Mr. Bereuter, I am glad you have asked that question because almost all the members of this subcommittee are relatively new and have little knowledge of the history of the Export Administra tion Act.

When we get this bill to the floor, there will be many cases like this raised. So, I think it really benefits all of us to hear a little of the history and the circumstances surrounding this particular case. Mr. GRAY. I will be brief and I will submit a statement on this particular case.

But very briefly, the Center Line B machine is used to grind the races for bearings. It is not a bearing grinder, and it has been repeatedly misstated. The Bryant machine is a race grinder. That case, the availability of supply-

Mr. MICA. What is a "race?"

Mr. GRAY. The race is the thing that holds the bearing.
Mr. MICA. All right.

Mr. GRAY. The fact is that the Bryant license was denied in about 1961, and between 1961 and 1971 about 1,000 machines were delivered to the Soviet Union that were in competition with the Center Line B machine, built by Minganti, Lumart, Overbeck, and Sako Saki, in addition to the bearings themselves.

In 1972, the license was granted. The machines were ordered in 1972. They were delivered in late 1973 and 1974.

They could not have been producing any bearing parts until late 1973 or 1974 and the missiles were already test-fired and were already being deployed late 1973 and 1974; some of them earlier than that.

But I will be glad to submit a statement with the dates and I have the flight testing of the SS-17, the SS-18, SS-19, SS-20, all of this according to the Heritage Foundation. So, some of the stories are really misleading.

Mr. BEREUTER. Whether or not that is the case-and I appreciate your comment about that and it is important to have your facts on that matter-it is my understanding that the sale was finally approved by the Nixon administration on the grounds of foreign availability from the Swiss, Switzerland, Italy, and Japan as well. Is that an accurate statement of what the grounds were for approval?

Mr. GRAY. That is correct. They sent an officer from the Commerce Department over to Switzerland to review the machines. In fact, the machines were so close to the design of the Bryant Center Line that they had licensing violation problems with them. But there is no question about the availability of supply on that par ticular equipment.

Mr. BEREUTER. Thank you, Mr. Gray.

Thank you, Mr. Chairman.

Mr. BONKER. Mr. Berman.

DETRIMENTAL EFFECT OF EXPORT REGULATIONS

Mr. BERMAN. Mr. Bereuter made a point that I do not feel you fully addressed. The thrust of your initial testimony seemed to be that all these export regulations are hurting the machine tool industry.

But your own figures-and the personal experiences that Mr. Bereuter had in his own district-indicate that an incredibly huge portion of the domestic market has been taken over by imports. Mr. GRAY. Right.

Mr. BERMAN. I'll just throw out a proposition. Tell me how much you disagree with it. What has happened, in fact, to U.S. exports is that the Soviet Union-just like a huge number of domestic manufacturers-has decided that the machine tools produced in West Germany and Japan, and Switzerland, or wherever else these imports are coming from, are for the price better than what has been produced here.

Mr. GRAY. No.

Mr. BERMAN. And export regulations are a very minor part of the problem of the industry. Why else the import figures of the last 10 years, 15 years?

Mr. GRAY. I would not say that. I think people buy machine tools because you have good salesmen. Machines can cut or shape metal in a variety of different ways. There are many reasons why people buy equipment.

I know that we have not been asked to bid on any number of projects that are being developed in the Soviet Union. I was there in November and there is at least $2 billion worth of G-dest machine tools business in the Soviet Union over the next few years. We have not been asked to, for example, bid on the front-end drive of the new Autovas car.

Mr. BERMAN. Because of licensing requirements?

Mr. GRAY. Not licensing requirements, because of being unreliable trading partners. I can recite any number of factories that have been expanded for automobiles, the Moscowitcz plant is going to be expanded.

Mr. BERMAN. Let us develop that-maybe we should do this in writing-what specific kinds of equipment have you had contracts for with the Soviet Union which have later been rescinded or abrogated by virtue of unilateral or Cocom export controls which have caused the Soviet Union or other Eastern bloc countries to conclude that the machine tool industry in this country is an unreliable supplier?

Mr. GRAY. Well, the Kama River Project or any truck factory. We cannot supply the spare parts, repair parts, or service personnel for any machine that is working on a part for a truck.

Now, the same people who buy the equipment for those factories buy them for other factoriers. Unless they can get assurance that they are going to be able to get the equipment delivered on time, get the spare parts and get service, they are going to turn to other suppliers-and have. That is the problem.

The other problem, as I believe I indicated earlier, is that American companies are not as aggressive as they might be because they are afraid to take the business which goes into a combine factory or whatever and get it half built, and have some foreign policy control imposed and be unable to ship. They are caught with a lot of iron on the floor with no insurance.

If they had political risk insurance it would make them far more aggressive than they are now.

VIOLATIONS OF COCOM CONTROLS

Mr. BERMAN. One last question. The thrust of your testimony has been that there are a lot of licensing requirements and export reg ulations that Cocom has accepted in principle but not enforced, whereas up until now I had thought the problem was that we have never been able to get Cocom countries to accept these regulations. Is there a problem of the countries accepting them and just not complying, ignoring them?

Mr. GRAY. Here are pictures of equipment. We are not allowed to sell it and our allies are licensing the Communists to build it. Mr. BERMAN. That does not mean the Cocom has accepted the controls.

Mr. GRAY. They have.

Mr. BERMAN. They have?

Mr. GRAY. Absolutely. That is an absolute violation of the Cocom agreement, and they have knowingly and blatantly violated that agreement. Their name is on it. They have even put their name on it Fanuk-BESK, "BE" stands for Beijing and SK is the name of the company. That was produced in China.

Mr. BONKER. Mr. Berman, I think both problems exist. First, we have unilateral controls that are not extended multilaterally through Cocom, which places U.S. manufacturers at a competitive disadvantage.

Second, many of those items are supposedly controlled pursuant to certain agreements that are not being adhered to. It is very difficult to enforce such agreements if you do not have much of a staff and commitment on behalf of others involved.

I have suggested on several occasions the subcommittee ought to go to Paris and take a look at Cocom and see the types of conditions under which the organization functions.

Mr. BERMAN. Did you want a motion? [Laughter.]

Mr. BONKER. No.

Mr. BERMAN. I so move.

Mr. BONKER. We should find some place in our schedule this year to do that.

Mr. MICA. Mr. Chairman, I would just like to note for the record, Mr. Gray had mentioned several times-and I think we have heard this before in other testimony-about the need for some type of in

surance.

I do not know whether OPIC, which is under this committee's jurisdiction, would be a natural place to look to discuss whether or not it could be provided. But at the appropriate time we may be able to do that.

Mr. BONKER. I am drafting a bill on extension of OPIC insurance protection to those companies who suffer losses as a result of foreign policy controls.

Mr. Gray, the hour is late. I want to thank you very much for your appearance and your testimony. It was very helpful to our understanding of the problems that you have and ways in which we can revise the law to lessen the burden on U.S. manufacturers.

Mr. GRAY. Thank you. I will submit a statement on the Bryant Grinder case for the subcommittee record.

Mr. BONKER. Yes, I think that would be most helpful for us as a case study, so that we have the benefit of your previous experience with this.

[The information follows:]

BRYANT GRINDER CASE

We now shift our attention to the case of the sale of Bryant grinding machines to the Soviet Union, which allegedly enabled them to develop and produce their MIRV missiles. First, with regard to the type of grinding machine which is at the center of this controversy, an important distinction needs to be made. Many assume that the Bryant Centaline B is used to grind and produce bearings-this is not the case. The Bryant machine, a race grinder, is used to grind bearing rings which are used in the production of bearings. Therefore, the Bryant machine itself is not capable of producing bearings.

It is has been alleged that the Soviets could not have gone into production of the multiple warhead weapon called MIRV, without the precision grinding machines sold to them by the Bryant Grinder Corporation.

This statement is not true. Documented facts refute it. The grinding machines were ordered in 1972 and export licenses where issued at that time; however, machine tools are not constructed overnight, and these were not shipped to the Soviet Union until 1973 and 1974. They could not have begun producing bearing parts until late in 1973 or early in 1974.

Soviet MIRV missiles were in production by mid-1973-before the Bryant grinders were delivered, and the completed missiles were deployed in 1974. Therefore, it is impossible for the production of Russian MIRV missiles to have been dependent upon the Bryant grinding machines.

According to the Heritage Foundation:

Flight testing for the SS17 began as early as the second half of 1972, with deployments in 1975.

The SS18 was deployed in 1974.

The SS19 was first tested in April of 1973 and deployed in 1974.

The SS20 was probably tested in late 1974 or early 1975, and was deployed in 1977.

The SS16 was initially flight tested in 1972, but due to the SALT II prohibitions, was never deployed.

But that is only part of the story. Bryant Grinder Corporation first applied for an export license to the U.S.S.R. in the early 1960's. That license was issued and then revoked. At that time, four firms manufactured grinding machines with essentially the same capabilities as the Bryant Centaline B. These were: Minganti in Italy; Voumard in Switzerland; Overbeck in West Germany; and Seiko Seike in Japan. During the period between 1961 and 1971, these companies shipped approximately 1,000 grinding machines to the U.S.S.R.

In 1972, at the time Bryant Grinder Corporation applied for an export license, the Soviet Union was also negotiating with firms in Italy, Switzerland, Japan, and West Germany as alternate suppliers to Bryant-and two of thse companies produced machines so similar to Bryant's that they violated Bryant's patents. Furthermore, complete miniature bearings of equal quality to those produced with the aid of Bryant grinding machines were being sold to the Soviet Union by Koyo Seiko and Nippon Miniature Bearing Company of Japan, R. M. B. of Switzerland, SKF-RIV of Italy and ADR of France.

So, it is clear from the record that the sale of race grinders by Bryant to the Soviet Union in no way affected their ability to develop MIRV missiles. And, it is also noteworthy that the license was issued only after it was established to the satisfaction of government agency officials that comparable grinders were available abroad.

Mr. GRAY. Thank you very much, Mr. Chairman.
Mr. BONKER. Thank you, Mr. Gray.

We shall continue with our other two witnesses who are here today. Representing the National Council for United States-China Trade is Roger Sullivan. Mr. Sullivan, please summarize your comments and your full statement will be included in the hearing

record.

STATEMENT OF ROGER W. SULLIVAN, EXECUTIVE VICE PRESI DENT, NATIONAL COUNCIL FOR UNITED STATES-CHINA TRADE

Mr. SULLIVAN. Yes, Mr. Chairman, I have submitted a written statement. I would just like to add a few supplementary comments orally, if I may.

Mr. BONKER. Please.

Mr. SULLIVAN. It was very interesting listening to the testimony today. Mr. Kapper referred several times to the need to keep technology away from potential adversaries. The law refers to country exports which must be controlled for national security reasons. We hear people refer to the need to keep technology from the Soviet Union and the Soviet bloc.

LIBERALIZATION OF CONTROLS ON CHINA

I submit that China fits under none of these categories and I do not think the President believes it does either. The statement of policy that I quote in my statement-I will just read the latest statement by the administration on how it views China.

That it is in our interest to foster a strong, secure and friendly China capable of deterring potential aggressors and contributing to peace and stability, and to par ticipate in China's economic development for the benefit of China and the United States.

At the same time, the administration has removed China from the list of prohibited destinations for munitions list items and yet we still find that China is treated more like the Soviet Bloc than it is like Yugoslavia, India, or any other nonaligned friendly country The question really is, why? I mean, there does not seem to be a major difference with the administration. This whole question of liberalizing controls on China began during the Carter administra tion when we found that the Chinese were much to our surprisebeing punished for the Soviet invasion of Afghanistan because as we began to tighten up on controls on the Soviet Union we found that China, which we were trying to develop relations with, could not buy what it used to be able to buy.

So, the process of liberalization began then. It has been contin ued under this administration but it has not really worked. The reason that liberalization does not work is that the whole approach of liberalization is an attempt to turn a policy problem into a tech nical problem and it is not a technical problem, it is a policy prob

lem.

The administration has not yet bitten the policy bullet. It ha not yet come to grips with the issue of whether China is to b treated as a country which threatens the national security of the United States or whether it is not.

As a consequence, the bureaucracy which gets blamed for "foo dragging" on this issue is really caught in what they perceive a conflicting marching orders. On the one hand, they are told to b more liberal toward China, and on the other hand, they know tha the President has the authority to move China out of this adver sary category into the category of friendly, nonaligned countrie but has not done so.