Science: The Cold War is over - except in computing: Trading with Russia has brought problems for a major US computer company. Robert Farish reports
Monday 12 July 1993
Informed observers are convinced that the company has no intention of doing anything illegal and believe it is an unwitting victim of trade restrictions put in place during the Cold War to stop leakage of high-technology equipment and know-how to the Soviet Union. Although the Cold War is over, the regulations remain, and they still require US companies, wherever they are based, to apply for special licences when exporting to Russia - even when they are selling computers that are available in UK high street stores. That Dell seems to have been unaware that it was breaking any rules highlights how pointless these trade restrictions have become.
Trade restrictions governing export of hi-tech equipment were drawn up by CoCom, an international body based in Paris. Agreements between signatories effectively carry the force of law in each of the member countries. Hi-tech exports to Russia and most of the former Soviet republics are still vetted.
The restrictions do not apply only to computers but cover a range of sensitive technologies. The trans-Siberian fibre-optic link, a project to create a high-speed data link between Europe and the Far East, was stalled for three years as the cable used in its construction was not approved for export by CoCom.
Although the rules governing the sale of technology to Russia are periodically relaxed, the rate at which computer technology develops quickly overtakes the plans carefully drawn up by the CoCom bureaucrats.
Many of the world's more powerful computers are not exportable to Russia. Cheaper, less powerful systems are. However, there is an intermediate classification that allows certain computers to be exported with a licence. Increasingly, this requirement is applicable to relatively cheap mass-produced PCs.
The vast majority of the world's desktop computers use a microprocessor either manufactured by Intel or based on its iAPX-86 processor family. At the time of the last thorough review in 1991, the then maximum specification figures (80486dx running at 33MHz) rendered almost all of these PCs exportable without licences.
Today, 80486dx2-based PCs running at 66 MHz can be bought for less than pounds 2,000 in the UK. To sell them to Russia requires an elaborate application procedure. The entire range of Intel's newest generation of iAPX-86 microprocessors, the Pentium family, requires these licences.
Export licences for Russia are no simple formality. After submitting an application, US companies must wait 14 days for Department of Commerce clearance, then 14 days for 'agency review' by the departments of defence and environment, and then a subsequent 40 days for CoCom clearance. The process takes about the same time in the UK.
However, Dell's Russian master distributor, Intermicro Business Systems (IMBS), has been selling the entire Dell range, including licensable 80486dx2 50MHz and 80486dx2 66MHz models, off the shelf in Moscow - without any delays imposed by this 40-day clearance procedure.
Sergy Matsotsky, the commercial director of IMBS, confirmed that his company was supplying all of the Dell range, including 66MHz servers. 'If you like, you can come and take one today. But demand is so strong they will soon be gone,' he says.
These Dell computers are being assembled and exported from the Republic of Ireland, which is not a member of CoCom. It is this that seems to have permitted the situation to arise. Claire McGill, head of the commercial section at the Irish embassy in Moscow, says that in spite of Ireland's non-membership of CoCom, its licensing policy has always shadowed the rules that organisation has laid down. 'To my knowledge there is no loophole making Ireland different. But if an Irish company has a licence to export, it is equally difficult to see how it can be breaking the law,' she says.
But US legislation is so all-embracing that, regardless of the legal status of Dell's Irish subsidiary, its US parent may still be in breach of US regulations, which demand that all computers over a certain speed sold to Russia by US companies be approved by its government agencies. A spokesman for the US Bureau of Export Administration, responsible for licensing and enforcement, said that US export controls apply outside the US: 'If a commodity requires an export licence it makes no difference if the exporting company is US or not.' A US legal expert noted that 'US export law has extra-territorial applications. If it is an Irish company, that would make no difference.'
The computers are shipped from Ireland to Russia via Dell's eastern European operation in Warsaw, Poland. Marek Lewicki, the regional manager responsible for Russia, says that because Dell Eastern Europe imports from the Republic of Ireland it is not bound by the restrictions that apply to the rest of western Europe and the US.
But at Dell's plant in Limerick the traffic manager, responsible for export regulations, was as unsure of the situation as the Irish embassy in Moscow. 'The licence we were given was an open book (type of licence). It was issued before the company started shipping to eastern Europe.' He added that Dell Computer in Limerick had a verbal assurance from the Irish authorities that its existing licence was valid. It appears that this lack of proper clarification from the Irish authorities may have allowed Dell to drift into possibly breaking US export regulations.
Other computer companies selling into the Russian computer market are irked at what they see as the chaos and unnecessary administrative burdens imposed by the continuance of the CoCom restrictions. 'It's clearly not fair and there ought to be a level playing field,' says Justin Lifflander of Hewlett-Packard Moscow.
PC manufacturer Zeos has made it a policy to sell its Russian customers 33MHz computers that are upgradeable for when restrictions are relaxed. Dell's actions 'obviously put us at a competitive disadvantage, which is both bad for us and bad for the business', says president Greg Herrick.
There is intense exasperation among companies at the hindrance to business the CoCom restrictions cause. Ironically, this makes Dell Computer something of an unwitting standard-bearer for their reform. 'Western countries talk about aid to Russia, but the best aid is to provide Russians with the tools they need to develop their economy. Faster PCs are needed in every area of the economy from production through to banking and administration,' says Bernard Schafer, director of sales
and marketing at Compaq Eastern Europe.
Greg Herrick is more forthright. 'If the US government believes it is controlling something, I have serious worries about my own country's national security,' he says.
Robert Farish is the editor of 'Computer Business Russia', a newsletter for computer suppliers to Russia and the former Soviet Union. Telephone: (+7 095) 265 42 14. Fax: (+7 095) 261 7910. e-mail: farish at glas. apc. org
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