14 July 1998
Source: http://www.usia.gov/products/pdq/pdq.htm

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.

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