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18 June 1998
Source: http://www.usia.gov/current/news/latest/98061807.elt.html?/products/washfile/newsitem.shtml

United States Information Service Washington File

18 June 1998

### TEXT: UNDER SEC. HOLUM TESTIMONY ON CHINA SATELLITE EXPORTS

    (Holum: China indispensable to nonproliferation policy) (3020)

    Washington -- "China is indispensable to any effective
    nonproliferation policy," said Acting Under Secretary of State for
    Arms Control and International Security Affairs John D. Holum.

    "China's approach can make the crucial difference between success and
    failure -- whether in negotiating international arms control and
    nonproliferation agreements, dealing with difficult regional
    proliferation challenges, or constraining the transfer of potentially
    destabilizing goods and technology," Holum said before the Senate
    Subcommittee on International Security, Proliferation, and Federal
    Services June 18.

    Holum said the program to allow the launch of U.S.-made satellites and
    satellites composed of mainly U.S. parts beginning in 1988 was an
    incentive to China. "This policy has been used judiciously as a
    'carrot' to encourage China to enforce strengthened nonproliferation
    standards," he said.

    In order to protect U.S. national security, the bilateral technology
    safeguards agreement between the United States and China sets limits
    the level of technical data that may be provided to the Chinese, Holum
    said. "The agreement provides for the right of the United States
    Government oversight of all stages of a planned Chinese launch,
    including preparations, satellites transportation, and launch," he
    said.

    Holum assured the subcommittee that the recent waiver of the Tiananmen
    Sanctions earlier this year for Loral's Chinasat-8 project was handled
    in a normal manner.

    The State Department had been aware Loral was under investigation by
    the Department of Justice at the time their waiver was submitted,
    Holum said. "The State Department's policy has been that, provided the
    activity proposed for waiver is consistent with United States national
    security and foreign policy, we do not deny export privileges to
    United States firms that are under investigation but have not been
    indicted."

    Following is the text of Holum's testimony, as prepared for delivery:

    (begin text)

    Testimony of the Honorable John D. Holum
    Acting Under Secretary of State for
    Arms Control and International Security Affairs
    Before the
    Senate Subcommittee on International Security,
    Proliferation, and Federal Services

    June 18, 1998

    Mr. Chairman and members of the Committee, thank you for the
    opportunity to address U.S. policy regarding the launching of U.S.
    satellites from China.

    I'd like to make several fundamental points to place this issue in
    context. The first is that nonproliferation of weapons of mass
    destruction is a cornerstone in U.S. foreign and national security
    policy. We have placed great emphasis on strengthening international
    standards -- a permanent NPT, completing the comprehensive test ban
    treaty, entry into force of the Chemical Weapons Convention, efforts
    to strengthen the Biological Weapons Convention, tighter multilateral
    restraint such as in the Missile Technology Control Regime. We have
    pressed better detection -- our own technologies, enhanced IAEA
    safeguards, and others. We have pursued all the tools of diplomacy at
    all levels.

    In her speech last week at the Stimpson Center, Secretary Albright
    catalogued in some detail our emphasis on nonproliferation and arms
    control and our broad strategy for pursuing those goals. Trends such
    as Iran's progress toward a medium range missile capability and the
    nuclear tests in South Asia make clear that these are not theoretical
    concerns, but looming threats. There is no disagreement between the
    Executive Branch and the Congress on the vital importance of these
    issues.

    The second point is that China is indispensable to any effective
    nonproliferation policy.

    China is a nuclear weapon state. Since the 1980s it has had a small
    but potent arsenal of ballistic missiles, some of which are capable of
    reaching the United States. It is a potential supplier of weapons,
    materials and technology to countries of proliferation concern.
    China's approach can make the crucial difference between success and
    failure -- whether in negotiating international arms control and
    non-proliferation agreements, dealing with difficult regional
    proliferation challenges, or constraining the transfer of potentially
    destabilizing goods and technologies.

    Unquestionably, China has been part of the proliferation problem. Its
    relationship with Pakistan's nuclear weapons has been a major concern
    since the 1970's; by 1990, the U.S. could no longer certify the
    absence of a nuclear weapons program in Pakistan. We also take sharp
    issue with China's chemical and missile cooperation with Iran. In
    1991, the Bush Administration sanctioned two Chinese entities, and in
    1993 the Clinton Administration sanctioned eleven Chinese entities,
    for transferring missile equipment and technology to Pakistan.

    At the same time, my third basic point is that although we still have
    serious concerns, China's approach to nonproliferation has changed
    markedly in recent years.

    Recall that China once advocated proliferation of nuclear weapons as a
    means of "breaking the hegemony of the superpowers." But in 1992 China
    joined the Nuclear Non-Proliferation Treaty (NPT) and thereby accepted
    a legal obligation not to assist others to acquire nuclear arms. As an
    NPT member, China has proven to be a constructive partner in our
    efforts to constrain the nuclear ambitions of North Korea. China has
    ratified the Chemical Weapons Convention and signed the Comprehensive
    Test Ban Treaty.

    In 1994, China committed not to export MTCR-class ground-to-ground
    missiles. China's exports of missile-related components and technology
    appear to reflect a narrower understanding of the MTCR Guidelines than
    ours, but we have no evidence that China has acted inconsistently with
    its basic 1994 commitment. Similarly, we assess that China continues
    to abide by its 1996 agreement to end assistance to unsafeguarded
    nuclear facilities in Pakistan or anywhere else. China is taking steps
    to improve its export controls, including recent announcement of new
    dual use nuclear-related controls. And last year, China agreed to
    conclude its nuclear cooperation with Iran, and also to terminate its
    export of cruise missiles to that country. Today, it is working with
    us in efforts to promote stability and prevent an arms race in South
    Asia.

    So the picture is mixed. The progress is substantial, but not enough,
    especially given the stakes. Therefore, my final broad point is that
    we must continue to use all the tools at our disposal to make China
    part of the nonproliferation solution. And we need to fashion the mix
    of tools in the way best designed not necessarily for psychic
    satisfaction, but for nonproliferation results.

    What are the tools?

    -- Intensive diplomacy at all levels, including that of President
    Clinton and his predecessors.

    -- The front-line, day-to-day work of nonproliferation, with experts
    sifting through intelligence reports and generating demarches aimed at
    preventing specific transfers.

    -- Technical collaboration, such as our expanding cooperation to
    improve China's export controls.

    -- Sanctions. China's undertakings on missile restraint in 1992 and
    1994 came about through waivers of sanctions then in force. The
    potential for sanctions was part of the atmosphere in 1996, when China
    pledged not to assist unsafeguarded nuclear facilities, and in 1997
    when China agreed to cease sales of cruise missiles to Iran.

    -- And positive incentives. Unquestionably, China's recent
    far-reaching steps on nuclear nonproliferation were motivated, at
    least in part, by the prospect of civil nuclear cooperation with the
    United States.

    Let me emphasize, however, that there are clear limits to incentives.
    Specifically, the United States continues our long-standing support
    for and cooperation with Taiwan, as President Clinton's actions during
    the 1996 crisis demonstrated. And, of particular relevance to the
    subject of this hearing, neither this Administration nor its
    predecessors have been willing to sell China arms or transfer
    sensitive technologies that could contribute to China's own WMD or
    missile programs.

    One aspect of our efforts to persuade China to adopt a more
    responsible nonproliferation policy, particularly regarding missile
    transfers, has been the basic policy of three administrations,
    beginning in 1988, to allow U.S.-made satellites and foreign
    satellites with significant U.S. components and technology to be
    launched on Chinese rockets. This policy has been used judiciously as
    a "carrot" to encourage China to enforce strengthened nonproliferation
    standards.

    But, again, the incentive is clearly limited, to exclude transfer of
    sensitive missile or satellite technology when satellites are licensed
    for launch from China. The U.S. has a very strict policy, secured in a
    bilateral technology safeguards agreement between the U.S. and China,
    designed to prevent the transfer of sensitive missile technology to
    China that could assist its space launch vehicle program. The
    agreement specifically precludes U.S. persons from assisting China in
    any way on the design, development, operation, maintenance,
    modification, or repair of launch vehicles.

    The agreement itself also limits the level of technical data that may
    be provided to the Chinese to specific interface data related to form,
    fit and function that are necessary to mate the satellite to the
    launch vehicle. And the agreement provides for the right of U.S.
    Government oversight of all stages of a planned Chinese launch,
    including preparations, satellite transportation, and launch.

    The Department of State has delegated the responsibility for
    implementing this agreement to the Department of Defense. The Defense
    Technology Security Administration (DTSA) acts as the executive agent
    for the U.S. side.

    Licenses for the export of satellites for launch from China are issued
    subject to conditions designed to ensure the protection of sensitive
    technologies, including a requirement that the U.S. licensee conform
    to the technology safeguards agreement. Under current regulations DTSA
    representatives attend meetings between manufacturers and Chinese
    launch service providers to ensure that there is no transfer of
    unauthorized technology or technical data.

    We do not believe that the commercial space launch activities that
    have been authorized by licenses and monitored under these procedures
    have benefited China's missile or military satellite capabilities.

    Against this background, I would like to give you the State
    Department's perspective on two events that have been the subject of
    broad reporting and commentary: first, the transfer of jurisdiction
    from the State Department to the Commerce Department for commercial
    communications satellites, and second, the most recent waiver, in
    February 1998, for Loral's Chinasat-8 project.

    One unfinished piece of business facing the Clinton Administration
    when it took office in 1993, was a set of amendments to the
    International Traffic in Arms Regulations (ITAR) that had been
    prepared at the end of President Bush's Administration. The ITAR,
    administered by the State Department, implements the President's
    authorities under Section 38 of the Arms Export Control Act. The ITAR
    contains the U.S. Munitions List, which specifies articles and
    services which require a State Department license before they may be
    exported or, in certain cases, discussed with a foreign person.

    In 1990, Congress inserted specific provisions in reauthorization of
    the Export Administration Act calling for removal of certain items
    from the U.S. Munitions List. In his veto message on the bill,
    President Bush said his Administration nonetheless would act to remove
    dual-use items from the U.S. Munitions List, except for those
    warranting the special controls of the ITAR. This led to an
    inter-agency study, and then draft amendments to the ITAR to remove
    certain dual use items, including commercial communications
    satellites.

    However, since the conclusion of that study generally coincided with
    the election of President Clinton, the State Department deferred
    implementation so the incoming Administration could review the matter.

    In July 1993 following further interagency study, the Clinton
    Administration approved the Bush Administration's proposed ITAR
    amendments without change. As a result, many commercial communications
    satellites were removed from the U.S. Munitions List and placed under
    the export licensing jurisdiction of the Department of Commerce.
    Commercial satellites remaining on the Munitions List were outlined in
    Category XV of the list, and cover nine specific performance
    characteristics such as antennae capabilities, encryption devices, and
    propulsion systems. Over the next two years, those characteristics
    continued to define which communications satellites required a U.S.
    Munitions License and which required approval by the Department of
    Commerce.

    The U.S. aerospace industry continued to press for treatment
    comparable with other communications trade, such as fiber optics and
    telephone switching equipment, which were controlled under the
    Commerce Department's Control List. They pointed out that
    characteristics once unique to military satellites were now routinely
    employed on commercial communications satellites. And they argued that
    the 30-year U.S. lead in building and exporting commercial
    communications satellites was under challenge from Japan, Europe and
    Canada, who were promoting the view that American manufacturers were
    unreliable because of the U.S. Government's restrictive export
    policies.

    Secretary Christopher agreed on the need to ensure that U.S. Munitions
    List controls in this area are up to date and justified, and requested
    that an interagency study be undertaken on whether the characteristics
    specified in the International Traffic in Arms Regulations
    appropriately identified those communications satellites having
    significant military or intelligence capability. This inter-agency
    study was organized by the State Department and included the
    participation of the Defense Department, the Intelligence Community,
    the Arms Control and Disarmament Agency, the Department of Commerce,
    NASA and other interested agencies.

    In September 1995, Secretary Christopher received and approved
    recommendations from the interagency group narrowing, but not
    eliminating, U.S. Munitions List controls. Those recommendations were
    supported by the Defense Department and the Intelligence Community.
    The Commerce Department supported removal of all commercial
    communications satellites from the U.S. Munitions List. Commerce then
    exercised its right to seek Presidential review.

    This led to additional inter-agency review under the aegis of the
    National Security Council. As distinct from the earlier, split
    recommendation, this review produced a common recommendation from
    State, Commerce, Defense and the Intelligence Community, with two
    important parts.

    Henceforth, commercial communications satellites would be controlled
    by Commerce even if they had embedded in them individual munitions
    list components or technologies; in all other cases, munitions list
    technologies or components themselves would continue to be controlled
    on the U.S. Munitions List, subject to State Department licensing.

    However, the further shift in control was accompanied by new control
    procedures and regulations to strengthen safeguards. Interagency
    review was strengthened, giving State and Defense the right to review
    all Commerce export license applications. A new foreign policy and
    national security control was established in Commerce's Export
    Administration Regulations whereby State and Defense could recommend
    denial of a satellite export to any destination on the basis of
    national security or foreign policy interests. Commercial
    communications satellites were made exempt from the foreign
    availability requirements of the Export Administration Act.

    As Secretary Christopher noted in a recent letter published in the Los
    Angeles Times, these new features made it possible for the State
    Department to change its position and support the March 1996
    recommendation to the President.

    The bottom-line question is, of course, has this change resulted in a
    degradation of protection for U.S. national security. It was Secretary
    Christopher's conclusion, and remains the judgment of the Department
    of State, that the changes made in the Commerce export licensing
    system in 1996 were sufficient to deal with the national security
    sensitivities associated with foreign launches of communications
    satellites. They provide a degree of protection for these items when
    under Commerce control that approximates the strict controls of the
    International Traffic in Arms Regulations. Therefore, the State
    Department was provided with reasonable assurance that U.S. national
    security would not be adversely affected with the jurisdictional
    change.

    Finally, let me report that the waiver of Tiananmen Sanctions earlier
    this year for Loral's Chinasat-8 project was handled in a normal
    manner, in accordance with the procedures used in previous waiver
    requests.

    This dealt with the proposed export under a Commerce license of a
    commercial communications satellite to the China National Postal and
    Telecommunications Appliances Corporation for launch from China. The
    satellite, once launched, will provide commercial voice, video and
    data traffic to China. The State Department received applications to
    approve technical assistance agreements in conjunction with the
    export, and these were distributed for interagency review. After all
    consulted agencies concurred in the issuance of the proposed technical
    assistance agreements, subject to the normal limitations and
    conditions, the State Department recommended to the President that he
    waive Tiananmen sanctions, in accordance with established procedures.

    When we recommended the waiver, senior Administration decision-makers
    were aware that Loral was under criminal investigation for alleged
    violations of the Arms Export Control Act. But the State Department's
    long-standing policy has been that, provided the activity proposed for
    waiver is consistent with U.S. national security and foreign policy,
    we do not deny export privileges to U.S. firms that are under
    investigation but have not been indicted. However, if a U.S. firm is
    indicted, the Department does adopt a denial policy on the basis of
    the indictment, and does not wait for a conviction.

    The State Department recommended the Presidential waiver for
    Chinasat-8 in line with the established policy that such exports are
    in our national interest. Permitting the launch of satellites from
    China is part of our broader engagement policy, which includes a
    strong basis for U.S.-Chinese cooperation on missile nonproliferation
    issues.

    Of course there were other arguments for the waiver, including the
    desire to help preserve the U.S. lead in telecommunications industry
    and jobs for American workers. But these aspects would not outweigh
    nonproliferation and national security considerations.

    It is against this backdrop that the United States conducts commercial
    space launch cooperation with China. We strive to accommodate U.S.
    commercial and economic interests -- including promoting U.S.
    satellite exports -- but within our paramount nonproliferation and
    national security objectives. We have a system, involving the
    licensing and technical safeguards processes, to deny access to
    sensitive missile technology by China. At the same time, if any
    persons violate our laws and regulations in this area, then such
    violations need to be investigated fully and prosecuted accordingly.

    The United States has engaged China at the highest levels regarding
    its nonproliferation policies and practices. We continually encourage
    China to strengthen its export controls and to bring its
    nonproliferation polices and practices more in line with international
    norms. The prospect of launching U.S. satellites -- under technology
    safeguards and according to the disciplines of our commercial space
    agreement -- is an important inducement to a positive evolution in
    Chinese policy, which, in turn, is indispensable to the containment of
    proliferation in a dangerous world.

    (end text)