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18 June 1998
Source: http://www.usia.gov/current/news/latest/98061804.elt.html?/products/washfile/newsitem.shtml

United States Information Service Washington File

18 June 1998

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

    (Current satellite technology export controls adequate) (7470)

    Washington -- The current system of export controls for satellite
    technology protects U.S. national security, according to Principal
    Deputy Under Secretary of Defense for Policy Jan M. Lodal.

    In testimony before the Senate Governmental Affairs Subcommittee on
    International Security, Proliferation and Federal Services June 18,
    Lodal explained the history of U.S. policy towards the exportation of
    purely commercial communication satellites to China.

    "To help ensure that no significant missile or satellite technology is
    transferred to China, the U.S. negotiated a bilateral technology
    safeguards agreement with the PRC in 1988," Lodal said. "This
    bilateral technology safeguards agreement was renewed with minor
    modifications in 1993 and remains in force today. The agreement has
    two important features to protect U.S. national security interests:
    (1) it prohibits the transfer of specific technical data and
    assistance by U.S. companies to China and prohibits the Chinese from
    seeking that technical data or assistance; and (2) requires oversight
    and monitoring of the launch campaign by the U.S. government."

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

    (begin text)

    STATEMENT OF JAN M. LODAL
    PRINCIPAL DEPUTY UNDER SECRETARY OF DEFENSE FOR POLICY
    BEFORE A JOINT HEARING OF
    THE COMMITTEE ON NATIONAL SECURITY
    AND THE COMMITTEE ON INTERNATIONAL RELATIONS
    U.S. HOUSE OF REPRESENTATIVES

    June 18, 1998

    I am pleased to appear today to discuss U.S. policy regarding the
    export of satellites to China. In my statement I will outline the
    policy framework and the role of the Department of Defense in
    implementing this policy.

    In September 1988, President Reagan decided to permit the launch of
    U.S. commercial communication satellites by China. This decision was
    motivated by the desire to allow commercial relations with China to
    expand in a more normal manner. The Reagan administration understood
    the potential risk that such a program could lead to the transfer of
    missile-related technology to China, but also recognized that China
    had for many years had the basic technology necessary to develop and
    deploy effective ballistic missiles, including intercontinental
    missiles capable of hitting the United States.

    To help ensure that no significant missile or satellite technology is
    transferred to China, the U.S. negotiated a bilateral technology
    safeguards agreement with the PRC in 1988. This bilateral technology
    safeguards agreement was renewed with minor modifications in 1993 and
    remains in force today. The agreement has two important features to
    protect U.S. national security interests: (1) it prohibits the
    transfer of specific technical data and assistance by U.S. companies
    to China and prohibits the Chinese from seeking that technical data or
    assistance; and (2) requires oversight and monitoring of the launch
    campaign by the U.S. government. I will address these particulars of
    this monitoring activity later in my statement.

    The requirements of the bilateral technology safeguards agreement are
    implemented through conditions on export licenses. From 1988 to today,
    the jurisdiction for export licensing of satellites has shifted
    between the State Department munitions system and the Commerce
    Department dual-use system. There are three periods of time where the
    jurisdiction was different: (1) 1988 to 1992; (2) 1993 to 1996; and
    (3) 1996 to today. I will discuss each of these periods in turn.

    From 1988 to the end of 1992, all communications satellites were
    licensed by the State Department under the International Traffic in
    Arms Regulations. Up to 1988, State had always had jurisdiction over
    such satellites and the decision by President Reagan to permit
    transfers to China did not change this system. In brief, State
    controlled all of the technical data and technical assistance required
    to perform a launch of a U.S. built satellite in China. These controls
    also extended to all design, development, and manufacturing data on
    communication satellites. Licenses issued by State for satellite
    transfers to China for launch contained several safeguards including
    conditions that required USG monitoring of the launch campaign as
    outlined in the U.S.-China bilateral technology safeguards agreement.
    During this period, there were four licenses issued by State for the
    launch of U.S. built satellites in China.

    In late 1990, Congress passed the "Omnibus Export Amendments Act"
    which President Bush ultimately vetoed. One of the bill's provisions
    was a requirement to transfer to Commerce jurisdiction over those
    items on the State munitions list that were on the then-COCOM dual-use
    list. As an administrative matter, President Bush directed a review to
    accomplish this jurisdictional transfer in a manner that also ensured
    national security interests would be protected.

    One result of this review was a decision by the Bush Administration in
    1992 to transfer license jurisdiction for purely commercial
    communication satellites from the State Department to the Commerce
    Department. Commerce controls also extended to include "form, fit and
    function" technical data necessary to mate the satellite to the launch
    vehicle. Nine technologies were identified as giving a satellite
    specific military capabilities, and any satellite containing any of
    these nine technologies continued to require a license from the
    Department of State. For example, satellites with large antennas,
    intersatellite relay links, and specialized on- board processing
    remained under State control as did the "kick motors" necessary to
    launch satellites into high earth orbits. State also retained control
    over: (1) all launch vehicles; (2) all technical data beyond "form,
    fit, and function" that is - associated with the integration of
    satellites with launch vehicles; (3) all design, development, and
    manufacturing data on satellites; and (5) all technical assistance
    (e.g., engineering services) that might be provided by U.S. companies
    to the foreign launch service provider including any analyses of
    launch failures. The Clinton Administration issued some of the
    regulations implementing this jurisdictional change shortly after
    taking office in 1993.

    During this period, monitoring by the U.S. government was required in
    all licenses for launches of satellites that contained one or more of
    the identified military-related technologies or kick motors, any
    launch vehicle integration technical data or any technical assistance
    - that is, in all the licenses issued by the Department of State.
    There were three launches during this period that were not monitored.
    These were launches of purely commercial satellites, licensed by
    Commerce, that did not include DoD monitoring. Monitoring had always
    been associated with the licenses issued by the State Department, and
    DoD license review procedures anticipated that there would be at least
    one State license required for the launch of even these commercial
    satellites now licensed by Commerce. However, these launches did not
    require any State licenses. We are not aware of any transfer of
    technology from these unmonitored launches that contributed to China's
    missile or military satellite capabilities. Nevertheless, DoD did
    conclude that full monitoring would be a strong safeguard at
    relatively low cost to the companies that should be applied to all
    license cases, even those that did not require Department of State
    licenses. This was agreed by all agencies and incorporated as a
    requirement in 1996 when jurisdiction was transferred to Commerce for
    all commercial communication satellites

    The basic approach to implementation of the Bush Administration policy
    was to follow the established interagency procedures for the review of
    dual-use export licenses. During this period, it became increasingly
    clear that these procedures needed reform, not just for satellites,
    but across the board. The Clinton Administration undertook such a
    review, which led to the issuance of Executive Order 12981 in December
    of 1995. This Executive Order established strict timelines for license
    reviews, and put into place a disciplined dispute resolution process.

    In 1996, President Clinton decided to transfer additional jurisdiction
    for commercial communication satellites from the State Department to
    the Commerce Department. DoD supported this transfer because the
    transfer did not involve certain sensitive technology associated with
    satellites and launch vehicles and because the transfer was
    accompanied by several changes in procedures that protect DoD's
    ability to ensure that transfers are consistent with U.S. national
    security. The system is now the following:

    (1) Companies can export complete commercial communication satellites
    under a Commerce license even if they contain one or more of the
    individual military technologies that defined State jurisdiction over
    communication satellites prior to 1996. All of those individual
    military technologies, however, must still get a State license when
    not exported as part of a complete communications satellite.

    (2) Commerce continues to control certain limited "form, fit, and
    function" technical data necessary to mate the satellite to the launch
    vehicle.

    (3) State retains control over all launch vehicles, all technical data
    associated with launch vehicles or the integration of satellite
    payloads with launch vehicles, all design and manufacturing data for
    satellites, and all technical assistance that might be provided by
    U.S. companies to Chinese launch service providers including any
    launch failure analyses.

    In addition, several changes were made to strengthen the Commerce
    system and the 1995 Executive Order governing interagency reviews of
    dual-use licenses. The changes in procedures that are now in effect
    include:

    (1) License determinations are subject to majority vote of reviewing
    agencies with a continuing right of any dissenting agency to escalate
    the matter up to and including the President.

    (2) Licenses can be denied for broad national security reasons to any
    destination.

    (3) Communication satellites are not subject to formal foreign
    availability determinations under the Export Administration Act.

    (4) All communication satellite licenses must include strong
    safeguards including DoD monitoring and payment of DoD monitoring
    expenses by the companies.

    DOD currently reviews all communication satellite licenses to ensure
    that the proposed export would be consistent with U.S. national
    security interests. DOD's recommendations reflect inputs from relevant
    DoD components such as the Air Force and the National Security Agency.
    DoD's recommendations to approve such satellite exports are
    conditional on strong safeguards including:

    -- A requirement that the satellite exporter prepare a Technology
    Control Plan which must be approved by DOD.

    -- The Technology Control Plan must include: (1) a detailed
    transportation plan for shipping the satellite to ensure that only
    U.S. personnel have access to the satellite at all times; and (2) a
    detailed physical and operational security plan including procedures
    for the supervised mating of the satellite to the launch vehicle.

    -- A requirement that technical data that the U.S. company wants to
    transfer to the Chinese launch service provider is approved in advance
    by DoD's Defense Technology Security Administration.

    -- A requirement that a DOD monitor be present at technical meetings
    between the U.S. exporter and Chinese launch service personnel to
    ensure that no information is exchanged that would improve Chinese
    missile or satellite capabilities. This includes a requirement that
    DOD monitors be present at the launch site in China to oversee
    physical site security and launch operations.

    Statutory Tiananmen sanctions require that the President issue a
    "national interest" waiver before a license may be issued for any U.S.
    satellite export to China. A memorandum with a recommendation is
    prepared for the President, typically by the State Department. In this
    connection, DOD has reviewed such memoranda to ensure that the
    memorandum accurately describes the safeguards and other conditions
    that DoD has recommended for inclusion on the license.

    As the committees know, allegations that Loral Space Systems and
    Hughes Aircraft Company have committed export violations in connection
    with a failure of a Chinese launch of a Loral satellite in February
    1996 are the subject of an ongoing criminal investigation by the
    Department of Justice. There is little that I can say about this
    matter beyond assuring you that DOD is cooperating fully with all
    Department of Justice inquiries into this matter. DoD was aware of
    these allegations at the time it was asked to review the export
    license applications for the launch of Loral's Chinasat-8 satellite in
    1998. Those applications were reviewed carefully taking into account
    all the relevant information available to DoD at that time. DoD's
    decision to recommend approval of those licenses was based on the
    facts of those particular cases and on the specific safeguards
    required by the licenses.

    In addition, DOD is cooperating fully with all Congressional inquiries
    and requests for a broad range of documents. DOD has already provided
    some documents even as we continue to collect and assemble additional
    documentation. I should note that the range and scope of those
    document requests is quite voluminous. We are committed to being fully
    responsive, but this means taking the time to make sure we are
    providing all of the materials that you and others have requested.

    In summary, DoD takes its overall role in the development and
    implementation of export control policies very seriously. The case of
    commercial communication satellites and China presents significant
    challenges to the U.S. export control system as we seek to ensure that
    no technology is transferred that would improve China's indigenous
    missile or satellite capabilities. We believe that the current system
    protects our national security.

    (end text)