Articles and Columns by Adam Smith
 
Encryption Laws Stymie U.S. Competitiveness
 
September 19, 1997
 
Technology and computers are an integral part of our new information-based economy. Hardware, software, the Internet -- soon, every business in America and around the world will use these tools like previous generations used pencils and paper. 

At the same time, trade barriers are also crumbling. The export market is lucrative for American businesses, and this seems particularly fortunate for Internet providers and software companies like Microsoft, Yahoo! and Web TV because they are the worldwide leaders in technology. 

Unfortunately, the rest of the world doesn't have full access to American software. Ironically, it isn't Japanese trade barriers or European tariffs that restricts our exports, it is our own laws that prohibit export of secure encryption codes. 

Encryption uses mathematical algorithms to scramble and unscramble information, such as e-mail messages or financial transactions, as it is sent from one computer to another. 

Encryption makes secure Internet business transactions possible. For example, if you purchase airline tickets through the Internet, you can be confident that your credit card number will be secure because it is encrypted. 

Under current law, the United States allows only 40-bit encryption codes to be exported, although software companies routinely produce and sell encryption codes of up to 128 bits. 40-bit encryption technology is so elementary, it took a graduate student only a few hours to break a code last January. 56-bit encryption is 65,000 times more difficult to decode than 40-bit encryption; 128-bit encryption is the most advanced encryption technology on the market. 

Naturally, foreign companies don't want to buy 40-bit encryption software, because it is so vulnerable and insecure. The possibilities for "computer hackers" to break in to the system and wreak havoc are enormous and dangerous. Therefore, foreign companies are purchasing high-level encryption from foreign software providers instead of American ones. 

With a bipartisan group of members of Congress, I have been working to relax these export standards so that the United States maintains its worldwide competitiveness in the software industry. I cosponsored H.R. 695, the Security and Freedom Through Encryption Act, which would relax export controls on encryption technology so that U.S. software firms are competitive with foreign firms. 

The House National Security Committee, of which I am a member, recently debated this bill. Most members of the committee opposed the bill because they believe that exporting high-level encryption technology is a threat to national security. They fear that criminals and terrorists will obtain encryption technology and use it against the United States. 

The fact is that strong encryption is available worldwide. If our export controls could keep encryption from criminals, controls would make sense. But our export restraint has not kept the technology from proliferating, it has merely allowed foreign producers of strong encryption technology to fill the vacuum. 

In fact, American companies are partnering with foreign firms in order to distribute their software -- taking jobs and revenue with them. American-owned Sun Computers has recently partnered with a Russian software company in order to avoid the U.S. export ban and sell to foreign markets. 

Entrust, a Canadian company with an American parent company called Nortel, is freely marketing and selling a 128-bit encryption program right now. It sells for less than $50, and Entrust even provides a version of the encryption technology free on the Internet. 

Foreign companies can also purchase American-produced 40-bit encryption technology and upgrade it in their own countries to 128-bit encryption technology. Clearly, if someone wants high-level encryption technology, he or she can easily obtain it. 

If the United States continues to impose these restrictive export bans on its own companies, "foreign competition could emerge at a level significant enough to damage the present U.S. world leadership" in the software industry, according to the National Research Council's blue-ribbon panel on encryption policy. 

If our export ban continues, the United States won't be the worldwide leader on encryption technology for long, and that would be a true risk to our national security. 

Although other House committees have already approved the bill, the House National Security Committee severely weakened it. 

Instead of relaxing our export controls and allowing U.S. software companies to compete in the global market, the bill now merely requires the Secretary of Defense and Secretary of Commerce to determine within 60 days whether or not encryption software can be sold to foreign consumers. 

I argued against these changes, and I still believe that we should change the language in the bill back to its original version. The five committees that took action on this bill will work out a final version in the Rules Committee, which will then be considered on the floor. 

I am working now with a bipartisan coalition of like-minded members of Congress to undo the National Security Committee's changes on the floor of the House. 

I strongly oppose any unilateral sanctions or regulations that put the United States at an unnecessary disadvantage. Our current encryption software export ban is a perfect example, and I intend to continue the fight to change our policy and allow the United States to compete in the global software market. 

 
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