27 June 1998
Source: Hardcopy The New York Times, June 27, 1998, p. A9

# Report Outlines Security Violations by Satellite Makers That Aided Chinese Scientists

By ERIC SCHMITT

WASHINGTON, June 26--When two American satellite makers shared certain technical information with Chinese rocket scientists, they committed three major security breaches, according to a confidential assessment by the Pentagon.

The Pentagon had already determined that the two companies--Loral Space and Communications and Hughes Electronics--harmed the national security of the United States when they helped China find the cause of a failed rocket launching in February 1996. The Chinese rocket, carrying a Loral satellite, exploded 22 seconds after liftoff.

But in newly revealed portions of a report, the authorities described with more precision the degree of damage and the nature of the violations by the companies. The report is significant because its findings led to a Justice Department criminal inquiry into the two companies, which in turn became a central focus of a multipronged Congressional investigation.

Portions of the 20-page report by the Defense Technology Security Administration, a Pentagon agency responsible for safeguarding technology exports, were read to The New York Times. The report categorized the violations in three degrees of seriousness, a person familiar with the report said.

According to the May 16, 1997, report, three "major" breaches "undeniably" would have been deleted by the Pentagon had military authorities been given the opportunity to screen the material before it was given to the Chinese. The authorities believe the data required a State Department license to be released. A senior Administration official said today that the breaches involved the companies' explanations of possible causes of the accident. Those explanations, it is feared, could help China improve its rocket technology.

In addition, there were three "medium" violations, which "most likely" would have been deleted, and 12 "minor" infractions that "probably" would have been denied, the person who has read the document said.

Ali the infractions involved assistance Aaerican technical experts gave the Chinese to help solve problems with their rockets' guidance and control systems, an area of weakness in China's missile programs.

Administration officials have refused to discuss the report's findings at the insistence of the Justice Department, which is conducting a criminal inquiry into Loral and Hughes. Justice officials fear that revealing the conclusions could undermine their investigatiorl.

On one level, the investigation focuses on whether the American companies, part of an industry commission established for insurance purposes to investigate the explosion, gave China data that required a State Department license. On a broader level, though, the issue is whether the American experts conveyed technical information that the Chinese could also apply to their military ballistic missiles.

The rockets the Chinese use to launch satellites are very similar to the Chinese missiles that carry nuclear warheads.

The Times had previously reporte that the American experts determined that the February 1996 accident was caused by a flaw in the electronic flight control system. One of the "major" breaches of information, the Pentagon report found, was that the companies volunteered alternative causes for the failed unit that the Chinese had not found.

Administration officials, including those from the Central Intelligence Agency, have played down this violation, arguing that the failed component is not used in any ballistic missile that the Chinese have now or plan to make.

A more troubling "major" violation, a senior Administration official said, was the companies' suggestion that the Chinese use diagnostic techniques that would allow Beijing's engineers to detect flaws in guidance systems for any kind of missile, nuclear or non-nuclear.

"The significant benefits derived by China from these activities are likely to lead to improvements in the overall reliability of their spacelaunched vehicles and ballistic missiles, and, in particular, their guidance systems," the report says, according to t~e person who has read it.

The larger issue centers on what happened after the missile, a Chinese Long March, blew up on Feb. 15,1996, destroying a $200 million Loral communications satellite.

International insurers insisted that China have an outside review panel study the accident. Loral headed the industry team, which included experts from Hughes.

The industry commission then gave its findings to the Chinese without approval from the United States Government. Loral executives acknowledge this happened, but insist no sensitive information was divulged.

When the State Department learned of the information shared with the Chinese, it asked four Federal agencies with expertise in rocket technology or missile proliferation to review the industry commission's report.

The State Department's own intelligence arm and the Air Force's National Air Intelligence Center shared the Pentagon technology office's conclusions that national security had been harmed. The C.I.A., which only considered the impact on the spread of missiles around the world, found that the crash did not raise concerns in that area.

But in the past week, the Director of Central Intelligence, George Tenet, ordered the agency to assess the incident for national-security damages just as the other agencies had. The new C.I.A. report is expected to be completed in the next few weeks, an Administration official said today.

The Pentagon report has attracted wide attention on Capitol Hill mainly because the Defense Technoiogy Security Administration, which prepared it, draws on the expertise of the nation's top rocket scientists.

"The D.T.S.A. report is very serious, and one we'll have to look at very carefully," said Representative Norm Dicks of Washington, the senior Democrat on the House select committee looking into the accusations.

The chairman of the Select Committee, Representative Christopher Cox, a California Republican, has said the satellite makers' information-sharing will be the panel's first order of business this summer.

Link to Senate testimony by Leitner and Miller.

Source: Hardcopy The New York Times, June 26, 1998, p. A16

# Pentagon Adviser Criticizes System of Technology Export Control

By ERIC SCHMITT

WASHINGTON, June 25--A senior Pentagon adviser accused the Clinton Administration today of diminishing the Pentagon's role in safeguarding sensitive American technology exports, in favor of commercial interests.

"What passes for an export-control system has been hijacked by longtime ideological opponents of the very concept of export controls," said Peter M. Leitner, a senior trade adviser to the agency for 12 years.

While a senior Pentagon official denied Mr. Leitner's accusations, made at a Senate hearing, he acknowledged that the Government could improve its handling of exports of technology that have both commercial and military applications.

"There is a balance, and we have to continue to make that balance," the official, Franklin C. Miller, a principal deputy assistant secretary of defense, said at a hearing of the Senate Governmental Affairs Committee.

Today's hearing, a spinoff of the multipronged Congressional inquiry into whether China obtained sensitive technology that helped its ballistic missiles, focused on an important but little-known Pentagon agency, the Defense Technology Security Administration. It is responsible for preventing unauthorized transfers of sensitive technical information and technology to other countries.

Mr. Leitner, the hearing's principal witness, accused the Administration of "neutering" the Pentagon agency's role by hiring inexperienced, poorly trained staff, rubberstamping export licenses on scant technical information and stifling dissent from career officials.

Mr. Miller took issue with virtually [text missing] Mr. Leitner's criticisms.

Mr. Leitner, for example, had offered charts that indicated a sharp decline after 1995 in the percentage of cases of "dual-use" technology exports that the agency had referred to the Defense Intelligence Agency and the armed services for a review of sensitive technology.

But Mr. Miller said the decline coincided with a new policy that required the Commerce Department to refer all dual-use applications to the Pentagon agency for review So the volume of cases rose.

But the committee chairman, Senator Fred Thompson, Republican of Tennessee, said, "Commercial interests have had a bigger play than they should have."

Also on Capitol Hill, other Congressional committees debated the Administration's China policies. In a lift for President Clinton, the House Ways and Means Committee agreed to renew China's trade status. The measure now goes to the full House.

In another House hearing, two rocket-motor makers testified that a Reagan Administration policy allowing American companies to launch satellites abroad was hurting the American launching industry and helping foreign militaries.

At the same hearing, a former McDonnell Douglas aerospace engineer, Leon E. McKinney, confirmed what many scientists had been saying on Capitol Hill: "If you improve launch-vehicle guidance technology, you've simultaneously improved missile-guidance technology."

The underlying fear in any unauthorized technology transfer to the Chinese is that it could help improve the reliability of Beijing's nuclear missiles. The Clinton Administration insists this has not been the result of any licensed technology exports.

"Could American companies simply, by asking questions in the right way, upgrade Chinese capability?" asked Representative Dana Rohrabacher, Republican of California.

"Most probably," said Mr. McKinney, now an aerospace consultant.