' Department of State Senate Testimony on international Y2K issues
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Here is an edited version of the (US) Senate testimony from the Department of State. For a more complete picture please see the original site.
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Bridgers Testimony: Hearing of Special Committee on Year 2000 Technology Problem
JACQUELYN L. WILLIAMS-BRIDGERS
INSPECTOR GENERAL OF THE
DEPARTMENT OF STATE,
ARMS CONTROL AND DISARMAMENT AGENCY, AND
UNITED STATES INFORMATION AGENCY, INCLUDING
THE BROADCASTING BOARD OF GOVERNORS
THE YEAR 2000
COMPUTER PROBLEM:
GLOBAL READINESS AND INTERNATIONAL TRADE
BEFORE THE
SPECIAL COMMITTEE ON THE YEAR 2000 TECHNOLOGY PROBLEM
UNITED STATES SENATE
These assessments suggest that the global community is likely to experience varying degrees of Y2K-related failures in every sector, in every region, and at every economic level. As such, the risk of disruption will likely extend to the international trade arena, where a breakdown in any part of the global supply chain would have a serious impact on the U.S. and world economies. In light of all this, the challenge now facing the United States is to encourage and facilitate contingency planning by individual countries, their regional partners, and by international organizations such as the United Nations.
Table 3: Risk of Y2K-Related Sector Failures in Industrialized Countries (N=39)
Industrialized countries were generally found to be at low risk of having Y2K-related infrastructure failures, particularly in the finance sector. As Table 3 shows, however, nearly a third of these countries were reported to be at medium risk of failure in the transportation sector, and almost one-fourth were reported to be at a medium risk of failure in the telecommunications, energy, or water sectors. Because industrialized countries are highly dependent on computer technology in every sector, the potential impact of Y2K-related problems is much higher than in the developing world. Some examples of problems or issues found in our evaluation of industrialized countries' Y2K readiness are as follows:
During our visit to Malaysia, we learned that the banking, electricity, and transportation sectors were generally in the advanced stages of remediation (fixing or replacing a system) and testing. Further, the government and business sectors are developing organizational, sector, and national contingency plans as part of their Y2K preparations. There is some concern about the Malaysian telecommunications sector, which was about 79 percent through the remediation stage as of May 1999, because of a lack of detailed information.
During our visit to Seoul, we learned that except for banking and telecommunications, the public and private sectors of Korea got off to a late start in addressing Y2K issues. Now, both the government and private sector organizations are reporting remarkable progress in remediating and testing their systems. However, we are concerned that the late start and the economic recession (which has also affected other Asian countries) means they may not be able to complete all necessary work and do a thorough job of remediation and testing.
Taiwanese authorities and large business enterprises have made a great deal of progress in addressing Y2K issues. During our visit to Taipei, we were told that key parts of the infrastructure appear to be in compliance or close to it, and the government is preparing its contingency plans for water, transportation, and power. For example, the Central Bank and the Bank of Taiwan were tested and certified by the Ministry of Finance in April 1999. However, the Y2K readiness of small and medium enterprises as well as small medical facilities remains a big question.
A June 1999 embassy assessment of one European country, which will be hosting many large-scale millennium events that will be attended by thousands of Americans, expressed skepticism about the country's telecommunications sector because of a lack of information. The assessment further noted that water and wastewater efforts were inconsistent, health care preparations were inadequate, but finance was in good shape.
The Y2K readiness of ports and the ships entering those ports continues to be a worldwide concern. For its part, the French Ministry of Transportation has indicated it does not support closure of French ports on December 31, 1999. It suggests that ships moored in French harbors do not attempt to maneuver on December 31, 1999. Ports and the French Navy will have emergency tugboats on red alert on December 31, 1999 should a ship come ashore.
At a roundtable discussion in one Middle Eastern country, businessmen expressed concern about the country's preparedness for Y2K and the potential effect on business. In addition to potential problems with utilities (water and power supply) and telecommunications, the business leaders were concerned about medical services, food distribution, and the aviation system. One report suggests that water may be the weakest link in Y2K preparedness in the region. A Y2K expert in a major city in this country advised that the city only has a 1-day supply of water and noted that staff responsible for the desalinization plants decided to turn the computers back to the year 1995, “until they can figure out how to fix the problem."
Contrary to the bad press concerning Japan's Y2K readiness, during our visit to Japan in May of this year, we concluded that Japanese ministries and companies had been working quietly towards compliance, but until recently little information on their progress was available in English. The Japanese acknowledge they got off to a late start in addressing Y2K, and this may hamper their ability to thoroughly address the problem before the end of the year.
Higher Risk of Y2K-Related Failure in Developing Countries
Anywhere from 52 to 68 developing countries out of 98 were assessed as having a medium or high risk of Y2K-related failure in the telecommunications, transportation, and/or energy sectors, as shown in Table 4. Although the financial sector was rated as a low risk in about 60 percent of these countries, its ability to continue functioning is questionable because of its heavy reliance on other sectors, such as telecommunications and energy, which are more likely to have Y2K-related problems. The relatively low level of computerization in key sectors of the developing world may reduce the risk of prolonged infrastructure failures. Examples of some specific problems or issues facing developing countries are as follows:
There is reported progress in India's Y2K readiness in the last 6 months, especially in the critical sectors of banking and finance, civil aviation, and telecommunications. But nowhere is the Y2K process complete, and contingency planning has barely begun. Most worrisome is the potential vulnerability of the 70 percent of the electrical power sector controlled by the State Electricity Boards, large parts of which only now are beginning basic inventories and assessments. However, the power companies we contacted during our visit reported no Y2K issues in generating, transmitting, and distributing electricity.
There is now cautious optimism concerning Y2K readiness in China, compared to the situation a few months ago. China's Y2K representative and other speakers at a Y2K conference in Beijing in May expressed confidence in China's electric grid, but also expressed concerns about the effect of Y2K on railroad freight, medical devices, and embedded chips. Following the conference, a Y2K article in the May 25, 1999, People's Daily decried widespread public ignorance and apathy about Y2K in China. The journalist estimated that 70 percent of the large- and medium-sized manufacturers in China do not take Y2K seriously. The author also noted that China may be vulnerable because of its use of many obsolete computers and pirated software. In addition, the computer systems people sometimes do not know just what is on their system. For its part, the Chinese government is conducting a Y2K triage, focusing limited resources on critical public utilities (water, electricity, public health, and transportation) as the top priority and then on key industrial sectors. The Chinese authorities expect some Y2K problems but nothing that will put people's lives in danger or cripple the economy.
In Vietnam, because there is a low level of computer usage, there is a relatively low threat of Y2K-related failures. Vietnam's economy is largely agrarian and based on cash, rather than electronic transactions. Further, it was difficult obtaining information about Vietnam's Y2K readiness because the government tightly controls the information and Y2K issues are not widely publicized. The government keeps certain things like maps, drawings, electrical diagrams, and financial figures a state secret. We did learn that one dam that provides about 80% of the electricity to Vietnam uses Russian equipment that probably has embedded chips whose Y2K readiness is questionable.
On June 1, 1999, the Ethiopian National Y2K Committee advised that Ethiopia has completed its Y2K assessment, and remediation is still underway. The cost of Y2K remediation is estimated at $18.7 million. The air transport, electricity, and water sectors all appear to be compliant, but the telecommunications sector is lagging. Some sectors are testing now testing their systems for Y2K compliancy, but little attention has yet been given to contingency planning.
Need for Y2K Contingency Planning on a Global Scale
Y2K-related disruptions in the international flow of goods and services are likely, but no one knows exactly where, when, and to what extent such disruptions will occur. Because disruptions could seriously impact the world's economies, including our own, the Department of State needs to take the lead on behalf of our government in facilitating global contingency planning.
In 1998, world trade totaled over $5 trillion, and the United States accounted for nearly 13 percent of that total. The global trading system consists of a complex network of suppliers, distributors, service providers, and customers. An infrastructure of energy supplies, transportation systems, telecommunications networks, and financial organizations support this system. Disruptions in this infrastructure, and the relationships among suppliers and customers, will negatively affect individuals, firms, industries, governments, and national and regional economies around the world.
As I discussed earlier in this statement, our Y2K assessments suggest that the global community is likely to experience some Y2K-related failures in every sector, country, and region. The international economy is vulnerable because Y2K-related failures in the supply chains of one country or region might disrupt the ability of other countries to keep their factories working, transportation systems running, food supplied, and people employed. Work is underway around the world developing contingency plans to ensure continued functioning of governments, infrastructures, businesses, and supporting organizations within individual countries, but little is being done to consider potential supply chain disruptions originating in other countries and how they should be handled.
The Department can take the lead for the U.S. Government in facilitating global Y2K contingency planning. With assistance from other Federal agencies such as the departments of Commerce, Energy, and Transportation and the Federal Emergency Management Agency, the Department needs to work with international government, industry, and consumer organizations to ensure that global contingency plans are prepared for key infrastructure and industry sectors. To do this, the Department can be most effective by leveraging the efforts of international organizations such as the United Nations, the Asia-Pacific Economic Cooperation, and other entities that have active Y2K outreach programs. In addition, this effort should include applying lessons learned from recent disasters (i.e., the December 1998 ice storm in Williamsburg, Virginia and the 1996 Kobe earthquake) in such sectors as transportation, power, and telecommunications. Further, there must be special emphasis on contingency planning for small and medium enterprises of 500 or fewer employees that represent approximately 98 percent of the supply chains in most countries.
By promoting a global approach to Y2K contingency planning, the Department of State, on behalf of the U.S. Government, can help strengthen the ability of all countries to deal with potential disruptions in international trade.
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