[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.]



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