[Senate Hearing 105-242]
[From the U.S. Government Printing Office]


                                                        S. Hrg. 105-242


 
                  PROLIFERATION: CHINESE CASE STUDIES

=======================================================================

                                HEARING

                               before the

                SUBCOMMITTEE ON INTERNATIONAL SECURITY,
                  PROLIFERATION, AND FEDERAL SERVICES

                                 of the

                              COMMITTEE ON
                          GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE

                       ONE HUNDRED FIFTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 10, 1997

                               __________

      Printed for the use of the Committee on Governmental Affairs




                     U.S. GOVERNMENT PRINTING OFFICE
 39-940cc                    WASHINGTON : 1997
_______________________________________________________________________
For sale by the Superintendent of Documents, Congressional Sales Office
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                   COMMITTEE ON GOVERNMENTAL AFFAIRS

                   FRED THOMPSON, Tennessee, Chairman
WILLIAM V. ROTH, Jr., Delaware       JOHN GLENN, Ohio
TED STEVENS, Alaska                  CARL LEVIN, Michigan
SUSAN M. COLLINS, Maine              JOSEPH I. LIEBERMAN, Connecticut
SAM BROWNBACK, Kansas                DANIEL K. AKAKA, Hawaii
PETE V. DOMENICI, New Mexico         RICHARD J. DURBIN, Illinois
THAD COCHRAN, Mississippi            ROBERT G. TORRICELLI, New Jersey
DON NICKLES, Oklahoma                MAX CLELAND, Georgia
ARLEN SPECTER, Pennsylvania
             Hannah S. Sistare, Staff Director and Counsel
                 Leonard Weiss, Minority Staff Director
                    Michal Sue Prosser, Chief Clerk
                                 ------                                

   SUBCOMMITTEE ON INTERNATIONAL SECURITY, PROLIFERATION AND FEDERAL 
                                SERVICES

                  THAD COCHRAN, Mississippi, Chairman
TED STEVENS, Alaska                  CARL LEVIN, Michigan
SUSAN M. COLLINS, Maine              DANIEL K. AKAKA, Hawaii
PETE V. DOMENICI, New Mexico         RICHARD J. DURBIN, Illinois
DON NICKLES, Oklahoma                ROBERT G. TORRICELLI, New Jersey
ARLEN SPECTER, Pennsylvania          MAX CLELAND, Georgia
                   Mitchel B. Kugler, Staff Director
                Linda Gustitus, Minority Staff Director
                       Julie Sander, Chief Clerk


                            C O N T E N T S

                                 ------                                
Opening statements:
                                                                   Page
    Senator Cochran..............................................     1

                               WITNESSES
                        Thursday, April 10, 1997

Robert J. Einhorn, Deputy Assistant Secretary of State for 
  Nonproliferation, Bureau of Political-Military Affairs, 
  Department of State............................................     2
James R. Lilley, Director, Institute for Global Chinese Affairs, 
  University of Maryland.........................................    23
Gary Milhollin, Professor, University of Wisconsin Law School, 
  and Director, Wisconsin Law School, and Director, Wisconsin 
  Project on Nuclear Arms Control................................    29

                     Alphabetical List of Witnesses

Einhorn, Robert J.:
    Testimony....................................................     2
    Prepared statement...........................................     5
Lilley, James R.:
    Testimony....................................................    23
    Prepared statement...........................................    27
Milhollin, Gary:
    Testimony....................................................    29
    Prepared statement...........................................    33

                                APPENDIX

Chinese Proliferation Cases and the U.S. Assessment and Responses    43


                  PROLIFERATION: CHINESE CASE STUDIES

                              ----------                              


                        THURSDAY, APRIL 10, 1997

                                     U.S. Senate,  
                Subcommittee on International Security,    
                     Proliferation, and Federal Services,  
                  of the Committee on Governmental Affairs,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 2:15 p.m., in 
room SD-342, Dirksen Senate Office Building, Hon. Thad Cochran, 
Chairman of the Subcommittee, presiding.
    Present: Senators Cochran, Stevens, Cleland, Levin, and 
Durbin.

              OPENING STATEMENT OF SENATOR COCHRAN

    Senator Cochran. The Subcommittee will please come to 
order.
    Today, we welcome you all to our hearing of this 
Subcommittee on International Security, Proliferation, and 
Federal Services. The topic of our hearing today is 
``Proliferation: Chinese Case Studies.''
    On November 14, 1994, President Clinton issued Executive 
Order 12938, entitled the Emergency Regarding Weapons of Mass 
Destruction, declaring, in part, that the proliferation of 
weapons of mass destruction and the means of delivering them 
constitutes ``an unusual and extraordinary threat to the 
national security, foreign policy, and economy of the United 
States,'' and that he had, therefore, decided to ``declare a 
national emergency to deal with that threat.'' The President 
reaffirmed this Executive Order on November 15, 1995, and again 
on November 11, 1996. It is deeply troubling to me that there 
has been no visibly effective action taken by this 
administration in response to this emergency.
    At our last hearing, Dr. Keith Payne testified that the key 
lesson of the 1991 Gulf War ``for rogue military and political 
leaders is that U.S. conventional power must be trumped by the 
capability to deter and coerce the United States with weapons 
of mass destruction and the ability to deliver those weapons 
reliably.''
    Nations have three options for obtaining these kinds of 
weapons and delivery systems. They can develop them on their 
own, obtain entire systems from external sources, or produce 
some components internally while acquiring other components 
externally. All too often, the People's Republic of China is 
available as a convenient source of external assistance. While 
some of the specific Chinese activities are classified, many of 
the details are available in the open press and it is upon 
these open sources that we have relied exclusively in preparing 
for today's hearing.
    China appears to be at the center of a worldwide 
proliferation web. It is clear that China has sold weapons 
technology to rogue nations despite the laws passed by Congress 
and despite the discussions State Department officials have had 
with the Chinese government aimed at persuading Beijing to halt 
such sales.
    At today's hearing, we will explore how our government has 
approached this problem as well as how it may be better 
attacked. Other questions will also be explored. Is new 
legislation required? Has the administration adhered to and 
implemented the laws currently in place? And, since the 
administration's efforts have failed to moderate China's 
behavior, is a new approach in order?
    Our witnesses today are ideally suited to address these 
issues. Robert Einhorn, Deputy Assistant Secretary of State for 
Nonproliferation, will testify first about the administration's 
approach to this problem. He will be followed by Ambassador 
James Lilley, formerly the U.S. Ambassador to China and now the 
Director of the Institute for Global Chinese Affairs at the 
University of Maryland, and Mr. Gary Milhollin, Director of the 
Wisconsin Project on Nuclear Arms Control.
    Mr. Einhorn, we welcome you and thank you for your 
assistance and your presence here today. We have a copy of your 
testimony, which we will place in the record and have it 
printed in its entirety and we encourage you to proceed to make 
any comments or summary statements that you think are 
appropriate.
    Before you proceed, let me recognize my distinguished 
colleague from Alaska, Senator Stevens, for any comments he 
might have.
    Senator Stevens. I do not have an opening statement. I 
congratulate you, Senator, for proceeding with these hearings. 
You are following the greatest traditions of this Subcommittee 
of the Governmental Affairs Committee.
    Senator Cochran. Thank you very much, Senator.
    Mr. Einhorn, you may proceed.

 TESTIMONY OF ROBERT J. EINHORN, DEPUTY ASSISTANT SECRETARY OF 
   STATE FOR NONPROLIFERATION, BUREAU OF POLITICAL-MILITARY 
                  AFFAIRS, DEPARTMENT OF STATE

    Mr. Einhorn. Thank you very much, Mr. Chairman, and thank 
you for giving me the opportunity to appear before the 
Subcommittee to testify on the subject of China and U.S. 
administration efforts to engage China on nonproliferation. 
Thank you for inserting my prepared remarks in the record. I 
will just proceed with a much shorter version.
    As you know, Mr. Chairman, the administration is trying to 
build a constructive, stable, and mutually beneficial 
relationship with China, one that is based on a shared respect 
for international norms. One of these norms is 
nonproliferation, and the administration places a critical 
importance in our discussions with China on that 
nonproliferation norm.
    We raise nonproliferation at all levels, including when 
President Clinton has met with President Jiang Zemin, most 
recently last November in Manila. We press our case with the 
Chinese vigorously and frankly. We make clear that failure to 
resolve problems that have arisen will inevitably impede the 
improvement in bilateral relations and failure to deal with 
these problems effectively could also have consequences under 
U.S. sanctions laws.
    However, I do not wish to imply that the U.S.-China 
nonproliferation agenda is monopolized by disagreements. China 
has come a long way since the 1960s, when its declaratory 
policy was supportive of nuclear proliferation as a way, to use 
its term, as a way of breaking the hegemony of the superpowers.
    Increasingly, China has recognized that its own security 
interests are not served by the spread of sensitive 
technologies and that acceptance of international norms is one 
of the responsibilities of a great power. This evolving 
attitude can be seen in a succession of Chinese actions during 
the 1990s.
    In 1992, China joined the Nonproliferation Treaty. In 1993, 
it signed the Chemical Weapon Convention, which its National 
People's Congress approved last December. In 1994, it pledged 
not to export ground-to-ground missiles controlled by the 
Missile Technology Control Regime. That same year, it played a 
constructive role in promoting the agreed framework under which 
the North Koreans agreed to eliminate their nuclear weapons 
program. In 1995, it supported the successful effort to make 
the NPT permanent. In 1996, it stopped testing nuclear weapons 
and signed the Comprehensive Test Ban Treaty.
    All of these steps were welcome and we hope that China will 
build on these positive steps. For example, we would like China 
to play a more active and committed role in promoting full 
implementation of the U.S.-DPRK framework agreement, in 
avoiding a nuclear and missile race in South Asia, as well as 
in supporting the U.S. Special Commission's efforts in Iraq.
    So there is a positive nonproliferation agenda with China 
where our interests are largely convergent, where China has 
already taken important steps, and where important benefits 
would result if China assumed greater responsibility for 
promoting progress.
    At the same time, we have had serious difficulties with 
China on nonproliferation. These difficulties have largely 
involved Chinese exports of arms and sensitive technologies. It 
is noteworthy, Mr. Chairman, that these exports have been 
confined primarily to two recipient states, Iran and Pakistan, 
but the situation is troublesome nonetheless.
    China's problematic record on exports can largely be 
attributed to conscious decisions by Chinese leaders to pursue 
policies deemed to be in China's national interest. Examples of 
such conscious policies are conventional arms sales to Iran and 
support for Pakistan's missile program. But there is an 
additional explanation, namely that China still does not have 
an effective national export control system. Even when Beijing 
is willing to exercise restraint, its ability to do so may be 
inadequate.
    China's current ability to control exports appears to vary 
with the type of commodity exported. Exports of arms and of 
specialized nuclear and missile equipment seem to be subject to 
centralized governmental approval procedures. However, dual-use 
items, that is, items that have legitimate civil applications 
as well as sensitive applications, are not necessarily 
controlled by centralized or senior-level approval mechanisms.
    We must work with the Chinese on both problems, the need 
for greater restraint in their policies and the need for 
stronger export controls to implement policies of restraint 
effectively.
    We have made progress in the nuclear area. As part of the 
resolution of the ring magnet controversy, China pledged last 
May 11 not to provide assistance to unsafeguarded nuclear 
facilities. In practice, this means no longer assisting 
Pakistan's unsafeguarded nuclear program. Beijing appears so 
far to be taking the May 11 commitment seriously. While we have 
raised concerns about certain activities, we have no basis to 
conclude that China has acted inconsistently with its May 11 
undertaking.
    We are also strongly urging China not to engage in nuclear 
cooperation with Iran. Even though Chinese cooperation with 
Iran is under IAEA safeguards, we believe Iran will misuse any 
assistance to advance its nuclear weapons ambitions.
    China has suspended its sale of two nuclear power reactors 
to Iran, probably because of siting and financial difficulties. 
Whatever the reason, it was a positive step. We will continue 
to urge China to curtail its nuclear cooperation with Iran.
    In another positive move, China told us it was developing 
nuclear export control regulations that, for the first time, 
would control both nuclear and nuclear-related dual-use items 
on a nationwide basis.
    In the area of chemical-related exports, we are pleased 
that China's National People's Congress approved the Chemical 
Weapon Convention late last year and we hope China will deposit 
its instrument of ratification by April 29 in order to become 
an original party.
    However, we are deeply concerned by the disconnect we see 
between China's Chemical Weapon Convention commitment and 
information available to us that various Chinese entities have 
transferred chemical precursors, chemical production equipment, 
and production technology to Iran and we expect Iran will use 
these items in its CW program.
    At a minimum, these dual-use transfers indicate that 
China's chemical export controls are not operating effectively 
enough to ensure compliance with China's prospective CWC 
obligation. We have raised our concerns frankly with the 
Chinese and called on them to take steps to restrain Chinese 
entities from assisting Iran's CW program. We have made clear 
to the Chinese that no responsible party to the CWC can afford 
to take a ``see no evil, hear no evil'' approach to export 
controls.
    Our concerns in the missile area apply mainly to Chinese 
cooperation with Pakistan and Iran. Twice, we imposed sanctions 
on China for transferring to Pakistan equipment and technology 
for the M-11 missile system. In October 1994, we lifted 
sanctions when China agreed to reaffirm its commitment to abide 
by the Missile Technology Control Regime guidelines and 
parameters and to ban the export of ground-to-ground missiles 
controlled by the MTCR. Since then, we have no reason to 
believe China has violated its pledge not to export such 
missiles.
    However, concerns about transfers of missile components and 
missile technology persist, raising serious questions about the 
nature of China's commitment to abide by the MTCR guidelines. 
We regard this as a very important matter. We will press the 
Chinese to live up to their 1994 commitment, to interpret that 
commitment meaningfully, and to put in place the controls that 
would enable them to implement it conscientiously.
    We will also continue to raise the question of China's sale 
of conventional arms to Iran. We are particularly concerned 
about the transfer of C-802 anti-ship cruise missiles. Such 
missiles increase China's maritime advantage over other Gulf 
States, they put commercial shipping at risk, and they pose a 
new threat to U.S. forces operating in the region.
    We have concluded that C-802 transfers so far have not 
triggered sanctions under the Iran-Iraq Arms Nonproliferation 
Act, but we remain concerned about such transfers and will 
monitor the situation carefully for any additional transfers 
that might cross the threshold of sanctionability.
    Mr. Chairman, the period ahead will be an active one for 
U.S.-Chinese diplomacy. As we pursue our policy of engagement, 
we will remind the Chinese that a key ingredient of a good 
bilateral relationship is a shared respect for international 
nonproliferation norms. We will explain that if we can resolve 
the relatively few proliferation problems that exist, we can 
give a significant boost to U.S.-China relations, but if we 
fail to resolve these problems, they will inevitably come back 
to haunt us and impede the improved bilateral relationship that 
we believe that both sides seek.
    Mr. Chairman, that concludes my introductory remarks. I 
would be happy to respond to your questions. However, as you 
are aware, classification rules will not make it possible for 
me to be fully responsive in an open session to concerns you 
may have, especially concerns about particular transactions. 
That is why we requested that this hearing be held in closed 
session.
    We fully understand why the Subcommittee decided that it 
would be impractical to close the session and we agreed to 
participate nonetheless. But I respectfully request that the 
Subcommittee be sensitive to our requirement to protect 
classified information, and I would like to offer to testify at 
a closed session at a later date, or alternatively, to hold 
informal but classified briefings for you or for other members 
of the Subcommittee at your convenience.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Einhorn follows:]

                   PREPARED STATEMENT OF MR. EINHORN
    Mr. Chairman, Thank you for giving me the opportunity to testify 
before the Subcommittee on the Administration's efforts to engage China 
on the question of the proliferation of weapons of mass destruction and 
related technologies, missile delivery systems, and advanced 
conventional weapons.
    In the 21st Century, the stability and economic well-being of the 
Asia-Pacific region, and indeed of the world at large, will depend 
significantly on the kind of relationship that China and the United 
States manage to build The Clinton Administration has therefore given a 
high priority to engaging the Chinese Government in an effort to build 
a relationship that is constructive, stable, and mutually beneficial 
and is based on a shared respect for international norms. One of the 
norms that is critical to the United States--and a central focus of our 
engagement with China--is nonproliferation.
    We need to engage China on nonproliferation both because of that 
issue's fundamental importance to U.S. national security and because of 
China's increasingly indispensable role in international efforts to 
curb proliferation. China's standing as a Permanent Member of the 
United Nations Security Council, a nuclear weapons state, an 
influential player on the world stage, and a producer of a wide range 
of arms and sensitive technologies means that its willingness to play a 
positive role may often make the crucial difference between success and 
failure--whether in negotiating international arms control and 
nonproliferation agreements, dealing with difficult regional 
proliferation challenges, or constraining the transfer of potentially 
destabilizing goods and technologies.
    That is why we regard nonproliferation as one of a handful of core 
issues in the U.S.-China bilateral agenda. It has been a key item in 
every meeting between Presidents Clinton and Jiang Zemin, most recently 
in Manila last November. It was discussed during Vice President Gore's 
meetings with Chinese leaders last month. And it figured prominently in 
Secretary Albright's February visit to Beijing, and will again when she 
meets with Vice Premier Qian Qichen in Washington later this spring.
    We engage with the Chinese on nonproliferation frequently and at 
various levels. The Chinese have agreed to a regular dialogue at the 
vice-ministerial level to discuss nonproliferation and a broad range of 
other security matters. The first such ``global security dialogue'' was 
held last November between Undersecretary of State Lynn Davis and Vice-
Minister of Foreign Affairs Li Zhaoxing. Periodic meetings on arms 
control have been held between Vice Minister Li and ACDA Director John 
Holum. At the experts level, U.S. interagency teams have met as often 
as three or four times a year with their Chinese counterparts for 
detailed discussions on such subjects as nonproliferation, export 
controls, and peaceful nuclear cooperation.
    At every level, including at the very top, we stress the importance 
we place on nonproliferation and urge that China accept and abide by 
international nonproliferation agreements and norms. Where we disagree, 
we express our concerns frankly. We make clear that it is not just the 
Executive Branch but the Congress, too, that has such concerns. We 
point out that failure to resolve problems that have arisen, especially 
with respect to Chinese exports, will inevitably impede the improvement 
of bilateral relations that both sides seek--and could also have 
negative consequences under U.S. nonproliferation sanctions laws.
    I do not wish to imply, however, that the U.S.-China 
nonproliferation agenda is monopolized by disagreements. Indeed, both 
countries recognize a shared interest in preventing the proliferation 
of weapons of mass destruction and related technologies, and this is 
reflected in common approaches to many issues. China has come a long 
way from the 1960s, when its declaratory policy supported nuclear 
proliferation as a means of ``breaking the hegemony of the 
superpowers.'' Since then, as China has gained stature and influence in 
world affairs and become a leading participant in such international 
forums as the U.N. Security Council and the Geneva Conference on 
Disarmament, it has increasingly come to appreciate that Chinese 
national security interests are not served by the spread of dangerous 
military capabilities, especially to areas close to China, and that 
acceptance of international norms is one of the attributes and 
responsibilities of great power status.
    This evolving attitude toward nonproliferation norms can be seen in 
Chinese actions in the 1990s.

     LIn 1992, China acceded to the Nonproliferation Treaty 
(NPT), the cornerstone of the nuclear nonproliferation regime and a 
measure the Chinese originally condemned.

     LIn 1993, China signed the Chemical Weapon Convention, 
which its National People's Congress approved last December.

     LIn 1994, China stated that it would abide by the 
guidelines and parameters of the Missile Technology Control Regime 
(MTCR) and would not export MTCR-controlled ground-to-ground missiles.

     LThat same year, Beijing played a constructive role with 
North Korea in promoting the October 1994 Agreed Framework, under which 
the DPRK agreed to eliminate its nuclear weapons program.

     LAlso in 1994, China joined with the U.S. in calling for 
the negotiation of a multilateral agreement banning the production of 
fissile material for nuclear weapons and other nuclear explosive 
devices.

     LIn 1995, China supported the successful effort to make 
the NPT permanent.

     LIn 1996, China stopped testing nuclear weapons and signed 
the Comprehensive Test Ban Treaty, perhaps the most difficult and 
noteworthy decision taken to date, considering that China had conducted 
far fewer nuclear tests than the United States and Russia.

     LThis year, China joined with other members of the IAEA in 
negotiating and then recommending that the IAEA Board of Governors 
adopt a new safeguards arrangement that will strengthen the IAEA's 
ability to detect undeclared nuclear activities in states with 
comprehensive safeguards agreements.

    All of these steps were welcome indications of China's growing 
support for nonproliferation. We need to build on such areas of common 
ground. It is important in the future that China assume significantly 
greater responsibility for helping to overcome pressing regional and 
global proliferation challenges.

     LWhile China's support in achieving the Agreed Framework 
with North Korea was important, we will need Beijing's active help more 
than ever over the next several years in ensuring the effective 
implementation of the Agreed Framework and bringing North Korea into 
full compliance with its NPT and IAEA safeguards obligations.

     LChina should play a more active and committed role in 
helping to avert a destabilizing nuclear and missile competition in 
South Asia, both by addressing India's concerns about threats to its 
security and by ensuring that its traditional cooperation with Pakistan 
does not include assistance inconsistent with international 
nonproliferation norms.

     LAs a Security Council member, a supplier of arms and 
technology, and an oil importer, China should be more aware of the 
responsibility it bears for stability in the Gulf region--in terms of 
curbing exports to Iran and of giving the U.N. Special Commission and 
the International Atomic Energy Agency full support in enforcing 
Security Council resolutions on Iraq's proscribed weapons activities.

     LOn the global level, we urge China to work with us and 
other supporters of the Fissile Material Cutoff Treaty to break the 
current impasse on the Treaty and to get negotiations on track.

     LAs historically a major producer, user, and exporter of 
anti-personnel landmines, China should play a more active role in 
efforts to achieve a global ban on such weapons.

    So there is a positive nonproliferation agenda with China where our 
interests largely converge, where China has already taken important 
steps, and where Chinese acceptance of greater responsibilities would 
yield substantial benefits.
    At the same time, we have had serious difficulties with China on 
nonproliferation, and these difficulties have arisen largely over 
Chinese exports of arms as well as sensitive goods and technologies, 
primarily to Iran and Pakistan. It is noteworthy that these problems 
have been confined primarily to two recipient states. But they are 
nonetheless troublesome because those two states are located in regions 
of tension and instability and both have active programs in the area of 
weapons of mass destruction and missile delivery systems--and, in the 
case of Iran, because the recipient pursues a range of policies 
threatening to its neighbors and inconsistent with international norms.
    China's problematic record of exports can be attributed largely to 
conscious decisions by Chinese leaders to pursue policies deemed to be 
in China's national interest. In the case of Pakistan, this has 
involved decisions to bolster the defense capabilities of a close and 
long-standing friend against the perceived threat from India. In the 
case of Iran, there has probably been more of a mixture of foreign 
policy and commercial motivations. China has apparently wished to 
establish good relations with a country it judged to be an important 
factor in the future of the Gulf region and one with potential 
influence over Islamic minorities in China's western provinces. But it 
also wanted to earn hard currency for its exports and perhaps also help 
ensure a source of oil for its growing energy needs. Conscious 
governmental decisions in support of such policies probably explain 
China's sale of conventional arms to Iran, its support for Pakistan's 
missile programs, and its support, at least in the 1980s and even 
beyond, to Pakistan's nuclear weapons development program.
    But there is an additional factor that explains the lack of 
sufficient Chinese export restraint. China still does not have an 
effective national system to control exports of sensitive goods and 
technologies. Even when Beijing is willing to exercise restraint, its 
ability to do so in a substantial number of cases may be inadequate.
    China's current ability to control exports appears to vary with the 
type of commodity exported. Exports of specialized nuclear equipment 
and technology, conventional weapons systems and technology, and 
missile systems and specialized missile components and technology all 
seem to be subject to centralized governmental approval procedures. 
However, dual-use items in the nuclear, chemical, biological, and 
missile areas--items that have both legitimate, civil applications as 
well as more sensitive applications--are not necessarily controlled by 
centralized or senior-level review and approval mechanisms. Indeed, we 
have considerable evidence that decisions to export potentially 
sensitive dual-use nuclear, chemical, and missile items are often taken 
by Chinese manufacturing or exporting entities--even government-owned 
or government-operated entities--without referral to central or high-
level authorities. This problem of inadequate control is compounded by 
the rapid growth and decentralization of certain Chinese industries 
(especially the chemical industry) and their incentives to make a 
profit.
    What this suggests is that efforts to discourage questionable 
Chinese exports should proceed on two tracks. We must seek to persuade 
China that a more restrained policy toward certain exports of arms and 
dual-use goods and technologies would Serve China's security interests 
by promoting regional and international stability and would bring 
China's policies more into line with global norms. At the same time, we 
should seek to cooperate with China in the strengthening of its 
national export control mechanisms and procedures so that Beijing will 
have more effective means of ensuring that exports by Chinese entities 
fully conform to China's own national policies and international 
commitments.
    The issue of Chinese transfers of arms, equipment, and technology 
has been pursued persistently with Chinese officials at all levels. We 
have raised questions in the nuclear, chemical, missile, and 
conventional arms areas.
    In the nuclear area, we have long had concerns about China's 
assistance to Pakistan's efforts to produce unsafeguarded fissile 
materials and to Pakistan's program to develop nuclear explosives. 
These concerns were especially acute in the 1980s but have continued 
even after China acceded to the NPT in 1992. During 1995 we received 
compelling information that a Chinese entity transferred a large number 
of custom-built ring magnets to the entity in Pakistan responsible for 
that country's unsafeguarded gas-centrifuge uranium enrichment program. 
The information touched off intensive diplomatic activity with China in 
early 1996 during which the U.S. sought information about the 
circumstances surrounding the transfer and assurances about future 
Chinese nuclear export policies. We concluded, on the basis of senior-
level Chinese statements as well as other information available to us, 
that there was an insufficient basis to determine that central Chinese 
governmental authorities knew in advance of the transfer or approved 
it. We also received an important commitment for the future--a 
statement on May 11, 1996 that China will not provide assistance to 
unsafeguarded nuclear facilities.
    Since then, we have held several discussions with the Chinese aimed 
at building on the May 11 understanding and ensuring that the two aides 
have a common understanding of it. We have also watched China's 
nuclear-related cooperation and export activities very carefully. What 
we can say so far is that Beijing appears to be taking the May 11 
commitment seriously. While we have raised concerns with Beijing about 
certain activities and incidents, we have no basis to conclude that 
China has acted inconsistently with its May commitment. Chinese nuclear 
authorities already seem to have tightened up their own review 
procedures. More importantly, China has notified us that it is 
developing nuclear export control regulations that, for the first time, 
would control both nuclear and nuclear-related dual-use items on a 
nationwide basis. In addition, at U.S. urging, China is now considering 
joining the Zangger NPT Exporters Committee, which would facilitate 
China's familiarization with and adoption of international nuclear 
export control norms and practices. We are encouraging Beijing both to 
adopt its nuclear export control regulations as well as to join the 
Zangger Committee as soon as possible in 1997.
    We are also urging China not to engage in nuclear cooperation with 
Iran. We recognize that Chinese cooperation with Iran is carried out 
under IAEA safeguards and is consistent with Beijing's international 
obligations. Nonetheless, we tell the Chinese what we tell all other 
nuclear suppliers--that Iran has a clandestine nuclear weapons program 
and that any nuclear cooperation with Tehran risks being misused to 
advance that program. In 1995, China suspended the sale of two nuclear 
power reactors to Iran, probably as a result of siting and financing 
difficulties. Whatever the reason, it was a positive step, and we will 
continue to call on China to curtail its nuclear cooperation with Iran.
    Our intensive engagement with the Chinese over the last few years 
on nuclear export issues has begun to yield some concrete results. We 
have seen a greater willingness by the Chinese to scrutinize and 
restrain their nuclear exports and cooperative activities, to 
strengthen their national export controls, and to address more promptly 
and seriously the concerns we have raised. More work needs to be done, 
however, to ensure that the two countries have a common understanding 
of their nuclear export control responsibilities. If we continue to 
make progress, we would hope to be in a position before long for 
President Clinton to make the legislatively-required certifications to 
Congress that would enable the long-dormant 1985 U.S.-China Agreement 
for Nuclear Cooperation to be implemented, which would bring major 
benefits to both countries. Our laws require the President to certify, 
in effect, that China is not assisting any non-nuclear weapons state in 
the acquisition of nuclear explosive capabilities.
    In the area of chemical-related exports, we are pleased that the 
National People's Congress approved the Chemical Weapons Convention 
(CWC) late last year, and we hope that China--and the United States, 
too--will be able to deposit its instrument of ratification before 
April 29 in order to become an original party. We also welcome China's 
adoption in December 1995 of its chemical export control regulation and 
the supplement to that regulation issued in March of this year. We are 
deeply concerned, however, by the discrepancy between these positive 
steps and substantial information available to us that various Chinese 
entities have transferred chemical precursors, chemical production 
equipment, and production technology to Iran, which we expect will use 
them in its chemical weapons program, one of the most active in the 
world today.
    These dual-use chemical-related transfers to Iran indicate that, at 
a minimum, China's chemical export controls are not operating 
effectively enough to ensure compliance with China's prospective CWC 
obligation not to assist anyone in any way to acquire chemical weapons. 
We have raised our concerns frankly with Chinese officials and urged 
that they take vigorous steps to restrain the activities of Chinese 
entities from assisting Iran's CW program and to strengthen China's 
chemical export control system. No responsible party to the CWC can 
afford to take a ``see no evil, hear no evil'' approach to export 
controls. We have also told the Chinese that we are actively examining 
the questionable transactions of which we are aware with a view to 
determining whether they meet the requirements of our sanctions law.
    Concerns about Chinese missile-related exports have applied mainly 
to PRC cooperation with Pakistan and Iran. In 1991 and again in 1993, 
we imposed sanctions on Chinese entities for transferring to Pakistan 
equipment and technology for the M-11 missile system. In October 1994, 
we lifted then-existing sanctions when China agreed to reaffirm its 
commitment to abide by the MTCR guidelines and parameters and to ban 
the export worldwide of MTCR-controlled ground-to-ground missiles. 
Since that 1994 agreement, we have had no reason to believe that China 
has violated its pledge not to export such missiles. However, concerns 
about transfers of missile-related components, technology, and 
production technology persist, raising serious questions about the 
nature of China's commitment to abide by the MTCR guidelines.
    At a minimum, the Chinese do not appear to interpret their 
responsibilities under the guidelines as restrictively as we do, or as 
other MTCR members do. (Although China states that it abides by the 
MTCR guidelines, it is not a member of the multilateral regime.) 
Moreover, as we have learned more about current Chinese procedures for 
controlling missile-related goods and services, we have become more 
skeptical about the ability of Beijing's control system to implement 
missile restraints effectively. We will continue to urge the Chinese to 
live up to their October 1994 commitment, to interpret that commitment 
meaningfully, and to put in place the control regulations and 
procedures that would enable them to fulfill it conscientiously. In 
addition, we will need to review the applicability of relevant 
provisions of U.S. law.
    Another concern we have often raised with Beijing is China's sale 
of conventional arms to Iran. In the last few years, China has become 
the leading source of arms for Tehran, now that the 33 members of the 
new Wassenaar Arrangement have agreed to end their sales. We have urged 
China to join those 33 suppliers in not trading in arms and sensitive 
technologies with Iran.
    We are particularly concerned by the transfer of C-802 anti-ship 
cruise missles. Such missiles, whether installed on land or on patrol 
boats also supplied by China, will add to the maritime advantage that 
Iran already enjoys over other Gulf states and will put commercial 
shipping in the Gulf at risk. Especially troubling to us is that these 
cruise missiles pose new, direct threats to deployed U.S. forces.
    The Iran-Iraq Arms Nonproliferation Act provides for sanctions 
against those whose defense cooperation with Iran enables it to acquire 
``destabilizing numbers and types'' of conventional weapons. We have 
concluded that the C-802 transfers that have occurred so far are not of 
a destabilizing number and type. However, we are very concerned about 
these transfers, and will continue to monitor Chinese and Iranian 
activity for any additional transfers that might cross the threshold of 
sanctionable activity.
    Mr. Chairman, in reviewing areas of U.S. concern about Chinese 
exports, I may have provided the impression that the U.S.-Chinese 
nonproliferation agenda is mainly and inevitably a contentious one. 
When the two sides sit down together, usually under severe time 
constraints, it is perhaps natural that discussions tend to focus on 
particularly pressing concerns. But as I indicated earlier, the United 
States and China share a fundamental interest in preventing the spread 
of destabilizing arms and technologies, and this shared interest has 
already been reelected in a range of common or at least similar 
policies on a wide range of global and regional issues. Indeed, even on 
the difficult issue of exports to third parties, we have found that 
persistent, frank engagement has begun to produce concrete progress, 
especially in the nuclear area. The sooner we can resolve these 
outstanding problems, the sooner the U.S. and China can devote more of 
their energies to working together cooperatively to address the world's 
critical proliferation challenges.
    The period ahead will be a very active one for U.S.-Chinese 
diplomacy. We will seek in the course of the many upcoming high-level 
meetings, including the exchange of state visits, to put the bilateral 
relationship on a steady, promising course that can take us well into 
the 21st century. But as we pursue our policy of engagement, we will 
continue to remind the Chinese that a key ingredient of a sound, closer 
relationship is a shared respect for international nonproliferation 
norms. If we can work together effectively to overcome the relatively 
few proliferation disagreements that exist, we can give a significant 
boost to U.S.-China relations. But if we fail to solve outstanding 
problems, they will come back to haunt us and they will impede the 
improved relationship both sides seek.

    Senator Cochran. Thank you very much for your statement and 
for your assistance that you are providing to our Committee's 
effort to understand better what our administration's policies 
are in this area and what your recommendations are for dealing 
more effectively with the problem.
    We certainly are aware of the rules regarding 
classification. We do not intend to breach those rules. I made 
a comment about that in my opening statement, as well.
    The fact is, however, we legislate in a public arena and 
there are statutes on the books relating to the authorities 
and, even under some circumstances, the obligations of the 
Executive Branch in dealing with acts of proliferation.
    One specific example is the Gore-McCain Iran-Iraq 
Nonproliferation Act of 1992. You mentioned China's transfer of 
chemical weapons components to Iran. Why did the administration 
decide that the sale you described did not fall within the 
terms of that legislation requiring the imposition of sanctions 
on China for that sale?
    Mr. Einhorn. Mr. Chairman, the Congress has enacted 
legislation that provides that a variety of criteria must be 
met for sanctions to be imposed. They are quite specific.
    You alluded to the chemical weapons situation. If you look 
at the chemical-biological weapons sanctions law, there are a 
variety of specific requirements that must be met. You have to 
have a known exporting person or organization. The transaction 
must make a material contribution to a chemical weapons 
program. The contribution that it makes must be a knowing 
contribution. That is to say, the sanctioned entity must 
knowingly contribute to that program. The identity of the 
recipient must, in this particular piece of legislation, be a 
terrorist list country, and, of course, Iran is in this 
particular case.
    And also, the evidence we receive and evaluate has to be at 
a very high level of certainty. It is one thing to make a 
policy judgment or even an intelligence judgment on the basis 
of a kind of preponderance of information, but we feel that the 
evidence standard required to invoke legal sanctions has to be 
very high, indeed, so that is a requirement, as well.
    So are we concerned about Chinese entities' transfers of 
chemical precursors or chemical-related dual-use items, 
equipment, technology to Iran? Yes, we are, and we have 
evaluated all of those transactions against these various 
specific criteria. To this point, we have not made a 
determination that all of those criteria have been met, but we 
are actively engaged in looking at specifically a number of 
cases that we could discuss in closed session, and it may well 
be possible that these various criteria would be satisfied.
    Senator Cochran. Which criteria were not satisfied in the 
chemical weapons component sale to Iran?
    Mr. Einhorn. Let me tell you, I cannot be too specific 
about it, but what I can say is one of the hardest things to 
demonstrate is that the exporting entity knowingly contributed 
to a CW program. Why is it so difficult? It is because many 
recipients use front organizations or they file false end-user 
certificates. That is what proliferators usually do. Also, many 
of these transactions involve several intermediaries, so you do 
not know with whom you are dealing.
    So you get some information that there is a particular 
exporter. He makes a transaction. Did he knowingly contribute 
to that CW program when he may be dealing with a cut-out or a 
front organization and so forth. That is the kind of criterion 
that may be difficult to meet to invoke the sanctions law.
    But let me just make a distinction between invoking the 
sanctions law and taking policy steps in response to this 
transaction. Even if we are not in a position to invoke the 
sanctions law, we are in a position to react to transactions 
that trouble us and we have seen a variety of transactions that 
are of concern and we have taken very vigorous actions in a 
number of diplomatic and other respects.
    Senator Cochran. In the experience that you have had in 
using the authorities, and in some cases, the directives 
contained in the statutes on this subject, do you have an 
opinion as to whether or not there are more effective ways to 
modify behavior of proliferators, and specifically as to China, 
than in imposing sanctions? Are sanctions a less desirable or 
less effective way of trying to modify behavior or of getting 
cooperation in nonproliferation efforts from China?
    Mr. Einhorn. I think the administration has engaged China 
very assertively and, I think, successfully across the board--
in the nuclear area, in particular, but in other areas, as 
well. It has been a very high priority. I think we have had 
more engagement with China on the proliferation issue than any 
previous administration, and we have used a variety of tools 
and sanctions is one of them.
    As I mentioned in my statement, we have invoked missile 
sanctions twice with China. Recently, in the ring magnet 
controversy, the threat of sanctions hung over the situation, 
the threat of imposing Export-Import Bank sanctions, and I 
think that contributed to a solution of the problem. Indeed, 
for a 3-month period, the United States consciously acted as if 
sanctions were in effect and did not approve any Export-Import 
Bank loans to China. We are now in the process of considering 
various chemical sanctions cases.
    So we recognize the utility of sanctions but they are a 
complementary tool. Sanctions are not synonymous with 
nonproliferation policy. There are many other instruments of 
policy we use that are effective. Sanctions do have an 
appropriate role. They have played a useful role in our 
dialogue with China and with several other countries, but it is 
important not to rely on them too much.
    Senator Cochran. Senator Stevens.
    Senator Stevens. Thank you, Mr. Chairman.
    Mr. Einhorn, I have not read a lot on this, but I have gone 
over the papers that were presented by the Chairman and by you 
and I have looked at Ambassador Lilley's statement. I have had 
a long relationship with China and served there in World War 
II. I do not see any reason to be hasty in imposing sanctions. 
On the other hand, it seems to me that our relationships will 
deteriorate if we are not very strong in expressing our 
opinions and fulfilling our commitments to one another.
    What bothers me is it appears that based upon Chinese 
assurances they were unaware of the transactions with regard to 
the ring magnets, and our relationship just moved on to another 
level. We accepted that. It is my understanding you accepted 
the Chinese assurances that they did not know of the transfer. 
Knowing China, I do not know how that could have occurred. In 
any event, Beijing then pledged not to assist unsafeguarded 
nuclear facilities and yet they had already demonstrated that 
that was their policy. Yet you said that was a step forward.
    I think, somehow, as I see this continuum, that we are 
constantly stepping back and saying, well, they tell us they 
are doing nothing wrong and, therefore, we are not going to 
react to what they are telling us, as compared to what we know 
has happened.
    Am I wrong that you are willing to ignore their actions and 
their refusal to admit what we know is true and move on to the 
next level and then, once again, let them tell us that they are 
doing things right, although we know it is not true? Are we 
going from just one level to another level of accepting their 
assurance that they are living up to their commitments rather 
than following what we know to be the case?
    Mr. Einhorn. Senator, we are aware of a number of Chinese 
actions in the past that clearly violated international 
nonproliferation norms. We have been frank about that with the 
Chinese. Before China joined the NPT in 1992, we believe that 
there was very strong evidence that they had engaged in 
assistance to a non-nuclear weapons state's unsafeguarded 
nuclear program.
    Similarly, in some of the other areas, for example, in the 
missile area, where we sanctioned them twice, clearly, they had 
engaged in actions inconsistent with international norms.
    But we have achieved a number of commitments and we have 
monitored those commitments very carefully. I alluded to the 
May 11 commitment not to provide assistance to unsafeguarded 
facilities. Before May 11, have they provided such assistance? 
Yes. We are clear about that. They provided such assistance. 
But we really do believe, and we have watched this very 
carefully, that they have not acted inconsistently with that 
commitment. We believe----
    Senator Stevens. Did you really believe that they did not 
have knowledge of the ring magnet?
    Mr. Einhorn. The statute, it was----
    Senator Stevens. I did not ask you that. You are involved 
in this. Did you believe what they said, that they were unaware 
of that transfer?
    Mr. Einhorn. We believe it is credible that central, 
senior-level Chinese authorities did not know of in advance and 
did not approve of that transaction, and the reason why we 
believe that is not just because senior Chinese officials told 
us that. It is because of our understanding of the Chinese 
system and how it operates.
    This transaction was probably less than $70,000. Ring 
magnets are very unsophisticated kinds of devices. They were 
treated under their export control system as general commercial 
goods and it is very plausible, in our view, that this 
transaction would have been treated as a routine kind of 
transaction. And the more we learn about the rudimentary State 
of Chinese export controls on dual-use items, the more 
plausible it becomes that this particular transaction would 
have been made without high-level governmental knowledge, and 
because of that, it did not trigger Section 825 of the Nuclear 
Nonproliferation Act.
    Senator Stevens. I have other responsibilities in the 
Defense area and it does seem to me that if we look at the 
threats to the world today, they are in the area of the ability 
of a rogue nation to transport chemical and biological warfare 
systems to another place in the world. Certainly, North Korea 
and China are two countries that have indicated a willingness 
to trade with rogue nations.
    I do not like to see charts like the one we're looking at 
that indicate that we have had a series of instances and we 
have had no sanctions, no sanctions, no sanctions, no 
sanctions. Then you had sanctions and you lifted them within 9 
months. What does that say to China?
    Mr. Einhorn. I think the Chinese----
    Senator Stevens. It says that our laws are immaterial, 
really, in terms of our relationships.
    Mr. Einhorn. I do not think the Chinese, Senator, would 
draw that conclusion, because what they see is a U.S. 
administration that challenges them regularly and very 
forcefully on any questionable actions in the proliferation 
area, any questionable exports. They see that they have been 
sanctioned by the U.S. They do not like it. They are a proud 
country.
    But what we see is they are taking concrete steps to 
improve their behavior and we see that most significantly in 
the nuclear field. We believe we have concrete evidence of 
that, less in the chemical and in the missile area, but in the 
chemical area, their willingness to join the Chemical Weapon 
Convention is at least a good sign and we will continue to 
press them to bring their declared policy into line, or to put 
it the other way, to bring their behavior into line with the 
declared policy, but they need a better export control system 
in order to do that.
    Senator Stevens. Mr. Chairman, I respect the witness and 
what he is saying. I would hope that we would take up the 
offer, though, that we have a little discussion in terms of the 
classified aspects of some of these matters. I regret that, 
because I think the public ought to know more about what is 
going on and what we are and are not doing about the nations of 
the world that are really trafficking in these weapons of mass 
destruction.
    Maybe we can combine your Subcommittee and our Defense 
Subcommittee and go into this in depth, because we have some 
processes of retaliation that are short of sanctions. I do not 
see them here, either. I hope that we would be a little bit 
more firm with China and find some ways to deter this trend of 
dealing with rogue states and Iran, in particular.
    Thank you, Mr. Chairman.
    Senator Cochran. Thank you very much, Senator, for your 
excellent contribution to this discussion.
    Senator Cleland.
    Senator Cleland. I would just like to pick up on the last 
few comments there of Senator Stevens. One of the things that 
troubles me is the sale of weapons and material to Iran. Is it 
true that China sold cruise missiles to Iran without any 
sanctions from our Government?
    Mr. Einhorn. That is correct, Senator. The sanctions law 
that is most directly applicable is the Iraq-Iran Arms 
Nonproliferation Act of 1992, and that provides for imposing 
sanctions when a foreign person or country transfers goods or 
technology so as to contribute knowingly and materially to the 
efforts by Iran or Iraq to acquire destabilizing numbers and 
types of certain advanced conventional weapons.
    Now, the question of whether China transferred the C-802 
anti-ship cruise missiles to Iran is not in doubt. They tested 
them. We know about it. The issue is whether transfers to date 
meet this test of destabilizing numbers and types, and we 
looked at this very seriously within the Government, including 
our military officials who obviously had the greatest stake 
because their forces would be at risk, and we concluded that, 
at least so far, the transfers of the C-802 cruise missiles do 
not meet the test of being destabilizing numbers and types.
    But as I say, we are concerned by these transfers. We 
continue to watch to see if the continued transactions will 
cross the threshold of sanctionability.
    Senator Cleland. Not to probe into secret matters or issues 
of secrecy, but is there any expectation on your part that such 
transfers of technology, particularly in terms of cruise 
missiles to Iran, might occur in the future?
    Mr. Einhorn. Senator Cleland, it is hard to predict the 
future, but China has become the largest seller of conventional 
arms to Iran. Russia had that distinction up until a few years 
ago. The U.S. persuaded Russia to join the so-called Wassenaar 
Arrangement under which Russia agreed not to enter into new 
contracts for arms sales to Iran.
    Because of that, China now exceeds Russia as a salesman to 
Iran and we have public information about discussions in the 
last half-year or so between Chinese and Iranian officials 
about conventional arms transactions. So we would expect to see 
more. We have registered our strong concern about that at the 
highest levels, but so far, we have not seen a curtailment in 
Chinese sales.
    Senator Cleland. With China becoming the largest supplier 
of conventional weapons to Iran, a rogue state that does not 
have our interests at heart. Does that, then, give us pause in 
transferring some sensitive technology to China ourselves?
    Mr. Einhorn. Whenever we consider engaging in any kind of 
technology transfer with China, we have to consider the 
prospect of retransfer, and so in some cases, we may consider 
the risk too great. In other cases, we would try to ensure that 
the risks of any retransfer or diversion would be minimal and 
we would insist upon appropriate assurances to try to ensure 
that there would be no retransfer of U.S. technology.
    Senator Cleland. If you were to conclude, or if the 
military in consultation with you were to conclude that such 
Chinese support for Iran's build-up militarily posed an 
increased threat to U.S. forces in the region, what kind of 
sanctions would you recommend?
    Mr. Einhorn. If a build-up of Chinese forces constituted a 
threat?
    Senator Cleland. No. If increased or continued Chinese 
sales to Iran were to occur and the military or the State 
Department or both concluded ultimately that this did pose a 
threat to U.S. forces in the region, that it was destabilizing, 
what sanctions do you have at your disposal or would you 
recommend?
    Mr. Einhorn. If the Chinese-Iran transfer relationship 
crossed that threshold of sanctionability, we would be obliged 
to implement the law, and the Iraq-Iran Arms Nonproliferation 
Act of 1992 does provide for a substantial list of action. I 
think I have them here, Senator.
    If it is a foreign government involved as opposed to a 
foreign person, it provides for no U.S. Government assistance, 
including under the Foreign Assistance Act and the Arms Export 
Control Act. Any assistance under those Acts would be cut off. 
Ex-Im financing, voting against the foreign government's loans 
in multilateral development banks, and the list goes on and on. 
The penalties for violating this Iraq-Iran Act are quite 
severe.
    Senator Cleland. You have been very patient with the 
questions. Just one more point. Is this an executive decision 
that the threshold or the thin red line has been crossed? Is it 
a Presidential decision? Does it become a recommendation, say, 
of the Secretary of Defense, the Secretary of State? Does the 
President have to make a judgment? Or is the Congress involved 
in some way?
    Mr. Einhorn. What the law does is charges the Executive 
Branch with making this determination. That determination 
actually has been delegated to the Under Secretary of State for 
International Security Affairs. But all of these issues are 
discussed with other government agencies. The Under Secretary 
will consult with her, in this case, or his colleagues 
throughout the Government, and also, there is a substantial 
amount of consultation with members of Congress and staff, 
because in situations like this or in private briefings where 
we can discuss classified information, we get your input, your 
evaluation of the evidence.
    So it is a very difficult judgment because, as I indicated, 
the penalties can be quite severe. It is an important decision 
and we want to get the best input we can.
    Senator Cleland. One final question. I gather that that 
determination has not been made as of yet, that the law has 
been violated?
    Mr. Einhorn. That is correct. We have come to a conclusion 
based on the transaction so far that this threshold has not 
been crossed, but we continue to evaluate as we collect more 
information.
    Senator Cleland. Thank you very much.
    Thank you very much, Mr. Chairman.
    Senator Cochran. Thank you.
    Senator Durbin.
    Senator Durbin. Thank you, Mr. Chairman.
    Mr. Einhorn, I am sorry I was late. I had another meeting, 
but I have reviewed your testimony and I just wanted to ask a 
few questions.
    Several years ago, I had my first chance to visit China and 
it came at an opportune moment when we had felt that we had 
detected shipment of objectionable material between China to 
Pakistan. It involved the shipment on an ocean-going vessel 
that was monitored by satellite tracking and the rest. The 
Chinese invited us to inspect the ship all we wanted after it 
arrived. To my knowledge, there was nothing found on board. I 
do not know if you recall that particular incident. Do you?
    Mr. Einhorn. Very well.
    Senator Durbin. Can you explain what happened there?
    Mr. Einhorn. The incident, we referred to it as the Yin He 
incident. That was the name of the vessel. And actually, 
Senator, it was destined to Iran rather than to Pakistan.
    Senator Durbin. I am sorry.
    Mr. Einhorn. We had information that certain goods were 
intended to be loaded on board that ship and so we assumed that 
they were and we vigorously demarched the Chinese government at 
the time and at several ports of call and in the Persian Gulf, 
there was somewhat of a standoff, actually, among U.S. and 
Chinese vessels there in the Gulf. But finally, we worked out 
diplomatically a procedure whereby the vessel would go to shore 
and be inspected, and that is, in fact, what happened.
    As it turned out, you are right, Senator, the goods were 
not on board that ship. If we were in executive session, I 
could give you our explanation for that. But we think our 
initial information was correct, that the goods were intended 
to be on board that ship. As it turned out, they were not, and 
I think the Chinese scored what turned out to be a big 
propaganda victory on this after the inspection.
    But we think our intelligence community had done a good job 
in that case and it is one of these cases where the Chinese 
lucked out. But it shows, I think, that the U.S. is prepared to 
take very vigorous steps to interdict supplies of sensitive 
goods and to try to enforce as best as we can these 
international norms.
    Senator Durbin. Can I assume that, in other instances, we 
have verified the shipment of such materials to Iran or 
Pakistan?
    Mr. Einhorn. Yes, Senator. We have verified a variety of 
transactions, whether it is in the nuclear area, the chemical 
area, or the missile area. We are convinced that these 
transactions took place.
    But going back to the Chairman's initial remarks, there is 
a distinction between knowing that certain goods were shipped, 
transactions did take place, and meeting all the various 
specific requirements of the sanctions law, because they 
require such factors as the exporter knowing the destination 
was going to be a chemical weapons program or a missile program 
or something like that. But the fact that we knew that these 
transactions were taking place enabled us to react, to take 
strong action in a number of cases, and to take either 
diplomatic or other kinds of steps, which we do.
    Senator Durbin. Is there any indication that the number of 
shipments is on the increase or the decline?
    Mr. Einhorn. I think one has to look from area to area. As 
I mentioned in my statement, we have seen progress in the 
nuclear area. We believe the Chinese are adopting nuclear 
nonproliferation norms, policies, practices. We are concerned 
by transactions of chemical-related items to Iran. We do not 
see many transactions, by the way, elsewhere. Iran seems to be 
the main recipient.
    I remember a comment the Chairman made earlier about China 
being at the center of a worldwide proliferation web. I do not 
want to defend the Chinese case here, but I think one has to 
realize that the number of recipients of these sensitive 
technologies is relatively few, and in the chemical area, what 
we are concerned about is Iran, and we have seen those 
activities and it really is very troublesome to us, and in the 
missile area, as well. The missile technology recipients of the 
Chinese are really Pakistan and Iran.
    Senator Durbin. In another unrelated area but dealing with 
Chinese relations, we have seen a virtual disregard or at least 
a callous attitude by the Chinese when it comes to intellectual 
property rights and those who export from the United States, 
making sales into China. You explain here that you think the 
source of the problem is either a conscious decision by the 
Chinese based on their own national policies or a virtually 
unregulated area of export, where the Chinese government does 
not step in.
    Is this a situation of salutary neglect, where they 
basically step aside knowing full well the outcome of their 
lack of regulation, as they must when it comes to intellectual 
property?
    Mr. Einhorn. The failure to implement effective export 
controls over a long period of time would actually become a 
conscious act of neglect, if you understand what I am trying to 
get at. That is why I mentioned before that no responsible 
exporter can take a ``see no evil, hear no evil'' approach to 
this problem and that is why we have pressed the Chinese so 
hard.
    It is one thing if we see a number of transactions 
occurring, dual-use commodities, maybe items that would go way 
below the threshold of senior-level approval, and if we bring 
it to their attention, these transactions, enough and they 
still do not take effective corrective action, then that is 
almost a conscious policy of not-so-benign neglect and that is 
what we continue to press them on.
    Now they will soon, hopefully, become parties to the 
Chemical Weapon Convention, and that will give us a stronger 
basis to ask them to make sure that they are living up to their 
obligations under the Chemical Weapon Convention not to assist 
anyone in any way to acquire chemical weapons capability, and 
that is what we will have to press them on.
    Senator Durbin. Thank you, Mr. Einhorn. Each year or so, 
Congress has a responsibility of issuing a report card on 
China, a vote on MFN, and there are many, many areas of 
concern, human rights, trade relations. This is one that means 
a lot to me. Your testimony suggests that though we have made 
some progress, there is still a great deal to be accomplished 
before China has joined us in a mutual effort to reduce the 
proliferation of damaging weapons around the world. Thank you 
for your testimony.
    Mr. Einhorn. Thank you, Senator.
    Senator Durbin. Thank you, Mr. Chairman.
    Senator Cochran. Thank you, Senator, for your contribution 
to this hearing.
    Mr. Secretary, you talked about the fact that in this case 
of the sale of ring magnets to Pakistan by China, that this was 
something that the central government might not have even known 
about, that individuals who were involved in that transaction 
might not have been known or might not have had any official 
position in the Chinese government.
    Do you know whether or not China has ever prosecuted any 
individuals or disciplined them if they violated the Chinese 
laws or regulations you've referred to today? Did they do so in 
this instance, for example?
    Mr. Einhorn. We are told by the Chinese that they have 
disciplined their nationals in a number of these cases. In this 
particular case, we were told that the official responsible for 
that entity that made the transaction was removed from his 
position and penalized. We are not sure what the penalties 
were, but we are told that he was removed from his position.
    Senator Cochran. What additional legislative tools or 
authority would be helpful to the administration in dealing 
with these proliferation issues, specifically with respect to 
China? Do you have any recommendations to make to the Congress 
on that subject?
    Mr. Einhorn. Mr. Chairman, I am not prepared today with any 
specific recommendations, only I would like to tell you that we 
welcome the opportunity to consult with you and Subcommittee 
staff on our nonproliferation legislation.
    As I mentioned before, the legislation can be helpful. We 
have seen the legislation as helpful tools. However, there are 
certain aspects of the legislation that, in our view, are 
insufficiently flexible. They do not, for example, always match 
penalties with infractions or do not give the Executive Branch 
and our diplomats enough flexibility to use the law as a 
diplomatic tool. We have some ideas about that and would like 
to consult you further on it.
    Senator Cochran. You mentioned that we have imposed 
sanctions against China on a couple of occasions, particularly 
with the sale of missile technology or equipment by China, is 
that right? Did I understand you correctly?
    Mr. Einhorn. That is correct, once in 1991 and once in 1993 
for China's sale of M-11-related equipment and technology to 
Pakistan.
    Senator Cochran. Yes. Were there any sanctions imposed in 
connection with the Chinese sale of the missiles that you 
described, the cruise missiles, to Iran?
    Mr. Einhorn. No. As I indicated, though, we are continuing 
to monitor the situation. Currently, the transactions we have 
seen to date do not cross the threshold of sanctionability.
    Senator Cochran. What is your evaluation of the 
effectiveness of sanctions as a means of trying to influence 
behavior by China in this area? Have the sanctions been 
effective or have they not been effective? What is your view?
    Mr. Einhorn. I think the results are mixed, Mr. Chairman. 
Often, what happens is the threat of sanctions, especially if 
implicit, will be more effective a means of inducing modified 
behavior than the actual imposition of a sanction. We see that 
in a number of cases, not just in China. But once you pull the 
trigger, then you do not provide continuing incentives, whereas 
if the threat of sanctions hangs over the situation and the 
parties are aware of that situation, this can have a 
restraining effect, and we have seen that in this case and in 
other cases, as well.
    Senator Cochran. I think Senator Stevens has made an 
excellent suggestion, and that is that we should have a 
classified hearing, which you also suggested when you heard 
that we were planning to have this hearing. We will endeavor to 
work that out and have that scheduled in the near future. We 
would appreciate your continued cooperation with us as we look 
at this issue in a lot more depth.
    Senator Levin.
    Senator Levin. Thank you, Mr. Chairman. I have just a few 
questions.
    First, on the M-11 sale, has the administration concluded 
that there was a sale? Is this something that you are able to, 
say publicly, yes or no?
    Mr. Einhorn. We are confident that in November 1992, there 
was a transaction, an M-11-related transaction between China 
and Pakistan, and for that transaction, we imposed sanctions in 
August 1993, because we knew that, at a minimum, M-11-related 
equipment and technology were transferred. And there are those 
in the government that have their own judgments of varying 
levels of certainty about whether full missiles themselves were 
transferred in November 1992.
    Senator Levin. Has the administration concluded whether or 
not, and can they publicly say whether or not full missiles or 
what amount to full missiles--there may have been a few more 
screws to be tightened or a few more little pieces to be added 
on, but what amounts to full missiles, have you concluded 
whether or not full missiles, in effect, were transferred?
    Mr. Einhorn. We have not reached a conclusion based on the 
high standard of evidence that we require that complete 
missiles were transferred. Earlier, I pointed out that----
    Senator Levin. Have you concluded that full missiles were 
not transferred?
    Mr. Einhorn. No, we have not.
    Senator Levin. You have not concluded one way or the other?
    Mr. Einhorn. That is correct.
    Senator Levin. I am not asking you what the conclusion is, 
but are you saying here that you have not concluded one way or 
the other?
    Mr. Einhorn. That is correct. We have not concluded one way 
or another because our level of confidence is not sufficient to 
take a decision that has very far-reaching consequences.
    Senator Levin. And on the, was it the ring magnets where 
the Chinese official was allegedly removed and disciplined?
    Mr. Einhorn. That is correct.
    Senator Levin. Was the reason that he was removed and 
disciplined because that transfer violated Chinese domestic law 
or it violated international agreement?
    Mr. Einhorn. I think he was removed because China was 
embarrassed by a transaction that caused a lot of publicity and 
that demonstrated that Chinese controls in the nuclear export 
area needed a lot of improvement.
    Senator Levin. Have we concluded whether that transfer 
violated our law?
    Mr. Einhorn. We concluded that it did not violate Section 
825 of the Nuclear Nonproliferation Act because it did not 
constitute a willful aiding or abetting of Pakistan's 
unsafeguarded nuclear program by the government of China.
    Senator Levin. So we actually concluded that it did not 
constitute a violation, or are we unable to conclude whether or 
not it constituted a willful violation?
    Mr. Einhorn. I stand corrected. We were not able to reach 
the determination that the central Chinese government willfully 
aided or abetted.
    Senator Levin. So it is not that we concluded that it was 
not willful. We have been unable to conclude whether or not it 
was willful.
    Mr. Einhorn. That is correct, Senator.
    Senator Levin. And on the cruise missile technology, does 
not the transfer of that, which I think the Chairman was just 
asking about, to Iran, does that violate American domestic law 
if it was destabilizing, in effect?
    Mr. Einhorn. If it involved destabilizing numbers and types 
of advanced cruise missiles, it would violate the Iraq-Iran 
Arms Nonproliferation Act of 1992, but as I mentioned--you may 
not have arrived--we analyzed this carefully and concluded that 
the transactions so far did not cross the threshold of 
sanctionability.
    Senator Levin. So in that case, we have reached a 
conclusion that it did not cross that threshold. It is not that 
we are unable to determine in this case of the missiles going 
to Iran, it is that we have reached a conclusion that it has 
not crossed that destabilizing threshold, is that correct?
    Mr. Einhorn. That is correct.
    Senator Levin. Thank you, Mr. Chairman.
    Senator Cochran. Thank you.
    Senator Stevens.
    Senator Stevens. I did not want to go into this, but I am 
going to leave and I am interested in some of the statements of 
the witnesses that come after you. Have you seen them?
    Mr. Einhorn. Not yet, Senator. I plan to read them later 
on.
    Senator Stevens. Mr. Milhollin, I hope you will not mind if 
I steal your thunder here a little bit, but he is going to tell 
us that when he spoke to U.S. officials last week and asked 
whether there was any change in China's export behavior on 
poison gas, they said that poison gas sales had continued to 
the present time unabated. Is that correct?
    Mr. Einhorn. Senator, when you say poison gas sales, that 
implies that China is shipping nerve agent, chemical weapons.
    Senator Stevens. That is right.
    Mr. Einhorn. We do not have any evidence of that. What we 
do have evidence of are sales by Chinese entities of dual-use 
precursors, dual-use equipment, production technology. These 
are substances and equipment that have legitimate civil 
applications but also can be diverted as ingredients in 
chemical weapon programs. That is what we see happening and we 
are examining whether these dual-use transactions meet the 
various tests of sanctionability and we are investigating that 
on a very active basis at the moment. But to say that China's 
exports of poison gas continue unabated, that would be simply 
incorrect.
    Senator Stevens. I am coming to the conclusion that maybe 
the administration is so narrowly interpreting our laws that we 
could have the situation where if a country moved a missile or 
a poison gas or bacterial warfare system piece by piece, grain 
by grain, you could not do anything about it until all the 
grains were there and then it would be a fait accompli. Am I 
wrong? You are very narrowly interpreting what we thought was 
very specific legislation.
    Mr. Einhorn. I am sorry, Senator. We believe that a country 
can commit sanctionable acts by selling precursors, dual-use 
equipment and technology, if--and it would be sanctionable if 
it made a material contribution and it was a knowing 
contribution, the exporter knew that the destination was a 
chemical weapons program.
    So what we are saying is it does not have to be the 
complete chemical weapon or the completed nerve agent for it to 
be sanctionable. Dual-use goods----
    Senator Stevens. Four hundred tons of chemicals that are 
used in making nerve agents, would that be sanctionable?
    Mr. Einhorn. I am sorry, Senator?
    Senator Stevens. Four hundred tons of chemicals useful for 
making nerve agents, would that be sanctionable?
    Mr. Einhorn. Again, if the exporter knew that these 
chemical precursors were going to a chemical weapon end use in 
a terrorist-list country, because that would be the requirement 
of the law, then it would be sanctionable.
    Senator Stevens. I think the Chinese officials must have 
rather large blinders on their eyes, then, because the reports 
are that the material is getting to Iran and we are doing 
nothing about it.
    Mr. Einhorn. Well, yes, materials are getting to Iran, but 
no, we are doing something about it. We over the last 2 years 
have made the case very forcefully with Chinese authorities and 
we are going to continue to hold them to their commitment under 
the Chemical Weapon Convention that they soon will be bound by 
not to assist anyone in any way, and in any way means not to 
ship dual-use equipment or anything else that can contribute to 
a chemical weapon capability and we are going to hold them to 
that commitment.
    Senator Stevens. Ambassador Lilley is going to tell us that 
the former Commander of the Fifth Fleet held news conferences, 
three of them, to complain about the sales of the missiles to 
Iran and that former Director of the CIA, John Deutch, also 
complained about the sales. Did they complain to you?
    Mr. Einhorn. I have spoken to some of those individuals and 
I have read what they have written about it, and we are 
concerned, too, about these transactions for reasons that I 
mentioned before. These C-802 cruise missiles increase Iran's 
maritime advantage over other Gulf States. They pose a threat 
to commercial shipping. And they also propose a threat to our 
forces.
    Senator Stevens. Well, they were anti-Aegis ship missiles. 
They were missiles designed to destroy our capability to 
protect our fleet. Did they not convey that to you?
    Mr. Einhorn. Sure. We have assessed very carefully the 
capabilities of the C-802 anti-ship cruise missile.
    Senator Stevens. Thank you very much. I do look forward to 
further discussions.
    Senator Cochran. Senator Levin.
    Senator Levin. One additional question, and that has to do 
with these precursor chemicals. Are you saying that even though 
we are unable to determine whether or not the sale of those 
chemicals to Iran violated our law, because we cannot determine 
the end use, that if the CWC is ratified by Chinese, that the 
sale of those chemicals would be prohibited by the CWC? Did I 
understand you correctly?
    Mr. Einhorn. Senator, Article I of the CWC says a party 
cannot assist anyone in any way to have a chemical weapon 
capability and we would regard a knowing sale of dual-use 
chemicals or equipment to a chemical weapon program as a 
violation of the CWC Article I commitment.
    Senator Levin. But does that not also violate our existing 
domestic law, a knowing sale of a precursor chemical to a 
chemical weapons program? Does that not violate our current 
law?
    Mr. Einhorn. That is right, and as I indicated earlier----
    Senator Levin. But I thought you suggested the CWC was 
broader in some way than our current law, in terms of its 
coverage.
    Mr. Einhorn. What I indicated before was that there are 
four or five requirements that have to be fulfilled for our 
domestic law, four or five requirements that must be fulfilled 
for our domestic law to be triggered, including that the 
exporter, the foreign person or institution, must have 
knowledge that this sale is contributing to the program. Now--
--
    Senator Levin. That is exactly what you just said is going 
to be true under the CWC. Is it a different standard under the 
CWC than under current domestic law?
    Mr. Einhorn. I would have to kind of look at the difference 
between a nation's CWC obligation and the penalties that might 
apply to an individual exporter or an individual person to see 
whether there was any difference. But, in essence, the 
commitment is not to contribute to chemical weapons programs. 
In the sanctions law, we are only talking about the recipient 
being a terrorist-list country, so----
    Senator Levin. I understand that the countries are 
narrower. That is not the question. Is the standard different 
in terms of knowledge, intent? Are those any different under 
CWC than they are under current domestic law? That is my 
question.
    Mr. Einhorn. The CWC may even be broader because Article I 
is a very sweeping commitment not to assist anyone in any way.
    Senator Levin. But that is the implication in your 
testimony, that somehow or other, it is broader. Now, you are 
saying it may or may not be broader, you are not sure. It is OK 
if you are not sure. You can just say that. I just want to 
know, do you know whether or not the CWC is broader than the 
current domestic law relative to the sale of precursor 
chemicals to Iran?
    Mr. Einhorn. It seems to be broader. If you would like me 
to get a legal analysis, I will do that and supply it.
    Senator Levin. All right. I thank you, Mr. Chairman. I want 
to commend you for holding these hearings, as well. These are 
really important hearings. They get to an area where I think we 
have not lived up fully to our own domestic requirements in 
terms of the imposition of sanctions where evidence is plenty 
clear, or clear enough for me, at least, and I am glad that 
there is going to be a classified session. I think that may be 
helpful. But in any event, it is a very, very important subject 
you are on. Thank you.
    Senator Cochran. Thank you. Thank you very much, Senator, 
for your comments and for your participation in the hearing.
    Let me say that I am serious about the suggestion that we 
have the classified hearing. Getting into the details of these 
issues in a classified forum will be helpful to our 
understanding of what the options are to do a better job of 
dealing with these issues.
    But let me thank you again sincerely for your participation 
in our hearing today and your assistance in the way that you 
have provided your testimony and answered the questions that 
our Committee members have put to you, and we will have more 
for the record. So thank you very much.
    Mr. Einhorn. Thank you, Mr. Chairman.
    Senator Cochran. Our next witnesses are Ambassador James R. 
Lilley and Professor Gary Milhollin. Ambassador Lilley was 
Ambassador to China, as we stated earlier. Gary Milhollin is 
Professor at the University of Wisconsin Law School and is 
Director of the Wisconsin Project on Nuclear Arms Control.
    We would invite both of you to come forward and take your 
places at the witness table. We would remind you that we do 
have your statements that you have prepared for our use. We 
appreciate that very much. We are going to print them in the 
record in their entirety. We would encourage you to make 
whatever summary comments or statements you think would be 
helpful to our understanding of this issue and then we will 
have an opportunity to ask each of you some questions.
    Ambassador Lilley, you may proceed. Welcome.

 TESTIMONY OF JAMES R. LILLEY, DIRECTOR, INSTITUTE FOR GLOBAL 
            CHINESE AFFAIRS, UNIVERSITY OF MARYLAND

    Mr. Lilley. Thank you, Mr. Chairman.
    First, I want to second in my own feeble way your desire 
for a classified briefing. You have to get to the bottom of 
this. It is deadly serious and I have suggested in my testimony 
that the first issue you should focus on is Russia-China 
exchange of weapons of mass destruction.
    I have put into my testimony some questionable areas where 
we see some possibilities of transfer, backfire bombers, SS-
18s, upper-stage rockets. I cannot say that these exchanges are 
definitively true, but CIA and others have to get to the bottom 
of this because it tells you about intentions, it tells you 
about strategy, it tells you about capabilities. So I would 
say, by all means, do it.
    The intelligence community has a major problem here because 
the proliferation of Chinese companies makes them hard to 
track. If you are looking for work for a CIA case officer who 
is currently on other targets, I would say, put him right on 
this. Find out what those myriad companies are and what is 
happening. Get through this facade of deception that is being 
thrown up and find out what is really happening.
    Third, I would like to make the point that recently in 
China, the Chinese stressed to us, not to me but to others, a 
clear strategy of pressing forward towards the sea and while 
solidifying their land borders. This is a strategy they have 
devised in reaching out towards the Taiwan Strait, East China 
Sea, South China Sea, and solidifying their borders with Russia 
and various other island countries. This is a strategy that 
could involve, perhaps, arming Iran. This is justified as part 
of a long-range strategy.
    This is basically a flawed strategy which plays to our 
strength, our comparative advantage on the ocean, and goes 
against the long-tested Chinese strategy of going for the 
opposition's weak points. Also supporting Moslem countries with 
weapons which are the same countries engaged in hostile 
activities in Northwest China involving the Chinese-Moslem 
minorities does not make sense. It does not seem to me it is in 
China's national interest to support countries who, in turn, 
support dissident elements in one's own country.
    I stress these two points. The Russia-China weapons of mass 
destruction, get to the bottom of this. Gary Milhollin will 
deal with the other aspects of weapons of mass destruction.
    First, I want to focus today on what I believe is a clear 
and present danger to the United States fleet. I am talking 
about the Chinese advanced conventional cruise missile sales to 
Iran.
    These slides tell you about the C-802, what its 
capabilities are. I would add to this that it can be put into 
action in 25 minutes, whereas the Silkworm, which was sold 
earlier, is a question of hours.
    Second, there is this solid evidence of a Chinese ship 
taking Hudong class missile boats with C-802s to Iran. This 
tells you a couple of things. One, the evidence of the transfer 
is there. Two, the central knows about it. What else does it 
tell you? This significantly helps Iran deal with the American 
Fifth Fleet, 15,000 officers and men of the Fifth Fleet. 
Admiral Scott Redd has laid this out to us three times. ``My 
men are in greater danger by these missiles.'' Director Deutch 
also complained about it. It clearly violates our law, the 
McCain-Gore law, written by then-Senator Gore and John McCain.
    This is the lesson of the Gulf War. Do you remember the 
trouble we had finding those launchers for scuds on land? We 
did not really find many at all. What they have here is this 
TEL, transport erector launching capability, and we have a 
photo here by the Office of Naval Intelligence that transport 
erector launching capability is in Iran. These TEL's with 
missiles can be moved very quickly, and the missiles can be 
hidden in caves.
    There are anywhere from 60 to 100 of those missiles there 
now, and the numbers are going up. Our ships are in the Gulf. I 
call that a danger, aimed right at us.
    The other disturbing factor is we see in the pipeline 
another missile, and this is something we have to follow 
closely, the C-301. It has a much larger payload, it has a 
longer range, it has four solid rocket boosters on it and 
ramjet engines. That is one heck of a weapon, and it seems to 
me we have to pin down very carefully whether Iran is going to 
get that weapon in addition to this one, already on their small 
missile boats. We can sink the boats quickly. But new what they 
can do is to put them in caves with TELs, and you cannot locate 
them.
    That is what I believe concerned Admiral Scott Redd and 
Director Deutch. If one says that 60 or 100 of these missiles 
do not threaten the United States Fifth Fleet, then tell that 
to the officers and men of the Fifth Fleet. I would not like to 
be in that position.
    There is no question that sale of these missiles is under 
central control and it violates our law. Is it destabilizing? 
But even stabilizing missiles can kill. They are in the hands 
of the Iranian Revolutionary Guard navy. It is not a comforting 
thought.
    As you know, the U.S.S. Stark was hit in 1987 by Iraqi 
missiles, Exocets, on which these are based. Thirty-seven 
Americans died.
    Let us move on. Were sanctions invented by this 
administration? I do not think so. In 1989, we imposed strict 
sanctions on China, and also in 1991. In 1989 the Bush 
administration had a whole list of sanctions on China, 
including military exchanges, World Bank loans, transfer of 
military equipment. All the military programs were suspended. 
Our first well-tailored sanctions in 1991 were designed to deal 
with sales to Pakistan of the M-11 because it was at that time 
that our administration thought through carefully exactly what 
the Chinese key vulnerabilities were. We then applied 
sanctions. Sales were stopped not for long, about 11 months, 
until November 1992, when we were in no position, having just 
been defeated in the election, to renew after these sanctions. 
We used Hughes satellites and the super Cray computers. These 
were areas of special interest to China and sanctions were 
tailored to deprive China of there. This would give the message 
to China that selling M-11s was not in its interests.
    As for our law, the Chinese, of course, make the 
explanation that Gore-McCain is passed by the United States 
without consulting with China. It imposes severe penalties on 
China but with no international standards involved. The Chinese 
say the United States cannot draft laws to change Chinia's 
behavior. It has to be internationalized. This is their 
argument.
    The second argument China makes is that the United States, 
in fact, sell weapons to Taiwan, weapons that threaten China. 
The United States says, no, they are only defensive and in 
response to what China does. The Chinese make the linkage and 
make it constantly. We have never accepted that linkage. The 
Chinese insist that some kind of a tradeoff exits between what 
they do in the Persian Gulf and what we do in the Taiwan 
Strait.
    In addition, the kinds of legal entities we use to get at 
the Chinese, are not well tailored to deal with proliferation 
infrastructure. Ex-Im Bank loans worth $10 or $20 billion are 
used on a $50,000 transaction. It does not make sense in terms 
of our commitment to China trade, investment, commerce. The 
sanction is not tailored to the infraction. Satellites, super 
Crays, were. Ex-Im loans are not. That is one of the 
legislative problems we have.
    But, we have to deal with this strategically with China. We 
have to get on the same wavelength with them in terms of the 
problems in the Moslem areas in the Middle East, and this 
serves both our interests. We did this in Afghanistan against 
the Russians and we had a successful operation in war. The 
peace was not so good, but the war actually worked, the Saudis, 
Paks, ourselves, and Chinese cooperated. We had common 
interests in blocking Soviet expansion and the Soviets were 
defeated, probably leading to the fall of the Soviet empire.
    We now have to find similar strategic causes with China in 
the Middle East. One is, of course, oil and other related areas 
where we have common interests in free flow if oil. Checking 
Moslem radical states could then also be a common interest.
    The Chinese have acquired the Sovremeny class destroyer 
with the Sunburn missiles which is designed to blow up our 
Aegis class frigates. The missile comes in low, goes up and 
then drops right on the ship. We do not have any real 
protection against that yet.
    The Sun-tau strategy calls for looking for the enemy's weak 
points. But despite the Sovremeny destroyers, this is not in 
the oceans. It is not new and it will not be for the 
foreseeable future. Russian Kilo class submarines are not the 
answer in dealing with us, perhaps in dealing with Indonesia or 
with other Southeast Asian countries, but not in dealing with 
us. Neither are the surface-to-air SA-10 missiles or the other 
acquisitions.
    What does concern us is the weapons of mass destruction, of 
these links between Russia and China. As I again say, the 
outlines come through the fog of obfuscation. It is for 
instance important to know if that man from Russia, the best 
MIRV expert they have, did actually go to China for 18 months. 
Is that true or not? I cannot say at this point.
    So I would suggest that we move ahead on this. We have 
certain good cards to play in East Asia. We are in a strong 
position and we have the critical North Korean problem that we 
have to work with China on. This is important to their security 
and our security. The North Koreans and their weapons of mass 
destruction are a terrible problem. As you remember, sir, it 
was Ronald Reagan and George Bush that opened up this issue. We 
were the ones that got the first inspection teams in there. We 
were the ones that got the inventories of their weapons of 
their nuclear facilities.
    I commend the administration for its follow-on activities. 
I think there were certain flaws in this agreed framework, 
namely we needed challenge inspections and North-South 
dialogue. But this North Korean problem is so serious--I am 
sorry Senator Stevens is not here because he was just up there 
and saw it for himself.
    Senator Cochran. Yes. I went with him.
    Mr. Lilley. Well, you then know. I am preaching to the 
choir.
    Senator Cochran. We were together. There were five of us 
who were a part of that delegation, and Senator Stevens was our 
leader and he is the one who decided that we ought to go.
    Mr. Lilley. You know how high the stakes are and you know 
how tough these people in North Korea are, we believe they have 
hidden nuclear weapons and missiles away in the hills. They 
have tested their Nodong and Taepodong missiles. There are 
recent threats that their military--I believe you may have 
heard this while you were there, that the North Korean military 
would be very disappointed if food did not come and it might be 
difficult to control them. I am paraphrasing what was said, but 
it was rather ominous. It is a form of blackmail.
    The Chinese are the key to some sort of resolution of this 
dangerous problem. We need to tie it into other areas where we 
have common interests with China and there are some important 
ones such as entry into the World Trade Organization, access to 
high technology, all critical to China. This would include Ex-
Im loans, World Bank loans, Japanese loan packages.
    Economics is becoming the name of the game, so we cannot 
allow the hard line military to push the envelope, change the 
rules while working with people like the Iranians.
    [The prepared statement of Mr. Lilley follows:]

                    PREPARED STATEMENT OF MR. LILLEY

    ``The United States and China's neighbors would welcome greater 
transparency in China's defense programs, strategy and doctrine.'' \1\
---------------------------------------------------------------------------
    \1\ United States Security Strategy for the East-Asia Pacific 
Region. DOD/ISA, February, 1995.

    ``When capable, feign incapacity; when active, inactivity.'' \2\
---------------------------------------------------------------------------
    \2\ Sun-tau, The Art of War. Translated by Samuel Griffith.

    Former Secretary of State Warren Christopher apparently says and 
believes in a strategy of ``integration through engagement, and that 
China should take its place as a world leader as a secure, open and 
successful nation.'' \3\ Sun-tau, the ancient as well as the greatest 
Chinese philosopher of the art of war, saw it differently. There is 
some evidence he still has considerable influence over Chinese 
strategic thinking. He certainly did over the late Chairman Mao, 
another architect of Chinese strategy. There is, in short, a perception 
gap of some size.
---------------------------------------------------------------------------
    \3\ Preparing for China's Future After Deng. Testimony by Robert 
Kagan before the Senate Foreign Relations Subcommittee on East Asian 
Affairs, 18 March 1997.
---------------------------------------------------------------------------
    In addition, in dealing with proliferation and China, there are two 
basic problems. The first is the flow of hardware, technology, and 
personnel into China, principally from Russia, and the second problem 
is the flow outward of hardware and technology from China, principally 
to the nations of South Asia and the Middle East.
    In the case of inflows from Russia, we have some hard data on 
conventional hardware flown but much less on Weapons of Mass 
Destruction (WMD). The latter would have to be the subject of a 
classified briefing. There was some evidence when I was at DOD in 1992 
but that was almost five years ago. This must be the highest priority 
target, in my view, for our intelligence community, and I presume that 
it is. Dr. Stephen J. Blank of the Army War College has written an 
important essay on this based on open data. He concludes that China's 
hunger for weapons imports matches Russia's needs and creates a perfect 
fit between both sides. The Russian arms industry, he points out, is 
``out of control and is not animated by any sense of strategic 
imperatives other than making money for defense producers. . . . We see 
only the tip of the iceberg when we look at these arms sales to 
China.'' \4\
---------------------------------------------------------------------------
    \4\ Stephen J. Blank The Dynamics of Russian Arms Sales to China. 
U.S. Army War College. March 1997.
---------------------------------------------------------------------------
    Russia has concluded that the starved Russian defense industry--GNP 
has fallen 40 percent since 1991--needs arms sales to take the road to 
revival of Russian power and prestige--that production lines must be 
kept hot. A heavy veil of secrecy, however, falls on the area of WMD. 
The rationale is: Chinese and Russian strategic interests coalesce to 
resist U.S. hegemony, but greed, corruption and desire for monopolizing 
exports drive the sales making them vulnerable to penetration.
    What we know has been sold to China by Russia are SU-27, state-of-
the-art aircraft, plus the technology to build them in China. The total 
number could be over 200. Modern Kilo class submarines using the most 
advanced muffling technology and 2 Sovremenny class destroyers along 
with SS-N-22 Sunburn anti-ship missiles. The Sunburn is designed to 
counter U.S. Aegis equipped ships. Overall sales may have been as high 
as $5.2 billion in 1995. More ominous are unconfirmed reports than 
Russia may be selling SS-18 technology to China; this is an 
intermediate range ballistic missile. The sale in 1995 of upper stage 
rocket engines to China, Russian military technicians recruited for 
long-term service including the best Russian man on MIRVs, and Russian 
close cooperation in development of new more powerful and better 
targeted cruise missiles are all issues that require more information. 
Also, there is some information on Chinese acquisition of Russian 4000 
km range Backfire bombers.
    Russian strategists talk of dealing with the eastern expansion of 
NATO by strengthening ties to China and therefore supporting China's 
outward push towards the sea where it faces its greatest challenge, the 
U.S. Chinese strategists say much the same thing: solidify and 
stabilize our land borders so we can look ease and south--Taiwan, the 
Diao Yu islands off Japan, Hong Kong and the South China Sea. Chinese 
purchases from Russia reflect this orientation--building projection of 
sea and naval power. These purchases will also enable China to develop 
an integrated land/sea/air defense system.
    As for China's exports, ``since 1988, the United States has 
repeatedly claimed that Chinese exports of missiles and missile 
components posed a challenge to MTCR provisions'' \5\ whose parameters 
China has said it will adhere to since 1991. China has been identified 
as involved in the nuclear weapons program in Pakistan with the latest 
sale of 5000 ring magnets in the fall of 1995, even though it signed 
the NPT in 1992.
---------------------------------------------------------------------------
    \5\ Engging China in the International Export Control Process. RAND 
1997. Prepared for DOD.
---------------------------------------------------------------------------
    Perhaps the most disturbing sale for the U.S. is the C-802 cruise 
missiles, the Eagle strike, to Iran for installation in the 10 Hudong 
class missile boats delivered earlier. This violates our legislation--
the Gore-McCain Act, sections 1604 and 1605, which prohibits companies 
and foreign governments from transferring advanced conventional weapons 
to Iran or Iraq. This law specifically refers to cruise missiles. 
Admiral Redd, former commander of the 5th Fleet, held three news 
conferences in 1996 to complain about these sales which endangered his 
men and ships by the Iranian Revolutionary Guard Navy. Former CIA 
Director John Deutch also complained about these sales. The 
Administration, however, has concluded that the known transfers are not 
of a destabilizing number and type. Tell that to our sailors and airmen 
in the Persian Gulf who are aware the Iranians now have facing our 
ships launch vehicles for mobility and numerous caves for shelter and 
concealment along the coast.
    This points up the central dilemma in dealing with China on these 
specific issues without any workable strategic understanding on common 
objectives. Although the Chinese have in fact formally supported the 
nuclear non-proliferation treaty, are a signatory of the Chemical 
Weapons Convention, and an adherent to the Missile Technology Control 
Regime, they do not support The Australia Group, the Wassenar Agreement 
or the Nuclear Supplies Group. China has asserted three basic 
principles in its arms transfer policy:

        1. LTransfers should be conducive to the strengthening of the 
        legitimate defense capabilities of the receiving countries.
        2. LTransfers should be without harm to regional peace and 
        stability.
        3. LTransfers should not be used to interfere in the internal 
        affairs of sovereign states.

    When dealing with the Chinese rhetoric and reality on 
proliferation, keep in mind that Chinese policy for decades, even 
centuries, has been based first on high sanctimonious rhetoric, at a 
second level on Realpolitik, and a third, on victimization. When China 
sells controversial weapons to what we, though they do not, consider 
rogue states like Iran, this has multiple advantages for China. First, 
it makes money for a military establishment on the go which needs all 
the money it can get; secondly, it appeals to a Moslem state on a 
governmental basis and this state might then be less inclined to 
support troublesome Moslem radicals in China's northwest; third it 
reminds the U.S. that China is a player in the international scene and 
that it can make the U.S. uncomfortable by claiming it is only 
retaliating for U.S. arms sales to Taiwan, which China considers part 
of China. China also says any action by us based on Gore-McCain would 
be unilateral, it has no international support--China did not 
participate in any way in a piece of U.S. domestic legislation which 
impacts severely on China. China reminds us of the fallout from Helms-
Burton on Cuba and also of our legislation on nuclear proliferation 
trying to use export/import loans as leverage on nuclear-related 
weapons sales. This is unrealistic, i.e., $50,000 of ring magnets 
causing the withdrawal of $10-20 billion in EX/IM loans. Given the 
current economic growth in China and American business desire to be 
involved and competitive, the proposition is unworkable.
    What then can be done?
    The most important problem is to engage other key countries when 
there is an infraction of international standards of organizations to 
which China belongs, or to which it adheres. China has been excluded 
from the rulemaking process and tends at times to view international 
organizations and their universal norms as fronts for other powers. 
They often participate to avoid losing face and influence. China see 
complaints about China's violations of international norms to be part 
of an integrated Western strategy, led by Washington, to prevent it 
from becoming a great power, to contain China. This often causes us to 
vociferously deny we are containing China--so China says we should 
demonstrate our denial by weakening the U.S.-Japan security alliance 
which the Chinese say is aimed at them, by cutting arms sales to 
Taiwan, which they say is their sovereign territory, and by refusing to 
deploy theater missile defense which the Chinese consider an anathema, 
an instrument of first strike. Perhaps Chinese concerns in these three 
area telegraph their vulnerabilities.
    The U.S. needs to have consistency and cohesion with our close 
allies and friends on enforcement of export control measures, 
especially when there is solid evidence of an infraction. The U.S. 
failure to discover chemical precursors on the Chinese ship Milky Way 
in 1993, when we claimed there were, discredited our proliferation 
efforts world-wide. This error cannot be repeated.
    We need to reach some common conclusions with China on the real 
down-side for both of us in selling modern weapons to certain states in 
the Middle East and South Asia. This would involve reviewing our 
respective positions on Pakistan, Iran, Syria, Iraq, Libya, and the 
Sudan, to name just a few, and to establish some joint objectives. We 
were able to reach solid consensus with China during the Afghan war and 
the result was the defeat of the Soviet Union, a benefit to both of us.
    In addition, we have to establish some discipline and control over 
our intelligence and export control apparati. One now reads secret 
intelligence reports in the Washington media describing in some detail 
intelligence findings on Chinese proliferation attempts. This undercuts 
our leverage, undermines our policy, and dilutes our effectiveness.
    We cannot afford posturing and domestically-motivated legislation. 
Our ineffectiveness on human rights was clearly demonstrated when after 
much bluster and showmanship in 1993, the Administration reversed 
course one year later and delinked MFN from human rights. This 
phenomenon was repeated when the Chinese out-maneuvered the U.S. on the 
Gore-McCain bill and sold cruise missiles to Iran without retaliation. 
This compounds the Chinese view that we are not serious.
    We must determine through skillful handling and operational probing 
the extent of Chinese proliferation activities--the most important 
being the full measure of Chinese acquisitions from Russia. We should 
have some leverage with Russia on this, and it would give a clearer 
indication of Chinese intentions. By careful probing we were able to 
establish Chinese vulnerabilities in 1991-92 on proliferation of 
missiles to Pakistan and could thus tailor specific retaliation to the 
infractions. This did achieve temporary results. This success could not 
be repeated because the Chinese acquired other sources for commodities 
previously supplied by the U.S.
    Our negotiators are faced by an increasing sense of nationalism in 
China, and by a more confrontational approach. This should not obscure 
the leverage we have.
    We also need to engage the Chinese military more closely because it 
is a powerful force in proliferation policy in China. Harvard 
University is bringing Chinese military officers to the U.S. to 
understand better our system and our strategy. This is a modest 
beginning. Officially we can also do more with China. We need to gain 
greater reciprocity and to try to establish some common goals, starting 
with North Korea, a dangerous WMD problem for both of us.

    Senator Cochran. Thank you very much, Ambassador Lilley, 
for your excellent statement and the perspective that you bring 
to this discussion. We appreciate your being here.
    Professor Milhollin, welcome. Thank you for being here, as 
well.

TESTIMONY OF GARY MILHOLLIN, PROFESSOR, UNIVERSITY OF WISCONSIN 
  LAW SCHOOL, AND DIRECTOR, WISCONSIN PROJECT ON NUCLEAR ARMS 
                            CONTROL

    Mr. Milhollin. Thank you very much, Senator. Since my 
statement will be put into the record in its entirety, I will 
just summarize it, and some of it has already come out 
previously.
    I think that the Committee has asked me to answer two very 
important questions. One is whether our engagement policy is 
working with respect to China, and second, whether the 
Executive Branch is really implementing the U.S. law concerning 
sanctions in good faith.
    I think the answer to both of those questions is fairly 
clear. At this time, our engagement policy is basically out of 
gas. It is no longer achieving anything significant. Since 
1994, our ambassadors have been going to China, holding out the 
engagement ring, and the Chinese have been closing the door in 
their faces. This happened most recently to Mr. Einhorn last 
month. His trip produced essentially nothing.
    The Chinese are now refusing even to talk to us about their 
chemical and missile exports. Mr. Einhorn basically admitted 
that during his testimony. There is no longer any dialogue, so 
our engagement policy is not working on those two subjects. It 
is working a little bit on nuclear, but we are not sure how 
much it is working.
    The second question is, is the administration complying 
with the sanctions law? I am told that last fall, the Executive 
Branch finished a number of studies on China's missile and 
chemical exports to both Iran and Pakistan. The studies 
contained the legal and factual analysis necessary to apply 
sanctions, but the studies have lain dormant since then. The 
State Department is now, in effect, choosing not to complete 
the administrative process. So the result is that the sanctions 
law is not achieving either deterrence or punishment as 
Congress intended.
    Before I go into the details of those things, I would like 
to make just a few comments in perspective about China's 
proliferation behavior in the past. Since 1980, China has 
supplied billions of dollars worth of nuclear and missile 
technology to South Asia, South Africa, South America, and the 
Middle East. To my testimony, I have attached a table at the 
end showing the pattern of Chinese exports since 1980. The 
table only shows Islamic countries. I have not shown South 
Africa, Brazil, Argentina, and India. All of those countries 
got significant secret Chinese exports during the 1980s and 
even the 1990s--I am sorry, during the 1980s.
    Also, by way of perspective, I think it is important to 
realize that we sanctioned China twice for exporting M-11 
missile components to Pakistan, and each time we lifted the 
sanctions early, and each time, it was a mistake, because each 
time the Chinese exports continued. The most recent promise the 
Chinese made was in October of 1994. The Chinese promised us 
once again that they would comply with the Missile Technology 
Control Regime. That is an international agreement to restrict 
missile sales.
    Since 1994, the Chinese have not complied with the Regime. 
The State Department, in effect, is admitting that fact when it 
says in its testimony, as it just did, that there is no 
evidence that China is breaking its promise. The problem is 
with the promise. The promise was an illusory promise and if 
the State Department is asked now, and I hope you will ask 
them, whether the current Chinese behavior complies with the 
MTCR, the honest answer is that it does not.
    What we now realize is that when we were promised in 1992 
and 1994 that China would clean up its act, the Chinese in 
their minds were making such a narrow promise that it is 
essentially meaningless. So the fact is that today, Chinese 
missile exports to Pakistan are violating the MTCR and the 
State Department knows it, the case is well documented, the 
legal analysis has been done, and sanctions should be applied.
    The latest venture in this sad process is a missile plant 
in Pakistan to produce M-11 missiles domestically. China is 
supplying the plant. I am told that the plant is proceeding 
very rapidly and that it could start producing finished M-11 
missiles in a year. If that happens, it will be basically a 
diplomatic and a national security disaster which has been, in 
my opinion, facilitated by the refusal of the United States to 
intervene. That is, we have ignored this export behavior to the 
point where it is going to produce a new missile factory and 
unless we do something about it, the result will have been that 
we, in effect, gave it a green light.
    The second thing I would like to talk about is poison gas. 
In 1995, I discovered and wrote in the New York Times that we, 
the United States, had caught China exporting poison gas to 
Iran, poison gas ingredients, I should say, and that is what my 
testimony says, is poison gas ingredients to Iran, and that the 
sales had been going on for at least 3 years. Since then, as 
members of the Subcommittee have pointed out, the exports have 
continued and so the result is that by 1997, China has been 
outfitting Iran with poison gas precursors, ingredients, 
equipment, and so forth, and technology for at least 5 years. 
These shipments have been going on unabated.
    I called the intelligence officials in our government last 
week and they say that there has been no change up until the 
present moment. So what we are looking at is a 5-year history 
of equipping Iran with the means to make poison gas, which has 
not been affected by anything we have done.
    The current situation is that we are not even talking about 
it. So I guess I would have to say that there is very strong 
evidence that our engagement policy simply has not worked and 
is not working.
    Finally, nuclear weapons. We have already discussed the 
sale of ring magnets by China to Pakistan. These are 
specialized items. We are not talking about dual-use equipment. 
We are talking about magnets that are made specifically to go 
into centrifuges that make enriched uranium for bombs. Those 
were sold by an arm of the China National Nuclear Corporation, 
which is an arm of the Chinese government. This was a sale by a 
Chinese government organization directly to a secret nuclear 
weapon-making facility in Pakistan of items that were 
specifically designed to help make nuclear weapon material.
    In my opinion, it violated China's pledge under the Nuclear 
Nonproliferation Treaty, which China signed in 1992. The treaty 
says that if you export something like that, you have to export 
it with international inspection. China did not. So far as I 
know, the State Department has never said that that sale did 
not violate the treaty, and I think you should pin the State 
Department down on that. In my opinion, it did violate the 
treaty.
    The next candidate for China's nuclear help is Iran. China 
has two very dangerous deals hanging over our heads with 
respect to Iran. The first one is a small, not so small, 
actually, about a 25- to 30-megawatt nuclear reactor which will 
make one or two bombs' worth of plutonium a year.
    The second deal is a plant to make uranium hexafluoride, 
which is essential to enriched uranium for use in nuclear 
weapons. There is no peaceful use for this uranium hexafluoride 
plant in Iran, so that China is really willing to put nuclear 
weapon-making capability in the hands of what we consider to be 
a terrorist nation with really no plausible excuse.
    What China seems to be telling us is that unless we start 
cooperating more with China in the nuclear area, that is, to 
resuscitate our dormant nuclear cooperation agreement with 
China, then these two deals will go forward. This seems to me 
to be pretty close to nuclear blackmail. So the result is that 
we are watching exports go out and we do not really have much 
prospect of stopping them and the Chinese are telling us that 
unless we stop complaining, the exports could increase.
    I think that our strategy of delinkage, that is, delinking 
China's export behavior with U.S. relations, and our strategy 
of engagement is not working and we should replace it with a 
new strategy of what I call linkage. If China wants to have 
good, normal relations with us, then we have to expect China to 
operate according to the rules of the international game. If 
China wants to become a responsible member of the world 
community, then we can have normal relationships with China. 
Otherwise, we will not.
    The specific question of sanctions, I have already talked 
about. I have said that these studies have been completed. I 
think the State Department, in effect, is admitting that there 
is enough evidence to apply sanctions. The State Department is 
no longer saying it does not have enough evidence. It is just 
saying it has not made a determination.
    I think the State Department just continues to raise the 
level over which you have to jump higher and higher as the 
evidence comes in so that sanctions will never have to be 
applied and the engagement policy can simply be continued. The 
effect is to really nullify the act of Congress that imposes 
sanctions, because unless the State Department is willing to go 
forward in good faith and complete the administrative process, 
then the law cannot have any effect.
    To conclude, I think what we are doing with respect to 
China is making the same mistake we made with respect to Iraq 
before the Gulf War. I testified before the Senate just before 
the invasion of Kuwait and I was calling for sanctions against 
Iraq because of its violation of the Nonproliferation Treaty 
and I was warning that the Iraqis were buying all sorts of very 
dangerous nuclear dual-use equipment and the State Department 
was saying that it would be a mistake to try to isolate Saddam, 
that what we should do is engage him, bring him into the 
mainstream, and make him a member of the international 
community by continuing trade.
    The policy that we followed with respect to Saddam would 
have produced an Iraqi bomb had Saddam not been foolish enough 
to invade Kuwait. As it was, when the Gulf War started, one of 
our main missions was to destroy the factories full of 
equipment that the West had provided. We lost pilots doing 
that. So I think the lesson is that you should not make a rogue 
stronger while he is still a rogue and you do not stop a rogue 
from being a rogue by treating him like a non-rogue.
    The Chinese understand the message we are giving them very 
well. They know that, despite what we say, they can supply the 
means to make weapons of mass destruction around the world 
without facing any penalties. I think this goes in the face of 
history. As Mr. Einhorn has said and, I think, as Jim has said, 
sanctions do get the attention of the Chinese. When we show 
them that we are serious, they react.
    It seems to me that one of the most interesting recent 
demonstrations of that was on intellectual property. We 
threatened to impose 100 percent tariffs on about $1 billion 
worth of Chinese imports if they did not stop looting our 
inventions, and they backed down. We did not get everything we 
wanted, but we got a lot.
    I think we have to take the spread of weapons of mass 
destruction as seriously as we take protection of Hollywood 
videos. The day when we start showing China we are serious, I 
think we will get somewhere, but I do not think that day has 
come.
    I have some recommendations at the end of my testimony 
which I will not repeat, but I urge the Committee to consider 
them carefully. In particular, I think the Committee should 
exercise oversight concerning our licensing behavior now with 
respect to China. The Committee already has the legislative 
power to do that and I think the Committee should do it. Thank 
you very much.
    [The prepared statement of Mr. Milhollin follows:]

                  PREPARED STATEMENT OF MR. MILHOLLIN

    I am pleased to appear today before this distinguished 
Subcommittee, which has asked me to discuss China's role in the spread 
of weapons of mass destruction. I have been asked to respond to two 
questions: First, how effective is our present ``engagement'' policy 
toward China; second, is the executive branch implementing the U.S. law 
concerning sanctions?
    I think that the evidence is now clear on both questions. The 
administration's engagement policy has run out of gas--it is no longer 
achieving anything significant. The process is essentially dead. Since 
1994, our ambassadors have gone to China, they have held out engagement 
rings, and the Chinese have shut the door in their faces. This happened 
most recently to Mr. Einhorn last month, whose trip produced nothing. 
The Chinese are now refusing even to talk to us seriously about the 
impact of their missile and chemical exports. There is no longer any 
dialogue on these points. The State Department has a policy of engaging 
the Chinese, but the Chinese do not have a policy of engaging the State 
Department.
    Nor is the administration complying with the sanctions law. Last 
fall, the executive branch finished a number of studies on China's 
missile and chemical exports to Iran and Pakistan. The studies 
contained the legal and factual analysis necessary to apply sanctions, 
but they have lain dormant since then. The State Department has chosen 
not to complete the administrative process because if it did, it would 
have to apply sanctions and give up its engagement policy. The 
sanctions law is not achieving either deterrence or punishment, as 
Congress intended.
    Today, China's exports are the most serious proliferation threat in 
the world, and China has held that title for the past decade and a 
half. Since 1980, China has supplied billions of dollars' worth of 
nuclear and missile technology to South Asia, South Africa, South 
America and the Middle East. It has done so in the teeth of U.S. 
protests, and despite repeated promises to stop. The exports are still 
going on, and while they do, they make it impossible for the United 
States and the West to halt the spread of weapons of mass destruction--
a trend that endangers everyone.
Missiles
    Chinese companies were caught selling Pakistan M-11 missile 
components in 1991. The M-11 is an accurate, solid-fuel missile that 
can carry a nuclear warhead about 309 kilometers. In June 1991, the 
Bush administration sanctioned the two offending Chinese sellers and 
Pakistan's space agency, SUPARCO. The sanctions were supposed to last 
for at least two years, but they were waived less than a year later, in 
March 1992, when China promised to abide by the guidelines of the 
Missile Technology Control Regime, a multinational agreement to 
restrict missile sales.
    But by December 1992, China had shipped roughly two dozen M-11 
missiles to Pakistan. It had been a mistake to waive the sanctions.
    In August 1993, the Clinton administration applied sanctions again 
for two years, after determining that the Chinese had violated the U.S. 
missile sanctions law a second time. But in October 1994, the United 
States lifted the sanctions early again, when China pledged once more 
to stop its missile sales and comply with the Missile Technology 
Control Regime.
    But since 1994, the stream of missile exports has continued. U.S. 
satellites and human intelligence have watched missile technicians 
travel back and forth between Beijing and Islamabad and have watched 
steady transfers of missile-related equipment. When I queried U.S. 
officials last week, they said that China's missile exports have 
continued up until the present moment, unabated.
    In fact, our officials have learned that they were duped in 1992 
and 1994. What we thought China was promising is not what China was 
really promising. Our officials now realize that China interprets its 
promises in 1992 and 1994 so narrowly as to make them practically 
meaningless. That is how the Chinese have justified their continuing 
missile exports. Because of this interpretation, China should no longer 
be considered as complying with the Missile Technology Control Regime.
    In addition to its sales to Pakistan, China has also sold Saudi 
Arabia medium-range, nuclear-capable missiles, sold Syria components 
needed to improve Syria's missile arsenal, sold Iran missile guidance 
components, and sold Pakistan complete M-11 missiles.
    I have attached a table to my testimony that shows China's mass 
destruction exports since 1980.
    In its latest venture, China is helping Pakistan build a plant to 
produce M-11 missiles in Pakistan. U.S. officials said last week that 
activity at the plant is ``very high.'' If the Chinese continue to help 
at their present rate, the plant could be ready for missile production 
within a year.
    This activity, combined with the State Department's refusal to 
apply sanctions, means that the State Department is now giving a green 
light to one of the most dangerous missile plants in the world.
Poison gas
    In addition to missiles, China has been selling the means to make 
poison gas. In 1995 I discovered, and wrote in the New York Times, that 
the United States had caught China exporting poison gas ingredients to 
Iran, and that the sales had been going on for at least three years. 
The State Department sanctioned the front companies that handled the 
paperwork, but did nothing to the Chinese sellers for fear of hurting 
U.S. trade relations.
    China's poison gas shipments have only become worse since then. In 
1996, the press reported that China was sending entire factories for 
making poison gas to Iran, including special glass-lined vessels for 
mixing precursor chemicals. The shipments also included 400 tons of 
chemicals useful for making nerve agents.
    The result is that by now, in 1997, China has been outfitting Iran 
with ingredients and equipment to make poison gas for at least five 
years. When I spoke to U.S. officials last week, I asked them whether 
there was any change in China's export behavior on poison gas. They 
said that the poison gas sales had continued to the present time, 
unabated.
    There is no reason to think that this pattern will change as long 
as the United States follows its current policy. If anything, China's 
position seems to be hardening. China is now saying, explicitly, that 
it will not even talk to us about missile and chemical proliferation 
unless we are willing, at the same time, to discuss restraints on our 
arms sales to Taiwan. The arms sales, of course, are caused by China's 
threat to Taiwan. And to make matters worse, the Chinese are beginning 
to complain about our policy of providing theater missile defenses to 
countries like Japan that might be vulnerable to Chinese missile 
attacks. The Chinese say that this is another form of missile 
proliferation.
Nuclear weapons
    China has also been the leading proliferator of nuclear weapons in 
the world. China gave Pakistan nearly everything it needed to make its 
first atomic bomb. In the early 1980s, China gave Pakistan a tested 
nuclear weapon design and enough high-enriched uranium to fuel it. This 
has to be one of the most egregious acts of nuclear proliferation in 
history. Then, China helped Pakistan produce high-enriched uranium with 
gas centrifuges. Now, it is helping Pakistan build a reactor to produce 
plutonium and tritium for nuclear weapons, and helping Pakistan 
increase the number of its centrifuges so it can boost its production 
of high-enriched uranium.
    In January of 1984, Chinese Premier Zhao Ziyang made his famous 
White House toast saying, ``we do not engage in nuclear proliferation 
ourselves, nor do we help other countries to develop nuclear weapons.'' 
The United States relied on that promise in making its agreement for 
nuclear cooperation with China in 1985. But we caught the Chinese 
breaking the promise immediately afterward, so the agreement never came 
into effect. China's habit of making and breaking promises is not new.
    China's most recent export was of specialized ring magnets, which 
are used in the suspension bearings of gas centrifuge rotors. The sale 
was revealed in early 1996. The magnets were shipped directly to a 
secret nuclear weapon production site in Pakistan, and were sent 
without requiring international inspection. The seller was a subsidiary 
of the China National Nuclear Corporation, an arm of the Chinese 
government. In my opinion, this export violated China's pledge under 
the Nuclear Nonproliferation Treaty, which it joined in 1992. Article 
III of the Treaty forbids the sale of such items without requiring 
international inspection. The sale also violated China's pledge under 
the Article I of the Treaty not to help other countries make nuclear 
weapons. Yet, the State Department has not sanctioned China for this 
sale, or even complained about it publicly.
    Iran is the next candidate for China's nuclear help. China has 
agreed to sell Iran a 25 to 30 megawatt nuclear reactor, which is an 
ideal size for making a few nuclear weapons per year. And China has 
also agreed to sell Iran a plant to produce uranium hexaflouride from 
uranium concentrate.
    The hexaflouride plant is essential to enrich uranium for use in 
atomic bombs. Bombs fueled by enriched uranium have become the holy 
grail of developing countries trying to join the nuclear club. Such 
bombs are easier to make than those fueled by plutonium because uranium 
is easier to work with, less toxic, and easier to detonate with 
confidence that a substantial nuclear yield will result. Iraq was close 
to making a uranium bomb when the Gulf War began. The first bomb ever 
dropped was a uranium bomb. The United States released it over 
Hiroshima without having to test it.
    There is no peaceful use for enriched uranium in Iran. Enriched 
uranium is used to fuel reactors, but the only reactors in Iran that 
could use such fuel are being supplied by Russia, which is also 
supplying their fuel. The conclusion has to be that Iran wants to use 
this plant to make atomic bombs. The fact that China is even 
considering this deal shows that China is quite ready to put nuclear 
weapon-making capability into the hands of what the United States 
regards as a terrorist nation.
    These two sales have not been finalized. In effect, they are being 
held over our heads like swords. If we don't start cooperating more 
with China in the nuclear area, then China can simply complete these 
two dangerous export deals with Iran. This is fairly close to nuclear 
blackmail.
    To sum up, I think the conclusion has to be that our engagement 
policy has failed and has been failing for some years. The policy is 
not producing any change in China's behavior, and is not even producing 
engagement. The negotiation process is effectively dead. The Chinese 
are not even talking to us about their exports. We are just watching 
the shipments go out, without any hope of stopping them. All our 
present policy has produced is a new missile factory in Pakistan, an 
upgraded nuclear weapon factory in Pakistan, new chemical weapon plants 
in Iran, and possibly a nuclear weapon factory in Iran.
    When you are losing the game, it is time for a new strategy. We 
need to replace our current strategy with a strategy based on linkage. 
We should link our cooperation with China to its export behavior. We 
will cooperate with China if and when China becomes a responsible 
member of the world community.
Sanctions
    The Subcommittee has asked me specifically to discuss sanctions. It 
is clear that the administration is not implementing the present U.S. 
sanctions law. The missile sanctions law does not require evidence that 
an entire missile or missile components have been shipped. The law says 
that sanctions are to be applied whenever a foreign company ``conspires 
or attempts to engage in'' the export of missile technology to a 
country like Pakistan.
    As I have said, the executive branch has done a legal study to 
determine what this language means. That study has been completed for 
more than a year. There has also been a factual documentation of the 
conspiracy. The factual study has been completed for at least six 
months. These studies covered China's missile exports to both Iran and 
Pakistan. Thus, there is no longer any legal or factual basis for not 
applying missile sanctions to China as Congress intended.
    The State Department has admitted this fact by implication. The 
State Department is no longer saying that there is ``not enough 
evidence'' to apply sanctions to China. It is now saying that it has 
``not yet made a determination'' to apply sanctions, which is quite 
different. In effect, the State Department is saying that it has not 
applied sanctions because it has chosen not to complete the 
administrative process.
    The sanctions law does not allow this kind of discretion. The 
executive branch has an obligation to weigh the evidence and apply the 
law in good faith. Otherwise, the law is meaningless. As things stand 
now, the State Department has nullified the sanctions law by refusing 
to carry out the administrative process that allows the law to take 
effect.
    The status of chemical sanctions against China is similar to the 
status of missile sanctions. Chemical sanctions apply to any foreign 
person who knowingly and materially contributes to the development of a 
chemical weapon in a country like Iran. The evidence of China's poison 
gas-related exports to Iran during the past five years is overwhelming, 
and the sales are still going on. The case is clear. All the analysis 
and documentation has been finished. The State Department is limply 
standing in the courthouse door, preventing justice from being done, in 
the same way it is doing for missile sanctions.
    For nuclear-related transfers, the law is more complex. Under 
Section 821 of the Nuclear Proliferation Prevention Act of 1994, if the 
seller knowingly and materially helps a country like Pakistan obtain 
enriched uranium, then the seller cannot sell anything to the United 
States Government. In addition, under the Export-Import Bank Act, if 
the seller is a country, the country is not eligible for U.S. Export-
Import Bank financing.
    The transfer of the ring magnets to Pakistan was done by an arm of 
the Chinese government, and thus with the knowledge of Chinese 
government officials. The administration said that it did not impose 
sanctions because it was unclear whether high Chinese officials knew 
about the sale. But at least mid-level Chinese officials knew, so it is 
difficult to see why the Chinese government was not held responsible. 
Governments are routinely held liable for the actions of their agencies 
and employees. Indeed, governments, like corporations, can only act 
through their employees. This seems to be another case where the State 
Department was unwilling to implement the law.
Conclusion
    We are following essentially the same policy toward China now that 
we followed toward Iraq before the Gulf War. When Iraq was caught 
smuggling nuclear weapon triggers out of the United States before the 
Gulf War, that act violated Iraq's pledge under the Nuclear 
Nonproliferation Treaty not to try to make nuclear weapons. But the 
United States was silent. Rather than apply sanctions, or even complain 
publicly about Iraq's violation, the State Department chose 
``constructive engagement.'' It would be better to maintain our 
influence with Saddam Hussein through trade, the State Department said. 
By selling Saddam what he wanted, and by not complaining about his 
behavior, we would bring him into the mainstream of nations. Sanctions 
would only isolate Saddam, hurt American exporters and allow the 
Europeans and the Japanese to get all the petrodollars.
    We now know what that policy produced. If Saddam had not been 
foolish enough to invade Kuwait, we would be facing a nuclear-armed 
Iraq today. And the Iraqi bomb would have been built with exports from 
America and its allies. To stop Saddam's bomb, American pilots had to 
risk their lives to destroy factories full of equipment that the West 
had provided.
    The lesson is that you should not make a rogue stronger while he is 
still a rogue. And, you don't stop a rogue from being a rogue by 
treating him like a non-rogue. The message we gave Saddam Hussein was 
that nothing bad would happen to him as long as he bought our products. 
We followed a policy of ``constructive engagement'' and of ``de-
linkage.'' We are giving China the same message now.
    The numerous high-level visits to China by U.S. officials over the 
past year have produced nothing. In recognition of that, we are not 
even making nonproliferation a big issue in our high-level meetings. 
The Chinese understand this message very well. They know that even if 
they supply weapons of mass destruction around the world, they won't 
face any penalty from us. We are acting like a paper tiger, and being 
treated like one. Until we put some teeth into our sanctions policy, we 
will just rub our gums together.
    History shows that sanctions work. The only time we have managed to 
get any progress on proliferation out of China is when we either 
applied sanctions or threatened to apply them. In the face of sanctions 
the Chinese have an incentive to talk to us. An example is intellectual 
property rights. In 1994, when we threatened to impose 100 percent 
tariffs on more than a billion dollars' worth of Chinese imports if 
China didn't stop looting our inventions, the Chinese backed down. So 
far, the Clinton administration has done more to protect Hollywood 
videos than to stop the spread of weapons of mass destruction.
    When we get serious about proliferation, the Chinese will get 
serious. Now, there is nothing to talk about because the Chinese don't 
see any risks. If we really want to engage the Chinese, we have to show 
that we are willing to punish them when they break the rules. So far, 
we haven't done that.
Recommendations
    1. The Subcommittee should require the State Department to provide 
all the legal and factual analysis that has been done by the executive 
branch on the sanctions issue concerning China. The Subcommittee should 
also require the State Department to explain why it has chosen not to 
complete the administrative process on sanctions.
    2. The Subcommittee should consider strengthening existing 
sanctions laws to accomplish the following:
    a. Prohibit the export of U.S. commodities controlled for non-
proliferation reasons for one year to all Chinese government-controlled 
companies if any Chinese government-controlled company contributes to 
proliferation through its exports. If the Chinese government is willing 
to proliferate, China should not be able to import American technology 
that could contribute to proliferation. Except for sales to Iran and 
Iraq, present law is confined to punishing only the company making the 
export, which is not a sufficient deterrent.
    b. Prohibit the import into the United States of any product 
produced by a foreign entity whose exports contribute to nuclear arms 
proliferation. This would bring the nuclear sanctions law up to the 
level of the chemical/biological and missile sanction laws.
    3. The Subcommittee should obtain and review the U.S. export 
licenses approved for China by the Departments of Commerce and State 
during the past five years. The Subcommittee would discover that both 
the Commerce and State Departments have allowed sensitive U.S. 
technology to go to the very Chinese companies that are making mass 
destruction exports to Pakistan. Some of the munitions exports to these 
companies were authorized by express Presidential waivers. 
Congressional oversight of our exports to China is long overdue.

                          CHINA'S DANGEROUS EXPORTS                                           
----------------------------------------------------------------------------------------------------------------
                              TO PAKISTAN                      TO ALGERIA                  TO SAUDI ARABIA      
----------------------------------------------------------------------------------------------------------------
1980-1984          Supplies A-bomb design and its                                                               
                    fuel                                                                                        
                                                                                                                
                                                     Secretly agrees to supply a                                
1985-1989          Agrees to sell tritium gas to                                                                
                    boost the yield of fission                                                                  
                    bombs                                                                                       
                                                                                                                
                                                                                                                
                                                     Trains Algerian scientists     Sells CSS-2 medium-range,   
1989-1996          Plans to supply a second nuclear                                                             
                    reactor                                                                                     
                                                                                                                
                                                                                                                
                                                                                                                
                                                     Completes reactor and                                      
----------------------------------------------------------------------------------------------------------------


                                            CHINA'S DANGEROUS EXPORTS                                           
----------------------------------------------------------------------------------------------------------------
                                TO IRAQ                         TO SYRIA                       TO IRAN          
----------------------------------------------------------------------------------------------------------------
1980-1984          Nuclear bomb design supplied to                                                              
                    Pakistan makes its way to Iraq                                                              
1985-1989          Helps make magnets for high-      Contracts to sell M-9 nuclear- Trains Iranian nuclear      
                    speed centrifuges to enrich       capable missiles               technicians in China       
                    uranium                                                                                     
                                                                                                                
                                                                                                                
1989-1996          Supplied rocket fuel ingredients  Sells ingredients for missile                              
                    intercepted by U.S. en route to   fuel                                                      
                    Iraq                                                                                        
                                                                                                                
                                                                                    Supplies a calutron and a   
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
----------------------------------------------------------------------------------------------------------------

    Senator Cochran. Thank you, Professor Milhollin.
    I noticed that you have tables and recommendations attached 
to your statement and some of those recommendations are to 
strengthen sanctions and to impose sanctions. Mr. Einhorn 
suggested the administration should have more flexibility 
regarding the imposition of sanctions under existing laws, but 
you are arguing just the opposite, that we put more mandates 
and not just suggestions in the statute books.
    Mr. Milhollin. It seems to me that the administration has 
ample power now to impose sanctions. The problem is that they 
are using the flexibility that does exist not to impose them.
    Senator Cochran. You seem to put a great deal of stock in 
the imposition of sanctions as modifying behavior and having 
the capacity to do that. Is there any evidence to support that?
    Mr. Milhollin. As I said, I think that when we did threaten 
sanctions and when we did impose sanctions, the Chinese 
reacted, and in particular, as Jim has said, the Chinese need 
high technology from us. That is an indispensable ingredient in 
their plan for the future. I think that that is a tremendous 
lever that we have.
    The second lever we have is our market. They have to have 
that, too, and if you look at it from their point of view, they 
are getting, essentially, nickels and dimes out of these 
dangerous sales compared to the value of our market, what they 
are exporting to us, and compared to the value to their 
infrastructure of U.S. products they are importing.
    Senator Cochran. So they are not motivated just by the 
profit potential of these weapons sales. That is not it.
    Mr. Milhollin. If they can make a little money for free, 
they will make a little money. But if it costs them a lot of 
money to make a little money, they will not make that little 
money. They will say to themselves, the U.S. market is a lot 
more important to us than the small amount of money we are 
making from weapon of mass destruction sales.
    You know, we told the Argentines and the Brazilians that 
unless they were willing to join our side in this struggle and 
become part of the solution rather than part of the problem, 
they were never going to be able to get the computers and other 
things they needed from us, and they both turned around and 
went the other direction.
    I think, although in South Africa there were other special 
circumstances, the sanctions on South Africa that we imposed 
and the message we gave South Africa, which was, look, if you 
want to join up and be a member of the world community, you 
have to get rid of all this stuff, they got that message and 
they did it. So there are three cases where--I think there are 
three success stories where we were tough over a long period of 
time and we got the result we wanted.
    Senator Cochran. Ambassador Lilley, is it too late now to 
undo the super Cray computers and the satellites? You mentioned 
both of those as technologies that China now has access to from 
the United States.
    Mr. Lilley. Yes, I think it is. They can get the satellites 
elsewhere and the computers elsewhere. We, at that time, had a 
virtual monopoly on the satellites. They could not get them 
elsewhere then.
    But let me mention one thing, Mr. Chairman, that I think we 
should think about carefully that usually gets China's 
attention: Theater Missile Defense (TMD). When you talk about 
theater high-altitude missile defense, you get their attention 
quickly. They consider it a first strike, and they have turned 
tremendous pressure on Japan, Korea, other places not to deploy 
theater missile defense.
    As you know, we have our own debate on that. I happen to 
think it is rather important, especially mobile theater missile 
defense mounted on Aegis class frigates and destroyers. I 
notice that the Chinese have just bought a couple of Soviet 
destroyers to deal with Aegis class vessels that could carry 
theater high-altitude defense. So they are thinking about this, 
too.
    It is an area that we should look at closely which might 
give us considerable leverage. It is not that you have to rush 
into it; but it should be there to use.
    Senator Cochran. Are there other sanctions besides economic 
sanctions that you think we should consider authorizing or 
directing the administration impose on China?
    Mr. Lilley. This gets into what sort of the strategic 
leverage do you have. There are certain areas that they are 
very sensitive to but you have got to handle these carefully. 
One is, as I have said, theater missile defense, and another is 
the development and strong training of the Japanese-U.S. 
security treaty. They are sensitive to that and have launched a 
full-scale attack on it. What happened between President 
Clinton and Prime Minister Hashimoto 1 month after the Taiwan 
missile diplomacy exercise on March 1996, where we broadened 
the agreement. They have been working against this ever since, 
to undermine it.
    Certainly, Japan would have to be a partner with us if you 
wanted to limit technology sales, and Europe would, too. It is 
a harder to bring them now. They certainly were helpful after 
Tiananmen. We had about 1 year where they were cooperative, and 
then it broke up. Now, of course, the trade competition looms 
large.
    There may be areas where you can get cooperation, when 
there is a clear infraction of international law, the Chemical 
Weapon Convention, Nuclear Nonproliferation Treaty, Missile 
Technology Control Regime. We also have to try to encourage 
China to join into these other regimes, the Nuclear Suppliers 
Group, the Wassenaar Convention----
    Senator Cochran. Has China given any indication that it is 
willing to participate in any of these successors to COCOM?
    Mr. Lilley. Originally, when we proposed it and the Chinese 
eventually signed onto the Missile Technology Control Regime 
and the Nuclear Nonproliferation Treaty, the State Department 
had said, the Chinese will never do it as. It is a matter of 
sovereignty. They were wrong. It happened because it was in 
their own interest to do it.
    Senator Cochran. You suggested that World Trade 
Organization membership is something that you think China 
should have.
    Mr. Lilley. Under the right conditions, and I think you are 
fortunate in having had a first-class negotiator, Lee Sands of 
USTR, handling this for us, who has mapped out a program of 
careful negotiation, compromised, mutual concessions on a whole 
series of issues that deal with World Trade Organization. This 
separates the negotiations from the Chinese complaint that we 
are trying to contain China, or trying to subvert China.
    We say we want China in. Now, let us talk about what you do 
with hidden subsidies, non-tariff barriers, monopoly of import 
corporations, national treatment, a step by step approach, and 
we find this is moving ahead quite well. If we tend to get 
tough and deal with it on a realistic basis, results come.
    Senator Cochran. Professor Milhollin, do you have any 
problem with that?
    Mr. Milhollin. Again, I think my point was that if China is 
willing to be a good world citizen, then it should be treated 
as one, but I think, given its behavior in the past, that maybe 
a probationary period would be prudent, especially with respect 
to nuclear cooperation. The administration has been lobbied 
very hard by our industry to enter into, or to, I guess, put 
into effect our nuclear cooperation agreement with China, which 
has been languishing since 1985 because we could not certify 
that China was not doing bad things.
    I think that if we do get to the point where we regularize 
our nuclear arrangements with China, we ought to have a 
probationary period, more than just, say, a year, to make sure 
that China really has changed its ways.
    I noticed in Mr. Einhorn's testimony that he said that 
there have been incidents--I have forgotten his words--
incidents and things that have happened in the nuclear area 
since China's promise to clean up its act. He did not say what 
those were. I urge you very strongly that if you go into this 
on a classified basis, that you should get from the State 
Department a clear description of just what the Chinese think 
is OK to do after they promise not to help unsafeguarded 
nuclear programs.
    Senator Cochran. Do you think their behavior has improved 
insofar as nuclear weapons proliferation is concerned?
    Mr. Milhollin. I think we do not know. Nothing big has hit 
the papers, but that does not mean it has not happened and it 
does not mean that other small things, when added up, have not 
been enough to be a big thing if they were all put together. 
There is a suggestion that they might be, but the answer is, I 
do not know, but I think you should find out.
    Senator Cochran. Let me say how much I appreciate your 
participation in our hearing today. This has been a very 
illuminating and frightening, at the same time, look at the 
situation and what is going on with respect to China's behavior 
on proliferation. I think we have learned a lot and we have 
also learned that we need to work harder to deal with this in a 
more effective way.
    It is clear to me, and troubling at the same time, that the 
administration's efforts have been ineffective. I think the 
evidence is pretty clear that the exports of weapons 
components, design technology, and a wide assortment of other 
items that has enabled states like Iran and Pakistan and 
probably others, although we did not get into all the details 
today and we could not because of classification, to acquire 
technology that can put American lives and interests at risk. 
China's actions have made this a more dangerous world for us, 
particularly, and is a threat to the security of the United 
States. So we need to get together with the administration and 
work harder to do a better job of trying to make a bigger 
impact and be a greater influence to modify this type of 
behavior by the Chinese government.
    We are going to continue these hearings and we will have a 
classified hearing, as we said.
    We thank you both very much for being here and for your 
excellent contribution to our effort.
    The hearing is adjourned.
    [Whereupon, at 4:11 pm., the Subcommittee was adjourned.]
                            A P P E N D I X

                              ----------                              


                      CHINESE PROLIFERATION CASES

     LNovember 1996--IRAN:
      LGyroscopes, accelerometers, and test equipment for missiles.

     LNovember 1996--IRAN:
      LChemicals used to produce nerve agents

     LOctober 1996--PAKISTAN:
      LIndustrial furnace and high-tech diagnostic equipment to nuclear 
facility

     LAugust 1996--PAKISTAN:
      LBlueprints and equipment to manufacture M-11 missiles

     LSeptember 1994-June 1996--PAKISTAN:
      LM-11 missiles and/or components

     LMarch 1996--IRAN:
      LChemical weapons equipment and technology

     LFebruary 1996--PAKISTAN:
      LRing-magnets for uranium enrichment

     LJanuary 1996--IRAN:
      LC-802 anti-ship cruise missiles

     LJune 1995--IRAN:
      LMissile guidance systems and computerized machine tools

     LDecember 1992--PAKISTAN:
      LM-11 missiles and/or components

                  Dates Refer to Date of Press Report

                               __________

                        Chinese Proliferation Cases and the U.S. Assessment and Response                        
----------------------------------------------------------------------------------------------------------------
      Allegation             Relevant Law Options             Administration Assessment            Sanctions?   
----------------------------------------------------------------------------------------------------------------
November 1996--IRAN:   * Arms Export Control Act        NO FORMAL DETERMINATION MADE             NONE           
Gyroscopes,            * Export Administration Act       ``[W]e will continue to be very                        
 accelerometers, and   * Iran-Iraq Arms                  vigilant on this subject and to                        
 test equipment for     Nonproliferation Act             raise with the Chinese . . . every                     
 missiles                                                report we receive that we believe is                   
                                                         credible of such arms transfers''--                    
                                                         G. Davies, 11/21/96                                    
                                                                                                                
November 1996--IRAN:   * Arms Export Control Act                                                 NONE           
Chemicals used to      * Export Administration Act                                                              
 produce nerve agents  * Executive Order 12938                                                                  
                       * Iran-Iraq Arms                                                                         
                        Nonproliferation Act                                                                    
                                                                                                                
October 1996--         * Arms Export Control Act        NO FORMAL DETERMINATION MADE             NONE           
 PAKISTAN:             * Export Administration Act      ``We do not conclude that China has                     
Industrial furnace     * Nuclear Proliferation           violated the commitments it made in                    
 and high-tech          Prevention Act                   its May 11th Statement.''--N. Burns,                   
 diagnostic equipment                                    10/9/96                                                
 to nuclear facility                                                                                            
                                                                                                                
August 1996--          * Arms Export Control Act        NO FORMAL DETERMINATION MADE             NONE           
 PAKISTAN:             * Export Administration Act      ``We take it [the allegation]                           
Blueprints and                                           seriously, and we are looking into                     
 equipment to                                            it.''--G. Davies, 8/26/96                              
 manufacture M-11                                                                                               
 missiles                                                                                                       
                                                                                                                
September 1994-June    * Arms Export Control Act        NO FORMAL DETERMINATION MADE SINCE 8/    NONE           
 1996--PAKISTAN:       * Export Administration Act       25/93                                                  
M-11 missiles and/or                                    * ``[T]his is an issue that's been                      
 components                                              under continuous review and still                      
                                                         is. It is something we're very                         
                                                         concerned about.''--J. Holum, 8/7/96                   
                                                        *  ``The United States will continue                    
                                                         to monitor and evaluate reports of                     
                                                         missile transfers . .  We take                         
                                                         reports of alleged proliferation                       
                                                         very seriously.''--N. Burns, 6/11/96                   
                                                                                                                
March 1996--IRAN:      * Arms Export Control Act        NO FORMAL DETERMINATION MADE             NONE           
Chemical weapons       * Export Administration Act      ``[W]e take very seriously all                          
 equipment and         * Executive Order 12938           reports of possible transfers to                       
 technology            * Iran-Iraq Arms                  Iran of technology related to [WMD]                    
                        Nonproliferation Act             . . . We're going to continue to                       
                                                         look at the fact.''--N. Burns, 3/8/                    
                                                         96                                                     
                                                                                                                
February 1996--        * Arms Export Control Act        DETERMINATION MADE NOT TO SANCTION       NONE           
 PAKISTAN:             * Nuclear Proliferation          ``[T]he policy makers in China at a                     
Ring-magnets for        Prevention Act                   senior level have assured us that                      
 uranium enrichment    * Export Import Bank Act          they were unaware of the transfer of                   
                                                         ring-magnets.''--N. Burns, 5/10/96                     
                                                                                                                
January 1996--IRAN:    * Iran-Iraq Arms                 DETERMINATION MADE NOT TO SANCTION       NONE           
C-802 anti-ship         Nonproliferation Act            ``[T]here's no question that there                      
 cruise missiles                                         has been a transfer of anti-ship                       
                                                         cruise missiles to Iran.''--N.                         
                                                         Burns, 3/8/96                                          
                                                        Later concluded missile sales were                      
                                                         not destabilizing                                      
                                                                                                                
June 1995--IRAN:       * Arms Export Control Act        NO FORMAL DETERMINATION MADE             NONE           
Missile guidance       * Export Administration Act      ``What we need to have is a series of                   
 systems and           * Iran-Iraq Arms                  discussions with [the Chinese], and                    
 computerized machine   Nonproliferation Act             we also have to continue to look at                    
 tools                                                   the problem ouselves.''--N. Burns, 6/                  
                                                         22/95                                                  
                                                                                                                
December 1992--        * Arms Export Control Act        DETERMINATION MADE TO IMPOSE CATEGORY                   
 PAKISTAN:             * Export Administration Act       II SANCTIONS                                           
M-11 missiles and/or                                    ``We do not have conclusive evidence                    
 components                                              that they [Pakistan] have an M-11                      
                                                         missile. We have conclusive evidence                   
                                                         that they have received from the                       
                                                         Chinese, from China items related to                   
                                                         an M-11 missile.''--L. Davis, 8/25/                    
                                                         93                                                     
                                                                                               Imposed          
----------------------------------------------------------------------------------------------------------------

                  Dates Refer to Date of Press Report

                                   (all)