PREPARED TESTIMONY OF DR CHARLES W DENEKA CHIEF TECHNICAL OFFICER COMING INCORPORATED ON BEHALF OF THE NATIONAL ASSOCIATION OF MANUFACTURERS BEFORE THE HOUSE JUDICIARY COMMITTEE ON H R 3011 SECURITY AND FREEDOM THROUGH ENCRYPTION SAFE ACT WEDNESDAY SEPTEMBER 25 1996 Thank you and good morning Mr Chairman I am Dr Charles W Deneka Senior Vice President and Chief Technical Officer at Coming Incorporated Also with me today is Dr James M Scott - Chief Information Officer Director of Information Technology for Science Technology Established in 1851 Coming Incorporated creates leading- edge technologies for the fastest growing segments of the world's economy Coming manufactures optical fiber cable and components highperformance glass and components for televisions and other electronic displays for communications and communications-related industries advanced materials for the scientific life sciences and environmental markets and consumer products Corning's total revenues from continuing operations in 1995 were $3 3 billion Today however I am representing the National Association of Manufacturers and its 14 000 member companies The NAM supports H R 3011 in particular the relaxation of unilateral export controls on encryption The National Academy of Sciences has extensively documented policy change Thus my message this morning will be very simple It is not just computer and communications companies as suppliers that suffer serious restrictions from rigid export controls on encryption And it is not just banks as users that need encryption I am here to say that American industry in general needs a relaxation of encryption controls as part of needed relief from onerous unilateral trade policies Agriculture is often exempted from unilateral trade sanctions often airlines as well In encryption financial services have been accorded special status But time after time U S manufacturers bear the brunt of policies that impose burdens our allies refuse to impose on their firms which are our global competitors Think for a moment of the new business vocabulary you've recently been hearing just-in-time delivery global sourcing and CAD CAM computer-aided design and manufacturing The new terminology reflects the ways that a business has to operate to be successful now and into the next century electronically globally ever more responsive to customer demands and a shifting business environment This represents a far different image of manufacturing success than what we all learned in school when we saw pictures of Henry Ford's assembly line of identical Model T's destined for a domestic market Let me give you an example from my own company Coming Incorporated Coming is a technology company which has a long and rich history of inventions secrets upon which the future of the company depends This information must not be accessed by potential competitors either in the private or government sector We have a major laboratory in France and a smaller but important lab in Japan that we are concerned about communicating with It is our opinion that unlike financial information whereinformation may have little commercial value minutes or hours after it has been intercepted the information that we need to share across our global facilities has a useful lifetime of years if not decades Unless robust encryption technology is available a potential competitor could decrypt information about our inventions at their leisure This would cause us great harm The future of Coming depends upon new products spawned by our world- wide research and development facilities Our innovation process depends upon the ready access of proprietary information by research associates in our facilities around the globe In order to make progress the information must be accessed by authorized personnel in a secure manner with no possibility of this information leaking out until the appropriate patent or commercial action has been taken We therefore feel that to protect our intellectual capital from penetration by foreign competition or government bodies the encryption technology deployed must be sufficient to prevent this even when there is no time limit on decryption efforts Types of highly proprietary information that Coming associates need to access on a world-wide basis includes - Research Reports - Patent Information Process Information - Product Plans Market Plans An alternative to secure encrypted communications and systems may appear to be for Coming employees or couriers to physically go to the non-U S labs and carry with themeither paper copies or laptop computers The major problems with this approach which prevent it from being viable are - Only a limited number of our people can travel because of the high cost and while they are traveling they are out of their labs so they cannot be productive in advancing technology further The time lag created by moving paper physically by any means would be intolerable in this world of rapidly increasing rate of change It would be like going back to the Pony Express days Finally our people have very frequent often dally communications During critical phases of projects we often have real-time discussions involving many people on each side In addition to needing secure communications between Corning's own U S and international labs we also absolutely need to have this security when dealing with other non-U S companies We have had and will continue to have highly sensitive and very important joint research and development programs with suppliers of specific raw materials some of which are crucial to the performance of our products as well as with existing and potential new customers We also do research and development with some universities and government laboratories when it helps us develop or improve our products This is a natural consequence of the global flow of materials and knowledge back and forth across national boundaries through the value chain often seen in medium and high-tech products of today These communications must be protected We are concerned about our ability to do business in a global marketplace taking advantage of innovation abilities in other countries unless we have sufficient safeguards on our know-how inventions processes product and market plans The successful manufacturer of the future will be an agile enterprise to use the phrase pioneered by another auto leader Lee Iacocca Production runs will get shorter and shorter even down to production lots of one Long-term intimate suppliercustomer relationships will manage joint design and development of components and will assure just-in-time deliveries In this environment protecting only electronic funds transfer cannot and will not suffice Valuable proprietary data designs tests and customer lists will flow electronically and must be protected as well Already in the United States the one-third ofthe economy outside of manufacturing supports the onefifth of the total economy that comprises direct manufacturing And as you well know business has gone global forever All these developments explain why the current export controls will have to give way sooner or later Fundamentally they are incompatible with the way that successful agile enterprises especially manufacturers have to function now and into the 21st-century global economy It is only a matter of when the unilateral controls will be relaxed and how much damage U S business suffers in the meantime compared with foreign competitors not equally burdened Even before encryption emerged as a key functional specification major corporations had already evolved complicated sophisticated data communications systems to manage worldwide operations meet customer demands and gain competitive advantage Many of these stories are now part of business history that everybody knows American Airlines pioneered computer-based reservations almost three decades ago The market-leading innovations of Federal Express in the package delivery market now includes a much used World Wide Website For manufacturing the innovations are less evident from the end- consumer point of view but are led by the major manufacturers For example in communicating with their supplier base Boeing deals with almost 50 000 contractors and subcontractors through its tightly managed computer network General Motors led the way in electronic data interchange EDI by insisting that its suppliers work with it to get rid of tons of paperwork Security is simply an indispensable element of system performance like processing capacity or uptime Logical protection against outside intrusion which is what encryption is all about is an indispensable element of security The very limited export licenses now granted do not provide sufficient security Weneed secure global connectivity with our foreign suppliers and customers not just our subsidiaries In the long run we cannot win in global competition without that security If we cannot offer the requisite security then our suppliers and customers will do business with other companies that can A topic that must not go unnoticed this morning is industrial espionage The FBI has testified before Congress that agents of 23 foreign countries are targeting U S enterprises to steal their best technology The NAM agrees that the threat is real and that losses have occurred The FBI's answer is a new federal statute with very strong penalties the better to prosecute technology theft Mr Chairman the irony is overwhelming Even as the FBI seeks heavy after-the-fact penalties for people who get caught they oppose this legislation to put better means of prevention in the hands of the targets and victims U S companies The government contradicts itself the NAM submits in claiming that industrial espionage carried out with the power of foreign intelligence is a big problem while simultaneously stopping industry from deploying the self-protective measures that it seeks An ounce of prevention is worth a pound of cure The FBI simply cannot have it both ways Once information falls into the wrong hands there is no way to get it back American manufacturers need to prevent this from happening in the first place Mr Chairman this concludes my statement and I will be happy to take questions This document is from the holdings of The National Security Archive Suite 701 Gelman Library The George Washington University 2130 H Street NW Washington D C 20037 Phone 202 994-7000 Fax 202 994-7005 nsarchiv@gwu edu