18 September 1998
Source: http://www.usia.gov/current/news/latest/98091706.elt.html?/products/washfile/newsitem.shtml

See related Senate hearing testimony: http://jya.com/cn-sat-export.htm

USIS Washington File
_________________________________

17 September 1998

### TEXT: REINSCH 9/17 REMARKS ON SATELLITE EXPORT CONTROLS

    (Policy protects U.S. security, economic well-being)  (3110)

    Washington -- The Administration's policy on commercial communications
    satellite exports to China both protects U.S. security and facilitates
    America's economic well-being, according to William Reinsch, under
    secretary of commerce for export administration.

    "Our current policy continues the decision by previous administrations
    to allow China to launch U.S.-built satellites subject to bilateral
    agreements on price, number of launches and technology safeguards,"
    Reinsch said in a September 17 hearing of the Senate Committee on
    Commerce, Science, and Transportation.

    Reinsch noted that as part of President Clinton's decision to transfer
    oversight of communications satellite exports from the Department of
    State to the Department of Commerce, Commerce was required to impose
    enhanced controls on satellites.

    "These new controls excluded commercial communications satellites from
    certain provisions of the Commerce regulations, such as foreign
    availability, which can be used to release items from licensing," he
    said. "In addition, the enhanced controls created a new and higher
    standard for reviewing communications satellite licenses which
    requires a review of every application to determine if the export is
    consistent with U.S. national security and foreign policy interests.
    Language from the Arms Export Control Act was used so as to provide
    the same level of control under Commerce regulations as was found
    under State regulations."

    According to Reinsch, Commerce Department licenses for communications
    satellites contain "numerous conditions and provisos" developed in
    conjunction with the Departments of Defense and State. Under Commerce
    licenses, exporters must comply with the terms of the satellite
    technology safeguards agreement between the United States and China,
    which requires them to:

    -- develop a technology transfer control plan which identifies the
    level and extent of technical data to be released, and which also
    includes plans for securing the satellite during its transportation to
    the launch site;

    -- have all technical data under the license reviewed by the Defense
    Department prior to its release to the launch service provider and
    have a Defense Department monitor present at technical meetings and
    launch activities with the Chinese launch service provider;

    -- transport the satellite in a sealed container allowing no access to
    equipment or technical data and with U.S. monitors to accompany the
    satellite if it is transported on a non-U.S. aircraft;

    -- have a separate cryptographic equipment safeguard plan for
    communications security equipment;

    -- limit technology which can be released under the Commerce license
    to only form, fit and function data used to mate the satellite to the
    rocket and, in the event of a launch failure, obtain a license from
    State before releasing any new technical data.

    "In light of these safeguards, I believe the existing Commerce
    licensing system fully protects our national security and foreign
    policy concerns," he said.

    Following is the text of Reinsch's remarks, as prepared for delivery:

    (begin text)

    TESTIMONY OF WILLIAM A. REINSCH
    UNDER SECRETARY FOR EXPORT ADMINISTRATION
    U.S. DEPARTMENT OF COMMERCE
    BEFORE THE SENATE COMMITTEE ON COMMERCE
    COMMERCE DEPARTMENT SATELLITE EXPORT CONTROLS
    SEPTEMBER 17, 1998

    Mr. Chairman, I want to thank the committee for the opportunity to
    testify on the export of commercial communications satellites to
    China. I believe this Administration's policy on these exports both
    protects our national security and facilitates our economic
    well-being. In allowing China to launch U.S. satellites and
    transferring licensing jurisdiction for commercial communications
    satellites to Commerce, this Administration has continued and enhanced
    the policy of the Reagan and Bush Administrations and has been
    consistent with Congress' expressed intent.

    Our current policy continues the decision by previous administrations
    to allow China to launch U.S.-built satellites subject to bilateral
    agreements on price, number of launches and technology safeguards.
    President Reagan began this policy in light of the growing demand for
    satellite launches, a demand which could not be met by U.S. launch
    service providers. His decision was a wise one, and he deserves credit
    for ensuring that the U.S. would continue its lead of the commercial
    communications satellite industry. Our view, like that of Presidents
    Reagan and Bush, is that under the appropriate safeguards these
    launches need not pose a risk to national security. In a moment I will
    describe these safeguards as they apply to Commerce licensed
    commercial communications satellites.

    Commerce licensing of communications satellites grew out of a 1990
    decision by President Bush to veto a revised Export Administration Act
    which would, among other things, have moved all communications
    satellites to Commerce jurisdiction. President Bush's veto was
    unrelated to the satellite issue, and in his veto message he directed
    State to review the Munitions List to determine if items, including
    communications satellites, which are controlled multilaterally as
    dual-use items could be moved to Commerce jurisdiction. He did this in
    light of the strong interest expressed by members of both parties in
    the jurisdictional issue and as the U.S. was the only country in the
    world to control communications satellites as munitions items. I note
    that in 1990 and 1992 both houses of Congress passed legislation that
    would have transferred jurisdiction over commercial communications
    satellites to Commerce, and in 1994, committees in the House
    introduced and in the Senate reported bills with this provision. These
    actions are in addition to the frequent letters the Administration
    received from a number of Members of Congress urging either the
    jurisdiction transfer or the export of satellites to China.

    As a result of this directive, the State Department transferred an
    initial tranche of roughly half of all commercial communications
    satellites to Commerce licensing jurisdiction at the end of the Bush
    Administration. President Clinton committed in 1993 to continue the
    list rationalization exercise begun by President Bush.

    The 1992 transfer established nine technical parameters relating to
    communications satellites' components and capabilities. Satellites
    with capabilities above the parameters were controlled by State. Those
    with lesser capabilities were controlled by Commerce. A 1995 review,
    undertaken by a working level group of technical experts led by the
    State Department, attempted to adjust these parameters to see if
    additional satellites could be moved to Commerce jurisdiction.
    However, this technical working group was unable to resolve several
    issues. Rapid technological change in the current generation of
    commercial communications satellites meant that the nine parameters
    could no longer consistently separate "military" from "commercial"
    communications satellites. These changes made the parameters outdated
    and illustrate the migration of military technology into the
    commercial communications satellite sector as the demand for satellite
    telecommunications services grows.

    A cursory review of the parameters illustrates the problem. For
    example, a satellite flown at high earth orbit has a larger
    "footprint" on the ground than one flown at a low earth orbit. Even
    though the two satellites could be exactly the same, the one with the
    larger footprint would be treated as a munition if it flew at a higher
    orbit. As satellites become lighter, the same propulsion system
    provides greater acceleration. This means that new satellites, which
    weigh less than old models, would be controlled as munitions only
    because of their lighter weight.

    Another parameter, cross-link capability, allows satellites to
    exchange data without going through a ground station. In 1990, only
    military satellites needed to "talk," but the development of satellite
    mobile phone networks means that civil satellites also needed to be
    able to ensure global coverage and to avoid the expense of numerous
    ground stations. Satellite antenna size is also a parameter. Satellite
    antennas allow the transmission and reception of signals from the
    ground. The larger the antenna, the better it can receive signals from
    small transmitters like cell phones. Successful implementation of
    global mobile telephone systems required that civil communications
    satellites use these large antennas. If we still used parameters like
    these to determine licensing jurisdiction, Iridium, Teledesic and
    other satellite systems would now be licensed as arms exports.

    With respect to the transfer of jurisdiction, Secretary of State
    Christopher, in a June 8 statement in the Los Angeles Times, makes
    clear that his 1995 decision was to task State and its industry
    advisory group to continue the process begun by President Bush in 1990
    to determine what additional communications satellites could be moved
    to Commerce control. It was the Secretary's instruction that led to
    the eventual transfer of all satellites to Commerce, a decision which
    all agencies involved -- State, Defense, Commerce -- supported.

    As Secretary Christopher noted, this unanimous recommendation was due
    in part to President Clinton's December 1995 Executive Order 12981,
    which revised the Commerce licensing process. This executive order
    provided the participating agencies -- State, Defense, Energy, and
    ACDA -- with the right to review and make recommendations on any
    Commerce license application they wished, and it established time
    lines and rules for interagency review and procedures for dispute
    resolution and allows any agency the chance to object to proposed
    exports through a hierarchy of committees from the working level all
    the way to the President. Moreover, as part of the transfer of
    jurisdiction, President Clinton amended Executive Order 12981 to
    specifically give State, Defense, Energy, and ACDA greater ability to
    object to a proposed export of commercial communications satellites.

    In reality, no licenses have ever been sent to either Cabinet
    Secretaries or the President in this Administration, but disagreements
    go as high as the assistant secretary level in perhaps five percent of
    our cases. Every license approved by Commerce for commercial
    communications satellites since the 1996 transfer has had the
    unanimous assent of State, Defense, and ACDA, has been subject to the
    same level of stringent technology safeguards as satellites licensed
    at State, and has made clear to exporters that no rocket technology
    could be transferred.

    The President's 1996 decision applied only to commercial
    communications satellites and the minimum equipment and technology
    needed for launch. Space launch vehicles and all detailed design or
    manufacturing data for space launch vehicles or communications
    satellites were not transferred to Commerce by this decision, nor was
    there a transfer of satellite components, if they were being exported
    separately rather than as part of a single satellite launch package.

    The President's decision to transfer jurisdiction required that
    Commerce impose enhanced controls on satellites. These new controls
    excluded commercial communications satellites from certain provisions
    of the Commerce regulations, such as foreign availability, which can
    be used to release items from licensing. In addition, the enhanced
    controls created a new and higher standard for reviewing
    communications satellite licenses which requires a review of every
    application to determine if the export is consistent with U.S.
    national security and foreign policy interests. Language from the Arms
    Export Control Act was used so as to provide the same level of control
    under Commerce regulations as was found under State regulations.

    Commerce licenses for communications satellites contain numerous
    conditions and provisos developed in conjunction with the Departments
    of Defense and State. Under Commerce licenses, exporters are obliged
    to comply with the terms of the satellite technology safeguards
    agreement between the U.S. and China, which requires them to:

    -- develop a technology transfer control plan which identifies the
    level and extent of technical data to be released, and which also
    includes plans for securing the satellite during its transportation to
    the launch site;

    -- have all technical data under the license reviewed by the Defense
    Department prior to its release to the launch service provider and
    have a Defense Department monitor present at technical meetings and
    launch activities with the Chinese launch service provider;

    -- transport the satellite in a sealed container allowing no access to
    equipment or technical data and with U.S. monitors to accompany the
    satellite if it is transported on a non-U.S. aircraft;

    -- have a separate cryptographic equipment safeguard plan for
    communications security equipment;

    -- limit technology which can be released under the Commerce license
    to only form, fit and function data used to mate the satellite to the
    rocket and require the exporter, in the event of a launch failure, to
    obtain a license from State before releasing any new technical data.

    In light of these safeguards, I believe the existing Commerce
    licensing system fully protects our national security and foreign
    policy concerns. There have been no allegations regarding export
    control violations of Commerce satellite licenses since the transfer
    of jurisdiction.

    There have been questions raised about an analysis conducted of the
    1995 APSTAR II launch failure. After that failure, the company
    involved conducted an analysis in order to satisfy insurance
    requirements. The analysis was reviewed by the Department of Commerce,
    which determined that it contained only information already authorized
    for export under the original Commerce license issued in February
    1994. The unclassified report was provided first to a consortium of
    Western insurance companies and later to the Chinese launch service
    provider. A 1998 review of the report, conducted at my request,
    confirmed the original conclusion that the analysis contained
    information specific to the launch vehicle or the satellite and that
    its release to the insurance companies and the Chinese was appropriate
    and without risk to national security. The review also determined that
    it would have been more appropriate to refer the failure report to the
    State Department prior to providing Hughes with any approval. Commerce
    has subsequently provided both State and Defense with copies of the
    report.

    I would also like to correct some misunderstandings which have arisen
    regarding the Commerce licensing process as a result of an earlier
    review by the General Accounting Office. GAO asserted that there are
    five differences in the treatment of satellite licenses at Commerce
    and at State. A closer look shows these differences do not affect
    national security. GAO reported that:

    -- Congressional notification of individual licenses is not required
    in the Commerce system. Commerce regularly briefs the Hill, issues
    annual reports, provides licensing documentation and answers inquiries
    upon request. We have provided briefings on satellite exports, and we
    briefed on the transfer of jurisdiction in 1996. We are not aware that
    the Congress has ever objected to any satellite export, and the
    message that Congress has consistently sent is that it wants
    satellites controlled as dual-use items under the Export
    Administration Act, which does not generally provide for Congressional
    review of individual licenses. In the specific case of satellites, of
    course, there can be no exports to China without a Tiananmen Square
    waiver which is notified to the Congress.

    -- Sanctions for missile proliferation do not apply to Commerce
    licenses. Sanctions do apply to Commerce in cases of Category I
    violations, and the President generally has flexibility to include
    dual use export sanctions in other cases. Normally, however, Category
    II missile sanctions apply only to munitions and dual-use items
    controlled under the Missile Technology Control Regime. Commercial
    communications satellites fall into neither category. Congress clearly
    intended Category II sanctions to be less onerous than Category I
    sanctions, which do cover dual use items.

    -- Defense's power to influence the decision making process has
    diminished. DOD's authority has not diminished in this regard.
    Commerce has denied licenses when Defense has raised national security
    concerns found credible by the reviewing agencies, but Executive Order
    12981 does not give Defense or any other agency a veto over licensing,
    which would be contrary to legislative authorities and Congressional
    intent. It does, however, permit an agency, including DOD, to prevent
    approval of any license until the President has heard and decided on
    its objections.

    -- Technical information may not be as clearly controlled under
    Commerce procedures. Since Commerce technology conditions are almost
    identical to those used at State, it is hard to see how the level of
    control on technology has changed.

    -- The additional controls placed on communications satellites
    transferred in 1996 do not apply to those transferred in the Bush
    Administration. In practice, all satellite applications subject to
    Commerce license after the transfer are subject to the same
    safeguards, and the other agencies have the same review and escalation
    rights.

    As a matter of policy there are several reasons why allowing Chinese
    launches of U.S.-manufactured satellites is in our interest. First,
    this is a large and important industry. U.S. industry revenues last
    year were $23.1 billion, a 15% increase from the previous year.
    Employment in 1997 was over 100,000, a 10% increase from the previous
    year. The industry indicates that it currently has $1.7 billion in
    launch contracts on Chinese rockets, with 8,000 U.S. aerospace jobs
    directly supported by those contracts. With over 1200 satellites
    expected to be launched over the next ten years, it is clear that the
    U.S. industry will continue to need access to all launch providers if
    it is to remain the world's leader. And that is a status I think we
    all support, because it is not only good for our economy, it is good
    for our military and our national security as well. As the line
    between military and civilian technology becomes increasingly blurred,
    a second class commercial satellite industry means a second class
    military satellite industry as well -- the same companies make both
    products, and they depend on exports for their health and for the
    revenues that allow them to develop the next generation of products.

    Second, some of these satellites bring telephone, television, and
    Internet services to the Chinese people. I believe such services are
    an integral part of any effort to bring democracy and freedom to
    China. History has shown that it was the successful example of the
    West -- not only in military strength but in standard of living and
    freedom of expression -- that brought the Cold War to an end. Our goal
    should be to bring not only our products but our ideas and values to
    China, but we cannot do that if they do not have the technological
    tools to receive them.

    International security since the end of the Cold War poses very real
    problems for the United States. We are in the midst of a serious
    debate as to whether we should seek to constructively engage those
    with whom we have disputes or whether we should try to change their
    behavior through unilateral demands, embargoes and sanctions. The
    Administration's experience has been that the latter course rarely
    works, even though it may make us feel good to impose Cold War-style
    embargoes on these countries. Those who find it in their interest to
    exaggerate the threat of trade with China seem incapable of defining
    our relations with this emerging power in any terms but those of
    military conflict. However, we believe that treating China as a
    committed adversary is the quickest way to ensure it becomes one, and
    we remain convinced that it is better to engage China frankly in
    dialogue, in trade, and in ideas than it is to seek to isolate them.

    (end text)