In a report released September 9, the Congressional investigation agency, the General Accounting Office (GAO), recommended that the U.S. Department of Commerce (USDOC) should take stronger steps to prevent the theft of advanced technology by foreign nationals hired by U.S. companies -- especially nationals of the People's Republic of China. Perhaps there are lessons Taiwan's government should also learn from this report (No. GAO-02-972, which is available at http://www.gao.gov).

After several months of research and investigation, the GAO concluded that the Commerce had failed in its mission to protect so-called "deemed exports," that is, advanced technical knowledge in fields such as semiconductor design, materials processing, lasers and sensors, telecommunications encryption, navigation and avionics, marine systems, propulsion systems, space vehicles and information security that have direct application in China's military modernization. These are called "deemed exports" because Chinese citizen scientists and engineers hired by U.S. companies have access to this specialized knowledge which is otherwise banned from export to China. If Chinese experts gain access to that information, there is nothing to prevent them from taking it back to China -- export license or no.

This is a problem because many U.S. technology companies and research institutions hire Chinese scientists and engineers to work on highly advanced projects. As such, the Commerce Department is responsible for issuing export licenses to the American companies and institutions that employ these foreign nationals; and those licenses have conditions aimed at preventing diversion of classified technology to countries of concern that could use it to improve their military capacity. But USDOC has not given a high priority to "deemed export" license review.

More than 73 percent of the foreign nationals who apply for such licenses (virtually all are approved) come from China. The Commerce Department's procedures are hopelessly disorganized, and have therefore failed to screen thousands of applications from foreign nationals who are already in the United States and who want to change their visa status to the category H-1B in order to obtain special technical employment.

USDOC agrees that their staff does not have the technical expertise to determine if a foreign national has helped design semiconductors that exceed a certain technology threshold. Moreover, USDOC staff has not figured out a way to monitor intangible technology transfers such as those that may occur in a foreign national's conversations with fellow employees.

The Congressional agency also learned that the Department of Defense (DOD) is dissatisfied with USDOC's laxity. The GAO insisted that USDOC improve its consultation with both the Pentagon and the State Department and made detailed recommendations on how USDOC can improve its management of "deemed exports". Although the GAO report did not assess what technology has already been leaked to China, the 1999 Congressional "Cox Commission" report amply documented the successes China has had in obtaining advanced military technology via Chinese specialists working with U.S. aerospace and computer firms. Clearly, the danger is real.

In April 2002, the GAO issued an even more detailed report on China's rapid advances in semiconductor technology (No. GAO-02-620) which noted that the Chinese military has placed the highest priority on developing "pockets of excellence" in its military modernization. These "pockets" include preemptive long-range precision strike capabilities; information dominance; command and control; and integrated air defense. In support of these efforts, the central government in Beijing has made the development of an indigenous semiconductor industry as one of its highest priorities. Such an infrastructure is now developing integrated circuits that have direct applications and a broad range of military systems, for example, advanced phased-array radar, global positioning guidance systems, telecommunications intercept and encryption, and missile target command and control.

For such systems to be able to track 200 targets 100 times per second at resolutions of one meter and accurately compute trajectories, predict g-force pulls and predict probable flight paths, high speed semiconductors are required. And for such integrated circuits to have such high-speeds, very fine line-widths are needed -- 0.25 micron scales are the industry standard in the United States for these ICs.

The United States government is now only beginning to address the critical national security threat presented by China's rapid modernization of its semiconductor industry. Taiwan's government, however, has been wrestling with this issue for over a year -- at least since the Economic Development Advisory Council (EDAC) of August 2001. Now, Taiwan's government proposes to permit Taiwan's huge wafer foundries to move their advanced American, Japanese and European wafer production equipment to China. Already, Taiwan chip-design shops are setting up shop in China. Taiwan's government seems resigned to this -- despite very real evidence that Chinese government-owned companies are already stealing Taiwan's technologies.

Last March, Taiwan Semiconductor (TSMC) discovered that a former employee had e-mailed confidential company information to a rival firm in Shanghai. These days, with entire tape-outs of proprietary IC-designs being transmitted over the internet from chip designers in the US to chip foundries in Taiwan, the potential that a disloyal employee could re-transmit the design to a foundry in China is great.

Taiwan's semiconductor industry has its own security issues to face. Up to now, American chip designers have been very safe -- they can send tape-outs of advanced IC designs to Taiwan foundries without much concern that the designs will be leaked to China. In fact, U.S. semiconductor companies often have Taiwan foundries fabricate chips used in specialized military applications. But now that China is building its own foundries, can American designers feel safe?

With Taiwan's government poised to permit Chinese semiconductor engineers, designers, and production managers to intern in Taiwan's multibillion dollar foundries, Taiwan is facing the same security challenge that the U.S. General Accounting Office has identified. With entire waferfabs being dismantled in Taiwan, packed in 40-foot containers, and prepared for shipment off to Shanghai where they come under the jurisdiction of the Chinese government -- and the People's Liberation Army -- Taiwan faces a challenge, not just to its intellectual property, but also to its own national security.