Pentagon Faults Commerce for Licensing Shipments to Communist-Backed Firms

By Eduardo Lachica and Tim Carrington
The Wall Street Journal

September 30, 1987

WASHINGTON -- The Pentagon, escalating a bitter turf fight over export-control responsibilities, charged that the Commerce Department committed a "lapse of responsibility" by licensing as many as 50 shipments of strategic products to a Soviet-controlled company in West Germany.

"This kind of activity can only lead to a lessening of our technological lead over the Eastern bloc, and it severely undercuts our initiatives in Cocom to address the issues of diversion," said Fred Hoffman, the chief Pentagon spokesman, at a news briefing. Cocom is the short name for the Coordinating Committee for Multilateral Export Controls, a Paris-based organization that oversees the task of controlling exports of sensitive technology for the U.S. and 15 of its allies.

The Pentagon complaint involves Commerce Department decisions in 1986 and 1987 authorizing shipment of 49 International Business Machines Corp. computers or their parts to Transnautic Shipping Co. in Hamburg, West Germany. As previously reported, the Pentagon also has complained that the department approved the shipment of a Hitachi Ltd. computer containing U.S. parts to the company without consulting the Defense Department.

That statement drew an immediate rebuttal from the Commerce Department, which said the Pentagon was raising a "tempest in a teapot." Lee Mercer, acting assistant secretary of commerce for trade administration, insisted the products were eligible for shipment under Cocom standards. Moreover, he said, the Pentagon itself had approved at least 23 of the shipments.

Transnautic, which routes commercial cargoes to and from the Soviet Union, is 51% owned by the Soviet government. But it is staffed by West German nationals and operates under relatively strict West German export laws.

The struggle between the two U.S. agencies revealed more than previously had been known about how Washington treats exports to Soviet bloc-controlled firms that operate in Western Europe and non-Socialist Asia. The U.S. generally licenses as many as 500 shipments to such concerns a year.

Mr. Mercer acknowledged his agency committed a "technical error" in allowing the Hitachi computer shipment without Pentagon review last July. But he added that the mistake was nearly academic because three days later the Commerce Department lifted U.S. licensing and review requirements for Soviet-bound foreign-made products whose U.S. content doesn't exceed 10% of value. The Hitachi computer fell in that category.

The Pentagon is just "crying wolf" because it concurred with that overall policy of exempting such products from U.S. licensing requirements, Mr. Mercer said.

Mark Holcomb, an IBM spokesman in Washington, acknowledged that the firm obtained 49 licenses for exports to Transnautic. He insisted that 26 of those licenses were mostly for "parts and maintenance" of previously installed IBM equipment and the rest were for "low-tech" systems that can be directly shipped under license to the Soviet bloc.

"There was zero transfer of high technology to the Soviets," said Mr. Holcomb.

A Pentagon spokeswoman conceded that no evidence has yet been found that these shipments constituted a security threat, but she said an "investigation" of these transactions is still in progress.

The barbed exchange between the two agencies reflects their intense competition for hegemony over the export-control process. A Senate-House conference committee soon will consider legislation that would restrict the Pentagon's right to intervene in the licensing of exports to non-Socialist countries. The Pentagon, which wants to retain its right to review such export-license applications, appears to be using the Transnautic cases to prove that its vigilance is needed to prevent diversion of sensitive technologies to U.S. adversaries.

"If the Soviets can set up companies in western countries, they can freely import sophisticated western technology and use it in any way they want and thus short-circuit the Cocom system," a Pentagon spokeswoman said.

The U.S. earlier treated Soviet bloc-controlled firms in western countries the same way it treated all western companies involved in export licensing matters. But in January 1986, it established a separate review category for them, giving the Pentagon review authority. Earlier this year, however, the Commerce Department decided to dispense with the Pentagon review, although it said it would continue to subject exports involving such companies to special scrutiny.

That provoked the bitter fight with the Pentagon, which reclaimed its prerogative after the National Security Council intervened in its favor. Yesterday's renewed feuding, however, indicated that the White House still hasn't resolved the dispute.

Copyright (c) 1987, Dow Jones & Co., Inc.