State
Department has jurisdiction over munitions items and reviews license
applications, in consultation with the Department of Defense and other
agencies, for the export of all such items. License applications are


1
 A bill (H.R. 750), passed by the House of Representatives on March 11, 1997, incorporates additional
reporting requirements, including any “failure to enforce United States export control laws or export
license requirements” and any “unauthorized diversions from Hong Kong of high technology exports
from the United States to Hong Kong.”



Page 2                                       GAO/NSIAD-97-149 Hong Kong’s Reversion to China
                   B-275463




                   reviewed for consistency with U.S. foreign policy goals, including
                   nonproliferation, among others.


                   U.S. export control policy toward Hong Kong is less restrictive than that
Results in Brief   applied to China, based on Hong Kong’s ability to protect sensitive
                   technologies as well as concerns over China’s proliferation activities. The
                   U.S. government allows Hong Kong greater and easier access to sensitive
                   dual-use technologies; many items may be exported to Hong Kong without
                   prior Commerce Department review and, even when prior approval is
                   necessary, licenses are readily granted. Thus, exporters may export items
                   such as titanium alloys, certain types of machine tools, and
                   high-performance computers to Hong Kong without obtaining an export
                   license. In contrast, the export control rules applied to China are more
                   stringent: more categories of exports require licenses, and the U.S.
                   government has refused to export certain items owing to concerns over
                   proposed end users and end uses. In about 30 instances over the past
                   3 years, items that the United States has refused to export to China could
                   have been exported to Hong Kong without prior U.S. government review
                   or approval.

                   The U.S. government does not plan to change its export control policy
                   toward Hong Kong after it reverts to China unless there is evidence that
                   the Hong Kong authorities are unable to continue to operate an effective
                   export control system. As a result, Hong Kong will continue to have easier
                   access to sensitive technology that is more tightly controlled for China.
                   Major reasons for this decision include (1) the Hong Kong Policy Act,
                   which calls for continued separate treatment of Hong Kong in export
                   controls so long as it is able to protect U.S. technology and equipment,
                   (2) the U.S. government’s overall commitment to supporting Hong Kong’s
                   continued autonomy, and (3) Hong Kong’s record in maintaining an
                   effective export control system.

                   Given the decision to continue current U.S. policy toward Hong Kong,
                   monitoring various indicators of Hong Kong’s continued autonomy in
                   export controls becomes critical to assessing the risk to U.S.
                   nonproliferation interests. This may not be an easy task, given the changes
                   that could occur in Hong Kong and the difficulties in gauging Chinese
                   intentions and behavior. Key indicators to watch would be changes in the
                   composition and volume of U.S. exports of controlled items to Hong Kong,
                   which could signal efforts by China to obtain sensitive technology such as
                   optical sensors that it has previously been denied. The U.S. government



                   Page 3                           GAO/NSIAD-97-149 Hong Kong’s Reversion to China
                         B-275463




                         has begun a process to develop a baseline of export data against which to
                         measure such changes but may have difficulty in doing so because of data
                         limitations. Also, the U.S. government intends to monitor all aspects of
                         Hong Kong’s export control system as a basis for assessing changes that
                         might occur and has established an interagency group to do so.


                         The United States applies different licensing policies and standards to
Current U.S. Policy      Hong Kong and China because of Hong Kong’s ability to maintain an
and Practice Toward      effective export control system—as evidenced by its adherence to the
Hong Kong and China      standards of various multilateral export control regimes—and concerns
                         over China’s proliferation and military activities. As a result, Hong Kong
Differ Significantly     receives preferential licensing treatment—for many categories of dual-use
                         items, exporters do not need to submit license applications to obtain prior
                         U.S. government approval. Further, approval is generally granted even
                         when a license is required. In contrast, dual-use exports to China receive
                         greater scrutiny, and more than 170 license applications were denied over
                         the past 3 years. Lastly, Hong Kong generally is eligible to obtain
                         munitions items, while current sanctions generally preclude issuing
                         licenses to China for munitions items without a presidential waiver.


Policy Basis for         The United States extended preferential licensing treatment to Hong Kong
Preferential Treatment   in 1992 as a result of Hong Kong’s designation as a Coordinating
                         Committee for Multilateral Export Controls (COCOM)2 “cooperating
                         country”—meaning that Hong Kong had established an export control
                         system containing the necessary elements of effective control. Hong Kong
                         then became eligible for treatment equivalent to that accorded COCOM
                         members such as Australia and Japan.

                         Hong Kong currently adheres voluntarily to the prevailing standards of all
                         the multilateral export control regimes. It obtains regime control lists and
                         incorporates them into its own regulations, thereby agreeing to control the
                         same items that regime members control. In return, Hong Kong obtains
                         specific privileges—preferential licensing treatment and information
                         sharing. Because Hong Kong is not a state, it cannot be a member of these
                         regimes, but Hong Kong government representatives have participated in
                         regime plenary sessions as part of the British delegation. Hong Kong has
                         agreed to adhere to the standards of the following regimes:

                         2
                          COCOM was created in 1949 by the United States and its allies to coordinate controls over exports to
                         the Soviet Union and other communist countries. COCOM was dissolved in March 1994 and has been
                         succeeded by the 1996 Wassenaar Arrangement on Export Controls for Conventional Arms and
                         Dual-Use Goods and Technologies.



                         Page 4                                       GAO/NSIAD-97-149 Hong Kong’s Reversion to China
                                     B-275463




                                 •   Australia Group, focused on chemical and biological weapons
                                     proliferation;
                                 •   Missile Technology Control Regime, targeting missile proliferation;
                                 •   Nuclear Suppliers Group, addressing dual-use nuclear items; and
                                 •   Wassenaar Arrangement, focused on conventional arms and dual-use
                                     items.

                                     In contrast, China, although a signatory to the Nuclear Nonproliferation
                                     Treaty, is not a member of any of these regimes. It unilaterally has
                                     declared its adherence only to the provisions of the 1987 Missile
                                     Technology Control Regime.3 Moreover, U.S. policy restricts the export or
                                     reexport of dual-use items that would make a significant contribution to
                                     the military potential of countries such as China that would prove
                                     detrimental to U.S. national security.


Different U.S. Licensing             The United States has extended more favorable licensing treatment to
Treatment for Hong Kong              Hong Kong in two basic ways. First, exporters may export various
and China                            dual-use items to Hong Kong without obtaining a license—this is true for a
                                     range of items controlled for national security reasons, certain
                                     high-performance computers, and some items controlled for chemical and
                                     biological reasons. China’s eligibility for such “license free” treatment is
                                     more restricted, in recognition of the greater risk that exports of
                                     controlled items could pose. Second, in cases where items do require a
                                     license for export to Hong Kong, licenses typically have been granted,
                                     whereas licenses for China have in some cases been denied.

Differences in Eligibility for       Hong Kong is eligible to receive, without a license, items in 72 of 154
Exports Without a License            categories of dual-use items controlled for national security reasons.4 For
                                     36 of the 72 categories, the U.S. government has determined that no review
                                     is necessary prior to export, under the designation “no license required.”
                                     In these cases, exporters do not have to obtain licenses to export the
                                     items. Hong Kong is also eligible for several types of license exceptions for
                                     items in 34 other categories.5 Eligibility for license exceptions is based
                                     essentially on the item, the country of ultimate destination, and the end


                                     3
                                      China has not agreed to adhere to any of the subsequent changes to the regime’s control lists and
                                     guidance.
                                     4
                                      The remaining 82 categories either (1) require a license for export to Hong Kong for national security
                                     reasons or other reasons such as nonproliferation concerns or (2) do not require a license for exports
                                     to Hong Kong of some items for national security reasons but do require a license for other items for
                                     other reasons.
                                     5
                                      For example, one of these license exceptions covers exports of certain technology and software.



                                     Page 5                                       GAO/NSIAD-97-149 Hong Kong’s Reversion to China
B-275463




use and end user. If the exporter determines that the conditions for a
license exception have been met, the item may be exported without a
license. The remaining 2 categories (of the 72) include some items that
require a license and some that do not.

In contrast, China is not entitled to obtain any national security items on a
no-license-required basis. Moreover, China is eligible for only one type of
license exception. This “civil end use” exception authorizes exports and
reexports of national security-controlled items only to civil end users for
civil end uses; exports to military end users or to known military uses still
require a license.

Differences also exist in how computer exports to Hong Kong and China
are controlled. Both are eligible for license exceptions, but the Export
Administration Regulations place the two under different country groups
called “computer tiers.” Hong Kong’s classification under “tier 2” makes it
eligible to receive—without a license—computers with a composite
theoretical performance of up to 10,000 millions of theoretical operations
per second (MTOPS).6 In contrast, China’s classification under “tier 3”7
requires companies to obtain an export license when the computers
(1) are intended for a military end user or an end user involved in
proliferation activities and have a composite theoretical performance of
over 2,000 MTOPS or (2) are intended for a civilian end user and have a
composite theoretical performance of over 7,000 MTOPS. In addition, the
license exception prohibits exports to any country in tier 3 for military,
nuclear, chemical, biological, or missile end users and end uses.
Retransfers to military and defined proliferation end users and end uses in
otherwise eligible countries are also strictly prohibited without prior
authorization. Computers exported under a license exception are not
required to have a computer safeguards plan restricting use and access.

A specific case illustrates the practical application of these different
standards. In December 1996, a U.S. exporter shipped a high-performance
computer with a performance level of about 8,800 MTOPs to a Hong Kong
university. Because Hong Kong is under tier 2 standards, and because the
computer’s performance level was under 10,000 MTOPS, the exporter was
able to ship it without a license and without a safeguards plan to guard



6
 Composite theoretical performance is a measure used to estimate the maximum possible performance
of a computer as measured in millions of theoretical operations per second.
7
Tier 3 includes certain nuclear weapons states and other countries of proliferation concern, such as
China, Russia, India, Pakistan, and Israel.



Page 6                                       GAO/NSIAD-97-149 Hong Kong’s Reversion to China
                                B-275463




                                against improper use.8 However, this computer’s performance level would
                                preclude it from export to China without a license, even to civilian users
                                or for civilian uses.

                                Hong Kong is treated differently from China in one other area: technology
                                and equipment controlled for biological and chemical proliferation
                                reasons in six categories. The U.S. government does not require licenses
                                for exports of such items to Hong Kong because it is not a country of
                                concern for chemical and biological weapons proliferation. China,
                                however, must obtain licenses for exports of items in these categories.

Differences in License Review   Other items—for example, those controlled for nuclear nonproliferation
When Licenses Are Required      and missile technology reasons—require licenses for export to both Hong
                                Kong and China. The difference lies in how license applications are
                                reviewed—Hong Kong is viewed more favorably than China in deciding
                                whether to approve a license, according to Commerce officials. When
                                reviewing license applications, Commerce officials said they consider the
                                risk of diversion, whether the destination country has a nuclear or missile
                                program, whether it belongs or adheres to control regimes, the strength of
                                the country’s own export controls, and the stated end use and end user.
                                The standards for approval to Hong Kong are different than for China, in
                                part because Hong Kong does not have a known or suspected nuclear
                                weapons or missile development program. According to Commerce
                                officials, the most likely reason an item would be denied to Hong Kong is if
                                Commerce believed there was a risk of diversion based on the end user or
                                other information.

                                Data on license applications for dual-use exports to Hong Kong and China
                                illustrate the differences in licensing review. From fiscal years 1994
                                through 1996, the Commerce Department approved 431 license
                                applications for Hong Kong valued at $870 million and denied none; an
                                additional 71 license applications were returned without action (meaning
                                that the exporter failed to provide sufficient information or withdrew the
                                application, or Commerce determined that the item did not require a
                                license). During the same period, Commerce approved 2,146 licenses for
                                China (valued at $2.8 billion); denied 176; and returned 640. Figure 1
                                shows the relative proportions of these licenses approved, denied, and
                                returned without action for Hong Kong and China.



                                8
                                 According to a representative of the computer manufacturer, a safeguards plan will be implemented if
                                the U.S. government approves a license for a planned upgrade to the computer to go beyond 10,000
                                MTOPS.



                                Page 7                                      GAO/NSIAD-97-149 Hong Kong’s Reversion to China
                                              B-275463




Figure 1: Licensing Decisions for Hong Kong and China, Fiscal Years 1994-96



                                                           72.5%

85.9%




                                             14.1%
                                                                                               21.6%

                                                                            5.9%



               Applications for                                     Applications for
                 Hong Kong                                               China



                                  Approved        Denied     Returned



                                              Source: Department of Commerce.




                                              Further, the U.S. government has denied license applications for
                                              controlled items to China that it has approved for export to Hong Kong.
                                              We identified four cases where the U.S. government refused to approve
                                              items for export to China that exactly matched the descriptions of items it
                                              approved for export to Hong Kong, including oscilloscopes of specified
                                              standards. The actual number of items denied for export to China that
                                              were approved for export to Hong Kong during fiscal years 1994 through
                                              1996 could be much greater—our search of data from Commerce’s data
                                              base identified 14 categories that included items denied for China but
                                              approved for Hong Kong.9

                                              In response to our request, Commerce also identified 29 cases where items
                                              denied for export to China would not even have required a license for

                                              9
                                               Our methodology—identifying matches based on exact item descriptions in Commerce’s data
                                              base—was constrained by variations in how data are entered into the data base and therefore did not
                                              allow us to identify other matches that could be determined only through additional technical review.



                                              Page 8                                       GAO/NSIAD-97-149 Hong Kong’s Reversion to China
                                         B-275463




                                         export to Hong Kong, as shown in table 1. Commerce Department officials
                                         noted that the Department denied many of these applications because of
                                         concerns over end users.

Table 1: Applications Denied for China
That Did Not Require a License for                                                                                                   Number of
Hong Kong, Fiscal Years 1994-96          Category                                                                                   applications
                                         number                 Description                                                               denied
                                         1A003                  Manufactures of nonfluorinated polymeric                                            1
                                                                substances controlled under another category
                                                                (1C008.a), in film, sheet, tape, or ribbon form
                                         1C002                  Metal alloys, metal alloy powder, or alloyed materials                              1
                                         3A001                  Electronic devices and components                                                   3
                                         3A002                  General purpose electronic equipment                                            13
                                         3B01a                  Equipment for the manufacture or testing of                                         2
                                                                semiconductor devices or materials
                                         3C001                  Hetero-epitaxial materials consisting of a “substrate”                              1
                                                                with stacked epitaxially grown multiple layers
                                         3C004                  Hydrides of phosphorus, arsenic, or antimony,                                       1
                                                                purity better than 99.99 percent
                                         4A003                  Digital computers, “electronic assemblies,” and                                     2
                                                                related equipment and specially designed
                                                                components
                                         6A005                  Lasers, components, and optical equipment                                           3
                                         6C002                  Optical sensors                                                                     2
                                         Total                                                                                                  29
                                         a
                                          This was the category and description in use at the time the licenses were denied; the category
                                         has since been divided into eight separate categories.

                                         Source: Department of Commerce.



Differences in Treatment of              Another difference in U.S. treatment of exports to Hong Kong and China
Munitions Items                          concerns access to munitions items. Hong Kong is eligible to obtain export
                                         licenses for munitions items, which are reviewed by the Department of
                                         State on a case-by-case basis. China, however, is generally not eligible to
                                         obtain munitions items because of sanctions the United States imposed in
                                         response to the June 1989 massacre at Tiananmen Square. The sanctions
                                         include suspension of (1) all exports of munitions items to China, except
                                         for items for inclusion in civil products not intended for the Chinese
                                         military or security forces10 and (2) licenses for the export of any

                                         10
                                           The Tiananmen Square sanctions (P.L. 101-246) provide that munitions licenses may be issued for
                                         “systems and components designed specifically for inclusion in civil products and controlled as
                                         defense articles only for purposes of export to a controlled country, unless the President determines
                                         that the intended recipient of such items is the military or security forces of the People’s Republic of
                                         China.”



                                         Page 9                                         GAO/NSIAD-97-149 Hong Kong’s Reversion to China
                          B-275463




                          U.S.-manufactured satellites for launch on launch vehicles owned by
                          China. The President can waive either of these suspensions.11

                          During the period 1994-96, the U.S. government licensed munitions
                          exports to Hong Kong valued at about $307.4 million. Encryption machines
                          and equipment comprised over half of this amount, ahead of other major
                          categories including manufacturing and technical assistance agreements,
                          computer memory, and helicopters. In the same period, the United States
                          licensed munitions exports to China valued at about $284 million.
                          Satellites and satellite equipment, licensed under sanctions waivers, made
                          up over three quarters of the total, followed by such categories as
                          encryption machines and equipment and software.


                          The U.S. government intends to accord Hong Kong the same export
U.S. Policy for           control treatment after reversion as it does now, so long as its export
Treatment of Hong         control system remains effective. This policy derives from the U.S.
Kong After Reversion      government’s overall commitment to support Hong Kong’s future
                          autonomy in economic and trade matters and is articulated in the Hong
                          Kong Policy Act.

                          Other countries—specifically Australia and Japan—plan to continue their
                          current practice of requiring licenses for exports of all controlled items to
                          both Hong Kong and China. The United Kingdom’s policy parallels that of
                          the United States—the United Kingdom treats Hong Kong and China
                          differently for export control purposes and has no current plans to change
                          that policy after reversion.


Basis for Maintaining     The Hong Kong Policy Act allows the United States to continue to
Existing Export Control   maintain separate export control requirements for Hong Kong and China
Policy                    after reversion. The act stipulates that the United States should continue
                          to treat Hong Kong as a separate territory in economic and trade matters.
                          The act also specifically calls on the U.S. government to “continue to
                          support access by Hong Kong to sensitive technologies . . . for so long as
                          the United States is satisfied that such technologies are protected from
                          improper use or export.”

                          State Department officials stated that the Hong Kong Policy Act signals
                          U.S. support for the agreement between China and the United Kingdom to

                          11
                            In fact, the President has on occasion waived sanctions to allow exports of munitions items, mainly
                          in support of satellite projects to be owned or operated by other countries or by multinational
                          telecommunications corporations.



                          Page 10                                      GAO/NSIAD-97-149 Hong Kong’s Reversion to China
                         B-275463




                         preserve Hong Kong’s autonomy. State officials noted that, in the absence
                         of any evidence that Hong Kong’s export control system is not working
                         effectively, the State Department would not support a preemptive decision
                         to modify existing U.S. export control policy. To do so could risk
                         becoming a “self-fulfilling prophecy” that would result in less autonomy
                         for Hong Kong. State Department officials also said that the U.S.
                         government is committed to support Hong Kong’s separate export control
                         regime and to work closely with the Hong Kong government to achieve
                         that end.


Effectiveness of Hong    Hong Kong’s ability to maintain its own effective export control system is
Kong’s Export Control    key to meeting the guideline in the Hong Kong Policy Act that U.S.
System Is Key to         sensitive technologies be “protected from improper use or export.” Hong
                         Kong government officials have said that Hong Kong is committed to
Maintaining Status Quo   adopting the highest international standards for its strategic trade control
                         system and views the control of strategic trade as both an obligation and
                         an opportunity. In their view, Hong Kong needs to ensure that it is not
                         used as a conduit for diversion of sensitive technology while maintaining
                         an effective control system that facilitates Hong Kong’s access to
                         technology and in turn its continued economic growth and competitive
                         edge.

                         In 1992 the United States and other former COCOM members designated
                         Hong Kong a “cooperating country” with an export control system
                         possessing the necessary elements of an effective licensing and
                         enforcement system. Among other things, these elements included
                         establishing a legal basis for controls, providing licensing review and
                         screening, using pre- and post-license checks, undertaking enforcement
                         efforts, and engaging in international cooperation. U.S. government
                         officials told us Hong Kong continues to have a strong control system; that
                         system is characterized by the following:

                         Legal basis for controls. The Hong Kong Import and Export Ordinance and
                         the accompanying Import and Export Regulations form the legal basis for
                         the import and export of strategic commodities. All imports, exports,
                         transshipments, and certain more sensitive in-transit shipments of
                         controlled items must be licensed. The Hong Kong government believes
                         that the requirement for both import and export licenses has provided a
                         double-checking mechanism on the inflow and outflow of all strategic
                         commodities. Even if goods are imported for subsequent reexport or
                         transshipment, both import and export licenses are required. The



                         Page 11                           GAO/NSIAD-97-149 Hong Kong’s Reversion to China
B-275463




ordinance also provides the Hong Kong Director-General of Trade with the
authority to approve licenses and the Commissioner of Customs and
Excise with the authority to carry out enforcement activities.

License review. License applications for strategic items are subject to
various reviews, including item classification to determine whether the
items are controlled, for what reason, and their technical capabilities.
Licenses also go through risk assessments to determine whether (1) there
is any risk of diversion, (2) the technical capabilities of the items are
suitable for the declared end use, and (3) the end use is acceptable and
believed to be genuine. License applications may also be subject to further
review by an interagency group, which examines more difficult cases and
can impose conditions for approval of licenses. To assist in screening
license applications, the Hong Kong Trade Department maintains a data
base that has the capability to track the issuance of import and export
licenses and those licenses referred to Customs for consignment and
disposal checks. The data base can also track the licensing histories of
companies on the Hong Kong government “watchlist” of target companies.

License checks. Hong Kong Customs and Trade Departments conduct
consignment checks for exports and disposal checks for imports that are
to remain in Hong Kong. Consignment checks are carried out to ensure
that reexports are legitimate and properly authorized. Disposal checks are
conducted to ensure that the goods imported will be used locally as
declared and no diversion has occurred.

Enforcement. According to U.S. Customs officials in Hong Kong, the Hong
Kong authorities have demonstrated excellent cooperation with the United
States on export enforcement activities, including sharing of information
and cooperation on investigations, searches, and seizures of suspected
illegal shipments. In 1996, for example, Hong Kong Customs, acting on
information from U.S. Customs, intercepted a Chinese vessel and seized an
unlicensed in-transit shipment of a rocket fuel chemical, ammonium
perchlorate, which is a controlled item. The shipment was reportedly
exported from North Korea via Hong Kong for shipment to the Pakistan
Space and Upper Atmosphere Research Commission.

International cooperation. Hong Kong adheres voluntarily to the current
standards of all the nonproliferation regimes and reviews its strategic
control list regularly to reflect the most updated lists agreed to by these
regimes.




Page 12                           GAO/NSIAD-97-149 Hong Kong’s Reversion to China
B-275463




The Hong Kong government has also been taking several steps to improve
its export control system, including the following:

Arranging for technical advisors from other countries. The Hong Kong
government has sought the temporary assignment of export control
advisors from its major trading partners to assist in license reviews. A U.S.
Commerce Department official is presently in Hong Kong working with
the Trade Department on a 6-month detail. The advisor has provided
technical guidance on licensing issues, classification of items, and U.S.
export controls. The Hong Kong government has had discussions with
Australia and Japan about the possibility of either country providing the
next advisor.

Fostering Hong Kong’s relationships with multilateral regimes. The Hong
Kong government intends to continue to update its control lists to make
sure they conform to the lists maintained by the multilateral control
regimes. Because the Hong Kong government will no longer be able to
participate directly in the various regimes as it has in the past, Hong Kong
has been working with the United States, the United Kingdom, Australia,
and Japan on arrangements that would keep Hong Kong informed of the
latest developments in these regimes. The intent is for individual countries
to take the lead in informing Hong Kong about the activities of a particular
regime—for example, Australia would take the lead in advising Hong Kong
of changes in Australia Group control lists. Hong Kong government
officials also believe that it is critical for Hong Kong to continue to receive
intelligence and information such as country notifications of license
denials. On a bilateral basis, Hong Kong has been discussing with the
United States and other countries how to obtain such information.

Establishing contacts with worldwide networks of technical experts. The
Hong Kong government has also sought to establish a network of
professional and technical experts worldwide. Additionally, the Hong
Kong government has also shared experiences and views with other
countries in the region, such as at the January 1997 Asian Export Control
Seminar in Tokyo.

Upgrading data capability. Hong Kong’s Trade Department is upgrading its
computer system to allow it to generate information reports with detailed
breakdowns by country and product type for both import and export
licenses.




Page 13                           GAO/NSIAD-97-149 Hong Kong’s Reversion to China
                             B-275463




                             Considering brokering legislation. The Hong Kong government has also
                             been considering the enactment of laws against brokerage of illegal
                             weapon deals. The proposed brokering legislation would allow
                             prosecution of trade middlemen who make deals for controlled items even
                             if the items never actually enter Hong Kong itself. U.S. export control
                             officials would like to see legislation enacted before reversion.


Export Control Policies of   Australia and Japan, two of Hong Kong’s other major trading partners,
Other Governments            plan to continue their current policy and practice of reviewing all dual-use
                             exports to both Hong Kong and China. According to Australian and
                             Japanese officials, neither country currently permits exports of controlled
                             items to Hong Kong without a license, and the two countries plan to
                             continue this practice after Hong Kong’s reversion. For example, under
                             Japan’s export control system all items are controlled to all destinations,
                             and Japan does not export controlled items to Hong Kong without a
                             license. According to Japanese officials, exports of controlled items for
                             China receive greater scrutiny during the review process.

                             According to British officials, current British export control policies and
                             restrictions affecting Hong Kong and China are similar to U.S. policies.
                             Thus, items that require a license for export to China may not require a
                             license for export to Hong Kong. According to a representative of the
                             British embassy in Washington, D.C., as of April 1997 the British
                             government had no plans to change this policy after Hong Kong’s
                             reversion.


                             As noted previously, the U.S. government is committed to continuing its
Monitoring Critical to       existing export control policy toward Hong Kong, consistent with the
Assess Risks, but Data       provisions of the Hong Kong Policy Act, as one means of demonstrating
to Track Exports             support for Hong Kong’s autonomy. Nonetheless, uncertainty remains over
                             China’s intentions toward Hong Kong and, therefore, the level of risk the
Could Be Limited             United States may be incurring in continuing to export sensitive
                             technologies to Hong Kong. Consequently, monitoring controlled exports
                             to Hong Kong after the transition—as well as assessing other
                             indicators—becomes critical to detecting any heightened risks to U.S.
                             national security and nonproliferation interests. However, the U.S.
                             government has not identified the full range of sensitive items that have
                             been exported to Hong Kong. Without accurate data, the U.S. government
                             will be unable to construct baselines against which to measure changes in
                             exports.



                             Page 14                           GAO/NSIAD-97-149 Hong Kong’s Reversion to China
                                 B-275463




Uncertainties and Potential      Various factors contribute to a level of uncertainty in assessing potential
Risks                            risks to U.S. nonproliferation interests once Hong Kong reverts to China.
                                 These include the nature of China’s commitment to an autonomous Hong
                                 Kong export control system, China’s overall nonproliferation credentials,
                                 and varying judgments over the nature and severity of the current risk of
                                 Chinese diversions of U.S. technology from Hong Kong. If the integrity of
                                 Hong Kong’s export control system cannot be maintained, the
                                 consequences could be (1) a greater opportunity for China to obtain
                                 U.S.-controlled technology and (2) increased attempts by China and others
                                 to use Hong Kong to circumvent international controls on technology
                                 transfer.

China’s Reported Perspective     China has taken no formal, public position on the issue of whether Hong
on Hong Kong’s Export Control    Kong can maintain a separate export control system. The Hong Kong
System                           government interprets export controls to be a trade matter (thus falling
                                 under the provisions of the Basic Law and the Joint Declaration providing
                                 for Hong Kong’s autonomy in economic and trade matters) but has not
                                 sought Chinese agreement for that interpretation. Nonetheless, Hong Kong
                                 officials point to informal statements by two Chinese government officials
                                 indicating that China will not challenge Hong Kong’s autonomy in this
                                 area. Hong Kong officials also note that, more importantly, China has not
                                 ruled that Hong Kong’s Import and Export Ordinance—the basic statute
                                 governing export controls—is in violation of the Basic Law. They consider
                                 this significant in view of the recent determination, by the Standing
                                 Committee of China’s National People’s Congress, that various other Hong
                                 Kong laws do contravene the Basic Law. (Under article 160 of the Basic
                                 Law, China effectively has the right to amend or repeal Hong Kong laws
                                 that are later found to be inconsistent with the Basic Law. Article 158 of
                                 the Basic Law gives the Standing Committee the power to interpret the
                                 Basic Law.)

                                 Questions remain about Hong Kong’s ability to maintain an independent
                                 export control system after reversion. A 1997 classified study on Hong
                                 Kong’s export control system prepared by the U.S. interagency group
                                 charged with monitoring Hong Kong’s export controls noted that one of
                                 the biggest questions the United States faces is whether the Hong Kong
                                 government would continue to assert that its autonomy in economic
                                 matters gives it the authority to block shipments from Hong Kong to
                                 Chinese government-linked entities.

Chinese Proliferation Behavior   China’s overall proliferation record is cause for concern, thereby
                                 contributing to the uncertainty of future Chinese government behavior



                                 Page 15                          GAO/NSIAD-97-149 Hong Kong’s Reversion to China
                               B-275463




                               toward Hong Kong. The U.S. government has on numerous occasions
                               taken issue with Chinese proliferation activities, including

                           •   missile technology violations for which the United States issued two
                               sanctions,12
                           •   violations of the Nuclear Nonproliferation Treaty and the Biological
                               Weapons Convention,
                           •   transfers of chemical weapons-related technology to the Middle East,
                           •   sales of conventional arms such as antiship cruise missiles to Iran, and
                           •   a diversion of controlled machine tools in China.13

Concerns Over Diversions       Various U.S. government analyses have raised concerns about the actual
From Hong Kong                 and potential risk of diversion of sensitive technologies through Hong
                               Kong. These concerns center on China’s use of Hong Kong to obtain
                               sensitive technology illicitly and as a means to ship controlled
                               technologies to other countries, as well as Hong Kong’s general use as a
                               transshipment point by third countries. The key question is to what extent
                               the risks will increase after reversion. Some U.S. officials are concerned
                               that diversions will increase, given China’s sovereignty over Hong Kong.
                               Hong Kong officials maintain that China’s desire to see Hong Kong
                               continue to succeed economically will restrain such activity.

                               Some evidence exists of Chinese efforts to obtain controlled technology
                               illicitly from Hong Kong. For example, following a U.S. seizure of 12 image
                               intensifier tubes (a type of optical sensor), Hong Kong Customs
                               determined that an additional 81 tubes had been shipped to Hong Kong
                               and then diverted to China.14 Chinese “front companies” in Hong Kong
                               have been identified with efforts to acquire controlled technologies for
                               illicit export to countries of proliferation concern, according to U.S. and
                               Hong Kong government officials. Hong Kong officials said that their
                               government has some Chinese companies on its watchlist that it suspects
                               of diverting controlled technologies from China through Hong Kong.

                               U.S. officials also have emphasized the significance of Hong Kong as a
                               transshipment point where the large quantities of goods that transit the
                               territory afford an opportunity for illegal diversions to other parts of the

                               12
                                See our report, Export Controls: Some Controls Over Missile-Related Technology Exports to China
                               Are Weak (GAO/NSIAD-95-82, Apr. 17, 1995).
                               13
                                We reported on the diversion of machine tools shipped to three locations in China in Export
                               Controls: Sensitive Machine Tool Exports To China (GAO/NSIAD-97-4, Nov. 19, 1996).
                               14
                                According to U.S. Customs Service records, this case resulted in convictions and fines for parties in
                               Hong Kong and incarceration for individuals in the United States in late 1993.



                               Page 16                                      GAO/NSIAD-97-149 Hong Kong’s Reversion to China
B-275463




world. The transshipment system is used by proliferators as a means to
circumvent the export controls of countries that are members of
nonproliferation regimes. Hong Kong and U.S. Customs officials identified
several cases of attempts to divert controlled technologies through Hong
Kong involving North Korea, Pakistan, Iran, Singapore, and others that
occurred between 1993 and 1996. For example, in June 1994 a party in
Singapore arranged to ship a coder and decoder system into Hong Kong
for diversion to North Korea. Hong Kong Customs authorities intercepted
and seized the system at the airport.

The actual harm to U.S. national security interests of technology
diversions depends in part on the technology involved and its utility to
China’s military modernization efforts. Controlled dual-use
technologies—including those eligible for “license-free” export to Hong
Kong—have military applications that China might find attractive for its
military modernization efforts. The Department of Defense has identified
21 key technological areas crucial for developing future weapons systems,
including high-performance computing, composite materials, and
biotechnology and flexible manufacturing. China is currently placing an
emphasis on research and development related to many of these areas.
The Commerce Department, in reviewing license applications, is also
required to watch for items destined for China that would make a direct
and significant contribution to developments in electronic and
antisubmarine warfare, intelligence gathering, power projection, air
superiority, and nuclear weapons and their delivery systems. Appendix I
illustrates, for selected dual-use technologies available to Hong Kong on a
license-free basis, their potential military usefulness for China’s military
modernization efforts.

In addition to the technologies addressed previously, high-performance
computers have specific national security applications in nuclear weapons
programs, cryptology, conventional weapons programs, and military
operations, according to a 1995 study cosponsored by the Commerce and
Defense Departments. For example, the design and development of
advanced conventional weapons represent a significant area for
computing, as does direct support of military operations. The availability
of high-performance computers to countries of national security concern
could upgrade their military capabilities, which in turn could adversely
affect U.S. military operations.

The implementation of the tier 3 standards for the export of
high-performance computers, as described earlier, is particularly



Page 17                          GAO/NSIAD-97-149 Hong Kong’s Reversion to China
                            B-275463




                            troublesome for China. China remains an authoritarian, centrally
                            controlled government whose economy is dominated by state-owned
                            enterprises and whose military is heavily involved in commercial activities.
                            As such, the distinction between a civilian end user (that can obtain a
                            computer of up to 7,000 MTOPS without a license) and a military end user
                            (limited to computers of up to 2,000 MTOPS without a license) becomes
                            blurred.


Monitoring Critical, but    U.S. officials agree that monitoring Hong Kong’s autonomy in the conduct
Difficulties May Exist in   of export controls is necessary, given the potential risks involved and the
Ability to Track            U.S. policy commitment to ensure that exports of sensitive technology to
                            Hong Kong are adequately protected. U.S. and British government officials
Nonlicensed Items           have suggested several means to monitor the continued autonomy of Hong
                            Kong’s export control system and to detect any evidence of China’s
                            involvement in the operations of Hong Kong’s export control regime.

                            One such indicator would be changes in patterns of U.S.-controlled
                            dual-use exports to Hong Kong, which could signal that China is
                            attempting to acquire high technology items through Hong Kong. However,
                            the U.S. government may have difficulty in effectively monitoring items
                            that will continue to be exported to Hong Kong without a license. The only
                            existing U.S. government sources of information on such exports are data
                            that exporters provide using a shipper’s export declaration (SED) or
                            through automated filing systems—the methods the Customs Service and
                            the U.S. Bureau of the Census routinely use to collect data on all U.S.
                            exports of a certain value.15 Exporters are currently required to cite the
                            category code that permits them to export an item on a no-license-required
                            or license-exception basis.16 Regulations require exporters to maintain, for
                            5 years, records of transactions involving exports under any license or
                            license exception and to provide such records to the Commerce
                            Department upon request. Failure to comply with reporting and
                            recordkeeping requirements is subject to sanctions and penalties as
                            described in the regulations. A monthly-updated data base of export data
                            is provided to Commerce staff to assist in enforcement efforts.



                            15
                              Exporters are required to file documentation for shipments by mail valued at more than $500 and for
                            shipments by means other than mail valued at more than $2,500; exporters must file for all shipments
                            requiring an export license regardless of value.
                            16
                              With one exception: the current Export Administration Regulations do not require exporters to
                            record category information when the item falls under the license exception for technology and
                            software exports.



                            Page 18                                     GAO/NSIAD-97-149 Hong Kong’s Reversion to China
B-275463




A January 1997 Census Bureau report found serious problems with the
accuracy of some of the data on SEDs. The report noted that 50 percent of
SEDs (which in turn represent about 35 percent of all reported exports)
were in some way incomplete or inaccurate; Census has also reported that
25 percent of all export transactions contain errors that need correction.
Because the Census report did not specifically assess the accuracy of the
data field used to capture Commerce’s controlled item categories and
license exceptions, there is no way to determine whether these data suffer
from similar rates of error. Customs is instituting a new system to replace
SEDs—the online Automated Export System (AES)—that is intended to
significantly improve data accuracy.17 However, AES is not mandatory and
uncertainty remains over the number of companies that may participate
voluntarily.

In the meantime, Commerce enforcement staff must rely on the existing
data. No efforts have been made to systematically test the accuracy of the
data on exports to Hong Kong. Moreover, no attempt has been made to
construct a baseline against which to measure any changes in the types
and volumes of items exported to the territory.

Tracking U.S. licensed items to Hong Kong and China also could serve as
an important indicator of any shifts in exports of sensitive technology.
Data are readily available to establish baselines against which to measure
changes after reversion, and the U.S. government has begun to assemble
the basic data to track U.S. licensed exports to Hong Kong and China.
Specific indicators to monitor could include (1) particular categories of
items showing increased exports for Hong Kong and decreased exports for
China and (2) license denials for China and any changes in corresponding
categories of exports to Hong Kong. Figure 2 illustrates one type of
baseline—the top 10 categories for Hong Kong for fiscal years 1994
through 1996, compared to the same categories for China.




17
 We are currently reviewing Customs’ implementation of AES, including the extent to which AES will
improve U.S. export data.



Page 19                                    GAO/NSIAD-97-149 Hong Kong’s Reversion to China
                                                     B-275463




Figure 2: Highest Categories of Licensed Exports to Hong Kong Compared With China, Fiscal Years 1994-96


$1,000,000,000



  $800,000,000



  $600,000,000



  $400,000,000



  $200,000,000



              $0                                     a                                                 a                                    a

                      raf
                         t
                                  urity        ine
                                                   s
                                                            ice
                                                                 s
                                                                         ter
                                                                             s
                                                                                       ems          ems          ors        t ers         pair
                     c          c             g           v             u            t            t            s           e             e
                 ac
                    e         se          en            e             p         sy
                                                                                    s
                                                                                              sy
                                                                                                 s           ur        rom
                                                                                                                                       r
               Sp         t a        i ne         n i cd         c om        on            on           pr ec       l e         at ion
                       Da         rb         ctr
                                                 o           tal          ti
                                                                                     uls
                                                                                         i            l          ce          ig
                               Tu         l e          D igi         v iga        op           m ica          Ac         Nav
                                         E                        Na           Pr        Ch
                                                                                              e


                                                            Hong Kong               China

                                                     Note: Numbers for the categories listed are 9A004, 5A002, 9E003, 3A001, 4A003, 7A003, 9A003,
                                                     1C350, 7A101, and 7E003, respectively.

                                                     a
                                                     Commerce licensed no items in these categories for China.


                                                     Source: Department of Commerce.


                                                     Similarly, figure 3 shows the top 10 categories of controlled items for
                                                     China as compared with Hong Kong, which highlights the categories of
                                                     items that may be exported to Hong Kong without a license.



                                                     Page 20                                           GAO/NSIAD-97-149 Hong Kong’s Reversion to China
                                                                  B-275463




Figure 3: Highest Categories of Licensed Exports to China Compared With Hong Kong, Fiscal Years 1994-96
$1,000,000,000



  $800,000,000



  $600,000,000



  $400,000,000



  $200,000,000



                    $0                                            a             a                                                      b             a             a
                                                     t                         nt                                                     ne
                                   ut e
                                       rs        raf             gy
                                                                            me             rity       rso
                                                                                                          rs
                                                                                                                    too
                                                                                                                         ls
                                                                                                                                  ici           sti
                                                                                                                                                    cs
                                                                                                                                                               eri
                                                                                                                                                                   ng
                               p            c ec           n olo        i p           e cu          u             e           e d           o u            e t
                          om           Sp
                                           a
                                                     tec
                                                         h
                                                                   eq
                                                                      u
                                                                               ata
                                                                                    s           rec         ch
                                                                                                               in            m           Ac              m
                  tal
                      c
                                                 e r            m            D             a lp        M  a             o d,                       T ele
              i                               ut             co                          c                            o
        Dig                                mp           ele                           mi                            F
                                         o             T                         C he
                                       C


                                                                              China           Hong Kong

                                                                  Note 1: This list excludes licenses associated with categories 3B01 (semiconductor
                                                                  manufacturing equipment; total licenses valued at about $110.9 million), 1B50 (vacuum or
                                                                  controlled environment furnaces; total licenses valued at about $17.4 million), and 1B70
                                                                  (chemical weapons production equipment; total licenses valued at about $25 million) because
                                                                  Commerce replaced these with multiple new categories and we were unable to allocate license
                                                                  data among them.

                                                                  Note 2: Numbers for the categories listed are 4A003, 9A004, 4E002, 5A001, 5A002, 1C350,
                                                                  2B001, 0A95, 6A001, and 5A101, respectively.

                                                                  a
                                                                   Most items in these categories required no prior U.S. government review before export to Hong
                                                                  Kong.
                                                                  b
                                                                   Commerce licensed no items in this category for Hong Kong.


                                                                  Source: Department of Commerce.




                                                                  Page 21                                               GAO/NSIAD-97-149 Hong Kong’s Reversion to China
                                       B-275463




                                       Changes in export trends may not, by themselves, represent evidence of
                                       attempts to acquire technology illicitly. Increases in certain
                                       high-technology exports to Hong Kong could be due, for example, to the
                                       Hong Kong government’s encouragement of technology-driven economic
                                       growth. Thus, changes in any baseline would signal the need for further
                                       analysis and checking.

                                       Another means to monitor Hong Kong’s continued autonomy in export
                                       controls involves pre-license checks (PLC) to determine the legitimacy of
                                       proposed end users and post-shipment verifications (PSV) to verify
                                       shipments after licenses have been granted. Defense and Commerce
                                       Department officials have suggested that these checks could be increased
                                       to test the Hong Kong government’s continued willingness to provide
                                       transparency and to obtain more information on the status of particular
                                       exports. The Hong Kong government has stated that it will continue to
                                       cooperate with the U.S. government in the conduct of PLCs and PSVs.

                                       The U.S. government has had much greater success in conducting PLCs in
                                       Hong Kong than in China. The Hong Kong government supports PLCs,
                                       while the Chinese government limits them, as evidenced by the numbers of
                                       such checks that have been canceled. Data are readily available on PLCs
                                       and PSVs to provide a baseline against which to measure changes in Hong
                                       Kong’s autonomy, as shown in table 2.

Table 2: Comparison of Number of
PLCs for Hong Kong and China, Fiscal                                       Hong Kong                     China
Years 1994-96                          PLCs                              Number        Percent      Number        Percent
                                       Completed                             23           74.2           25          22.7
                                       Canceled                               8           25.8           85          77.3
                                       Total                                 31           100           110           100
                                       Source: Department of Commerce.



                                       The ability to conduct PSVs after reversion will also provide a useful
                                       indicator of the continued autonomy of Hong Kong’s export control
                                       system. Currently, Hong Kong allows the United States to perform
                                       post-shipment verifications of deliveries of U.S. exports, but China does
                                       not. During the past 2 years, the U.S. government conducted a total of 35
                                       PSVs in Hong Kong but none in China.


                                       U.S., British, and Hong Kong government officials also suggested other
                                       potential indicators of changes in Hong Kong’s autonomy:



                                       Page 22                             GAO/NSIAD-97-149 Hong Kong’s Reversion to China
B-275463




SED reviews. Commerce Department officials conduct on-site reviews of
selected SEDs at U.S. ports prior to the export of goods. The officials
review numerous transactions before selecting a smaller target group for
closer scrutiny. Commerce also conducts a systematic review at
headquarters of SEDs after shipments have occurred. Commerce officials
advised us that the number of such reviews could be increased or
refocused more directly on Hong Kong exports.

Changes in government personnel. Shifts in key positions beyond those
resulting from normal staff rotation could signal a diminished commitment
to export controls. However, U.S. Consulate General officials indicated
that identifying and assessing changes that were unusual would be
judgmental.

Problems in liaisons with Hong Kong representatives. Changes in the Hong
Kong government’s responsiveness to information on illicit shipments
through the territory, for example, could be an adverse signal. While
instances of reduced Hong Kong cooperation could be empirically
determined, attributing such problems to changes in Hong Kong’s
autonomy would require analysis and judgment, according to U.S.
government officials.

Prosecutions of criminal cases. A decline in numbers of Hong Kong
government prosecutions for export control violations might presage a
change in Hong Kong’s autonomy. Data to construct a baseline would be
readily available.

Passage of new export control legislation. “Brokering” legislation was
introduced in the Hong Kong Legislative Council in April that would allow
the prosecution of middlemen making illegal deals involving controlled
items that may not even enter Hong Kong. Enactment of this law would be
a good indicator of the Hong Kong government’s continued commitment
to a strong export control system.

The U.S. government interagency working group established to coordinate
policy on Hong Kong completed a classified study in January 1997 that
designated benchmarks for monitoring whether changes have occurred
that affect the autonomy of Hong Kong’s export control system. According
to State and Commerce officials, lead agencies will collect data on the
various benchmarks and meet periodically to review the data and make
assessments.




Page 23                         GAO/NSIAD-97-149 Hong Kong’s Reversion to China
                  B-275463




                  U.S. government officials recognize that monitoring the effectiveness of
                  Hong Kong’s export control system and detecting diversions will be a
                  challenge. The Consulate General in Hong Kong is tasked with monitoring
                  a wide array of issues and staff are spread thin, according to Consulate
                  and other U.S. government officials. Consulate officials also believe that
                  individuals operating outside direct Chinese government control will be
                  very difficult to detect and, even with continued Hong Kong cooperation,
                  the U.S. government will not be able to detect everything.

                  As provided by the Hong Kong Policy Act, should the President determine
                  that Hong Kong is not sufficiently autonomous to justify different
                  treatment from China under the export control laws, he may change the
                  way in which these laws are applied to Hong Kong. The State
                  Department’s Deputy Assistant Secretary for Export Controls has stated
                  that the United States would not prejudge the situation in advance of
                  monitoring efforts. She declined to identify specific changes that might
                  trigger either a presidential determination under the act or a change in
                  U.S. export control procedures for Hong Kong. She further commented
                  that a whole series of areas will be monitored and any one change might
                  be sufficient if it seriously affected the autonomy of Hong Kong.
                  Alternatively, a number of smaller changes in a variety of areas might add
                  up to a significant loss in effectiveness. According to Defense Department
                  officials, there are many variables to consider in reaching such a decision,
                  and the decision itself will be subjective. They noted that it might be
                  difficult to assess whether Hong Kong’s autonomy had been reduced if a
                  series of minor events occurred.


                  We recommend that the Secretary of Commerce establish appropriate
Recommendations   baselines to monitor trends in controlled items exported to Hong Kong
                  and China after Hong Kong’s reversion to Chinese sovereignty. To
                  accomplish this, we further recommend that the Secretary of Commerce,
                  working with the Commissioner of the Customs Service, systematically
                  assess data already filed by exporters, particularly information on license
                  exceptions and controlled item category numbers, to determine whether
                  the data are sufficiently complete and accurate to monitor trends in
                  exports of nonlicensed controlled items to Hong Kong. If the export data
                  cannot be relied upon for monitoring purposes, the Secretary of
                  Commerce, in consultation with the Commissioner of Customs, should
                  assess the causes for the problems and initiate corrective actions.




                  Page 24                          GAO/NSIAD-97-149 Hong Kong’s Reversion to China
                     B-275463




                     The Departments of Commerce, State, and Defense, the U.S. Customs
Agency Comments      Service, and the Hong Kong government provided written comments on a
and Our Evaluation   draft of this report. The Departments of Commerce, State, and Defense
                     agreed with the information and analyses in the report. Commerce also
                     agreed with our recommendation to develop appropriate baselines to
                     monitor accurately the potential risk to U.S. national security interests and
                     stated that it is working with other agencies to develop such baselines.

                     The U.S. Customs Service observed that it has controls in place to monitor
                     “licensable” shipments destined for all countries, including Hong Kong.
                     Customs specifically cited its periodic inspections to identify controlled
                     items lacking proper Commerce or State licenses, its reviews of ship
                     manifests to detect suspect shipments, and its Automated Export System
                     to track manifests and SEDs for shipments destined for Hong Kong. Our
                     primary concern, however, is that the U.S. government will have difficulty
                     in tracking items that are eligible for export to Hong Kong without a
                     license—a concern that Customs did not specifically address in its
                     comments. Furthermore, less than 1 percent of all U.S. exports are
                     actually inspected, according to Customs officials, and the results of the
                     Census Bureau’s 1997 study suggest that there are considerable
                     inaccuracies in SEDs. This, in turn could adversely affect Customs’ ability
                     to inspect nonlicensed export shipments to Hong Kong. Moreover, to date,
                     AES is being used in only a very limited capacity, and questions remain
                     about the numbers of exporters that will choose to use this system.

                     Commerce noted that it will be difficult to gather sufficient data on
                     exports of items to Hong Kong that do not require a license, and that,
                     given our findings on SED data accuracy, the Department has reservations
                     about overly relying on such data in the short term. Commerce pointed out
                     that, in addition to data on nonlicensed exports, the U.S. government has
                     other corollary information that will serve as important indicators of the
                     risk to U.S. interests, including monitoring of such areas as Hong Kong’s
                     cooperation with PLCs and PSVs, prosecutions, seizure rates, and changes in
                     enforcement and export licensing personnel.

                     In its comments, the Hong Kong government emphasized its commitment
                     to an effective export control system, backed up by comprehensive and
                     up-to-date legislation, stringent licensing requirements, rigorous
                     enforcement, and international support. In the Hong Kong government’s
                     view, Hong Kong’s “clear autonomy” in the area of export controls, in
                     accordance with provisions of the Basic Law, provides a solid basis for the




                     Page 25                           GAO/NSIAD-97-149 Hong Kong’s Reversion to China
              B-275463




              U.S. government’s policy of treating Hong Kong separately from China in
              the continued export of sensitive technologies.

              The Hong Kong government does not believe there should be any
              questions about Hong Kong’s ability to maintain an independent control
              system after reversion, noting the strong constitutional, legal, and practical
              foundation on which its system is built. The Hong Kong government also
              stressed the need for Hong Kong’s trading partners to continue their
              present liberal export control policies toward Hong Kong and warned
              against restrictive actions that run the risk of undermining Hong Kong’s
              system to the detriment of Hong Kong’s development and the broader
              cause of global nonproliferation. Further, the Hong Kong government saw
              no need for the U.S. government to institute specific baselines to monitor
              Hong Kong’s controls, given the transparency of Hong Kong’s system, and
              cautioned against instituting actions based on “unilateral statistics.” The
              Hong Kong government also commented on other specific potential
              monitoring indicators.

              As we have noted, the effectiveness of Hong Kong’s current export control
              system was a key factor in the U.S. government’s decision to continue
              existing export control policy toward Hong Kong after its reversion to
              China. The central issues are how well that system can be preserved after
              reversion and how well the U.S. government will be able to detect any
              changes that signal a weakening of the system. Various factors—including
              China’s overall proliferation record and evidence of Chinese efforts to
              obtain controlled technology illicitly from Hong Kong—raise questions
              about the level of increased risk that the United States may be incurring in
              continuing to export sensitive technologies to Hong Kong after reversion.
              We therefore believe the U.S. government should monitor exports of
              sensitive U.S. technologies to both Hong Kong and China to ensure that
              such technologies continue to be protected as called for in the Hong Kong
              Policy Act.

              Comments from the Departments of Commerce, State, and Defense, the
              U.S. Customs Service, and the Hong Kong government are presented in
              appendixes II, III, IV, V, and VI, respectively. The State and Defense
              Departments also provided technical comments and these have been
              incorporated in the report as appropriate.


              To determine how U.S. export control policies and procedures are
Scope and     currently applied to Hong Kong as compared with China, we reviewed U.S.
Methodology

              Page 26                           GAO/NSIAD-97-149 Hong Kong’s Reversion to China
B-275463




export control regulations governing licensing of dual-use and munitions
items. We analyzed these regulations to identify which dual-use categories
allow items to be exported to Hong Kong without licenses or prior
government review, but not to China. We discussed our analysis and
application of U.S. export control policy and regulations with officials of
the Departments of State, Defense—especially the Defense Technology
Security Administration—and Commerce and the U.S. Arms Control and
Disarmament Agency. To identify and compare historical patterns of U.S.
exports of controlled items to Hong Kong and China, we obtained data
from the Commerce Department’s licensing data base to determine which
license applications were approved, denied, and returned without action
for both Hong Kong and China during fiscal years 1994 through 1996. We
also analyzed license applications for exports to China that were denied to
determine whether the items on these applications could have been
exported to Hong Kong without a license. We prepared a preliminary list
of such cases and had the Commerce Department validate this list. To
determine if any items denied for China were actually licensed for Hong
Kong, we searched data from Commerce’s data base to identify matches in
item descriptions. As these matches were done on a text field from two
separate files of item descriptions, only an exact match of the text
language in each field would identify the “same” items. However, using the
criterion of an exact match does not indicate the extent of identified items,
given that identical items may be described differently in the data base.
Therefore, the actual number of items that were denied for China but
exported to Hong Kong could be much greater than our methodology
allowed us to identify. We did not independently verify the accuracy of the
data base from which we obtained data for use in our analyses.

We obtained information from the Defense Intelligence Agency on the
military and proliferation significance of dual-use categories of items that
do not require licenses for export to Hong Kong. We also obtained a list of
authorized U.S. munitions exports to Hong Kong and China from the State
Department’s Office of Defense Trade Controls.

Assessing differences in application of export controls toward Hong Kong
and China also required us to obtain and review documents, such as
papers presented at two nonproliferation conferences held in Washington,
D.C., and Tokyo, Japan, which showed regime policies, restrictions, and
obligations for Hong Kong, China, and the United States. We interviewed
officials from several U.S. government agencies, including the State
Department’s Bureau of Political-Military Affairs, the Commerce
Department’s Bureau of Export Administration, the U.S. Customs Service,



Page 27                          GAO/NSIAD-97-149 Hong Kong’s Reversion to China
B-275463




intelligence agencies, the Office of the Secretary of Defense and Defense
Technology Security Administration, and the U.S. Consulate General in
Hong Kong, for their analyses and views.

To determine U.S. export control policy toward Hong Kong after reversion
and the rationale for the policy, we reviewed the provisions of the United
States-Hong Kong Policy Act of 1992 and statements and testimony of
State Department officials on the act and on U.S. policy. In addition, we
reviewed over 60 State Department cables concerning Hong Kong,
nonproliferation, and the reversion and two studies prepared by an
interagency working group on these issues. We also reviewed laws,
regulations, investigative case files, and data base information concerning
Hong Kong’s export control and enforcement system obtained from both
the U.S. government and the Hong Kong government’s Trade and Industry
Branch, Trade Department, and Customs and Excise Department to gain
an understanding of the operation of Hong Kong’s export control system.
To obtain assessments of the effectiveness of Hong Kong’s system and the
nature of cooperation with U.S. authorities, we interviewed U.S. officials
in Hong Kong and Washington, D.C. Additionally, we reviewed documents
and discussed with Hong Kong officials current and planned actions to
preserve and improve Hong Kong’s current system. To learn how other
key governments plan to treat Hong Kong after reversion and what impact
these plans might have on U.S. policy, we interviewed officials of the
United Kingdom and Japan and cabled the government of Australia with
specific questions. Information on foreign laws in this report does not
reflect our independent legal analysis but is based on interviews and
secondary sources.

To assess the risks to U.S. nonproliferation interests posed by reversion,
and the need for U.S. safeguards and monitoring efforts to protect such
interests, we interviewed U.S., British, and Hong Kong officials in Hong
Kong and Washington, D.C. Specifically, we discussed the officials’ views
on continued Hong Kong autonomy after reversion and the risks of
(1) China’s diverting U.S. technology from Hong Kong and (2) China or
other parties using Hong Kong as a conduit for illicit high-technology
transfers. We also reviewed interagency studies, cables, and
memorandums on Hong Kong and export controls. Furthermore, we
discussed with officials of the State, Commerce, and Defense
Departments, the Customs Service, and the Census Bureau, current and
planned U.S. capabilities to provide data to assist in monitoring changes in
Hong Kong’s autonomy, export patterns, and export control effectiveness.




Page 28                          GAO/NSIAD-97-149 Hong Kong’s Reversion to China
B-275463




In addition, we reviewed a 1997 Census Bureau report that discussed
existing and planned data bases for export information.

We conducted our review between September 1996 and April 1997 in
accordance with generally accepted government auditing standards.


As agreed with you, we plan no further distribution of this report until
10 days from the date of the report, unless you publicly announce its
contents earlier. At that time we will send copies of the report to the
Secretaries of State, Defense, and Commerce; the Commissioner of
Customs; representatives of the Hong Kong government; and other
appropriate congressional committees. We will also make copies available
to others on request.

Please contact me on (202) 512-4128 if you or your staff have any
questions concerning this report. Major contributors to the report are
listed in appendix VII.




Benjamin F. Nelson
Director, International Relations and
  Trade Issues




Page 29                          GAO/NSIAD-97-149 Hong Kong’s Reversion to China
Contents



Letter                                                                          1


Appendix I                                                                     32

Selected Categories of
Items Requiring No
Commerce License to
Hong Kong:
Associated Military
Utility
Appendix II                                                                    35

Comments From the
Department of
Commerce
Appendix III                                                                   37

Comments From the
Department of State
Appendix IV                                                                    38

Comments From the
Department of
Defense
Appendix V                                                                     39

Comments From the
U.S. Customs Service




                         Page 30   GAO/NSIAD-97-149 Hong Kong’s Reversion to China
                        Contents




Appendix VI                                                                                         42

Comments From the
Government of Hong
Kong
Appendix VII                                                                                        49

Major Contributors to
This Report
Tables                  Table 1: Applications Denied for China That Did Not Require a                9
                          License for Hong Kong, Fiscal Years 1994-96
                        Table 2: Comparison of Number of PLCs for Hong Kong and                     22
                          China, Fiscal Years 1994-96

Figures                 Figure 1: Licensing Decisions for Hong Kong and China, Fiscal                8
                          Years 1994-96
                        Figure 2: Highest Categories of Licensed Exports to Hong Kong               20
                          Compared With China, Fiscal Years 1994-96
                        Figure 3: Highest Categories of Licensed Exports to China                   21
                          Compared With Hong Kong, Fiscal Years 1994-96




                        Abbreviations

                        AES        Automated Export System
                        COCOM      Coordinating Committee for Multilateral Export Controls
                        MTOPS      millions of theoretical operations per second
                        PLC        pre-license check
                        PSV        post-shipment verification
                        SED        shipper’s export declaration


                        Page 31                         GAO/NSIAD-97-149 Hong Kong’s Reversion to China
Appendix I

Selected Categories of Items Requiring No
Commerce License to Hong Kong:
Associated Military Utility

Category
number       Description                                                  Military utility
1A001        “Composite” structures or laminates, except for two          Aerospace
             subcategories of items requiring licenses
1B002        Systems and components specially designed for                Small engines
             producing controlled metal alloys, metal alloy powder or
             alloyed materials
1B003        Tools, dies, molds or fixtures, for “superplastic forming”   Various structures (aerospace, naval, ground)
             or “diffusion bonding” titanium or aluminum or their
             alloys, specially designed for the manufacture of
             aerospace and aircraft equipment and engines
1C004        Uranium titanium alloys or tungsten alloys with a “matrix”   Shaped charges for heavy penetrators/anti-armor
             based on iron, nickel or copper                              materials
1C006        Fluids and lubricating materials                             Precision production and hydraulics for weapons
                                                                          systems operating in temperature extremes
2A001a       Ball bearings or solid roller bearings (except tapered       Precision components
             roller bearings) having specified tolerances and
             standards
2A002        Other ball bearings or solid roller bearings (except         Precision components
             tapered roller bearings) having specified tolerances and
             other characteristics
2A003        Solid tapered roller bearings having specified tolerances Precision components
             and standards
2A004        Gas-lubricated foil bearing manufactured for use at       Nuclear weapons production
             specified operating temperatures and unit load capacities
2B001        “Numerical control” units, “motion control boards,”     Precision production of structures
             specially designed for “numerical control” applications
             on machine tools, machine tools, and specially designed
             components. (Certain items within this category require
             licenses for nuclear proliferation reasons.)
2B002        Non-“numerically controlled” machine tools for               Precision production of structures
             generating optical quality surfaces
2B003        “Numerically controlled” or manual machine tools             Precision production of structures
             specially designed for cutting, finishing, grinding or
             honing specified classes of bevel or parallel axis
             hardened gears, and specially designed components,
             controls and accessories
2B008        Assemblies, units or inserts specially designed for          Precision production of structures
             machine tools, or for other controlled equipment
2B009        Specially designed printed circuit boards with mounted       Precision production of structures
             components, or “compound rotary tables” or “tilting
             spindles,” etc., capable of upgrading equipment to
             controlled levels
3B001        “Stored program controlled” equipment for epitaxial          Semiconductors with applicability to air superiority,
             growth                                                       power projection, antisubmarine warfare, nuclear
                                                                          weapons, electronic warfare, intelligence collection
                                                                                                                          (continued)




                                         Page 32                                  GAO/NSIAD-97-149 Hong Kong’s Reversion to China
                                      Appendix I
                                      Selected Categories of Items Requiring No
                                      Commerce License to Hong Kong:
                                      Associated Military Utility




Category
number     Description                                                  Military utility
3B002      “Stored program controlled” equipment having specific        Semiconductors with applicability to air superiority,
           characteristics designed for ion implantation                power projection, antisubmarine warfare, nuclear
                                                                        weapons, electronic warfare, intelligence collection
3B003      “Stored program controlled” anisotropic plasma dry           Semiconductors with applicability to air superiority,
           etching equipment                                            power projection, antisubmarine warfare, nuclear
                                                                        weapons, electronic warfare, intelligence collection
3B004      “Stored program controlled” plasma enhanced chemical         Semiconductors with applicability to air superiority,
           vapor deposition equipment                                   power projection, antisubmarine warfare, nuclear
                                                                        weapons, electronic warfare, intelligence collection
3B005      “Stored program controlled” automatic loading                Semiconductors with applicability to air superiority,
           multi-chamber central wafer handling systems for             power projection, antisubmarine warfare, nuclear
           vacuum environments                                          weapons, electronic warfare, intelligence collection
3B006      “Stored program controlled” lithography equipment            Semiconductors with applicability to air superiority,
                                                                        power projection, antisubmarine warfare, nuclear
                                                                        weapons, electronic warfare, intelligence collection
3B007      Masks or reticles                                            Semiconductors with applicability to air superiority,
                                                                        power projection, antisubmarine warfare, nuclear
                                                                        weapons, electronic warfare, intelligence collection
3B008      “Stored program controlled” test equipment, specially        Semiconductors with applicability to air superiority,
           designed for testing semiconductor devices and               power projection, antisubmarine warfare, nuclear
           unencapsulated dice                                          weapons, electronic warfare, intelligence collection
3C001      Hetero-epitaxial materials consisting of a “substrate” with Semiconductors with applicability to air superiority,
           stacked epitaxially grown multiple layers                   power projection, antisubmarine warfare, nuclear
                                                                       weapons, electronic warfare, intelligence collection
3C002      Resist materials, and “substrates” coated with controlled    Semiconductors with applicability to air superiority,
           resists                                                      power projection, antisubmarine warfare, nuclear
                                                                        weapons, electronic warfare, intelligence collection
4A004      Computers, and specially designed related equipment,         Computers, and specially designed related equipment
           “electronic assemblies” and components, including            as applicable to air superiority, power projection,
           “systolic array computers,” “neural computers,” and          antisubmarine warfare, nuclear weapons, electronic
           “optical computers”                                          warfare, intelligence collection
5C001      Preforms of glass or of any other material optimized for     Guidance systems, secure communications
           the manufacture of controlled optical fibers
6A001      Acoustics, including (1) marine acoustic systems,            Antisubmarine warfare, intelligence collection, electronic
           equipment and specially designed components and (2)          warfare
           correlation-velocity sonar log equipment designed to
           measure horizontal speed relative to the sea bed at
           distances between the carrier and the sea bed
           exceeding 500 m
6A004      Optics, including (1) mirrors (reflectors); (2) components   Optics as applicable to guidance systems, image
           made from zinc selenide or zinc sulphide with a specific     intensifiers/low light level TV
           wavelength transmission range; (3) “space-qualified”
           components for optical systems, as specified; (4) optical
           filters, as specified; (5) optical control equipment, as
           specified; and (6) “fluoride fiber” cable, as specified
6B004      Optics equipment for measurement                             Optics as applicable to guidance systems, image
                                                                        intensifiers/low light level TV
                                                                                                                       (continued)



                                      Page 33                                   GAO/NSIAD-97-149 Hong Kong’s Reversion to China
                                       Appendix I
                                       Selected Categories of Items Requiring No
                                       Commerce License to Hong Kong:
                                       Associated Military Utility




Category
number     Description                                                     Military utility
6C002      Optical sensors, as specified                                   Guidance systems
6C004      Optics, as specified                                            Guidance systems
6C005      Synthetic crystalline “laser” host material in unfinished       Laser range finders, laser weapons
           form
8A001      Submersible vehicles or surface vessels                         Antisubmarine warfare, intelligence collection
8A002      Systems or equipment for submersible vehicles                   Sensor and control systems for submersibles as
                                                                           described in 8A001
8B001      Water tunnels meeting certain specifications, designed          Design of submersibles
           for measuring acoustic fields generated by a hydro-flow
           around propulsion system models
9A002      Marine gas turbine engines with specified standards and Warships, submersibles (power projection,
           specially designed assemblies and components            antisubmarine warfare)
9A003      Specially designed assemblies and components,                   Warships, submersibles (power projection,
           incorporating any of the technologies controlled by             antisubmarine warfare)
           9E003.a, for gas turbine engine propulsion systems

                                       a
                                        Quiet running bearings in this category are subject to State Department licensing.

                                       Source: Department of Commerce’s Bureau of Export Administration and Defense Intelligence
                                       Agency analyses.




                                       Page 34                                     GAO/NSIAD-97-149 Hong Kong’s Reversion to China
Appendix II

Comments From the Department of
Commerce




              Page 35    GAO/NSIAD-97-149 Hong Kong’s Reversion to China
Appendix II
Comments From the Department of
Commerce




Page 36                           GAO/NSIAD-97-149 Hong Kong’s Reversion to China
Appendix III

Comments From the Department of State




               Page 37    GAO/NSIAD-97-149 Hong Kong’s Reversion to China
Appendix IV

Comments From the Department of Defense




              Page 38    GAO/NSIAD-97-149 Hong Kong’s Reversion to China
Appendix V

Comments From the U.S. Customs Service




              Page 39     GAO/NSIAD-97-149 Hong Kong’s Reversion to China
Appendix V
Comments From the U.S. Customs Service




Page 40                             GAO/NSIAD-97-149 Hong Kong’s Reversion to China
Appendix V
Comments From the U.S. Customs Service




Page 41                             GAO/NSIAD-97-149 Hong Kong’s Reversion to China
Appendix VI

Comments From the Government of Hong
Kong

Note: GAO comment
supplementing those in
the report text appears at
the end of this appendix.




                             Page 42   GAO/NSIAD-97-149 Hong Kong’s Reversion to China
                Appendix VI
                Comments From the Government of Hong
                Kong




Now on p. 15.




Now on p. 15.




                Page 43                            GAO/NSIAD-97-149 Hong Kong’s Reversion to China
                    Appendix VI
                    Comments From the Government of Hong
                    Kong




Now on pp. 18-24.




                    Page 44                            GAO/NSIAD-97-149 Hong Kong’s Reversion to China
Appendix VI
Comments From the Government of Hong
Kong




Page 45                            GAO/NSIAD-97-149 Hong Kong’s Reversion to China
                Appendix VI
                Comments From the Government of Hong
                Kong




Now on p. 24.




Now on p. 10.




                Page 46                            GAO/NSIAD-97-149 Hong Kong’s Reversion to China
                        Appendix VI
                        Comments From the Government of Hong
                        Kong




Now on pp. 12 and 17.


See comment 1.




                        Page 47                            GAO/NSIAD-97-149 Hong Kong’s Reversion to China
              Appendix VI
              Comments From the Government of Hong
              Kong




              The following is GAO’s comment on the Hong Kong government’s letter
              dated May 7, 1997.


              1.We have substituted a different case (involving an attempted diversion
GAO Comment   by a Singapore entity to North Korea) to further illustrate efforts to use
              Hong Kong as a diversion point. The Pakistan diversion case is mentioned
              earlier in the report, on p. 12.




              Page 48                            GAO/NSIAD-97-149 Hong Kong’s Reversion to China
Appendix VII

Major Contributors to This Report


                        Eugene Beye
National Security and   Sharon W. Chamberlain
International Affairs   Jason Fong
Division, Washington,   Hynek P. Kalkus
                        Jeffrey D. Phillips
D.C.                    F. James Shafer


                        Richard Seldin
Office of the General
Counsel, Washington,
D.C.




(711213)                Page 49                 GAO/NSIAD-97-149 Hong Kong’s Reversion to China
Ordering Information

The first copy of each GAO report and testimony is free.
Additional copies are $2 each. Orders should be sent to the
following address, accompanied by a check or money order
made out to the Superintendent of Documents, when
necessary. VISA and MasterCard credit cards are accepted, also.
Orders for 100 or more copies to be mailed to a single address
are discounted 25 percent.

Orders by mail:

U.S. General Accounting Office
P.O. Box 6015
Gaithersburg, MD 20884-6015

or visit:

Room 1100
700 4th St. NW (corner of 4th and G Sts. NW)
U.S. General Accounting Office
Washington, DC

Orders may also be placed by calling (202) 512-6000
or by using fax number (301) 258-4066, or TDD (301) 413-0006.

Each day, GAO issues a list of newly available reports and
testimony. To receive facsimile copies of the daily list or any
list from the past 30 days, please call (202) 512-6000 using a
touchtone phone. A recorded menu will provide information on
how to obtain these lists.

For information on how to access GAO reports on the INTERNET,
send an e-mail message with "info" in the body to:

info@www.gao.gov

or visit GAO’s World Wide Web Home Page at:

http://www.gao.gov




PRINTED ON    RECYCLED PAPER
United States                       Bulk Rate
General Accounting Office      Postage & Fees Paid
Washington, D.C. 20548-0001           GAO
                                 Permit No. G100
Official Business
Penalty for Private Use $300

Address Correction Requested