Watch the latest videos on YouTube.com

| Cryptome DVDs are offered by Cryptome. Donate $25 for two DVDs of the Cryptome 12-and-a-half-years collection of 47,000 files from June 1996 to January 2009 (~6.9 GB). Click Paypal or mail check/MO made out to John Young, 251 West 89th Street, New York, NY 10024. The collection includes all files of cryptome.org, cryptome.info, jya.com, cartome.org, eyeball-series.org and iraq-kill-maim.org, and 23,100 (updated) pages of counter-intelligence dossiers declassified by the US Army Information and Security Command, dating from 1945 to 1985.The DVDs will be sent anywhere worldwide without extra cost.

Web | cryptome.org | cryptome.info | jya.com | eyeball-series.org | cryptome.cn

18 September 1998: Add links to John Holum, Franklin Miller and William Reinsch testimony.

17 September 1998
Source: http://www.senate.gov/~commerce/press/105-283.htm

China Satellite Technology Transfer: Full Committee hearing on Thursday, September 17, at 9:30 a.m. Originally scheduled for September 2, Members will examine the Department of Commerce’s involvement in the transfer of satellite technology to China. Senator McCain will preside. Following is the tentative witness list (not necessarily in order of appearance):

Panel I

Honorable John Holum, Acting Under Secretary of State for International Security Affairs, U.S. Department of State

Honorable Franklin Miller, Principal Deputy Assistant Secretary of Defense, U.S. Department of Defense

Honorable William Reinsch, Under Secretary of Export Administration, U.S. Department of Commerce

Panel II

Mr. Paul Freedenberg, International Trade Consultant, Baker & Botts

Ms. Katherine Schinasi, Associate Director, Defense Acquisitions Issues, National Security and International Affairs Division, U.S. General Accounting Office

Mr. Henry Sokolski, Executive Director, Non-Proliferation Policy Education Center

Dr. Paul Wolfowitz (invited), Dean, Paul H. Nitze School of Advanced International Studies, Johns Hopkins University

[Other testimony not available on September 17]

http://www.senate.gov/~commerce/hearings/0917mcc.pdf

STATEMENT OF SENATOR JOHN McCAIN

CHAIRMAN, SENATE COMMITTEE ON
COMMERCE, SCIENCE AND TRANSPORTATION

FULL COMMITTEE HEARING
ON THE TRANSFER OF SATELLITE TECHNOLOGY TO CHINA

September 17, 1998

I would like to thank our distinguished witnesses for appearing before the Commerce Committee today to discuss the problems which have come to light in the past several months related to transfers of satellite and missile technology to China. Our first witness this morning will be the distinguished Congressman Dave Weldon of Florida, who will focus on the United States space infrastructure, as problems there provide incentives for satellite manufacturers to launch abroad. Following his remarks, we will have two panels. The first panel consists of representatives from the three federal agencies most closely involved in these issues, the departments of State, Defense and Commerce. The second panel includes representatives from the GAO, former Administration and agency personnel. I thank all of them for taking time from their busy schedules to be with us today.

It is clear that the export of satellite technology to foreign countries, including China, requires a balancing of both national security and commercial interests. Particularly when considering exports involving countries such as China, which may have foreign policy interests that sometimes run counter to our own, it is critical that safeguards are in place to assure that national security is not sacrificed by the otherwise legitimate pursuit of trade.

I am deeply concerned that there is an appearance of impropriety in the decision to change the jurisdiction for approval of satellite exports from the Department of State to the Department of Commerce. It is clear that this was done to ensure more rapid approval of exports, without the checks inherent in the State Department's licensing process, and so that the export of satellites would not be subject to sanctions against China. Was this decision the result of a rational balancing between national security and free trade considerations? Or was it a result of campaign contributions made by individuals who may or may not be tied to the Chinese government? I am also concerned about legal, but extremely aggressive lobbying of pertinent federal agencies by industry for a favorable resolution of the licensing issue.

Successful balancing between free trade and national security demands the highest level of confidence by Congress and the public in the integrity of the decision

makers. We must have confidence that the decisions made are in the best interest of the country. When the decision makers are cloaked in the shadows of impropriety, we lose confidence. When I see memos such as this one (MEMO RE WHITE HOUSE ACTIVITIES), advertising how favors such as inclusion in Department of Commerce trade missions can be bought for a campaign contribution, I can't help but wonder whether the same agency can be trusted to make responsible decisions regarding national security.

Earlier this year, in January 1998, the Commerce Department moved forward to approve an export license for Chinasat8, a commercial satellite sold to China. This was done notwithstanding that the applicant company was, and remains, under investigation by the Department of Justice for alleged unlicensed and illegal exports of satellite technology to China, and notwithstanding objections raised by the Justice Department.

The Department of Justice raised concerns that prosecution of the company could be negatively impacted by approval of the waiver and license. If the investigation results in criminal indictments and convictions, among other penalties, the company would not be permitted to export for a period of time. The license was approved prior to completion of the investigation, apparently because the company involved, Loral, would have suffered severe financial consequences had the decision been postponed. The result of the Administration's action is that the company continues to export, notwithstanding the fact that it may have already broken the law.

Again, was that decision made as a result of an objective balancing of national security versus free trade, or did the campaign contributions by the CEO of Loral influence the outcome? Why should Chinese and industry imposed deadlines force oversight agencies to rush decisions that prudence dictates may require more time?

Relaxation of exports of technology, including satellites, began during the Reagan Administration and was continued by the Bush Administration. During both of those administrations, primary control over the export approval process laid with the State Department. Then-Senator Gore was a vocal critic of the Bush Administration for granting waivers for the launch of U.S. missiles aboard Chinese rockets. Nevertheless, President Clinton not only continued to grant more of the same type of waivers, but expanded upon the approval of exports of satellites and approval of launches, finally vesting the Department of Commerce, an agency much more well known for acting on political considerations, with total jurisdiction for licensing all commercial satellite exports. The effect of this transfer has been to remove commercial satellites from inclusion in sanctions requirements and to permit the export of commercial satellites with less oversight from those vested with safeguarding our national security.

I emphasize less oversight, as Administration documents clearly demonstrate a proclivity to minimize the State, Defense, and Congressional roles in the licensing process. Administration arguments that security concerns are protected through

Executive Order 12981 are suspect. As one NSC memo pointed out, E.O.12981 merely provides for dissenting agencies to appeal to the White House. The Department of Defense, however, was denied authority to veto an export. I want to focus on how and why that transfer of jurisdiction occurred.

There is no stronger free trade advocate than I. I have also supported Favored Nation status for China. However, allegations reported in the press over the past few months regarding unlicensed and unapproved transfers of technical information to China, as well as information regarding China's transfer of missile technology to other countries, warrant further consideration and investigation to assure that the proper balance between free trade and national security has been struck. The purpose of this hearing today is not to duplicate the efforts of other committees investigating the details of alleged proliferation of weapons, nor the details of alleged illegal technology transfers. We are here today to review the process by which the balance between trade and national security has been struck and to consider whether the decisions have been made for objective, supportable reasons, or whether improper influences, including political contributions, have had an undue influence in the process.

How do we move forward to assure the freest trade possible without jeopardizing national security? How do we assure ourselves and the American public that the best interests of the country and its defense are kept foremost in the minds of the government officials making these decisions? We are here today to hear the opinions and perspectives of both the Administration and others who have considered the issues.

Again, I thank the witnesses for being here today.

http://www.senate.gov/~commerce/hearings/0917sch.pdf

> United States General Accounting Office

# GAO

> ## Testimony

> ### Before the Committee on Commerce, Science,
> and Transportation, U.S. Senate

> # EXPORT CONTROLS

> ## Change in Licensing
> Jurisdiction for
> Commercial
> Communications
> Satellites

> ### Statement of Katherine V. Schinasi, Associate
> Director, Defense Acquisitions Issues,
> National Security and International
> Affairs Division

GAO/T-NSIAD-98-222

Mr. Chairman and Members of the Committee:

I am pleased to be here today to discuss the evolution of export controls on commercial communications satellites. The allegation that a major U.S. satellite manufacturer provided China with sensitive technologies that may have applicability to its missile programs has highlighted how the United States controls the export of such technology and how this policy has changed in recent years.

My testimony today is based on our January 1997 report, prepared at the request of the Chairman, House National Security Committee, on the military sensitivity of commercial communications satellites and the implications of the 1996 change in export licensing jurisdiction.1 I will discuss (1) key elements in the export control systems of the Departments of Commerce and State, (2) how export controls for commercial satellites have evolved over the years, (3) the concerns and issues debated over the transfer of commercial communications satellites to the export licensing jurisdiction of the Department of Commerce, and (4) the safeguards that may be applied to commercial satellite exports. Lastly, I will share some observations on the current export control system.

### SUMMARY

The U.S. export control system--comprised of both the Commerce and State systems--is about managing risk. Exports to some countries involve less risk than to other countries and exports of some items involve less risk than others. The planning of a satellite launch with technical discussions and exchanges of information taking place over several years involves risk no matter which agency is the licensing authority. Recently, events have focused concern on the appropriateness of Commerce jurisdiction over communication satellites. This is a difficult judgement. By design, Commerce's system gives greater weight to economic and commercial concerns, implicitly accepting greater security risks. And by design, State's system gives primacy to national security and foreign policy concerns, lessening--but not eliminating--the risk of damage to U.S. national security interests.

### BACKGROUND

The U.S. export control system for items with military applications is divided into two regimes. State licenses munitions items, which are designed, developed, configured, adapted, or modified for military applications, and Commerce licenses most dual-use items, which are items that have both commercial and military applications. Although the

_________________

> 1 Export Controls: Change in Export Licensing Jurisdiction for Two Sensitive Dual-Use Items (GAO/NSIAD-97-24, Jan. 14, 1997).

Page 2

Commerce licensing system is the primary vehicle to control dual-use items, some dual-use items--those of such military sensitivity that stronger control is merited--are controlled under the State system.

Commercial communications satellites are intended to facilitate civil communication functions through various media, such as voice, data, and video, but they often carry military data as well. In contrast, military communications satellites are used exclusively to transfer information related to national security and have one or more of nine characteristics that allow the satellites to be used for such purposes as providing real-time battlefield data and relaying intelligence data for specific military needs. In addition, the technologies used to integrate a satellite to its launch vehicle are similar to those used to integrate ballistic missiles to their launch vehicles.

In March 1996, the executive branch announced a change in licensing jurisdiction transferring two items--commercial jet engine hot section technologies and commercial communications satellites--from State to Commerce. In October and November 1996, Commerce and State published regulations implementing this change, with Commerce defining enhanced export controls to apply when licensing these two items.

### KEY ELEMENTS OF U.S. EXPORT CONTROL SYSTEM

State and Commerce's export control systems are based on fundamentally different premises. The Arms Export Control Act gives the State Department the authority to use export controls to further national security and foreign policy interests, without regard to economic or commercial interests. In contrast, the Commerce Department, as the overseer of the system created by the Export Administration Act, is charged with weighing U.S. economic and trade interests along with national security and foreign policy interests. Differences in the underlying purposes of the control system are manifested in the systems' structure. Key differences reflect

> -- who participates in licensing decisions,

> -- scope of controls,

> -- time frame for the decision,

> -- coverage by sanctions, and

> -- requirements for congressional notification.

Page 3

Participants. Commerce's process involves five agencies--the Departments of Commerce, State, Defense, Energy, and the Arms Control and Disarmament Agency. Other agencies can be asked to review specific license applications. For most items, Commerce approves the license if there is no disagreement from reviewing agencies. When there is a disagreement, the chair of an interagency group known as the Operating Committee, a Commerce official, makes the initial decision after receiving input from the reviewing agencies. This decision can be appealed to the Advisory Committee on Export Policy, a sub-cabinet level group comprised of officials from the same five agencies, and from there to the cabinet-level Export Administration Review Board, and then to the President.

In contrast, the State system commonly involves only Defense and State. While no formal multi-level review process exists, Defense officials stated that license applications for commercial communications satellites are frequently referred to other agencies, such as the Arms Control and Disarmament Agency, the National Security Agency, and the Defense Intelligence Agency. Day-to-day licensing decisions are made by the Office of Defense Trade Controls, but disagreements could be discussed through organizational levels up to the Secretary of State.

This difference in who makes licensing decisions underscores the weight the two systems assign to economic and commercial interests relative to national security concerns. Commerce, as the advocate for commercial interests, is the focal point for the process and makes the initial determination. Under State's system, Commerce is not involved, underscoring the primacy of national security and foreign policy concerns.

Scope of Controls. The two systems also differ in the scope of controls. Commerce controls items to specific destinations for specific reasons. Some items are subject to controls targeted to former communist countries while others are controlled to prevent them from reaching countries for reasons that include antiterrorism, regional stability, and nonproliferation. In contrast, munitions items are controlled to all destinations, and State has broad authority to deny a license; it can deny a request simply with the explanation that it is against U.S. national security or foreign policy interests.

Time frames. Commerce's system is more transparent to the license applicant than State's system. Time frames are clearly established, the review process is more predictable, and more information is shared with the exporter on the reasons for denials or conditions on the license.

Sanctions. The applicability of sanctions may also differ under the two export control systems. Commercial communication satellites are subject to two important types of sanctions: (1) Missile Technology Control Regime and (2) Tiananmen Square sanctions.

Page 4

Under Missile Technology sanctions, both State and Commerce are required to deny the export of identified, missile-related goods and technologies. Communication satellites are not so-identified but contain components that are identified as missile-related. When the United States imposed Missile Technology sanctions on China in 1993, exports of communication satellites controlled by State were not approved while exports of satellites controlled by Commerce were permitted.

Under Tiananmen Square sanctions, satellites licensed by State and Commerce have identical treatment. These sanctions prohibit the export of satellites for launch from launch vehicles owned by China. However, the President can waive this prohibition if such a waiver is in the national interest.

Congressional Notification. Exports under State's system that exceed certain dollar thresholds (including all satellites) require notification to the Congress. Licenses for Commerce-controlled items are not subject to congressional notification, with the exception of items controlled for antiterrorism. However, Congress is notified of presidential waivers of the Tiananmen Square sanctions under both the State and Commerce systems.

### EVOLUTION OF EXPORT CONTROLS FOR COMMERCIAL SATELLITES

Export control of commercial communications satellites has been a matter of contention over the years among U.S. satellite manufacturers and the agencies involved in their export licensing jurisdiction--the Departments of Commerce, Defense, State, and the intelligence community. To put their views in context, I would now like to provide a brief chronology of key events in the transfer of commercial communications satellites to the Commerce Control List.

Origin of Commercial Space Cooperation with China

As the demand for satellite launch capabilities grew, U. S. satellite manufacturers looked abroad to supplement domestic facilities. In 1988, President Reagan decided to allow China to launch U.S.-origin commercial satellites. The United States and China signed an agreement in January 1989 under which China agreed to charge prices for commercial launch services similar to those charged by other competitors for launch services and to

_______________

> For a chronology and background information on satellite launches from China, see China: Possible Missile Technology Transfers from U.S. Satellite Export Policy--Background and Chronology, by Shirley A. Kan, Congressional Research Service, May 20, 1998 (98-485 F).

Page 5

launch nine U.S.-built satellites through 1994.

Following the June 1989 crackdown by the Chinese government on peaceful political demonstrations on Tiananmen Square in Beijing, President Bush imposed export sanctions on China. President Bush subsequently waived these sanctions for the export of three U.S.-origin satellites for launch from China. In February 1990, Congress passed the Tiananmen Square sanctions law (P.L. 101-246) to suspend certain programs and activities relating to the Peoples Republic of China. This law also suspends the export of U.S. satellites for launch from Chinese-owned vehicles.

First Transfer of Licensing Jurisdiction

In November 1990, the President ordered the removal of dual-use items from State's munitions list unless significant U.S. national security interests would be jeopardized. This action was designed to bring U.S. controls in line with the industrial (dual-use) list maintained by the Coordinating Committee for Multilateral Export Controls, a multilateral export control arrangement. Commercial communications satellites were contained on the industrial list. Pursuant to this order, State led an interagency review, including officials from Defense, Commerce, and other agencies to determine which dual-use items should be removed from State's munitions list and transferred to Commerce's jurisdiction. The review was conducted between December 1990 and April 1992. As part of this review, a working group identified and established performance parameters for the militarily-sensitive characteristics of communications satellites. During the review period, industry groups supported moving commercial communications satellites, ground stations, and associated technical data to the Commerce Control List.

In October 1992, State issued regulations transferring jurisdiction of some commercial communications satellites to Commerce. These regulations also defined what satellites remained under its control by listing nine militarily sensitive characteristics that, if included in a commercial communication satellite, warranted their control on State's munitions list. (These characteristics are discussed in appendix 1.) The regulations noted that parts, components, accessories, attachments, and associated equipment (including ground support equipment) remained on the munitions list, but could be included on a Commerce license application if the equipment was needed for a specific launch of a commercial communications satellite controlled by Commerce. After the transfer, Commerce noted that this limited transfer only partially fulfilled the President's 1990 directive.

Interagency Groups Consider Whether to Transfer Additional Satellites

Export controls over commercial communication satellites were again taken up in September 1993. The Trade Promotion Coordinating Committee, an interagency body composed of representatives from most government agencies, issued a report in which it

Page 6

committed the administration to review dual-use items on the munitions list, such as commercial communication satellites, to expedite moving them to the Commerce Control List.

Industry continued to support the move of commercial communications satellites, ground stations, and associated technical data from State to Commerce control. In April 1995, the Chairman of the President's Export Council met with the Secretary of State to discuss issues related to the jurisdiction of commercial communications satellites and the impact of sanctions that affected the export and launch of satellites to China.

Also in April 1995, State formed the Comsat Technical Working Group to examine export controls over commercial communications satellites and to recommend whether the militarily sensitive characteristics of satellites could be more narrowly defined consistent with national security and intelligence interests. This interagency group included representatives from State, Defense, the National Security Agency, Commerce, the National Aeronautics and Space Agency, and the intelligence community. The interagency group reported its findings in October 1995.

Consistent with the findings of the Comsat Technical Working Group and with the input from industry through the Defense Trade Advisory Group, the Secretary of State denied the transfer of commercial communications satellites to Commerce in October 1995 and approved a plan to narrow, but not eliminate, State's jurisdiction over these satellites.

President Transfers Jurisdiction to Commerce

Unhappy with State's decision to retain jurisdiction of commercial communications satellites, Commerce appealed it to the National Security Council and the President. In March 1996, the President, after additional interagency meetings on this issue, announced the transfer of export control authority for all commercial communications satellites from State to Commerce. A key part of these discussions was the issuance of an executive order in December 1995 that modified Commerce's procedures for processing licenses. This executive order required Commerce to refer all licenses to State, Defense, Energy, and the Arms Control and Disarmament Agency. This change addressed a key shortcoming that we had reported on in several prior reviews.

_________________

> See Export Controls: Some Controls Over Missile-Related Technology Exports To China Are Weak (GAO/NSIAD-95-82, Apr. 17, 1995) and Export Controls: Concerns Over Stealth-Related Exports (GAO/NSIAD-95-140, May 10, 1995).

Page 7

In response to the concerns of Defense and State officials about this transfer, Commerce agreed to add additional controls to exports of satellites designed to mirror the stronger controls already applied to items on State's munitions list. Changes included the establishment of a new control, the significant item control, for the export of sensitive satellites to all destinations. The policy objective of this control--consistency with U.S. national security and foreign policy interests--is broadly stated. The functioning of the Operating Committee, the interagency group that makes the initial licensing determination, was also modified. This change required that the licensing decision for these satellites be made by majority vote of the five agencies, rather than by the chair of the Committee. Satellites were also exempted from other provisions governing the licensing of most items on the Commerce Control List.

In October and November 1996, Commerce and State published changes to their respective regulations, formally transferring licensing jurisdiction for commercial communications satellites with militarily sensitive characteristics from State to Commerce. Additional procedural changes were implemented through an executive order and a presidential decision directive issued in October 1996.

### CONCERNS AND ISSUES DEBATED IN THE DECISION

According to Commerce officials, the President's March 1996 decision reflected Commerce's long-held position that all commercial communications satellites should be under its jurisdiction. Commerce argued that these satellites are intended for commercial end use and are therefore not munitions. Commerce maintained that transferring jurisdiction to the dual-use list would also make U.S. controls consistent with treatment of these items under multilateral export control regimes.

Manufacturers of satellites supported the transfer of commercial communications satellites to the Commerce Control List. They expressed concern that, under State's jurisdiction, the satellites were subject to Missile Technology sanctions requiring denial of exports and to congressional notifications. Satellite manufacturers also stated that such satellites are intended for commercial end use and are therefore not munitions subject to State's licensing process. They also believed that the Commerce process was more responsive to business due to its clearly established time frames and predictability of the licensing process. Satellite manufacturers also expressed the view that some of the militarily sensitive characteristics of communications satellites are no longer unique to military satellites.

Defense and State point out that the basis for including items on the munitions list is the sensitivity of the item and whether it has been specifically designed for military applications, not how the item will be used. These officials have expressed concern about disclosure of technical data to integrate the satellite with the launch vehicle because

Page 8

satellite integration technologies can also be applied to launch vehicles that carry ballistic missiles to improve the missiles' performance and reliability. The process of planning a satellite launch takes several years, and there is concern that technical discussions between U.S. and foreign representatives may lead to the transfer of information on militarily sensitive components. They also expressed concern about the operational capability that specific characteristics, in particular antijam capability, crosslinks, and baseband processing, could give a potential adversary.

Defense and State officials said they were particularly concerned about the technologies to integrate the satellite to the launch vehicle because this technology can also be applied to launch ballistic missiles to improve their performance and reliability. Accelerometers, kick motors, separation mechanisms, and attitude control systems are examples of equipment used in both satellites and ballistic missiles. According to State, such equipment and technology merit control for national security reasons.

### SAFEGUARDS APPLIED TO COMMERCE AND STATE SATELLITE EXPORTS

No export license application for a satellite launch has been denied under either the State or Commerce systems. Therefore, the conditions attached to the license are particularly significant.

Exports of U.S. satellites for launch in China are governed by a government-to-government agreement addressing technology safeguards. This agreement establishes the basic authorities for the U.S. government to institute controls intended to ensure that sensitive technology is not inadvertently transferred to China. This agreement is one of three government-to-government agreements with China on satellites. The others address pricing and liability issues.

During our 1997 review and in recent discussions, officials pointed to two principal safeguard mechanisms to protect technologies. Safeguard mechanisms include technology transfer control plans and the presence of Defense Department monitors during the launch of the satellites.

> -- Technology transfer control plans are prepared by the exporter and approved by Defense. The plans outline the internal control procedures the company will follow to prevent the disclosure of technology except as authorized for the integration and launch of the satellite. These plans typically include requirements for the presence of Defense monitors at technical meetings with Chinese officials as well as procedures to ensure that Defense reviews and clears the release of any technical data provided by the company.

Page 9

> -- Defense monitors at the launch help ensure that the physical security over the satellite is maintained and monitor any on-site technical meetings between the company and Chinese officials. Authority for these monitors to perform this work in China is granted under the terms of the government to government safeguards agreement.

Additional government control may be exercised on technology transfers through State's licensing of technical assistance and technical data. State technical assistance agreements detail the types of information that can be provided and give Defense an opportunity to scrutinize the type of information being considered for export. Technical assistance agreements, however, are not always required for satellite exports to China. While such licenses were required for satellites licensed for export by State, Commerce-licensed satellites do not have a separate technical assistance licensing requirement.

### OBSERVATIONS ON THE CURRENT EXPORT CONTROL SYSTEM

The addition of new controls over satellites transferred to Commerce's jurisdiction in 1996 addressed some of the key areas where the Commerce procedures are less stringent than those at State. There remain, however, differences in how the export of satellites are controlled under these new procedures.

> -- Congressional notification requirements no longer apply, although Congress is currently notified because of the Tiananmen waiver process.

> -- Sanctions do not always apply to items under Commerce's jurisdiction. For example, under the 1993 Missile Technology sanctions, sanctions were not imposed on satellites that included missile-related components.

> -- Defense's power to influence the decision making process has diminished since the transfer. When under State jurisdiction, State and Defense officials stated that State would routinely defer to the recommendations of Defense if national security concerns are raised. Under Commerce jurisdiction, Defense must now either persuade a majority of other agencies to agree with its position to stop an export or escalate their objection to the cabinet-level Export Administration Review Board, an event that has not occurred in recent years.

___________________

> A Commerce-licensed satellite would also require a State technical assistance license if the technical discussions exceeded the basic information required to attach the satellite to the rocket, commonly described as "form, fit, and function" data.

Page 10

> -- Technical information may not be as clearly controlled under the Commerce system. Unlike State, Commerce does not require a company to obtain an export license to market a satellite. Commerce regulations also do not have a separate export commodity control category for technical data, leaving it unclear how this information is licensed. Commerce has informed one large satellite maker that some of this technical data does not require an individual license.

> -- The additional controls applied to the militarily sensitive commercial communications satellites transferred to Commerce's control in 1996 were not applied to the satellites transferred in 1992. These satellites are therefore reviewed under the normal interagency process and are subject to more limited controls.

Mr. Chairman, this concludes my prepared statement. I would be happy to respond to any questions you or other Members of the Committee may have.

Page 11

Page 12

http://www.senate.gov/~commerce/hearings/0917wol.pdf

TESTIMONY OF

PAUL WOLFOWITZ

DEAN
THE PAUL H. NITZE SCHOOL OF ADVANCED
INTERNATIONAL STUDIES
OF
THE JOHNS HOPKINS UNIVERSITY

FOR
THE U.S SENATE COMMITTEE ON COMMERCE,
SCIENCE AND TRANSPORTATION

HEARING ON

TRANSFER OF SATELLITE TECHNOLOGY TO CHINA

September 17, 1998

2

Mr. Chairman, I appreciate the opportunity to testify before this committee on the important subject of U.S. technology transfer to China. Although this is committee is known in shorthand as the “commerce committee,” under your chairmanship I know that considerations of national security will be given priority over purely commercial considerations, as I believe they must be.

I also appreciate that you will concentrate on questions of policy. The tendency in Washington to try to criminalize policy disagreements contributes to the idea that if no crime was committed nothing is wrong. In fact, to paraphrase Talleyrand, some things are worse than crimes, they are mistakes. In this case the policy issues involved concern the security of future generations of Americans, so mistakes are extremely serious. And the conclusion is virtually inescapable that policy mistakes have been made in the area of technology transfer to China, because there has been no policy, other than a policy of blanket approvals.

Now, some may argue that not having a policy actually is the right policy, because it contributes to a better relationship with China and that improvement in that relationship is in the long-term interests of the United States. I happen to share the view that our long-term relationship with China is one of the most important issues, quite possibly the most important issue, facing U.S. security in the next century. But I do not believe that a good relationship with China can be based simply on the United States doing its best to please China. It must be based fundamentally on China’s behaving responsibly as it becomes, over the course of the next several decades, one of the most powerful countries in the world. To achieve that, U.S. policy must recognize the fact that there are major elements of competition and potential conflict in the relationship, particularly in the military sphere. Improvements in Chinese military capabilities – particulatly Chinese long-range missile capabilities – may be inevitable but they are nopt are not in the long-term strategic interests of the United States.

Of course, China is a strong and capable country that can eventually acquire the military capabilities that it wants to have without any help from us. However, we need to weigh carefully the strategic consequences of actions that have the effect of speeding up China’s military development against the possible strategic benefits. If there are no strategic benefits, or if the costs clearly outweigh the benefits, I do not believe that any amount of commercial gain justifies the transfer of technology to China’s ballistic missile programs, whether directly or indirectly.

Making such an assessment requires a policy framework and it seems quite clear that at the moment no policy framework exists. Nothing is more telling proof of that point than the Administration’s claim that they are merely continuing the policy of the Reagan and Bush Administrations. Now, some might applaud this as commendable bipartisanship on the Administration’s part, and the fact that the Clinton-Gore campaign in 1992 excoriated President Bush for supposedly “coddling” China shouldn’t be held against them. After all, people mature when they enter office and if this Administration has now adopted the sensible policies of its predecessors, perhaps it deserves to be congratulated.

3

As it happens, I served in both the Reagan and Bush Administrations. In fact, as Assistant Secretary of State for East Asian and Pacific Affairs from 1982-1986, I played a role in the process by which the Reagan Administration decided to liberalize controls over the transfer of dual-use technology to China. I believe that President Reagan’s decision to liberalize those controls in 1983 was a correct one. However, to continue that same policy fifteen years later, in a world that has been fundamentally transformed strategically, would be a serious mistake.

Permit me to go over a bit of history. When George Shultz became Secretary of State in 1982, our relations with China were troubled. I accompanied him on his first visit to China in February 1983. During that visit it became clear that the most serious Chinese concern was over the very tight controls imposed on the transfer of all dual-use technology. Deng Xiaoping personally complained to Shultz that we were treating China just like the Soviet Union and that, although many U.S. officials had promised China greater access to Western technology, instead of “rain” China had received only a few “drops.”

When we returned to Washington we undertook a fundamental review of U.S. technology transfer policy toward China. We concluded that it made no sense to have the same restrictions on China that were being applied to the Soviet Union at the height of the Cold War. In fact, China was then a counter-weight to Soviet military power, helping us to offset the Soviet threat to U.S. allies in Europe and Asia. It was in the interest of the United States to help China develop the military capabilities needed to deal with the formidable threat that it faced from the Soviet Union. Moreover, China at the time was cooperating with the United States on a number of important strategic issues, particularly in Afghanistan, and some degree of reciprocation on our part was warranted.

At the same time, we disagreed with those who said that we should simply drop all controls on technology transfer to China, as the Chinese wanted. Instead, we established “green lines” that substantially liberalized technology controls, but retained control over the most sensitive technologies that were above the “green line.” Of particular concern at the time were technologies that contributed to Chinese missile and ASW capability, capabilities that were most directly threatening to the United States.

It should be obvious from this account that a review of the policy of fifteen years ago is long overdue. Most fundamentally, the Soviet Union no longer exists and Chinese military strength no longer serves as a counterweight that helps United States security. To the contrary, China is in the process of becoming – albeit still quite slowly – probably the major strategic competitor and potential threat to the United States and its allies in the first half of the next century.

Moreover, China has changed in other ways, none of which would argue for a liberalization of technology transfer. Instead of a strategic partner, cooperating with us on Afghanistan and other issues, China has become a leading proliferator of dangerous technology to enemies of the United States, particularly Iran. Instead of being a stabilizing force in Asia, Chinese behavior in the Spratly Islands and elsewhere has begun to raise questions about China’s long-run role. During the crisis in the Taiwan Straits three years

4

ago, China used “tests” of its ballistic missiles to threaten Taiwan and, on one occasion, reminded a senior U.S. defense official of China’s ability to threaten the United States with ballistic missiles.

None of this should lead to the conclusion that China should be treated as an enemy of the United States. But for a country to receive assistance that contributes to its development of ballistic missiles, not being an enemy is not good enough. Our relationship with China has certainly not reached the stage of “strategic friendship” that President Clinton claimed for it during his recent trip.

All of this argues for a fundamental review of U.S. technology transfer policy toward China, with a view toward tightening. What has happened instead is the opposite. This Administration has substantially loosened controls on dual-use technology of all kinds, and particularly with its decision to transfer licensing authority over satellite exports from the State Department to the Commerce Department. I support the proposals to restore State Department jurisdiction in this area, but it must be emphasized that this action alone is not a substitute for a fundamental policy review. In the absence of a serious policy I doubt whether State jurisdiction will produce decisions that are any different from those of the Commerce Department. Even a larger role for the Defense Department will not ensure a more strategic view of the issues, unless there is a policy and personnel to impose such a view.

Of course, one important strategic aspect of this issue does not concern China specifically but concerns the health of the U.S. satellite industry. That industry is one of our major strategic assets and access to the cheaper launch services provided by China is no doubt good for the U.S. satellite industry. That is a strategic benefit. However, this benefit must be weighed against the transfer of technology that will unavoidably take place and the financial subsidy that such sales provide to the Chinese missile industry. Serious consideration should be given to a policy that would maintain the competitive advantages of the U.S. satellite industry but that would subsidize U.S. launch capabilities rather than those of our strategic competitors. How much such a policy would cost – and how much it is worth – are serious issues that cannot be resolved without serious study. However, given the stakes involved, not only for this generation of Americans but for our children and grandchildren, such a review is urgently needed.

[End]

Conversion to HTML by JYA/Urban Deadline.