23 January 2002
Source:
http://usinfo.state.gov/cgi-bin/washfile/display.pl?p=/products/washfile/latest&f=02012204.elt&t=/products/washfile/newsitem.shtml
See other hearing testimony: http://cryptome.org/us-cn-exports.htm
US Department of State
International Information Programs
Washington File
_________________________________
22 January 2002
(Assistant Secretary Jochum to U.S.-China Commission) (2620)
A senior Commerce Department official, speaking before the U.S.-China
Commission January 17, discussed the conundrum that export sales to
China create and suggested three ways to improve U.S. export controls.
James J. Jochum, Assistant Secretary of Commerce for Export
Administration, first called upon Congress to approve a new Export
Administration Act.
"Relying on emergency authorities, as we do today, is not the most
effective means of implementing export controls on China or anyone
else," Jochum said.
"Second, we must strengthen the existing multilateral export control
regimes .... We should attempt to harmonize licensing policies to a
greater extent in order to close some of the gaps in the international
export control system," he continued.
"Third, we must improve the interagency licensing process by enhancing
cooperation and information exchange among the agencies, and with the
intelligence community," the Commerce official said.
Jochum stressed that "China will continue to present a significant
challenge for U.S. policy makers" as these officials attempt to
balance free trade and national security interests.
"On one hand, China is the fastest growing market in the world for
foreign trade and investment, particularly in the technology sector,"
Jochum said.
"If U.S. producers are not allowed to compete alongside their foreign
competitors in the China market, the implications could include the
loss of American jobs and a stifling of technological innovation in
certain sectors," he continued.
"On the other hand, China remains a proliferation risk," Jochum said.
"We must recognize both of these facts as we continue to develop and
update U.S. export control policy," he said.
After outlining the licensing policy for U.S. exports of controlled
goods to China, Jochum said that the Commerce Department's Bureau of
Export Administration processed approximately 11,000 export license
applications in 2001, of which approximately 1,300 license
applications (or 12 percent) were for exports to China. Of all of
these license applications for China, 936 were approved (72 percent),
30 were denied, and 325 were returned to the exporter without further
action.
"In any given year, the value of approved exports to China ranges from
about $175 million to $500 million, which represents only a fraction
(less than 1 percent) of total U.S. exports to China," Jochum said.
Following is the text of Jochum's testimony, as prepared for delivery:
(begin text)
Testimony of
James J. Jochum
Assistant Secretary of Commerce
for Export Administration
Bureau of Export Administration
Before the
U.S.-China Commission
January 17, 2002
Mr. Chairman and Distinguished Commissioners:
I am pleased to testify today before the U.S.-China Commission on the
issue of export controls. In my brief comments, I hope to give the
Commission an understanding of U.S. dual-use export control policy
toward China, the licensing process, the volume and make-up of
controlled trade with China, and finally, ways to improve the
effectiveness of the export control system generally.
Before turning to the specific issue of China, however, I would like
to briefly discuss the Bureau's approach to dual-use export controls
generally. The Bureau of Export Administration (BXA) administers and
enforces controls on the export of sensitive dual-use items and
technologies for national security and foreign policy reasons. BXA's
mission is to implement an export control system that prevents the
diversion of sensitive technologies that could jeopardize national
security, while at the same time protecting U.S. economic security by
allowing U.S. companies to compete for legitimate commercial sales on
an equal footing with their foreign competitors.
As you know, free and open trade is a fundamental component of the
Bush Administration's economic and foreign policy. The President
strongly supports trade promotion authority and, as it relates to this
Commission's work, normalizing trade relations with China, which
includes support for China's entry into the World Trade Organization.
While some may view export controls as an impediment to trade, we
believe that the work of BXA supports the Administration's free trade
agenda. Effective export controls reduce the likelihood of terrorist
acts and the proliferation of weapons of mass destruction that disrupt
the conditions necessary for a safe and secure global economy --
conditions necessary for free trade.
Similarly, effective export controls are an integral component in
maintaining the political support for a free trade agenda, and
economic globalization generally. Obviously, the American public would
not support a trading system that results in the United States arming
terrorists or other potential adversaries. Export controls, then, are
a necessary element in sustaining both the political support for free
trade and the commercial environment in which free and open trade can
exist.
China, itself, can be viewed as a microcosm of the challenges we face
as export control officials. On one hand, China is the fastest growing
market in the world for foreign trade and investment, particularly in
the technology sector. China's membership in the World Trade
Organization should create even greater opportunities for U.S.
exporters. If U.S. producers are not allowed to compete alongside
their foreign competitors in the China market, the implications could
include the loss of American jobs and a stifling of technological
innovation in certain sectors. On the other hand, China remains a
proliferation risk, as others here today will discuss in greater
detail. We must recognize both of these facts as we continue to
develop and update U.S. export control policy.
Licensing Policy for Exports to China
With this background in mind, I'd like to spend a few minutes
outlining the licensing policy for U.S. exports of controlled goods to
China.
The United States maintains export controls on dual-use items to every
country in the world. The level of control differs, however, based on
a number of factors, including the country's membership in
nonproliferation regimes, the nonproliferation credentials of that
country, the technical sophistication of the item to be exported, and
the proposed end use and end user. One way we distinguish among
countries is through the use of license exceptions. For example, few
licenses are required to export to a NATO ally who is a member of a
nonproliferation regime - say the U.K., France or Germany - while a
virtual embargo is maintained on trade in controlled goods with
countries such as Iraq, Iran or Libya.
China is afforded very few such license exceptions. This means that
BXA requires a license for a greater number of items exported to China
than for most other destinations. In fact, over the past few years,
China has accounted for BXA's highest volume of export license
applications.
There are other specific licensing policies which apply to China that
bear mentioning:
Nuclear Nonproliferation
The export of any item that would make a direct and significant
contribution to nuclear weapons and their delivery systems in China is
prohibited. The U.S. Government will review applications to export
nuclear proliferation-controlled items to a non-nuclear end use or for
a commercial end use on a case-by-case basis, with a high level of
scrutiny.
Missile Technology
Applications to export items to China that are controlled for missile
technology reasons are reviewed with a high level of scrutiny, on a
case-by-case basis, to determine whether the export would make a
material contribution to the proliferation of missiles. If a material
contribution is found, the license will be denied. If no material
contribution is found, and the application is approved through the
interagency process, the President must, prior to the license being
granted, certify to Congress that:
(1) the export is not detrimental to the U.S. space launch industry;
and
(2) the equipment, including any indirect technical benefit that could
be derived from the export, will not measurably improve China's
missile or space launch capabilities.
As a result of both the careful scrutiny we give to these items and
the presidential certification requirement, applications for the
export of missile technology-controlled items to China are approved
infrequently. In fact, since 1999, only two such exports have been
approved, although several applications are currently pending.
High Performance Computers
For high performance computers, countries are grouped into three
general categories. China is a Tier 3 country, meaning exports of
computers up to 85,000 MTOPs can be shipped without a license. Exports
of computers performing above that level are reviewed on a
case-by-case basis. On January 2, 2002, President Bush announced that
the current Tier 3 licensing threshold of 85,000 MTOPS will be raised
to 190,000 MTOPS. As the White House stated, these changes reflect the
President's ongoing effort to update the U.S. export control system so
that it protects U.S. national security, while at the same time,
allows America's high tech companies to innovate and compete in
today's marketplace.
Chemical and Biological Controls
The export of items that would make a material contribution to the
design, development, production, stockpiling, or use of chemical or
biological weapons is prohibited. Applications for the export of other
items will be reviewed on a case-by-case basis. In addition, China is
one of only 34 countries to which we require a license to export
chemical and biological-related equipment.
Crime Control
Pursuant to the Tiananmen Square sanctions, the export of crime
control items to China is prohibited. This includes items such as
fingerprint identification systems and shotguns.
National Security Controls
Other applications to export to China are reviewed on a case-by-case
basis to determine whether the item would make a direct and
significant contribution to China's military capabilities.
EPCI and the Entity List
In addition to commodity-based licensing requirements, another way BXA
ensures that strategic goods are not diverted to unauthorized end use
in China and elsewhere is through implementation of the Enhanced
Proliferation Control Initiative (EPCI). EPCI provides authority for
the government to block any export in cases where there is an
unacceptable risk of diversion to proliferation activities.
One way EPCI is implemented is through the publication of the Entity
List. The Entity List identifies specific end users that pose a
proliferation risk. The Entity List is developed through an
interagency process and is based on specific information on a
particular entity. Currently, there are 19 Chinese entities on the
list. A license is required to export to these entities items on the
Commerce Control List and, in some cases, low-level items that are not
controlled for other purposes. The Entity List is one of the important
ways the U.S. Government informs exporters about proliferation
concerns under the EPCI provisions.
Licensing Process and Statistics
Although the Commerce Department is the primary licensing authority
for dual-use items, virtually all licensing decisions are subject to
the interagency process outlined in Executive Order 12981. For China,
this means that the Departments of State and Defense review and make
recommendations on essentially all licenses and, in addition, the
Energy Department reviews all nuclear related license applications.
Input from the intelligence community is also a necessary and critical
component of this review. Finally, when it is warranted, the
interagency review is supplemented by a pre-license check, conducted
in-country, by an export enforcement attache assigned to the U.S.
Embassy.
Because of the relatively high level of controls on exports to China
and the strict level of scrutiny given to these transactions, China
typically accounts for BXA's highest volume of export license
applications and longest licensing times. In 2001, the average
processing time for a license application to China was 73 days,
compared with an average processing time of 44 days for all licenses
subject to interagency review.
In 2001, BXA processed approximately 11,000 export license
applications. About 1,300 license applications (or 12 percent) were
for exports to China. However, 46% of these applications, were for
domestic transfers of technology, known as "deemed exports," to
Chinese foreign nationals working for U.S. companies. Of all license
applications for China, 936 were approved (72 percent), 30 were
denied, and 325 were returned to the exporter without further action.
Applications are returned to exporters for a number of reasons,
including instances where no license is required, when the exporter
provides insufficient information to process the license, or when the
item falls under State Department licensing jurisdiction. In any given
year, the value of approved exports to China ranges from about $175
million to $500 million, which represents only a fraction (less than
one percent) of total U.S. exports to China.
I want to make three brief points about these licensing statistics.
First, while the majority of license applications to China are
approved, every license issued contains a number of strict conditions
to which companies must adhere when exporting under the authority of
that license. For example, a typical license restricts the ability of
the exporter or end user to use the item for any purpose other than
its authorized use, from transferring the item to another end user, or
reexporting the item to another country. One such condition, when
warranted, is a post-shipment verification (PSV). A PSV not only
allows BXA to verify the use and location of the exported item, but
also provides us with information for future licensing decisions with
respect to that particular entity or item.
Second, U.S. nonproliferation objectives can often be advanced by
authorizing the U.S. sale of a particular item. There are many
companies in Europe and Asia willing to sell to the highly competitive
China market. In many sectors, U.S. industry no longer holds a
significant technological edge over its foreign competitors.
Therefore, the choice for export control officials is often whether to
allow a U.S. company to export an item, which in turn allows the U.S.
government to strictly condition or limit its end use and monitor
compliance with such conditions, or to allow a foreign competitor to
sell the same item and relinquish the ability to further control or
monitor its use.
Finally, one should also not underestimate the deterrent effect of the
export licensing system itself. Exporters generally do not apply to
export an item that is subject to a licensing policy of denial. The
statistics relating to license denials include very few cases - if any
- related to crime control items, for instance, or items that could
support China's nuclear program. On the contrary, those license
applications are never submitted - and the exports not made - because
of the policy prohibiting such exports.
Looking Ahead
I hope this gives the Commission a better understanding of current
U.S. export control policy toward China. As I said at the beginning of
my testimony, China will continue to present a significant challenge
for U.S. policy makers. In closing, I would like to highlight three
ways to improve U.S. export controls on China, and more generally.
The first is for Congress to approve a new Export Administration Act.
Relying on emergency authorities, as we do today, is not the most
effective means of implementing export controls on China or anyone
else.
Second, we must strengthen the existing multilateral export control
regimes. As you know, many of our regime partners do not view China
the same way we do. We should attempt to harmonize licensing policies
to a greater extent in order to close some of the gaps in the
international export control system.
Third, we must improve the interagency licensing process by enhancing
cooperation and information exchange among the agencies, and with the
intelligence community. The agencies represented here today are
partners in the export licensing process and the unique perspective
that each of us brings to the table is essential to ensuring that the
decisions we make are in the best interests of the American people.
Thank you for the opportunity to testify today. I look forward to
working with the Commission and with Congress to continue to
strengthen our export control system.
(end text)
(Distributed by the Office of International Information Programs, U.S.
Department of State. Web site: http://usinfo.state.gov)
Source: http://usinfo.state.gov/cgi-bin/washfile/display.pl?p=/products/washfile/latest&f=02012203.elt&t=/products/washfile/newsitem.shtml
22 January 2002
(Mercier's Jan. 17 testimony to U.S.-China Commission) (2100) "With the dissolution of the Soviet Union, we have seen a shift" in the nature of the threat to U.S. export controls, a U.S. Customs official told members of the U.S.-China Commission January 17. "In the early 1980s, the nature of the export control threat was mainly by efforts of the former Soviet Union and its allies to acquire sophisticated Western technology for use in building their military establishments," Richard Mercier, the Executive Director for Investigative Programs at the United States Customs Service, said. "Today, we continue to see efforts by the People's Republic of China (PRC) to obtain sophisticated Western technologies to enhance their military capabilities," Mercier continued. To illustrate the point, Mercier noted: "Since fiscal year 1998, Customs has initiated 558 criminal investigations relative to unlawful exports of technology to the PRC ... [and] 64 cases resulted in an enforcement action, that is, an arrest, indictment, or seizure." During the same time period, he said, Customs made 32 arrests, 24 indictments, and 21 convictions of individuals and companies charged with unlawfully exporting or attempting to unlawfully export controlled commodities to the PRC. Mercier said the total value of these PRC-related seizures is "approximately $3,805,432." Following is the text of Mercier's remarks, as prepared for delivery: (begin text) Statement of Richard Mercier Executive Director for Investigative Programs Office of Investigations United States Customs Service Before the United States-China Security Commission January 17, 2002 Good morning, Commissioner Becker, Chairman D'Amato, and members of the Commission. It is a privilege to appear before the Commission today to discuss Customs unique role in enforcing U.S. export control laws and our views on the export of U.S.-origin high technology to the People's Republic of China. Customs has a long and proud tradition of enforcing our Nation's import and export laws. This tradition has evolved from Customs earliest responsibilities for the collection of revenues on imported merchandise, to our role today as the first line of defense at our Nation's borders in preventing the illegal international trafficking in goods which threaten the public safety and national security. Customs is a leader in enforcing U.S. export controls. Customs is at the forefront of the Administration's efforts to prevent the proliferation of Weapons of Mass Destruction and conventional arms, combat international terrorism, and implement U.S. economic sanctions and embargoes. Export Controls Enforced by Customs Customs is principally responsible for enforcement of: -- The Arms Export Control Act (22 U.S.C. 2778), which regulates the export of arms, munitions, and military equipment; -- The Export Administration Regulations (15 C.F.R.), which regulate the export of dual-use technologies and commodities, including those with application in the development of Weapons of Mass Destruction; -- The International Emergency Economic Powers Act, or IEEPA (50 U.S.C. 1701 et seq), which regulates financial and other transactions with specified countries, individuals and other entities; and -- The Trading With the Enemy Act (50 U.S.C. App. 1), which imposes economic sanctions and embargoes on trade with Cuba and North Korea. Operation EXODUS To enforce these laws and regulations, Customs employs its unique border search and law enforcement authorities in processing international passengers, conveyances and cargo crossing our Nation's borders to insure compliance with export requirements, collect trade data, and detect export violations. The focus of our export enforcement efforts has shifted to meet changes in international threats that have confronted the United States, especially since September 11. In the early 1980s, the nature of the export control threat was mainly by efforts of the former Soviet Union and its allies to acquire sophisticated Western technology for use in building their military establishments. In response to this threat Customs initiated an intensified enforcement program, Operation EXODUS, to enforce provisions of the Export Administration Act and other export control statutes to prevent illegal exports of munitions, strategic technologies, and shipments destined for sanctioned/embargoed countries from the United States. Under Operation EXODUS, Customs significantly increased examinations of merchandise exported from the United States to insure compliance with export controls and interdict illicit shipments, and aggressively pursued investigations of criminal export violations. With the dissolution of the Soviet Union, we have seen a shift in the threat once again. Today, we continue to see efforts by the People's Republic of China to obtain sophisticated Western technologies to enhance their military capabilities. Second, we see rogue states attempting to develop nuclear, chemical and biological weapons and delivery systems. Third, we are faced with the potential for international terrorists to acquire weapons of mass destruction, arms, and other support for terrorist attacks innocent citizens in both the U.S. and abroad. Fourth, we again see a rise in illicit trafficking in arms and military equipment, supplying international criminals and political insurgents as well as contributing to regional instabilities. Customs goals under Operation EXODUS today are to prevent proliferant countries, the PRC being one, and rogue states, international terrorists, and trans-national criminal organizations from obtaining sensitive and controlled technologies and commodities, including materials and technologies for Weapons of Mass Destruction, conventional munitions, and firearms; and from engaging in economic transactions which violate U.S. and international sanctions and embargoes. Our objectives are to disrupt international trafficking in sensitive and controlled commodities through the interdiction of illicit shipments, and to dismantle criminal trafficking organizations supplying and supporting proliferant countries, rogue states, international terrorists and trans-national criminal groups. Customs' Unique Role in Export Enforcement As I have noted, our role in export enforcement is unique in terms of our legal authorities and inspectional presence to enforce export laws and regulations at our Nation's borders; our experience in the processing of international passengers, conveyances and cargo; our expertise in examining and analyzing export documentation, and our familiarity in licit and illicit international shipping modes and routes; our automated commercial and enforcement systems and analytical tools; and our proactive, cooperative enforcement efforts with both U.S. and foreign law enforcement agencies. Border Search Authority Let me first briefly address Customs' unique legal authorities. Chief among them is our border search authority. By statute, Customs may search, without warrant, passengers, conveyances and cargo entering and leaving the United States to insure full compliance with all U.S. import/export requirements and to uncover violations. Customs is the only Federal law enforcement agency with this broad power. As a result, we are the only Federal agency with the ability to interdict merchandise being illegally exported from the United States. Every other Federal agency with export requirements, restrictions or prohibitions relies on Customs to enforce those provisions as passengers; conveyances and cargo cross our international borders. Outbound Examinations Customs maintains 301 ports of entry and exit throughout the United States. These include international airports, seaports, and vehicle and rail crossings along our land borders with Canada and Mexico. Customs has over 7200 Inspectors operating in these ports to process passengers, conveyances and cargo to insure compliance with all U.S. import and export requirements, detect violations, and seize merchandise imported or exported contrary to law. As noted above, Customs is the only Federal law enforcement agency with border search authority with merchandise. Customs Inspectors are the only Federal presence at our Nation's borders with the ability to examine outbound passengers, conveyances and cargo to interdict and seize strategic and controlled commodities being exported in violation of U.S. export controls. As I previously noted, Customs has had a long standing, intensified outbound examination program designed to enforce U.S. export controls, known as Operation EXODUS. Operation EXODUS has had a significant impact on preventing the illegal export of strategic and controlled commodities: since its inception in 1981, Operation EXODUS has to date resulted in the seizure of over $1.2 billion in merchandise being exported in violation of U.S. export controls. Since fiscal year 1998, Customs has initiated 558 criminal investigations relative to unlawful exports of technology to the PRC. Of that number, sixty-four (64) cases resulted in an enforcement action, that is, an arrest, indictment, or seizure. The seizures range from the commodity being intercepted before export up to real property owned by the defendants. During the aforementioned time period, Customs effected 32 arrests, 24 indictments, and 21convictions of individuals and companies, charging them with unlawfully exporting or attempting to unlawfully export controlled commodities to the PRC. The value of all the seizures is approximately $3,805,432. Export Investigations Our experience in conducting proactive investigations of international trade violations directly contributes to our export enforcement efforts. Our experience and successes in conducting proactive investigations of criminal export violations continue Customs tradition of leadership in export enforcement. Customs investigations have resulted in the arrest, prosecution and conviction of hundreds of criminal export violators dealing in equipment ranging from sophisticated computer and precision machining technologies used for nuclear weapons development, to helicopters equipped for chemical agent dispersal, to nuclear reactor components. By way of illustration, in 1998, Customs Special Agents in Boston arrested two Chinese nationals involved in the attempted export of sophisticated aircraft and missile gyroscope systems to China, and obtained the conviction of a third individual for earlier, attempted exports of similar sophisticated aircraft guidance components to that country. (Lion Photonics) In May 2001, Special Agents in Baltimore initiated an investigation based on a referral made by the Defense Security Service which alleged that EUGENE HSU, of Blue Springs, Missouri, was attempting to acquire sophisticated encryption technology and related data for illegal export to the People's Republic of China (PRC). The technology is controlled for export under the U.S. Munitions List of the International Trafficking in Arms Regulations and by the National Security Agency. Based on the referral, an undercover investigation was initiated and contact with HSU was made with the cooperation of the manufacturer of the technology. On August 28, 2001, HSU and DAVID YANG, a co-conspirator in Los Angeles, California, were arrested for attempting to unlawfully export the encryption devices to the PRC via Singapore. An arrest warrant was also issued for another co-conspirator, CHARLSTON HO, currently residing in Singapore, and is a fugitive. Their trial is pending. (Eugene HSU) International Cooperation A key element of our enforcement efforts is coordination and cooperation with our foreign customs and law enforcement counterparts. In fact, many of our most successful interdictions were effected by foreign customs and law enforcement agencies, based on our providing them with the information they needed to stop these shipments before the goods were delivered to their intended, ultimate destinations. Customs maintains 28 Customs Attaché offices in countries around the world to coordinate our international enforcement efforts, including the PRC. As I previously mentioned, one of our export enforcement objectives is the dismantlement of criminal trafficking organizations - not just in the United States, but in every country and venue in which they operate. Our foreign partnerships are essential to meeting this objective. Project Shield America In seeking to both gather and provide information, Project Shield America was initiated by Commissioner Bonner on December 4, 2001. Project Shield America is an industry outreach program, which is intent on obtaining the assistance and cooperation of those companies involved in the manufacture, sale, and export of U.S. origin high technology and munitions used in weapons of mass destruction and delivery systems, that could be unlawfully exported to the enemies of the United States. The Commissioner has invited the Office of Export Enforcement, U.S. Department of Commerce, and the Federal Bureau of Investigation to participate in this endeavor and they have responded enthusiastically. Customs and OEE have worked and will continue to work jointly in the investigation of unlawful exports of dual use technology. Customs has also implemented the Customs - Trade Partnership Against Terrorism (C-TPAT) program. C-TPAT is a partnership between Customs and the importing community requiring importers to review their entire logistics chain and incorporate sound security measures to reduce exposure to product and conveyance tampering. Customs believes that this is an effective program for importers to implement in their efforts against terrorism. Our relationship with the Federal Bureau of Investigation has led to Customs placing Special Agents in 30 Joint Terrorism Task Forces around the country. Their mission is to investigate not only terrorist organizations but also to follow up on information from the FBI regarding the PRC's efforts to obtain U.S. origin high technology. Conclusion This concludes my statement for the record. I appreciate the opportunity to appear before you today. I would now be pleased to answer any questions you may have about Customs enforcement of U.S. export controls relative to the PRC. (end text) (Distributed by the Office of International Information Programs, U.S. Department of State. Web site: http://usinfo.state.gov)