[Senate Hearing 105-867]
[From the U.S. Government Publishing Office]
S. Hrg. 105-867
THE ADEQUACY OF COMMERCE DEPARTMENT SATELLITE EXPORT CONTROLS
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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
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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
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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
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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
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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.
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\1\ The prepared statement of Mr. Holum appears in the Appendix on
page 81.
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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.]
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\1\ The prepared statement of Mr. Reinsch appears in the Appendix
on page 90.
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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.
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\1\ The prepared statement of Mr. Lodal appears in the Appendix on
page 95.
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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.
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\1\ The prepared statement of Senator Levin with additional copy
appears in the Appendix on page 103.
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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\
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\1\ The referenced chart appears in the Appendix on page 101.
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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\
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\2\ The referenced chart appears in the Appendix on page 102.
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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\
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\1\ The letter from Hughes Corporation, dated Nov. 30, 1992, with
attachments appears in the Appendix on page 115.
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The Commerce Department responded to this November 30, 1992
request on January 25, 1993, about 2 months later, issuing a
commodity classification which I'm also going to have handed to
you and the other Senators. It's commodity classification
number 33173, granting Hughes Corporation the authority to
export all of this information that was contained in the
November 30 letter, without an individual validated license.
Now, as I understand the process, and your testimony, the
Department of Defense did not review, had no chance to review
or comment, on this action by the Commerce Department. But some
months later, someone privately made a request to the State
Department for a commodity jurisdiction, known by the initials
CJ, on these eight pages of technical information. They
requested State Department to pass on the question of
jurisdiction of all of these eight pages of technical
information.
At a hearing on June 18, we brought this subject up, the
subject of the commodity jurisdiction. Secretary Holum will
remember that.
And we learned that the purpose of the commodity
jurisdiction is to determine whether an item should be licensed
for export under either the jurisdiction of the State
Department and its Munitions List, or the Commerce Control
List. Now, is it correct in your experience that the Department
of Defense had a chance to examine this decision by the
Commerce Department because a private citizen wrote to the
Department of State and asked for a State Department commodity
jurisdiction ruling? And whether or not the Commerce Department
commodity classification ruling was rendered unilaterally, that
is without the involvement of either the State Department or
the Department of Defense?
Mr. Miller. I'm informed that that's correct, Senator.
Senator Cochran. And so if this letter had not been written
to the Department of State, in effect resulting in a partial
overruling of the Department of Commerce, had the letter not
been written to the State Department, the decision of the
Department of Commerce giving the license without the review of
other departments, it would have stood, and it would have been
permitted to, it would have permitted Hughes Corporation to
export all those eight pages of technology information, is that
correct?
Mr. Miller. Yes, Mr. Chairman, that's correct.
Senator Cochran. Now, we have a copy of the DOD submission
to the State Department on this subject, which we will also
give you a copy of, and want you to look at it. This document
suggests that the Department of Defense agreed with the
Department of Commerce on only 23 percent of the specific items
in this request. That is, that no license is required for the
export of the technical information.
The Department of Defense determined that 64 percent of the
items should be exported only pursuant to an individual
validated license. And the remaining 13 percent DOD could not
or did not pass judgment on, because the request contained
insufficient information or documentation.
So the Department of Defense, as I understand this
document, took the position that only 23 percent of the
information could be exported without a license. Though the
Commerce Department had issued a commodity classification
allowing all of it to be exported without a license.
Can this be described, in a fair way, as an example of why
the Defense Department would like to have greater involvement
in the Commerce Department's commodity classification process?
Mr. Miller. Mr. Chairman, I can't, just glancing at this,
tell you that the percentages are correct. But it is clear from
the document that Defense did recommend split jurisdiction on
this point, and that that would, that tends to indicate that
Defense viewed this original decision as not being correctly
classified.
But I would also say, especially with Secretary Reinsch and
Secretary Holum here, that I can't give a full answer to this,
that they ought to be allowed to comment on this.
But in answer to your question, this would indicate that
Defense had gone on record saying that in this specific case,
there was information which we believe belonged under the State
Department jurisdiction and which we needed to review.
Senator Cochran. I appreciate that you can't at a glance
verify all the percentages. And we're not asking you to do
that. We're simply trying to find out whether this is an
example of what would happen if DOD were involved in helping
make the decision about whether an individual validated license
is required, or whether a blanket permit can be issued to a
company that writes in and gives eight pages of technical
information, and then Department of Commerce, under current
procedures, as I understand it, has the legal authority, under
the executive order, to make that decision without consulting
the Department of Defense.
Is that a correct statement that I just made?
Mr. Miller. That is my understanding, Mr. Chairman. But
again, Mr. Reinsch or Mr. Holum may have a different view.
Senator Cochran. I have some additional questions on the
subject of monitors. But at this point, I think I will defer to
my colleagues and give them a chance to ask questions on the
subjects that I've covered or any other subjects they wish to
explore.
Senator Levin.
Senator Levin. Thank you, Mr. Chairman.
This process that was just described by the Chairman was a
1992 letter, is that correct?
Mr. Miller. That is correct, Senator.
Senator Levin. That was years before the 1996 Executive
Order that we've been talking about, is that correct?
Mr. Miller. That is correct. But again, not passing myself
off as an expert, and deferring to Secretary Reinsch or
Secretary Holum, it is my understanding that that is still the
system under which we operate.
Senator Levin. I don't doubt that, but I'm just simply
saying that this is not because of an executive order. This
system long predated 1996, is that correct?
Mr. Miller. That is correct.
Senator Levin. So I think it's worthy for us to explore the
process that's used, but we ought to do it understanding that
this system of allocation or classification apparently goes
back to 1992, and perhaps before that, is that correct?
Mr. Miller. That is correct, I mean, looking at this----
Senator Levin. Mr. Chairman, I'd like to ask Secretary
Reinsch if I could, is it appropriate at this point for him to
comment on this, to give him an opportunity to comment on this?
Senator Cochran. Why don't we complete our questioning of
this witness, and then if you'd like to recall him, we'll do
that.
Senator Levin. All right. I would like to do that. So
perhaps he can stick around.
Has the Defense Department suggested that we make changes
in the law or whatever it is that determines who does the
commodity--I guess it's the classification that you were
talking about here, I'll call it that. Has the Defense
Department suggested that we make changes in this law?
Mr. Miller. I understand I can't say that I did this
personally, Senator Levin, but I understand that there was
interagency debate and Defense did advance some positions along
those lines.
Senator Levin. To the Congress, do you know?
Mr. Miller. Not to the Congress. Within the Executive
Branch.
Senator Levin. Could you find those items and forward those
to this Subcommittee?
Mr. Miller. Excuse me?
Senator Levin. Could you try to locate those suggestions or
recommendations which were interagency at some point, and
forward those to this Subcommittee, so that we can consider
those changes?
Mr. Miller. I'll certainly take that back, Senator Levin.
Senator Levin. All right.
Does the Defense Department believe that your power to
influence the decision making process on satellites has
diminished or was diminished by the executive order?
Mr. Miller. No. Absolutely not. In fact, it was
strengthened, in that we now have the clear right to review all
Commerce Department licenses for communications satellites,
commercial communications satellites.
Senator Levin. And the executive order that we're referring
to here is the Clinton executive order in early 1996?
Mr. Miller. December 1995.
Senator Levin. All right.
Mr. Miller. Nor do we believe, Senator Levin, as was
suggested, not by Senator Cleland, but in the quote that he had
from a prior witness before the Subcommittee that our role has
been diminished in this or our effectiveness has been
diminished.
Senator Levin. Does the DOD see every Commerce Department
license application to export a satellite to China?
Mr. Miller. Yes. Under the new executive order, yes.
Senator Levin. And for these licenses, does the Department
always require a technology transfer control plan?
Mr. Miller. Yes.
Senator Levin. Does the Department of Defense always
require U.S. supervision of a satellite in transit and while on
Chinese soil?
Mr. Miller. Absolutely. Our technology control plan, or
technology transfer control plan, to go with the chart,
requires that we have U.S. control of the satellite from when
it is shipped, at the moment it is shipped to China, up through
launch and indeed allows us to recover debris if the satellite
fails and if the rocket fails and explodes.
Senator Levin. So that you, the DOD, have with every
launch, a person who is physically monitoring the satellite, as
of 1996?
Mr. Miller. Well, 1995, early 1996. Yes. And again, for
most of the period, with the exception of those three launches
that were mentioned earlier, we also had monitors present.
Senator Levin. Well, I don't know, it's kind of hard to
read that, because it says, were monitors required, it says no,
then there's a little footnote on that chart that says even
though they weren't required, they were present in a couple
cases, if I can read that footnote correctly. That's the way I
read it.
Mr. Miller. Previously witnesses have told this
Subcommittee and other committees that there were three
unmonitored launches. As I read this chart, and again, reacting
in real time, there are seven yellow squares where monitors
were not required, take away two where they were not required
but otherwise present is five.
Senator Levin. One was canceled. That gives you four.
Mr. Miller. And I can't account for that other one.
Senator Levin. All right. Well, perhaps you could do that
for the record, then. And also, as the Chairman and others,
I've suggested, would you also give us your comment for the
record on that chart, when you've had a chance to review it.
Mr. Miller. Yes, sir.
Senator Levin. Finally, on June 25, the full Governmental
Affairs Committee had a hearing focusing on the Defense
Technology Security Administration, or DTSA. And a long-time
DTSA employee had some criticisms of the agency, and I
understand that the Department heard those charges for the
first time during the hearing. There was some response from the
DOD at that hearing.
Mr. Miller. I was the witness.
Senator Levin. I was otherwise occupied on the Floor. But
in any event, I'm wondering if you've had a chance to study
that matter now, and if there's anything more that you would
want to add, since you've had a chance to review it, or whether
whatever you had to say at the time was it.
Mr. Miller. I disagreed with much of what was said in that
testimony. And if the Subcommittee desires, we can send over my
personal assessment. I think that it was unfortunate that a
number of issues were raised and confused. And I can give you
some examples.
A great deal was made about the decontrol of lasers and
laser weaponry. I'm not aware of any, and I've asked my staff,
and they are not aware of any decontrols of laser weapons at
all, or any decontrols of lasers that could be turned into or
converted into weapons under dual use. And certainly, there are
enough, as we all know from both the classified and
unclassified material, there's enough laser weaponry that has
come out of the former Soviet Union to make this a problem
anyway.
There was an allegation that the administration's decontrol
of oscilloscopes somehow was related to the Indian and
Pakistani ability to test nuclear weapons, whereas the
administration's decontrol of oscilloscopes specifically said
that those objects could not be exported to countries of
proliferation concern. The question was raised about the export
of computers to Russian nuclear weapons facilities at Arzamus
and Chelyabinsk, whereas in fact, when the license request was
submitted to the administration, enough questions were raised
that the license request was withdrawn.
The fact that computers went there has nothing to do with
the licensing process. No licenses were granted. In fact, a
criminal investigation was launched. So it had nothing to do
with how the administration looked at it. In fact, the
administration looked at it so critically that the request was
withdrawn.
So throughout that testimony, there were a number of
serious charges that were put in front of the Subcommittee that
I believe the record will show, the facts will show, were
without any substance whatsoever.
Senator Levin. If you could supply for the record any more
complete statement that you might wish to have, I would
appreciate that, if that's all right with the Subcommittee.
Senator Cochran. Without objection, we will receive that
and make it a part of the record.
Senator Levin. And finally, Mr. Chairman, in addition to my
request that the Department submit to the Subcommittee any
recommendations that it had relative to the classification
process--the Department of Defense--I would ask the other
witnesses from the other departments to do the same. Not just
any prior suggestions, but I would request these agencies to
submit any suggestions that they have at this time relative to
that subject, so that assuming there was a mistake made here in
1992, very possible there was a mistake made in this kind of a
letter, but how can we avoid that kind of a mistake if indeed
it was a mistake.
I don't want to prejudge it, you haven't had a chance to
look at it. But I think we ought to ask the agencies, Mr.
Chairman, all of our agencies, for any recommendations on this
subject they have, whether or not they were existent at the
time of this interagency discussion, so that we get their
current thinking.
Senator Cochran. I think that's an excellent suggestion,
and we may even put that in writing, so we have a copy of our
request in the record to each Department--Commerce, State and
Defense.
Senator Levin. Thank you, Mr. Chairman.
Senator Cochran. Thank you.
Senator Durbin.
OPENING STATEMENT OF SENATOR DURBIN
Senator Durbin. Thank you, Mr. Chairman.
Secretary Miller, help me to understand context here a
little bit. The decision as far back as the Reagan
Administration that we would not develop the capacity to launch
commercial satellites really meant that we had to go to the
open market to find other countries with that capacity. I
believe that became an inevitable result of that policy
decision.
And now we find ourselves more and more dependent on that
satellite technology for a variety of things that we believe
benefit us and other countries in the world. As I understand,
trying to parse through the process here, we are trying to make
certain that we achieve the good that can come of this without
sacrificing or in any way jeopardizing our national security.
There have been a variety of different procedural approaches
used here, including the President's executive order.
I guess my first question, an open-ended question, is do
you feel at this moment that the current system that is in
place protects our national security, so that our use of rocket
launches for satellite technology in other countries will not
jeopardize our national security or in any way transfer
technology that is crucial for our national defense?
Mr. Miller. Senator, I believe that the procedures now in
place, which resulted from the December 1995-January 1996
executive order and change, are adequate to protect our
national security. We in Defense review every license for a
communications satellite launch. From a national security
standpoint, that is really important.
Also, this is really much more under the purview of
Secretary Reinsch. It means that our satellite, U.S. satellite
manufacturers have vehicles that they can use to get their
satellites in orbit and start their money stream faster. The
maintenance of a strong satellite production base is, at the
end of the day, critical to our national defense needs.
So I believe we have the safeguards, and I believe it does
help the satellite industry, and that is also important.
Senator Durbin. How frequently do these launches fail?
Mr. Miller. I can supply that for the record. It varies by
launch system. I was looking at these statistics the other day.
There are a few systems out there that have 100 percent record.
There are some in the 80s, there are some in the 70s. It
depends whether it's the European Arianne system, or whether
it's the Russian Proton system or the U.S. Atlas or the U.S.
Delta or the Chinese Long March.
So it really is, as I understand it, system-specific.
Senator Durbin. Just taking the Chinese for an example, do
you recall what the fail rate was?
Mr. Miller. I think, again, let me get back to you for the
record, because there are four or five different types of
Chinese rockets that are used, they're different variants of
the Long March system, some of which have 100 percent success
rate, some of which have about a 75 or 60 percent success rate.
Let me take that back and get you the accurate information.
Senator Durbin. It's my understanding in reading and in
conversations that in the event of a failure, a private company
in the United States, before it can launch another satellite
and obtain the insurance for that purpose needs to determine
the cause for the failure and make some sort of effort to make
certain it doesn't happen again, which would involve, I think,
one of the fact situations that we've been talking about here.
One of the things that comes up as we discuss this is
whether or not in improving this launch capacity of any
country, China or any country, we are improving the capacity
which could be used for a military purpose. How do you draw
that line as you make the call from the Department of Defense
in each of these instances?
Mr. Miller. Our intent in creating the strict conditions on
the licenses is to ensure that no technology is transferred to
the Chinese with regard to improving their launch systems. We
are using, not we, the U.S. company, is using the Chinese
rocket as a delivery bus. That's all. As I think an editorial
by Brent Scowcroft and Arnold Kantor said a few weeks ago, it's
like FedEx. You give FedEx the envelope and FedEx takes it some
place.
The safeguards that we put in place forbid the U.S. company
to provide the Chinese with any information which would assist
them in improving their rockets. So from that standpoint, we
believe we have in place a series of safeguards that protect
national security.
Now, to anticipate a question you didn't ask, what happens
when somebody breaks the safeguards or breaks the laws, and
it's a question that I think would go for any law. The laws are
there, the regulations are there. It is clear what you're
allowed to do and what you're not allowed to do. And if you
break those, then there are obvious penalties, and the Justice
Department gets involved.
Senator Durbin. But the launch failure, the launch system
failure, in and of itself, you are saying we don't address the
improvements or the repairs necessary, or we try to draw a
line?
Mr. Miller. We try to draw a line.
Senator Durbin. And stay on the other side, in terms of the
development of that technology?
Mr. Miller. That is correct.
Senator Durbin. Even though the commercial customer may
have a very personal interest in getting this rocket back up
into space with his own satellite technology?
Mr. Miller. Sure. But our requirement from a Defense
standpoint, a national security standpoint, is to protect this
country by not allowing China's military capability to be
improved in this manner. That's why we put the conditions that
we do. That's why we require a monitor to be present for any
technical discussions between the satellite manufacturer and
the launch provider. That's why all of our requirements on the
license, the TTCP, are what they are.
Senator Durbin. There's been some complaints in the
commercial sector about dealing with China and difficulties and
resistance. In the Department of Defense's role here,
concerning these Chinese launches, have you detected any type
of resistance or efforts to circumvent the clear intent of our
laws to protect our national security?
Mr. Miller. I personally have not, but I don't know that we
would get involved. I personally have not, no.
Senator Durbin. Thank you, Mr. Chairman.
Senator Cochran. Thank you, Senator Durbin.
Secretary Miller, we had testimony at our earlier phase of
this hearing on June 18 that there were three launches that DOD
was aware of that were licensed by the Commerce Department and
completely unmonitored by DOD. And I know we've had some
question about whether it's four or five. But Secretary Lodal
at that time testified, ``We are not aware of any transfer of
technology from these unmonitored launches that contributed to
China's missile or military satellite capabilities.''
Does this mean in your judgment that no technology transfer
occurred at these launches, or because DOD monitors were not
present, DOD doesn't know if any technology was transferred?
Could you help us interpret that?
Mr. Miller. Mr. Chairman, speaking for myself and not Mr.
Lodal, because I don't want to put words in his mouth, it would
be to me the latter. That is, we have no knowledge of any
technology transfer. Full stop.
Senator Cochran. The Department has suggested that monitors
were neither required nor present at three launches of
satellites in China, specifically APSTAR II, APSTAR IA and
Chinasat-7. Those are the three that have been identified to us
as having no monitors.
All of these satellites, we are told, are manufactured by
Hughes and licensed by the Department of Commerce. The chart
shows four other satellites that did not require monitors
pursuant to its Commerce Department-issued license. That's our
interpretation, that's what I understand is trying to be
reflected in that chart.
Neither Echostar-1 nor Echostar-2 required monitors.
Echostar-2 was ultimately canceled, which someone has already
suggested, while Echostar-1 was monitored at the launch, but
not throughout the process, because monitors already present
for the launch were there for a previous satellite, and they
stayed to monitor this Echostar-1 launch.
But there were no monitors required, as I understand it,
and there were no monitors throughout the process, except at
the launch, because of the coincidence.
On Chinastar-1, which was launched at the end of May, there
were also no monitors required, but the company, which was
Lockheed-Martin in this instance, showed up of its own volition
and asked for monitors. That's the information obtained from
the company. But monitors were not present throughout the
entire process.
The Optus B3 is one where no monitors were required. Hughes
has told us that no monitors were present at any stage in the
process. But I understand from DOD that monitors were present
at the launch.
Whether or not Hughes is correct, isn't it clear, that
while the Commerce Department has been licensing satellites for
launch in China, the technology transfer safeguards have been
less stringent than when the State Department ran the process.
Isn't that correct?
Mr. Miller. I think it's certainly correct to say that the
procedures now in place, as of December 1995, require that DOD
monitors be present throughout. I can't speak to the details
that you have just given with authority. I will take those all
back and investigate those.
But I think as of the new executive order, there are
supposed to be monitors and DOD wants there to be monitors and
requires that there be monitors. Clearly there was a period in
the transition when there were not DOD monitors, which is not
what we would have preferred. And had things, as Secretary
Lodal explained, had a State Department license that we had
been expecting them then applied for, we would have had
monitors there. But that license was not applied for.
But I would say to you that as of December 1995, that
situation has been corrected.
Senator Cochran. Thank you.
I have no further questions of this witness. If you would
like to ask additional questions, we can do that, or recall
previous witnesses. It's up to you.
Secretary Miller, thank you very much. You are excused.
At the request of Senator Levin, Secretary Reinsch is
invited back to the witness table, and we remind you, you're
still under oath.
Mr. Reinsch. Thank you, Mr. Chairman, it's a pleasure to be
back. [Laughter.]
Senator Cochran. Senator Levin.
Senator Levin. I just thought that we ought to ask the
Commerce Department to comment on this process of
classification of commodities, I guess it's called, or items.
There was a reference to a 1992 decision of the Department of
Commerce which the Department of Defense at that time, when it
was brought to their attention, thought should have been at
least partly, I gather, either on the Munitions List or on the
dual use list of the Commerce Department. It's not clear to me,
it may be clear to you from looking at those documents.
Could you talk to it, could you tell us what the process
is, and whether or not suggested changes were made to get the
DOD involved in that classification process, and if not,
whether they shouldn't have a look at all the applications, to
see whether or not they would agree that an item should be on
either list?
Mr. Reinsch. Thank you, Senator Levin. One of the
advantages of old age is being able to remember, at least for a
while, some of the things that happened a long time ago that
are reasonably obscure. In fact, we addressed precisely this
question as part of the President's decision in 1996 to
transfer jurisdiction.
What is not well known, because the satellite transfer has
occasioned all the publicity, is that at the same time, the
President addressed the question of commodity classification
and commodity jurisdiction issues, which has been, I think, by
all accounts, a thorny one for a long time. In fact, Congress
has sought to address it in 1990, 1992, and 1994 in
legislation, which was subsequently not enacted for a variety
of reasons. It's a difficult question.
What the President did was, with respect to the general
question of how you settle these disputes, which is what we're
talking about here, was to do two things. First of all, he
created----
Senator Levin. Excuse me for interrupting, you say settle
these disputes. We've had a lot of disputes we're talking about
where there's differences as to whether or not there should be
a waiver. You're talking about whether or not an item, any
item, should be controlled, should require a license. Is that
what you mean by dispute?
Mr. Reinsch. No. By dispute--I've used a poor choice of
words. The term commodity jurisdiction is kind of a term of art
in our business. And it refers to the decision of whether an
item is controlled by the State Department under the Munitions
List, or whether it's controlled by the Department of Commerce
under the Commerce Control List.
Senator Levin. But I thought this letter, which was
referred to, said that they were not controlled on either list.
Mr. Reinsch. Well, that letter said that, yes. And I can
comment on that in a minute.
Senator Levin. That's what my question goes to. I think
we've spent a lot of time on whether one should be on one list
or another, and then Congress is notified if it's shifted from
the Munitions List onto the Commerce Department list, we're
given a certain amount of time to act if we want to act. We've,
I think, spent a lot of time on that, and I have no problem
with you going back to that, if you want.
But there's a different issue which has been raised here,
it seems to me, today. And I hope I'm not misinterpreting the
Chairman's letter. I'm seeing this also for the first time, but
let me tell you what I understand this letter to mean.
That November 1992, the letter went to the Commerce
Department asking whether an individual license was needed for
any of these items. The answer came back, no. Then the Defense
Department got into it when somebody raised a question about
that letter, I think someone in the State Department or some
department raised a question about this.
The question I'm asking you is, on that issue, whether an
item belongs on either list, is that decision made in the first
instance by the Commerce Department and should the DOD have
some role in that question as to whether it should go on either
list?
Mr. Reinsch. Well, what I was getting to is, we've set up a
procedure where DOD would have the opportunity to review these.
In this particular case, the answer to your question is that,
because the question is whether it belongs with the State
Department or Commerce----
Senator Levin. Or neither.
Mr. Reinsch. Well, but you have to go somewhere to decide
which it is. And the applicant can go to either place. You can
address, this is the company in question who has an item in
question and wants to know, is it subject to anybody's license
and if so whose, effectively under the system that's been in
existence for years has a choice. He can go ask the State
Department that question and they can say, yes, it's ours, or
go to the Commerce Department, they can come to the Commerce
Department, and we'll say whatever we say, or they can go to
both.
In fact, in this particular case, that's what happened.
Because there's one document that's not included in the pile
that's here. And the sequence of events, as I understand it,
and keep in mind this was largely before my time in the
Department, the letter that you refer to was sent to us in
November 1992. In January 1993, we responded with the commodity
classification that was described.
Subsequently, the State Department was asked essentially
the same question. What the State Department responded with in
its letter to the Hughes company of September 17, 1993, was a
commodity jurisdiction decision in which they refer----
Senator Levin. Excuse me, is that the letter which was
given to you here today?
Mr. Reinsch. No.
Senator Levin. That's your letter, you got it from some
other source?
Mr. Reinsch. This is the State Department's letter.
Senator Levin. I don't think any of us have that.
Mr. Reinsch. Well, I'd be pleased to provide it.\1\
---------------------------------------------------------------------------
\1\ The State Department letter, dated September 17, 1993, appears
in the Appendix on page 132.
---------------------------------------------------------------------------
Senator Levin. Is it short enough so you could read that
letter?
Mr. Reinsch. As these things always are, it's in the form
of a memorandum. It says, ``the purpose of this letter is to
inform you of a recent commodity jurisdiction on the subject
data.'' The data, I believe, is the same as the eight-page
document that the Chairman referred to. ``This commodity
jurisdiction request was referred to the Departments of
Commerce, Defense, and the National Aeronautics and Space
Administration for their review and recommendations.''
``As a result, the Department of State has determined that
the data outlined in this document is subject to the licensing
jurisdiction of the Department of Commerce. Please consult that
agency's office of technology and policy analysis, and there's
a phone number, to determine their requirements prior to
export.''
So the sequence of events here was that in January 1993,
the Department of Commerce determined that this was under our
jurisdiction and provided the classification to the exporter.
In September 1993, the State Department came to the same
conclusion and referred the exporter to the Department of
Commerce with respect to how this should be treated.
Subsequently, and there's a reason why this kept going back
and forth, Senator. But subsequently, the Commerce Department
sent another letter, dated in this case January 1994, to the
Hughes Company, reaffirming both of the previous decisions, the
one by the State Department and the one by the Commerce
Department, since they were the same decision.
What happened, if you want to know the story, is that
essentially throughout this period, notwithstanding the
decisions that were made by both the State Department and the
Commerce Department, there were individuals in the Department
of Defense who continued to tell the company that these items
were under the jurisdiction of the State Department,
notwithstanding the State Department's determination to the
contrary. This caused the issue to be constantly going back and
forth between agencies, as we attempted again and again and
again to come to what was effectively the same conclusion.
Senator Levin. When you read that letter, you made
reference there to the fact that that was referred to the
Department of Defense.
Mr. Reinsch. That's what it says, yes. And I assume that
the document that was provided last here, this thing that the
Defense Department filled out, the one with the reference to
the percentages, I assume that this was the document, that this
was the Defense Department's response to that referral, the
response to the State Department.
Senator Levin. So that the process in place at that time
called for a referral to the Defense Department, or at least
there was a referral to the Defense Department?
Mr. Reinsch. That certainly indicates that's what happened
in this case, yes.
Senator Levin. So that we did get the Defense Department
analysis, based on a referral from the State Department, is
that correct?
Mr. Reinsch. That's what the documentary record indicates,
yes.
Senator Levin. Well, it seems to me then we do have the
kind of protection which we should have for this kind of an
inquiry, to make sure that the Defense Department had an input
in it. Is that the usual process?
Mr. Reinsch. Well, yes, Senator. And in fact, we've done
better than that. Because as a result of the President's
decision in 1996, that I started to refer to, we now have a
process in place at the Commerce Department where we refer our
commodity, a number of our commodity classification decisions
to Defense for their review and objection, if necessary. If
they believe we've made a wrong decision, they can come back
and tell us. And they've done that on several occasions.
Senator Levin. So that since January 1996----
Mr. Reinsch. It was later in 1996.
Senator Levin. Since 1996, there's been even a tightening
of the reference process to be sure that something's referred
to Defense. But I'm interested in this exhibit, back in 1992.
What you're saying is that that inquiry was referred to the
Department of Defense, and the Department of Defense responded
to a State Department inquiry. Is that correct?
Mr. Reinsch. The State Department referred it, that's
correct, and they responded, and you have their response. As I
understand the situation.
Senator Levin. Well, was there an earlier letter that went
out from the Commerce Department saying that none of that, that
you didn't need a license at all?
Mr. Reinsch. Well, the sequence of events was, the Hughes
company wrote us in 1992. That's the lengthy letter. We
responded in January 1993, with our judgment that this was
licensed under--what a commodity classification means is we
give them a code number indicating under what categories this
stuff falls. We said it was 9E96G.
At the time, that was a category that meant for the
material in question, no license required.
Senator Levin. No license required was your judgment?
Mr. Reinsch. That was our judgment.
Senator Levin. OK.
Mr. Reinsch. Now, what the State Department determined
later that same year was that the same technology, the same
information, the same document from Hughes, was under our
jurisdiction and not theirs. And so they referred the writer
back to the Commerce Department for a decision. Our decision
was the same, yes, it is our----
Senator Levin. At that time. But your decision at the end
of 1993 differed from your decision----
Mr. Reinsch. No, our decision at the end of 1993 was the
same as our decision at the beginning of 1993.
Senator Levin. I thought at the beginning----
Mr. Reinsch. We reaffirmed it. If I misspoke, I apologize.
Senator Levin. I don't think you did. I think I'm confused.
Mr. Reinsch. This was one of the great ping-pong balls of
1993.
Senator Levin. I understand ping-pong, I know that game
pretty well. But it seems to me that in January 1993, what
you've said is that it didn't require a license at all.
Mr. Reinsch. Didn't require one of ours, that's correct.
Senator Levin. One of your licenses.
Mr. Reinsch. Well, we determined that it falls under our
jurisdiction, not the State Department's, and that within our
system, it didn't require a license.
Senator Levin. All right. Then the State Department was
asked about it. They referred it to the Defense Department. The
Defense Department came back and said the 22 percent or
whatever it is does fall on whose list?
Mr. Reinsch. I don't know. I haven't examined that. I think
they said part of it was ours and part of it was the State
Department's.
Senator Levin. OK, then, if part of it belonged on the
Commerce Department list, that would be a difference from your
own judgment in early 1993, would it not?
Mr. Reinsch. Yes.
Senator Levin. And then you accepted the Defense Department
judgment later on in 1993?
Mr. Reinsch. No. The State Department took the matter up
with the Defense Department. Presumably the Defense Department
gave its advice to the State Department.
What the State Department said in 1993 was that the
material was within the Commerce Department's jurisdiction, all
of it.
Senator Levin. But that's different from the conclusion you
reached, is it not?
Mr. Reinsch. No. Different from the conclusion the Defense
Department reached. The State Department and the Commerce
Department came to the same conclusion.
Senator Cochran. Senator, would you yield to let me ask one
question?
Senator Levin. Sure.
Senator Cochran. There's another part of this letter, down
at the bottom in the last paragraph that you didn't read, that
says this ruling does not include technical data for launch
vehicle satellite compatibility, integration or processing.
Finally, this ruling does not cover detailed design technology
or manufacturing processes or techniques.
Mr. Reinsch. Yes, sir, that's correct. What happens in
these, and we would certainly agree that our ruling didn't
include that, either. What both agencies were presented with
was the eight-page document you referred to. And that eight-
page document, as I recall, I don't have it in front of me, is
a list of technology.
Based on our review of that document, we determined that
the technology that was referenced in that document had this
licensing classification. What the Defense Department is saying
is the same thing, but making clear that it doesn't include
this other stuff. And we would certainly agree with that. Our
decision didn't include the substance of what you just read,
either.
Senator Cochran. Why did Hughes write you back 9 months
later and say, we don't understand your previous decision,
would you explain it to us, and you never answered that second
letter?
Mr. Reinsch. Well, no, we did answer the second letter. We
wrote them on January 6, 1994, and then we wrote them again in
May 1994, answering repeated inquiries. The reason they
continued to write us back is that individuals at the
Department of Defense continued to tell them that our decision
was wrong, and that they were acting illegally. And they
sought--this was a case, frankly, where the government was
sending, different individuals in the government, were sending
different signals.
The company returned to the Commerce Department and the
State Department to get a decision. It is the Commerce
Department and the State Department who make these decisions.
The decisions were consistent, and they were the same. But the
message that the company got from other individuals was not
always consistent with those decisions.
So the company returned periodically to reconfirm the
decision that had been made previously.
Senator Levin. Could I ask one more?
Senator Cochran. Of course. I was just going to make the
observation here that we're going to have to get somebody from
the company to tell us what they meant when they wrote their
letter. I think we're all wasting our time here trying to
interpret a Hughes letter. We've got one dated October 8 which
seems to clearly show that they are confused by the Commerce
Department's response.
``Since there is some difference of opinion as to what
event triggers the ability to utilize a Commerce Department
license exception, please clarify conditions under which the
exception is applicable.'' That's dated October 8, 1997.
They're still trying to find out what it means. If they can't
find it out, and they've got the job of complying with the
rules, how are you and I going to figure it out? They're the
experts.
I ask that a copy of this October 8 letter be placed at
this point in the record.\1\
---------------------------------------------------------------------------
\1\ The letter from Hughes Space and Communications Company, dated
October 8, 1997, appears in the Appendix on page 133.
---------------------------------------------------------------------------
Mr. Reinsch. If I could comment on that letter?
Senator Cochran. Of course.
Mr. Reinsch. I'm sure you're looking forward to this.
[Laughter.]
We believe what the company intended with that letter, and
we have had some interagency meetings that have included the
Department of Defense and others to discuss how best to
respond, we believe what the company was asking us effectively
was whether our ruling of 1993, which I've just referred to,
and the State Department ruling of 1993, still stands, or
whether the result of the jurisdiction transfer in 1996 changed
anything. That's the question they were asking.
We do not believe that the question they are asking
includes more technology than what they asked us in 1993, and
they are essentially asking for a reconfirmation.
Senator Cochran. Have you answered this October 8 letter
yet?
Mr. Reinsch. No, sir, we have not.
Senator Levin. Let me go back to 1992, because I think I
may understand this now. Basically, you, the Commerce
Department and the State Department agreed back in 1992 and
1993. The Defense Department disagreed.
Mr. Reinsch. That appears to be the case.
Senator Levin. But the key to me is that the Defense
Department was involved.
Mr. Reinsch. Yes, sir.
Senator Levin. That's what I want to make sure of, because
I think there was an implication here, an impression that was
given that somehow or other, the Defense Department wasn't
involved in this process. And the Defense Department was
involved in that 1992-1993 incident. They said they interpreted
whatever the regs were a certain way, and both the State
Department, which has the Munitions List, and the Commerce
Department, which has the Commerce Control List, reached the
same conclusion, that the Defense Department was wrong. Is that
correct?
Mr. Reinsch. That's correct.
Senator Levin. All right. I have no way of knowing whether
the State Department and the Commerce Department on the one
hand were right or whether the Defense Department was right.
That's way beyond my understanding, maybe, at least current
knowledge.
But the important issue to me is that there was a reference
to the Defense Department, they weighed in on the issue and
they had their opportunity to be heard, whether they were
agreed with or not by the folks that have to make these
licensing decisions.
Now, the next question seems to me would be of the Defense
Department as to whether or not something that they thought
should be licensed was not subject to license. That, it seems
to me, we either ought to ask for the record or, I guess that's
the best way to do it, because that's what this all came down
to back in 1992 and 1993, I gather, is that something which
they thought should be subject to license was not subject to
license in the opinion of both the State Department and the
Commerce Department.
And we ought to find out, well, then, wait a minute, should
anything which the Defense Department thinks should be subject
to a license be subject to a license. Why not. Why not err on
the side of caution. If the Defense Department thinks there
should be an individual license, why not add that to either the
Commerce Department or the State Department. That's a question
I'd like to think about and ask the Defense Department or I can
ask you. Why not just say, if that department thinks it ought
to be subject to individual license, make it subject to an
individual license?
Mr. Reinsch. That's a complicated question. I think over
the years the Congress has felt, and various successive
administrations have felt, that we ought to do the best we can
to make this a collaborative process in which no one has a
veto, but everybody has a role. And particularly with respect
to dual use items, where there are significant commercial
consequences either way.
As I said, in the past, that's not the dispositive issue,
but it's not irrelevant either. That the legislation that
Congress has passed and the actions administrations have taken,
particularly this one, have consistently held that the exporter
is entitled to an efficient, timely decision, and one that is
made through a collaborative process in which everyone with
equities plays, but no one has the power to stop the process.
If we're going to get into the business of saying that an
individual agency should be determinative, we've witnessed in
the past some of the consequences of that through processes
that existed prior to the Executive Order of 1995 that we've
discussed in the past, in which individual agencies essentially
have the power to hold up licensing actions or commodity
classification decisions indefinitely, simply by not making the
decision. The common phrase in the exporting community at the
time was, we had a licensing process that was like the roach
motel, the applications check in, but they don't check out.
And the consistent demand that we got from Congress
throughout that period, and something that I participated in at
the time when I was here, and something that I know this
administration feels strongly about, is that the exporter is
entitled to something better than that. He is entitled to a
rapid decision, even if it's a ``no.'' And he's entitled to a
process in which there is, a collaborative process in which
there is debate. Engineers get together and contend.
These are complicated, difficult questions. And they are
technical questions. Reasonable people, competent engineers,
will disagree. These things happen.
What I think is important is that we have a process in
which there is a conclusion one way or the other; someone makes
the decision. That is what happened in this case.
Now, what I've said frequently in other contexts is, these
are controversial matters, virtually every decision that is
made, and you've had a list of them and other people have had a
list of them, virtually ever decision that is made, you can
find a dissenter for. And if you can't find it in the
Department of Defense, you can find them in the Department of
Commerce or the Department of State.
I think the public interest is better served by a process
in which decisions get made and not one in which they are
simply put onto the back burner, which would happen if we
started handing out vetoes or veto rights.
Senator Cochran. Senator, they've signaled that we have a
vote on that's commenced on the Floor of the Senate. I suggest
we try to wrap up the hearing, if it's OK with you.
Senator Levin. Thank you very much.
Senator Cochran. Mr. Reinsch, let me ask you one further
question, then I'm going to ask that we call Mr. Miller back
for a couple of questions, then we'll be done.
We can't find the requirement for DOD monitors resulting
from the 1996 executive order change in licensing jurisdiction
that gave the Commerce Department the lead role, not in a
statute or policy or regulation or a memorandum of agreement,
which we had in 1993, that allows for monitors but does not
require them. Isn't this a fact that what we have here is a
practice of the Department of Defense to suggest monitors? But
there's no real requirement that there be monitors? Isn't that
the state of affairs?
Mr. Reinsch. I would go a step further than that, Senator.
We've agreed to do it, and we do it.
Senator Cochran. But it's not required by law, statute,
regulation?
Mr. Reinsch. It's not required by law, it's not required by
regulation. I would say it is our policy to do it.
Senator Cochran. Well, what happened was Secretary Lodal
was here last time, and I don't want to try to impeach him, but
he said this monitor requirement was incorporated as a
requirement in 1996, when jurisdiction for all commercial
communication satellites was transferred to the Commerce
Department.
Mr. Reinsch. He was referring to the fact that we put it in
each of our licenses as a requirement.
Senator Cochran. OK. But it's not a statute, policy or
regulation, it became a practice?
Mr. Reinsch. Yes. We have not promulgated a regulation that
says, we are going to put it in every one of these. In fact, we
do put it in every one of these.
Senator Cochran. OK. Now we've got it, I think.
Could we have Mr. Miller come back for a couple of other
questions? Let me remind you again, you're still under oath as
well.
Is DOD review of the completed license prior to its issue
by the Commerce Department one of the needed improvements you
had in mind when you earlier commented that you do not get a
copy of the license now under current practice?
Mr. Miller. Yes, sir, that is my personal opinion.
Senator Cochran. And you also said, when you were before
the Subcommittee on June 25, that our system is not perfect, it
needs improvement, and even these hearings and preparing for
them has given us some ideas that we need to carry out within
the Executive Branch to better that. One of which would be
getting a copy of the license as issued by the Department of
Defense, is that correct?
What other changes, if any, can you tell us, or
improvements in the process, should be made to minimize the
technology transfer risk when launching a U.S.-built satellite
in China?
Mr. Miller. I think the system, as far as it goes to
minimize the risk of technology transfer, is very good. I think
that there are some things we in Defense could do better
internally.
Senator Cochran. And Senator Levin has suggested that this
would be good to have from each department, and I concur in
that. If you would do that for us, we would include it in the
record, State, Commerce and Defense Departments.
Is DOD involvement in the Commerce Department commodity
classification process another of the needed improvements you
had in mind? You touched on this earlier. I wanted to nail that
down.
Mr. Miller. I think that after our discussions so far, and
the conflict between Senator Levin and Secretary Reinsch,
that's one we'd all better go back and look at and submit to
you in very clear form. There's one thing that I need to
discuss with Secretary Reinsch in the history of what was just
said about Defense's involvement as an historical fact we need
to nail down.
Senator Cochran. In other words, there's a disagreement
over that fact, isn't there?
Mr. Miller. Well, I'm not quite sure. I only have what you
told me, Mr. Chairman, about how DOD was brought into that
process back in 1992 by a private citizen calling for a CJ and
Defense not having been involved in the beginning.
What I'd like to do is check the history with Secretary
Reinsch, and then submit to you for the record my understanding
of how DOD got into that or didn't get into that.
Senator Cochran. And whether a formal change needs to be
made to give you that right.
Mr. Miller. I'd prefer to submit all of that as a package.
Senator Cochran. We would appreciate that.
Senator Levin, any further comments?
Senator Levin. That would be fine. Thank you.
Senator Cochran. We appreciate your help, all three
witnesses. Thank you very much. The hearing is adjourned.
[Whereupon, at 4:07 p.m., the Subcommittee was adjourned,
to reconvene at the call of the Chair.]
A P P E N D I X
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