    [Senate Hearing 105-867]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 105-867

         THE ADEQUACY OF COMMERCE DEPARTMENT SATELLITE EXPORT CONTROLS

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

                                    HEARINGS

                                   before the

      SUBCOMMITTEE ON INTERNATIONAL SECURITY, PROLIFERATION, AND FEDERAL
                                    SERVICES

                                     of the

                                  COMMITTEE ON
                              GOVERNMENTAL AFFAIRS
                              UNITED STATES SENATE

                           ONE HUNDRED FIFTH CONGRESS

                                 SECOND SESSION

                                   __________

                            JUNE 18 AND JULY 8, 1998

                                   __________

          Printed for the use of the Committee on Governmental Affairs

                                    ----------

                          U.S. GOVERNMENT PRINTING OFFICE
    49-591 cc                      WASHINGTON : 1999
    _______________________________________________________________________
    For sale by the Superintendent of Documents, Congressional Sales Office
             U.S. Government Printing Office, Washington, DC 20402

                       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
                           Lynn L. Baker, 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 J. Gustitus, Minority Staff Director
                          Julie A. Sander, Chief Clerk

                                C O N T E N T S

                                     ------
                                                                       Page

    Opening statement:

        Senator Cochran.............................................. 1, 45
        Senator Collins..............................................     2
        Senator Thompson [ex officio]................................     4
        Senator Cleland.............................................. 6, 54
        Senator Levin................................................17, 51
        Senator Durbin...............................................    68

                                   WITNESSES
                            Thursday, June 18, 1998

    Hon. John D. Holum, Acting Under Secretary for Arms Control and
      International Security Affairs, U.S. Department of State.......     6
    Hon. William A. Reinsch, Under Secretary for Export
      Administration, U.S. Department of Commerce....................    10
    Hon. Jan M. Lodal, Principal Deputy Under Secretary for Policy,
      U.S. Department of Defense.....................................    15

                            Wednesday, July 8, 1998

    Hon. John D. Holum, Acting Under Secretary for Arms Control and
      International Security Affairs, U.S. Department of State.......    46
    Hon. William Reinsch, Under Secretary for Export Administration,
      U.S. Department of Commerce....................................    48
    Hon. Franklin C. Miller, Principal Deputy Assistant Secretary,
      U.S. Department of Defense.....................................    60

                         Alphabetical List of Witnesses

    Holum, Hon. John D.:
        Testimony.................................................... 6, 46
        Prepared statement...........................................    81
    Lodal, Hon. Jan M.:
        Testimony....................................................    15
        Prepared statement...........................................    95
    Miller, Hon. Franklin C.:
        Testimony....................................................    60
    Reinsch, Hon. William A.:
        Testimony....................................................10, 48
        Prepared statement...........................................    90

                                    APPENDIX

    Chart entitled ``Notice to Congress of Presidential Waivers and
      Munitions List Transfers Related to U.S. Exports of Commercial
      Satellites to China,'' prepared by the Minority staff of the
      International Security, Proliferation and Federal Services
      Subcommittee...................................................   101
    Chart entitled ``Interagency Approval of U.S. Export of
      Commercial Satellite to China,'' prepared by the Minority staff
      of the International Security, Proliferation and Federal
      Services Subcommittee..........................................   102
    Letter to Senator Levin, dated June 17, 1998, from Dave Tarbell,
      Director, Defense Technology Security Administration...........   105
    Letter to Senator Levin, dated June 17, 1998, from Barbara Lark,
      Assistant Secretary, Legislative Affairs, U.S. Department of
      State..........................................................   108
    Charts of State and Commerce Department China Satellite Licenses.   113
    Letter to U.S. Department of Commerce, dated November 30, 1992,
      from Hughes Aircraft Company with attachments..................   115
    Letter to Senator Cochran, dated June 22, 1998, from Samuel R.
      Berger, Assistant to the President for National Security
      Affairs........................................................   130
    Letter from the U.S. Department of State to the Hughes Aircraft
      Company, dated September 17, 1993..............................   132
    Letter to the U.S. Department of Commerce from the Hughes Space
      and Communications Company, dated October 8, 1997..............   133

         THE ADEQUACY OF COMMERCE DEPARTMENT SATELLITE EXPORT CONTROLS

                                  ----------

                            THURSDAY, JUNE 18, 1998

                                         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 p.m. in room
    SD-342, Senate Dirksen Building, Hon. Thad Cochran, Chairman of
    the Subcommittee, presiding.
        Present: Senators Cochran, Collins, Stevens, Levin,
    Cleland, and Thompson [ex officio].

                  OPENING STATEMENT OF SENATOR COCHRAN

        Senator Cochran. Please come to order.
        We welcome you to this hearing of the Governmental Affairs
    Subcommittee on International Security, Proliferation, and
    Federal Services. The subject of today's hearing is ``The
    Adequacy of Commerce Department Satellite Export Controls.''
        Just over 2 months ago the New York Times reported that two
    of America's leading commercial satellite manufacturers--Loral
    and Hughes--may have provided China with technical information
    capable of enhancing Chinese space launch vehicles.
        Last month at our Subcommittee's hearing, the Central
    Intelligence Agency provided us with a chart showing the
    applicability of space launch vehicle technology to
    intercontinental ballistic missiles. Except for the warhead,
    there is little difference between a space launch vehicle and
    an intercontinental ballistic missile.
        Therefore, any such assistance given to China could not
    only help them develop more capable space launch vehicles, but
    also could improve the capabilities of their ICBMs.
        In addition, there is the concern that China may transfer
    such information to other countries, such as Iran or Libya.
        Our export control system should prevent technology
    transfers to China that endanger American security. We have no
    defense against missile attack. Helping equip other nations
    directly or indirectly with the means to put our Nation's
    citizens at risk from ballistic missile attack must be stopped.
        Today's witnesses are familiar with the policies and
    procedures established by the Clinton administration for
    reviewing and permitting satellite and missile technology
    exports to China.
        The administration witnesses who are here with us today
    are: Hon. William Reinsch, Commerce Department Under Secretary
    for Export Administration; Hon. John Holum, State Department
    Acting Under Secretary for Arms Control and International
    Security Affairs; and Hon. Jan Lodal, Defense Department
    Principal Deputy Under Secretary for Policy.
        We thank you for your attendance and your assistance. We
    also appreciate having copies of statements which you have
    provided to our Subcommittee, and we will print them in the
    record in full as if read in full.
        I am going to start the hearing by first calling on Mr.
    Holum, who--I checked to be sure--is the senior member of the
    administration panel, and he will be followed by Mr. Reinsch,
    and then Mr. Lodal.
        Before hearing from the witnesses, I am happy to yield to
    my distinguished colleague and friend from Maine, Senator
    Collins.

                  OPENING STATEMENT OF SENATOR COLLINS

        Senator Collins. Thank you very much, Mr. Chairman. I want
    to commend you for once again taking the lead in exploring this
    important and timely topic. I know that your concern about
    proliferation issues is a longstanding one, and I appreciate
    your leadership in this area.
        The system of export controls that governs commercial
    satellite launches is complex, and has changed considerably
    over time. Nevertheless, it is vital that we in Congress
    understand these complexities, because a great deal is at
    stake.
        Export controls are one of the difficult balancing acts
    that public policymakers in a free country must continually
    undertake. They require us, Mr. Chairman, to weigh economic
    benefits against national security costs in a delicate, ongoing
    effort to ensure that our eagerness to profit from trade does
    not betray our own best interests by helping actual or
    potential adversaries acquire means to harm us that they would
    not otherwise possess.
        We are here today, in part, out of concern that the Clinton
    administration has gotten this balance wrong. In studying this
    issue over the past few weeks, I have developed serious
    concerns about the adequacy of export controls governing
    satellite technology now that jurisdiction for all such
    controls had been transferred to the Department of Commerce
    from the Department of State. Until relatively recently, most
    commercial satellite launch licenses--and all of the most
    militarily sensitive ones--were handled by the Department of
    State under the rigorous series of controls applied to the
    items on the U.S. Munitions List. Due to the efforts of the
    late Commerce Department Secretary Ron Brown and the
    determination of President Clinton, however, satellite launch
    controls had been transferred to the Commerce Department in
    1996, and they are now handled under a system built around the
    Commerce Control List. It is the consequence of this shift that
    we will be examining today.
        For my part, Mr. Chairman, I have several concerns about
    this shift in jurisdiction, concerns that I am hopeful that
    perhaps our witnesses today can alleviate.
        First, in my judgment, the shift to the Commerce Controls
    means that satellite technologies are not subject to the so-
    called ``Category 2'' sanctions that may be applied to
    countries violating the Missile Technology Control Regime by
    exporting missile components. To be sure, if a country such as
    China is discovered to be providing other countries with whole
    missiles, ``Category 1'' sanctions would apply even to Commerce
    Control List items. If it is discovered to be a proliferator of
    missile components, however, China can still purchase items on
    the Commerce Control List. Moving satellites to the Commerce
    Control List, in other words, permits U.S. companies to sell
    ``dual-use'' satellites to ballistic missile proliferators, as
    long as these proliferators have the foresight to export their
    technology in merely component form. This, it seems to me, is
    neither rational nor conducive to national security.
        Second, I am concerned that the Clinton administration has
    adopted the view that items that would be subject to munitions
    list controls if sold overseas in their own right are not
    subject to such controls when built into larger hardware
    packages in communications satellites. I am no engineer, but
    surely something that is dangerous to sell separately becomes
    no less dangerous when we sell it along with other items. Here
    too, the current control regime seems likely to facilitate
    sales of sensitive items to problem countries such as China.
        Third, I am concerned that the shift of satellite
    jurisdiction to the Department of Commerce has removed
    Congress' role in overseeing such technology transfers. For
    munitions list items, as I understand it, the export-licensing
    process gives Congress a 30-day period in which to decide to
    object to any particular transfer. This is not true, however,
    for Commerce Control List items. The shift of satellite
    jurisdiction from the State Department to the Commerce
    Department, therefore, has had the effect of removing
    legislators' opportunity to raise questions about objectionable
    transfers.
        Finally, I am concerned that the transfer of jurisdiction
    has meant that satellite launches are accompanied by fewer
    technology transfer controls. When Chinese satellite launches
    were regulated by the State Department, every launch was
    required to have a Technical Assistance Agreement, a Technology
    Transfer Control Plan, and to be overseen--throughout the
    entire process of a U.S. company's dealings with a foreign
    customer--by Defense Management Monitors. This, it now appears,
    is not necessarily the case with launches undertaken under
    Department of Commerce supervision; it is not clear that these
    launches are required to have all three of these important
    safeguards. Some launches have had these safeguards, but this
    usually appears to have been because the companies, rather than
    the government, requested them.
        I understand that Commerce Department officials have
    indicated to Subcommittee staff and to my staff that they are
    ``moving toward'' requiring such safeguards. Such movement
    would, of course, be welcome. This admission, however,
    underscores my point: It seems to be much easier to transfer
    sensitive ``dual-use'' technology today than it was before
    President Clinton moved all satellite jurisdiction to the
    Department of Commerce.
        If I understand these complicated laws correctly,
    therefore, these differences between the Munitions List and
    Commerce Control List systems are very significant ones. Taken
    together, they make the present Commerce-controlled system a
    much more permissive and potentially porous one than the State
    Department system that previously governed commercial
    communications satellite technology. I have heard
    administration officials insist that the present system
    safeguards national security interests just as well as the
    previous one, but I am having trouble seeing how that could
    possibly be the case.
        Accordingly, I very much look forward to our discussions
    today. Our distinguished witnesses are among the most senior
    administration officials in the technology transfer control
    business, and I am pleased that they have been able to join us
    in helping shed light upon the complexities of this system.
        This issue is of major concern to me. I look forward to
    hearing our distinguished panel of witnesses as we shed light
    upon this complex system.
        Thank you, Mr. Chairman.
        Senator Cochran. Thank you, Senator Collins, for your
    excellent and thoughtful statement.
        Senator Thompson, the Chairman of the full Committee?

                 OPENING STATEMENT OF SENATOR THOMPSON

        Senator Thompson. Thank you very much, Mr. Chairman. I
    appreciate your having these hearings here today. I think this
    is exactly the way that we should go about addressing this
    extremely important problem, and it's something that probably
    we all should have done much earlier.
        I think that, as usual, it takes a particular instance--
    oftentimes in a political context--in order to draw our
    attention to a particular situation and cause us to look at the
    broader policy implications of what we're doing. It is really
    high time that we do examine our export policy with regard to
    particular materials, dual-use items in particular, in the
    context of the world in which we live today.
        I think that it is very useful to consider the context as
    we go along. Clearly, in an earlier period our export policy
    reflected what was going on in the world in terms of the Cold
    War. Clearly at one time not too long ago, the Soviet Union was
    an adversary of both the United States and China. But that, for
    example, is somewhat different from our relationship with China
    today. Our export policy, I am sure, in some way reflected that
    reality. Then we had a period of time when the Cold War was
    over, and I think everyone breathed a sigh of relief, took a
    deep breath, wanted to reach out and have new relationships and
    additional trade with countries such as Russia and China in the
    new world that we were happily living in at that time.
        Now, we come to a situation where we discover that some
    countries, such as China and Russia, are still major
    proliferators. In China's case, according to our own military
    people, they are the world's greatest proliferator of weapons
    of mass destruction around the world. Just as recently as
    yesterday's newspaper we see that China apparently continues to
    distribute missile technology and biological and chemical
    weapon technology to countries that are clearly hostile to us.
        So my point is that, again, our trade policy has to be
    considered--I should say, our export policy has to be
    considered--within the context of the real world that we live
    in today. That's not necessarily to be critical of anybody at
    any particular time, and hopefully we won't all get our
    positions staked out and our backs up in such a way that we
    can't take an objective look at what our policy ought to be in
    today's realities. If we have some misconceptions about it,
    hopefully we will be able to acknowledge those; but if the
    administration needs to look at things differently or make some
    improvements in the way we do business and in the way this
    thing is set up, then we need the administration to do that,
    too.
        I think it is clear that back in 1992 there was a decision
    made by the Bush administration, after an interagency review,
    that certain items that had been on the munitions list needed
    to go over to the Commerce Department and the Commerce Control
    List. Then in the Clinton administration a similar review took
    place by a similar interagency group that reached the same
    conclusion that the Bush interagency group did; that is that
    the ones that had been sent to the Commerce Department should
    remain there, but the ones that remained on the munitions list
    because of their military sensitivity should remain on the
    munitions list. This was signed off by the Secretary of State.
    The President chose not to follow that recommendation, but
    instead to follow the recommendation of Ron Brown, so all
    commercial satellite jurisdiction went to the Commerce
    Department.
        So the question becomes--and the pros and cons of whether
    or not it is a wise policy are separate and apart from this
    first question--but the first question is whether or not it is
    easier to get a dual-use item approved, particularly a
    commercial satellite export license, at the Commerce Department
    than it was when the jurisdiction was at the State Department?
    From what I've seen, it's beyond dispute that it's easier,
    whether you look at the statutes under which they're operating
    and the obligations that they have or any of the other things
    that Senator Collins just pointed out. I think we have to
    examine whether or not that should be changed and in what ways
    it could be strengthened. As I say, in the real world that
    we're living, countries to which we are sending some of these
    materials are in turn major, major purveyors and proliferators
    of weapons of mass destruction and missile, biological, and
    chemical weaponry.
        So, Mr. Chairman, I think that's the issue today. It is a
    profound and important one, and this is an important part of
    the process that I think we have to go through to get to the
    answers to these questions.
        Thank you.
        Senator Cochran. Thank you very much, Senator, for your
    excellent statement and your support of the efforts that we
    have made in this Subcommittee to monitor and look into these
    issues.
        Senator Cleland, we welcome you to the Subcommittee. We
    have made opening statements, and you are recognized for that
    purpose.

                  OPENING STATEMENT OF SENATOR CLELAND

        Senator Cleland. Well, thank you very much, Mr. Chairman.
    Thank you all for being here with us today.
        I think it is a matter of national importance for us to
    find out exactly who is in the driver's seat in terms of when
    we ship dual technology, or potential dual technology, abroad,
    as to the hands that it could fall into. I think this is
    certainly true in terms of the satellite launching capability
    of the Chinese.
        I look forward to any comments from our panelists in terms
    of who you think ought to be, ultimately, the governing or
    driving authority here. It does seem to me that national
    security interests should predominate; how that is structured
    is another question. But we leave that to our panelists to
    respond to.
        Thank you very much, Mr. Chairman.
        Senator Cochran. Thank you very much, Senator.
        Secretary Holum, we appreciate your attendance and
    furnishing us a copy of your statement. We encourage you to
    make whatever summary comments you think are appropriate for
    the benefit of the Committee. You may proceed.

    TESTIMONY OF HON. JOHN D. HOLUM,\1\ ACTING UNDER SECRETARY FOR
         ARMS CONTROL AND INTERNATIONAL SECURITY AFFAIRS, U.S.
                          DEPARTMENT OF STATE

        Mr. Holum. Thank you, Mr. Chairman. Mr. Chairman and
    Members of the Subcommittee, it is a pleasure to be back before
    this Subcommittee. I have appeared here several times in the
    past.
    ---------------------------------------------------------------------------
        \1\ The prepared statement of Mr. Holum appears in the Appendix on
    page 81.
    ---------------------------------------------------------------------------
        I would like to begin with several fundamental points that
    I think would help place this issue in context. The first is
    that nonproliferation of weapons of mass destruction is a
    cornerstone of U.S. foreign and national security policy.
    Trends, such as Iran's progress toward a medium-range missile
    capability, and, of course, the recent tests in South Asia,
    make clear that these are not theoretical concerns but looming
    threats to our security and our interests. There's no
    disagreement between the Executive Branch and the Congress on
    the vital importance of these issues.
        The second point--and this alludes to something that
    Senator Thompson observed--is that China is indispensable to
    any solution to the nonproliferation problem. China is a
    nuclear weapon state. It has in its hands--on a home-grown
    basis, leaving aside any transfers--the capabilities to supply
    technology and components of weapons of mass destruction to
    other countries of proliferation concern. So China's approach
    can make the crucial difference between success and failure on
    nonproliferation.
        Now, unquestionably, China has been part of the
    nonproliferation problem. Its relationship with Pakistan on
    nuclear weapons has been a major concern since the 1970's. We
    also take sharp issue with its chemical and missile cooperation
    with Iran. In 1991, the Bush administration sanctioned two
    Chinese entities, and in 1993 the Clinton administration
    sanctioned eleven Chinese entities, for transferring missile
    equipment and technology to Pakistan.
        At the same time, my third point is that although we still
    have serious concerns, China's approach to nonproliferation has
    changed markedly in recent years. It has made significant
    progress in its adherence to global standard--the Nuclear
    Nonproliferation Treaty, the Chemical Weapons Convention, and
    the Comprehensive Test Ban Treaty. We have also made progress
    on specific cases.
        In 1994, China committed not to export MTCR-class ground-
    to-ground missiles to any country. China's exports of missile-
    related components and technology reflect a narrower
    understanding of the MTCR guidelines than we have, but we have
    no evidence that China has acted inconsistently with its basic
    1994 commitment. Similarly, we continue to assess that China
    continues to abide by its 1996 agreement to end assistance to
    unsafeguarded nuclear facilities in Pakistan or anywhere else.
    China is taking steps to improve its export controls, and last
    year--this is very important--China agreed to conclude its
    nuclear cooperation, even peaceful nuclear cooperation, with
    Iran, and also to terminate the export of cruise missiles to
    that country.
        So the picture is mixed. Progress is substantial, but not
    enough, especially given the stakes. Therefore, my fourth
    fundamental point is that we have to continue to use all the
    tools at our disposal to make China part of the
    nonproliferation solution. That includes intensive diplomacy,
    including at the Presidential level; day-to-day front-line work
    of nonproliferation, with experts sifting through intelligence
    and making demarches about specific transfers; technical
    collaboration on export controls; sanctions--and I think
    sanctions have had a significant impact on China's behavior;
    and also positive incentives. Unquestionably, China's recent
    far-reaching steps on nuclear nonproliferation were motivated,
    at least in part, by the prospect of civil nuclear cooperation
    with the United States.
        Let me emphasize that there are clear limits to incentives.
    Of particular relevance to the subject of this hearing, neither
    this administration nor its predecessors have been willing to
    sell China arms, or to transfer sensitive technologies, that
    could contribute to China's own WMD or missile programs.
        One aspect of our efforts to persuade China to adopt a more
    responsible nonproliferation policy, particularly regarding
    missile transfers, has been the basic policy of several
    administrations, beginning in 1988, to allow U.S.-made
    satellites and foreign satellites with significant U.S.
    components and technology to be launched on Chinese rockets.
    But again, this incentive is clearly limited to exclude
    transfer of sensitive missile or satellite technology when
    satellites are licensed for launch. We have a very strict
    policy, secured in a bilateral technology safeguards agreement
    between the United States and China, and also embodied in
    license conditions, to prevent the transfer of sensitive
    missile technology to China that could assist its space launch
    vehicle program or its missile program.
        We do not believe that the commercial space launch
    activities that have been authorized by licenses and monitored
    under these procedures have benefitted China's missile or
    military satellite capabilities.
        Against this general background, let me give you the State
    Department's perspective on two events that have been the
    subject of broad reporting and commentary. First is the
    transfer of jurisdiction.
        One unfinished piece of business facing the Clinton
    administration when it took office in 1993 was a set of
    amendments to the International Traffic in Arms Regulations
    that had been prepared at the end of the Bush administration.
    The ITAR, administered by the State Department, implements the
    President's authorities under Section 38 of the Arms Export
    Control Act. The ITAR contains the U.S. Munitions List, which
    specifies articles and services which require a State
    Department license before they may be exported or, in some
    cases, even discussed with a foreign person.
        In 1990, the Congress had inserted specific provisions in
    the reauthorization of the Export Administration Act calling
    for the removal of certain items from the U.S. Munitions List.
    President Bush vetoed that bill on other grounds, but he said
    in his veto message that he would nonetheless act to remove
    those dual-use items from the munitions list, except for those
    warranting continued controls on the munitions list. That, in
    turn, led to an interagency study, and then draft amendments.
    However, the conclusion of that study generally coincided with
    the election of President Clinton, so the State Department
    deferred implementation so that the incoming administration
    could have its own review.
        In July of 1993, following further interagency study, the
    Clinton administration approved the Bush administration's ITAR
    amendments without change. As a result, many commercial
    communications satellites were removed from the U.S. Munitions
    List and placed under the jurisdiction of the Department of
    Commerce. Commercial satellites remaining on the munitions list
    were outlined in Category XV of the list, and cover nine
    specific performance characteristics, such as antennae
    capabilities, encryption devices, and propulsion systems. Over
    the next 2 years, those characteristics continued to define
    which communications satellites required a U.S. Munitions
    License and which required approval by the Department of
    Commerce.
        The U.S. aerospace industry continued to press for
    treatment comparable with other communications trade, such as
    fiber optics and telephone switching equipment, which were
    under the Commerce Department's jurisdiction. They pointed out
    that characteristics that had once been unique to military
    satellites were now routinely employed on commercial
    satellites, and they argued that the 30-year U.S. lead in
    building and exporting commercial satellites was under
    challenge from Japan, Europe, and Canada, who were promoting
    the view that American manufacturers were unreliable because of
    our restrictive export policies.
        Secretary Christopher at that time agreed on the need to
    ensure that our munitions list controls were up to date and
    justified, and requested an interagency study on whether the
    ITAR appropriately identified those communications satellites
    having significant military or intelligence capability. That
    was organized by the State Department and included the Defense
    Department, the intelligence community, the Arms Control and
    Disarmament Agency, the Department of Commerce, NASA, and other
    interested agencies.
        In September 1995, Secretary Christopher received and
    approved recommendations from that group, narrowing--but not
    eliminating--U.S. Munitions List controls. Those
    recommendations were supported by the Defense Department and
    the Intelligence Community. The Commerce Department supported
    removal of all commercial communications satellites from the
    munitions list, and exercised its right to seek Presidential
    review. That led, in turn, to a further interagency review
    under the aegis of the National Security Council. As distinct
    from the earlier, split recommendation, this review produced a
    common recommendation from the Departments of State, Commerce,
    Defense, and the Intelligence Community, with two important
    parts.
        First, commercial communications satellites would be
    controlled by the Commerce Department, even if they had
    embedded in them individual munitions list components or
    technologies. In all other cases, munitions list technologies
    or components themselves would continue to be controlled on the
    munitions list. However, the further shift in control was
    accompanied by new control procedures and regulations to
    strengthen safeguards. The State Department and the Defense
    Department were given the right to review all Commerce
    Department export license applications. A new foreign policy
    and national security control was established in Commerce's
    Export Administration Regulations whereby the State Department
    and Department of Defense could recommend denial of a satellite
    export to any destination on the basis of national security or
    foreign policy interests. Commercial communications satellites
    were also made exempt from the foreign availability
    requirements of the Export Administration Act.
        As Secretary Christopher noted in a recent letter published
    in the Los Angeles Times, these new features made it possible
    for the State Department to change its position and support the
    1996 recommendation to the President.
        The bottom-line question, of course, is whether this change
    has resulted in a degradation of protection for U.S. national
    security. It was Secretary Christopher's conclusion, and
    remains the judgment of the Department of State, that the
    changes made in the Commerce Department export licensing system
    in 1996 were sufficient to deal with the national security
    sensitivities associated with foreign launches of
    communications satellites. They provide a degree of protection
    that approximates the strict controls of the International
    Traffic in Arms Regulations. Therefore, the State Department
    was provided with reasonable assurance that U.S. national
    security would not be adversely affected by the change.
        Finally, let me report just briefly that the waiver of
    Tiananmen sanctions earlier this year for Loral's Chinasat-8
    project was handled in the normal manner, in accordance with
    the procedures used in previous requests.
        This dealt, as you know, with the proposed export under a
    Commerce Department license of a commercial communications
    satellite to the China National Postal and Telecommunications
    Appliances Corporation for launch from China. The satellite,
    once launched, will provide commercial voice, video and data
    traffic in China. After the technical assistance agreement had
    been reviewed and approved by all the relevant agencies, and
    subject to the normal limits and conditions, the State
    Department recommended to the President that he waive Tiananmen
    sanctions in accordance with established procedures.
        Now, when we recommended that waiver, senior administration
    decisionmakers were aware that Loral was under criminal
    investigation for alleged violations of the Arms Export Control
    Act. But the State Department's longstanding policy has been
    that, provided the activity proposed for waiver is consistent
    with U.S. national security and foreign policy, we do not deny
    export privileges to firms that are under investigation but
    have not been indicted. However, if a U.S. firm is indicted,
    the Department does adopt a denial policy on the basis of the
    indictment and does not wait for a conviction.
        It is against this backdrop that the United States conducts
    commercial space launch cooperation with China. We strive to
    accommodate U.S. commercial and economic interests, including
    promoting U.S. satellite exports, but within our paramount
    nonproliferation and national security objectives.
        The United States has engaged China at the highest levels
    regarding its nonproliferation policies and practices. We
    continually encourage China to strengthen its export controls
    and bring its nonproliferation policies more in line with
    international norms. The prospect of launching U.S. satellites,
    under technology safeguards, is an important inducement to a
    positive evolution in Chinese policy which, in turn, as I said
    at the outset, is indispensable to the containment of
    proliferation in a dangerous world.
        Thank you, Mr. Chairman.
        Senator Cochran. Thank you, Secretary Holum, for your
    statement.
        We are now pleased to hear from Secretary William Reinsch,
    Under Secretary for Export Administration of the U.S.
    Department of Commerce.
        You may proceed.

       TESTIMONY OF HON. WILLIAM REINSCH,\1\ UNDER SECRETARY FOR
           EXPORT ADMINISTRATION, U.S. DEPARTMENT OF COMMERCE

        Mr. Reinsch. Thank you, Mr. Chairman. Like Mr. Holum, I am
    pleased to be back here--I think; we'll see. [Laughter.]
    ---------------------------------------------------------------------------
        \1\ The prepared statement of Mr. Reinsch appears in the Appendix
    on page 90.
    ---------------------------------------------------------------------------
        I want to thank you for the opportunity to be here.
        I believe this administration's policy on the export of
    commercial communications satellites to China both protects our
    national security and facilitates our economic well-being. In
    allowing China to launch commercial communications satellites
    and transferring licensing jurisdiction for commercial
    communications satellites to the Commerce Department, this
    administration has continued and enhanced the policy of the
    Reagan and Bush administrations and has been consistent with
    Congress' expressed intent.
        Our current policy continues the decision by previous
    administrations to allow China to launch U.S.-built satellites
    subject to bilateral agreements on price, number of launches,
    and technology safeguards. Our view, like that of Presidents
    Reagan and Bush, is that under the appropriate safeguards these
    launches need not pose a risk to national security. In a moment
    I will describe these safeguards as they apply to the Commerce
    Department licensed commercial communications satellites, and
    also comment on some of the points that Senator Collins made in
    her opening statement.
        Commerce Department licensing of commercial communications
    satellites, as Secretary Holum pointed out, grew out of the
    1990 decision by President Bush to veto a revised EAA which
    would, among other things, have moved all commercial
    communications satellites to the Commerce Department
    jurisdiction. President Bush's veto was not related to the
    satellite issue, but in his veto message he directed that the
    State Department review its control list to determine if a
    range of items, including communications satellites, could be
    moved to the Commerce Department jurisdiction in light of the
    strong interest expressed by members of both parties in the
    jurisdictional issue, and because the United States was the
    only country in the world to control communications satellites
    as munitions items.
        It is also worth noting that in 1990, both Houses of
    Congress--and in 1992, the Senate--passed legislation that
    would have transferred jurisdiction over commercial
    communications satellites to the Commerce Department, and in
    1994, committees in the House introduced, and in the Senate
    reported, bills with this same provision. These actions are in
    addition to the letters the administration received from a
    number of Members of Congress, urging either jurisdiction
    transfer or the export of satellites to China. One letter we
    received, I would note for this Subcommittee, is a letter in
    1990 to President Bush signed by 79 Senators, including
    yourself, Mr. Chairman, urging President Bush not to veto this
    bill.
        Now, Under Secretary Holum has described in some detail the
    circumstances leading up to and surrounding the transfer of
    jurisdiction, so I will skip those parts of my testimony in the
    interest of time.
        I do want to make one point that responds to something
    Senator Thompson said in his opening comments, and that is
    simply to make clear for the record that every license approved
    by the Commerce Department for commercial communications
    satellites, before and after the 1996 transfer of jurisdiction,
    had the approval of the State Department and the Defense
    Department. In addition, because of the changes that President
    Clinton put into the licensing process, those licenses that we
    have approved for commercial communications satellites after
    the 1996 transfer have also had the approval of the Arms
    Control and Disarmament Agency. The agencies in question,
    particularly the three that are before you today, have
    consistently been in consensus on the specific license
    applications that have come before us.
        Now, let me speak directly to Department of Commerce
    safeguards.
        Department of Commerce licenses for communications
    satellites contain numerous conditions and provisos, developed
    in conjunction with the Departments of Defense and State. Under
    Department of Commerce licenses, exporters are obliged to
    comply with the terms of the Satellite Technology Safeguards
    Agreement between the United States and China. That requires
    them, among other things, to do the following:

           LDevelop a Technology Transfer Control Plan
    which identifies the level and extent of technical data to be
    released, and which also includes plans for securing the
    satellite during its transportation to the launch site;
           LHave all technical data under the license
    reviewed by the Defense Department prior to its release to the
    launch service provider, and have a Defense Department monitor
    present at technical meetings and launch activities with the
    Chinese launch service provider;
           LTransport the satellite in a sealed container,
    allowing no access to equipment or technical data, and with
    U.S. monitors to accompany the satellite if it is transported
    on a non-U.S. aircraft;
           LHave a separate cryptographic equipment
    safeguard plan for communications security equipment; and
           LLimit technology which can be released under
    the Department of Commerce license to only form, fit, and
    function data used to mate the satellite to the rocket, and
    require the exporter, in the event of a launch failure, to
    obtain a license from the State Department before releasing any
    additional technical data.

        In light of these safeguards, I believe the existing
    Department of Commerce licensing system fully protects our
    national security and foreign policy concerns. There have been
    no allegations regarding export control violations of
    Department of Commerce satellite licenses since the 1996
    transfer of jurisdiction.
        Now, I understand there have been questions raised about an
    analysis conducted of the 1995 APSTAR II launch failure. After
    that failure, the company involved conducted an analysis
    without the participation of the Chinese launch service
    provider. The analysis was written in order to satisfy
    insurance requirements. The analysis was reviewed by the
    Department of Commerce, which determined that it contained only
    information already authorized for export under the original
    Department of Commerce license issued in February, 1994. The
    unclassified report was provided first to a consortium of
    western insurance companies, and later to the Chinese launch
    service provider.
        Now, let me turn to some of the points that Senator Collins
    made and correct some misunderstandings which have arisen,
    originally in a report undertaken by the General Accounting
    Office.
        GAO asserted that there are five differences in the
    treatment of satellite licenses at the Commerce and State
    Departments. A closer look, I believe, will show that these
    differences do not affect national security. GAO reported the
    following:

           LFirst, that Congressional notification of
    individual licenses is not required in the Commerce Department
    system. The Commerce Department regularly briefs the Hill,
    issues annual reports, provides licensing documentation, and
    answers inquiries upon request. We have provided briefings on
    satellite exports, and we briefed on the transfer of
    jurisdiction in 1996. We are not aware that the Congress has
    objected to any satellite export, and the message that the
    Congress has consistently sent--as I said before--is that it
    wants satellites controlled as dual-use items under the Export
    Administration Act, which does not generally provide for
    Congressional review of individual licenses. And I can go into
    reasons why that is so during questions and answers, if you
    would like.

        Of course, in the case of satellites, there can be no
    exports to China without a Tiananmen Square waiver, which is
    notified to the Congress.

           LThe second difference relates to sanctions for
    missile proliferation not applying to Commerce license.
    Sanctions do apply to the Department of Commerce in cases of
    Category I violations, and the President generally has
    flexibility to include dual-use export sanctions in other cases
    if he so chooses, pursuant to other authority. Normally,
    however, it is correct that Category II missile sanctions apply
    only to munitions and dual-use items that are controlled under
    the Missile Technology Control Regime, the multilateral regime
    that addresses these matters. Commercial communications
    satellites fall into neither of those two categories. We
    believe the Congress clearly intended Category II sanctions to
    be less onerous than Category I sanctions, which do cover dual-
    use items.
           LThe third point is the alleged diminution of
    the Department of Defense's power to influence the
    decisionmaking process. We believe that DOD's authority is not
    diminished in this regard. The Commerce Department has denied
    licenses when the Department of Defense has raised national
    security concerns found credible by the reviewing agencies, but
    Executive Order 12981--which was the process change that allows
    every agency to see every one of our licenses, if they wish to
    do so--does not give the Department of Defense or any other
    agency a veto over a license, which would be contrary to
    legislative authorities and Congressional intent. It does,
    however, permit an agency, including the Defense Department, to
    prevent approval of any license, satellite or other, until the
    President has heard and decided on that agency's objections.
           LFourth, GAO asserted that technical information
    may not be as clearly controlled under the Commerce Department
    procedures. We believe that since the 1996 transfer, since the
    Commerce Department technology conditions are almost identical
    to those used at State, it is hard for us to understand the
    assertion that the level of technology has somehow changed. I
    would be happy to go into that in detail later on, if you wish.
           LThe last item is the assertion that additional
    controls placed on communications satellites transferred in
    1996 do not apply to those transferred in the Bush
    administration. We believe this assertion misses the point. In
    practice, all satellite applications subject to Commerce
    Department license after the transfer are subject to the same
    safeguards, and the other agencies have the same review and
    escalation rights.

        In closing let me also suggest that as a matter of policy,
    there are several reasons why allowing Chinese launches of
    U.S.-manufactured satellites--which I think is the real issue
    here--is in our interest.
        First, this is a large and important industry that is
    growing rapidly. I want to make clear at the beginning that the
    licensing decisions that we make put national security first.
    This is an industry, however, where economic considerations, I
    believe, deserve to be at the table. U.S. industry revenues
    were $23.1 billion, a 15 percent increase over the previous
    year. Employment in 1997 was over 100,000, a 10 percent
    increase from the previous year. The industry indicates that it
    has $1.7 billion in launch contracts on Chinese rockets, with
    8,000 U.S. aerospace jobs directly supported by those contracts
    right now. They also indicate that over the next 5 years they
    have $8 billion worth of those contracts, and 16,000 jobs at
    stake, with respect to launch contracts for Chinese rockets.
        With over 1,200 satellites expected to be launched over the
    next 10 years, it is clear that the U.S. industry will continue
    to need access to the full range of launch providers if it is
    to remain the world's leader. Not to be able to offer a
    competitive launch alternative puts our satellite manufacturers
    at a competitive disadvantage vis-a-vis their foreign
    competitors. Putting them in a clear leadership position, I
    think, is a status that we would all support. It is not only
    good for our economy, but I would argue that it is good for our
    military and for our national security as well. As the line
    between military and civilian technology becomes increasingly
    blurred, what remains clear is that a second-class commercial
    satellite industry means a second-class military satellite
    industry as well. The same companies make both products, and
    the same companies depend on exports for their health and for
    the revenues that will allow them to develop the next
    generation of products.
        Second, some of these satellites bring telephone,
    television, and Internet services to the Chinese people. I
    believe such services are an integral part of any effort to
    bring democracy and freedom to China. History has shown that it
    was a successful example of the West--not only in military
    strength, but in standard of living and freedom of expression--
    that brought the Cold War to an end. Our goal should be to
    bring not only our products, but our ideas and our values to
    China, but we cannot do that if they do not have the
    technological tools to receive them.
        International security since the end of the Cold War poses
    very real problems for the United States. These are complicated
    issues. We are in the midst of a serious debate as to whether
    we should seek to constructively engage those with whom we have
    disputes, or whether we should simply try to punish them
    through unilateral embargoes and sanctions. It may make us feel
    good to impose Cold War-style embargoes on these countries,
    even though they rarely work, but they do not help us achieve
    our objective of changing the other country's behavior, which
    is what I think we should focus on. Those who find it in their
    interest to exaggerate the threat of trade with China seem
    incapable of defining our relations with this emerging power in
    any terms but those of military conflict. However, we believe
    that treating China as a committed adversary is the quickest
    way to ensure that it becomes one, and we remain convinced that
    it is better to engage China frankly in dialogue, in trade, and
    in ideas than it is to seek to isolate them.
        Thank you very much, Mr. Chairman.
        Senator Cochran. Thank you, Secretary Reinsch.
        Secretary Lodal, we welcome you and ask you to proceed.

       TESTIMONY OF HON. JAN M. LODAL,\1\ PRINCIPAL DEPUTY UNDER
            SECRETARY FOR POLICY, U.S. DEPARTMENT OF DEFENSE

        Mr. Lodal. Thank you very much, Mr. Chairman.
    ---------------------------------------------------------------------------
        \1\ The prepared statement of Mr. Lodal appears in the Appendix on
    page 95.
    ---------------------------------------------------------------------------
        In the interest of time and in the interest of retaining
    your interest, I am going to skip over and summarize a lot of
    my remarks because they do deal with the history that I think
    you heard set forth very clearly here, going back to 1988, the
    original decision to export satellites to China, and then in
    1990, with the Congressional provisions, 1992 with the Bush
    administration decision, implemented the next year by the
    Clinton administration, and the 1996 changes that were made by
    the Clinton administration. What I would like to do is pick up
    at that point, the 1996 changes that were made when President
    Clinton decided to transfer additional jurisdiction for
    commercial communications satellites from the State Department
    to the Commerce Department.
        DOD supported this transfer because the transfer did not
    involve certain sensitive technology associated with satellites
    and with launch vehicles, and because the transfer was
    accompanied by several changes in procedures that protect DOD's
    ability to ensure that the transfers are consistent with U.S.
    national security.
        Let me once again summarize the system that is now in
    place.
        Companies can export complete commercial communications
    satellites under a Commerce Department license, even if they
    contain one or more of the individual military technologies
    that define the State Department jurisdiction over
    communications satellites. However, those individual military
    technologies must get a separate State Department munitions
    license when they are not exported as part of the complete
    satellite.
        The Commerce Department continues to control limited form,
    fit, and function technical data, but the State Department
    retains control over all launch vehicles and all technical data
    associated with the launch vehicles, or with the integration of
    satellite payloads in the launch vehicles, and with all data or
    manufacturing data for satellites, and technical assistance
    that might be provided by U.S. companies to Chinese launch
    service providers, including launch failure analyses.
        In addition, several changes were made to strengthen the
    Commerce Department system and the interagency review process
    for dual-use licenses. In particular, license determinations
    are now subject to a majority vote of the reviewing agencies,
    even in the first instance. In the past it was necessary to
    appeal, if you will--or escalate--the process before you got
    into committees where the agencies, other than the Commerce
    Department, had a vote. But for these items, that's no longer
    true.
        Licenses can be denied for broad national security reasons
    to any destination in the world, unlike the case for most dual-
    use items.
        And communications satellites are not subject to formal
    foreign availability determinations under the Export
    Administration Act, unlike most dual-use items.
        Communications licenses must include strong safeguards,
    including DOD monitoring and payment of DOD monitoring expenses
    by the companies. This is a very key point. DOD currently
    reviews all communications satellites licenses to ensure that
    the proposed export would be consistent with U.S. national
    security interests, and these recommendations reflect inputs
    from relevant DOD components, such as the Air Force and the
    National Security Agency.
        Our recommendations to approve a satellite export are
    conditional on strong safeguards, including a requirement that
    the satellite exporter prepare a technology control plan, which
    must be approved by DOD. The technology control plan has to
    include a detailed transportation plan for shipping the
    satellite, to ensure that only U.S. personnel have access to
    the satellite at all times, and a detailed physical and
    operating security plan, including procedures for the
    supervised mating of the satellite to the launch vehicle.
        This is important because the satellite, as Senator Collins
    pointed out, can include imbedded technologies that we do
    consider to be sensitive military technologies; therefore, it
    is quite important that we make sure that this satellite never
    be taken apart or accessed by the Chinese--or anyone, for that
    matter--from the time it leaves the United States to the time
    that it is either on orbit or blown up, in those cases where
    there is a launch failure.
        There is a requirement that technical data that any U.S.
    company wants to transfer to a Chinese launch provider is
    approved in advance by our Defense Technology Security
    Administration, and a requirement that a DOD monitor be present
    at technical meetings between the U.S. exporter and Chinese
    launch service personnel to ensure that no information is
    exchanged that would improve Chinese missile or satellite
    capabilities. This includes a requirement that DOD monitors be
    present at the launch site in China to oversee physical site
    security and launch operations.
        So I want to emphasize that since 1996, monitoring by the
    U.S. Government is required in all launches of communications
    satellites, and this monitoring is provided by DOD, as I have
    described.
        Monitoring by the U.S. Government was, in fact, required
    for all launches of satellites that contained any of the
    identified military technologies, or kick motors, or launch
    vehicle integration technical data, or any technical
    assistance, throughout the period that we have permitted
    satellites to be exported. In other words, any license that was
    issued by the State Department required monitoring.
        Now, after implementation of the 1992 Bush administration
    decision purely commercial satellites, and before the 1996
    revisions, there were three launches that were not monitored.
    These were launches of purely commercial satellites that were
    licensed by the Commerce Department. Monitoring had always been
    associated with the licenses issued by the State Department,
    and DOD license review procedures anticipated that there would
    be at least one State Department license required for the
    launch of even these commercial satellites that were now
    licensed by the Commerce Department. However, as it turned out,
    these launches did not require any State Department licenses.
    We are not aware of any transfer of technology from these
    unmonitored launches that contributed to China's missile or
    military satellite capabilities. Nevertheless, DOD did conclude
    that full monitoring would be a strong safeguard at relatively
    low cost to the companies, and that it should be applied to all
    license cases, even those that did not require Department of
    State licenses. This was agreed by all agencies and
    incorporated as a requirement in 1996, when jurisdiction was
    transferred to the Commerce Department for all commercial
    communications satellites, and the other improvements and
    changes that I described earlier were made at the same time.
        Mr. Chairman, in September of 1988, President Reagan
    decided to permit the launch of U.S. commercial communications
    satellites by China. This decision was motivated by a desire to
    allow commercial relations with China to expand in a more
    normal manner. The Reagan administration understood the
    potential risks, that such a program could lead to the transfer
    of military-related technology to China, but also recognized
    that China had for many years had the basic technology
    necessary to develop and deploy effective ballistic missiles,
    including intercontinental missiles capable of hitting the
    United States.
        To help ensure that no significant missile or satellite
    technology is transferred to China, the United States
    negotiated a bilateral technology safeguard agreement with the
    PRC that remains in force today. This overall policy, including
    the technology safeguard agreements and the related monitoring
    requirements, was a wise policy when it was adopted in 1988,
    when it was expanded in 1992, and it remains a wise policy
    today.
        DOD takes its overall role in the development and
    implementation of export control policies very seriously. The
    case of commercial communications satellites with China
    presents significant challenges to the U.S. export control
    system as we seek to ensure that no technology is transferred
    that would improve China's indigenous missile or satellite
    capabilities. We believe that the current system protects our
    national security and is doing its job.
        Thank you very much.
        Senator Cochran. Thank you very much. We appreciate the
    panel's statements.
        First I am going to yield to my distinguished colleague
    from Michigan, Senator Levin, for any opening statements or
    comments he would like to make before we begin our questioning.

                 OPENING STATEMENT OF SENATOR LEVIN \1\

        Senator Levin. Mr. Chairman, thank you for doing it that
    way.
    ---------------------------------------------------------------------------
        \1\ The prepared statement of Senator Levin with additional copy
    appears in the Appendix on page 103.
    ---------------------------------------------------------------------------
        It has been 10 years since President Reagan changed our
    policy with respect to China and approved the export of
    commercial communications satellites for launch in China. That
    change was controversial at the time; indeed, it was adopted
    against the recommendation of President Reagan's Science
    Advisor, who testified before this Subcommittee last month.
    Both President Bush and President Clinton continued down that
    road.
        Congress will hopefully look in a bipartisan way at whether
    the policy is working and whether it is in our national
    interest to continue it.
        A bipartisan Congressional review is appropriate; indeed,
    it is overdue. Over these past 10 years Congress has had ample
    opportunity to weigh in on this issue. The chart there on the
    right shows that since Tiananmen Square, Congress has received
    20 notices of decisions by Presidents to export communications
    satellites to China, 20 times, 20 waivers. Congress could have
    acted to stop satellite exports if it had a concern, but it did
    not.\1\
    ---------------------------------------------------------------------------
        \1\ The referenced chart appears in the Appendix on page 101.
    ---------------------------------------------------------------------------
        The same is true with a decision by President Bush in 1992
    and by President Clinton in 1996 to shift certain types of
    commercial satellites from the State Department Munitions List
    to the Commerce Department Control List. Congress received 30
    days' prior notice in which it could have taken action to
    disapprove each of these transfers. In fact, with respect to
    the 1996 transfer ordered by President Clinton, Congress had
    almost 7 months in which to act. The White House issued a press
    release in March 1996 announcing the proposed transfer of
    commercial satellites from the munitions list to the Commerce
    Department, and the transfer itself didn't take place until
    that November. Now, that was right in the middle of the
    appropriations process back in March, when that press release
    was issued, where Congress also had the opportunity to block
    the use of appropriated funds to carry out the transfer. Yet
    there was not one step taken by Congress to block the licenses
    for those satellites or to reverse the decision by Presidents
    Bush and Clinton with respect to the munitions list.
        Moreover, it is the responsibility of Congress to
    reauthorize the Export Administration Act. Reauthorizing the
    Export Administration Act is a direct opportunity for Congress
    to address any issue it may have on how the Commerce Department
    handles dual-use items--items which can be used for both
    commercial and military applications--yet that legislation has
    sat unresolved for years.
        Now, the export control process which is now in place is
    not an easy or a simple process, and nothing is when so many
    agencies are involved. But the process is not intended to be an
    easy one. It is intended to allow for a balancing of a range of
    competing national security, foreign policy, and commercial
    concerns. And as you can see on the chart there on the left,
    the current process is a two-track process, one for the
    issuance of an export license, one for Presidential waiver.
    Both the Department of Defense and the State Department have
    two bites at the apple, and three appeals if their position is
    not heeded, right up to the President of the United States.\2\
    ---------------------------------------------------------------------------
        \2\ The referenced chart appears in the Appendix on page 102.
    ---------------------------------------------------------------------------
        That two-track process is seen there, with the top line in
    blue with the initial decision of the agencies. If any agency
    disagrees, there are three appeals on that second line that can
    go right up to the President. And the waiver process, which is
    down on the bottom, the second track or second step also
    involves the Department of Defense and Department of State, and
    that also must be approved by the President on recommendation
    of the National Security Council.
        Today we are going to continue the effort to find out if
    this process contains adequate safeguards for the licensing of
    satellites for launch in China. The GAO said that it was unable
    to draw a conclusion on that question because it hadn't
    examined the operation of the two-track process, and this
    Subcommittee--and I believe others--have tasked the GAO to try
    to reach a conclusion in that regard.
        So we have a very important task in front of this
    Subcommittee today, Mr. Chairman. I commend you for gathering
    us together again in this effort to determine whether or not
    this process protects our national security.
        Senator Cochran. Thank you very much, Senator Levin.
        Let me start off by asking Secretary Reinsch to respond to
    a couple of questions, the first of which has to do with a
    briefing which you made available for the members of our staff
    on May 29. You mentioned at that time that the purpose of the
    President's decision back in March of 1996 to move all
    commercial satellite export licensing from the State Department
    to the Commerce Department was to change the process, not the
    substance, of the administration's export control policy for
    satellites.
        What problems were there with the Clinton administration's
    process prior to 1996 that made this change necessary?
        Mr. Reinsch. I think that is a question--I will answer it--
    that is best addressed also to the companies, because they are
    the ones that have to go through the process.
        At the beginning level, the first line of Senator Levin's
    chart, if you will, there are significant differences between
    the State Department and the Commerce Department processes that
    the companies felt made a material difference in the way these
    decisions are made. The best way to summarize it is that the
    Commerce Department process is open, transparent, and time-
    limited, and the State Department process--which, after all, is
    a process for weapons and weapons systems--is not.
        I frankly think there are good reasons in both cases. If we
    are making a decision to sell a weapon or a weapons system to a
    foreign power, it is appropriate to take plenty of time, have a
    relatively small number of agencies--i.e., State Department and
    Department of Defense--review it, and have a reasonably opaque
    process.
        The Commerce Department controls dual-use items, which
    means items for which there is substantial civilian--or civil,
    if you will, commercial--demand. Oftentimes the ability to
    market a product or to sell it is directly related to your
    ability to provide it in a timely manner.
        Over the years, and we've been in this business since 1949
    as far as the Commerce Department export controls are
    concerned, over the years we have developed a system which is
    designed to be process-friendly for the exporter. We have
    electronic systems that exporters can dial into to learn the
    status of their application. We publicize the names and phone
    numbers of our licensing officers. We encourage contact. We
    hold meetings. We bring the agencies in. As you can tell from
    the chart, we have time limitations on making decisions.
        These are all elements of a process which is designed to
    allow the exporter to interface with the government, to learn
    what the problems are, and to operate in a system in which the
    exporter has an opportunity to respond to the problems. That is
    distinct from the State Department's system, and we felt that
    for dual-use--we believe, and I certainly feel now--for dual-
    use items, that is the appropriate kind of system to operate,
    and that satellites are properly a dual-use item under that
    system.
        Senator Cochran. Is it correct to say that the purpose of a
    commodity classification by the Commerce Department is to
    determine under what type of license a commodity is to be
    exported?
        Mr. Reinsch. Well, there would be several purposes. One
    purpose of a commodity classification would be to determine
    that. Oftentimes we simply get inquiries from exporters saying,
    ``What is this?'' ``It's a widget.'' ``I know it's a widget,
    but is it a widget that is subject to this set of controls or
    that set of controls?'' Our regulations are complex because we
    have different control regimes for different countries, for
    different regions, for different purposes. That's not true for
    satellites, where we control to all destinations, but as a
    general matter we have a lot of classification requests from
    exporters who simply want to assure themselves that they are
    putting the proper classification on their product.
        Another purpose would be to distinguish whether a State
    Department license is required or a Commerce Department license
    is required. In that case the exporter could go to the State
    Department or he could go to the Commerce Department.
        Senator Cochran. Are exporters ever notified as to the
    result of a commodity classification that a general license can
    be used for an export--that is, that an individual validated
    license isn't necessary?
        Mr. Reinsch. That could be one result, if the commodity
    didn't require one.
        Senator Cochran. Do experts at the Department of Defense or
    the State Department have a formal role in the process by which
    a commodity classification is determined?
        Mr. Reinsch. One of the things that happened as part of the
    jurisdiction transfer in 1996 that has not been commented on in
    detail is that the President also put in place a process for
    resolving differences of opinion, as a general matter, between
    the State and the Commerce Departments over issues of whether
    an item should be licensed under one system or the other
    system.
        The line between what is military and civilian, as you can
    tell from our testimony and your statements, is blurry and is
    getting blurrier, and it's one that occasionally runs into
    controversy. I believe it was a comment that the Bush
    initiative resulted in some two dozen items being transferred;
    in fact, some have gone the other way. This is a moving target.
        As part of the process that the President put in place, we
    agreed to share with the State Department a set of commodity
    classifications that we felt might intrude on their territory--
    and Department of Defense; I don't mean to exclude them--for
    them to review. The State Department, in turn, agreed to share
    the same with us if they had some that they felt fell properly
    in our area. So there has been some transfer of commodity
    classifications for other agency review. I don't believe that
    as a result of that, though, which has been going on since the
    end of 1996, that anybody has flagged any of them for remedial
    action.
        Senator Cochran. Is it correct that only those items
    requiring an individual validated license are subject to the
    Executive Order 12981 process that is subject to review by
    departments other than the Commerce Department?
        Mr. Reinsch. That's correct.
        Senator Cochran. OK. So only those items requiring an
    individual validated license are subject to that process?
        Mr. Reinsch. Well, those are the only items--that's
    correct, but let me make clear what we're talking about. Those
    are the only items that require a U.S. Government export
    license. The other category of items are those items that we
    currently refer to as EAR-99, which in the past were called G-
    DEST or ``NLR,'' no license required. These are items that
    don't require a license.
        Senator Cochran. You said at the beginning of my line of
    questions that exporters are notified as a result of a
    commodity classification that a general license can be used for
    an exporter. They ask you?
        Mr. Reinsch. If it is appropriate in that case, yes.
        Senator Cochran. And that is that an individual validated
    license is not necessary?
        Mr. Reinsch. That would be one of the things that we could
    tell them, yes.
        Senator Cochran. And if it's not necessary, then the other
    departments aren't involved in a formal way in the review?
        Mr. Reinsch. That's correct.
        Senator Cochran. Secretary Holum, is the purpose of a
    commodity jurisdiction to determine whether an item should be
    licensed for export either under the jurisdiction of the State
    Department Munitions List or the Commodity Control List?
        Mr. Holum. That's how we use it, yes.
        Senator Cochran. Does the Commerce Department have a formal
    role in the commodity jurisdiction process?
        Mr. Holum. I would have to consult.
        Mr. Reinsch. That's what I was just alluding to, Mr.
    Chairman, the process that has been established.
        Senator Cochran. I want to hear him answer it now.
        Mr. Holum. The answer is yes, they do have an opportunity
    to be involved in our reviews.
        Senator Cochran. OK. I am going to withhold further
    questions and defer to my colleagues.
        Senator Cleland.
        Senator Cleland. Thank you, Mr. Chairman.
        Senator Cochran. You got promoted real quick. [Laughter.]
        Senator Cleland. Let me just thank you all for struggling
    with this issue.
        There are several things that just leap to mind in the
    testimony. First, the comment that the same companies make both
    products. They make military equipment that is sensitive, and
    they make communications satellites. I think that is our
    challenge, how in the world to determine what is potentially
    dual-use. And in that process, it seems to me, since the same
    companies make both products, and the effort of the Commerce
    Department is to be process-friendly, it does seem from a
    national security perspective that you need something to
    countervail that and to be national security-conservative or
    national security-slow or whatever, and that maybe that's the
    role of the Defense Department. Somebody needs to referee this.
    Maybe that's the State Department, because they take all these
    things into account. And maybe the ultimate referee or decider
    is the President if those entities disagree.
        That seems to me maybe a logical way to work it. I guess I
    have real concern about the Commerce Department more and more
    becoming the lead dog here, and I understand the need for
    commercial interests and being process-friendly. But here we
    are, talking about national security, and the companies are
    making the same products, satellites, rockets, and boosters,
    that are possibly targeted toward us. I mean, this is serious
    business here, so I have concern about the current process.
        Second, I note that of the current process--if any agency
    disagrees, then there's a vote, and a majority vote wins. Now,
    that's all right down here, but in terms of national security,
    I'm not sure, I just want to put that up for a vote.
        Third, I notice that the CIA and the Joint Chiefs are
    nonvoting members.
        I guess I have concern about the procedure, that we are
    not, in this highly technical and highly specialized area,
    violating our own security, and that we have a process that
    really tolerates that.
        And fourth, there is a concept in which communications, in
    and of itself, facilitates intelligence, and intelligence is
    the key to winning battles on the battlefield. We are investing
    so much of our own DOD money in improving surveillance, in
    improving the digitizalization of the battlefield and our
    understanding of where we are on the battlefield, where the bad
    guys are, and where our friends are--I mean, this whole
    information world out there is the key to victory. So I think
    we have to be very careful about the process.
        I just have great concern that the Commerce Department
    seems to be more and more, over the years, the lead dog here,
    and that that process is more and more friendly to commercial
    interests. I guess I would rather see us hedge our bets and put
    national security first and the Commerce Department second.
        I would like any of you that want to comment on that, to
    comment. Mr. Secretary.
        Mr. Holum. I would like to begin with just one very key
    observation, then defer to my colleagues.
        It seems to me that as I listen to our statements,
    including my own, I don't think this comes through clearly
    enough and it needs to be underscored. We are dealing with a
    situation in which the Chinese don't get technology if it is
    under a State Department license, and State Department licenses
    still apply to a number of these transactions if they have
    items that are on the munitions list associated with them in a
    way that would make them accessible. But they don't get those
    items, they don't get the satellite, they don't get the
    sensitive technology that is imbedded within the satellite. It
    goes there under escort. It is monitored continuously. It is
    mounted on the launcher and shot into space. They don't have
    it, so their access to the technology is limited by that basic
    reality.
        I think we haven't been clear enough in explaining the
    process here. Something I saw in the press described this as
    similar to Federal Express, except that Federal Express, I
    suppose, could open the package. But they don't know what's in
    it. All they're doing is delivering it, and that's essentially
    what's happening with the satellite launch.
        Now, even if the satellite is sold to China, they don't get
    to take it apart and look inside and decode and reverse
    engineer the components of it. It still goes there under
    safeguards and monitoring and is shot into space; the
    difference is that they get the benefit of it. They get to use
    the satellite services. Many of these satellites are sold to
    other countries; they are just launched by China.
        Mr. Lodal. That's very well stated, John. I might elaborate
    just a little bit, especially on the point about the companies.
        It is true that these same companies make military
    satellites and communications satellites, by and large, but
    they don't necessarily make the rockets and the missiles and
    the satellites. This really goes back to what happened in 1996.
    I think we faced the reality there, as one of my colleagues
    said in his statement, that the commercially viable
    communications satellites were going to have imbedded in them
    some sensitive technologies. So if we were going to have a
    policy that made any sense at all that permitted our industry
    to continue to progress, we were going to permit the launch of
    satellites that did have these imbedded technologies, because
    the 1992 decision did not permit them to be licensed by the
    Commerce Department, so they still had to go through the more
    complex Munitions process even if it was imbedded.
        So yes, we went a step further in saying the kind of
    satellites that might be made by a military contractor, with
    even some military-type technologies imbedded in them, could be
    launched by China and could be licensed as dual-use items. But
    we didn't move one inch, one hair-width, on the question of the
    launchers, the basic vehicles, or the technology incorporated
    in either the launchers or the satellite itself. Those stay on
    the munitions list and can only be licensed by the State
    Department and can only be exported--and we don't do that for
    China, because we maintain this zero tolerance position with
    regard to missile technology for China, despite the fact that
    there are other countries in the world that are providing some
    of that technology to China. It was our view that this should
    not be something that the United States does, and that's why we
    drew that very firm line between the box, if you will, which
    goes on top of the ``truck,'' if you will, that carries it into
    space, and all the rest of it.
        Mr. Reinsch. Let me make a process comment, a more general
    comment to respond to yours, if I may, Senator.
        I guess I am flattered to be the ``lead dog,'' although I
    must say that in dealing with these agencies I don't usually
    end up in that position. [Laughter.]
        I think what the President did in 1995 in the Executive
    Order was an effort to address the concern that you raised.
    What he recognized was that these are complicated decisions.
    Keep in mind the kind of items that we're talking about. We're
    talking about satellites today, but a lot of what the Commerce
    Department controls far more is computers, telecommunications
    equipment, chemical precursors--they can be fertilizer if
    they're one way, and chemical weapons if they're another way,
    machine tools, things where you're talking about a ``use
    universe,'' if you will, that is about 90 percent civilian and
    about 10 percent not.
        What the President concluded--and we spent a lot of time on
    this in the context of developing a proposal to amend the
    statute in 1994 and 1995--was that these decisions require
    multiple factors, and there are multiple agencies with
    equities. What he essentially devised was a system in which
    those agencies that had something to contribute got a seat at
    the table. The Commerce Department runs the system; and I said
    ``process-friendly.'' I didn't say ``policy-friendly.'' I will
    take exception vigorously to any suggestion--and I don't know
    that you've made one--but any suggestion that the Commerce
    Department is less interested in national security than the
    other agencies are. We run the system, and I think we run it in
    a way that gives the taxpayer--after all, exporters are
    taxpayers--what they are entitled to, which is a rapid, clear
    decision. That's what government is supposed to be about, and
    that's what we try to do.
        The Defense Department comes to the table and makes the
    national security argument. The State Department comes to the
    table and makes that argument and the foreign policy argument.
    The Arms Control and Disarmament Agency--Mr. Holum has two
    hats, he can come to the table and effectively vote twice. He
    makes a nonproliferation argument. The Energy Department comes
    to the table, particularly on nuclear items, and interjects its
    point of view.
        The idea here was to get everybody who had something to say
    about the thing up there at the table at the same time and
    create a process in which all those factors could be weighed
    and balanced.
        Now, as a matter of record--and as I said earlier, we have
    been in consensus on all the satellite cases that the Commerce
    Department has handled--as a matter of record, 95 percent of
    the licenses that the Commerce Department works on are resolved
    by consensus at the working level and never enter into the
    decisionmaking process that Senator Levin had up here. That
    tiny number that do enter into the decisionmaking process that
    Senator Levin has in his chart have never, in this
    administration, gone beyond the assistant secretary level.
        Now, theoretically, as I said, one of the other agencies--
    or we, if we are on the losing side--could take a matter all
    the way to the President. We've never had to do that because
    we've been able to reach consensus at the assistant secretary
    level. And I'm making a statement here not just about
    satellites, but about all licenses.
        When we did that, this was a hard-fought issue. It was a
    hard-fought issue in my building, frankly, and making this
    Executive Order was something that I take some pride in
    personally. What we did was, we provided to the Defense
    Department something that they had wanted for 15 years, and I
    say that, having worked up here on 10 different rewrites of the
    Export Administration Act; that is, they wanted to be able to
    review all licenses. Prior to the President's Executive Order
    in 1995, we were referring about 52 percent of our licenses for
    other agencies' review. Now we are referring between 92 and 95
    percent of our licenses, because we will send them whatever
    they tell us they want, and they tell us by category: ``If it's
    going to China, we want to see it. If it's a satellite, we want
    to see it. If it's in this category, we want to see it.''
        So the system, I think, has worked smoothly. It has largely
    been a product of consensus. What you hear about up here, of
    course, are the places where there was some controversy. These
    things happen, but we have a process to resolve it, and I think
    they will tell you that their equities are protected all the
    way to the top.
        Mr. Lodal. I would agree with that, and I would emphasize
    that while it is a majority vote, it has a little bit of a
    different flavor to it in that anyone who doesn't like the
    majority can appeal it to the next level, up to the President.
    And, of course, the Director of Central Intelligence and the
    Chairman have their independent authority to advise the
    President should they feel so strongly.
        It's kind of a small change, but in the previous system,
    the Commerce Department alone, could force it, if you will,
    either to go the way the Commerce Department wanted it, or into
    a more complex escalation and appeal process. But now, the
    Commerce Department has to get at least somebody else to line
    up with them, or else the majority will go the other way and
    it's settled at that point.
        Senator Cleland. Mr. Secretary, could I just interrupt? Do
    you think the State Department should be the lead agency in
    this process? I understand the process and I didn't really mean
    to make light of the majority vote. I understand the consensus.
    But I guess what I'm trying to figure out, is there a consensus
    here, given the incredible national security interest, of all
    the things you just mentioned, Mr. Secretary--the biological
    and chemical capabilities, the intelligence capabilities, with
    computers and satellites and so forth. Everything you mentioned
    seems to have greater and greater national security interest. I
    just wondered if the State Department, or even DOD, might be
    better suited as the lead agency here.
        Mr. Reinsch. Well, I think certainly on munitions, if it's
    a question of whether it should be--State Department or
    Department of Defense--it's been the State Department, and I
    think that works well, because State Department's
    responsibilities are to take into account all aspects of our
    national security and foreign policy considerations.
        The Defense Department does have the primary responsibility
    to talk about the impact on national security, and that has
    always been respected. I don't know of any cases where----
        Senator Cleland. It seems to me that increasingly,
    information, in this information world, is ammunition, or
    munitions, in many ways.
        One more question, if anybody would like to answer it.
        It seems to me that at some point in the 1980's there was a
    decision that this country would not build the capability to
    launch domestic or commercial satellites in space, that we
    would use our launch capability--our delivery systems--for
    national security satellites only, and that in effect we would
    loosen up and contract out--and be willing to contract out--to
    other countries like China, France, other countries, even
    Russia, to launch ``commercial satellites.'' It seems to me
    that was a key judgment call, especially since commercial
    satellites now are built by the same people who make military
    satellites, and the dual-use technology is so closely connected
    that it is hard to separate it now.
        I just wonder if anyone would like to speculate on either
    what it would cost for us to go into the domestic commercial
    lift business into space, or whether that would be a good
    governmental decision, in effect to take back our decision and
    do it ourselves?
        Mr. Reinsch. Let me make a comment, Senator Cleland, if I
    may, sir, reserving the right to perhaps get back to you with
    more information at a later point, because it's an intriguing
    thought and a new one.
        The United States has had commercial launch capabilities.
    We do some of this now. I think the figures that the industry
    has provided us is that on a global basis, we provide about
    two-thirds of the world's satellites and about 40 percent of
    the world's launches. So the capability is there, but you can
    see that there is also a gap.
        I am not aware of an explicit decision. There was a lot of
    controversy in the mid-1980's and late-1980's when President
    Reagan was moving toward a decision to permit Chinese launches.
    I was here at the time and got a lot of input from the ``rocket
    companies,'' if you will, and it is true that there are fewer
    of them now than there was then. You've probably seen that tree
    diagram that starts out with 40 or 50 defense companies, and
    now it's much smaller.
        They were very concerned at that time that the Chinese were
    going to be dumping launch services, effectively underpricing
    them, and one of the things they persuaded the Reagan
    administration to do was to negotiate not only the Technology
    Safeguards Agreement that we went into, but a pricing agreement
    and a launch quota agreement, which was renewed by this
    administration in, I believe, 1993. Those agreements commit the
    Chinese to keep their prices within a certain range. As a
    nonmarket economy, there aren't market rules prevailing. And it
    effectively gives them a quota of launches through the year
    2001.
        I think the economics of launches in the past 8 years or so
    have largely militated, until recently, against the creation of
    new launch services for economic reasons. It's large, it's
    expensive; it's dangerous in the sense that people can get
    killed, but it is also financially dangerous when one of these
    things goes off course. If you blow it up, you're talking about
    an insurance package of hundreds of millions of dollars.
        But there are several launch service providers, new ones,
    coming on line, including an ocean launch platform that is a
    consortium of an American company and several foreign
    companies.
        You might want to ask that particular American company why
    they chose to enter into a consortium with non-American
    companies, and why they chose to go offshore instead of inside
    the continental United States. I think, frankly, it's a matter
    of economics. Now, whether the Federal Government should do
    something about it is a very interesting question, and it might
    be something that the Armed Services Committee will want to
    look at, because that's where a lot of these facilities fall.
        Senator Cleland. Well, thank you all very much. I
    appreciate you all grappling with this issue, and we appreciate
    your service to our country.
        Thank you very much, Mr. Chairman.
        Senator Cochran. Thank you, Senator.
        Senator Collins.
        Senator Collins. Thank you, Mr. Chairman.
        Secretary Holum, you testified that the Loral Chinasat-8
    project, which has been the subject of so much press scrutiny
    lately, was handled ``in a normal manner and was consistent
    with longstanding State Department policy.'' Is that an
    accurate assessment of the testimony that you gave us?
        Mr. Holum. Yes. Referring to the waiver in--the more recent
    waiver allowing a further license for a subsequent launch,
    notwithstanding the criminal investigation going into a
    previous case.
        Senator Collins. That's what I want to pursue with you.
        Are you aware of any other case where the President
    approved a waiver for a company despite a specific warning from
    the Department of Justice that going forward with this waiver
    might jeopardize the successful prosecution of an earlier
    export violation?
        Mr. Holum. I am not. I was referring to the State
    Department process and our own approval, rather than what
    happened subsequent to that.
        I am not aware of any such case one way or the other. I am
    aware that in terms of our own precedents in the State
    Department--in fact, these precedents have been searched--that
    we have not previously denied licenses to companies that are
    under investigation short of an indictment, except I think
    there was one case where the company itself had a rogue
    employee who was forging licenses and they didn't know which
    ones were valid, so they agreed with us that they should
    suspend licenses.
        But the general practice--this is specifically what I was
    referring to--is that if there is an investigation of a company
    underway, we obviously want to be aware of that, but we don't
    deny licensing rights solely on that basis.
        Senator Collins. I understand that you don't advise denying
    a waiver solely on the basis of a pending investigation. But
    what we have here is quite different. What we have in the Loral
    case is the Department of Justice specifically saying that
    going ahead with the waiver could have a significant adverse
    impact on the Department of Justice's ability to undertake a
    prosecution involving the earlier technology transfer.
        Isn't that a different situation?
        Mr. Holum. I don't know how different it is because I don't
    know what other precedents there are.
        Senator Collins. But you don't know of any other case where
    there was a waiver granted, despite the Department of Justice
    specifically saying that this could jeopardize an underlying
    case?
        Mr. Holum. No, and I probably wouldn't know of any such
    case, were there one. But my understanding is that in this
    case, this was a decision that was made taking into account the
    views of all the relevant departments and agencies, including
    the Department of Justice, when the waiver decision was finally
    made.
        Senator Collins. According to press reports on this waiver,
    the State Department had already alleged in a letter to Loral
    executives that there had been a violation of our export
    control laws in the earlier episode, this is, in the accident
    review. Is it unusual that the White House--the President
    himself--would go ahead even after the State Department had
    made a preliminary determination that there had been a
    violation?
        Mr. Holum. I think it would be consistent with practice,
    again, because on that basis alone we wouldn't recommend denial
    of a waiver.
        Senator Collins. Mr. Chairman, it strikes me that this case
    was anything but routine in that we had a specific warning from
    the Justice Department that going ahead might jeopardize an
    investigation in which the State Department believed the
    company had broken the law.
        I have several more questions but I know that people have
    been waiting a long time, so I will end now in the hopes that
    perhaps we'll do a second round. Thank you.
        Senator Cochran. Thank you, Senator.
        Senator Thompson, Senator Levin has not objected to my
    recognizing you next since you were here earlier.
        Senator Thompson. All right. I appreciate it.
        In 1996, the transfer was made. The satellites that
    remained on the munitions list were transferred--the
    jurisdiction was transferred--over to the Commerce Department.
    Prior to that, the interagency group, including Secretary
    Christopher, recommended against that transfer. I assume that
    their rationale was the same as those who had preceded them,
    and that is that there was some danger in connection with this
    technology transfer of American satellites.
        Then, as I understand it, the President came back with an
    Executive Order that apparently satisfied this interagency
    group, that even though they had concerns about this transfer
    of jurisdiction, those concerns were now satisfied because of
    additional safeguards that Executive Order contained.
        That last sentence--you may not agree with everything that
    I've said, but is that last sentence basically correct?
        Mr. Lodal. Yes.
        Senator Thompson. And part of those safeguards had to do
    with this process that you have described here, where you say
    everyone more or less gets a shot at it. Essentially, that is
    what we're talking about. I want to examine that process just
    for a minute.
        As I understand it, with regard to an export license
    application, there is the interagency review. If it is not
    unanimous, it goes to the operating committee, first of all;
    then if it is not unanimous there, it can be appealed to the
    Advisory Committee for Export Policy, ACEP----
        Mr. Holum. It's a majority vote at those levels, rather
    than unanimous.
        Senator Thompson. A majority vote.
        Then if there is a majority vote, to appeal that, it can go
    to the Export Administration Review Board?
        Mr. Holum. Any losing agency in the majority vote can
    appeal it to the next level. So a single agency can appeal a
    decision by the majority.
        Senator Thompson. All right.
        Now, as I understand it, in order to appeal a decision by
    the ACEP, the agency desiring the appeal has to go back to his
    department and go to his assistant secretary and get him to
    agree to appeal it?
        Mr. Holum. If it's at the ACEP level, it is the assistant
    secretary level, so----
        Senator Thompson. So for example--we'll take the Department
    of Defense. You have within the Department of Defense what is
    referred to as DTSA, technical people who sometimes object to
    these transfers. In the first place, the person who actually
    reviews the matter for DTSA is not necessarily the person who
    sits on this interagency group to start with, correct?
        Mr. Lodal. Correct.
        Senator Thompson. All right. So somebody else from the
    Department of Defense sits on the interagency group. He makes
    his recommendation to turn down the export license, which
    sometimes happens, correct?
        Mr. Lodal. Yes.
        Senator Thompson. It's not unanimous, so it goes to the
    operating committee, and then it goes from there to ACEP?
        Mr. Lodal. Well, actually, the operating committee is at
    the working level, more or less. That's the lowest level
    committee; that's the first one. Then it goes to ACEP, which is
    assistant secretaries.
        Senator Thompson. All right. In this particular case, the
    representative from the Department of Defense would have to
    come back and get the sign-off by the Assistant Secretary of
    Defense in order to appeal to ACEP?
        Mr. Lodal. Right. At the operating committee, the people
    are technical people, mostly from DTSA. So they have been the
    people who have been involved in the actual review. So then if
    it went against us, if you will--which it has never done on
    satellites, but were that to happen at the operating
    committee--he would come back and come to the assistant
    secretary that supervises DTSA and then it would go to the
    ACEP.
        Senator Thompson. So it's never gone against you on
    satellites?
        Mr. Lodal. No.
        Senator Thompson. Is that correct?
        Mr. Lodal. Yes. I think there was an issue where at an
    early stage we had a disagreement on one--not a satellite, but
    one of these technologies that are included as a separate
    matter, but my understanding is that that was resolved also,
    before it got to the assistant secretary level.
        Mr. Reinsch. If I could interject, Senator, normally what
    happens in these cases is the license reviewing officers at the
    working level in all the agencies will often have questions,
    and the first thing that comes back to us as sort of the ``mail
    box'' of the system, if you will, is not a yes or a no, but a
    question: ``We don't have enough information. We need to know
    the following additional things.'' And then we go out and get
    that information, and then it is recirculated and discussed.
        And the system sort of waits. We have a means in our
    process to stop the clock if we are waiting for the exporter to
    provide more information, but I wouldn't want to suggest that
    the fact that DTSA has come back with a question should be
    construed as suggesting that they have an objection.
        Senator Thompson. Well, I wasn't going to get into that,
    but you're not telling me that the operating officer at the
    DTSA level never had an objection, not a question but an
    objection, which is in turn overruled by the operating
    committee. You're not saying that that's never happened, are
    you?
        Mr. Lodal. That has never happened on communications
    satellites.
        Senator Thompson. On satellites?
        Mr. Lodal. Right.
        Senator Thompson. But with regard to other things, it does
    happen?
        Mr. Lodal. It does happen, yes.
        Senator Thompson. As I was saying, if the reviewing
    official from DOD is over-ruled at the operating committee, he
    has to go back and get the assistant secretary to intervene.
        How many levels are there administratively between the
    person who would be representing the department at this
    operating committee, and the assistant secretary?
        Mr. Lodal. Well, the head of DTSA reports directly to the
    assistant secretary--let me ask Mr. Tarbell to clarify this.
        Senator Cochran. Would you please identify yourself for the
    record?
        Mr. Tarbell. My name is Dave Tarbell. I am the Director of
    the Defense Technology Security Administration, otherwise known
    as DTSA.
        Senator, the way that it works, to sort of get at your
    organizational question, within my organization I have a
    licensing division, and that licensing division represents us
    at the operating committee. Within that licensing division we
    have individual licensing officers who review licenses. Those
    officers make recommendations, and the initial recommendation
    for DOD, into the system.
        When there is a disagreement by any agency within that
    process, it gets to the operating committee. So for example, if
    we disagree with the Commerce Department as to whether or not a
    licence ought to be approved, or a condition ought to be
    approved, then it would come before that committee for a
    discussion. Setting aside communications satellites, the
    procedure then is that the Commerce Department looks at all the
    recommendations----
        Senator Thompson. What do you mean, setting aside
    communications satellites?
        Mr. Tarbell. Setting aside communications satellites,
    because communications satellites are subject to majority vote
    at that level. But for all other licenses, with the exception
    of a few that work like communications satellites, like hot
    session technology for aircraft, Commerce Department issues
    what is called an ``Operating Committee Licensing Decision.''
    We then have 5 calendar days, if we disagree with that
    decision, to get an assistant secretary to send a letter to the
    Commerce Department to appeal that decision to the ACEP.
        Senator Thompson. Now, that 5 days, does that pertain to
    satellites or non-satellites?
        Mr. Tarbell. It pertains to everything. It pertains to
    satellites as well. So if there was a majority vote in the
    operating committee on a satellite license--which there's never
    been because we've never had a disagreement which got to that
    point--if there were a majority vote on the operating committee
    that went against us, then we would have to go and appeal that
    to the assistant secretary. I report to a deputy assistant
    secretary, so that decision has to come through me, goes
    through a deputy assistant secretary to an assistant secretary
    for a letter to go out of the Department.
        Senator Thompson. So you have to get written objection or
    agreement to appeal or whatever----
        Mr. Tarbell. An appeal that has to be signed by an
    assistant secretary who is confirmed by the Senate, yes.
        Mr. Reinsch. Let me add a note also on what happens.
    Normally with this process, if they're going to escalate, they
    call and let us know, which effectively--what we usually do in
    that case is make sure that they get enough time to get their
    letter in.
        Mr. Tarbell. Let me be clear. The rules are 5 days, but if
    it's on a weekend we call up and say, ``We're going to have a
    letter,'' and they will say, ``Fine.''
        Senator Thompson. In a town where it takes 2 months to get
    your letter answered across town, that still seems like a very
    short period of time, and that's one of the things I wanted to
    get to. You've got to go up two levels within your department
    and explain the situation to an assistant secretary in order to
    get him to intervene in order to take it to the next level, and
    at the next level, if you want to take it to the Export
    Administration Review Board, if you want to take it past that,
    you have another 5 days, don't you?
        Mr. Tarbell. Yes, sir. If there is a majority vote at the
    ACEP that goes against us and we disagree, then we can take it
    to the Export Administration Review Board, and that is at the
    Cabinet level.
        Senator Thompson. So at that point you have to get the
    Secretary to intervene, to take it up to that point?
        Mr. Tarbell. Yes, the Secretary----
        Senator Thompson. But of course, you've never had a
    situation that got that far?
        Mr. Tarbell. That's correct.
        Senator Thompson. Which Mr. Reinsch thinks proves his
    point, and I think proves mine. I can well understand why
    you've never gotten one up that far.
        But in all seriousness, this is something that jumps out at
    you. You have a complex situation. You have people, starting at
    the operating committee, some of whom are very knowledgeable in
    these areas and some of whom are not necessarily knowledgeable
    in these highly technical areas that you're dealing with.
        Mr. Reinsch. I would object to that, Senator.
        Senator Thompson. Your objection is noted.
        Then you have to go back to two levels within your own
    Department and intervene within 5 days, and at each level of
    the interagency review--who chairs the operating committee?
        Mr. Reinsch. The Commerce Department.
        Senator Thompson. Who chairs ACEP?
        Mr. Reinsch. The Commerce Department chairs all the levels.
        Senator Thompson. Who chairs the Export Advisory Review
    Board?
        Mr. Reinsch. The same, the Commerce Department. This has
    been the same for years, prior to the 1995 or 1996----
        Senator Thompson. OK, fine. The question becomes, as I said
    in the beginning, whether or not this is an effective review
    process with regard to a matter, as Senator Cleland pointed
    out, involving potential national security. And I think that
    clearly that process and the Export Administration Act, which
    says that the President can intervene in matters of national
    security and foreign policy, are held out to be the safeguards,
    more or less. But I assume that with regard to the utilization
    of those provisions under the Export Administration Act, where
    the President can intervene, that it would have to go through
    this same administrative process, would it not, to work its way
    up to the President?
        Mr. Lodal. I'm sorry, which cases are you referring to that
    would have to go up?
        Senator Thompson. Well, if a determination is made that a
    particular export would involve matters of national security or
    should be turned down--of course, you could do anything you
    wanted to do, I assume, unilaterally--but as a practical matter
    that would work its way up through the same administrative
    process, wouldn't it?
        Mr. Lodal. Well, if it wasn't agreed at a lower level. Now,
    for communications satellites, our advice has always been
    accepted; if we felt it had a national security implications--
    there aren't any cases, I believe, that we know of, where it
    was necessary to do that, because our advice was always
    accepted, from the Defense Department.
        Senator Thompson. All right.
        Mr. Lodal. Could I just clarify one quick point here?
        It seems a little cumbersome, but in fact--I probably sign
    30 documents a day myself; our assistant secretaries do 20 or
    30, we have lots of E-mail, we see the Secretary, we see the
    Deputy Secretary every day. We, in fact, can do these things in
    a matter of hours or a day or two if we need to. And I don't
    think--Mr. Tarbell tells me he has never been overruled by his
    assistant secretary. I don't think he's ever overruled his
    analyst on these----
        Senator Thompson. Well, let's let him answer that question,
    whether or not he has ever overruled one of his analysts.
        Mr. Lodal. Sure.
        Mr. Tarbell. Yes, sir, I have overruled my analysts plenty
    of times because this is a balance of judgment that I'm paid
    for. And frankly, occasionally, my analysts will bring forth a
    case that they believe has policy merit and has policy
    considerations around it that frankly doesn't.
        Many times what will happen is that these cases will come
    for my consideration, and I will make a judgment that says,
    ``This is just not important enough at this point in time to
    bring up the line.'' And I balance that against other views
    within the Department on this matter.
        My role is to bring all of the various factors to play,
    including the advice and consideration from the Army, the Air
    Force, the Navy, and others on this matter. So I will consult
    with those people and make that judgment, and we have lots of
    conversations about this.
        The third kind of situation is a situation where this
    matter comes to my attention, and we often get in touch with
    the Commerce Department, and I make it known to them that this
    is something that we're very serious about, and we reconcile it
    on a consensus basis and try to come up with some kind of
    compromise so that we don't have to take up the time of busy
    people up the line. And in many cases, the Department of
    Commerce comes over to our side and puts in a condition, puts
    in some kind of a framework that meets our security objectives.
    In those circumstances, I think that that allows us to be at a
    standpoint that we're comfortable with the export being
    allowed.
        So that's the framework that we operate in. This is a
    situation where, at my agency, we're reviewing from the
    Commerce Department 9,000 licenses a year.
        Senator Thompson. Would there be instances, then, of those
    many instances that you referred to where you've overturned
    your analyst, where an analyst objected to a transfer and it
    never made it to the operating committee?
        Mr. Tarbell. No. It is usually then discussed, and I can't
    think of a circumstance where it was that this came up to my
    attention before it had gotten to the operating committee and
    been fully discussed interagency. This is usually after the
    Commerce Department has issued a license determination that I
    talked about, after the operating committee, to try to make a
    judgment about whether or not it is something that is important
    enough to escalate to the assistant secretary level.
        Senator Thompson. So it would be at the escalation point
    that you would in fact overrule your analyst?
        Mr. Tarbell. Yes, sir. That's a responsibility that the
    assistant secretary has----
        Senator Thompson. Well, this is obviously relevant to
    everything that we're looking at. I don't think that's the
    focus today, but I appreciate your testimony on that because as
    I understand it, DTSA is really where the rubber meets the
    road, and you and your people have to make the decision many
    times on the front end, from an analytical standpoint, as to
    whether or not this particular technology can be used or is
    probably going to be used by the person receiving it for
    military purposes, and whether or not it can be converted to
    military purposes. These are very important things, and they
    are at your level that you have that determination.
        While I've got you here, I have read or heard recently that
    DTSA is going to be changed organizationally. It's going to be
    moved within the Department of Defense from one under secretary
    to another, or that you're going to be physically relocated in
    the suburbs here somewhere. Can you tell me what the situation
    is with regard to DTSA, Mr. Secretary?
        Mr. Lodal. Certainly. We do plan to include DTSA in a
    newly-created Defense Threat Reduction Agency, which will
    involve some physical relocation of the organization as well.
        This agency will include all of the main operating elements
    in the Department of Defense that deal with proliferation and
    arms control matters, and we believe it will give us the
    ability to have some consolidated management over those issues
    that will report directly to the under secretary for
    Acquisition and Technology.
        Most of the work on a day-to-day basis that is done by DTSA
    is technical work. They have engineers, they have experts in
    various technologies who look at these cases and these licenses
    and understand ``what is this thing and exactly how is it going
    to work,'' and its engineering characteristics and so forth.
        The policy oversight, the policy questions, will remain the
    responsibility of the Under Secretary of Defense for Policy,
    even in this new organization.
        Senator Thompson. So DTSA is being removed from the Under
    Secretary for Policy?
        Mr. Lodal. Yes, and moved to the Under Secretary for
    Acquisition and Technology.
        Mr. Reinsch. I would just like to say on the record,
    Senator Thompson, that the Commerce Department had nothing to
    do with anything that has happened there. [Laughter.]
        Lest there be a suspicion.
        Senator Thompson. So you're moving DTSA from the Under
    Secretary for Policy to the Under Secretary of Acquisition?
        Mr. Lodal. Acquisition and Technology.
        Senator Thompson. And Technology. Well, that's to be
    further explored, I must say. And you are physically removing
    them from their current offices and placing them where?
        Mr. Lodal. They are in private offices now, and they will
    move to some new private offices. I guess it's near Dulles
    Airport.
        Senator Thompson. Where are they now?
        Mr. Tarbell. We're in Pentagon City.
        Senator Thompson. OK. Well, to be later discussed. I must
    say that at first blush it seemed rather strange.
        I have nothing further.
        Senator Cochran. Thank you, Senator.
        Senator Levin.
        Senator Levin. Thank you, Mr. Chairman.
        Has the Defense Department been satisfied that national
    security has been satisfactorily taken into consideration on
    each of these satellite launches?
        Mr. Lodal. Yes.
        Senator Levin. Now, if you could put up both charts, here,
    for a minute.
        As I pointed out in my opening statement, Congress received
    notice of each of these licenses in the post-Tiananmen era, and
    no Congressional action was taken relative to them, nor was any
    Congressional action taken when the items were transferred from
    the munitions list in the Bush administration, first, and about
    half of them were transferred, as I understand it, and then
    when the rest of them were transferred in the Clinton
    administration, Congress took no action at that time. Is that
    correct, Secretary Lodal?
        Mr. Lodal. To my knowledge it is. Let me turn to my
    colleague--we play a very limited role in this waiver process.
        Senator Levin. All right. Well, can somebody answer that
    question?
        Mr. Holum. That's my understanding, yes.
        Senator Levin. Now, the fact that Congress hasn't acted
    through all these years with all these notices doesn't mean
    that we shouldn't act now, and that's the question that we now
    face. Should we reverse, for instance, the decision to transfer
    the items that were transferred in 1996? Should Congress now
    say, the items which were transferred from the State Department
    munitions list in 1996 to the Department of Commerce--we didn't
    do anything then; we had notice; we had an opportunity, but
    should we do it now? Does national security now, from what
    we've learned, indicate that we should reverse that decision?
        Can we get your judgment on that?
        Mr. Reinsch. Mine would be obvious, Senator. I think it
    would be a bad thing to do. The system works as it is.
        Senator Levin. All right.
        Secretary Lodal.
        Mr. Lodal. I think it would be a bad thing to do also. I
    think it works quite well. I think particularly, with regard to
    the last thing on your list, which was the 1996 changes--which
    I might emphasize again involved not only just the transfer,
    but also some improvements that we very much wanted, such as
    the requirement for monitoring in all cases, such as the
    improved process that we've discussed here, such as the ability
    to have national security considerations in the Department of
    Commerce actions, such as the prohibitions on using the foreign
    availability appeal process for the companies--all of those
    things which were incorporated in that 1996 decision we think
    strengthened the process.
        Senator Levin. Secretary Holum.
        Mr. Holum. Yes, I agree.
        Senator Levin. So you would recommend against Congress
    transferring them back by legislation, is that correct?
        Mr. Holum. I would recommend against that, both because the
    existing process works well, and frankly, in addition, because
    we have now budgeted on the basis of that transfer of
    jurisdiction. We don't have the physical capability to do this
    now.
        Senator Levin. Well, we can correct that.
        Mr. Holum. Yes, sir.
        Senator Levin. If national security requires that this be
    transferred back, it can be transferred back, and we can
    correct the budget issue.
        Putting aside that issue, because that's not going to
    determine the outcome here--obviously, in everyone's view, I
    hope and believe, national security considerations are going to
    dominate this issue. We all believe that, I hope.
        Mr. Holum. That's correct.
        Senator Levin. The question then is, do national security
    considerations, from what we now know, require us--or suggest--
    that we should reverse that 1996 decision and put those items
    that were on the munitions list back on the munitions list?
        Mr. Holum. No, I don't believe we should.
        Senator Levin. All right.
        Now, I wrote a letter--if we haven't done this already, we
    should circulate copies of this letter--I wrote a letter both
    to the Department of Defense and to the Secretary of State
    requesting certain information, and I want to go through these
    letters now with you. We got your answers just yesterday, I
    believe.
        First, the Department of Defense answer. I'm going to read
    this letter, and then ask you a question, Secretary Lodal, a
    question about it.

        Letter referred to follow:
        ``Dear Senator Levin:
        ``I am responding to our letter of June 3, 1998 requesting
    information regarding DOD's role in the review of commercial
    communications satellite exports to China. My answers below are keyed
    to the specific questions in your letter.
        ``Question (1): For each of the export licenses issued by the Bush
    and Clinton administrations permitting Chinese launches of U.S. built
    satellites or satellite parts, including the 1998 export licenses for
    the Loral-built Chinasat-8 satellite, did the Department of Defense,
    (a) have an adequate opportunity to review national security concerns
    prior to the approval of the license and ensure the inclusion of
    appropriate technology security safeguards in the proposed license? (b)
    determine that the proposed export license would be consistent with the
    national security of the United States? (c) support the approval of the
    proposed export license?
        ``Answer:''--this is the Department of Defense first--``For those
    license requests for U.S. built satellites or satellite parts referred
    to the Department of Defense for review by the State and Commerce
    Departments since 1990, DOD has had an adequate opportunity to provide
    recommendations regarding whether the license would be consistent with
    U.S. national security, whether the license should be approved or not,
    and whether the license should include safeguards and other conditions.
    While we are still reviewing relevant records, we are not aware of any
    license having been issued since 1990 without DOD concurrence. However,
    the license record will show at least one case where DOD had
    recommended against export of some satellite parts for which the
    Department of Commerce ultimately issued a license. In this instance,
    senior DTSA officials resolved the objection satisfactorily with the
    Department of Commerce officials and it was approved with DOD's
    concurrence. The record of DOD's objection was apparently not changed
    to reflect this outcome. As for the 1998 license requests for the
    export of the Loral-built Chinasat-8 satellite, DOD conducted a
    thorough review and recommended approval on all associated licenses
    referred to DOD by the State and Commerce Departments. Our
    recommendation was subject to the application of safeguards and other
    conditions, including requirements for DOD monitoring of the satellite
    launch and associated technical meetings, and DOD review of technical
    data prior to its transfer to China.
        ``Question (2): With respect to the 1998 export licenses for the
    Loral-built Chinasat-8 satellite, was the Department of Defense aware
    at the time it was reviewing the proposed license that Loral was under
    criminal investigation for participating in a post-launch analysis of a
    failed 1996 launch?
        ``Answer: DOD was aware of these allegations at the time it was
    asked to review the export license applications for the 1998 launch of
    Loral's Chinasat-8 satellite. Those applications were reviewed
    carefully taking into account all the relevant information available to
    DOD at that time. DOD's decision to recommend approval of those
    licenses was based on the facts of those particular cases and on the
    specific safeguards required by the licenses.
        ``Question (3): With respect to each transfer by the Bush and
    Clinton administrations of commercial satellite technology items from
    the State Department's Munitions List to the Commerce Department's
    Control List, did the Department of Defense: (a) have an adequate
    opportunity to evaluate national security concerns prior to the
    transfer of the commercial satellite technology from one list to
    another? (b) determine that the proposed transfer would be consistent
    with the national security of the United States? (c) support the
    proposed transfer from the munitions list to the Commerce Control List?
        ``Answer: DOD participated fully in the interagency reviews and
    supported the final decisions by the Bush administration in 1992 and
    the Clinton administration in 1996 to transfer commercial
    communications satellites from the State Department to Commerce
    Department jurisdiction.''

        My question to you, Secretary Lodal--this was signed by
    Dave Tarbell, who is here today, as we have seen, who is the
    Director of DTSA--my question to you, though, is whether or
    not--I gather he is under your supervision or in some way
    subordinate to you. Can you tell us whether or not his letter
    to me of June 17 is accurate in every respect?
        Mr. Lodal. Yes. It seems accurate in every respect to me.
        Dave, you signed it only today, so I assume----
        I see nothing inaccurate in it.
        Senator Levin. I know what his answer would be, hopefully,
    but I wanted to ask you.
        Mr. Lodal. It looks exactly correct to me.
        Senator Levin. Now, a similar letter was written to the
    State Department, and we have received answers which are very
    similar. I am not going to take the time to read them, but
    basically the State Department has said that they supported
    approval of the export licenses that were referred to the
    Department of State, ``subject to conditions that we required
    to be placed on the export licenses.'' In answer to the second
    question they said the ``Department of State was well aware of
    the Justice Department investigation. In the spring of 1996 the
    Department of State discovered potential violations by U.S.
    firms and requested the support of the Department of Justice
    and other U.S. law enforcement agencies in investigating the
    matter fully.'' And they said in response to question three
    that ``The State Department was fully involved in these
    processes and ultimately supported all three decisions,
    including the 1996 recommendation to the President. In this
    respect, a number of specific measures were developed to deal
    with the concerns identified by the Defense and State
    Departments regarding the transfer of jurisdiction. These
    additional measures, approved by the President, formed the
    basis of State Department concurrence in the transfer of
    jurisdiction.''
        Secretary Holum, is that the position of the State
    Department?
        Mr. Holum. Yes, it is, and I reviewed this letter before it
    was sent.
        Senator Levin. Mr. Chairman, I would ask that both these
    letters be inserted in the record at this point.\1\
    ---------------------------------------------------------------------------
        \1\ The letters from DTSA and Department of State appears in the
    Appendix on page 105 and 108.
    ---------------------------------------------------------------------------
        Senator Cochran. Without objection, they will be made a
    part of the record.
        Senator Levin. And if I have time for just one additional
    question?
        Senator Cochran. You go ahead.
        Senator Levin. I would just ask this one question. This has
    to do with this 5-day issue that has been raised by Chairman
    Thompson.
        We have a two-track process that I've outlined on that
    chart, with an initial decision, and if there is a
    disagreement, then an operating committee votes. The majority
    there determines, but any member who disagrees with that
    decision then has three additional appeals.
        First of all, has there been a disagreement of that time at
    the operating committee relative to any of these satellite
    licenses?
        Mr. Reinsch. No.
        Senator Levin. If there had been a disagreement, would the
    fact that there would only be 5 days to appeal it be a
    deterrent to expressing that disagreement?
        Mr. Reinsch. In my judgment, no, Senator Levin. As a
    practical matter, the system--and by the way, the upper levels
    of this system have been in existence for more than 20 years;
    this didn't spring full-blown from somebody's brain in 1996--in
    fact, the system is a collegial one. We work together. The fact
    that 95 percent of our licenses are solved by consensus
    suggests that if someone lets us know that they are going to
    want to escalate, the train slows down to make sure that they
    have a chance to escalate. This is not an arbitrary system. If
    Mr. Tarbell calls up one of my office directors or the
    operating committee, or calls me up, which has been known to
    happen--not to complain about something, but on other matters--
    and says, ``We have a problem here and we want to escalate but
    the assistant secretary is out of town,'' we'll wait. This is
    not complicated.
        Senator Levin. And finally, on that chart, on the waiver
    issue which is the second additional step where it must go to
    the President on all of these Chinese satellites since
    Tiananmen Square, the National Security Council must make a
    recommendation before there is a waiver. Is that correct?
        Mr. Holum. That's correct.
        Senator Levin. Now, the Chairman has written a letter--we
    have jointly written a letter, I believe--to the National
    Security Council asking them whether their review process for
    that waiver is the same, whether or not the waiver comes from
    the Department of Commerce or whether or not it comes from the
    State Department. And we have not received their answer, I
    don't believe, so we will have to wait for their answer on that
    question.
        But do any of you know whether or not the National Security
    Council process--which, again, is a protective device for
    national security and must be signed off on by the President if
    they recommend it--do any of you know whether or not there is
    any difference in the National Security Council review process,
    whether or not the license recommendation comes originally from
    the Department of Commerce or comes originally from the State
    Department?
        Mr. Reinsch. To my knowledge, they are the same. The
    originator doesn't make any difference.
        Senator Levin. Do either of you have any knowledge of that?
        Mr. Lodal. No.
        Senator Levin. You don't know? Secretary Holum.
        Mr. Holum. No. I'm assuming it would be the same, because
    the issue is similar, notwithstanding the source.
        Mr. Reinsch. I would also observe, Senator Levin, there are
    no time limits on the waiver process, either. The President can
    take as long as he wants to make up his mind.
        Senator Levin. He's not bound by the 5-day rule?
        Mr. Reinsch. Well, there is no rule, and there is no rule
    for the NSC, either.
        Senator Levin. Thank you, Mr. Chairman.
        Senator Cochran. Thank you, Senator.
        During Senator Thompson's questions and the answers that
    were given to him about this process, you were all talking
    about a satellite license and the approval of a satellite
    license, and this was in connection with whether or not the
    Department of Defense had ever been overruled or had ever
    failed to agree on the issuance of a satellite license. But
    when you get down to the basics, there are a lot of other
    issues that are discussed and compromised in this process, as
    you point out. Specifically, there are conditions that are
    discussed, whether or not to have monitors, whether or not to
    have a technology control plan.
        Has DTSA ever been overruled on any of those conditions?
        Mr. Lodal. Let me emphasize--I'll ask Dave to answer this
    specific question--but let me emphasize once again that there
    is no debate on whether or not to have monitors or whether or
    not to have the technology control plan. Those are required in
    every instance since the 1996 decision. As I described, in this
    interim period after the initial 1992 decision and before
    1996----
        Senator Cochran. When you say ``having monitors,'' you're
    talking about having monitors at the launch, right? You're not
    having monitors at every stage of this process. You're not
    talking about having monitors as they had under the munitions
    list that was controlled by State, are you?
        Mr. Lodal. No, I am talking about that.
        Senator Cochran. Exactly the same kind of monitors, in all
    instances?
        Mr. Lodal. Yes, in all instances.
        Senator Cochran. OK.
        Mr. Lodal. Exactly. All conversations, for example; all
    documents passed have to be approved by----
        Senator Cochran. All discussions that take place on
    technical subjects between U.S. companies and foreign
    companies?
        Mr. Lodal. That's correct.
        Senator Cochran. OK.
        Mr. Lodal. So there is no debate about whether to have
    them.
        Now, the exact plan for how they're going to carry it out
    and how they're going to do the transportation and all that,
    can differ, I presume, but let me ask Mr. Tarbell to speak to
    that.
        Mr. Tarbell. When we have a monitoring requirement that is
    placed on a license, that monitoring requirement is placed on
    the exporter, and then we have a relationship with the
    exporter. The relationship is in several different manners.
    That relationship is, they have to provide us with the
    technology transfer control plan. That plan, we work with them
    on; there are several iterations of it. They can't proceed
    without our approval of that plan, and that plan incorporates
    all of the provisions that we've talked about--the
    transportation plan, the operational security plan at the
    launch site, and requirements for us to be there when they are
    engaged in technical meetings with the launch service provider
    in China, or in the United States with the Chinese launch
    service provider.
        In addition, technical data that is covered by the license
    has to come through my organization for review prior to its
    transfer to the Chinese launch service provider so that we can
    ensure that there is no launch vehicle technology associated
    with that. And that's the current system, as it now exists
    today, and that's the way it is on all the licenses that have
    been approved since the 1996 change.
        Senator Cochran. Let me ask Secretary Reinsch about the
    briefing that was given to our staff on May 29. Again, Jim
    Lewis of your staff said that it is now becoming a requirement
    to have DOD monitors and a technology transfer control plan for
    all launches in China.
        What has caused your now moving toward making these
    safeguards a requirement? Why didn't you think these safeguards
    were necessary from the earliest days of this new process?
        Mr. Reinsch. Well, let me say two things about that.
        First, the impetus for making the requirements as parallel
    as possible came in the process which Mr. Holum and Mr. Lodal
    and I have described, which was the transfer of jurisdiction
    process in 1996. And in the post-1996 period is when these go
    into effect.
        It is important, though, to keep in mind that in looking
    back at the 1992 and 1993 transfer of some satellites to the
    Department of Commerce pursuant to the process that Mr. Holum
    described, in that process it was defined very clearly in
    regulation, and it is still defined very clearly in regulation,
    what kind of technology the Commerce Department is authorized
    to license for one of these exports, and both the State and
    Commerce Departments have published regulations that specify
    this, and it is what is known as form, fit, and function
    technology, the technology that relates to the mating of the
    satellite to the rocket.
        A satellite rocket--this is what we license. Anything that
    has to do with this, they license it.
        Senator Cochran. You're referring to the missile, for the
    record? The record can't see what you're doing.
        Mr. Reinsch. I'm sorry. I just wanted to illustrate the
    difference between the satellite and the rocket.
        When we are in a situation in which either we determine--
    ``we'' meaning the agencies, not specifically the Commerce
    Department--or the applicant determines that in order to have a
    successful launch he needs to transfer more technology to the
    launch provider than the form, fit, and function information
    that I described, then he is required to go to the State
    Department to get an additional license for that additional
    technology.
        I would also say in passing that our licenses also
    specifically include a requirement that in the event of launch
    failure, the exporter must go to the State Department and
    obtain an additional license to address any kind of technology
    transfer that would go on in the aftermath of the launch
    failure.
        As Mr. Lodal pointed out in his testimony, prior to 1996
    there were some launches in which there was no technology
    involved in the export other than that technology of form, fit,
    and function, which we are authorized to license. In those
    cases, those licenses were reviewed by the State Department and
    the Defense Department just like all the other ones, but in
    those cases there was no additional State Department license
    required. There was no TAA required because there was no
    technology beyond that which we could license required. And in
    those cases, prior to 1996, our requirements might have been
    slightly different.
        Senator Cochran. Thank you.
        We have a vote on the Floor of the Senate on the Energy and
    Water Appropriations bill, the final passage, so I'm going to
    yield to Senator Collins for such time as she would like to
    consume. I'm going to go over there and vote and leave this
    under her chairmanship, and I will return.
        Senator Collins [presiding]. Thank you, Mr. Chairman.
        Secretary Reinsch, you had described the current export
    control process one in which each department brings a different
    perspective to the table: the Department of Defense brings
    national security concerns, and the State Department raises
    foreign policy concerns, and so forth.
        In your view, what does the Department of Commerce bring to
    this table?
        Mr. Reinsch. Well, first of all, we all bring all the
    concerns to the table. I would say that the first thing that
    the Commerce Department always looks at is national security.
    The other thing we bring to the table is commercial
    considerations. These are dual-use items. If you think about
    some of the non-satellite items I mentioned, you're talking
    about large volume and billions of dollars that are involved,
    not to mention jobs. We think these are relevant considerations
    that need to be weighed, along with the other factors.
        Senator Collins. Since the Commerce Department does not
    traditionally have a national security role, isn't the primary
    reason that you're involved in this process to bring the
    commercial perspective to the table? I'm not necessarily saying
    this in any critical way, but isn't that why you are involved
    in the process? Otherwise why wouldn't it just be the
    Department of Defense and the Department of State?
        Mr. Reinsch. Well, first of all, we view ourselves as an
    atypical part of the Commerce Department, if you will. We
    operate--most of my licensing officials operate in secure
    space. Everybody in the Bureau of Export Administration has a
    security clearance, which is anomalous in the Commerce
    Department. We operate sort of as a--we clearly are within the
    Department; I don't want to suggest that we're independent, but
    we operate in some ways that the other parts of the Department
    don't operate.
        But at the same time, you make a valid point. The history
    of this, as I said, going back 40 years--almost 50 years now--
    is that what we're talking about here are dual-use licenses,
    licenses for commercial items that, by and large, have civil
    application but may have military application. In the mid-
    1980's this Bureau was processing 120,000 to 150,000 licenses
    per year, many of which had direct commercial consequences--not
    so much to the nature of our decision; obviously if we said no,
    it would have commercial consequences because they couldn't
    sell it. But the timing has commercial consequences. If an
    exporter cannot get an efficient answer from the government, he
    loses. And it has been successive administrations' view that
    the Commerce Department is best equipped to run a process that
    provides timely responses. The process from the beginning has
    involved other agencies; it was only in this administration
    that we gave them the right to see anything they wanted to see.
    Our statute, incidentally, does not give them the right to see
    everything that they want.
        Senator Collins. I understand the important role that the
    Department of Commerce plays in bringing commercial concerns to
    the table, and I think it's a completely legitimate role. But
    since we all agree that national security has to be the No. 1
    concern, it seems strange to me to have the authority to run
    the whole process vested in a department the No. 1 concern of
    which, the mission of the department, is not national security.
        Mr. Reinsch. Well, my suggestion would be--I'd like to say
    that it's vested in our department because we're good at
    running this process. We're good at interfacing with exporters.
    Oftentimes what we have discovered is that an application, a
    piece of paper, doesn't tell the whole story. We need to put
    people together. We need to get the Navy's engineers together
    with our engineers to have a discussion. We are good at putting
    those things together.
        What you might want to do, if you want to pursue this, is
    talk to exporters, in your State or elsewhere, who have
    experience with our system and who have experience with the
    State system for munitions, and ask them what the differences
    are and ask them how they feel about it, and ask them what kind
    of system they think is necessary for them to do legitimate
    business where there aren't any national security implications.
        Senator Collins. Secretary Holum, could I ask you to pull
    out the letter to Senator Levin again, if you have that in
    front of you, the June 17 letter? Do you have that?
        Mr. Holum. Yes, I have it.
        Senator Collins. I just want to follow up on one of the
    answers that you gave. It's on page 1, where Senator Levin
    asked you for each export license or waiver issued regarding
    the Chinese launches of U.S.-built satellites, and then asked
    you whether the State Department supported approval.
        Your answer seems to me to be very carefully worded, and I
    just want to make sure that I understand your answer fully.
    Your answer is that ``The Department of State supported
    approval of those export licenses that were referred to the
    Department of State and were ultimately approved, subject to
    conditions that we required be placed on the export licenses,''
    right?
        Mr. Holum. Yes.
        Senator Collins. Just to make sure I understand the
    process, were there any export licenses that weren't referred
    to you?
        Mr. Holum. Not that I'm aware of.
        Senator Collins. Were there any where there was a
    disagreement or resistance to conditions that the Department of
    State wanted placed on the licenses?
        Mr. Holum. No. Again, not that I'm aware of.
        Senator Collins. Could you identify yourself for the
    record?
        Mr. Barker. John Barker, Deputy Assistant Secretary for
    Export Controls.
        In response to your question, I was probably one of the
    people responsible for the wording of that letter. One of the
    things that we do, as you can appreciate, on these licenses--
    these things are very complicated, and we debate and argue
    conditions back and forth. We oftentimes ask for conditions to
    be placed on the licenses. We are not aware of any problems in
    that particular process.
        We are also going back through our files to make sure that
    all of the conditions that we asked to be placed on licenses
    truly were placed on licenses. Again, I'm not aware of any
    problems, but we're going back through our files just to make
    certain that everything was done correctly.
        Senator Collins. That was going to be my next question
    because you say that you're still reviewing your files. I
    assume that you will provide information to this Subcommittee
    if your review finds that there were cases where you either had
    an inadequate opportunity to review, or there was disagreement,
    or there was a condition that you asked for that was not
    ultimately attached?
        Mr. Holum. We will do so, yes.
        Senator Collins. Thank you. Senator Levin.
        Senator Levin. Thank you.
        Two quick questions. The GAO identified three safeguards in
    the licensing process that are mandatory under the State
    Department process, but which they said were optional for the
    Commerce Department process: Technology transfer plans, DOD
    monitors, and technical assistance agreements. Were they right,
    or are they mandatory for both?
        Mr. Lodal. They are mandatory under our 1996 procedures.
        Senator Collins. Excuse me. Could I just interject?
        Prior to 1996, were they mandatory?
        Mr. Lodal. No, they were not. I know it's a little bit
    confusing; frankly, it took us a little while to sort it out.
        Senator Levin. I meant since 1996, and the Executive Order
    of 1995, plus the action taken----
        Mr. Lodal. The Executive Order of 1995, and then the
    elaboration----
        Senator Levin. That's exactly right, but GAO was referring
    to current. They weren't talking about pre-1996. They were
    talking about post-1996, and what you're saying is that they're
    wrong?
        Mr. Reinsch. Yes.
        Senator Levin. Next, do you believe, any of you, that there
    has been any instance in which a launch by China, or any other
    foreign nation, of a U.S. commercial satellite has resulted in
    harm to U.S. national security since the beginning of the
    Reagan decision, through President Bush and up to the present
    time?
        Mr. Holum. Setting aside the investigation that is
    currently underway regarding post-launch activities, we do not
    believe that any launch of a commercial satellite under this
    policy since 1988 has resulted in a transfer of significant
    technology or assistance to the Chinese, either in space launch
    vehicle capabilities or missile capabilities.
        Senator Levin. Do you agree with that, Secretary Reinsch?
        Mr. Reinsch. Yes, Senator Levin.
        Senator Levin. Secretary Lodal, do you agree?
        Mr. Lodal. I agree. We're not aware of any situation in
    which such transfer harmed U.S. security.
        Senator Levin. Madam Chairman, thank you.
        Senator Collins. We will take a brief recess so that
    Senator Levin and I can vote.
        [Recess.]
        Senator Cochran [presiding]. The Subcommittee will please
    come to order.
        I have just been advised that the Senate is now going to
    turn to the consideration of the Agriculture Appropriations
    bill on the Floor of the Senate, and I'm the manager of the
    bill. It appears, therefore, that I will not be able to
    continue to chair this hearing today, and rather than to
    presume that some other Senator might want to have that
    pleasure, I'm going to suggest that we recess the hearing and
    that we reconvene the hearing at a later date at the
    convenience of all Senators and our panel.
        There are some other questions that I would like to ask,
    specifically about the process and the implications of the
    changes that have been made in export control policies and
    procedures over the last few years in this administration. We
    have information, for example, from some of the companies that
    have been involved in satellite exports, telling us that there
    have been ambiguities, there have been uncertainties, and we
    were going to display some charts showing some of the
    differences that had occurred as a practical matter between the
    processes and the results of the processes in this
    administration as compared with past administrations. And we
    would have had an opportunity to discuss those; there may very
    well be answers to some of our questions and concerns, and I'm
    sure there are going to be responses--whether they will be
    answers or not to alleviate our concerns, remains to be seen.
        But let me just say how much I appreciate the cooperation
    of our panel today, your being here and presenting evidence and
    information that has been very helpful to the Subcommittee.
    These are serious questions, as I think the attendance and
    participation of other Senators has indicated. We have a lot of
    interest in making sure that whatever policies and procedures
    we have in place protect our national security, as well as
    promote our other interests, which are legitimate and very real
    and very important as well.
        Having said that, let me announce, then, that this hearing
    will stand in recess and we will reconvene at another date.
        [Whereupon, at 4:15 p.m., the Subcommittee was recessed, to
    reconvene at the call of the Chair.]

         THE ADEQUACY OF COMMERCE DEPARTMENT SATELLITE EXPORT CONTROLS

                                  ----------

                            WEDNESDAY, JULY 8, 1998

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

                  OPENING STATEMENT OF SENATOR COCHRAN

        Senator Cochran. The Subcommittee will please come to
    order.
        The Subcommittee meets today to continue a hearing which we
    began on June 18, reviewing the export controls that are
    administered by the Departments of Commerce, State, and
    Defense, in connection with the exporting of dual-use
    technologies and equipment that can be used for civilian
    purposes as well as military purposes.
        We are pleased to have returning to testify today two of
    the witnesses who were at the earlier hearing, Secretary
    Reinsch and Secretary Holum, representing the Departments of
    Commerce and State.
        Because the subject matter relates to matters of national
    security, I am going to exercise my prerogative as Chair of the
    Subcommittee to administer oaths to the witnesses who will be
    testifying today. And I want to say that I make no judgment, in
    doing that, on the veracity of the witnesses, but simply to
    underscore the seriousness of these issues.
        So if you will please stand and raise your right hand.
        Do you solemnly swear that the testimony you will give
    before this Subcommittee will be the truth, the whole truth,
    and nothing but the truth, so help you, God?
        [All witnesses answer in the affirmative.]
        Senator Cochran. Thank you. You may be seated.
        In our last hearing we were talking in some detail about
    the specifics of the licensing process, led by the Department
    of Commerce, for exporting satellite and other technologies,
    particularly with respect to the launching of U.S.-made
    satellites on Chinese rockets. And obviously there had been a
    period of time when this process and the procedures had
    undergone some changes. Witnesses talked about the differences,
    for example, between the Bush Administration rules and
    procedures and the Clinton Administration rules, and an
    Executive Order that was issued by the Clinton Administration
    that substantially modified these procedures.
        I would like, if we could, to put this all in perspective,
    and as a windup for the hearing, to call on Secretary Holum to
    briefly describe that as background, if he can, so that we may
    then proceed to talk about some of the technology safeguards
    that are in place now, the specifics, and the adequacy of these
    safeguards to protect American security interests.
        Secretary Holum, could you do that for us in a brief
    statement?

      TESTIMONY OF HON. JOHN D. HOLUM, ACTING UNDER SECRETARY FOR
    ARMS CONTROL AND INTERNATIONAL SECURITY AFFAIRS, U.S DEPARTMENT
                                OF STATE

        Mr. Holum. I will. Do you want me to go back to 1993?
        Senator Cochran. That would be a good starting point.
        Mr. Holum. Basically, the Bush Administration had begun the
    process of transferring part of the jurisdiction over
    commercial satellite launches from the Department of State to
    the Department of Commerce. The Clinton Administration, in
    1993, came into office while that process was underway, and
    after some further review adopted intact what the Bush
    Administration had recommended. That transferred a substantial
    volume of satellite launches from the State Department to the
    Department of Commerce. It reserved to the State Department a
    number of technologies associated with space launches, nine
    separate categories. In 1995, a further process was undertaken,
    initiated by Secretary Christopher, and received
    recommendations from an interagency group that further
    narrowed--but did not eliminate--the State Department's
    jurisdiction.
        That adjustment was not agreed to by the Department of
    Commerce, which exercised its right of appeal to the President.
    That led, in turn, to a further interagency process and an
    outcome under which Secretary Christopher and the Department of
    State, as well as all other agencies, concurred in the transfer
    of most remaining commercial satellite-related transactions to
    the Department of Commerce.
        Senator Cochran. Could I interrupt and just ask one
    question for clarification at that point?
        When the State Department had the responsibility for
    issuing the licenses, the commodities involved--the equipment,
    the technologies involved--were on a so-called Munitions List,
    a State Department Munitions List.
        Mr. Holum. Right.
        Senator Cochran. Did that Munitions List cease to exist
    after the introduction of the new procedures by the Clinton
    Administration?
        Mr. Holum. No, the list continues to exist. The difference,
    as I understand it, is that under the Commerce Department rule,
    under this new procedure which was approved by all the
    agencies, if those specified items that previously had required
    a license from the Department of State are imbedded in the
    satellite so that there is no access to them by the customer,
    and they are launched into space, then they do not require a
    State Department license. But if they were to be sold
    separately, they would still require a license from the
    Department of State.
        In addition, anything that would be termed ``Defense
    services''--for example, services related to the launch
    vehicle--would require a license from the Department of State
    and would be very unlikely, in the case of China, to be
    granted.
        Senator Cochran. One other thing that I recall hearing, and
    it may have been from the last hearing, was that the Department
    of Defense was called upon under some circumstances to provide
    monitors who would be present at various stages of the
    transaction in the launch of a satellite, for example.
        Mr. Holum. That's correct.
        Senator Cochran. And I am also further told that when the
    State Department had the responsibility for issuing these
    licenses, that DOD monitors were required in each instance when
    a satellite was being launched by China. Is that your
    recollection?
        Mr. Holum. That's correct, and that's also the case now.
    There was a period between the 1993 decision and the 1995
    decision in which some launches did not have Department of
    Defense monitors, but under the current system--even under
    Commerce Department licenses--the launches require Defense
    Department monitors.
        Senator Cochran. You may be able to help us to understand
    this, but I'm going to ask if our staff will put up a couple of
    charts we have that are based on information provided by the
    industry which show that every license issued by the State
    Department for satellite launches in China required a full
    range of technology safeguards, and these are all listed here,
    one of which is a ``TAA'' from the State Department. Could you
    describe for us what a TAA from the State Department is? \1\
    ---------------------------------------------------------------------------
        \1\ The charts referred to appear in the Appendix on page 113-114.
    ---------------------------------------------------------------------------
        Mr. Holum. Yes. That's a Technology Assistance Agreement,
    and it basically is the license covering the technical
    assistance related to the launch.
        Senator Cochran. And the TTCP is Technology Transfer
    Control Plan?
        Mr. Holum. Right.
        Senator Cochran. A Technology Transfer Control Plan.
        Mr. Holum. That's what the industry provides to give the
    government assurance that the technology will be protected.
        Senator Cochran. And the DOD monitors you have mentioned,
    as being required up through--or until--1993.
        The chart on the right is an example of requirements that
    were imposed by the Commerce Department when it assumed
    responsibilities--I believe in January 1994. And the difference
    is that in certain transactions, in terms of restrictions or
    requirements for monitors, the Technology Transfer Control Plan
    and the Technology Assistance Agreement--it seems that there
    were several instances when there was no requirement for some
    of these safeguards when satellites were launched in China.
        Could you give us your impression, Secretary Holum, about
    whether or not this represents a substantial difference, as a
    practical matter, in the licensing and the safeguarding of
    technology transfers under the Commerce Department as compared
    to the time when the State Department had the principal
    responsibility?
        Mr. Holum. Well, Senator, I would have to cross-check your
    records against our records. This is the first time I have seen
    this chart, so it is hard to comment on it intelligently and
    comprehensively. But as I said with respect to monitors
    specifically, there was a period of time after the transfer to
    the Commerce Department when some of these requirements were
    not included.
        Senator Cochran. Well, let me turn now to Secretary
    Reinsch, and specifically ask about the Hughes Corporation
    licenses that were issued by the State Department. Over here on
    the lefthand side of the State Department chart there is an
    APSTAR II Model 376 satellite, the next to the last line on
    that chart, and it shows the license was issued April 5, 1993.
        My question is whether or not the Department of Commerce
    issued another, different export license for a newer and more
    advanced satellite that Hughes launched, which was an APSTAR
    Model 601, and whether the same kinds of restraints were
    imposed on the APSTAR II Model 601 as were imposed on the
    APSTAR II Model 376, and if they were different, why were they
    different?

     TESTIMONY OF HON. WILLIAM REINSCH, UNDER SECRETARY FOR EXPORT
              ADMINISTRATION, U.S. DEPARTMENT OF COMMERCE

        Mr. Reinsch. Well, let me say first, Mr. Chairman, that
    despite our conversation 2 weeks ago and your assurances that
    your staff would provide these charts to us in advance, this is
    the first time that I have been able to review them, and I
    would like to have the opportunity to review them in some
    detail.
        Clearly, from looking at them, I would note just in passing
    that I think there are some differences of fact, at least with
    respect to some points, which we can get into if you want, just
    at first glance.
        But looking at them, I would simply observe that the second
    item on the Commerce Department chart is a Hughes APSTAR
    license, which was granted for a different model number.
    Whether it's a more advanced one or not is something that I
    would have to consult with our technical people about. It's
    obviously a different model.
        The license, as with all of ours, as I've testified--we've
    all testified on the previous occasion--was approved by all
    three of the agencies in question.
        Senator Cochran. Is it correct to say that even though the
    State Department had granted a technical license and had
    required a Technology Transfer Control Plan and monitors for
    the APSTAR II, because of the missile proliferation sanctions,
    that that transfer was held up, and then the Commerce
    Department licensed the Model 601 APSTAR II, requiring no
    Technology Assistance Agreement, no Technology Transfer Control
    Plan, and no DOD monitors? My question is, why would that be
    possible?
        Mr. Reinsch. It was possible because the company
    representative--I can speak with respect to our case, not with
    respect to the State Department case--the company
    representative and the agencies agreed initially in the license
    that the technology that would be transferred as part of the
    launch was within the form, fit, and function limitations that
    the Commerce Department was permitted to license at that time,
    and that the company did not propose to transfer technology
    that went beyond that; and that, therefore, other licenses were
    not required from other agencies. And some of the attendant
    features were not required, as well.
        Now, the license in question did not, in contrast to some,
    require DOD monitors. The technology agreement that we have
    bilaterally with the Chinese requires both the Chinese and the
    company to accept a U.S. presence throughout the entire launch
    cycle, if you will. So the monitors would have been accepted,
    had they gone.
        I think the Defense Department has testified here, and
    certainly in the House, that there were three circumstances--
    and I think you have five here, which is one thing we should
    explore when we have a chance to review these in more detail--
    but Defense has testified that there were three launches,
    according to their records, where there were no monitors, not
    five. One of those cases is the Hughes APSTAR II that you are
    referring to.
        Senator Cochran. One of the officials from Hughes, I
    assume, will be worked into one of our later hearings, and we
    can confirm this with testimony from the company. But we were
    advised that this 601 model that was licensed in 1994 is larger
    and more powerful, and that there was no real explanation for
    why there weren't any technology safeguards for the newer and
    more powerful satellite.
        Mr. Reinsch. Mr. Chairman, the technology safeguards in
    question relate to the technology that would be transferred--
    that would not be transferred, or would be--to the Chinese,
    that is part of arranging for the launch. Most of that
    technology has to do with the interface between the satellite
    and the launch vehicle itself.
        The sophistication of the satellite and the characteristics
    of the satellite are not really at issue in terms of the
    technology safeguards.
        Senator Cochran. Let me go to another subject, and this
    will be my final issue to explore with you, and I will then be
    glad to yield to my colleagues for any questions that they
    have.
        When the APSTAR II launch failed in January 1995, it is my
    understanding that the Commerce Department authorized Hughes to
    conduct a launch failure analysis. As a Defense service, which
    was described by Secretary Holum as something that at one time
    required a license from the State Department, was this
    considered a service that should be licensed by the State
    Department? Or did the Commerce Department have the authority
    to issue a license for this purpose to Hughes?
        Mr. Reinsch. Following the launch failure, Mr. Chairman, as
    you noted, Hughes undertook an analysis in order to satisfy
    insurance requirements, which they provided the Commerce
    Department. The Commerce Department, at that time, determined
    that the analysis did not contain information that exceeded the
    scope of the approved the Commerce Department license. The
    Commerce Department authorized release of the analysis, which
    subsequently was provided to a consortium of western insurance
    companies and to the Chinese launch service provider.
        Upon further review, while we do not believe that the
    analysis in question contained information specific to the
    launch vehicle or the satellite, and that its release to the
    insurance companies and to the Chinese was appropriate and
    without risk to national security, we have concluded that the
    better course of action would have been to refer it to the
    State Department for review.
        Senator Cochran. Is it now the current practice in licenses
    to state explicitly that launch failure analysis investigations
    can proceed only pursuant to a State Department license?
        Mr. Reinsch. Yes, it is.
        Senator Cochran. And the Commerce Department does not now
    have the authority to issue a permit for the conduct of a
    launch failure analysis, is that correct?
        Mr. Reinsch. We built into our licenses a condition that
    says that in the event of that happening, they have to go to
    the State Department.
        Senator Cochran. If the Commerce Department does not now
    have this authority, what authority did it have when it
    permitted the analysis investigation to proceed on APSTAR II in
    1995?
        Mr. Reinsch. The licensing officer at the time made the
    judgment that the information that was contained in the
    analysis did not exceed the terms of what was authorized by the
    license that had been granted. So accordingly he authorized its
    release.
        Senator Cochran. Did any Commerce Department official, to
    your knowledge, review the APSTAR II launch failure analysis
    report before Hughes provided it to Chinese officials?
        Mr. Reinsch. Yes, Mr. Chairman, that's exactly the point
    I'm making. They gave it to us in advance and asked us for
    permission to release it. We provided that permission.
        Senator Cochran. Was any other department given the
    opportunity to review it? Or were they consulted in any way
    before the Department of Commerce allowed it to be transferred
    to the Chinese?
        Mr. Reinsch. No, sir.
        Senator Cochran. Has any copy of the report yet been
    provided to other agencies or departments, specifically to the
    Department of Defense?
        Mr. Reinsch. Yes.
        Senator Cochran. When did this occur?
        Mr. Reinsch. Today.
        Senator Cochran. I want to ask you if you have been
    directed by anyone in the administration to turn that report
    over to the Department of Defense, and if so, who was it who
    directed you to do that?
        Mr. Reinsch. We weren't directed. We were happy to turn it
    over. We needed to consult with the Justice Department to
    determine whether or not they had a concern about that because,
    you will recall, there were some concerns expressed with
    respect to other documents with respect to a different launch
    failure. So the Justice Department was consulted and they had
    no objection. We were happy to turn the document over.
        I would note also, Mr. Chairman, that I believe the
    document is encompassed in the request from Senator Lott and
    Senator Thompson, so it either has been or will be provided to
    this Subcommittee as well.
        Senator Cochran. Isn't it a fact that the National Security
    Council staff directed you just yesterday to provide the report
    to the Department of Defense for its analysis?
        Mr. Reinsch. Well, I take issue, Mr. Chairman, with the
    term ``directed.'' We had a discussion; the consensus of all
    the agencies, including my own, was that that was the right
    thing to do, and we were happy to do it. We have no objection;
    we didn't have any objection; we didn't have any objection in
    the past. We did want to consult with the Justice Department.
        Senator Cochran. I have no other questions of the
    witnesses.
        Senator Levin.

                 OPENING STATEMENT OF SENATOR LEVIN \1\

        Senator Levin. Thank you, Mr. Chairman.
    ---------------------------------------------------------------------------
        \1\ The prepared statement of Senator Levin appears in the Appendix
    on page 111.
    ---------------------------------------------------------------------------
        Am I correct that the Department of Defense performs the
    same function for both State and Commerce Department's license
    applications in determining whether a proposed license
    adequately protects the U.S. national security?
        Mr. Reinsch. That's the advice they give us. I'll have to
    defer to Mr. Holum.
        Mr. Holum. Yes. We rely on the Department of Defense for
    national security determinations. That might be better put to
    Mr. Miller.
        Senator Levin. Well, we will, but you rely on them also?
        Mr. Holum. Yes. They are part of our process, and
    currently, as I think I noted in the previous hearing, some 95
    percent of our licenses are referred to them for review.
        Senator Levin. In the last hearing that we had on this
    subject, we wanted to know more about the waiver process that
    was put into place after Tiananmen Square, the process that is
    in place for approving satellite exports to China, and
    particularly our interest was whether the National Security
    Council analysis is the same, if the licensing agency is the
    State or the Commerce Department. And so the Chairman and I
    sent a letter to the National Security Council asking that
    question, because this is a very technical and a very
    complicated issue involving many considerations. When we look
    at whether or not the licensing should be with the Commerce
    Department, should be with the State Department, should go back
    to the years before President Reagan, indeed, when we didn't
    have satellites being transferred at all to be shot up in
    Chinese rockets, whether we ought to go back to a blended
    approach where some satellites were on the State Department
    list and some satellites were on the Commerce Department list.
    Whether we ought to make any changes or not, it seems to me, is
    a relevant issue and we ought to address that issue. Congress
    has had many, many opportunities to make these changes, had it
    so chosen, in the last few years. We've been given notices of
    these launches, of these transfers, and have taken no action
    whatsoever. We've been given notice of the transfer of
    satellites from the State Department to the Commerce Department
    and took no action whatsoever, but nonetheless it is still
    relevant whether or not Congress should act in this area.
        But whatever conclusion we reach, we still have a waiver
    process in place as it relates to satellites which are going to
    be using Chinese rockets, and that waiver process has been in
    place since Tiananmen Square. And what's critically important
    to us is, since we have that backup waiver process which
    applies whether or not a license came through the State
    Department or through the Commerce Department, is the waiver
    process the same regardless of whether the license was a
    Commerce Department-originated license or a State Department-
    originated license?
        So we wrote the NSC a letter, asking them that question.
    This is what Mr. Berger's response was to the Chairman and
    myself; I think we both got the same letter. I will ask that
    the letter--which is addressed to the Chairman--be put in the
    record.\1\
    ---------------------------------------------------------------------------
        \1\ The letter from NSC to Senator Cochran, dated June 22, 1998,
    appears in the Appendix on page 130.
    ---------------------------------------------------------------------------
        Senator Cochran. Without objection, it is so ordered.
        Senator Levin. Here's what Mr. Berger says: ``Once the
    waiver recommendation reaches the National Security Council
    staff''--again, there cannot be the use of a Chinese rocket
    without a waiver, is that correct?
        Mr. Reinsch. That's correct.
        Mr. Holum. That's correct.
        Senator Levin. Once there is a recommendation that reaches
    the National Security Council staff, ``the process followed for
    granting the waiver is the same, regardless of which agency
    recommended the waiver, the State Department or the Commerce
    Department. The national interest waiver standard''--I am now
    continuing this letter--``requires that the President take into
    account a broad range of interests. The most important interest
    is U.S. national security. The National Security Council staff
    confirms that these interests have been addressed in the course
    of the Defense and State Department's review of the license
    application. This includes consideration of how the proposed
    satellite export will compliment our ongoing efforts to
    encourage more responsible Chinese nonproliferation behavior.
    The President also considers foreign policy interests affected
    by the satellite project, such as promoting more open lines of
    communication to the Chinese people and advancing our policy of
    engagement with China. Finally, the U.S. economic interest in
    the project is considered; for example, whether granting the
    waiver will support the competitiveness of the U.S. commercial
    satellite and telecommunications industries.''
        Now, is that description consistent with your experience?
    We don't have Mr. Berger here, we have his letter, so now I
    will ask you two, is that description by the National Security
    Advisor, Mr. Berger, consistent with your experience?
        Mr. Holum.
        Mr. Holum. Yes, it is.
        Senator Levin. Mr. Reinsch.
        Mr. Reinsch. As far as I know, yes, Senator.
        Senator Levin. All right.
        I just want to ask you a few questions about who owns these
    satellites.
        Does the ownership of the satellite transfer--change--
    before that satellite is in orbit?
        Mr. Reinsch. Normally, ownership transfers after it is
    successfully placed into orbit.
        Senator Levin. So the owner of the satellite--let's say the
    Chinese own a satellite--that ownership does not occur, as far
    as you know, until the satellite is successfully placed into
    orbit?
        Mr. Reinsch. And operating, yes.
        Senator Levin. And operating?
        Mr. Reinsch. Yes.
        Senator Levin. And until then, the ownership remains with
    whoever the producer of the satellite was? Is that correct?
        Mr. Reinsch. As I understand it, yes.
        Senator Levin. So the physical possession of the satellite
    remains in the producer of the satellite while it is on the
    ground, is that correct?
        Mr. Reinsch. Yes.
        Let me say, Senator, that the parties could negotiate
    whatever terms they want, but the terms that you have just
    described are the ones that, as far as we know, are generally
    those that are negotiated.
        Senator Levin. Now, prior to the President's Executive
    Order of 1996, as I understand it, DOD monitors were required
    in some cases, and in other cases, not, is that correct,
    depending on whether or not the satellite was on the Munitions
    List and had certain features?
        Mr. Reinsch. Well, Senator Levin, it's a bit more
    complicated than that. You can see, even from this chart, that
    there were a number of circumstances in which monitors attended
    licenses launched by the Commerce Department, so it would not
    be correct simply to say that the Commerce Department didn't
    require monitors and the State Department did. In a number of
    cases we required monitors, too. It depended on the license,
    which had a lot to do with both the time--as things have moved
    on, what we have tried very hard to do and have virtually done
    now in the post-1996 period, is develop standard conditions
    that would be applied in every case so that we don't have to go
    through this negotiation every time.
        Generally speaking, what the Commerce Department did in the
    early days was to accept the license conditions that were
    requested by the other agencies. Sometimes those conditions
    were more strenuous than other times, or more onerous.
        Senator Levin. Since the Executive Order of 1996, however,
    is it not true that DOD monitors have been present with every
    launch?
        Mr. Reinsch. That's correct, yes.
        Senator Levin. So the Executive Order tightened up the
    controls in terms of requiring a monitor at every launch,
    whereas before that Executive Order there were some launches
    where monitors were present or required, and in some cases they
    were not. Is that correct?
        Mr. Reinsch. That's exactly correct, Senator Levin. Our
    view is that what the President did in 1996, he substantially
    improved the process, tightened it up. In fact, it was those
    tightenings and changes that permitted all three of the
    agencies to agree on transfer, because the State Department and
    the Department of Defense were satisfied that adequate
    safeguards were being put in place.
        Senator Levin. Mr. Chairman, the only other request that I
    have at this point is that we do give these witnesses an
    opportunity to review the charts, which apparently they were
    denied an opportunity to review prior to the hearing--despite
    their request, as I understand their testimony--and that they
    then give us any corrections that they might have for the
    record so that we could give them the opportunity to review the
    specifics of what looks like a pretty complicated chart. So I
    would make that request, that they be given that opportunity.
        Senator Cochran. Without objection, that will be done.
        Senator Levin. Thank you, Mr. Chairman.
        Mr. Reinsch. May I ask, Senator, that we ask the Defense
    Department to do that as well, since the last column really is
    theirs?
        Senator Cochran. We will ask the Defense Department, as
    well.
        Mr. Reinsch. Thank you.
        Senator Cochran. Senator Cleland, Senator Levin has
    concluded his questions and I am happy to yield to you.

                  OPENING STATEMENT OF SENATOR CLELAND

        Senator Cleland. Thank you very much, Mr. Chairman.
        Thank you all, gentlemen, for being here today and thank
    you for helping us in better understanding some of these
    procedures.
        Secretary Holum, I understand the House has already passed
    amendments to the fiscal year 1999 Defense authorization bill
    to ban the launch of U.S.-built satellites on Chinese rockets.
    I gather you would be opposed to that posture, I guess on the
    basis that it violates our policy of engagement, which I think
    the President articulated very well when he was there in China.
        Is there anything else you would like to say along those
    particular lines about that particular House action?
        Mr. Holum. I would, Senator, and I would focus in
    particular on our efforts to deal with what I take to be--and
    accept to be--the dominant interest of this Subcommittee in
    pursuing these hearings, and that is the prevention of
    proliferation of weapons of mass destruction, and particularly
    missile technology. This is something on which there is no
    argument among us; we may have some differences of tactics and
    methods, but this is a very high priority interest of the
    administration, as it is of this Subcommittee.
        One of the efforts that I and many of us have been heavily
    involved in over the last 5 or 6 years has been to engage the
    Chinese in an effort to restrict their exports of missile
    technology, which is a very large problem. China is
    indispensable to the solution of the missile proliferation
    problem. We have made some headway; we have made that through a
    combination of methods, including diplomacy, including
    sanctions in 1993, including the possibility of sanctions
    throughout this period, but also through engagement.
        It is my strong belief that this satellite launch
    possibility creates incentives and holds the possibility of our
    making further progress with China. If we don't have China's
    cooperation, then we can't have a fully successful effort
    against missile proliferation. We need their cooperation, and I
    think we're making considerable headway to get it. They have
    basically adopted the Missile Technology Control Regime rules
    on exporting missiles; in fact, they have gone beyond the MTCR
    rules on whole missiles. We have no reason to believe that
    since 1994, when they made that commitment, that they have
    violated that commitment. They have assured us that they have
    no plans to export further cruise missiles to Iran. These are
    sub-MTCR class missiles. In the recent summit there were
    further steps taken by China, further progress made on the
    missile front--not dramatic, but incremental and important.
        So I think we are making headway, and I think this
    satellite launch program is an important part of that. Leaving
    aside all the commercial and other reasons to do it, I think we
    are making headway on this specific area, in part because of
    this policy.
        Senator Cleland. Thank you.
        If we were to exclude China as a site for launching U.S.
    commercial satellites, what would we then have left in terms of
    countries that we would lean on to launch U.S. commercial
    satellites?
        Mr. Holum. You might ask Secretary Reinsch to comment on
    that, too, but as I understand it, it would essentially be
    Russia and France, and there is a consortium of countries,
    including Ukraine and others, that is forming to do sea-based
    launches. That's basically it, maybe some other odds and ends.
        Senator Cleland. Mr. Secretary, would you like to add to
    that?
        Mr. Reinsch. Thank you, Senator. Secretary Holum is
    correct; the Russians have a commercial launch operation. It is
    actually in Kazakhstan, but it's a Russian organization. The
    French launch in French Guiana. And then there is also the
    United States, as well as the consortium which would be a sea-
    launch platform that is, I believe, now under construction or
    preparation.
        With respect to the United States, I would only observe
    that the statistics that we have indicate that the domestic
    satellite industry has about a two-thirds share of the
    satellite market, and about a 40 percent share of the launch
    market. So you can see immediately that there is a gap there
    that isn't going to be made up under current circumstances with
    U.S. launch capability or U.S. launch capacity.
        To remove from the playing field one of the alternatives
    creates a significant competitive disadvantage for two reasons.
    The less important reason, actually, is cost; the Chinese tend
    to be cheaper. In fact, we have a bilateral agreement with
    them, going back to the Reagan Administration, to make sure
    they are not dumping their services.
        The bigger problem is not so much cost, but time. Normally
    the way these things work is that the entity buying the
    satellite pays up front for the satellite but doesn't get any
    revenue until it is up, operating and performing whatever
    services it is performing. Therefore, the time from manufacture
    to launch and operation is a significant issue. If I, as a
    satellite manufacturer, tell you that ``Well, you could launch
    American but you have to wait 2 years because that's the next
    window, but you can launch Chinese and they can do it in 6
    months,'' what I'm telling you is that you have an additional
    18 months of revenue that you can obtain.
        If you're going to knock one of the available resources out
    of the mix, you're really tying our companies' hands behind
    their backs.
        I would like to make one other point, if I may, in response
    to your previous question. I just observed that there are also
    foreign policy issues that come up here with respect to
    satellites that, at the end of the day, will be owned and
    operated by the Chinese. The Chinese normally require, if it's
    going to be their satellite, that it be launched on a Chinese
    vehicle, which is not particularly unusual; I think the French
    probably have the same requirement for their satellites with
    respect to French vehicles.
        I would simply observe the last one on the chart, the Loral
    Chinasat-8, which has not yet been launched. It is in fact a
    satellite that will bring telephone, Internet, and television
    services to the people of China. We think that's a good thing;
    we think that's entirely in line with the tone of the summit
    and the President's efforts to bring Western ideas and a spirit
    of debate and freedom of expression to the Chinese people.
    Those are some of the things that would be sacrificed if
    launches on Chinese rockets are prohibited.
        Senator Cleland. Thank you.
        Did I understand correctly, that we--``we'' being the
    United States--still are launching some commercial satellites,
    but we don't have the launch capability to do what the market
    out there would require?
        Mr. Reinsch. As I understand the situation, that's correct,
    Senator. One of the questions that came up in hearings on the
    same subject in the other body was whether there is more that
    the United States could do to promote domestic launch capacity
    here. And that's a very good question, and there is a lot of
    history about the rocket industry over the last 15 years that
    I'm not really the best person to testify to, but it's
    something that the Subcommittee might want to look into.
        Senator Cleland. Thank you very much.
        If I could just shift your focus now, please, to the
    question of how we do this and which agency should be, in
    effect, in the lead when questions of dual-use technology are
    involved, and certainly, national security interests.
        Apparently, members of the Intelligence Committee in the
    Senate have expressed some interest in shifting the basic
    responsibility, or the lead role, in reviewing launch
    applications back to the State Department. Also, apparently, on
    June 25 this panel heard from Dr. Lightner of the Defense
    Technology and Security Administration that the current and
    formal process to control exports of dual-use items has failed
    in its stated mission, and that there are instances where
    compromises have been made in the safeguarding of our national
    security interests.
        Further along that point, the GAO testimony to the Congress
    has indicated that U.S. national security was better served
    when the State Department took the lead role in reviewing the
    launching applications.
        There seems to be a growing concern that maybe the State
    Department should actually become the lead agency here when
    national security issues are involved and when dual-use
    technology is basically involved. Have you all changed your
    mind about this in the last few days at all? Or have you come
    to an opinion that you would like to share with us on this
    point?
        Mr. Holum. Well, I would urge against transferring
    jurisdiction back to the Department of State, and let me make a
    distinction here, or make clear, that this is still divided
    jurisdiction, and the Department of State has, through two
    different means, the protection that we feel we need for
    important national security and policy considerations.
        One is our participation in the Commerce Department
    licensing process. We have an opportunity to review these
    licenses. We haven't opposed any; the Department of Defense
    does, as well, have a very active role in that, including the
    right to escalate all the way to the President.
        And second--and perhaps an area that doesn't get enough
    attention--is the fact that the State Department now retains
    control over every case in which the Chinese could gain direct
    access to the technology in the satellite, or any other related
    technology related to the launch.
        Senator Cleland. May I ask how long has that policy been in
    effect?
        Mr. Holum. That policy has never changed. The State
    Department now and continuously has controlled, for example,
    all the technical data regarding the satellites, except the
    limited data that was transferred to the Commerce Department,
    which is form, fit and function, regarding mating the satellite
    to the rocket. Which really gains the Chinese nothing that's of
    particular value, other than to launch that particular
    satellite.
        Mr. Reinsch. If I could elaborate, I think I, at least, got
    confused as to what we've testified to in the House and what
    we've testified to in the Senate. I think the House went into
    this in great detail.
        The fact is that the President's decisions in both 1993 and
    1996 has been very narrowly circumscribed, the kind of
    technology that the Commerce Department has authority to deal
    with with respect to satellites. The only technology that we
    can license is one of our licenses, as Secretary Holum said, is
    form, fit and function, which relates to how you literally mate
    the satellite to the rocket. If the company needs to go beyond
    that in any way, that is a State Department license. It had
    been a State Department license before 1996, it was a State
    Department license after 1996, and there isn't any argument
    about this.
        And the fact of the matter is, particularly these days, as
    satellites become more complicated and larger and have bigger
    antennas and take on more features, virtually all of the
    satellites that are coming down the line these days in fact
    need an additional the State Department license along with the
    Commerce Department license, because of that, the technology
    that they control. And that hasn't changed.
        Mr. Holum. We also have jurisdiction over anything related
    to the launch vehicle. And our policy precludes any assistance
    to the design, development, operation, maintenance,
    modification or repair of the launch vehicle. That's the thing
    that we're really concerned about here, because that's the
    rocket. That's the dual use technology that could also be a
    missile. And there's very little way to distinguish between the
    two.
        And that has to be licensed by the State Department, and we
    don't license that for China. And of course, as has been made
    clear, in the conditions to the Commerce Department license,
    the State Department has jurisdiction over all launch failure
    investigations. So any time there's an inquiry going back into
    what happened when a launch failed, that's a State Department
    license as well.
        So any circumstance under which the Chinese customer or
    launcher could have access to technology still requires a State
    Department license, except for this limited form, fit and
    function area.
        Senator Cleland. Thank you very much, Mr. Chairman.
        Senator Cochran. Thank you, Senator Cleland.
        Let me say with respect to the charts that I owe Secretary
    Reinsch an apology, because I did assure him that I would see
    that he got copies of these charts that we were going to use in
    advance of the hearing, and I didn't do that. That was an
    oversight on my part, and I apologize to you for that.
        I want to elaborate on the assurance that I gave Senator
    Levin, and that is that it would be helpful to us, in our full
    understanding of the facts, if you and Secretary Holum could
    give us your impression of the information that is on these
    charts with respect to its accuracy, first of all, and if there
    is in any way that these charts are misleading, I urge you to
    point it out in your reaction to it, so that we can put it in
    the record.
        Mr. Reinsch. Thank you, Mr. Chairman.
        Mr. Holum. We'd be happy to, Mr. Chairman.

                           INFORMATION FOR THE RECORD
                         China Satellite Launch Charts
    State Department Licensed Launches

           LWe believe the information depicted in the July 6, 1998
    chart is accurate.

    Commerce Department Licensed Launches
           LWith regard to the column entitled ``TAA From State?,''
    it would be more accurate to refer to this entry as ``TAA/License from
    State?'' This is because in certain instances (e.g., Asiasat-2, Apstar-
    2R, Mabuhay, and Iridium) there were munitions licenses (but not
    technical assistance agreements, per se) approved by the State
    Department for technical data for which a TTCP was required.

           LConcerning Hughes' Apstar-2 and Apstar-1A satellite
    launches that were ultimately licensed by the Commerce Department, the
    State Department had earlier approved a technical assistance agreement
    governing the exchange of information between Hughes and certain
    foreign nationals of the Asia-Pacific Telecommunications Satellite Co.
    (the prospective owner of the Apstar satellites). That TAA concerned
    the initial configuration of the Apstar satellite system when it was
    comprised of two series 376 satellites. Following the imposition of
    missile sanctions by the State Department in August 1993, Hughes sought
    and obtained the Commerce Department approval for a different Apstar-2
    satellite (a series 601 rather than series 376 satellite), and also,
    thereafter, for the Apstar-1A. Hughes did not seek amendment of the TAA
    to cover the Apstar-2 or the Apstar-1A.

        Senator Cochran. Thank you very much.
        Senator Levin, any other questions?
        Senator Levin. Just a quick commentary while Senator
    Cleland is here. My recollection relative to the GAO position
    was a little bit different from his. But we can just let that
    testimony speak for itself. My recommendation is that they said
    they were unable to draw a conclusion as to whether or not this
    two-track process in essence contains adequate safeguards for
    licensing. They're in the midst, in fact, the Chairman I
    believe tasked them to come up with a conclusion on that
    question.
        Mr. Reinsch. I think that's right, Senator. At the time
    they did the report, they said they were unable to draw that
    conclusion.
        Mr. Holum. And there have been some changes since the
    conclusion of their report, or some clarifications.
        Senator Levin. If I could, Mr. Chairman, ask a couple quick
    questions for Secretary Holum, and that has to do with the
    proliferation aspects of this question.
        There was a witness who testified before the House last
    month, Gary Milhollin, who said that the decision to transfer
    control over satellite exports from the State Department to the
    Commerce Department ``effectively pulls the teeth from any
    future U.S. sanctions against Chinese companies guilty of
    missile proliferation.'' And the reason for that, he said, was
    because the sanctions that apply for so-called category two
    violations of the Missile Technology Control Regime do not
    apply to items on the Commerce Control List, but do apply to
    the items on the Munitions List.
        And so my question to you, Mr. Secretary, is whether you
    agree with that statement?
        Mr. Holum. I agree with the factual predicate in the end,
    but I don't agree with the conclusion, because of the fact that
    category one sanctions still remain available over purely
    Commerce Department launches. Because no licenses would be
    granted in the case of category one sanctions. Category one
    relates to full-up missiles or major components of missiles.
        Second, for the reasons we've been describing, more and
    more of these arrangements do require munitions licenses
    because of the technology that may be involved. And as a result
    of that, there would also be limitations. The category two
    sanctions would apply.
        Senator Levin. He also testified that the decision to
    invite China to join the Missile Technology Control Regime was
    a mistake because, ``if accepted, it would immunize Chinese
    firms from any future application of U.S. sanctions laws from
    missile proliferation.'' The concern here being that if China
    is a member of the Missile Technology Control Regime that
    exporting missile-related items to China would no longer
    require a license. And he said that U.S. firms could
    deliberately outfit Chinese missile manufacturing sites without
    telling anyone.
        Could you comment on that?
        Mr. Holum. I don't read U.S. missile controls that way, nor
    do I read the Missile Technology Control Regime that way. First
    of all, the Missile Technology Control Regime does not exempt
    member companies from the licensing requirement. We don't have
    a policy of automatic approval of licenses for missile-related
    technology to MTCR member countries. It's still reviewed on a
    case by case basis.
        Second, there is built into the MTCR a presumption that the
    member countries will adopt their own enforcement mechanisms,
    their own domestic laws, to control the technologies that are
    covered by both category one and category two technologies in
    the MTCR annex. That's the virtue of having China and Russia
    join the MTCR. It gives us a much stronger lever to go and say,
    you've committed to control these exports from your country.
        And that's one of the strongest methods we have to get them
    to comply, is if they've made a commitment, as opposed to we're
    sanctioning them because we have a domestic requirement that
    they behave in certain ways. But if they fail to enforce their
    domestic law, the possibility of sanctions is still there. We
    just began with the presumption that they will enforce their
    own laws against their own entities. And that's the first
    avenue, and the best avenue.
        Senator Levin. You begin with the presumption, but you
    don't end with the presumption.
        Mr. Holum. That's right.
        Senator Levin. Thank you, Mr. Chairman.
        Senator Cochran. Thank you, Senator Levin, very much, and
    thank you both for being here and helping us understand this
    complicated issue. We appreciate your returning to the
    Subcommittee.
        We'll now hear from the Principal Deputy Assistant
    Secretary of Defense, Franklin C. Miller. Our witnesses here
    will be excused, and we would invite Secretary Miller to come
    forward.
        Mr. Miller, if you would please raise your right hand. Do
    you solemnly swear the testimony you give before the
    Subcommittee will be the truth, the whole truth, and nothing
    but the truth, so help you, God?
        Mr. Miller. I do.
        Senator Cochran. Thank you. You may be seated.

        TESTIMONY OF HON. FRANKLIN C. MILLER, PRINCIPAL DEPUTY
            ASSISTANT SECRETARY, U.S. DEPARTMENT OF DEFENSE

        Senator Cochran. Secretary Miller, we have had a lot of
    attention focused on the Loral Company analysis of a launch
    failure in 1996. Some have suggested that serious national
    security information was transferred as a result of giving the
    Chinese a copy of the analysis that was done by a Loral-led
    team following that launch failure in 1996.
        We've since learned about this analysis that was done in
    1995 by Hughes. And I think you were here in the hearing room
    when you heard that a copy of the report has been given to the
    Department of Defense.
        Have you had an opportunity to review that report, and has
    the Department of Defense, to your knowledge, made any
    determination as to whether any national security interests
    have been harmed as a result of that unlicensed transfer in
    1995, relating to the Hughes APSTAR II launch failure?
        Mr. Miller. Senator, the report arrived in my office at 10
    minutes of noon today. I can assure you I have not had any
    chance to look at it, nor have I had time to get copies made
    and distributed in the Department. So I can also assure you
    that the Department has not had the opportunity to review that.
        We will of course be doing so in the days and weeks ahead.
        Senator Cochran. As I understand the new process under the
    Executive Order that President Clinton issued and put in place
    in 1996, each relevant agency has the opportunity to
    participate in the dual-use licensing process, and to appeal
    disagreements, if they have any, all the way to the President.
        Is it correct that the process and procedure changes as a
    result of this Executive Order 12981? Were they considered by
    the Department of Defense to be sufficient to give national
    security concerns ample protection in commercial satellite
    export licensing decisions?
        Mr. Miller. Yes, Senator, they were considered by the
    Department of Defense, and the Department of Defense agreed to
    the executive order.
        Senator Cochran. Now, we've had testimony previously that
    license disputes have never been appealed all the way to the
    President, because under the executive order's dispute
    resolution process, disagreements have been worked out at lower
    levels. Is that correct, and has the Department of Commerce
    accepted conditions requested by the Department of Defense for
    certain licenses that DOD was willing to agree to in licensing
    decisions for commercial satellites?
        Mr. Miller. It is correct that we have never felt the need
    to appeal an issue to the President. As in other kinds of
    interagency areas, we have been able to come to compromises.
    And as the keeper of the process in this particular case, the
    Commerce Department has told DOD representatives at whatever
    level is involved or invoked that the Commerce Department
    accepts the proposals put forward by DOD. And on that basis,
    the issue is resolved or closed.
        Senator Cochran. After the decision then is reached by this
    consensus arrangement at the lower levels of the Department,
    does the Department of Commerce provide to the Department of
    Defense a copy of the export license that is issued under the
    executive order?
        Mr. Miller. No, sir.
        Senator Cochran. How does DOD then know if its conditions
    that it's recommended in this process were accepted by the
    Commerce Department or actually included in the license as
    issued?
        Mr. Miller. We have to rely, Mr. Chairman, on the Commerce
    Department to carry out in good faith the commitments it made
    in the interagency.
        Senator Cochran. Has there come a time when you have been
    made aware of any Commerce Department-issued license that did
    not include everything that had been agreed to as part of the
    executive order process?
        Mr. Miller. Yes. I did not learn in real time, but my staff
    informs me that there was at least one incident where they
    became aware of a license that did not exactly track with the
    agreement that had been made. And that we called the Commerce
    Department and the license was modified to correctly reflect
    what had been agreed.
        As a matter of course, that's the only one I'm aware of. I
    don't know what I don't know.
        Senator Cochran. As we look for ways to try to improve the
    process and make sure that national security interests are
    truly safeguarded in this process, as we all hope they are,
    would it be a more appropriate practice for a copy of the
    license to be given to the Department of Defense and/or the
    Department of State as issued?
        Mr. Miller. That's certainly my personal opinion. That's
    the way we do with, my analogy is to clearing a cable. You work
    a cable that goes out to diplomatic posts in the interagency,
    you all put your fixes in. At the end of the day, when the
    State Department sends out the cable, we all see it. So we all
    have the final copy.
        My personal opinion would be yes, that would strengthen the
    situation.
        Senator Cochran. On another subject, when we had our
    hearing on June 18, our initial round of questioning of the
    three departments on this subject, we discussed the commodity
    classifications and the unilateral determination that is made
    by the Department of Commerce as to the type of license under
    which a commodity is to be exported. We heard that the Commerce
    Department has notified exporters that as a result of a
    commodity classification, general licenses can be used to
    export a commodity.
        And as I understand, what we heard from the witness is,
    general licenses receive no government review, but are self-
    issued licenses, in effect. And that only commodities requiring
    what's called an individual validated license are subject to
    the executive order process that we've been talking about.
        Is that your understanding of the process as well?
        Mr. Miller. Yes, Senator. You have described the process
    exactly. Now, what changed as a result of the executive order,
    the new executive order, is that whereas, formally, prior to
    the December 1995, when the Commerce Department would decide
    what would be licensed we would only, we as the Department of
    Defense would only review those individual license requests
    that the Commerce Department believed DOD should look at in
    terms of dual use technology. Now we see all of the dual use
    licenses that the Commerce Department has in communications
    satellites and in, say, hot section technology.
        But it is certainly true that for those technology exports
    that the Commerce Department decides do not require a license
    that we have no visibility into those.
        Senator Cochran. So if an exporter consults with the
    Commerce Department and asks whether an individual validated
    license is required, DOD is not necessarily consulted?
        Mr. Miller. Is not consulted.
        Senator Cochran. Is not consulted in that process.
        Mr. Miller. Unless someone were to raise an issue that
    said, is it really the Commerce Department's call, is it a
    State Department call.
        Senator Cochran. And the Department of Defense officials
    would not be a part of the process in making the determination
    as to whether a license is required or not?
        Mr. Miller. That's right. That's the Commerce Department's
    responsibility.
        Senator Cochran. Let me ask you about sensitive dual use
    items, such as satellites, which are reviewed by the Commerce
    Department under a Department commodity classification process.
    DOD has no opportunity to participate. Is there a procedure by
    which you could suggest that DOD is involved or could be
    involved in this?
        Mr. Miller. The honest answer, Senator, is that I do not
    know what I do not know. I don't know what kind of technology
    is or is not allowed by the Commerce Department to go out
    without the IVL.
        Senator Cochran. The IVL means the individual validated
    license?
        Mr. Miller. Yes. Certainly the Commerce Department
    understands that items with national security impact are
    supposed to be given licenses and reviewed in the process.
    Whether something slips through, I honestly don't know, because
    I don't have any visibility into that. So I can't tell you
    whether it would strengthen the situation. Perhaps there are
    things that are going out without a license that we ought to be
    looking at. I don't know whether that represents 2 percent or
    40 percent, either. So I'm really unable to answer that
    question.
        Senator Cochran. Was the Department of Defense, in your
    judgment, in favor of a process or procedure that included DOD
    in that decision making process of whether a license is
    required or not?
        Mr. Miller. I guess I would answer that in two parts, Mr.
    Chairman. One, again because I don't know what--we may be
    talking 30,000 cases or 3,000 cases or 500 cases. I don't know
    how large that is. But if there is a subset, and in the subset
    a very sensitive technology that is still going out without
    license review, I would presume that that would be something we
    ought to be looking at.
        Senator Cochran. Yes.
        Mr. Miller. Again, I have no idea.
        Senator Cochran. I'd like to call to your attention a
    specific issue. On November 30, 1992, I'm advised that the
    Hughes Corporation asked for a commodity classification to
    determine if various technical information, consisting of some
    eight pages of technical information, which Hughes submitted to
    the Commerce Department, required an individual validated
    license for export.
        I asked the staff to please give you a copy of this. It is
    a letter, with an attachment, and to provide a copy to other
    Senators as well.\1\
    ---------------------------------------------------------------------------
        \1\ The letter from Hughes Corporation, dated Nov. 30, 1992, with
    attachments appears in the Appendix on page 115.
    ---------------------------------------------------------------------------
        The Commerce Department responded to this November 30, 1992
    request on January 25, 1993, about 2 months later, issuing a
    commodity classification which I'm also going to have handed to
    you and the other Senators. It's commodity classification
    number 33173, granting Hughes Corporation the authority to
    export all of this information that was contained in the
    November 30 letter, without an individual validated license.
        Now, as I understand the process, and your testimony, the
    Department of Defense did not review, had no chance to review
    or comment, on this action by the Commerce Department. But some
    months later, someone privately made a request to the State
    Department for a commodity jurisdiction, known by the initials
    CJ, on these eight pages of technical information. They
    requested State Department to pass on the question of
    jurisdiction of all of these eight pages of technical
    information.
        At a hearing on June 18, we brought this subject up, the
    subject of the commodity jurisdiction. Secretary Holum will
    remember that.
        And we learned that the purpose of the commodity
    jurisdiction is to determine whether an item should be licensed
    for export under either the jurisdiction of the State
    Department and its Munitions List, or the Commerce Control
    List. Now, is it correct in your experience that the Department
    of Defense had a chance to examine this decision by the
    Commerce Department because a private citizen wrote to the
    Department of State and asked for a State Department commodity
    jurisdiction ruling? And whether or not the Commerce Department
    commodity classification ruling was rendered unilaterally, that
    is without the involvement of either the State Department or
    the Department of Defense?
        Mr. Miller. I'm informed that that's correct, Senator.
        Senator Cochran. And so if this letter had not been written
    to the Department of State, in effect resulting in a partial
    overruling of the Department of Commerce, had the letter not
    been written to the State Department, the decision of the
    Department of Commerce giving the license without the review of
    other departments, it would have stood, and it would have been
    permitted to, it would have permitted Hughes Corporation to
    export all those eight pages of technology information, is that
    correct?
        Mr. Miller. Yes, Mr. Chairman, that's correct.
        Senator Cochran. Now, we have a copy of the DOD submission
    to the State Department on this subject, which we will also
    give you a copy of, and want you to look at it. This document
    suggests that the Department of Defense agreed with the
    Department of Commerce on only 23 percent of the specific items
    in this request. That is, that no license is required for the
    export of the technical information.
        The Department of Defense determined that 64 percent of the
    items should be exported only pursuant to an individual
    validated license. And the remaining 13 percent DOD could not
    or did not pass judgment on, because the request contained
    insufficient information or documentation.
        So the Department of Defense, as I understand this
    document, took the position that only 23 percent of the
    information could be exported without a license. Though the
    Commerce Department had issued a commodity classification
    allowing all of it to be exported without a license.
        Can this be described, in a fair way, as an example of why
    the Defense Department would like to have greater involvement
    in the Commerce Department's commodity classification process?
        Mr. Miller. Mr. Chairman, I can't, just glancing at this,
    tell you that the percentages are correct. But it is clear from
    the document that Defense did recommend split jurisdiction on
    this point, and that that would, that tends to indicate that
    Defense viewed this original decision as not being correctly
    classified.
        But I would also say, especially with Secretary Reinsch and
    Secretary Holum here, that I can't give a full answer to this,
    that they ought to be allowed to comment on this.
        But in answer to your question, this would indicate that
    Defense had gone on record saying that in this specific case,
    there was information which we believe belonged under the State
    Department jurisdiction and which we needed to review.
        Senator Cochran. I appreciate that you can't at a glance
    verify all the percentages. And we're not asking you to do
    that. We're simply trying to find out whether this is an
    example of what would happen if DOD were involved in helping
    make the decision about whether an individual validated license
    is required, or whether a blanket permit can be issued to a
    company that writes in and gives eight pages of technical
    information, and then Department of Commerce, under current
    procedures, as I understand it, has the legal authority, under
    the executive order, to make that decision without consulting
    the Department of Defense.
        Is that a correct statement that I just made?
        Mr. Miller. That is my understanding, Mr. Chairman. But
    again, Mr. Reinsch or Mr. Holum may have a different view.
        Senator Cochran. I have some additional questions on the
    subject of monitors. But at this point, I think I will defer to
    my colleagues and give them a chance to ask questions on the
    subjects that I've covered or any other subjects they wish to
    explore.
        Senator Levin.
        Senator Levin. Thank you, Mr. Chairman.
        This process that was just described by the Chairman was a
    1992 letter, is that correct?
        Mr. Miller. That is correct, Senator.
        Senator Levin. That was years before the 1996 Executive
    Order that we've been talking about, is that correct?
        Mr. Miller. That is correct. But again, not passing myself
    off as an expert, and deferring to Secretary Reinsch or
    Secretary Holum, it is my understanding that that is still the
    system under which we operate.
        Senator Levin. I don't doubt that, but I'm just simply
    saying that this is not because of an executive order. This
    system long predated 1996, is that correct?
        Mr. Miller. That is correct.
        Senator Levin. So I think it's worthy for us to explore the
    process that's used, but we ought to do it understanding that
    this system of allocation or classification apparently goes
    back to 1992, and perhaps before that, is that correct?
        Mr. Miller. That is correct, I mean, looking at this----
        Senator Levin. Mr. Chairman, I'd like to ask Secretary
    Reinsch if I could, is it appropriate at this point for him to
    comment on this, to give him an opportunity to comment on this?
        Senator Cochran. Why don't we complete our questioning of
    this witness, and then if you'd like to recall him, we'll do
    that.
        Senator Levin. All right. I would like to do that. So
    perhaps he can stick around.
        Has the Defense Department suggested that we make changes
    in the law or whatever it is that determines who does the
    commodity--I guess it's the classification that you were
    talking about here, I'll call it that. Has the Defense
    Department suggested that we make changes in this law?
        Mr. Miller. I understand I can't say that I did this
    personally, Senator Levin, but I understand that there was
    interagency debate and Defense did advance some positions along
    those lines.
        Senator Levin. To the Congress, do you know?
        Mr. Miller. Not to the Congress. Within the Executive
    Branch.
        Senator Levin. Could you find those items and forward those
    to this Subcommittee?
        Mr. Miller. Excuse me?
        Senator Levin. Could you try to locate those suggestions or
    recommendations which were interagency at some point, and
    forward those to this Subcommittee, so that we can consider
    those changes?
        Mr. Miller. I'll certainly take that back, Senator Levin.
        Senator Levin. All right.
        Does the Defense Department believe that your power to
    influence the decision making process on satellites has
    diminished or was diminished by the executive order?
        Mr. Miller. No. Absolutely not. In fact, it was
    strengthened, in that we now have the clear right to review all
    Commerce Department licenses for communications satellites,
    commercial communications satellites.
        Senator Levin. And the executive order that we're referring
    to here is the Clinton executive order in early 1996?
        Mr. Miller. December 1995.
        Senator Levin. All right.
        Mr. Miller. Nor do we believe, Senator Levin, as was
    suggested, not by Senator Cleland, but in the quote that he had
    from a prior witness before the Subcommittee that our role has
    been diminished in this or our effectiveness has been
    diminished.
        Senator Levin. Does the DOD see every Commerce Department
    license application to export a satellite to China?
        Mr. Miller. Yes. Under the new executive order, yes.
        Senator Levin. And for these licenses, does the Department
    always require a technology transfer control plan?
        Mr. Miller. Yes.
        Senator Levin. Does the Department of Defense always
    require U.S. supervision of a satellite in transit and while on
    Chinese soil?
        Mr. Miller. Absolutely. Our technology control plan, or
    technology transfer control plan, to go with the chart,
    requires that we have U.S. control of the satellite from when
    it is shipped, at the moment it is shipped to China, up through
    launch and indeed allows us to recover debris if the satellite
    fails and if the rocket fails and explodes.
        Senator Levin. So that you, the DOD, have with every
    launch, a person who is physically monitoring the satellite, as
    of 1996?
        Mr. Miller. Well, 1995, early 1996. Yes. And again, for
    most of the period, with the exception of those three launches
    that were mentioned earlier, we also had monitors present.
        Senator Levin. Well, I don't know, it's kind of hard to
    read that, because it says, were monitors required, it says no,
    then there's a little footnote on that chart that says even
    though they weren't required, they were present in a couple
    cases, if I can read that footnote correctly. That's the way I
    read it.
        Mr. Miller. Previously witnesses have told this
    Subcommittee and other committees that there were three
    unmonitored launches. As I read this chart, and again, reacting
    in real time, there are seven yellow squares where monitors
    were not required, take away two where they were not required
    but otherwise present is five.
        Senator Levin. One was canceled. That gives you four.
        Mr. Miller. And I can't account for that other one.
        Senator Levin. All right. Well, perhaps you could do that
    for the record, then. And also, as the Chairman and others,
    I've suggested, would you also give us your comment for the
    record on that chart, when you've had a chance to review it.
        Mr. Miller. Yes, sir.
        Senator Levin. Finally, on June 25, the full Governmental
    Affairs Committee had a hearing focusing on the Defense
    Technology Security Administration, or DTSA. And a long-time
    DTSA employee had some criticisms of the agency, and I
    understand that the Department heard those charges for the
    first time during the hearing. There was some response from the
    DOD at that hearing.
        Mr. Miller. I was the witness.
        Senator Levin. I was otherwise occupied on the Floor. But
    in any event, I'm wondering if you've had a chance to study
    that matter now, and if there's anything more that you would
    want to add, since you've had a chance to review it, or whether
    whatever you had to say at the time was it.
        Mr. Miller. I disagreed with much of what was said in that
    testimony. And if the Subcommittee desires, we can send over my
    personal assessment. I think that it was unfortunate that a
    number of issues were raised and confused. And I can give you
    some examples.
        A great deal was made about the decontrol of lasers and
    laser weaponry. I'm not aware of any, and I've asked my staff,
    and they are not aware of any decontrols of laser weapons at
    all, or any decontrols of lasers that could be turned into or
    converted into weapons under dual use. And certainly, there are
    enough, as we all know from both the classified and
    unclassified material, there's enough laser weaponry that has
    come out of the former Soviet Union to make this a problem
    anyway.
        There was an allegation that the administration's decontrol
    of oscilloscopes somehow was related to the Indian and
    Pakistani ability to test nuclear weapons, whereas the
    administration's decontrol of oscilloscopes specifically said
    that those objects could not be exported to countries of
    proliferation concern. The question was raised about the export
    of computers to Russian nuclear weapons facilities at Arzamus
    and Chelyabinsk, whereas in fact, when the license request was
    submitted to the administration, enough questions were raised
    that the license request was withdrawn.
        The fact that computers went there has nothing to do with
    the licensing process. No licenses were granted. In fact, a
    criminal investigation was launched. So it had nothing to do
    with how the administration looked at it. In fact, the
    administration looked at it so critically that the request was
    withdrawn.
        So throughout that testimony, there were a number of
    serious charges that were put in front of the Subcommittee that
    I believe the record will show, the facts will show, were
    without any substance whatsoever.
        Senator Levin. If you could supply for the record any more
    complete statement that you might wish to have, I would
    appreciate that, if that's all right with the Subcommittee.
        Senator Cochran. Without objection, we will receive that
    and make it a part of the record.
        Senator Levin. And finally, Mr. Chairman, in addition to my
    request that the Department submit to the Subcommittee any
    recommendations that it had relative to the classification
    process--the Department of Defense--I would ask the other
    witnesses from the other departments to do the same. Not just
    any prior suggestions, but I would request these agencies to
    submit any suggestions that they have at this time relative to
    that subject, so that assuming there was a mistake made here in
    1992, very possible there was a mistake made in this kind of a
    letter, but how can we avoid that kind of a mistake if indeed
    it was a mistake.
        I don't want to prejudge it, you haven't had a chance to
    look at it. But I think we ought to ask the agencies, Mr.
    Chairman, all of our agencies, for any recommendations on this
    subject they have, whether or not they were existent at the
    time of this interagency discussion, so that we get their
    current thinking.
        Senator Cochran. I think that's an excellent suggestion,
    and we may even put that in writing, so we have a copy of our
    request in the record to each Department--Commerce, State and
    Defense.
        Senator Levin. Thank you, Mr. Chairman.
        Senator Cochran. Thank you.
        Senator Durbin.

                  OPENING STATEMENT OF SENATOR DURBIN

        Senator Durbin. Thank you, Mr. Chairman.
        Secretary Miller, help me to understand context here a
    little bit. The decision as far back as the Reagan
    Administration that we would not develop the capacity to launch
    commercial satellites really meant that we had to go to the
    open market to find other countries with that capacity. I
    believe that became an inevitable result of that policy
    decision.
        And now we find ourselves more and more dependent on that
    satellite technology for a variety of things that we believe
    benefit us and other countries in the world. As I understand,
    trying to parse through the process here, we are trying to make
    certain that we achieve the good that can come of this without
    sacrificing or in any way jeopardizing our national security.
    There have been a variety of different procedural approaches
    used here, including the President's executive order.
        I guess my first question, an open-ended question, is do
    you feel at this moment that the current system that is in
    place protects our national security, so that our use of rocket
    launches for satellite technology in other countries will not
    jeopardize our national security or in any way transfer
    technology that is crucial for our national defense?
        Mr. Miller. Senator, I believe that the procedures now in
    place, which resulted from the December 1995-January 1996
    executive order and change, are adequate to protect our
    national security. We in Defense review every license for a
    communications satellite launch. From a national security
    standpoint, that is really important.
        Also, this is really much more under the purview of
    Secretary Reinsch. It means that our satellite, U.S. satellite
    manufacturers have vehicles that they can use to get their
    satellites in orbit and start their money stream faster. The
    maintenance of a strong satellite production base is, at the
    end of the day, critical to our national defense needs.
        So I believe we have the safeguards, and I believe it does
    help the satellite industry, and that is also important.
        Senator Durbin. How frequently do these launches fail?
        Mr. Miller. I can supply that for the record. It varies by
    launch system. I was looking at these statistics the other day.
    There are a few systems out there that have 100 percent record.
    There are some in the 80s, there are some in the 70s. It
    depends whether it's the European Arianne system, or whether
    it's the Russian Proton system or the U.S. Atlas or the U.S.
    Delta or the Chinese Long March.
        So it really is, as I understand it, system-specific.
        Senator Durbin. Just taking the Chinese for an example, do
    you recall what the fail rate was?
        Mr. Miller. I think, again, let me get back to you for the
    record, because there are four or five different types of
    Chinese rockets that are used, they're different variants of
    the Long March system, some of which have 100 percent success
    rate, some of which have about a 75 or 60 percent success rate.
    Let me take that back and get you the accurate information.
        Senator Durbin. It's my understanding in reading and in
    conversations that in the event of a failure, a private company
    in the United States, before it can launch another satellite
    and obtain the insurance for that purpose needs to determine
    the cause for the failure and make some sort of effort to make
    certain it doesn't happen again, which would involve, I think,
    one of the fact situations that we've been talking about here.
        One of the things that comes up as we discuss this is
    whether or not in improving this launch capacity of any
    country, China or any country, we are improving the capacity
    which could be used for a military purpose. How do you draw
    that line as you make the call from the Department of Defense
    in each of these instances?
        Mr. Miller. Our intent in creating the strict conditions on
    the licenses is to ensure that no technology is transferred to
    the Chinese with regard to improving their launch systems. We
    are using, not we, the U.S. company, is using the Chinese
    rocket as a delivery bus. That's all. As I think an editorial
    by Brent Scowcroft and Arnold Kantor said a few weeks ago, it's
    like FedEx. You give FedEx the envelope and FedEx takes it some
    place.
        The safeguards that we put in place forbid the U.S. company
    to provide the Chinese with any information which would assist
    them in improving their rockets. So from that standpoint, we
    believe we have in place a series of safeguards that protect
    national security.
        Now, to anticipate a question you didn't ask, what happens
    when somebody breaks the safeguards or breaks the laws, and
    it's a question that I think would go for any law. The laws are
    there, the regulations are there. It is clear what you're
    allowed to do and what you're not allowed to do. And if you
    break those, then there are obvious penalties, and the Justice
    Department gets involved.
        Senator Durbin. But the launch failure, the launch system
    failure, in and of itself, you are saying we don't address the
    improvements or the repairs necessary, or we try to draw a
    line?
        Mr. Miller. We try to draw a line.
        Senator Durbin. And stay on the other side, in terms of the
    development of that technology?
        Mr. Miller. That is correct.
        Senator Durbin. Even though the commercial customer may
    have a very personal interest in getting this rocket back up
    into space with his own satellite technology?
        Mr. Miller. Sure. But our requirement from a Defense
    standpoint, a national security standpoint, is to protect this
    country by not allowing China's military capability to be
    improved in this manner. That's why we put the conditions that
    we do. That's why we require a monitor to be present for any
    technical discussions between the satellite manufacturer and
    the launch provider. That's why all of our requirements on the
    license, the TTCP, are what they are.
        Senator Durbin. There's been some complaints in the
    commercial sector about dealing with China and difficulties and
    resistance. In the Department of Defense's role here,
    concerning these Chinese launches, have you detected any type
    of resistance or efforts to circumvent the clear intent of our
    laws to protect our national security?
        Mr. Miller. I personally have not, but I don't know that we
    would get involved. I personally have not, no.
        Senator Durbin. Thank you, Mr. Chairman.
        Senator Cochran. Thank you, Senator Durbin.
        Secretary Miller, we had testimony at our earlier phase of
    this hearing on June 18 that there were three launches that DOD
    was aware of that were licensed by the Commerce Department and
    completely unmonitored by DOD. And I know we've had some
    question about whether it's four or five. But Secretary Lodal
    at that time testified, ``We are not aware of any transfer of
    technology from these unmonitored launches that contributed to
    China's missile or military satellite capabilities.''
        Does this mean in your judgment that no technology transfer
    occurred at these launches, or because DOD monitors were not
    present, DOD doesn't know if any technology was transferred?
    Could you help us interpret that?
        Mr. Miller. Mr. Chairman, speaking for myself and not Mr.
    Lodal, because I don't want to put words in his mouth, it would
    be to me the latter. That is, we have no knowledge of any
    technology transfer. Full stop.
        Senator Cochran. The Department has suggested that monitors
    were neither required nor present at three launches of
    satellites in China, specifically APSTAR II, APSTAR IA and
    Chinasat-7. Those are the three that have been identified to us
    as having no monitors.
        All of these satellites, we are told, are manufactured by
    Hughes and licensed by the Department of Commerce. The chart
    shows four other satellites that did not require monitors
    pursuant to its Commerce Department-issued license. That's our
    interpretation, that's what I understand is trying to be
    reflected in that chart.
        Neither Echostar-1 nor Echostar-2 required monitors.
    Echostar-2 was ultimately canceled, which someone has already
    suggested, while Echostar-1 was monitored at the launch, but
    not throughout the process, because monitors already present
    for the launch were there for a previous satellite, and they
    stayed to monitor this Echostar-1 launch.
        But there were no monitors required, as I understand it,
    and there were no monitors throughout the process, except at
    the launch, because of the coincidence.
        On Chinastar-1, which was launched at the end of May, there
    were also no monitors required, but the company, which was
    Lockheed-Martin in this instance, showed up of its own volition
    and asked for monitors. That's the information obtained from
    the company. But monitors were not present throughout the
    entire process.
        The Optus B3 is one where no monitors were required. Hughes
    has told us that no monitors were present at any stage in the
    process. But I understand from DOD that monitors were present
    at the launch.
        Whether or not Hughes is correct, isn't it clear, that
    while the Commerce Department has been licensing satellites for
    launch in China, the technology transfer safeguards have been
    less stringent than when the State Department ran the process.
    Isn't that correct?
        Mr. Miller. I think it's certainly correct to say that the
    procedures now in place, as of December 1995, require that DOD
    monitors be present throughout. I can't speak to the details
    that you have just given with authority. I will take those all
    back and investigate those.
        But I think as of the new executive order, there are
    supposed to be monitors and DOD wants there to be monitors and
    requires that there be monitors. Clearly there was a period in
    the transition when there were not DOD monitors, which is not
    what we would have preferred. And had things, as Secretary
    Lodal explained, had a State Department license that we had
    been expecting them then applied for, we would have had
    monitors there. But that license was not applied for.
        But I would say to you that as of December 1995, that
    situation has been corrected.
        Senator Cochran. Thank you.
        I have no further questions of this witness. If you would
    like to ask additional questions, we can do that, or recall
    previous witnesses. It's up to you.
        Secretary Miller, thank you very much. You are excused.
        At the request of Senator Levin, Secretary Reinsch is
    invited back to the witness table, and we remind you, you're
    still under oath.
        Mr. Reinsch. Thank you, Mr. Chairman, it's a pleasure to be
    back. [Laughter.]
        Senator Cochran. Senator Levin.
        Senator Levin. I just thought that we ought to ask the
    Commerce Department to comment on this process of
    classification of commodities, I guess it's called, or items.
    There was a reference to a 1992 decision of the Department of
    Commerce which the Department of Defense at that time, when it
    was brought to their attention, thought should have been at
    least partly, I gather, either on the Munitions List or on the
    dual use list of the Commerce Department. It's not clear to me,
    it may be clear to you from looking at those documents.
        Could you talk to it, could you tell us what the process
    is, and whether or not suggested changes were made to get the
    DOD involved in that classification process, and if not,
    whether they shouldn't have a look at all the applications, to
    see whether or not they would agree that an item should be on
    either list?
        Mr. Reinsch. Thank you, Senator Levin. One of the
    advantages of old age is being able to remember, at least for a
    while, some of the things that happened a long time ago that
    are reasonably obscure. In fact, we addressed precisely this
    question as part of the President's decision in 1996 to
    transfer jurisdiction.
        What is not well known, because the satellite transfer has
    occasioned all the publicity, is that at the same time, the
    President addressed the question of commodity classification
    and commodity jurisdiction issues, which has been, I think, by
    all accounts, a thorny one for a long time. In fact, Congress
    has sought to address it in 1990, 1992, and 1994 in
    legislation, which was subsequently not enacted for a variety
    of reasons. It's a difficult question.
        What the President did was, with respect to the general
    question of how you settle these disputes, which is what we're
    talking about here, was to do two things. First of all, he
    created----
        Senator Levin. Excuse me for interrupting, you say settle
    these disputes. We've had a lot of disputes we're talking about
    where there's differences as to whether or not there should be
    a waiver. You're talking about whether or not an item, any
    item, should be controlled, should require a license. Is that
    what you mean by dispute?
        Mr. Reinsch. No. By dispute--I've used a poor choice of
    words. The term commodity jurisdiction is kind of a term of art
    in our business. And it refers to the decision of whether an
    item is controlled by the State Department under the Munitions
    List, or whether it's controlled by the Department of Commerce
    under the Commerce Control List.
        Senator Levin. But I thought this letter, which was
    referred to, said that they were not controlled on either list.
        Mr. Reinsch. Well, that letter said that, yes. And I can
    comment on that in a minute.
        Senator Levin. That's what my question goes to. I think
    we've spent a lot of time on whether one should be on one list
    or another, and then Congress is notified if it's shifted from
    the Munitions List onto the Commerce Department list, we're
    given a certain amount of time to act if we want to act. We've,
    I think, spent a lot of time on that, and I have no problem
    with you going back to that, if you want.
        But there's a different issue which has been raised here,
    it seems to me, today. And I hope I'm not misinterpreting the
    Chairman's letter. I'm seeing this also for the first time, but
    let me tell you what I understand this letter to mean.
        That November 1992, the letter went to the Commerce
    Department asking whether an individual license was needed for
    any of these items. The answer came back, no. Then the Defense
    Department got into it when somebody raised a question about
    that letter, I think someone in the State Department or some
    department raised a question about this.
        The question I'm asking you is, on that issue, whether an
    item belongs on either list, is that decision made in the first
    instance by the Commerce Department and should the DOD have
    some role in that question as to whether it should go on either
    list?
        Mr. Reinsch. Well, what I was getting to is, we've set up a
    procedure where DOD would have the opportunity to review these.
    In this particular case, the answer to your question is that,
    because the question is whether it belongs with the State
    Department or Commerce----
        Senator Levin. Or neither.
        Mr. Reinsch. Well, but you have to go somewhere to decide
    which it is. And the applicant can go to either place. You can
    address, this is the company in question who has an item in
    question and wants to know, is it subject to anybody's license
    and if so whose, effectively under the system that's been in
    existence for years has a choice. He can go ask the State
    Department that question and they can say, yes, it's ours, or
    go to the Commerce Department, they can come to the Commerce
    Department, and we'll say whatever we say, or they can go to
    both.
        In fact, in this particular case, that's what happened.
    Because there's one document that's not included in the pile
    that's here. And the sequence of events, as I understand it,
    and keep in mind this was largely before my time in the
    Department, the letter that you refer to was sent to us in
    November 1992. In January 1993, we responded with the commodity
    classification that was described.
        Subsequently, the State Department was asked essentially
    the same question. What the State Department responded with in
    its letter to the Hughes company of September 17, 1993, was a
    commodity jurisdiction decision in which they refer----
        Senator Levin. Excuse me, is that the letter which was
    given to you here today?
        Mr. Reinsch. No.
        Senator Levin. That's your letter, you got it from some
    other source?
        Mr. Reinsch. This is the State Department's letter.
        Senator Levin. I don't think any of us have that.
        Mr. Reinsch. Well, I'd be pleased to provide it.\1\
    ---------------------------------------------------------------------------
        \1\ The State Department letter, dated September 17, 1993, appears
    in the Appendix on page 132.
    ---------------------------------------------------------------------------
        Senator Levin. Is it short enough so you could read that
    letter?
        Mr. Reinsch. As these things always are, it's in the form
    of a memorandum. It says, ``the purpose of this letter is to
    inform you of a recent commodity jurisdiction on the subject
    data.'' The data, I believe, is the same as the eight-page
    document that the Chairman referred to. ``This commodity
    jurisdiction request was referred to the Departments of
    Commerce, Defense, and the National Aeronautics and Space
    Administration for their review and recommendations.''
        ``As a result, the Department of State has determined that
    the data outlined in this document is subject to the licensing
    jurisdiction of the Department of Commerce. Please consult that
    agency's office of technology and policy analysis, and there's
    a phone number, to determine their requirements prior to
    export.''
        So the sequence of events here was that in January 1993,
    the Department of Commerce determined that this was under our
    jurisdiction and provided the classification to the exporter.
    In September 1993, the State Department came to the same
    conclusion and referred the exporter to the Department of
    Commerce with respect to how this should be treated.
        Subsequently, and there's a reason why this kept going back
    and forth, Senator. But subsequently, the Commerce Department
    sent another letter, dated in this case January 1994, to the
    Hughes Company, reaffirming both of the previous decisions, the
    one by the State Department and the one by the Commerce
    Department, since they were the same decision.
        What happened, if you want to know the story, is that
    essentially throughout this period, notwithstanding the
    decisions that were made by both the State Department and the
    Commerce Department, there were individuals in the Department
    of Defense who continued to tell the company that these items
    were under the jurisdiction of the State Department,
    notwithstanding the State Department's determination to the
    contrary. This caused the issue to be constantly going back and
    forth between agencies, as we attempted again and again and
    again to come to what was effectively the same conclusion.
        Senator Levin. When you read that letter, you made
    reference there to the fact that that was referred to the
    Department of Defense.
        Mr. Reinsch. That's what it says, yes. And I assume that
    the document that was provided last here, this thing that the
    Defense Department filled out, the one with the reference to
    the percentages, I assume that this was the document, that this
    was the Defense Department's response to that referral, the
    response to the State Department.
        Senator Levin. So that the process in place at that time
    called for a referral to the Defense Department, or at least
    there was a referral to the Defense Department?
        Mr. Reinsch. That certainly indicates that's what happened
    in this case, yes.
        Senator Levin. So that we did get the Defense Department
    analysis, based on a referral from the State Department, is
    that correct?
        Mr. Reinsch. That's what the documentary record indicates,
    yes.
        Senator Levin. Well, it seems to me then we do have the
    kind of protection which we should have for this kind of an
    inquiry, to make sure that the Defense Department had an input
    in it. Is that the usual process?
        Mr. Reinsch. Well, yes, Senator. And in fact, we've done
    better than that. Because as a result of the President's
    decision in 1996, that I started to refer to, we now have a
    process in place at the Commerce Department where we refer our
    commodity, a number of our commodity classification decisions
    to Defense for their review and objection, if necessary. If
    they believe we've made a wrong decision, they can come back
    and tell us. And they've done that on several occasions.
        Senator Levin. So that since January 1996----
        Mr. Reinsch. It was later in 1996.
        Senator Levin. Since 1996, there's been even a tightening
    of the reference process to be sure that something's referred
    to Defense. But I'm interested in this exhibit, back in 1992.
    What you're saying is that that inquiry was referred to the
    Department of Defense, and the Department of Defense responded
    to a State Department inquiry. Is that correct?
        Mr. Reinsch. The State Department referred it, that's
    correct, and they responded, and you have their response. As I
    understand the situation.
        Senator Levin. Well, was there an earlier letter that went
    out from the Commerce Department saying that none of that, that
    you didn't need a license at all?
        Mr. Reinsch. Well, the sequence of events was, the Hughes
    company wrote us in 1992. That's the lengthy letter. We
    responded in January 1993, with our judgment that this was
    licensed under--what a commodity classification means is we
    give them a code number indicating under what categories this
    stuff falls. We said it was 9E96G.
        At the time, that was a category that meant for the
    material in question, no license required.
        Senator Levin. No license required was your judgment?
        Mr. Reinsch. That was our judgment.
        Senator Levin. OK.
        Mr. Reinsch. Now, what the State Department determined
    later that same year was that the same technology, the same
    information, the same document from Hughes, was under our
    jurisdiction and not theirs. And so they referred the writer
    back to the Commerce Department for a decision. Our decision
    was the same, yes, it is our----
        Senator Levin. At that time. But your decision at the end
    of 1993 differed from your decision----
        Mr. Reinsch. No, our decision at the end of 1993 was the
    same as our decision at the beginning of 1993.
        Senator Levin. I thought at the beginning----
        Mr. Reinsch. We reaffirmed it. If I misspoke, I apologize.
        Senator Levin. I don't think you did. I think I'm confused.
        Mr. Reinsch. This was one of the great ping-pong balls of
    1993.
        Senator Levin. I understand ping-pong, I know that game
    pretty well. But it seems to me that in January 1993, what
    you've said is that it didn't require a license at all.
        Mr. Reinsch. Didn't require one of ours, that's correct.
        Senator Levin. One of your licenses.
        Mr. Reinsch. Well, we determined that it falls under our
    jurisdiction, not the State Department's, and that within our
    system, it didn't require a license.
        Senator Levin. All right. Then the State Department was
    asked about it. They referred it to the Defense Department. The
    Defense Department came back and said the 22 percent or
    whatever it is does fall on whose list?
        Mr. Reinsch. I don't know. I haven't examined that. I think
    they said part of it was ours and part of it was the State
    Department's.
        Senator Levin. OK, then, if part of it belonged on the
    Commerce Department list, that would be a difference from your
    own judgment in early 1993, would it not?
        Mr. Reinsch. Yes.
        Senator Levin. And then you accepted the Defense Department
    judgment later on in 1993?
        Mr. Reinsch. No. The State Department took the matter up
    with the Defense Department. Presumably the Defense Department
    gave its advice to the State Department.
        What the State Department said in 1993 was that the
    material was within the Commerce Department's jurisdiction, all
    of it.
        Senator Levin. But that's different from the conclusion you
    reached, is it not?
        Mr. Reinsch. No. Different from the conclusion the Defense
    Department reached. The State Department and the Commerce
    Department came to the same conclusion.
        Senator Cochran. Senator, would you yield to let me ask one
    question?
        Senator Levin. Sure.
        Senator Cochran. There's another part of this letter, down
    at the bottom in the last paragraph that you didn't read, that
    says this ruling does not include technical data for launch
    vehicle satellite compatibility, integration or processing.
    Finally, this ruling does not cover detailed design technology
    or manufacturing processes or techniques.
        Mr. Reinsch. Yes, sir, that's correct. What happens in
    these, and we would certainly agree that our ruling didn't
    include that, either. What both agencies were presented with
    was the eight-page document you referred to. And that eight-
    page document, as I recall, I don't have it in front of me, is
    a list of technology.
        Based on our review of that document, we determined that
    the technology that was referenced in that document had this
    licensing classification. What the Defense Department is saying
    is the same thing, but making clear that it doesn't include
    this other stuff. And we would certainly agree with that. Our
    decision didn't include the substance of what you just read,
    either.
        Senator Cochran. Why did Hughes write you back 9 months
    later and say, we don't understand your previous decision,
    would you explain it to us, and you never answered that second
    letter?
        Mr. Reinsch. Well, no, we did answer the second letter. We
    wrote them on January 6, 1994, and then we wrote them again in
    May 1994, answering repeated inquiries. The reason they
    continued to write us back is that individuals at the
    Department of Defense continued to tell them that our decision
    was wrong, and that they were acting illegally. And they
    sought--this was a case, frankly, where the government was
    sending, different individuals in the government, were sending
    different signals.
        The company returned to the Commerce Department and the
    State Department to get a decision. It is the Commerce
    Department and the State Department who make these decisions.
    The decisions were consistent, and they were the same. But the
    message that the company got from other individuals was not
    always consistent with those decisions.
        So the company returned periodically to reconfirm the
    decision that had been made previously.
        Senator Levin. Could I ask one more?
        Senator Cochran. Of course. I was just going to make the
    observation here that we're going to have to get somebody from
    the company to tell us what they meant when they wrote their
    letter. I think we're all wasting our time here trying to
    interpret a Hughes letter. We've got one dated October 8 which
    seems to clearly show that they are confused by the Commerce
    Department's response.
        ``Since there is some difference of opinion as to what
    event triggers the ability to utilize a Commerce Department
    license exception, please clarify conditions under which the
    exception is applicable.'' That's dated October 8, 1997.
    They're still trying to find out what it means. If they can't
    find it out, and they've got the job of complying with the
    rules, how are you and I going to figure it out? They're the
    experts.
        I ask that a copy of this October 8 letter be placed at
    this point in the record.\1\
    ---------------------------------------------------------------------------
        \1\ The letter from Hughes Space and Communications Company, dated
    October 8, 1997, appears in the Appendix on page 133.
    ---------------------------------------------------------------------------
        Mr. Reinsch. If I could comment on that letter?
        Senator Cochran. Of course.
        Mr. Reinsch. I'm sure you're looking forward to this.
    [Laughter.]
        We believe what the company intended with that letter, and
    we have had some interagency meetings that have included the
    Department of Defense and others to discuss how best to
    respond, we believe what the company was asking us effectively
    was whether our ruling of 1993, which I've just referred to,
    and the State Department ruling of 1993, still stands, or
    whether the result of the jurisdiction transfer in 1996 changed
    anything. That's the question they were asking.
        We do not believe that the question they are asking
    includes more technology than what they asked us in 1993, and
    they are essentially asking for a reconfirmation.
        Senator Cochran. Have you answered this October 8 letter
    yet?
        Mr. Reinsch. No, sir, we have not.
        Senator Levin. Let me go back to 1992, because I think I
    may understand this now. Basically, you, the Commerce
    Department and the State Department agreed back in 1992 and
    1993. The Defense Department disagreed.
        Mr. Reinsch. That appears to be the case.
        Senator Levin. But the key to me is that the Defense
    Department was involved.
        Mr. Reinsch. Yes, sir.
        Senator Levin. That's what I want to make sure of, because
    I think there was an implication here, an impression that was
    given that somehow or other, the Defense Department wasn't
    involved in this process. And the Defense Department was
    involved in that 1992-1993 incident. They said they interpreted
    whatever the regs were a certain way, and both the State
    Department, which has the Munitions List, and the Commerce
    Department, which has the Commerce Control List, reached the
    same conclusion, that the Defense Department was wrong. Is that
    correct?
        Mr. Reinsch. That's correct.
        Senator Levin. All right. I have no way of knowing whether
    the State Department and the Commerce Department on the one
    hand were right or whether the Defense Department was right.
    That's way beyond my understanding, maybe, at least current
    knowledge.
        But the important issue to me is that there was a reference
    to the Defense Department, they weighed in on the issue and
    they had their opportunity to be heard, whether they were
    agreed with or not by the folks that have to make these
    licensing decisions.
        Now, the next question seems to me would be of the Defense
    Department as to whether or not something that they thought
    should be licensed was not subject to license. That, it seems
    to me, we either ought to ask for the record or, I guess that's
    the best way to do it, because that's what this all came down
    to back in 1992 and 1993, I gather, is that something which
    they thought should be subject to license was not subject to
    license in the opinion of both the State Department and the
    Commerce Department.
        And we ought to find out, well, then, wait a minute, should
    anything which the Defense Department thinks should be subject
    to a license be subject to a license. Why not. Why not err on
    the side of caution. If the Defense Department thinks there
    should be an individual license, why not add that to either the
    Commerce Department or the State Department. That's a question
    I'd like to think about and ask the Defense Department or I can
    ask you. Why not just say, if that department thinks it ought
    to be subject to individual license, make it subject to an
    individual license?
        Mr. Reinsch. That's a complicated question. I think over
    the years the Congress has felt, and various successive
    administrations have felt, that we ought to do the best we can
    to make this a collaborative process in which no one has a
    veto, but everybody has a role. And particularly with respect
    to dual use items, where there are significant commercial
    consequences either way.
        As I said, in the past, that's not the dispositive issue,
    but it's not irrelevant either. That the legislation that
    Congress has passed and the actions administrations have taken,
    particularly this one, have consistently held that the exporter
    is entitled to an efficient, timely decision, and one that is
    made through a collaborative process in which everyone with
    equities plays, but no one has the power to stop the process.
        If we're going to get into the business of saying that an
    individual agency should be determinative, we've witnessed in
    the past some of the consequences of that through processes
    that existed prior to the Executive Order of 1995 that we've
    discussed in the past, in which individual agencies essentially
    have the power to hold up licensing actions or commodity
    classification decisions indefinitely, simply by not making the
    decision. The common phrase in the exporting community at the
    time was, we had a licensing process that was like the roach
    motel, the applications check in, but they don't check out.
        And the consistent demand that we got from Congress
    throughout that period, and something that I participated in at
    the time when I was here, and something that I know this
    administration feels strongly about, is that the exporter is
    entitled to something better than that. He is entitled to a
    rapid decision, even if it's a ``no.'' And he's entitled to a
    process in which there is, a collaborative process in which
    there is debate. Engineers get together and contend.
        These are complicated, difficult questions. And they are
    technical questions. Reasonable people, competent engineers,
    will disagree. These things happen.
        What I think is important is that we have a process in
    which there is a conclusion one way or the other; someone makes
    the decision. That is what happened in this case.
        Now, what I've said frequently in other contexts is, these
    are controversial matters, virtually every decision that is
    made, and you've had a list of them and other people have had a
    list of them, virtually ever decision that is made, you can
    find a dissenter for. And if you can't find it in the
    Department of Defense, you can find them in the Department of
    Commerce or the Department of State.
        I think the public interest is better served by a process
    in which decisions get made and not one in which they are
    simply put onto the back burner, which would happen if we
    started handing out vetoes or veto rights.
        Senator Cochran. Senator, they've signaled that we have a
    vote on that's commenced on the Floor of the Senate. I suggest
    we try to wrap up the hearing, if it's OK with you.
        Senator Levin. Thank you very much.
        Senator Cochran. Mr. Reinsch, let me ask you one further
    question, then I'm going to ask that we call Mr. Miller back
    for a couple of questions, then we'll be done.
        We can't find the requirement for DOD monitors resulting
    from the 1996 executive order change in licensing jurisdiction
    that gave the Commerce Department the lead role, not in a
    statute or policy or regulation or a memorandum of agreement,
    which we had in 1993, that allows for monitors but does not
    require them. Isn't this a fact that what we have here is a
    practice of the Department of Defense to suggest monitors? But
    there's no real requirement that there be monitors? Isn't that
    the state of affairs?
        Mr. Reinsch. I would go a step further than that, Senator.
    We've agreed to do it, and we do it.
        Senator Cochran. But it's not required by law, statute,
    regulation?
        Mr. Reinsch. It's not required by law, it's not required by
    regulation. I would say it is our policy to do it.
        Senator Cochran. Well, what happened was Secretary Lodal
    was here last time, and I don't want to try to impeach him, but
    he said this monitor requirement was incorporated as a
    requirement in 1996, when jurisdiction for all commercial
    communication satellites was transferred to the Commerce
    Department.
        Mr. Reinsch. He was referring to the fact that we put it in
    each of our licenses as a requirement.
        Senator Cochran. OK. But it's not a statute, policy or
    regulation, it became a practice?
        Mr. Reinsch. Yes. We have not promulgated a regulation that
    says, we are going to put it in every one of these. In fact, we
    do put it in every one of these.
        Senator Cochran. OK. Now we've got it, I think.
        Could we have Mr. Miller come back for a couple of other
    questions? Let me remind you again, you're still under oath as
    well.
        Is DOD review of the completed license prior to its issue
    by the Commerce Department one of the needed improvements you
    had in mind when you earlier commented that you do not get a
    copy of the license now under current practice?
        Mr. Miller. Yes, sir, that is my personal opinion.
        Senator Cochran. And you also said, when you were before
    the Subcommittee on June 25, that our system is not perfect, it
    needs improvement, and even these hearings and preparing for
    them has given us some ideas that we need to carry out within
    the Executive Branch to better that. One of which would be
    getting a copy of the license as issued by the Department of
    Defense, is that correct?
        What other changes, if any, can you tell us, or
    improvements in the process, should be made to minimize the
    technology transfer risk when launching a U.S.-built satellite
    in China?
        Mr. Miller. I think the system, as far as it goes to
    minimize the risk of technology transfer, is very good. I think
    that there are some things we in Defense could do better
    internally.
        Senator Cochran. And Senator Levin has suggested that this
    would be good to have from each department, and I concur in
    that. If you would do that for us, we would include it in the
    record, State, Commerce and Defense Departments.
        Is DOD involvement in the Commerce Department commodity
    classification process another of the needed improvements you
    had in mind? You touched on this earlier. I wanted to nail that
    down.
        Mr. Miller. I think that after our discussions so far, and
    the conflict between Senator Levin and Secretary Reinsch,
    that's one we'd all better go back and look at and submit to
    you in very clear form. There's one thing that I need to
    discuss with Secretary Reinsch in the history of what was just
    said about Defense's involvement as an historical fact we need
    to nail down.
        Senator Cochran. In other words, there's a disagreement
    over that fact, isn't there?
        Mr. Miller. Well, I'm not quite sure. I only have what you
    told me, Mr. Chairman, about how DOD was brought into that
    process back in 1992 by a private citizen calling for a CJ and
    Defense not having been involved in the beginning.
        What I'd like to do is check the history with Secretary
    Reinsch, and then submit to you for the record my understanding
    of how DOD got into that or didn't get into that.
        Senator Cochran. And whether a formal change needs to be
    made to give you that right.
        Mr. Miller. I'd prefer to submit all of that as a package.
        Senator Cochran. We would appreciate that.
        Senator Levin, any further comments?
        Senator Levin. That would be fine. Thank you.
        Senator Cochran. We appreciate your help, all three
    witnesses. Thank you very much. The hearing is adjourned.
        [Whereupon, at 4:07 p.m., the Subcommittee was adjourned,
    to reconvene at the call of the Chair.]

                                A P P E N D I X

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