[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]





                 MUNITIONS LIST EXPORT LICENSING ISSUES

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

                                HEARING

                               BEFORE THE

                              COMMITTEE ON
                        INTERNATIONAL RELATIONS
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED SIXTH CONGRESS

                             SECOND SESSION

                               __________

                             MARCH 28, 2000

                               __________

                           Serial No. 106-155

                               __________

    Printed for the use of the Committee on International Relations


        Available via the World Wide Web: http://www.house.gov/
                  international--relations

                                 ______

                    U.S. GOVERNMENT PRINTING OFFICE
67-607 CC                   WASHINGTON : 2000




                  COMMITTEE ON INTERNATIONAL RELATIONS

                 BENJAMIN A. GILMAN, New York, Chairman
WILLIAM F. GOODLING, Pennsylvania    SAM GEJDENSON, Connecticut
JAMES A. LEACH, Iowa                 TOM LANTOS, California
HENRY J. HYDE, Illinois              HOWARD L. BERMAN, California
DOUG BEREUTER, Nebraska              GARY L. ACKERMAN, New York
CHRISTOPHER H. SMITH, New Jersey     ENI F.H. FALEOMAVAEGA, American 
DAN BURTON, Indiana                      Samoa
ELTON GALLEGLY, California           MATTHEW G. MARTINEZ, California
ILEANA ROS-LEHTINEN, Florida         DONALD M. PAYNE, New Jersey
CASS BALLENGER, North Carolina       ROBERT MENENDEZ, New Jersey
DANA ROHRABACHER, California         SHERROD BROWN, Ohio
DONALD A. MANZULLO, Illinois         CYNTHIA A. McKINNEY, Georgia
EDWARD R. ROYCE, California          ALCEE L. HASTINGS, Florida
PETER T. KING, New York              PAT DANNER, Missouri
STEVE CHABOT, Ohio                   EARL F. HILLIARD, Alabama
MARSHALL ``MARK'' SANFORD, South     BRAD SHERMAN, California
    Carolina                         ROBERT WEXLER, Florida
MATT SALMON, Arizona                 STEVEN R. ROTHMAN, New Jersey
AMO HOUGHTON, New York               JIM DAVIS, Florida
TOM CAMPBELL, California             EARL POMEROY, North Dakota
JOHN M. McHUGH, New York             WILLIAM D. DELAHUNT, Massachusetts
KEVIN BRADY, Texas                   GREGORY W. MEEKS, New York
RICHARD BURR, North Carolina         BARBARA LEE, California
PAUL E. GILLMOR, Ohio                JOSEPH CROWLEY, New York
GEORGE RADANOVICH, California        JOSEPH M. HOEFFEL, Pennsylvania
JOHN COOKSEY, Louisiana
THOMAS G. TANCREDO, Colorado
                    Richard J. Garon, Chief of Staff
          Kathleen Bertelsen Moazed, Democratic Chief of Staff
   John Walker Roberts, Senior Professional Staff Member and Counsel
                     Jill N. Quinn, Staff Associate






                            C O N T E N T S

                              ----------                              

                                WITNESS

                                                                   Page

The Honorable John D. Holum, Senior Advisor for Arms Control and 
  International Security, U. S. Department of State..............    11

                                APPENDIX

Prepared statements:

The Honorable Benjamin A. Gilman, a Representative in Congress 
  from New York and Chairman, Committee on International 
  Relations......................................................    30
The Honorable Steven T. Kuykendall, a Representative in Congress 
  from California................................................    31
John D. Holum....................................................    32

Additional material:

Washington Post article by Vernon Loeg, dated March 29, 2000, 
  entitled, ``U.S. Satellite Sales Lag Since Regulatory Shift''..    44

 
                 MUNITIONS LIST EXPORT LICENSING ISSUES

                              ----------                              


                        TUESDAY, MARCH 28, 2000

                          House of Representatives,
                      Committee on International Relations,
                                                    Washington, DC.
    The Committee met, pursuant to notice at 2 p.m., in room 
2200, Rayburn House Office Building, Hon. Benjamin A. Gilman 
(Chairman of the Committee) presiding.
    Chairman Gilman. The meeting will come to order. The 
purpose of today's hearing is to hear from the Administration 
on the issues related to defense exports. To present the 
Administration views, we are pleased to welcome the Honorable 
John Holum who is the senior advisor to the Secretary of State 
for Arms Control and International Security.
    Mr. Holum, as you may be aware, when the Secretary was 
before the Committee in February, I raised with her our 
concerns about the recently signed Declaration of Principals 
for Defense Equipment and Industrial Cooperation between our 
nation and the U.K. That agreement which, as you know, is not 
legally binding was negotiated between our Department of 
Defense and the British Ministry of Defense. Neither the State 
Department, nor any other U.S. agencies with equities in this 
document were involved. I expressed particular concerns about 
the language on export controls in the declaration. I then 
noted and reaffirm now that I don't support exemptions for 
munitions licenses for the U.K. or any other allied country, 
for that matter.
    In fact, Mr. Holum, I trust that you're aware of our March 
16th letter to the Secretary signed by Mr. Gejdenson and myself 
as well as by Senator Helms and Senator Biden which among other 
things we make clear our united and strong opposition to any 
proposals extending exemptions to allied countries. We expect 
to hear today in rather clear terms your position on any 
exemptions.
    In addition, our letter made it clear that we expect full 
consultation by the Administration on those initiatives 
involving defense exports that you expect to unveil at the May 
NATO Ministerial Meeting. The U.S.-U.K. declaration is but the 
latest manifestation of the so-called ``globalization efforts'' 
of our good friends over at the Pentagon. We have significant 
reservations about those efforts, particularly as they infringe 
upon our shared responsibilities to ensure that the spirit and 
the letter of the Arms Export Control Act is going to be fully 
met.
    Finally, let me note that I expect that other Members will 
raise with you pointed questions about the efficiency of our 
munitions licensing process. Your testimony addresses this 
issue. We look forward to hearing you out.
    I would like to note that I share those concerns and have 
therefore worked hard to try to find additional resources for 
you over the past 2 fiscal years. But you need to do more to 
make certain that the right things get to the right people as 
quickly as possible.
    Are there any other opening statements?
    Mr. Gejdenson. Mr. Chairman.
    Chairman Gilman. Mr. Gejdenson.
    Mr. Gejdenson. Mr. Chairman, like you, I am frustrated to 
see that State was--and by the way, DOD seems to be doing the 
right thing, you might want to take lessons from them in other 
areas by taking down some of the restrictions on our closest 
allies. But, I mean, it's as if your agency disappeared on this 
one and you ought to be setting policy, not the Defense 
Department. So we would obviously like to hear what you have to 
say.
    Then as much to my colleagues as to the witness, when this 
happened, I said that we would devastate our industry to no 
effect on the transfer of technology and science. We now have a 
report in today's Washington Post that says, the United States 
has lost 40 percent of its share of satellites since we 
transferred the regulatory process on satellites from Commerce 
to State Department. And Daimler-Benz which is--at least 
partially was an American company now says it's not going to 
buy any American parts because of the process being so 
unpredictable. Here we are, we're not going to go back to 
making blankets, you know, our economy is not going to succeed 
at the bottom end of technology. The Congress, I think, in a 
somewhat--I won't characterize it, but not in the wisest of 
moves, moved this regulatory process to State and now we see 
the net results. The people who want to get these items are 
getting these items. They're just not getting them from the 
United States. What is our benefit in this kind of process? 
Where do we gain by having other countries just get all this 
technology someplace else and lose market share which means we 
will end up in that old circle; at some point the United States 
will have to be asking other countries for technology because 
their companies will have made the profit, they'll be the ones 
out in front, and we'll be where we were with the machine tool 
industry.
    I'm going to tell this story once more, and I know it 
frustrates me because it seems to me there are some things that 
don't take graduate degrees from Harvard or Yale. When you look 
at what happened with the machine tool industry, the Defense 
Department in that case, stopped our machine tool industry from 
exporting its best machine tools. Very rapidly we got to the 
point where the Defense Department wanted to buy Japanese 
machine tools because ours were no longer the front end of the 
market.
    When this Administration came in, I hoped we would see an 
improvement. What we saw was the case of telephone switching 
systems. The Chinese wanted to buy 565's, we wouldn't sell it 
to them. So what happened? They made their own, the Israelis 
sold them 625's. What did we accomplish?
    I asked the same question about the satellite industry. I 
know you're getting more staff, do you think you'll be able to 
do better? What we have here is a product that's almost a 
commodity at the top end of technology. While we sit around 
shuffling papers, other countries are going to take market 
share, and that means jobs. That's maybe not that important at 
this stage to some people. I think it's pretty important. I 
think that, you know, if we lose this top end of technology, 
our economy is going the go south at some point, but what are 
we accomplishing by shifting other countries to buy products 
from our allies? You know, I've heard now for a decade that 
we're going to have this new agreement.
    First it was on encryption, now it's going to be on sales 
again. You know, frankly COCOM didn't work with our allies when 
we had a Soviet Union to worry about. Now, when the 
Administration and half of Congress is trying to give most 
favored nations status to China, I'm not sure who we are trying 
to keep equipment from that they cannot get almost anywhere 
else. If I was a public official who was responsible for losing 
a 40 percent share of what was a pretty darned important market 
to us, I'd have to have an explanation besides, ``gee, we're 
trying to get some more people in here so we can run this paper 
around in a big circle.'' You've got to find a way to make this 
work. This is damaging our national security and our economy.
    I'd be happy to yield.
    Mr. Berman. I thank you for your time. As I remember the 
situation, it was the Clinton Administration that 
administratively moved commercial satellites from State to 
Commerce back in 1993. Prior to that time it had always been a 
munitions list item and it was this Administration that moved 
those commercial satellites to the Commerce Department. It was 
only----
    Chairman Gilman. They moved it back.
    Mr. Berman. It was Congress that moved it back after the 
initial reports of technology transfers on the missile 
technology came out in the papers and the context of the 
creation of the Cox Committee and all of that.
    Chairman Gilman. The gentleman's time has expired. You will 
get your own time shortly.
    I would like to welcome Congressman Kuykendall of 
California. He's not a Member of the Committee, but he 
requested to join us. He's a Member of the Armed Services 
Committee.
    Mr. Bereuter.
    Mr. Bereuter. I thank you, Mr. Chairman. Mr. Holum, I do 
have some views that are slightly different than the gentleman 
from Connecticut. I am concerned that the recent announcement 
by the Commerce Department that it was continuing to exert 
export control jurisdiction over a number of satellite 
technologies pending a review by the NSC.
    This declaration, which was posted on the Commerce web 
site, contravenes the clear intent of Congress when it enacted 
provisions addressing the jurisdiction issue in the Fiscal Year 
1999 Defense Authorization Act. Through the enactment of that 
law, I believe the Congress made it absolutely clear that it 
wants all export jurisdiction decisions regarding commercial 
communication satellites to be under the jurisdiction of the 
Department of State and not the Department of Commerce. 
Licensing review for export of militarily sensitive technology 
to countries of proliferation concern--countries such as 
China--should be guided by those agencies which, pursuant to 
U.S. law and practice, give an overriding priority to national 
security considerations.
    This declaration also demonstrates, unbelievably, in my 
view, that the Administration apparently has not learned from 
its previous problems which were revealed by the bipartisan Cox 
Select Committee on which I serve and by the Senate Select 
Committee on Intelligence where it was pointed out that 
granting the Commerce Department jurisdiction over export 
controls contributed to the PRC's acquisition of ballistic 
missile technology from U.S. defense firms. I'm particularly 
concerned to learn that some of the satellite technology still 
under Commerce Department jurisdiction are also used in U.S. 
military satellites including reconnaissance satellites.
    I have a slightly different view on this issue as you can 
see, Mr. Holum. I'm wondering why it is that the Administration 
has not done what Congress told them to do--to give the State 
Department the responsibility.
    Thank you, Mr. Chairman.
    Chairman Gilman. Thank you, Mr. Bereuter.
    Mr. Berman.
    Mr. Berman. No, thanks.
    Chairman Gilman. Mr. Rohrabacher.
    Mr. Rohrabacher. Thank you very much, Mr. Chairman. The 
national security issues concerning licensing of arms exports 
has never been more critical. As Mr. Bereuter just noted, the 
Cox report on the transfer of United States technology to 
modernize and perfect China's missile and satellite systems is 
a profound example of the resulting danger from a lack of 
proper export controls. The transfers of critical American 
technologies and know-how to Communist China is having a 
dramatic impact on the security of the people of the United 
States and the safety of our military forces in Asia. One less 
of this episode has to be that when it comes to space 
technology, much less other technologies, you cannot separate 
military from civilian capabilities. Other technologies may be 
in a different situation. But space technologies, that 
relationship is something that seems to be inseparable.
    As Chairman of the Science Space and Aeronautics 
Subcommittee, I drafted legislation, which became law last 
year, clarifying the difference between selling missile-related 
technologies to America's friends and potential enemies. Mr. 
Gejdenson may think the world is divided between other 
countries and the United States, but it's a little more 
complicated than that.
    Fact is, there are some other countries that pose a threat 
to the safety of the United States of America, the security of 
our country and pose a great danger to us and other countries 
that don't.
    While the success rate of China's dual purpose rocket and 
missile systems, back to their satellites in space alone, and 
these systems, the rocket and missile systems that have been 
enhanced by American technology and know-how, has enabled 
Chinese leaders to make threats against the United States of 
America. They're right up front about it, and I quote, ``United 
States leaders value the lives of 200 million Americans over 
the lives of 23 million Taiwanese.'' In addition we must note 
that the recent successful launch of the Chinasat-22 
communications satellite on a Long March 3A rocket--both the 
satellite and the rocket improved significantly by the gift of 
American ``rocket failure analysis'' and America's 
sophisticated technology; this has dramatically improved the 
communist Chinese military's command and control capabilities 
for combat against Taiwan and against American military forces 
in that part of Asia, should there be a confrontation. The 
satellite is what was labeled a force multiplier. What are we 
doing providing technology and know-how to Communist China that 
permits them to have a force multiplier which makes their 
military more effective in killing adversaries when someday 
those adversaries might be American military personnel.
    On the other hand, the Clinton Administration is refusing 
to cooperate with this Committee on central issues concerning 
the defense needs of Taiwan, a treaty ally of the United 
States. The Administration has steadfastly refused to let 
Congress ever see a DOD report on two defense systems that are 
needed to deter attack against Taiwan from the mainland. I am 
submitting for the record an article from today's South China 
Morning Post that describes how Chinese strong man Jiang Zemin 
is ordering his military commanders to ``act soon '' with force 
against Taiwan.
    Chairman Gilman. Without objection it will be made part of 
the record.
    [The information appears in the appendix.]
    Mr. Rohrabacher. Today's Washington Times reports that 
China is deploying new missiles along its southern coast 
opposite of Taiwan. Frighteningly reminiscent of the period 
that led to the Korean War, the Administration is giving 
Beijing signals that we are not committed to Taiwan's defense. 
At the same time what's happening? We've been giving them 
military technologies. While these lax controls, these signals, 
this technology transfer has benefited China's military 
modernization, but has also given an incredibly wrong signal to 
the Chinese communists that may lead to tragic consequences for 
the people of China and the people of the United States.
    I am in full agreement with a suggestion made by 
representatives of American industry that recently testified 
before Ms. Ros-Lehtinen's Economic Policy and Trade 
Subcommittee that we should expedite the licensing and 
processing to friendly nations of satellite technologies and 
other technologies as well. I hear we have a thermal transfer 
unit from, I guess it's Lockhart Technology Industries in 
California. There's no reason why we have to hold up the sale 
of this type of technology to Belgium or Brazil. But, yeah, 
there is a reason we might want to look at it when it comes to 
enemies of the United States like--like potential enemies like 
China, or perhaps other--North Korea, that's very reasonable.
    What we have here is the Administration dragging its feet 
on trying to make the difference on this company's ability to 
have success as well as our satellite company's ability to 
succeed and selling their product overseas, because they're 
unwilling to differentiate between a potential enemy and a 
friend of the United States. This is a sin against the American 
people and a sin against our national security.
    I believe that a list should have been made, based on what 
has already been passed through Congress, concerning what 
countries are a potential enemy of the United States and what 
countries pose no threat to the United States. I'm looking 
forward to hearing the explanation of why those lists haven't 
been made and why we aren't moving forward so that companies 
like this who want to export don't find themselves hampered at 
a time--in other words, we can control exports to those 
countries that pose a threat to us and there's nothing wrong 
with that, but at the same time we can open up a pre-trade with 
the other countries that are friends of the United States. 
There's nothing wrong with that type of analysis and it's 
beyond me why we're getting so much hesitation and so much 
complication in trying to establish that as the rule of the 
land.
    Mr. Berman. Mr. Chairman, I ask unanimous consent that----
    Mr. Rohrabacher. Well, I would be very happy to yield 
whatever time I have left.
    Mr. Berman. Mr. Chairman, I ask unanimous consent the 
gentleman have 2 additional minutes.
    Chairman Gilman. Without objection. The gentleman is 
recognized.
    Mr. Berman. In, I believe it was the fall of 1994----
    Mr. Rohrabacher. Right.
    Mr. Berman [continuing]. The Clinton Administration imposed 
sanctions on satellite and missile technologies going to the 
PRC because of the PRC's proliferation of MTCR controlled items 
to Pakistan. The result of that was that the only munitions 
list items going to China, satellites, were blocked. At that 
time a number of Members of the California delegation, 
including my friend, Mr. Rohrabacher, wrote a letter and pushed 
this Administration to move commercial satellites to the 
Commerce Department list on the grounds that it had no 
implications whatsoever for the Chinese missile program and 
that therefore those sanctions should not apply to commercial 
satellites.
    What the gentleman says now is very different and I'm 
curious about what caused the change in thinking in this 
regard.
    Mr. Rohrabacher. Anybody who stays committed to one policy 
even though it doesn't look like it's working is a fool, and 
the fact is, I learn from situations as they evolve, and there 
is no--and what has happened since 1994 has indicated to me 
that the Communist Chinese regime is not evolving toward 
democracy, the regime is still committing genocide and is 
becoming more belligerent to the United States, not less 
belligerent, plus what resulted from that, and those of who 
signed that letter were given every assurance--and if you read 
the letter you will see that those assurances were mentioned in 
the letter--that there would be no transfer of technology to 
the Communist Chinese whatsoever, and that all the safeguards 
would be taken and that the Administration--we were counting on 
the Administration to do that, those safeguards were not 
included.
    This Administration trashed the very safeguards that we've 
talked about and there was a transfer of technology that 
threatened the safety of our country. Yes, I learned from that 
and I would hope that other Members of Congress would learn 
from that as well.
    Mr. Berman. Would the gentleman yield further?
    Mr. Rohrabacher. I certainly will.
    Mr. Berman. First of all I asked----
    Chairman Gilman. The gentleman's time has expired.
    Mr. Rohrabacher. I ask for 1 additional minute.
    Mr. Berman. I very much appreciate the gentleman's candor 
in acknowledging that his position has changed.
    Mr. Rohrabacher. Which, there's nothing wrong with that.
    Mr. Berman. The only thing I would say was that in 1994 
China was not democratic, was still persecuting religious 
minorities and was certainly a proliferator of missile 
technology which is why the sanctions were imposed. The 
representations concerning what will be provided with that 
satellites came from a company called Hughes, not from the 
Administration. It was based on Hughes' representations that 
Members of Congress signed those letters.
    Mr. Rohrabacher. If I could reclaim the one last 30 seconds 
of that minute.
    No, it was based on briefings given to me by the 
Administration, by officials of the Administration, as you 
probably received those very same briefings----
    Mr. Berman. But the Administration imposed the sanctions. 
They ended up going along with the Congressional pressure to 
transfer these satellites----
    Mr. Rohrabacher. The Administration----
    Mr. Berman [continuing]. Off the munitions list.
    Mr. Rohrabacher [continuing]. Behind the scenes, the 
Administration was fully behind this move. It was a move on 
part of the Administration.
    Mr. Berman. No, it wasn't.
    Mr. Rohrabacher. And this letter was being used as a cover.
    Mr. Berman. No.
    Mr. Rohrabacher [continuing]. So that they could fulfill 
their own policy goals.
    Chairman Gilman. The gentleman's time has expired.
    Mr. Rohrabacher. I learned from my mistake.
    Chairman Gilman. Mr. Manzullo?
    Mr. Gejdenson. I would ask unanimous consent for 30 
seconds.
    Chairman Gilman. The gentleman is recognized for 30 
seconds.
    Mr. Gejdenson. Thank you. I just hope that my friend Mr. 
Rohrabacher, being able to evolve his positions, would now look 
at the fact that those allies he talked about are selling 
everything that we wouldn't sell the Chinese and others, that 
there's been no diminution of what the Chinese get now. It was 
a mistake sending it over to State. They can buy these products 
anywhere in the world and the only result of your actions is 
that all our allies are taking over market share.
    Chairman Gilman. The gentleman's time has expired.
    Mr. Manzullo. This is getting pretty spirited up here.
    [Laughter.]
    Mr. Manzullo. I never thought I'd be to the right of Dana 
Rohrabacher.
    [Laughter.]
    Mr. Manzullo. Usually you sit to my right in the seating 
chart in the full Committee.
    My concern here is very simple. There's a mentality that 
applies not only to these satellites, which are sophisticated, 
but not unique to other technologies. It's critical to make 
that statement. When we don't sell a satellite to China, France 
will; the same technology. The technology is going to them. 
They say, ``all right, if you don't want to sell it to us we'll 
buy it from someone else.'' This sort of piousness and self-
righteousness that we're going to make a value judgment on 
governments and then determine the type of products to sell to 
them. This works to a certain extent. But in this case it's 
working against us because that mentality has also applied to 
the sale of machine tools.
    We are in a difficult position. I represent a city that led 
the Nation in unemployment in 1980 at 27 percent, Rockford, 
Illinois. In a city of less than 140,000 people, we lost 100 
factories and 10,000 highly skilled jobs. We can't get a four-
axis machine into India. The Chinese bought 27 four-axis, five-
axis machines in 1997. One of them came from the United States 
and the rest came from Germany, Switzerland, and Sweden. This 
is ridiculous.
    We sit here in Washington passing all these rules, making 
all these value judgments upon who is the bad actor, and the 
very same device that we look upon as being sacrosanct in our 
hands is being sold by our friends, the French, the Italians, 
the Germans. Thus, what's going to happen is this: Our 
companies are going to move offshore. They'll just sell all 
their assets in the United States, go over to Europe, go over 
to Asia. They'll say, why should we stay in the United States 
where we can't even export these items. At the same time, U.S. 
companies get branded with the reputation of being an 
unreliable supplier. So they're just going to leave. For those 
who are interested and think the trade deficit is of 
significance, at least should take a look at our export policy. 
I think it's archaic and naive. Surely we know a weapon when we 
see one. A commercial satellite is not a weapon.
    You could use binoculars and see 5 miles. You could attach 
military significance to almost anything. So here were are 
behind the eight ball, we are facing a 28-percent decline in 
orders for machine tools. The great economy that is surging 
along has such soft pockets it's unbelievable and that's right 
in the heart of our manufacturing capability. So not only are 
we losing manufacturing jobs, we're going to lose the whole 
high-tech market.
    There was an article in the international magazine, Mr. 
Chairman, that's a consortium of the Washington Post and the 
New York Times, called the International Herald Tribune. About 
2 months ago, there was an article talking about a group of 
European companies expressing concern over their market share 
of companies involved in high-tech. Because of the tremendous 
regulations and rules that the Europeans face with regard to 
labor, etc., that they're concerned that Americans will 
continue to monopolize high-tech. Well, I've got news for them, 
the United States is just going to give it to them. Unless we 
change these trade laws and come to a realization that a super 
computer is nothing more than a computer that does the same 
things only faster, and that there's nothing that critical 
about it except for the extreme high end, we're going to see a 
continuous erosion of jobs.
    So I commend the Chairman for having this meeting. I think 
reference has already been made to the article that appeared 
today in the Washington Post about the reduction of production 
of American satellites. If we continue our present policy, 
America will no longer be in the business of manufacturing 
commercial satellites.
    Chairman Gilman. The gentleman's time has expired. Thank 
you.
    I would like to recognize Mr. Kuykendall.
    Mr. Kuykendall. Thank you, Mr. Chairman, for letting me sit 
in today. I have a statement that I'll leave for the record, 
but just a couple of other----
    Chairman Gilman. Without objection the statement will be 
made part of the record.
    Mr. Kuykendall. And I also think that Washington Post 
article that we talk about today ought to be in the record as 
well.
    Chairman Gilman. Without objection.
    [The prepared statement of Representative Kuykendall and 
the article appear in the appendix.]

  STATEMENT OF HON. STEVEN T. KUYKENDALL, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Mr. Kuykendall. Two or three just short little facts. In 
California we represent 60 percent of the total satellite 
production of the world; 60 percent of the whole world was 
built there. That's both communication and otherwise.
    One of these satellites can be hundreds of millions of 
dollars each. It's like selling a 747 every time we sell one 
little satellite. We also represent the interests of the launch 
community because much of the launch community is headquartered 
there as well.
    Now, we have got to figure out how to know what is good and 
what's bad and how not to give away secrets important to us, 
and it's got to be done quickly. I'm concerned that the changes 
that were made last year have not been implemented fully this 
year and I have already experienced job loss in my district for 
people building satellites that could not be exported or could 
not be exported on the timeline they were meant to be exported 
on and for the launch vehicles and they're now standing down 
some of these jobs.
    I'm concerned about our product being technologically good, 
but I'm also concerned about how can we do that in a world 
marketplace. So we've transferred to your responsibility that 
job and we would like to hear from you on how you're doing it. 
Right now I'm having trouble seeing it being very successful.
    Thank you for the time.
    Chairman Gilman. Thank you, Mr. Kuykendall.
    I'm pleased to welcome John Holum, Director for the Arms 
Control and Disarmament Agency since 1993. On April 1st, 1999, 
Mr. Holum assumed the duties of senior advisor for Arms Control 
and International Security after ACDA was merged with the 
Department of State in accordance with the Foreign Affairs 
Agency Consolidation Act of 1998. John Holum was nominated for 
the position of Under Secretary of State for Arms Control and 
International Security and in that capacity will also serve as 
senior advisor to the President and Secretary of State for Arms 
Control, for nonproliferation and disarmament. He will also 
have the responsibility for coordinating security assistance 
programs.
    We welcome Mr. Holum. Mr. Holum, before you commence, I may 
be called to the floor in a few minutes. We have several 
measures on the floor. I hope that you would note a concern I 
have.
    On October 28th of last year, Bloomberg reported that a 
German firm, Daimler-Chrysler Aerospace was going to bar the 
use of various United States components for United States 
satellites due to what was described as an uncertain export 
license situation in the State Department. A variety of senior 
officials in the Administration seemed to relish the 
announcement. Under Secretary Reinsch at the Commerce 
Department was quoted in the same story as stating, ``We 
opposed what the Congress did'' in moving the authority of 
licensed satellites out of Commerce. The Daimler announcement, 
Under Secretary Reinsch said, ``was just more proof that the 
transfer of satellite jurisdiction was in error.''
    In the same Bloomberg article, Deputy Defense Secretary 
Hamre was quoted as regretting the DASA directive in saying 
that ``it was news to him.'' The article went on to quote David 
Oliver, Deputy Under Secretary of Defense for Acquisition as 
saying ``that the Daimler directive would play a prominent role 
in the Pentagon's efforts to reform this State Department's 
export control process.''
    Two weeks later in the November 15th issue of Defense Week, 
Mr. Oliver was quoted as saying, the Daimler's directive is ``a 
smoking-gun example of what's wrong with the State Department's 
system.''
    The Committee has recently come in the possession of an 
exchange of letters between the German firm, Daimler-Chrysler, 
and Pentagon officials in the days leading up to the Bloomberg 
article in which the Daimler-Chrysler directive was announced. 
Significantly, one of those letters on October 25th of last 
year to Under Secretary Ganzler at DOD from Dr. Manfred Bishop, 
the CEO of Daimler-Chrysler, was provided to the Pentagon on 
the day of a dinner hosted by Deputy Secretary Hamre for 
European industrialists, and the dinner is referred to in that 
letter. The letter from Daimler-Chrysler informs Dr. Gansler 
that DASA is going to issue their directive to bar American 
satellite supplies in light of a report he had received from 
Dr. Gansler's office considering the status of certain pressing 
licenses that are said to be mired in the State Department. The 
letter also expresses support for DOD's effort to change the 
State Department licensing system.
    So despite the official surprise expressed by the Pentagon 
and the press stories that were to come out in the next week, 
it appears the top Pentagon officials were well aware of what 
was going on with Daimler-Chrysler and has been consulting with 
that German firm about their plans to change the State 
Department's licensing process. Indeed, they provided him with 
a report which encouraged Daimler's and Chrysler's 
announcement.
    This Committee is intensely disturbed by that 
correspondence. On its face it appears it as if senior 
Administration officials had been secretly involving foreign 
firms in their initiatives to reform this country's export laws 
behind the back of the Congress, and in particular this 
Committee which had jurisdiction over those matters. If that's 
true, it's simply outrageous. What is particularly troublesome 
is if this apparently DOD-engineered attack by Daimler-Chrysler 
were to spread to other European defense firms, thereby costing 
American jobs. DOD is playing with absolute fire and I hope 
that you would comment on that.
    Please proceed, Mr. Holum.

 STATEMENT OF THE HONORABLE JOHN D. HOLUM, SENIOR ADVISOR FOR 
  ARMS CONTROL AND INTERNATIONAL SECURITY, U.S. DEPARTMENT OF 
                             STATE

    Mr. Holum. Thank you, Mr. Chairman. I would like to reflect 
on some aspects of that statement and the questions for the 
record. But portions of it will certainly be addressed in my 
prepared statement. I've spent some time condensing that so we 
can get to further questions. But I very much appreciate the 
opportunity to appear before your Committee to discuss the 
vital topic of Munitions Export Controls Administered by the 
Department of State.
    The challenge of advancing U.S. foreign policy and national 
security goals in an era of globalizing defense industries is a 
daunting one and one that the State Department is very much 
engaged in as is the Department of Defense.
    As you and the Congress at large appreciate the regulation 
of arms for commercial export both in terms of licensing and 
enforcement and compliance requirements is a complicated and 
often sensitive process involving billions of dollars of U.S. 
exports. Defense export licensing has important implications 
for the national security, economic security, and foreign 
policy interests of the United States as well as the well being 
of thousands of American companies and their employees.
    But let me say at the outset that the word ``controls'' in 
terms of export regulation and enforcement is not a dirty word 
at the Department of State. Control for the State Department is 
a reminder of two things; first, that we in Government have a 
well-defined responsibilities and authorities aimed at ensuring 
the defense trade is conducted in a manner that furthers U.S. 
national foreign policy objectives and national security 
interests.
    Second, that U.S. companies has a substantial role in 
protecting U.S. security because we share some of our most 
sophisticated technologies with foreign countries and 
companies. The State Department is committed to giving the 
regulation and facilitation of responsible defense trade the 
attention and resources it deserves and to improving the 
efficiency, timeliness, and security with which you would carry 
out these functions.
    The stakes are high. Our success or failure to manage the 
technology revolution and changes in international defense 
trade will have broad implications for various countries' 
economic prosperity as well as for their ability to support or 
threaten regional and international stability. It is imperative 
that our conclusions reflect broad U.S. foreign policy and 
national security goals, and not only defense industrial-based 
considerations.
    I believe that the new shape of the part of my organization 
supporting this effort will make an important difference. Our 
conventional arms transfer policy aims to strike the right 
balance between support to our friends and allies, the U.S. 
defense industrial base, our democracy and human right 
objectives and our regional stability and security goals. We 
try to prevent the transfer of technologies that threaten 
regional stability or contribute to arms races.
    A good example of this effort is our work on small arms and 
light weapons. Those items are low tech and inconsequential in 
terms of directly threatening U.S. national security. But 
consider the foreign policy implications, items that are as 
low-tech as machine guns, mines, mortars and grenades are 
responsible for most of the killing that's taken place in 
intra-state conflict since the end of the Cold War. In some 
regions small arms are weapons of mass destruction.
    At the other end of the technology spectrum, our 
decisionmaking aims to protect the U.S. technological edge. We 
take into account non-proliferation objectives in an attempt to 
control the ultimate possessor and end user of U.S.-
manufactured advance weapons. The risk of diversion of advance 
weapons into the hands or rogue states and non-state actors 
grows every day. We need to use all the tools at our disposal 
to guard against an upward spiral of conventional arms 
acquisitions with the stabilizing consequences.
    Our most effective tool in this quest to date has been a 
comprehensive defense trade control system. In that state we 
remain convinced that the existing export control system 
provides essential tools for advancing U.S. foreign policy and 
must be preserved. The Department is equally mindful of the 
changes that have taken place in the defense marketplace as a 
result of globalization. We recognize that technology advances 
and political developments have altered the international 
environment substantially over the past decade. As a result 
it's imperative that we in the export control business 
proceeded as quickly as possible to acquire sufficient fiscal 
and human resources, streamline our processes, and adopt modern 
business practices.
    The United States has its own strategic interest in arms 
transfers, namely to promote interoperability with our key 
allies and friends to help them improve their defense 
capabilities and to protect the viability of our industrial 
base. We recognize that defense industrial cooperation can help 
both U.S. and allied defense establishments spread the fiscal 
burden of new system development and production while helping 
allies improve their defense capabilities.
    This is a significant element in the United States' 
Government's commitment to the NATO Defense Capabilities 
Initiative and the European Security and Defense Initiative.
    Globalization poses tremendous challenges for the U.S. 
Policy Community. How can we effectively control items in this 
environment while enabling necessary technological cooperation. 
Many argue that defense trade today has become so globalized 
that controlling it is both hopeless and counterproductive. 
They would say that the United States should simply abandon our 
export control system as an outdated relic of the Cold War. 
Others contend that the U.S. defense trade control system is 
nonfunctional and needs to be rebuilt from scratch. They would 
suggest focusing only on controlling especially sensitive 
technologies while permitting essentially unrestricted commerce 
and so-called low-risk technologies.
    In my view neither of those arguments is correct. A 
comprehensive export control system is needed now more than 
ever to protect our national interest in an international 
security environment that is increasingly unpredictable. So I 
believe what is required is a reformist approach that 
recognizes and takes due account of the political military and 
technological realities of globalization.
    However, it must be a system that can quickly arrive at the 
proper answer that will get the right equipment to the right 
place, on time. That is where were are headed now, modifying or 
adapting the system so that it remains viable in this era of 
globalization is a top priority for the Department, and one 
which we are committed to addressing in a timely but carefully 
considered manner.
    Despite resource constraints, we are now in the process of 
examining munitions export controls to look for ways to 
expedite the review of licenses, especially for close allies. 
We are confident that it will be possible within the existing 
defense trade control system to facilitate defense industrial 
cooperation with our allies without sacrificing necessary 
controls.
    We are already making progress in this effort. In the case 
of satellites, for example, despite some significant obstacles 
and despite the fact that we were instructed to treat 
satellites and their components as munitions, the State 
Department is doing better than some had predicted.
    Since Congress transferred licensing jurisdiction for 
commercial satellites from the Commerce Department last spring, 
we've been processing license applications well within the 90-
working day target date set in the Administration's report to 
the Congress. The average time for completing hardware licenses 
for ITAR category 15--that's spacecraft and associated 
equipment--is approximately 55 calendar days. For those 
licenses that are not interagency staffed, the average is about 
21 days. We expect these processing times to decrease even 
further as a result of the 2000 State authorization bill which 
provides specific funding for a new commercial satellite 
regulatory regime, and I recognize your contribution, Mr. 
Chairman, to that effort. We welcome it.
    Our Office of Defense Trade Controls is consulting with 
industry and will be proposing an appropriate mechanism in the 
near future. It will include expedited satellite licensing 
approval for NATO and major non-NATO allies. We are also 
strengthening our Defense Trade Controls Office. We have 
already received authorization from State personnel and 
financial management to hire an additional 23 licensing 
compliance and administrative staff; with strong support from 
Department management, we are dealing with this as a resource 
emergency. We hope to complete the first staffing phase by the 
end of this year, effectively doubling the number of licensing 
personnel.
    The Department of State is also exploring a number of ideas 
to improve export licensing efficiency and effectiveness. This 
includes ideas in the general areas of umbrella approaches such 
as a global cooperative project license where there are 
programs covered by a government to government or defense 
agency memorandum of understand which along with related 
documentation sets forth detailed parameters for bilateral 
cooperation; special handling for cases associated with 
particularly important programs such as the defense 
capabilities initiative with NATO allies; streamlining of 
retransfers for NATO, Australia, and Japan; and extending the 
duration of certain types of licenses.
    Additionally the State Department would support more 
extensive Department of Defense use of licensing exemptions 
that currently are provided in the ITAR. We believe that better 
use can further interoperability, coalition war fighting, and 
other national security objectives.
    A major issue that the Chairman noted in his opening 
statement that is in the context of our work on licensing 
reform is whether to extend regulatory provisions like the 
Canadian ITAR exemption to countries willing to align their 
export controls with ours. Such a step would, in effect, exempt 
defined categories of defense exports to specific countries 
from USG licensing. That question raises for us many difficult, 
legal, regulatory, and policy issues. Strong arguments are 
being raised on both sides of the case.
    Secretary Albright as chief manager of defense export 
controls under the AECA is consulting with her colleagues 
considering these issues before coming to a decision. Today's 
hearing is timely in that it will enable me to convey to the 
Secretary the views of the Members of the Committee, 
reinforcing what was stated in the letter from the Chairman and 
Ranking Member.
    Underlying many of the reform proposals is a common 
appreciation that review of licenses supported by voluminous 
hard copy documentation can be cumbersome and that reduction of 
this material to an electronic format is highly desirable. The 
State Department is working hard with DOD to meet this goal. We 
believe that in the near future much of the information we 
collect and disseminate in the licensing process can be handled 
via electronic medium. Likewise, we're hotly pursuing the 
electronic collection of actual export shipment data under our 
direct shipment verification program and expect in the 
relatively near future to promulgate regulations that will 
institutionalize this program throughout the U.S. defense 
industry, also a recent legislative mandate that we welcome. 
This system's development will be a considerable boon to our 
analytical capabilities as well as our enforcement efforts.
    Our aim in these efforts is to develop a plan for reforming 
and adapting defense trade controls that will serve all of us 
well through years to come. I need to emphasize that these are 
ideas under discussion within the Administration and that no 
final decision has been made. As soon as we have an 
Administration position we will consult with the Congress.
    The basic premise of defense trade controls exercised by 
the Department of State, the premises are long-standing. My 
staff reminds me that Jefferson's Washington proclamation about 
the exportability of cannonballs dates back to 1793. One does 
not have to be a historian to appreciate the fact that the 
modern day controls have underpinnings in sound law, 
principles, and policy consideration that have withstood times 
of isolationism, interventionist undertakings, the Cold War, 
and the ``new world order'' following the collapse of the 
Berlin Wall.
    While the workplace circumstances and global environment 
have changed rather dramatically, the basic requirement for 
defense export controls and the dedication that the Department 
of State brings to the task solidly remain. I have no doubt 
that this new examination of defense trade controls will meet 
critical requirements of U.S. friends and allies and to 
encourage legitimate commercial enterprise.
    I look forward to working with the Committee both 
personally and through my staff on advanced technology and U.S. 
arms transfer decisions that look ahead to the future. 
Decisions that take account of the trends in the global 
security environment as well as in the global arms and 
technology marketplace. Many of these decisions are not easy. 
Finding the right balance often requires close interaction 
between Congress, State, Defense, the NSC, and industry. We 
want America to retain its predominance and we'll do our part 
to achieve that objective, thank you, Mr. Chairman.
    Mr. Rohrabacher. Thank you very much. As you can see the 
Chairmanship has short of shifted here. I don't want to think 
that Congress shifts its position at all at any time period.
    Let me just state after listening to your testimony that I 
personally--from your testimony it would appear that you're 
being up front and this Administration is simply having trouble 
implementing something that Congress has mandated. I will have 
to say that from a distance it appears to me that some of the 
problems that we have been experiencing and the pressure that 
is now being generated, because of the problems in export are 
not simply a product of a slow startup in implementing what was 
the will of Congress, but--and I'm going to ask you to convince 
me that this is not what's happening with these roadblocks and 
these delays are not a cynical attempt by this Administration 
to basically hamper our export industries that are involved 
with the technology in order to provide pressure in order the 
undo a policy that they don't like.
    In fact, it is clear that this Administration is dedicated 
to remaining in a relationship with Communist China that would 
have us believe that Communist China is our strategic partner 
and that they will do anything--anything in order to maintain 
that illusion. Including set up senseless roadblocks for the 
export of American technology to friendly countries in order to 
pressure us to have a system that will permit them to have an 
illusionary relationship with Communist China as a strategic 
partner, meaning so we can export to them as well.
    Now, please, I'm open to be convinced that what we're not 
talking about is some cynical underhanded attempt as compared 
to an honest disagreement or an inability to actually implement 
what Congress has set down.
    Mr. Holum. Mr. Chairman, I have to begin by saying that if 
you could see the hours of effort that are being exerted by 
Will Lowell and his staff, the professionals in the Department 
of State who work these issues to try to recruit additional 
manpower and try to sort out what are in fact a lot of complex 
issues, I don't think you would make that statement. This is a 
very difficult undertaking.
    Mr. Rohrabacher. Of course, I remember a hearing we had and 
the insistence by the State Department that there was no 
technology transfer going on that would improve the rocket 
capability of the Communist Chinese. I remember that very well.
    Yet, it's been documented now that that was not the case. 
That the Cox Report went out as a bipartisan commission set 
forth, yes, there has been technology transfers that did 
improve their capabilities.
    Mr. Holum. I would like to answer the rest of your first 
question before getting to the second one.
    Mr. Rohrabacher. OK. Go right ahead.
    Mr. Holum. Yes, sir. But there is--when Congress returned 
commercial satellite jurisdiction to the State Department, it 
wasn't saying just that the State Department should license 
this, it said, you should treat commercial satellite as 
munitions. That put commercial satellites and specially 
designed parts and components of satellites into a system that 
pre-existed. We don't have two parallel licensing systems in 
the State Department; we have one that's designed to deal with 
munitions. Munitions are considered apart from commercial 
products.
    There are no deadlines, for example, in commercial 
satellite or in munitions lists because we want to examine and 
have ample time to examine the intelligence problems, the 
regional impact, the human rights impact, a whole range of 
considerations. So this is a slow-moving process that 
satellites were moved into.
    Now, in addition to that, there are--and industry has a 
basis for being concerned about this--we found when we got 
commercial satellites back in the State Department that a lot 
of issues or a lot of items, parts and components were being 
transferred license free by the Department of Commerce, they 
had been put on the general list that doesn't require a 
license. When they came back to the Department of State, they 
all require a license because they're munitions. So in cases 
where no license was required before, particularly for parts 
and components, now licenses are required. That delays things 
that otherwise could have gone freely.
    Mr. Rohrabacher. What's taking so long about creating a 
list of countries in which, as you mentioned in your testimony, 
that you are moving forward----
    Mr. Holum. The list of countries is very easy. We know what 
the list is. It is Nato and Australia and Japan. But then what, 
do we just exempt everything? Or do we try to set up a system 
that expedites exports to those specific countries? Because you 
have other concerns if they're munitions. For example, the UK 
has no controls on re-exports from products in their country; 
can we harmonize their system with ours? In other words, it's 
more complex than it sounds. We are diligently engaged, I 
guarantee you, in what I'm sure the Committee will find to be a 
very productive effort to come up with new procedures both for 
allies and generally.
    Mr. Rohrabacher. Let me just say, the frustration on my 
part--and, again, I wanted to give this policy a chance to 
succeed and I saw it was failing. But then to sit and watch and 
to complain about the transfer of technology to a potential 
hostile power, Communist China, and for a matter of years 
complaining about this and having a blase response from the 
Administration to this great--what I consider to be a great 
threat to our national security, and so did the Cox Report, and 
then--and now, asking the other countries that are friendly 
countries be able that we free them up at least so that 
companies like this in California can send things over to 
Belgium, for Pete sakes, but yet there doesn't seem to be any, 
you know, any real energy being put into freeing up--on one 
side you're letting technology flow to an enemy, or at least 
this Administration has, or potential enemy. On the other hand, 
it's sort of blase about the restrictions now that are being in 
the way of sending this to a friendly country.
    Mr. Holum. I'm glad you raised that again because it was 
the second question you raised.
    Mr. Rohrabacher. Go right ahead.
    Mr. Holum. And you suggested that I said no technology had 
flowed to China. I said we reported to the Department of 
Justices cases where we thought that had happened, and those 
cases are under investigation. So I think you're--I did not ask 
for commercial satellite licensing to be returned to the 
Department of State. I thought it could be handled with the 
enhanced monitoring and strength and controls in the Department 
of Commerce and we wouldn't be in a lot of this difficulty. But 
I didn't say that there hadn't been any problems.
    Mr. Rohrabacher. OK. The red light is on. Mr. Berman.
    Mr. Berman. Mr. Chairman, I'm quite confused.
    Mr. Rohrabacher. All right. So am I.
    Mr. Berman. You're saying that we should speed up the 
licensing of munitions to our allies and that the fact that we 
aren't doing that is a cynical effort by American companies who 
make these products to put pressure on the Administration and 
on Congress to weaken the law so that we can truly implement 
our desire to send munitions list items to China?
    Mr. Rohrabacher. To undermine the development of a two-
tiered system in which China--if we do not have a two-tiered 
system, China is put on the same level as our NATO allies. Yes, 
that's exactly what I'm suggesting.
    Mr. Berman. Wait a minute, tell me if you disagree with a 
couple of assertions. That with whatever weaknesses we have, 
No. 1, there's no country that has a more rigorous export 
control regime with respect to China than the United States and 
that every single one of our allies is far more willing to sell 
far more quickly far more things to the People's Republic of 
China than we are. The notion that somehow by letting 
everything go to our allies we can then maintain a dual 
standard and not assume that our allies will re-export or 
companies in those countries will re-export anything to China 
is absurd. If anything, the whole purpose of export licensing 
to our allies is not because of what our allies will do with 
them, it's because of the danger of re-export by our ``allies'' 
and we can start with the French if you would like----
    Mr. Rohrabacher. Would the gentleman yield to that point?
    Mr. Berman [continuing]. To countries that we want to have 
a tougher control with.
    Mr. Rohrabacher. Would the gentleman yield to that point?
    Mr. Berman. Sure.
    Mr. Rohrabacher. I don't find there to be any threat of 
transfer of technology. When we sell a satellite and permit a 
satellite to be launched on a French rocket for Belgium or 
Germany, or whoever, or Japan, but, yes, I think that there is 
a major concern now that we've learned that when you try to 
permit the Chinese to launch American satellites they end up 
with having their rockets and their missiles upgraded in their 
capability and their reliability which is what the Cox Report 
found.
    Mr. Berman. Wait, wait, wait.
    Mr. Rohrabacher. That's what this is all about.
    Mr. Berman. Let's dissect this a little bit. I don't think 
it was the U.S. Government that transferred missile technology 
to the Chinese. I think it was called, American companies tired 
of watching their satellites land on the ground shattered 
because of inadequate launches that made those transfers.
    Second, I personally believe you can transfer commercial 
satellites under proper safeguards even to the Chinese and the 
one danger you get from that----
    Mr. Rohrabacher. That's what I was told all right----
    Mr. Berman [continuing]. But the one danger you get from 
that is you enhance the Chinese capability to make launches 
because the more launches they try, the better they're going to 
get at making launches. The only problem with not providing 
them with the commercial satellites is you don't solve that 
problem because other countries provide them with the 
commercial satellites to make those launches and so they 
improve and enhance their rocket capabilities using other 
countries satellites and at the cost of American satellite 
manufacturers.
    The question I wanted to get into was my concern that the 
Canadian model would become the model for other of our allied 
countries and that we would charge huge exemption holes in 
exports--our allies without them having adopted our same export 
controls with respect to re-exports of these items. I guess I'm 
wondering what the status of that is within the Administration 
and what are the constraints that we're going to ensure are in 
place before we would make such an exemption?
    Mr. Holum. Well, first of all the Department of State and 
the Department of Defense have been engaged for some months in 
an effort to sort out new procedures for licensing. I've 
outlined some of those in my statement, umbrella approaches 
that would allow basically a broad project type or endeavor 
type license and then you wouldn't have to get individual 
licenses within that until the project was completed, or unless 
the character of the project changed. So it would eliminate a 
lot of the licenses. This would be focused on allies, NATO 
allies, Australia and Japan. When that process is very near to 
completion we'll be consulting with the Committee about it in 
the near future.
    Mr. Berman. Would what those countries do with those items 
play a role in our deciding whether to give that kind of 
project exemption?
    Mr. Holum. Of course, yes. But this is a case where we--the 
structure would specify if, at all, for example, retransfers 
were allowed, and if they were, to what countries.
    In the context of that, some agencies or one agency has 
argued for an exemption--Canada-type exemptions for additional 
countries, close allies, from arms export controls generally. 
That process--any department can put an issue on the table for 
interagency consideration--is not completed. So we don't have 
the definitive administrative position, but let me tell you 
what some of my personal concerns are about that.
    The Canada exemption was established for a specific 
purpose. It was back and forth defense trade. The defense 
industries of the United States and Canada are integrated and 
we have a contiguous border. The purpose of license-free 
exports to Canada and vice versa was largely for their 
manufacturing of those components or technology into products 
that came back to the United States.
    If you're going outside the United States-Canada defense 
perimeter, you have a circumstance where the purpose would be 
to export elsewhere. In cases where they don't have the same 
re-export restrictions that we have, a point that you alluded 
to earlier, it would be very hard under circumstances like that 
to make it work in a European context, for example, where 
they're trying to build a common defense industry. How could 
one of them have special access and the others wouldn't? What 
kind of political problems do you create when one gets special 
access and others who have less strong export control systems 
don't. We've, in the course of considering this issue, defined 
the kind of parallelism that we'd require in export controls 
for a country that had license-free relations with the United 
States. There is no country that I know of that has anywhere 
close to that kind of detailed system that would be sufficient 
to be reliable, at least from my perspective. You also have the 
enforcement problem. If there's no paper trail, then how do you 
track violations, and we've heard concerns from other agencies 
including Justice of the difficulties with a totally license-
free environment of enforcing against violations. So those are 
some of the policy and legal concerns that I raise that have to 
be----
    Mr. Berman. When I listen to you talk, I feel comfortable 
as long as you prevail. This is the State Department's decision 
in the end; isn't it?
    Mr. Holum. Yes.
    Mr. Berman. Absent the President giving a direction. I 
mean, this is not a DOD decision, this is not a Commerce, this 
is a State Department.
    Mr. Holum. This is not something that can be done without 
the State Department's approval. Unless the President, as you 
say, makes a different choice.
    Mr. Rohrabacher. Mr. Manzullo.
    Mr. Manzullo. Thank you. I don't know if you're going to be 
able to come up with a solution that Mr. Rohrabacher wants. But 
to have a two-tiered system saying that we're going to sell our 
commercial satellite here, but we're not going to sell it here, 
or our good ally here has no re-export policy, and they could 
turn right around and sell it here. Isn't the issue that as 
long as this is not a bomb or a missile, an export license 
should be granted? Isn't the issue as simple as something as 
readily available to a foreign country from another source, 
that if it's not obviously something explodable, or of that 
nature, that a license should be granted and summarily?
    Mr. Holum. To China you're saying?
    Mr. Manzullo. That's correct. Or the equivalent of the 
tier-three countries with regard to computers.
    Mr. Holum. Well, that's something that is very hard to do 
when an item is classified as a munition.
    Mr. Manzullo. Therein lies the problem. You didn't ask for 
the problem, Congress gave it to you.
    Mr. Holum. Right. But what we are striving for is to 
develop a system, including protections against re-exports. Let 
me say there are two different endeavors underway at the same 
time. One is for defense trade generally with allies and that 
would not just be limited to commercial satellites, it would be 
across the board to expedite the process. That would facilitate 
co-production and joint ventures and international 
consolidations and so forth. There's a separate effort underway 
to address the particular problems that are associated with 
satellite-related sales to allies.
    I don't think we have the flexibility within the law to 
say, as long as China can get a satellite from France, it will 
be easily available from the United States. Our policy is to 
continue to license satellite launches in China and we'll 
continue to do that. But we want the facilitate the kind of 
trade in components, in insurance, the various, the problems 
that have become most acute on the basis of the transfer. 
Issues where our system is not well set up in the Department of 
State because it's a munitions system to deal with other----
    Mr. Manzullo. Do you deal with bombs and grenades and 
explosives?
    Mr. Holum. That's what we deal with. But again, we've been 
told that commercial satellites are like things that explode. 
They go through the whole panoply of considerations that apply 
to munitions. What we are trying to do is adapt our system to 
deal with the satellite problems. One of the most compelling 
ones to put the problem in acute relief is that you can have a 
satellite that is built in the United States, launched on a 
United States booster, in the United States, and it still 
requires export licenses on the munitions system. Why is that? 
Well, because they have to get insurance. Most of the insurance 
for satellite launches is underwritten outside of the United 
States. That requires a transfer of technology to satisfy the 
underwriters that the system is going to work. Well, that's one 
of the problems that we're trying to deal with in this 
specialized satellite regime that we're in the process of 
completing.
    But keep in mind there's something that's very important to 
recognize here. All of these problems are attributed to the 
State Department's licensing system. The fact is that the 
aerospace industry as a whole and aerospace exports in military 
aircraft, in missiles, that business is growing very 
dramatically--still growing very dramatically.
    All of those regimes are subject to our licensing 
requirement. If our licensing system was so screwed up that 
nobody could count on it or get a license, then wouldn't those 
same areas--those additional areas also be in trouble? So I 
don't accept the premise that this is all related to licenses 
or to the State Department system. I will say that because of 
the problem of components which Commerce required no license at 
all for in many cases, and which are now licensable by the 
Department of State, there is a genuine problem; and that's one 
we're addressing again with this targeted approach to try to 
exempt certain aspects of the satellite business.
    Mr. Manzullo. Well, I would hope that you could come up 
with such a regime. If you don't, I would not be surprised, 
because I don't think it can be done. We're mixing missiles 
with satellites, which is the same as apples with oranges here. 
I was one of 17 Republicans who voted against the ban of the 
sale of communication satellites to the People's Republic of 
China. I'm no soothsayer or prophet, but when the Commerce 
Department turned down the export license for Hughes, which was 
worth $400 million, Hughes not only paid a huge fine; but 
Alcaltel sold the Chinese the very same satellite. I scratch my 
head trying to figure this out. This doesn't make sense. You've 
been given involuntarily a task that I don't think that you can 
do. I say that with the greatest amount of respect because I 
know of your background. But I don't think there's a way that 
we'll ever be able to come down to have a system of licensing 
when in fact the very object you're trying to license is 
readily available from ``one of our allies''.
    Mr. Holum. Well, maybe not, but we're going to give it our 
best shot.
    Mr. Manzullo. Absolutely. I appreciate it.
    Mr. Holum. And I think what we come up with will go a long 
way to mitigate the concerns.
    Mr. Manzullo. Anything to help the sales is fine. Thank you 
very much. I appreciate your coming.
    Mr. Holum. Thank you.
    Mr. Rohrabacher. Mr. Kuykendall.
    Mr. Kuykendall. I've got a couple of more just specific 
kind of questions. Some of our products--in fact it was touched 
upon in that Washington Post article, one company wants to sell 
a product and it requires an export license, the same component 
from another company, maybe it's a heat exchanger, doesn't 
require the export license, what are we doing to try to clean 
up that system where you'll have pieces of--if they take it 
apart and sell them individually, well, some of the pieces 
are--don't require licenses and at other times they do require 
licenses, Commerce will say go ahead and State will say stop.
    Mr. Holum. I think what you're referring to and it is a 
very large problem, there's the question of space qualified 
parts and components. When we started out the process, the 
transfer, we made--we undertook to make a decision on 16 
categories of space qualified items much more quickly than 
we've been able to do it because it's proven to be more 
contentious and more difficult than we thought it would be.
    A number of companies would come in and say, we're not sure 
where this belongs, and we would say, you did the right thing, 
it needs a license and then put it in the process. Whereas if 
they go to Commerce----
    Mr. Kuykendall. So the State Department is the arbitrator 
of dual-use technology and decides whether it goes to Commerce 
or it goes to State?
    Mr. Holum. No. For these items it is a bilateral State-
Commerce process to work it out and we've--but in the near term 
until we do work it out, we've concluded that those space-
qualified items remain under the--or the disputed subjects 
remain under the Commerce Department jurisdiction. So I think 
that general problem has been temporarily addressed while we 
sort out the details.
    Mr. Kuykendall. Another issue where some of our satellites, 
I believe, require like 10 or 15 different licenses to export 
one. Have you looked at programs to consolidate that into like 
a single license so that you don't have so many different lines 
of processing going on to kind of thin out the number of pounds 
of paperwork we have to shuffle? And the reason I put this in, 
especially when you're talking about things like 
communications, television kind of satellites. I mean, these 
satellites are to the point, I mean, you could say the Chinese 
Army uses them, yes, because they pick up the phone and talk on 
the telephone. Everybody in the world uses them because they 
pick up a phone. That kind of technology, for that kind of 
equipment----
    Mr. Holum. Our basic approach and I may want to get back to 
you with more--I should get back to you with a more detailed 
answer, but our basic approach is to require as few licensing 
documents as we can manage. We don't want to handle more paper 
than we have to. What usually occurs is that the project or the 
export will change over the course of license submission so 
that additional licenses are required for additional features. 
Is that basically right?
    We're also trying to thin them down more deliberately with 
our allies.
    Mr. Kuykendall. I mean, how many licensing officers are 
assigned to a satellite case.
    Mr. Holum. It would depend on the complexity.
    Mr. Kuykendall. No, in that department, the ODTC?
    Mr. Holum. You mean overall?
    Mr. Kuykendall. Yes, how many are in there?
    Mr. Holum. I think we have currently 43 licensing officers.
    Mr. Kuykendall. Has it been enough to get them done?
    Mr. Holum. There are 43 overall. Well, no, it's not and we 
are, with the additional funding that we've received from the 
Congress are, as I said in my statement, engaged in a crash 
effort to hire and advance more people because that's one of 
our major concerns. We don't have enough people. We also have 
been plagued with the problem of the people in our structure 
are at lower grades, or have tended to be at lower grades than 
in other departments or in industry. So once they get trained 
and get really good at their jobs they become very attractive 
for the Department of Defense or for private industry.
    Mr. Kuykendall. To me those are management issues that need 
to be worked out within the Department and make sure we get 
satellites exported with the right license in a timely fashion.
    Mr. Holum. That's right.
    Mr. Kuykendall. What are you doing--oh, never mind, time's 
up.
    Mr. Rohrabacher. Go ahead.
    Mr. Kuykendall. What are you doing on the launch vehicles? 
We've had failures both here as well as overseas. What are you 
doing to try to ensure that we've got some flexibility in 
launch vehicles that are satellite manufacturer? Right now, you 
know, our satellite manufacturers can put a satellite in space 
with a whole lot of people's launch vehicles. Is there any 
flexibility that you all are trying to build in to how we can 
put it up there?
    Mr. Holum. You mean by encouraging the domestic launch 
industry?
    Mr. Kuykendall. I mean, does the manufacturer of the 
satellite always have to bring you a launch vehicle and make it 
all one package in order to get it, or can they bring you a 
satellite and say, hey, look, I want put this over there, why 
don't you tell me which satellite launcher I can use? Or how 
does that work with you guys?
    Mr. Holum. We don't set up business transactions, we deal 
with what's brought to us. But, you know, we're open to a 
variety of different arrangements.
    Mr. Kuykendall. So if they bring you a French one, you'll 
look at a French launch vehicle to go with a United States 
satellite or a Chinese launch vehicle to look with the United 
States satellite or----
    Mr. Holum. Yes.
    Mr. Kuykendall [continuing]. Domestic launch vehicle to 
look at a U.S. satellite.
    Mr. Holum. If it's a domestic launch vehicle it probably 
wouldn't come to us unless it was in insurance.
    Mr. Kuykendall. The only problem is, that's just the point, 
it's going to be insurance or it's the satellites for 
Indonesia.
    Mr. Holum. Right.
    Mr. Kuykendall. We've got to get the export license and we 
have to export license even our own domestic launch capacity?
    Mr. Holum. On some occasions depending on the insurance.
    Mr. Kuykendall. I mean, I'm not on this Committee, but I 
would certainly hope from all the questions you're getting here 
that you would be thinking long and hard about the kinds of 
either--I hate to use the word ``relaxation'' but the kinds of 
guidelines you need to have approved by Congress if that's 
where they need to come from, it sounds like some of them may 
need to since we dictated some of this transfer of this 
tightening, what kind of guidelines you need to make some of 
these what just seem like ludicrous decisions be made easier. 
Because I don't want our technology being transferred anymore 
than anybody else does, but when you have domestic rockets and 
domestic satellites that can't be exported because some foreign 
insurance company can't issue a policy because they can't read 
the documentation, they're not qualified to, I mean, those 
kinds of things, to me, that's just how do you make business 
function right and we shouldn't be the roadblock, we should be 
the facilitator.
    Mr. Holum. And I want to underscore, it's not that you 
can't do it. If you have to get a license, you get a license, 
and we grant licenses very quickly. In cases that are 
considered inside the Department of State over the last 6 
months, we've been turning them around in 17 days, if it's not 
something that has to be staffed out to other agencies. That's 
pretty quick. For cases that have to go outside the Department 
of State, it's 51 days or 55 days, that's over the last 6 
months.
    Mr. Kuykendall. So one of these where I've got a domestic 
launch vehicle and a satellite, but I've got to go outside 
because of insurance, that's a 51-day----
    Mr. Holum. That would almost certainly be inside the State 
Department, but it depends on the circumstances. But it turns 
around pretty fast.
    Mr. Kuykendall. I'm real concerned that we've got a major 
commercial product and products that we hold the edge in the 
world on and we've now found ourself bollixed up and not being 
able to properly control it, and at the same time export it. It 
sounds like it's much more a management issue within the State 
Department or within Commerce, or the combination than it is 
within Congress. If it's our problem, give us a list of what 
you need changed so we know what it is we have to work on, and 
then we can figure out if it's our problem or not. It may not 
be.
    Thank you.
    Mr. Rohrabacher. One last round of questions if I can, 
seeing that I'm the Chairman. I'll take advantage.
    Mr. Holum. Do whatever you want.
    Mr. Rohrabacher. Does the State Department still insist on 
calling China our strategic partner?
    Mr. Holum. I don't know the answer to that. I'll take it 
for the record, because I have not been in the business of 
applying labels to our relationship so much as trying to make 
it work.
    Mr. Rohrabacher. So you're not--you don't know whether or 
not the official position of this Administration is still that 
China is our strategic partner or not?
    Mr. Holum. I can tell you that----
    Mr. Rohrabacher. This is phenomenal, you're----
    Mr. Holum [continuing]. The United States is making major 
efforts to enlist China's cooperation and partnership, if you 
will, on a number of strategic issues including the ones that I 
work on most aggressively which are non-proliferation.
    Mr. Rohrabacher. But you're hot sure whether or not the 
Administration is--is there a reason for you to believe that 
the Administration has changed its position?
    Mr. Holum. No, I do not think so.
    Mr. Rohrabacher. All right. So as far as you can tell, the 
Administration still is committed to the policy of 
characterizing our relationship with this regime in Beijing as 
a strategic partner?
    Mr. Holum. As I said, my interest is in trying to enlist 
their partnership in areas where I think their behavior has a 
major impact on our security.
    Mr. Rohrabacher. Right. As compared to recognizing that 
perhaps trying to enlist the support of someone who is 
incapable of--an adversary is not someone that you're going to 
try to enlist as a partner. An adversary you're going to treat 
as an adversary and not try to treat as a partner.
    Mr. Holum. I like that question because it is an important 
subject.
    Mr. Rohrabacher. Yeah it is, I think it's the basis of what 
we're talking about today.
    Mr. Holum. But what I have tried to avoid in the experience 
that I've had in this job is the conclusion that once you've 
decided who are the good guys and who are the bad guys, the job 
was done. Because you have to get the bad guys to behave in 
ways that serve your security. So you still have to engage with 
them.
    Mr. Rohrabacher. But until they actually change the way 
they behave, they're still the bad guys; right?
    Mr. Holum. Well, that's what I resist, is saying there are 
good guys and bad guys. I think what the key is to find ways to 
cooperate across the range of countries----
    Mr. Rohrabacher. That's the problem right there----
    Mr. Holum [continuing]. In order to get to----
    Mr. Rohrabacher. I think that's what this whole discussion 
is about. There are people who don't want to admit in the world 
there are good guys and bad guys. Not to say that you can 
define, everything is so definitive, but there are good guys 
and bad guys and we shouldn't be treating everybody across the 
range as if they're similar. That is not the case.
    Mr. Holum. Nobody----
    Mr. Rohrabacher. That's what I tried to point out earlier.
    Mr. Holum [continuing]. And nobody does that. What we try 
to do----
    Mr. Rohrabacher. I thought that's what you just described?
    Mr. Holum. No, you try to engage whatever countries you are 
working with to get them to take steps that are consistent with 
U.S. national interests. Concluding that they're a bad guy or a 
good guy doesn't get you very far in doing that. Well, 
obviously you do it with your eyes open.
    Mr. Rohrabacher. Yeah, I would think that in a world where 
there are some people who mean us harm and disagree with every 
basis of our system that our--for example, the world's worst 
human rights abuser who happens to be Communist China, or a 
power that is belligerent and says things like, we might nuke 
Los Angeles if we get in a conflict with us over Taiwan, that 
you might want to recognize that as being significant in how 
you deal with them as compared to, well, should we sell a 
satellite to Belgium or not?
    Mr. Holum. But does your analysis mean that if I can 
persuade China that they should not engage in nuclear 
cooperation with Iran I shouldn't do it?
    Mr. Rohrabacher. I guess it just means you treat people 
differently and you wouldn't really expect to be dealt with on 
a, you know, let's say, up front basis as you would with a 
democratic society when you're dealing with the world's worst 
human rights abuser.
    By the way, the President just signed the Code of--or has 
signed, I should say, the Code of Conduct, which I am co-author 
of, saying that the United States should not be selling weapons 
to dictatorships. Is your analysis that this also includes 
Communist China?
    Mr. Holum. The Human Rights report, I'm not an expert in 
that field, but I think the Human Rights report that just came 
up to the Hill recently had some pretty tough language about 
China. We certainly have been outspoken about their human 
rights behavior.
    Mr. Rohrabacher. And earlier on when I talked about how the 
testimony that we had earlier, remember a couple of years ago 
when we got in a little confrontation on----
    Mr. Holum. I don't recall a confrontation.
    Mr. Rohrabacher [continuing]. Missile technology transfers, 
are you suggesting that your testimony earlier during hearings 
here on that issue in no way contradicted the Cox Report? You 
were not in contradiction to the Cox Report when you testified 
about this?
    Mr. Holum. You mean my previous testimony?
    Mr. Rohrabacher. Yes, your previous testimony.
    Mr. Holum. I can't remember every detail of the Cox Report. 
I don't think we agreed with all of its conclusions and 
recommendations. But I've not, to my knowledge said anywhere 
that no technology has gone to China as a result of this launch 
failure investigation. That's a question----
    Mr. Rohrabacher. I don't think we were concerned about no 
technology, we were concerned about whether or not Communist 
Chinese rockets or their military counterpart, you know, 
weapons carrying military missiles were in some way improved in 
terms of their capabilities or the reliability. Isn't it fair 
to say that as the Cox Report found, that due to our 
relationship with China which we were expecting the 
Administration to oversee and obviously there was something 
went astray because isn't it now fair to say that there was a 
transfer of technology that made their rockets more reliable 
and more effective?
    Mr. Holum. The problem I have with that question is that 
there are cases that are still under investigation by the 
Department of Justice. We were then and are now precluded from 
discussing the content of those cases.
    Mr. Rohrabacher. Well, when my friend, Mr. Manzullo, 
mentioned he didn't understand about, you know, why a 
satellite--you know, why there would be this restriction on 
satellites, I'm sorry that he's not here because it doesn't 
have to be--a missile doesn't have to be armed with a weapon 
that explodes and kills millions of people to put America in 
jeopardy.
    Mr. Holum. Absolutely.
    Mr. Rohrabacher. I mentioned in my opening statement about 
command and control satellite that just went up, I think it was 
last week, in China that was called a multiplier--a force 
multiplier for the Chinese, do you know if that rocket had any 
benefits from our relationship over the years with China? In 
other words, the Chinese abilities to deal with Hughes, and 
Loral and other American companies perhaps helped that rocket 
go up and be successful?
    Mr. Holum. I don't know.
    Mr. Rohrabacher. But it's highly likely, isn't it?
    Mr. Holum. Highly likely?
    Mr. Rohrabacher. Yeah, it is highly likely that that 
rocket--there was a 50 percent--at least my staff seems to 
think that there was a long march 3A that it was a 50 percent 
failure rate until after their consulting with--after their 
dealings with American companies and now it has a very high, if 
not a 100 percent success rate?
    Mr. Holum. You're testing my memory beyond its capacity 
here. I looked at those things very closely when we were 
testifying on that subject.
    Mr. Rohrabacher. But the satellite itself, the command and 
control satellite itself could--permitting them to coordinate 
their anti-aircraft systems and their missile systems and their 
other systems in the Taiwan Straits, that could, if we ever get 
into a confrontation, that could result in the death of 
hundred, if not thousands of American lives if we choose to 
confront an act of Chinese aggression there, couldn't it?
    Mr. Holum. As I have said, it is our policy in appropriate 
cases, and not in every case, because as you've heard, we 
turned down the Hughes license that included MTCR-related 
materials, but it is our policy to approve satellite launches 
in China on a case-by-case basis appropriately safeguarded 
including monitoring by the Department of Defense. But one of 
the things we would consider in any licensing decision is the 
military utility of the satellite itself as distinct from the 
launcher. The launcher as you and I both know is essentially 
the same as an ICBM.
    Mr. Rohrabacher. Well, I have the sneaking suspicion that 
the technology that we would find technology in this command 
and control satellite that looks suspiciously like American 
technology, technology that our taxpayers paid for. Now that 
their command and control satellite is up and I have a sneaking 
suspicion that the long march 3A rocket might have a nose cone 
that is designed the way the Hughes engineers described to me 
how they were helping ensue that the satellite launches were 
going to be effective and they were actually going to be able 
to launch the satellite because they redesigned the nose cone 
that covered the satellite which also can, of course, cover up 
a satellite that's a command and control satellite. Or can 
cover up a weapon that would incinerate millions of people in 
Los Angeles, for example. This is a very serious issue and I 
think--and, again, I think there's an honest disagreement as to 
how you approach the problem of China, and I think that's the 
basis of all these--of all the confusion. I think that's the 
basis of why some people can export and can't export, and why 
the problems right now; because the Administration is trying to 
juggle this strategic partnership concept in a real world. It's 
an illusion in a real world, and that's what is causing our 
problems here today.
    I know that would require about an hour's worth of 
discussion to understand exactly how that all works together, 
but that's what I perceive. I think the American people will be 
making their decision this year as to what direction they want 
to go.
    Mr. Holum. That's certainly true. We can agree on that one 
point.
    Mr. Rohrabacher. Yes.
    Mr. Holum. First of all, I do agree with you that there is 
an honest difference over how we approach China and it 
affects--there are people who think China is--if we just trade 
with them enough--in enough----
    Mr. Rohrabacher. Right. Sure.
    Mr. Holum [continuing]. In enough----
    Mr. Rohrabacher. They'll become better. It's hug a Nazi, 
make a liberal, that's what I----
    [Laughter.]
    Mr. Holum. And there are others who think closer to your 
point of view. What I've been moved by in the course of my 
service is the proposition that China has to be a part of the 
solution. I don't have any illusions about China's intentions 
or character. But it is also the case that China by itself, 
leaving aside anything that the United States provides, has 
nuclear, chemical, biological, ICBM capabilities. To the extent 
that we are going to be successful in controlling the spread of 
those technologies to more countries that are even more 
dangerous to us than China is, then we need to have China as 
part of the solution.
    Mr. Rohrabacher. Absolutely. And China, I just was watching 
the History channel the other night and it talked about how 
Hindenberg gave power to the Nazis and it was important, the 
significance of that act, of just giving that power over to----
    Mr. Holum. I saw the same program.
    Mr. Rohrabacher [continuing]. I think that China is not the 
Communist party that controls Beijing. Communist China is 
Beijing and that cliche that runs that country. China itself is 
all of these millions of people who are our best allies and 
friends, the Chinese people. China itself is--you're right, 
that's got to be part of the solution. Unfortunately that means 
that democracy and China are at least a loosening up of those 
controls and----
    Mr. Holum. I hope so.
    Mr. Rohrabacher [continuing]. That's the real solution here 
and not us being armed to the teeth and whatever and acting 
like they're enemies.
    Mr. Holum. But we can't wait for a regime change to address 
proliferation.
    Mr. Rohrabacher. Well, I'm going to leave you with that 
last word and, again, thank you very much and I know that I 
come on real strong at times, but I think it's been a good 
exchange.
    Mr. Holum. Thank you very much.
    Mr. Rohrabacher. Thank you. The meeting is adjourned.
    [Whereupon, at 3:43 p.m., the Committee was adjourned to 
reconvene subject to the call of the Chair.]
      
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                             March 28, 2000

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