[Senate Hearing 109-94]
[From the U.S. Government Publishing Office]



                                                         S. Hrg. 109-94

                   THE LIFTING OF THE EU ARMS EMBARGO
                                ON CHINA

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

                                HEARING



                               BEFORE THE



                     COMMITTEE ON FOREIGN RELATIONS
                          UNITED STATES SENATE



                      ONE HUNDRED NINETH CONGRESS



                             FIRST SESSION



                               __________

                             MARCH 16, 2005

                               __________



       Printed for the use of the Committee on Foreign Relations


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                     COMMITTEE ON FOREIGN RELATIONS

                  RICHARD G. LUGAR, Indiana, Chairman

CHUCK HAGEL, Nebraska                JOSEPH R. BIDEN, Jr., Delaware
LINCOLN CHAFEE, Rhode Island         PAUL S. SARBANES, Maryland
GEORGE ALLEN, Virginia               CHRISTOPHER J. DODD, Connecticut
NORM COLEMAN, Minnesota              JOHN F. KERRY, Massachusetts
GEORGE V. VOINOVICH, Ohio            RUSSELL D. FEINGOLD, Wisconsin
LAMAR ALEXANDER, Tennessee           BARBARA BOXER, California
JOHN E. SUNUNU, New Hampshire        BILL NELSON, Florida
LISA MURKOWSKI, Alaska               BARACK OBAMA, Illinois
MEL MARTINEZ, Florida
                 Kenneth A. Myers, Jr., Staff Director
              Antony J. Blinken, Democratic Staff Director

                                  (ii)

  


                            C O N T E N T S

                              ----------                              
                                                                   Page

Biden, Hon. Joseph R., Jr., U.S. Senator from Delaware...........     3
Brookes, Peter, Senior Fellow for National Security Affairs and 
  Director, Asian Studies Center, the Heritage Foundation, 
  Washington, DC.................................................     5
    Prepared statement...........................................     7
Gill, Dr. Bates, Freeman Chair in China Studies, Center for 
  Strategic and International Studies, Washington, DC............     9
    Prepared statement...........................................    13
Grimmett, Dr. Richard F., Specialist in National Defense, 
  Congressional Research Service, Washington, DC.................    18
    Prepared statement...........................................    20
    CRS Report: U.S. Defense Articles and Services Supplied to 
      Foreign Recipients: Restrictions on Their Use..............    26
    CRS Report: European Union's Arms Control Regime and Arms 
      Exports to China: Background and Legal Analysis............    31
Lugar, Hon. Richard G., U.S. Senator from Indiana, opening 
  statement......................................................     1

                                 (iii)

  

 
              THE LIFTING OF THE EU ARMS EMBARGO ON CHINA

                              ----------                              


                       WEDNESDAY, MARCH 16, 2005

                                       U.S. Senate,
                            Committee on Foreign Relations,
                                                    Washington, DC.
    The committee met at 2:45 p.m., in room SD-419, Dirksen 
Senate Office Building, Hon. Richard G. Lugar, chairman of the 
committee, presiding.
    Present: Senators Lugar, Allen, and Biden.

 OPENING STATEMENT OF HON. RICHARD G. LUGAR, U.S. SENATOR FROM 
                            INDIANA

    The Chairman. This hearing of the Senate Foreign Relations 
Committee is called to order.
    The Senate Foreign Relations Committee meets today to 
examine the European Union's arms embargo against the People's 
Republic of China. This embargo was imposed, along with a 
similar one by the United States, in 1989 in response to the 
brutal crackdown on peaceful demonstration in Beijing's 
Tiananmen Square. But now European officials have indicated 
that the EU plans to lift its embargo.
    As I have noted before, this is a mistake. President Bush, 
on his recent European trip, has personally expressed his 
``deep concern'' about these plans. Republicans and Democrats 
in Congress share this view. Rarely have Congress and the 
President, Republicans and Democrats, been so united against a 
proposal made by our European friends.
    I have long championed strong ties with our European 
allies, and I also favor appropriate engagement with China. But 
the United States national security interests could be harmed 
if the European Union countries sell sophisticated weapons and 
technology at this time to China.
    Our first concern must be stopping the proliferation of 
weapons technology. China has sold weapons and associated 
technology to rogue states in the past. China's military is 
aggressively seeking more advanced weaponry and electronics for 
its ongoing modernization. Europe will have little practical 
control over where that key technology may end up.
    During the past year alone, the United States has imposed 
sanctions on 23 Chinese individuals and companies for violating 
American proliferation laws. These violations have included the 
transfer to Iran of technology related to missiles and chemical 
and biological weapons. China also has helped Pakistan's 
nuclear program and passed on military technology to North 
Korea and the repressive junta in Burma.
    President Bush highlighted another problem in his talks 
with Europeans. Namely, lifting the embargo would ``change the 
balance of relations between China and Taiwan.'' Tensions 
across the Taiwan Strait have just been made worse by Beijing's 
ill-advised passage of the so-called ``Anti-Secession Law.'' 
This law lists a series of events that could trigger an attack 
on Taiwan by China. In light of such potentially destabilizing 
action, this is no time to be taking steps that might either 
help China achieve a decisive military advantage over Taiwan or 
send the wrong political signal.
    I favor engaging China in ways that open China's markets to 
agricultural and other goods, help China assume a responsible 
place in world affairs and in the region, aid the fight against 
terrorism, improve the lives of its people, and promote 
religious freedom and democracy. Lifting the arms embargo 
advances none of these goals. In fact, lifting the embargo 
would send the wrong signal in the area of human rights.
    Despite strides in other areas, China still holds political 
and religious prisoners, avoids meaningful dialog with the 
Dalai Lama over Tibet, and has no engagement whatever with 
domestic pro-democracy forces. Lifting the arms curbs would be 
viewed as a reward for this intransigence.
    Ending the arms ban would do little to improve European 
Union-China ties, which have been developing despite the 
embargo. The main beneficiaries would be European defense 
companies.
    There are also reports that Europe expects to be rewarded 
for lifting the ban by getting more orders for Airbus 
airplanes. If so, the United States would be doubly harmed by 
losing sales of American-produced aircraft.
    Europeans claim that lifting the embargo will not result in 
more or better weapons being sold to China. They say they have 
a Code of Conduct on Arms Exports that will limit the impact. 
However, the current embargo already has proven to be 
ineffective. In 2003, China received from Europeans export 
licenses for 550 million dollars' worth of military or 
sensitive dual-use goods. The Code of Conduct is only 
voluntary. The Europeans promised President Bush to strengthen 
the code to meet his concerns. The President is skeptical, and 
so am I.
    The Europeans' decision is expected in June. I would urge 
the administration to keep working to dissuade the Europeans 
from this course.
    In addition, we should make certain that Beijing cannot 
circumvent our arms embargo by buying American technology from 
Europe. The administration should press for binding agreements 
with each EU member explicitly banning the retransfer to China 
of any United States technology or weapons that are on the 
United States munitions list. If the countries fail to agree, 
or if the quantity or quality of arms flowing to China from 
Europe rises markedly, we should reassess sales to Europe of 
our most critical military technology.
    To help us estimate the likelihood that the European Union 
will lift the embargo and to examine the implications if it 
does, we are joined by a panel of distinguished experts. Mr. 
Peter Brookes is a Senior Fellow for National Security Affairs 
and Director of the Asian Studies Center at the Heritage 
Foundation. Dr. Bates Gill is holder of the Freeman Chair in 
China Studies at the Center for Strategic and International 
Studies. Dr. Richard Grimmett is a National Defense Specialist 
at the Congressional Research Service.
    We thank our witnesses for joining us. We look forward to 
their insights.
    First of all, I would like to recognize the distinguished 
ranking member of the committee, Senator Biden.

   STATEMENT OF HON. JOSEPH R. BIDEN, JR., U.S. SENATOR FROM 
                            DELAWARE

    Senator Biden. Thank you very much, Mr. Chairman, and thank 
you for holding this hearing. We have three distinguished 
witnesses. I will try to be brief so we can get right to their 
testimony.
    China's defense buildup has already sparked concern among 
its neighbors and lifting the EU arms embargo raises a specter 
of more advanced European arms and technology; or, for that 
matter, even United States technology that is sold to EU 
countries being transferred to a China that has just put into 
its law its willingness to use force in Taiwan, their own 
policy of preemption.
    Now, a European Union delegation has been visiting 
congressional leaders to assure us that lifting the arms 
embargo will not harm United States security interests in Asia, 
partly because the EU will also toughen its nonbinding Code of 
Conduct in arms transfers and partly because the arms embargo 
already has plenty of loopholes. At least, they are the two 
rationales they offer.
    But maintaining its arms embargo and strengthening the EU 
Code of Conduct are not, and should not be, mutually exclusive. 
Both, in my view, should be done. Senator Gordon Smith and I 
introduced a resolution, now before the Senate, calling on the 
EU to do just that, that is, to maintain the embargo and to 
strengthen the EU Code of Conduct.
    Another reason not to lift the embargo, is that such an 
action will send an unwise signal to the human rights community 
in China and in all of Asia that they no longer matter to the 
great mercantile states of Europe.
    And China, as we know, obviously lets politics dictate 
major commercial sales. So the European firms like Airbus, 
Allianz insurance, and Siemens may be rewarded if the EU lifts 
the embargo, at the expense of United States competitors like 
Boeing, AIG, and Motorola. German officials have actually 
publicly said that this nondefense trade is the real reason for 
lifting the embargo, and they said that just last week on 
National Public Radio.
    Mr. Chairman, that is not a China policy. It is a China 
problem. Rather, it is more a symptom of the estrangement and 
the economic competitiveness that exists between the United 
States and Europe under this administration. We need to reach 
out, it seems to me, to the EU and articulate our concerns and 
consult with our allies on a full range of ancient policy 
issues. If we end up not being able to stop the lifting of the 
EU embargo, which I am beginning to be doubtful about, Europe, 
in turn, has to toughen its Code of Conduct on all arms sales 
and should agree to consult with us on any sales to China. I 
think we could get agreement at a minimum to do that.
    The EU, in my view, is acting--how can I say this 
tactfully? Well, I really probably cannot say it tactfully. But 
I think that this is a very, very dangerous decision, and 
particularly coming at a moment when this administration has 
reached out to try to begin to mend our frayed relationships 
with our European allies. I think, the administration--my 
judgment, not the administration's--has come to realize that it 
is overwhelmingly in our interest to have a coherent policy 
agreement with Europe and our European allies on major foreign 
policy questions, and is trying to do that and reconcile our 
differences. Here, in the midst of this effort on a good trip 
by the President and a preceding trip by Dr. Rice, Europe's 
lifting of its arms embargo could do significant damage.
    To be very blunt with you, Mr. Chairman, I am a little 
concerned about what some of our colleagues here might do. I am 
very concerned about the kind of legislation that this would 
potentially generate and how it may very well begin to poison 
the well again in the transatlantic relationship. Words matter. 
And one of the things that has been done of late, is that both 
the European capitals and our capital have toned down the 
rhetoric in referencing one another. That is a very necessary 
and important thing. I am worried this may spark renewed 
rhetoric.
    Mr. Chairman, rather than go through the rest of my 
statement, let me suggest that, at a minimum, the Europeans 
should fundamentally strengthen their Code of Conduct and make 
it an EU common position. I am not at all assured by the fact 
that each country individually will make separate judgments on 
that. I think the EU could dramatically improve internal 
transparency through better reporting of actual sales (not just 
licenses and common categories of exports), more information on 
details, and no-undercut policies. I think it could establish 
better end-use certification and monitoring. It could penalize 
any diversion of European dual-use exports by halting further 
sales by any EU members, and so on.
    But rather than go through the rest of what I have to say 
here, I am anxious to hear what our witnesses have to say. I 
hope we can reach a common position with our European friends 
on this. I am not at all that hopeful, but I would suggest that 
it is very, very important that we try.
    I yield the floor, Mr. Chairman.
    The Chairman. Thank you very much, Senator Biden.
    I will ask the witnesses to testify in the order that I 
introduced you in my opening statement. That would be, first of 
all, Mr. Brookes, then Dr. Gill, and then Dr. Grimmett. All of 
your statements will be placed in the record in full, so you 
need not ask for permission to do that. To the extent that you 
can summarize the statements to fit within perhaps a pattern of 
about 10 minutes, the chair and the ranking member will be 
liberal in that interpretation. We have come to hear you, not 
to limit you.
    But we have a distressing factor of four rollcall votes 
coming in a series, at some point during the coming hour. That 
is going to be disruptive, but I suspect that if we proceed in 
this way, you will all be heard, and that is important. Then we 
will have opportunities to ask as many questions as time may 
permit at that point.
    Senator Biden. And if you saw how we are voting, you would 
really be distressed. [Laughter.]
    The Chairman. Easy there. [Laughter.]
    Mr. Brookes.

STATEMENT OF PETER BROOKES, SENIOR FELLOW FOR NATIONAL SECURITY 
   AFFAIRS AND DIRECTOR, ASIAN STUDIES CENTER, THE HERITAGE 
                   FOUNDATION, WASHINGTON, DC

    Mr. Brookes. Thank you, Mr. Chairman, Senator Biden. It is 
an honor and a privilege to appear before you today to discuss 
the European Union's pending decision to lift its arms embargo 
against China.
    I want to commend you for holding this very timely hearing 
as there are many questions being asked on both sides of the 
Atlantic, as well as in Asia, that this question should be 
addressed in a prestigious open forum such as this.
    I am testifying here today as an individual and my views do 
not necessarily reflect the views of my employer, the Heritage 
Foundation. I have submitted my testimony for the record, which 
covers my perceptions of American concerns, as well as European 
and Chinese motivations regarding lifting the arms embargo. 
But, in addition, I would like to quickly emphasize several 
general points and conclusions in my testimony and then make a 
very few short, tailored remarks as well.
    First, in my view lifting the EU arms embargo is a mistake. 
It will endanger United States interests and that of American 
allies in Asia. It will accelerate China's military buildup, 
undermine stability in the Pacific, especially across the 
Taiwan Strait, reduce leverage for guiding future Chinese 
behavior on human rights and security matters, send the wrong 
signals to repressive regimes everywhere about human rights, 
and not help close the existing transatlantic divide.
    Next, let me say a few words about Chinese military 
modernization. Northeast Asia regional security dynamics are 
increasingly revolving around China. China's military potential 
continues to grow and is inexorably shifting the balance of 
power in the region. There are concerns across the region about 
China's strategic ambitions. China now has the largest defense 
budget in East Asia, the second largest in the world, behind 
the United States, but ahead of Japan. China has experienced 
double-digit defense budget growth for 14 years now, and the 
PLA is getting a 12-percent increase this year, including an 
additional 7-percent increase for procurement. Some see these 
growth figures as conservative.
    Of most concern, the balance of power is shifting across 
the Taiwan Strait in Beijing's favor. Considering the American 
obligations under the 1979 Taiwan Relations Act, this is cause 
for concern. Within the next few years, China will have a 
qualitative and quantitative military advantage over Taiwan, 
and some would argue that this has already happened. Members of 
the committee are certainly aware of the missile buildup in 
China across from Taiwan. China's ballistic missile buildup not 
only threatens Taiwan but American forces and Japan as well.
    The Japanese have also taken notice, adjusting their 
defense posture south during their most recent defense review 
and noting their concern over stability in the Taiwan Strait 
for the first time in their most recent defense white paper.
    China plans to develop a military which can deter, delay, 
or deny American intervention in the Pacific, especially over 
the issue of Taiwan. That day is not here yet, but one cannot 
underestimate the possibility of misperception or 
miscalculation by the Chinese over the issue of Taiwan.
    To this end, Chinese military modernization priorities 
center around power projection capabilities: Submarines, 
surface combatants, tactical air power and air defense, 
ballistic and cruise missiles, overhead satellites and space 
programs, information warfare, psychological operations, as 
well as doctrinal improvements for fostering joint military 
operations based on their observation of such things as 
Operation Iraqi Freedom.
    Let me say a few words about technology flows. In the short 
term, China will attempt to procure force multiplier 
technologies and capabilities to fill in gaps in their military 
performance. For example, C4ISR, command, control, 
communications, computers, intelligence, surveillance, and 
reconnaissance technology including sensor to shoot technology, 
cooperative target engagement technology for improving fighting 
efficiency effectiveness, and situational awareness.
    Other technologies and capabilities of interest include 
air-to-air refueling, amphibious warfare, naval underwater 
replenishment, jet turbo fan engines, electronic 
countermeasures, airborne early warning, and composite 
materials of the stealth technology. China is interested in 
everything a modern military such as the United States has.
    Additionally, Russia, which has concerns about China 
despite its arms sales relationship, might be driven to sell 
additional, more lethal, more sophisticated arms to China if 
Russia is placed in competition with Europe.
    In the long term, China will attempt to reduce their 
dependence on foreign sources of quality equipment, technology, 
and expertise by strengthening its own military industrial 
complex through research, development, joint ventures, 
technology transfers, and even economic espionage.
    Europe, if it lifts the arms embargo, will be an important 
market for procuring these capabilities and can hinder or 
accelerate China's progress in these areas based on their 
future policy decisions.
    A few words on the Code of Conduct. I am worried about a 
new voluntary EU Code of Conduct that may not stem the flow of 
military useful technology or equipment to China. An improved 
Code of Conduct is a step in the right direction, and the 
toolbox directed at China specifically is also positive. But I 
am still concerned that some nations will still conduct 
military sales or dual-use technology transfers to China in 
order to enhance commercial relations. The Chinese are sure to 
apply as much political and commercial pressure as possible to 
get the military equipment and technology they need for their 
military industrial complex.
    Lastly, we also have to be cognizant, as you mentioned, Mr. 
Chairman, of what flows into China from Europe may flow out as 
well to Iran, North Korea, and others with whom China has a 
security relationship.
    In closing, the United States should welcome China's 
peaceful integration into the international community as an 
open and free society through commerce, tourism, academic 
exchanges, and official dialog. These activities maximize the 
free world's efforts to encourage positive political and social 
change for 1.3 billion Chinese.
    In my view, lifting the EU arms embargo will not do that. 
In fact, the passage of the anti-secession law directed at 
Taiwan by the Chinese National People's Congress on Monday, 
seems to suggest just the opposite, that China sees the EU's 
proposed decision on arms sales as approval to further pressure 
Taiwan militarily if necessary.
    I encourage the Senate to continue to look at this issue 
closely and express your concerns to your European 
counterparts, as I am sure you already are. I do not feel that 
this decision is a fait accompli yet, especially in light of 
the anti-secession law's passing earlier this week.
    In addition, I recommend that Congress, in close concert 
with the administration, craft an appropriate response which 
seeks to protect American interests and that of our friends and 
allies from this misguided decision by the EU.
    So, with that, Mr. Chairman, I will conclude. Thank you for 
the opportunity to testify before the committee today.
    [The prepared statement of Mr. Brookes follows:]

 Prepared Statement of Peter T.R. Brookes, Senior Fellow for National 
   Security Affairs and Director, Asian Studies Center, The Heritage 
                               Foundation

    Mr. Chairman, Members of the Committee, it is an honor and 
privilege to appear before you today to discuss the European Union's 
pending decision to lift its arms embargo against China.
    I want to commend you for holding this very timely hearing as there 
are many questions being asked on both sides of the Atlantic--and in 
Asia--that should be addressed in a prestigious, open forum such as 
this.
    I am testifying here today as an individual and my views do not 
necessarily reflect the views of my employer, The Heritage Foundation.
    Later this year, the European Union (EU) will consider lifting the 
Tiananmen Square arms embargo against the People's Republic of China 
(PRC). The United States and the EU imposed the embargo following the 
June 1989 crackdown on democracy protectors in Beijing. Lifting the 
embargo would endanger U.S. interests, accelerate China's military 
buildup, undermine stability in the Pacific, and send the wrong signal 
to repressive regimes everywhere.

                           AMERICAN CONCERNS

    The U.S. is rightfully troubled by the proposed EU policy change. 
First, there is concern about China's refusal to renounce the use of 
force against Taiwan. In light of China's ongoing military buildup, 
Beijing might decide to coerce or take military action against Taiwan 
to force unification. Its recent passage of an ``Anti-Secession'' law 
directed at Taiwan, which may have been encouraged by the pending EU 
decision, is not encouraging. But more to the point, the sale of EU 
arms to China would mean that European weapons might be used against 
American servicemen in a military confrontation over Taiwan.
    Second, lifting the EU arms embargo would exacerbate the ongoing 
shift in the balance of power across the Taiwan Strait. In the next few 
years, the cross-Strait conventional military balance of power will 
move decidedly in Beijing's favor. This change might lead Beijing to 
perceive an ability to resolve Taiwan's political future through force. 
Considering the political, economic and military issues at stake in 
Northeast Asia, a Chinese miscalculation of this sort has the potential 
for catastrophic results.
    Third, in some quarters there is significant concern that China 
wants to succeed the U.S. as the preeminent power in the Pacific. 
Increased Chinese military might derived from EU arms sales or 
technology transfers could at some point allow Chinese forces to deter, 
delay, or deny American military intervention in the Pacific--or 
replace the United States as the premier military power in Asia.
    Though many Asian countries welcome China's economic opportunities, 
they are wary of Beijing when it comes to security matters. Some 
strategists believe that beyond unification with Taiwan, China also has 
an eye towards subjugating Japan, controlling heavily-traveled Asian 
sea lanes, projecting power into the Indian Ocean and dominating 
Southeast Asia. Japan has already expressed their concern with the EU's 
proposed policy change.
    Fourth, China's handling of advanced conventional arms, WMDs, and 
ballistic missiles is of great concern. The PRC's export control laws 
and practices leave a lot to be desired. Willful government-supported 
proliferation is even more troubling. China's relationship with North 
Korea, Iran, Burma, or even Syria could lead to sensitive European 
technology falling into the wrong hands.
    Finally, China's human rights record remains deeply troubling and 
scarcely merits reward. Just in 2004, Chinese security services 
harassed and detained justice-seeking mothers of Tiananmen Square 
victims, as well as political activists and Internet users. In fact, 
some suggest that China's human rights record has regressed since 1989. 
Once the arms embargo is lifted, the EU will lose significant leverage 
with China over human rights. In addition, ending the arms embargo 
would send the wrong signal to other repressive regimes.

                          EUROPEAN MOTIVATIONS

    So why is Europe considering this change? Many believe that the EU 
is trying to curry favor with China for preferential commercial 
treatment. China is one of the world's most dynamic economies, and 
lifting sanctions may lead to large commercial deals for EU firms. If 
the political climate is right, the PRC may also look to EU companies 
for high-speed rail, telecommunications, satellites, energy plants, and 
even high-end nuclear plants as China's insatiable appetite for energy 
grows.
    A second and more sinister reason for the policy change is to open 
a new arms market for European weapons in China. The PRC is a veritable 
cash cow for arms sales. China's defense budget--now the world's second 
largest--runs $50-$70 billion a year, including plenty of money for 
arms purchases. With declining defense budgets across Europe, China 
provides a golden opportunity for Europe's beleaguered defense firms to 
sell arms in a growing market.
    Third, from a political perspective, some EU members are looking 
for political cover. Should the new arms policy go awry (e.g., the use 
of EU weapons on political dissidents, Tibetans, or Uighurs), political 
responsibility for the policy change would be spread across the breadth 
of the EU's membership. By working under the EU's umbrella, some states 
will inoculate themselves from their constituents' disapproval for 
backing down on China's human rights record.
    Lastly, and on the most cynical end of the scale, some believe that 
the EU, especially France, is attempting to balance American global 
power through the development of a ``multipolar'' world. In such a 
political construct, other power centers such as China, Russia, Japan, 
India, and the EU could counterbalance American power. Thus, making 
China more powerful would help Europe challenge the United States' 
global pre-eminence.

                          CHINESE MOTIVATIONS

    No doubt China has motivations of its own. First, Beijing continues 
to seek political absolution for the Tiananmen Square massacre among 
the international community. The recent death of former Communist Party 
leader, Zhao Ziyang, is a nail in the coffin of the requirement that 
the Chinese government account for its actions at Tiananmen; the 
lifting of the EU embargo would be another.
    Second, China is looking for competitive pricing and alternative 
sources for the arms it currently buys from Russia, its main advanced-
technology arms supplier. With the U.S. and EU currently out of the 
Chinese arms market, it's a seller's market for the Russians.
    EU arms can compete with the Russian arms producers in terms of 
quality and (possibly) price. This would create a buyer's market for 
Beijing, decreasing dependence on Russian arms and enhancing the 
likelihood of generous advanced-technology transfers to the Chinese 
arms industry as part of any arms deal. The Chinese may also be hoping 
that the EU's decision will lead to pressure in Washington from defense 
firms to lift the embargo.
    Third, Beijing is hunting for military technology it can't find 
elsewhere, especially in the Russian market. The Chinese can find top-
notch fighters, diesel submarines, destroyers, and surface-to-air 
missiles in Russia, but they may not be able to find the necessary 
command, control, communications, computers, intelligence, 
surveillance, and reconnaissance (C4ISR) systems they need to make 
these systems more effective. The EU may be just the source for such 
systems.
    Fourth, Beijing would also like to drive a wedge into the 
transatlantic alliance. China certainly would not object to having an 
ally in the EU, especially when jousting with the United States in the 
U.N. Security Council or other multilateral institutions over such 
issues as Iran's nuclear program (where China just signed a $70 billion 
gas/oil deal) or Sudan (where China recently penned a $3 billion oil 
deal).
    Fifth, it should come as no surprise that a lifting of the arms 
embargo would be seen as a significant political defeat for the 
Taiwanese in Europe and would support China's desire to isolate Taiwan 
from the international community in hopes of forcing an early 
unification. Some would argue that if the Europeans sell arms to China, 
they should sell them to Taiwan as well.

                               CONCLUSION

    There are sure to be consequences to the transatlantic relationship 
over a decision to lift the arms embargo against China. Even with 
President Bush's and Secretary of State Rice's highly successful trips, 
America's perception of Europe, already troubled, will not be improved. 
Americans, especially veterans, would gasp at the thought that European 
arms might be used against American servicemen and women in a Taiwan or 
Korean contingency. Americans will rightfully resent a decision on the 
part of the Europeans that will negatively alter the security situation 
in a region (i.e., the Pacific) where the Europeans have no 
responsibility for stability or security. Even with the advent of a new 
code of conduct for arms sales and other regulations, the Bush 
administration is right to be displeased.
    The EU decision will also roil the waters of the Pacific. Japan is 
already alarmed by China's military buildup and has serious questions 
about China's strategic ambitions in Asia beyond Taiwan. Taiwan, 
already unsettled by the passage of the anti-secession law, is unlikely 
to sit idly by. An EU decision to lift the embargo will likely set back 
the recent progress across the Taiwan Strait.
    The United States should welcome China's peaceful integration into 
the international community as an open and free society through 
commerce, tourism, academic exchanges, and official dialogue. These 
activities maximize the free world's efforts to encourage positive 
political and social change for 1.3 billion Chinese.
    But in the end, the EU's decision to lift the arms embargo against 
China will not help close the transatlantic divide and may even widen 
it. The EU decision will also be perceived as an imprimatur for dismal 
human rights records everywhere. It may also have a destabilizing 
effect on Northeast Asia, especially across the Taiwan Strait. Finally, 
it could increase the likelihood of military conflict in the Pacific, 
which is no one's interest--not even the distant EU's.
    Thank you, Mr. Chairman.

    The Chairman. Well, thank you very much, Mr. Brookes, for 
that testimony.
    The chair now calls on Dr. Bates Gill.

 STATEMENT OF DR. BATES GILL, FREEMAN CHAIR IN CHINA STUDIES, 
 CENTER FOR STRATEGIC AND INTERNATIONAL STUDIES, WASHINGTON, DC

    Dr. Gill. Thank you very much, Mr. Chairman. Thank you 
also, Senator Biden, for the opportunity to appear before the 
committee today. The ongoing consideration by the European 
Union of its 1989 arms embargo raises many, many important 
concerns, and I congratulate the committee on taking it up. We 
encourage you to continue to do so going forward.
    You have asked me to cover several topics. I will do so by 
looking first at some context, the broader strategic 
relationship between the EU and China; second, to talk about 
the possible impact of lifting the embargo on Chinese military 
modernization; and then last, put forward some recommendations 
for United States policy and legislative action going forward.
    I think it is important, first and foremost, to place the 
arms embargo question in the larger context of China-EU 
relations. It is in that way that we can craft the best 
responses and elicit the best response from our European 
counterparts and avoid the worst potential outcomes.
    I heard a think-tank specialist on Asia, who had recently 
left the Pentagon--and it is not present company--say that we 
were caught ``flat-footed'' by the EU's apparent intention to 
lift the embargo. I found that unsettling.
    In fact, the possibility of lifting the arms embargo was 
part of a far greater and ongoing dynamic that is plain to see 
in EU-China relations, and it dates back at least 10 years to 
the mid-1990s. It is characterized by major summits on an 
annual basis and open expression of intent on both sides in 
major policy documents calling for a continued strongly 
positive strategic relationship going forward.
    Specifically, on the military side, China's defense-related 
ties with individual European countries have likewise increased 
and, so far at least, largely involve what we might call softer 
interactions such as military-to-military diplomacy, 
peacekeeping, training, port visits, joint military exercises, 
et cetera.
    However, on the harder side of military relations, there 
are ongoing joint programs of some concern to us, including the 
development of space technologies, which may have military 
applications, the continued low-level licensed production in 
China of European defense equipment, and of course, direct 
transfers of European military technology to China. I think it 
is very important for the committee to recognize that, as the 
line between military and civilian technologies continues to 
blur, European exports of commercial technology and expertise 
with potential military applications will continue to expand 
and has already contributed to improvements in Chinese defense 
production capacity. And I would say the same can be said for 
commercial exports with military relevance from other suppliers 
as well, including the United States, Japan, even Taiwan.
    Broadly speaking, then, it is important for us to recognize 
that the arms embargo question in the EU is part of an ongoing 
comprehensive and carefully constructed strategy on the part of 
the European Union to build a different kind of relationship 
with China, which in their view has two principal aims: One, to 
integrate China as a responsible member of a multipolar global 
community; and second, to help China address its domestic 
sociopolitical and socioeconomic transformation. As such, 
strategic views of China clearly are very different from those 
in the United States.
    Let me turn secondly to the question of lifting the embargo 
and the impact it might have on Chinese military modernization.
    First, Mr. Chairman, I think it is important to understand 
that it is highly likely, in my view, that the arms embargo 
will be lifted at some point within the next year, but 
increasingly the precise timing seems open to question. There 
is obviously the need for a unanimous decision on the part of 
all 25 EU member countries, and there remain a number of 
countries in the European Union who are not supportive of this 
move. Moreover, as has been mentioned, the recent passage of 
the anti-secession law and the failure on the part of the 
National People's Congress to even consider the International 
Convention on Political and Civil Rights will definitely have a 
negative impact in the view of many European governments about 
the wisdom of lifting the embargo at this time.
    As an aside, I think the convergence of several 
developments, which have been raised here, including the anti-
secession law, the lack of consideration on the International 
Convention on Political and Civil Rights, as well as a warming 
trend in United States-Europe relations at the moment, I think 
should weigh in the minds of Europeans very heavily to delay 
and postpone any decision on the arms embargo, at least until 
the end of this year.
    Second, on the issue of the impact on Chinese military 
modernization, I think we should understand that lifting the 
embargo, in and of itself, is likely to have little impact on 
the flow of technology to China. I think our concerns really 
have to be on what is going to replace the embargo. As has 
already been said, first of all, under the terms of this now 
nearly 16-year-old embargo, European firms have already been 
able to provide Chinese counterparts with militarily relevant 
technologies. The nature of advanced technologies and the 
broadening applications to military purposes has clearly 
outstripped the ability of this embargo to be effective.
    Second, the degree to which European firms have been 
restrained in the past from providing weapons and sensitive 
technologies to China has far more to do, in my view, with 
individual EU member state national export control laws than 
the policies of the EU embargo itself. So, it is very important 
for us to look at what is going to replace this embargo at some 
point, I assume, in the not-too-distant future. We need to 
place our emphasis on making sure; first, that the Code of 
Conduct is dramatically strengthened, and second, that we 
intensify our bilateral conversations with key European 
suppliers to make sure that they are appropriately 
strengthening their export control guidelines on a national 
basis as well.
    I am encouraged to hear, during the meetings this week, 
from our EU counterparts that they are debating the 
strengthening of the code to make it more specific and that 
with the toolbox of additional measures, they intend to 
increase the level of scrutiny and transparency on European 
arms exports introducing, for example, a new system to examine 
on a quarterly basis and report publicly on the export license 
approvals coming out of Europe, to do a 5-year retroactive 
report on those license approvals that have been given from 
Europe to China, and even to require so-called brokered 
exports, that is, arms exports from non-EU states which are 
arranged by entities based in the EU, to be included in this 
reporting system.
    Finally, I am also encouraged that EU officials are giving 
serious consideration to proposing a formal consultative 
mechanism between Europe and the United States to discuss 
weapons and militarily relevant technology exports to China. 
These are all positive steps. We need to encourage the 
Europeans all the more strongly to move in this direction. I 
think by instituting these mechanisms, we can have a far 
greater expectation than we have now, at least, of stemming the 
flow of certain weapons and militarily relevant technologies to 
China.
    A third point on military technology. In the near term, I 
think it is very unlikely that the Europeans are going to 
supply complete weapons systems. Rather, it is far more likely 
in the near to medium term that they will provide value-added 
subsystems and technologies which the Chinese military requires 
to boost its capabilities across a range of issues but 
especially concerning naval, aerospace, aviation, command, 
control, communications, computers, and intelligence, 
surveillance, and reconnaissance assets.
    Let me close with several recommendations, Mr. Chairman.
    I think the aim here needs to be; first, to stem the flow 
of sensitive and potentially destabilizing weaponry to China on 
the one hand, while also strengthening consultations on these 
important issues between the United States and Europe.
    So, first, through congressional and administrative action, 
we should strongly urge an enhanced set of arms export 
restrictions to limit Chinese arms and sensitive technology 
exports to China. This needs to be done at two levels. In 
Brussels, yes, but let us not forget, again, the key to this is 
going to be national export laws among the EU member states. So 
we need to do it both in Brussels and in the key national 
capitals of concern. I do believe that the moment is 
increasingly right for an intensified and judicious set of 
discussions with our European counterparts and that we can be 
successful in this effort.
    Second, I think we need to encourage our European 
counterparts to press for more vigorous policies and 
pronouncements regarding questions of Taiwan, human rights, and 
nonproliferation. If, and when, an embargo is lifted and new 
mechanisms are put in place, I should certainly think that the 
Europeans ought to accompany that with very strongly worded 
pronouncements and policies about the need for China to move 
ahead and raise the standard on human rights practices, on 
nonproliferation activities, and in strengthening China's 
commitment to a peaceful resolution of differences with Taiwan.
    Third, I hope both the Congress and administration will see 
the wisdom of establishing a regular mechanism for strategic 
dialog and consultation between the United States and Europe on 
Asia and China. This should involve the key Asia-related 
experts at the White House, the Department of State, and the 
Department of Defense. It is my understanding that, that kind 
of dialog has been lacking in the past and, I think, partially 
explains the problems we are seeing today.
    Finally, I would recommend that through congressional 
action, there be a tasking of authoritative research and 
reporting on the extent and nature of advanced technology 
exports to China and their impact on Chinese military 
modernization. China is increasing its access to foreign inputs 
of capital, technology, and expertise from Europe, as well as 
from the United States and Japan and Taiwan and other advanced 
economies. Far greater resources need to be devoted to 
monitoring these developments and their implications for U.S. 
interests.
    Thank you, Mr. Chairman.
    [The prepared statement of Dr. Gill follows:]

 Prepared Statement of Dr. Bates Gill, Freeman Chair in China Studies, 
     Center for Strategic and International Studies, Washington, DC

                              INTRODUCTION

    Thank you, Chairman Lugar and Senator Biden, for the opportunity to 
appear before this distinguished committee.
    The ongoing consideration by the European Union (EU) to lift the 
1989 arms embargo against China raises concerns across a range of 
critical issues: the strategic dynamic of U.S.-EU-China relations, 
trans-Atlantic differences, the emergence of China as a more powerful 
global and regional player, Chinese military modernization, and the 
future security and stability in East Asia. I congratulate the 
Committee for focusing on this important topic, and look forward to 
discussing it further with you.
    My remarks proceed in three principal parts. First, I would like to 
provide some essential context by discussing the broader strategic 
dynamic of EU-China relations as it has unfolded so dramatically over 
the past 5 to 10 years. Second, the testimony will examine the impact 
of lifting the embargo on Chinese military modernization. A concluding 
section presents some basic recommendations for U.S. policy in 
addressing developments in EU-China relations generally, and on the 
arms embargo question in particular.

Broader EU-China strategic dynamic underway since the mid-1990s
    It is important first and foremost to place the arms embargo 
question in the larger context of China-EU relations. That is how we 
better understand the motivations for lifting the embargo and craft 
responses which will resonate and have effect with EU counterparts so 
as to mitigate and avoid the worst potential outcomes of a post-embargo 
future.
    I heard a think-tank specialist on Asia who had recently left the 
Pentagon say that we were caught ``flat-footed'' by the EU's apparent 
intention to lift the embargo. I found that an unsettling comment. It 
has been very clear to anyone who wished to look that China-EU 
relations have been moving steadily closer across the full range of 
their bilateral relationship, including in political-military areas, 
and that lifting the embargo has been on the table and a part of EU-
China discussions for nearly two years.
    In fact, the possibility of lifting the arms embargo is part of a 
far greater and ongoing dynamic of intensifying EU-China relations over 
the past decade. The beginning of far closer EU-China relations dates 
to the mid-1990s. Since then, China and the EU have held seven major 
summits, the most recent at the end of 2004. Both sides have issued 
major policy documents detailing their relationship and calling for 
continued strongly positive strategic relations going forward. In terms 
of economics and trade, the EU became China's largest trading partner 
in 2004. China is now the EU's second largest trading partner after the 
United States.
    On the military side, China's defense-related ties with individual 
European countries have likewise increased, and largely involve 
``softer'' interactions, including military-to-military diplomacy and 
educational exchanges, peacekeeping training, port visits, some joint 
military exercises, and expanded military attache offices to manage 
this growing aspect of diplomacy between China and Europe. Most of the 
EU member states have one military representative in Beijing; France 
has three, Germany, Italy, Poland, and the United Kingdom have two (by 
comparison, the United States has 12). China and individual member 
states such as France, Germany, and the United Kingdom have established 
regularized strategic consultations and security dialogues, including 
counterterrorism discussions.
    Other military-to-military exchanges stand out. For example, a 
number of European navies have visited Chinese ports, with France 
leading the way with 12 naval port visits to China dating back to the 
early-1980s. Other European navies which have traveled to China include 
those from the United Kingdom, Italy, Ireland, and Germany. The Chinese 
navy has made only two sets of port visits to Europe, the first in 
September 2001, when Chinese ships paid calls in France, Germany, 
Italy, and the United Kingdom. The second set of visits was in 2002 
during the Chinese navy's first circumnavigation of the globe, 
including stops in Turkey, the Ukraine, Greece, and Portugal.
    In August 2003, China for the first time allowed foreign military 
personnel--including from the United States, the United Kingdom, 
France, Russia, Germany, Canada, Tanzania, Thailand, and Turkey--to 
observe Chinese military exercises involving 5,000 Chinese troops at 
the country's large tactical training base in Inner Mongolia. On 
September 2, 2004, military representatives invited from France, 
Germany, United Kingdom and Mexico, observed an amphibian landing 
exercise in Shanwei along the coast of Guangdong Province.
    China has also held joint naval exercises with the French navy (in 
March 2004) and with the British navy (in June 2004), both off the 
coast of Qingdao in the East China Sea. These exercises involved four 
to five vessels and focused on tactical maneuvers for the ships and 
shipboard helicopters, replenishment-at-sea exercises, and search-and-
rescue. China also fields peacekeepers to Europe under the United 
Nations flag, including civilian police to the United Nations Interim 
Administration Mission in Kosova and, in the past, to the United 
Nations Mission in Bosnia-Hercegovina.
    There are some important developments on the ``harder'' side as 
well, including some joint programs in the development of space 
technologies which could have military applications, ongoing low-level 
licensed production in China of European defense equipment, and direct 
transfers of European military technology to China. Importantly, given 
the blurring line between ``military'' and ``civilian'' technologies, 
European exports of commercial technology and expertise with potential 
military applications continue to expand and already contribute to 
improvements in Chinese defense production capabilities (the same can 
be said for commercial exports with military relevance from other 
suppliers, such as the United States, Japan, Taiwan, and others). This 
integration of European and Chinese high-technology R&D and production 
capability has particular military relevance as it unfolds in the 
aerospace, aviation, communications, and shipbuilding sectors. (China's 
military-technical relations with European suppliers are discussed in 
more detail below.)
    In short, it is very important to recognize that the arms embargo 
question in the EU is part of an ongoing, comprehensive, and carefully 
constructed strategy to build a fundamentally different kind of 
relationship with China. This effort has two principal aims: (1) to 
integrate China as a responsible member of a multipolar global 
community and multilateral international institutions and (2) help 
China address its domestic sociopolitical and socioeconomic challenges 
at home--so-called capacity building or ``good governance.''
    In many respects, China is seen by many EU and European member 
state leaders and officials as a kind of ``test case'' for how global 
players will need to cooperate to face the transnational challenges of 
the 21st century--terrorism, international crime, social justice, 
economic stability, resource scarcity and depletion, environmental 
degradation, intellectual property and the globalization of knowledge, 
and other critical challenges.
    As such, strategic views of China in Europe are aimed at developing 
a deeper, more constructive, and more positive relationship, and tend 
to see far greater opportunities in ties to China than threats. To the 
degree European policymakers see threats emanating China, they tend to 
be on either questions of ``soft security,'' such as economic 
competition, illegal immigration, transnational crime, smuggling of 
drugs and contraband, environmental issues, and human rights. 
Individual European countries as well as the EU have established 
regular dialogues with China to cooperate and find common ground on 
these and other security concerns.
    In this sense, fundamental European strategic views of China differ 
in some respects from those in the United States. Unlike Europe, the 
United States maintains significant strategic and political interests 
around China's periphery in the form of alliances and a host of other 
critical and complex political-military relationships with others 
around China. Europe's relations with China are unfettered by the 
complicated and important political and military commitments the United 
States has made to Taiwan, the principal issue over which the United 
States and China could come into conflict.

Lifting the embargo: Impact on Chinese military modernization
    There are three important points to make regarding the lifting of 
the embargo and its potential impact on Chinese military modernization.
    It is possible the embargo will not be lifted in the immediate-
term. While it is highly likely the arms embargo will be lifted within 
the next year, the precise timing is still open to some question. 
Lifting of the embargo requires the unanimous assent of all 25 EU 
member countries, and many member countries--such as Scandinavian 
countries and some in Eastern Europe--remain opposed to lifting the 
ban. For these countries and others within the EU, a number of 
conditions should be met. These would include China's ratification of 
the International Covenant on Civil and Political Rights, allowing 
visits by the International Committee of the Red Cross, to Chinese 
prisons, releasing certain political dissidents in China, strengthening 
the EU Code of Conduct on arms exports, including stronger transparency 
mechanisms for those exports, avoiding further deterioration in Europe-
United States relations, strengthening assurances that weapons exports 
would not aggravate tensions across the Taiwan Strait, and gaining 
stronger Chinese assurances about their intention to peacefully resolve 
differences across the Taiwan Strait. The recent passage of the Anti-
Secession Law by the Chinese National People's Congress, and the NPC's 
lack of consideration of the International Covenant on Political and 
Civil Rights, will have a negative effect in the view of many European 
governments about the wisdom of lifting the embargo at this time.
    However, while these obstacles remain, most observers conclude that 
some of the leading members of the EU, including France, Germany, and 
the United Kingdom, will work to have an acceptable set of conditions 
in place on the EU side, especially with regard to the Code of Conduct 
and arms export transparency measures, in order to gain unanimous EU 
member consent to lift the embargo by June this year. As EU member 
states debate this issue, and China continues to apply pressure on 
Brussels and in individual capitals, it now appears it is not a 
question of ``whether,'' but ``when'' and ``how'' the 1989 embargo 
statement would be lifted.
    Lifting the embargo in and of itself will have little impact on 
technology flows of concern to China. Instead, our concern should focus 
on what will replace the embargo. This is true for two principal 
reasons. First, under the terms of the now-nearly-16-year-old embargo, 
European firms have already been able to provide Chinese counterparts 
with militarily-relevant technologies. This is no less true for U.S., 
Japan, and even Taiwan exports of advanced technologies to China. The 
fact is that the nature of advanced technologies today and their 
broadening applications to militarily-relevant purposes have far-
outstripped the ability of a simple declaration of intent pronounced a 
decade and a half ago to truly stem the flow of sensitive technologies 
to China.
    Unlike the American arms embargo on arms trade with China which is 
codified as law and prohibits specifically designated military end-use 
items the EU embargo is contained in a single phrase, issued as part of 
a broader political statement condenming the Tiananmen crackdown in 
June 1989. The statement reads that EU members will embargo ``trade in 
arms'' with China, without specifying how ``arms'' are defined and 
without requiring any penalty or strictures on those EU members which 
chose to ``trade in arms'' with China. The EU ``embargo'' is best 
understood as a political statement which is not legally binding.
    Second, the degree to which European firms have been restrained 
from providing weapons and sensitive technologies to China has far more 
to do with the individual EU member states' national export control 
laws and policies than with the EU embargo itself. In this regard, it 
is important to note that a number of elected parliamentary bodies in 
Europe, including the British House of Commons, the German Bundestag, 
and the EU Parliament, have issued resolutions opposed to the lifting 
of the arms embargo.
    So in this sense, it is not the lifting of the embargo but rather 
what comes to replace the embargo which will affect how European 
military-technical relations with China will or will not contribute to 
Chinese military modernization. This important point should lead us in 
the direction of determining more specifically (1) what the EU will put 
in place of the embargo, and (2) what certain individual EU member 
states intend to do in their military-technical relations with China. 
It is especially important to focus on what might replace the current 
embargo since the leaders of the EU member states are on record as 
agreeing in December 2004 that ``the result of any decisions [about 
lifting the arms embargo] should not be an increase of arms exports to 
China, neither in quantitative nor qualitative terms.''
    Rather than focus on the ``embargo,'' a potentially more 
restrictive set of guidelines deserve greater attention: the EU Code of 
Conduct and the so-called ``toolbox'' of arms export transparency 
measures. The 1998 Code of Conduct provides more specific guidance to 
EU members in making arms sales decisions (to all countries, not just 
China). This guidance consists of eight criteria which EU governments 
should weigh before exporting weapons:

   ``Respect for the international commitments of EU member 
        states,'' including U.N. sanctions, EU sanctions, and other 
        international nonproliferation treaties and commitments;
   The respect of human rights in the country of final 
        destination, including consideration of whether an arms export 
        will be used for ``internal repression'';
   The ``internal situation in the country of final 
        destination'' so as to avoid provocation or prolongation of 
        tensions and conflicts;
   ``Preservation of regional peace, security and stability'' 
        to avoid aggressive use of the weapons by the recipient against 
        another country, and to avoid use of the exported weapon to 
        ``assert by force a territorial claim'';
   The national security of the member states, their 
        territories, and the national security of friendly and allied 
        countries;
   The behavior of the recipient country, especially with 
        regard to terrorism and its respect for international law;
   The possibility that the recipient country would divert the 
        export within the country or reexport it to a third party in an 
        unauthorized or ``undesirable'' way, to include a consideration 
        of the recipients export control system, among other items;
   The ability of the recipient to import weapons for 
        legitimate defense and security needs while still meeting human 
        and economic needs.

    The Europeans are debating the strengthening of this Code to make 
it more specific. In addition, EU officials state they are crafting a 
so-called ``toolbox'' of additional measures which would increase the 
level of scrutiny and transparency on European arms exports. These 
measures would likely include a number of new and positive steps, 
including:

   A system to review EU member state arms exports on a 
        quarterly basis, including reporting on both export license 
        approvals and export license denials;
   A 5-year retroactive report on export license approvals in 
        order to establish a recent baseline on arms exports from which 
        to gauge future and assess potential future sales;
   A requirement that ``brokered exports'' (arms exports from 
        non-EU states which are arranged by entities within the EU 
        member states) be included in the reporting system.

    EU officials are also giving serious consideration to proposing a 
formal consultative mechanism between the United States and Europe to 
discuss weapons and militarily-relevant technology exports to China. By 
replacing the embargo with a better framework, including increasing the 
specificity, scrutiny, and binding nature of the Code of Conduct and 
the toolbox, and by instituting a more formal consultative mechanism on 
this issue between the United States and Europe, we can have far higher 
expectations of stemming the flow of certain weapons and militarily-
relevant technologies to China.
    The flow of militarily-relevant exports to China from Europe in the 
near-term is not likely to be in the form of new weapons platforms, but 
in the form of subsystems and key technologies. It appears unlikely 
that China would move ahead with major purchases of complete weapon 
platforms, at least in the near- to medium-term. Not only is it likely 
most European governments would restrict their manufacturers from 
large, high-profile, and provocative weapons sales to China, but China 
has a number of reasons of its own to eschew this approach. First and 
foremost is cost, since they have been successful in gaining access to 
relatively cheaper Russian weapons and technologies and because their 
own defense industries are beginning to make significant breakthroughs. 
In addition, China already faces significant problems in the diversity 
and interoperability of its weapons systems, particularly in the case 
of new jet aircraft programs. Third, because of China's traditional 
self-reliant posture regarding its defense-industrial base and its need 
to keep large, state-owned, defense enterprises open and avoid massive 
unemployment, Beijing will be reluctant to simply buy large quantities 
of European weapons off-the-shelf.
    Instead, if complete weapons platforms are sold, they will likely 
be a relatively small number with the probable expectation on China's 
part that it could move toward some form of indigenous assembly or 
licensed production of the system over time. More likely in the near- 
to medium term would be the sale not of complete platforms, but certain 
value-added subsystems and technologies which the Chinese military 
requires to boost its capabilities, such as projecting and coordinating 
military force in a maritime environment, involving naval, aerospace, 
aviation, and command, control, communications, computers, 
intelligence, surveillance and reconnaissance (C4ISR) assets.
    Given these considerations, China is most likely to seek European 
military-technical inputs and assistance in such areas as:

   Jet aircraft propulsion, avionics, and fire control systems;
   Naval weapons systems, including air defense, weapons 
        guidance and fire control, and radars, as well as submarine 
        technologies;
   Naval propulsion systems and stealth technologies;
   Information technology and communications infrastructure 
        improvements, especially those applicable to more 
        sophisticated, hardened, and secure command and control 
        infrastructure for military purposes;
   Aerospace technologies to include satellite imagery, 
        reconnaissance, remote sensing, and communications.

    In addition, certain past and ongoing transfers and Chinese 
indigenous production of militarily-relevant systems and technologies 
from Europe are likely to continue and may expand. These include the 
licensed-production of various helicopters, turboshaft helicopter 
engines, fire-control and surveillance radars, and air defense systems 
from France, fighter jet avionics upgrades from the United Kingdom and 
Italy, the British ``Searchwater'' airborne early warning radar system, 
Italian naval fire control radar systems, and the British Rolls Royce 
Spey Mk 202 engine, first transferred to China in the late-1970s, and 
now produced in China as the WS-9, which powers the made-for-export 
Chinese fighter-bomber known as the FBC-1, and its domestic version, 
the JH-7.

Recommendations
    Given these developments, the aim of U.S. policy should be to stem 
the flow of sensitive and potentially destabilizing weaponry to China 
while strengthening consultations on these important issues between the 
United States and European counterparts. Four key measures should form 
the basis of the U.S. policy approach.
    Through Congressional and Administration action, public statements, 
and consultations, strongly press for an enhanced set of arms export 
restrictions to limit European arms and sensitive technology exports to 
China. This needs to be done at two levels. First, such actions should 
target the debate within the EU at Brussels. The next two to three 
months are going to be a critical period as EU officials, in 
consultation with member states, craft a more acceptable set of post-
embargo mechanisms to guide EU arms exports, including a revised Code 
of Conduct and the introduction of greater arms export transparency and 
reporting measures. These discussions with Brussels should specify 
those particular weapons and technologies which the Washington would 
find especially problematic for export to China
    Second, U.S. policy should also target governments and key 
constituencies in important EU member states. In the end, it will be 
the domestic export control restrictions as well as the political 
climate in individual countries which will have the greatest impact on 
stemming the flow of sensitive weapons and technologies to China. This 
demands a more intensive understanding of individual member states' 
perspectives toward China, particularly within key constituencies such 
as parliaments, opinion leaders, China experts and activists, and the 
business community, to identify individuals and institutions which 
share U.S. concerns about weapons and militarily-relevant technology 
sales to China. These discussions with specific EU member states should 
include those particular weapons and technologies which the U.S. side 
would find especially problematic for export to China.
    The moment is right for intensified, judicious, and well-informed 
discussions with European counterparts on this issue to assure the most 
favorable outcome regarding potential military exports to China on the 
one hand, and improved U.S.-Europe relations on the other.
    Through Congressional and Administration action, public statements, 
and consultations, strongly press for more vigorous policies and 
pronouncements from the EU and European governments on Taiwan, human 
rights, and nonproliferation. Given the importance the current Code of 
Conduct gives to such questions as ``the national security of friendly 
and allied countries,'' the ``respect of human rights in the country of 
final destination,'' avoiding use of the exported weapon to ``assert by 
force a territorial claim,'' and the ``recipient's export control 
system,'' the United States should insist that the EU stand by and even 
strengthen these assurances with regard to China. U.S. action should 
aim to shape the current EU debate on the issuance of a statement which 
specifically speaks to these concerns that might accompany the lifting 
of the embargo and the implementation of a new set of arms export 
guidelines and transparency mechanisms.
    U.S. policy action should insist that lifting the EU embargo be 
linked to concrete Chinese steps to raise the standard of their human 
rights practices, such as ratifying the International Covenant on 
Political and Civil Rights and allowing for International Committee of 
the Red Cross inspections of Chinese prisons, strengthening Chinese 
commitment to a peaceful resolution of differences with Taiwan, and 
strengthening China's export control system and commitment to 
international nonproliferation norms.
    Through Congressional and Administration action, establish a 
regular mechanism for strategic dialogue and consultation between the 
United States and Europe on Asia and China. Regularized dialogue on 
Asian affairs and on China with European counterparts--both at the EU 
Brussels level and among key European countries such as France, 
Germany, and the United Kingdom--should form a normal and 
institutionalized aspect of trans-Atlantic consultations by the White 
House, the Department of State, and Department of Defense, as well as 
by members of Congress and their staff. The appropriate officials with 
responsibility for Asian and Chinese affairs from the White House, the 
Department of State, and the Department of Defense should regularly 
take active part in these discussions. Appropriate Congressional 
committees should seek regular briefings on these discussions from 
relevant officials from the Department of State and Department of 
Defense.
    Members of Congress, Congressional staff, and Administration 
officials should also take part in and/or receive briefings from the 
ongoing nongovernmental dialogue and research programs involving U.S. 
think-tanks and academic institutions and their European counterparts. 
These programs draw together American and European specialists and 
officials to address Asian and Chinese affairs, serve as ``early 
warning mechanisms'' on potential policy disputes, and generate policy 
recommendations to facilitate trans-Atlantic partnership and common 
goals regarding developments in Asia and China.
    Through Congressional action, task authoritative research and 
reporting on the extent and nature of advanced technology exports to 
China and their impact on Chinese military modernization. China's 
increasing access to foreign inputs of capital, technology and 
expertise, including such inputs from Europe, the United States, 
Taiwan, and other advanced economies, pose important concerns about 
Chinese military modernization. The areas where advanced foreign 
suppliers would most likely be able to make a contribution to Chinese 
military modernization, even if an indirect contribution, would be in 
those defense industrial sectors most relevant to a Taiwan scenario: 
aerospace, aviation, naval warships and submarines, and in 
communications technology. China remains at an early stage in fully 
realizing its military potential and the advantages of increased access 
to militarily-relevant foreign technology, R&D, and manufacturing 
expertise. However, it has made important military advances in recent 
years, especially with regard to the balance of power across the Taiwan 
Strait, and appears likely to continue to do so. Far greater resources 
should be devoted to monitoring these developments and their 
implications for U.S. interests.

    The Chairman. Thank you very much, Dr. Gill.
    The chair now calls on Dr. Richard Grimmett.

 STATEMENT OF DR. RICHARD F. GRIMMETT, SPECIALIST IN NATIONAL 
    DEFENSE, CONGRESSIONAL RESEARCH SERVICE, WASHINGTON, DC

    Dr. Grimmett. Thank you, Mr. Chairman, Senator Biden. I 
welcome this opportunity to be of assistance to you in your 
review of the matters related to the prospective lifting of the 
European Union's arms embargo on China.
    My focus will be to set a context in which the 
institutional aspects of this issue have developed, 
particularly the arms control mechanisms, which probably are at 
the heart of resolving it.
    To that end, Mr. Chairman, I ask that two recent CRS 
reports on matters pertinent to this hearing also be made part 
of the record.
    The Chairman. Without objection.
    Dr. Grimmett. In my prepared remarks, I note that the 
existing EU arms embargo on China, dating from June 27, 1989, 
is a rather brief political declaration that simply calls for 
``interruption by the Member States of the then-European 
Community of military cooperation and an embargo on trade in 
arms with China.'' This declaration does not clarify the 
meaning of the term ``military cooperation'' nor does it 
contain a list of arms that come within the scope of the phrase 
``trade in arms.''
    By contrast, with the introduction of the Common Foreign 
and Security Policy (CFSP), effective in November 1993 when the 
Treaty on European Union, the Maastricht Treaty, was in force, 
the procedural basis for EU embargoes was altered. Decisions to 
impose an embargo still require unanimity among EU member 
states, but such decisions are now based on legally binding 
documents, such as Common Positions, rather than declarations. 
Often, implementing regulations are also adopted. Regulations 
or Common Positions on embargoes now contain detailed 
descriptions of the type of material covered, as well as the 
terms and conditions of implementation, by member states. Arms 
embargoes are also subject to EU standards on arms exports, 
such as the 1998 Code of Conduct on Arms Exports. Ultimately 
what a given embargo entails may be viewed differently by 
different member states. As a political statement by the 
European Union the EU Code of Conduct on Arms Exports is not 
legally binding on EU member states.
    The existing arms embargo against China has not been 
interpreted uniformly by EU members since it was imposed. This 
can be attributed to factors such as: One, the lack of 
specificity in the political declaration in 1989; two, the 
absence of a legally binding document, such as a Common 
Position, which has been the case with later embargoes imposed 
on other nations; and, three, the existing loopholes in the EU 
arms control system generally.
    The United States, by contrast and for its part, has a 
long-established legal framework for reviewing and determining 
which nations will be permitted to obtain defense articles, 
defense services, and related military technology from it. The 
principal U.S. statute governing the sale and transfer of 
defense articles is the Arms Export Control Act. My formal 
statement goes into detail on how the U.S. Arms Export Control 
Act framework operates. I also explain in detail how the EU 
arms export control system operates, and I critique the EU Code 
of Conduct on Arms Exports.
    But let me comment, at this point, on the EU Code of 
Conduct, which was adopted on June 8, 1998, during the EU 
presidency of the United Kingdom. The EU Code sets up eight 
criteria for the export of conventional arms and a denial 
notification procedure obligating EU member states to consult 
on possible undercutting arms sales one EU state might make, 
even though another EU state has chosen not to make a 
comparable arms export.
    The EU Code's eight criteria to be utilized by EU members 
when reviewing license requests and making decisions whether or 
not to make an arms export include, for example, the following: 
Consistency of the export with an exporter's international 
commitments arising from U.N., EU, or OSCE arms embargoes; risk 
that the export would be used for internal repression or where 
the recipient country has engaged in serious violations of 
human rights; risk that the export would provoke or prolong 
armed conflicts; risk that the recipient using the export could 
undermine regional peace and security; effect of the export on 
the defense and national security interests of friends and 
allies; risk of diversion to third parties or to a terrorist 
organization.
    It is important to emphasize that these eight criteria, and 
the EU Code of Conduct in its entirety, are political 
statements by the EU and they are not legally binding on the 
member states of the EU; although the Code is supposed to 
represent a moral imperative that EU member states are expected 
to uphold and enforce.
    The EU Code requires an annual report on arms exports made 
by member states. These reports show that despite the embargo 
on China, some arms sales licenses have been approved for the 
PRC. During 2002, for example, all EU nations collectively 
approved export licenses for China valued at 209.8 million 
Euros, about $279 million. The EU nations that approved export 
licenses during that period were France, 105.4 million Euros; 
the United Kingdom, 79.5 million Euros; and Italy, 22.8 million 
Euros. In 2003, the most recent year for which we have a report 
from the European Union, all EU nations collectively authorized 
licenses for China valued at 415.8 million Euros, which is 
about $550 million at the current exchange rate. During 2003, 
the leaders in arms export licenses for China were France, 
171.5 million Euros; Italy, 127.1 million Euros; and the United 
Kingdom, 112.5 million Euros.
    Now, the U.S. Arms Export Control Act, which I discuss in 
detail in my formal statement, establishes strict, binding 
obligations on any nation purchasing defense articles and 
defense services from the United States to agree, in advance of 
any purchase, that the buying nation will not retransfer the 
military items obtained to a third nation or party without 
receiving prior approval to do so from the President. The Arms 
Export Control Act has severe penalties that can be applied to 
any nation found to violate its legal obligation not to 
retransfer military items obtained from the United States 
without prior U.S. consent. These obligations and penalties 
would apply to any EU nation that transferred any United States 
origin defense article, service, or military technology to 
China without prior United States approval.
    The Arms Export Control Act framework, however, does not 
apply to arms sales to China of indigenously developed and 
produced military equipment of EU member states. Controls of 
sales or transfers of that military equipment must be achieved 
through application of the national arms export control 
statutes of the individual EU nations, the EU Code of Conduct 
on Arms Exports, or EU regulations regarding arms exports.
    What remains to be seen in the current situation is what 
will be the nature and scope of the revised EU Code of Conduct 
on Arms Exports in the future, and any new instrument 
establishing measures to address EU arms exports to post-
embargo countries, referred to by the EU as ``the toolbox.'' 
Private consultations among EU members on these matters are 
continuing but are likely to be completed before final EU 
action on lifting the arms embargo on China takes place.
    Should the European Union strengthen the EU Code of Conduct 
on Arms Exports and utilize effective instruments to prevent 
worrisome arms exports to China in a post-embargo period, 
prospects for reaching a successful accommodation in United 
States-European Union relations over this issue could be 
notably enhanced.
    Mr. Chairman, that concludes my summary.
    [The prepared statement of Dr. Grimmett and the reports of 
the Congressional Research Service follow:]

 Prepared Statement of Dr. Richard F. Grimmett, Specialist in National 
        Defense, Congressional Research Service, Washington, DC

General background on European Union embargoes
    Arms embargoes fall within the sanctions or restrictive measures 
imposed by the European Union against third countries. In general, EU 
embargoes are either adopted to implement U.N. Security Council 
resolutions acting under Chapter VII, or are ``autonomous.'' In the 
latter case, embargoes are legally founded in a specific provision of 
the treaties establishing the European Union. EU members have full 
jurisdiction to decide on imposing arms trade restrictions.\1\ Prior to 
1992, decisions on embargoes were made by the member states through an 
informal political process, the so-called European Political 
Cooperation.\2\ In several instances, member states convened as a body, 
the European Council, adopted declarations to impose embargoes.\3\ 
Within such a context, the embargo on China was imposed in 1989, by the 
then twelve members of the European Community, the EU's precursor. The 
objective was to introduce arms trade restrictions against the regime 
in China in reaction to the killing of demonstrators in Tiananmen 
Square.
---------------------------------------------------------------------------
    \1\ Article 296 of the Treaty Establishing the European Community. 
Available at [http://europa.eu.int/eurlex/lex/en/treaties/index.htm].
    \2\ It refers to the informal network of communication and 
cooperation on foreign policy issues among the governments of the EC 
Member states, between the period of 1970-1992.
    \3\ External Relations, Common Foreign & Security Policy (CFSP), 
Sanctions. Available at: [http://europa.eu.int/comm/external_relations/
sfcp/sanctions].
---------------------------------------------------------------------------
    The introduction of the Common Foreign and Security Policy (CFSP) 
by the Treaty on European Union (Maastricht Treaty), effective in 
November 1993, altered the procedural basis for EU embargoes. Decisions 
to impose an embargo still require unanimity among EU member states, 
but such decisions are now based on Common Positions, rather than 
declarations.\4\ Often, implementing regulations are also adopted. 
Members are required to conform with the provisions or regulations and 
Common Positions. Both instruments contain a detailed description of 
the type of material covered as well as the terms and conditions of 
implementation by the member states. Arms embargoes are also subject to 
EU standards on arms exports, such as the 1998 Code of Conduct on Arms 
Exports (hereafter the EU Code). Consequently, in the implementation of 
the arms embargo on China, EU members are expected not only to abide by 
the restrictions on arms trade on China but also with the EU 
requirements on arms exports. Ultimately, what a given embargo entails 
may be viewed differently by different member states. And, as a 
political statement by the European Union, the EU Code on Arms Exports 
is not legally binding on the EU member states.
---------------------------------------------------------------------------
    \4\ Decisions are made based on articles 12 and 15 of the Treaty on 
European Union. Available at [http://europa.eu.int/eurlex/lex/en/
treaties/index.htm].
---------------------------------------------------------------------------
European Union's arms embargo on China
    On June 27, 1989 the European Council, convened in Madrid, agreed 
to impose an arms embargo on China. The entire text of the embargo, 
which is in the form of a political declaration, is rather brief. In 
the first two paragraphs, it condemns the repression in China and 
requests that the Chinese authorities cease executions and respect 
human rights. The fourth paragraph contains the measures agreed by the 
members states. These include the suspension of military cooperation 
and high-level contacts, reduction of cultural, scientific and 
technical cooperation programs and prolongation of visas to Chinese 
students. The specific wording of the arms restrictions on China calls 
for: ``. . . interruption by the Member States of the Community of 
military cooperation and an embargo on trade in arms with China.'' \5\
---------------------------------------------------------------------------
    \5\ Conclusions of the European Council, adopted in Madrid on June 
27, 1989, available at [http://www.eurunion.org/legislat/
Sanctions.htm#China]. See text in Appendix 3.
---------------------------------------------------------------------------
    The declaration does not clarify the meaning of the term ``military 
cooperation'' nor does it contain a list of arms that come within the 
scope of the phrase ``trade in arms.'' Neither does it contain 
exceptions or review clauses. By contrast, other EU embargoes imposed 
later in the CFSP context are more elaborate and specific in their 
scope and coverage. For instance, the Burma/Myanmar embargo, which was 
first adopted in 1991, has been updated and revised a number of times 
due to the lack of progress in democratization and continuous violation 
of human rights, and appears as a Common Position, which is binding. It 
contains, inter alia, a ban on technical assistance related to military 
activities and the provision, maintenance and use of weapons and 
ammunition, paramilitary equipment and spare parts.\6\
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    \6\ Common Position 2004/423/CFSP and Council Regulation (EC) No. 
798/2004 Renewing the Restrictive Measures in Respect of Burma/Myanmar 
and repealing Regulation No. 1081/2000.
---------------------------------------------------------------------------
    The arms embargo against China has not been interpreted uniformly 
by the EU members since it was imposed. This has been attributed to 
several factors, including lack of specificity in the political 
declaration, absence of a legally binding document, such as a Common 
Position, as is the case with subsequent embargoes imposed on other 
countries and, more importantly, the existing loopholes and weak points 
in the EU arms control system. For instance, the UK interpreted the 
embargo in a narrow manner, to include the following items: lethal 
weapons such as machine guns, large-caliber weapons, bombs, torpedoes 
and missiles; specially designed components of the above, and 
ammunition; military aircraft and helicopters, vessels of war, armored 
fighting vehicles and other weapons platforms; and equipment which 
might be used for internal repression.\7\ The French have interpreted 
the embargo similarly.\8\
---------------------------------------------------------------------------
    \7\ Robin Niblett, The United States, the European Union, and 
Lifting the Arms Embargo on China, 10 EURO-FOCUS No. 3 (Sept. 30, 
2004). Center for Strategic and International Studies. See also: 
Amnesty International. Undermining Global Security: The European Union 
Exports, at [http://web.amnesty.org/library/index/engact300032004].
    \8\ EU arms embargo on China. [http://projects.sipri.se/expcon/
euframe/euchiemb.htm].
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U.S. Arms Export Control System
    The United States, for its part, has a long established legal 
framework for reviewing and determining which nations will be permitted 
to obtain defense articles, defense services, and related military 
technology from it. The principal U.S. statute that governs the sale 
and transfer of defense articles is the Arms Export Control Act (AECA), 
P.L. 90-629 (22 U.S.C. 2751 et. seq.).\9\ Under the structure of the 
AECA, the United States government reviews applications for possible 
arms sales. These sales can be made through the government-to-
government Foreign Military Sales (FMS) program or through the direct 
commercial sales (DCS) process. The DCS process is administered by the 
Directorate of Defense Trade Controls (DDTC) in the State Department's 
Bureau of Politico-Military Affairs which reviews and grants or denies 
licences for arms exports to companies who seek to sell their defense 
products directly to the foreign clients. Once the President has 
determined that an arms sale or transfer should be made to a foreign 
recipient through either of the two processes noted above, he submits 
detailed information about a prospective sale in a formal report and 
notification to the Congress for its review, when the dollar values of 
the proposed sale exceed a specific reporting threshold. Should 
Congress disagree with such a Presidential arm sale proposal, it can 
nullify it by passing and obtaining enactment of a joint resolution of 
disapproval.\10\
---------------------------------------------------------------------------
    \9\ The key regulations promulgated pursuant to the authorities 
granted by the Arms Export Control Act which set out the totality of 
items covered by the (AECA) and all of the pertinent procedures 
regulating all aspects of U.S. arms export control and rules are the 
International Traffic in Arms Regulations (ITAR) found at 22 CFR 
Subchapter M 120-130. The United States Munitions List is found at 22 
CFR.
    \10\ Current reporting thresholds for FMS and DCS sales that carry 
the potential for Congressional rejection by joint resolution are: $14 
million for sales of major defense equipment; $50 million for defense 
articles or services; and $200 million for any design and construction 
services. Section 36 (b) and (c), AECA (22 U.S.C. 2776(b) and 22 U.S.C. 
2776(c). The statutory authority of the President to promulgate 
regulations with respect to exports of defense articles and defense 
services was delegated to the Secretary of State by Executive Order 
11958, as amended. The International Traffic in Arms Regulations (ITAR) 
implements that authority. Title 22 CFR, section 120.1.
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EU Arms Export Control System
    In the case of European Union (EU) member states, their arms 
exports licensing process is based on the pertinent laws of each member 
state. They are also regulated by the following instruments: (1) The 
1998 European Code of Conduct on Arms Exports, a non-binding 
instrument, which lays down minimum standards to be applied on export 
licenses \11\; (2) Regulation (EC) No. 1334/2000 setting up a Community 
Regime for the Control of Exports of dual-use items and technology 
\12\; and (3) Common Position 2003/468/CFSP on the Control of Arms 
Brokering).\13\ The EU Code of Conduct, analyzed in detail below, 
establishes eight criteria to be applied by EU members on the exports 
of conventional arms, including software and technology.\14\ A Common 
List of Military Equipment was agreed upon in 2000 and updated 
recently.\15\ In general, arms embargoes, unless specific guidance is 
otherwise provided, cover at least all the items included in the Common 
List.\16\ Regulation No. 1334/2000 as amended (whose scope extends to 
any items that could be used for civilian and military purposes) is 
directly applicable to the member states. Under its provisions, member 
states grant authorizations for exports, called Community general 
export authorization (CGE) of dual-use items.
---------------------------------------------------------------------------
    \11\ Adopted by the Council of the European Union on June 8, 1998.
    \12\ 2000 O.J. (L159) 1.
    \13\ 2003 O.J. (L156) 79.
    \14\ Article XXI of GATT allows the imposition of trade 
restrictions on arms exports and imports and military equipment and 
those imposed by the U.N. Charter VII resolutions.
    \15\ List included in the Council Declaration of June 13, 2000. It 
was issued on the occasion of the adoption of the common list of 
military equipment covered by the EU Code of Conduct on Arms Exports, 
2000 O.J. (C191).
    \16\ See Guidelines on Implementation and Evaluation of Restrictive 
Measures (Sanctions) in the Framework of the EU Common Foreign and 
Security Policy, at 17, available at EU Council Website, CFSP Section.
---------------------------------------------------------------------------
    Such authorizations are valid throughout the Community, subject to 
certain specific cases for which consultation is needed among EU 
members prior to granting or denying an authorization. The items and 
technology listed in Annexes I, II and IV of the Regulation are based 
on the lists prepared by the international export control regimes. The 
Regulation includes a ``catch-all'' clause which allows controls on 
goods not included in the Annex of the Regulation. Under this clause, 
EU members have the discretion to impose or not to impose controls on 
exports and technology not listed in the Regulation. The objective of 
Common Position, 2003/468/CFSP, is to control arms brokering \17\ in 
order to prevent circumvention of U.N., EU, or Organization for 
Security and Co-Operation in Europe (OCSE) embargoes on arms exports 
and the criteria established in the EU Code. Under its provisions, 
Member states are urged to put in place legal norms for lawful 
brokering activities, including obtaining a written authorization prior 
to engaging in arms brokering and to keep records for at least 10 
years.\18\
---------------------------------------------------------------------------
    \17\ Regarding arms brokering, the Wassenaar Arrangement should be 
noted. In December 2003, a group of conventional arms exporting Member 
states agreed to establish national legislation to control the 
activities of those engaged in the brokering of conventional arms. 
[http://www.wassenaar.org/docs/]; See EU Common Position 2003/468/CFSP, 
adopted June 8, 1998 by the Council of the European Union.
    \18\ 2003 O.J. (L156) 79.
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European Union Code of Conduct on arms exports
    The European Union (EU) Code of Conduct on Arms Exports was adopted 
on June 8, 1998, during the Presidency of the United Kingdom.\19\ The 
EU Code sets up eight criteria for the export of conventional arms and 
a denial notification procedure obligating EU member states to consult 
on possible undercutting arms sales one EU state might make even though 
another EU state has chosen not to make a comparable arms export. Under 
this procedure, member states are required to transmit through 
diplomatic channels information on licenses refused and reasons for the 
denial. Thus, before a member state authorizes a license which has been 
refused by another member state for the same transaction, it is 
necessary to consult the state that rejected the license in the first 
place. If the member state decides to issue the license, it must inform 
the state that refused to grant authorization.\20\
---------------------------------------------------------------------------
    \19\ The full text of the European Union Code of Conduct on Arms 
Exports is in Appendix 1.
    \20\ See Fourth Annual Report According to Operative Provision 8 of 
the European Union Code of Conduct on Arms Exports, 2002 O.J. (C319) 1.
---------------------------------------------------------------------------
    The EU Code's eight criteria, which are to be utilized by EU 
members when reviewing license requests and making decisions whether or 
not to make an arms export, can be briefly summarized as follows:

          (1) Consistency of export with the exporter's international 
        commitments arising from U.N., EU, or OSCE arms embargoes;
          (2) Risk that export would be used for internal repression or 
        where the recipient country has engaged in serious violations 
        of human rights;
          (3) Risk that export would provoke or prolong armed 
        conflicts;
          (4) Risk of recipient using export to undermine regional 
        peace and security;
          (5) Effect of export on defense and national security 
        interests of friends and allies;
          (6) Commitment of purchaser to fight terrorism and uphold 
        international law;
          (7) Risk of diversion to third parties or to a terrorist 
        organization;
          (8) Risk that export would undermine the sustainable 
        development of the recipient country.

    It is important to emphasize that these eight criteria, and the EU 
Code on Arms Exports in its entirety, are political statements by the 
European Union, and not legally binding on the member states of the EU, 
although the Code is supposed to represent a moral imperative that EU 
member states are expected to uphold and enforce. Nevertheless, no 
matter how strong the language of purpose and intent contained in the 
Code's eight Criteria is, the 12 Operative Provisions of the EU Code--
the sections of the Code which set out the manner in which the Code is 
to be carried out--contain significant loopholes which militate against 
it being a strong regime, in its current form, for the control of 
conventional arms exports from EU member states. This circumstance is 
illustrated by the following examples:
    1. While each EU member state is to review export license 
applications made to it on a ``case-by-case basis'' against the eight 
specific criteria in the EU Code, Operative Provision 3 of the Code 
expressly states that ``The decision to transfer or deny the transfer 
of any item of military equipment will remain at the national 
discretion of each Member State.'' Thus, each EU member state is free 
to make an arms sale based on its own determination regarding whether 
it is appropriate or not under the Code.\21\
---------------------------------------------------------------------------
    \21\ Operative provision 6 of the EU Code states that the criteria 
in the Code and the consultation procedure provided for in the Code 
shall apply to ``dual-use goods as specified in Annex 1 of Council 
Decision 94/942/CFSP as amended, where there are grounds for believing 
that the end-user of such goods will be the armed forces or internal 
security forces or similar entities in the recipient country.'' As with 
sales of military equipment, the decision to grant or not grant a 
license for the sale of ``dual-use'' equipment is left to each EU 
nation to decide on its own.
---------------------------------------------------------------------------
    2. Operative Provision 10 provides additional guidance to member 
states in application of the EU Code. It states: ``It is recognized 
that Member States, where appropriate, may also take into account the 
effect of proposed exports on their economic, social, commercial and 
industrial interests, but that these factors will not affect the 
application of the above criteria.'' A literal reading of that sentence 
could mean that those who adopted the EU Code recognized that national 
economic or commercial interests would weigh importantly in the 
decision-making process regarding any given arms sale, and may even 
trump the larger stated EU-wide interest in restricting problematic 
arms exports. Yet in the same sentence the provision effectively states 
that while national economic self-interest may compel a member state to 
sell, that state is expected not to do so to remain true to the 
principles of the EU Code.
    3. A major oversight mechanism within the EU Code is Operative 
Provision 8, which requires that a confidential annual report is to be 
circulated by each EU member state to the other EU states dealing with 
its defense exports and its own implementation of the Code. These 
reports are to be discussed at an annual meeting of the member states 
where the operation of the EU Code is reviewed, and any 
``improvements'' to it can be recommended to the EU Council. 
Subsequently, a public report is produced based on the submissions of 
individual EU members. However, the complete details of actual arms 
exports made by EU states are not set out in this public document, 
although the published annual reports made pursuant to Operative 
Provision 8 of the Code do provide values of arms export licenses 
issued, and values of deliveries made, if available, by the exporting 
country. A supplier list is also provided, giving a total of sales 
denials made, but not what specific weapon sale was denied, nor to 
whom. Individual states are free to give as much or as little detail in 
their national reports as they choose. Most have taken a minimalist 
approach. Furthermore, individual states have different arms trade 
licensing, data collecting and reporting practices, thus calling into 
question the accuracy of some of the data provided in the annual public 
report. In the most recent EU annual report on the Code, the Sixth, 
covering calendar year 2003, categories of military systems are 
indicated in the data tables. Yet this standardized reporting is still 
not universal among member states, given the varied export licensing 
systems and practices individual countries currently employ.\22\
---------------------------------------------------------------------------
    \22\ For details of individual EU member state arms data reporting 
practices see generally: Sibylle Bauer and Mark Bromley. The European 
Union Code of Conduct on Arms Exports: Improving the Annual Report. 
SIPRI Policy Paper No. 8. November, 2004. Stockholm International Peace 
Research Institute, found at [http://www.sipri.org/contents/armstrad/
PP8].
---------------------------------------------------------------------------
Arms exports authorized for China by European Union members
    The European Union has published official documents which provide 
general data regarding the total values of EU member states' arms 
exports licenses to China. Some countries provide the total values of 
actual exports. There is no uniformity in this reporting across the 
membership of the EU. As noted above, these annual reports are made 
pursuant to Operative Provision 8 of the EU Code. The most recent two 
reports provide data for calendar years 2002 and 2003 (the Fifth and 
Sixth reports respectively). What follows are the data from those 
reports for arms export licenses for China as approved by named EU 
countries in rank order of their license values, together with the 
total license values of the European Union as a whole. These data show 
that despite an embargo on arms trade with China since 1989, because 
each EU member state can, and has, interpreted the mandate of the 
embargo differently, some sales of military articles and services have, 
nonetheless, been made. \23\
---------------------------------------------------------------------------
    \23\ 2003 O.J. December 31, 2003 (C320) 9, 14, 30, 42. The Sixth 
report is found at Official Journal C316, December 21, 2004, pp. 001-
215.

CY2002: Total value of export licenses approved for China (expressed in 
Euros):
        France--105,431,246
        United Kingdom--79,500,000
        Italy--22,836,976
        Austria--2,025,925
        All European Union countries--209,794,157

CY2003: Total value of export licenses approved for China (expressed in 
Euros):
        France--171,530,641
        Italy--127,128,192
        United Kingdom--112,455,000
        Czech Republic--3,610,819
        Germany--1,096,261
        All European Union countries--415,820,913

    In the Sixth annual report, made in accordance with Operative 
Provision 8, the EU for the first time breaks down the export data by 
EU Common Military List category.\24\ So, for those states whose 
licensing systems categorize their arms export licenses in detail, it 
is possible to get a sense of what general types of military equipment 
are being licensed. These data do not provide information on EU 
members' transactions involving dual-use equipment and items--and there 
is no publicly available official source that provides details on such 
transactions. This EU report does cover the broad spectrum of military 
equipment licensed for export by the European Union of EU Common 
Military List categories. (See Appendix 2 for a detailed descriptive 
summary of these EU Military List categories.) This descriptive list 
uses an abbreviation scheme whereby a number is attached to a specific 
category of military equipment, and this number/category is given in 
the license data table to indicate the value of licenses granted for 
sales of that specific category. For example, ML10 is: `` `Aircraft,' 
unmanned airborne vehicles, aero-engines and `aircraft' equipment, 
related equipment and components, specially designed or modified for 
military use.''
---------------------------------------------------------------------------
    \24\ Ibid.
---------------------------------------------------------------------------
    The United Kingdom provides no detailed breakdown of its licenses 
in the Sixth report since the way its standard export licenses are 
valued in its licensing system currently preclude this. The same is 
true for Italy, and the Czech Republic. However, France and Germany are 
able to break down the categories of their licenses for purposes of the 
EU report. The data in the report indicate that the largest share of 
French license approvals for China in 2003 were in categories ML11--
electronic military equipment (98.5 million Euros), ML10--aircraft and 
related equipment (45.4 million Euros), and ML15--imaging or 
countermeasure military equipment (24.1 million Euros). In the case of 
Germany, its largest share of license approvals for China in 2003 were 
in categories ML14--specialized military training equipment or 
simulators (528 thousand Euros), ML11--electronic military equipment 
(433.1 thousand Euros), and ML21--software for items controlled in the 
EU Common Military List (134.4 million Euros).
    Thus, most of the arms exports authorized for China by EU members 
have been made by France, the United Kingdom and Italy. The Czech 
Republic, Austria, and Germany granted substantially smaller valued 
licence approvals.
U.S. Arms Export Control Act retransfer authorities and obligations
    The Arms Export Control Act (AECA) sets out a number of conditions 
and obligations that foreign purchasers of U.S. defense articles, 
services, and military technology must agree to prior to being 
permitted to purchase such items from the United States. Among these 
obligations is the signing of an agreement that prohibits, among other 
things, the subsequent re-transfer of such items to another nation 
without first receiving the consent of the United States government to 
do so, by obtaining the express approval of the President of the United 
States. These re-transfer authorities and obligations are discussed in 
detail below.
    Section 3(a) of the U.S. Arms Export Control Act (AECA) contains an 
express obligation that for any country to be eligible to purchase U.S. 
defense articles and services or to enter into a cooperative project as 
defined in the AECA, that country first: ``shall have agreed not to 
transfer title to, or possession of, any defense article or related 
training or other defense service so furnished to it, or produced in a 
cooperative project (as defined in section 27 of this Act), to anyone 
not an officer, employee, or agent of that country or international 
organization (or the North Atlantic Treaty Organization or the 
specified member countries (other than the United States) in the case 
of a cooperative project) and not to use or permit the use of such 
article or related training or other defense service for purposes other 
than those for which furnished unless the consent of the President has 
first been obtained.'' Section 3(a) further states that: ``In 
considering a request for approval of any transfer of any weapon, 
weapons system, munitions, aircraft, military boat, military vessel, or 
other implement of war to another country, the President shall not give 
his consent under paragraph (2) to the transfer unless the United 
States itself would transfer the defense article under consideration to 
that country.'' \25\
---------------------------------------------------------------------------
    \25\ 22 U.S.C. 2753(a)(2). This obligation is also contained in the 
International Traffic in Arms Regulations (ITAR). 22 CFR Section 
123.10.
---------------------------------------------------------------------------
    Should any nation violate their agreement with the United States, 
signed at the time U.S. munitions list items are sold, by not obtaining 
the prior consent of the President before retransferring them, the 
penalties can be severe. If the country is receiving credits or loan 
guarantees from the United States in connection with financing a 
weapons purchase, those credits or loan guarantees can be terminated. 
Should a non-financed cash purchase be involved, the nation deemed to 
have violated its agreement with the United States can be made 
ineligible for future purchases from the U.S. Regardless of whether a 
sale has been financed or not, any deliveries to the foreign buyer 
pursuant to previous sales can be terminated.\26\ Under this provision 
of the Arms Export Control Act, the President has the authority to 
determine that a violation has occurred and impose a penalty provided 
for by the AECA as he deems appropriate to the given situation. Any 
such determination of a violation by the President must be reported to 
the Congress to take effect. The President is also required to report 
to Congress ``promptly upon the receipt of information'' that a section 
3 violation ``may have occurred.'' Congress, can, on its own 
initiative, determine that a section 3 violation has occurred and 
impose a penalty it deems appropriate by passing and obtaining 
enactment of a joint resolution to that end.
---------------------------------------------------------------------------
    \26\ 22 U.S.C. 2753(c)(1).
---------------------------------------------------------------------------
    The authorities in the Arms Export Control Act noted above are 
especially pertinent to the question of ensuring that U.S. defense 
articles and services and the technical information associated with 
them are not re-transferred to China by EU member states who have 
purchased or may purchase such items from the United States in the 
future. Should any EU member state transfer any U.S.-supplied defense 
articles, services or the technical information associated with them to 
China, without first obtaining the consent to do so from the President, 
they would be subjecting themselves to the possible imposition of the 
penalties discussed above. In this context, the United States has 
strong, existing, authority to discourage re-transfer of U.S. defense 
articles, services and technology to China within the existing AECA 
framework.
    The AECA framework, however, does not apply to arms sales to China 
of indigenously developed and produced military equipment of EU member 
states. Controls of sales or transfers of that military equipment must 
be achieved through application of the national arms export control 
statutes of the individual EU nations, the EU Code of Conduct on Arms 
Exports, or EU regulations regarding arms exports. As matters currently 
stand a formal EU decision is not expected until May or June 2005. 
Since the European Council has already stated its ``political will to 
continue to work towards lifting the arms embargo,'' the prospects of 
it doing so when the issue is formally addressed are high.\27\ What 
remains to be set out in detail, should the EU lift the Chinese arms 
embargo, is what will be the nature and scope of the revised EU Code of 
Conduct on Arms Exports, and the new instrument establishing measures 
to address EU arms exports to post-embargo countries--what the EU 
refers to as the ``Toolbox.'' The details of any such changes to the 
Code of Conduct or the central elements of the ``Toolbox'' will not be 
known until the EU chooses to announce them. Private consultations 
among EU members on these matters are continuing, but are likely to be 
completed before final EU action on lifting the arms embargo on China 
takes place. Should the European Union strengthen the EU Code of 
Conduct on Arms Exports, and utilize effective instruments to prevent 
worrisome arms exports to China in a post-embargo period, prospects for 
reaching a successful accommodation in U.S.-EU relations over this 
issue could be notably enhanced.
---------------------------------------------------------------------------
    \27\ Council of the European Union, 16/17 December 2004. Presidency 
Conclusions. 16238/1/04 REV 1, p. 19. Published February 1, 2005.
---------------------------------------------------------------------------
                                 ______
                                 

CRS Report for Congress--U.S. Defense Articles and Services Supplied to 
             Foreign Recipients: Restrictions on Their Use

                                SUMMARY

    In accordance with United States law, the U.S. Government places 
conditions on the use of defense articles and defense services 
transferred by it to foreign recipients. Violation of these conditions 
can lead to the suspension of deliveries or termination of the 
contracts for such defense items, among other things. On occasion, the 
President has indicated that such violations by foreign countries 
``may'' have occurred, raising the prospect that termination of 
deliveries to or imposition of other penalties on such nations might 
take place. Section 3(a) of the Arms Export Control Act (AECA) sets the 
general standards for countries or international organizations to be 
eligible to receive United States defense articles and defense services 
provided under this act. It also sets express conditions on the uses to 
which these defense items may be put. Section 4 of the Arms Export 
Control Act states that U.S. defense articles and defense services 
shall be sold to friendly countries ``solely'' for use in ``internal 
security,'' for use in ``legitimate self-defense,'' to enable the 
recipient to participate in ``regional or collective arrangements or 
measures consistent with the Charter of the United Nations,'' to enable 
the recipient to participate in ``collective measures requested by the 
United Nations for the purpose of maintaining or restoring 
international peace and security,'' and to enable the foreign military 
forces ``in less developed countries to construct public works and to 
engage in other activities helpful to the economic and social 
development of such friendly countries.''
    Section 3(c)(2) of the Arms Export Control Act requires the 
President to report promptly to the Congress upon the receipt of 
information that a ``substantial violation'' described in section 
3(c)(1) of the AECA ``may have occurred.'' This Presidential report 
need not reach any conclusion regarding the possible violation or 
provide any particular data other than that necessary to illustrate 
that the President has received information indicating a specific 
country may have engaged in a ``substantial violation'' of an 
applicable agreement with the United States that governs the sale of 
U.S. defense articles or services. Should the President determine and 
report in writing to Congress or if Congress determines through 
enactment of a joint resolution pursuant to section 3(c)(3)(A) of the 
Arms Export Control Act that a ``substantial violation'' by a foreign 
country of an applicable agreement governing an arms sale has occurred, 
then that country becomes ineligible for further U.S. military sales 
under the AECA. This action would terminate provision of credits, loan 
guarantees, cash sales, and deliveries pursuant to previous sales. 
Since the major revision of U.S. arms export law in 1976, neither the 
President nor the Congress have actually determined that a violation 
did occur thus necessitating the termination of deliveries or sales or 
other penalties set out in section 3 of the Arms Export Control Act. 
The United States Government has other options under the Arms Export 
Control Act to prevent transfer of defense articles and services for 
which valid contracts exist short of finding a foreign country in 
violation of an applicable agreement with the United States. These 
options include suspension of deliveries of defense items already 
ordered and refusal to allow new arms orders. The United States has 
utilized at least one such option against Argentina, Israel, Indonesia, 
and Turkey.

                              INTRODUCTION

    In accordance with United States law, the U.S. Government places 
conditions on the use of defense articles and defense services 
transferred by it to foreign recipients. Violation of these conditions 
can lead to the suspension of deliveries or termination of the 
contracts for such defense items, among other things. On occasion, the 
President has indicated that such violations by foreign countries 
``may'' have occurred, raising the prospect that termination of 
deliveries to or imposition of other penalties on such nations might 
take place. However, since the major revision of U.S. arms export law 
in 1976, neither the President nor the Congress have actually 
determined that a ``substantial violation'' did occur thus 
necessitating the termination of deliveries or sales or other penalties 
set out in section 3 of the Arms Export Control Act. This report 
reviews the pertinent sections of U.S. law governing permissible uses 
of U.S.-origin defense equipment and services by foreign nations, 
Presidential and congressional options for dealing with such 
violations, and illustrative actions previously taken by the United 
States in response to possible violations.

Arms Export Control Act (AECA): Basic Conditions on Use of U.S.-
        Supplied Defense Articles and Services
    The Arms Export Control Act (AECA), as amended, authorizes the 
transfer by sale or lease of United States origin defense articles and 
services through the government-to-government foreign military sales 
(FMS) program or through the licensed commercial sales process.\1\ 
Section 3(a) of the Arms Export Control Act sets the general standards 
for countries or international organizations to be eligible to receive 
United States defense articles and defense services provided under this 
act. It also sets express conditions on the uses to which these defense 
items may be put. Section 3(a)(2) of the AECA specifically provides 
that to be eligible to purchase defense articles and services from the 
United States:
---------------------------------------------------------------------------
    \1\ The International Security Assistance and Arms Export Control 
Act of 1976 (P.L. 94-329), enacted on June 30, 1976, changed the title 
of the Foreign Military Sales Act (FMSA) of 1968 (P.L. 90-629), as 
amended, to its present one--the Arms Export Control Act. (22 U.S.C. 
2751 et. seq.) All references to the predecessor statute, the FMSA, are 
legally deemed to be references to the AECA.

          . . . [a] country or international organization shall have 
        agreed not . . . to use or permit the use of [a defense] 
        article or related training or other defense service for 
        purposes other than those for which furnished, unless the 
---------------------------------------------------------------------------
        consent of the President has first been obtained. . . .

Section 3(c) of the Arms Export Control Act further sets out the 
circumstances under which a nation may lose (a) its U.S. Foreign 
Military Financing, (b) its loan guarantees for purchases of U.S. 
defense articles and services, (c) its rights to have previously 
purchased U.S. defense articles or services delivered, (d) its rights 
to have previously made agreements for the sale of U.S. defense 
articles or services carried out. Section 3(c)(1)(A) of the Arms Export 
Control Act stipulates, in part, that:

          No credits (including participations in credits) may be 
        issued and no guarantees may be extended for any foreign 
        country under this Act as hereinafter provided, if such country 
        uses defense articles or defense services furnished under this 
        Act, or any predecessor Act, in substantial violation (either 
        in terms of the quantities or in terms of the gravity of the 
        consequences regardless of the quantities involved) of any 
        agreement entered into pursuant to any such Act \2\ . . . by 
        using such articles or services for a purpose not authorized 
        under section 4 or, if such agreement provides that such 
        articles and services may only be used for purposes more 
        limited than those authorized under section 4 for a purpose not 
        authorized under such agreement. . . .
---------------------------------------------------------------------------
    \2\ Emphasis added. The statute makes clear that any sanctions that 
may be applied are for ``substantial violation'' of an agreement 
entered into with the United States pursuant to the AECA or any 
predecessor Act, and not for a violation of the AECA itself or its 
predecessors.

Section 3(c)(1)(B) of the AECA adds that, under the above conditions: 
``[n]o cash sales or deliveries pursuant to previous sales may be made. 
. . .'' Section 3(g) of the Arms Export Control Act, enacted in 
---------------------------------------------------------------------------
November 1999, further requires that:

          Any agreement for the sale or lease of any article on the 
        United States Munitions List entered into by the United States 
        Government after the date of enactment of this subsection 
        [November 29, 1999 \3\] shall state that the United States 
        Government retains the right to verify credible reports that 
        such article has been used for a purpose not authorized under 
        section 4 or, if such agreement provides that such article may 
        only be used for purposes more limited than those authorized 
        under section 4, for a purpose not authorized under such 
        agreement.
---------------------------------------------------------------------------
    \3\ Added by Section 1225 of the Security Assistance Act of 1999 
(Title XII of H.R. 3427), enacted by reference in section 1000(a)(7) of 
P.L. 106-113; 113 Stat. 1526.

    Purposes for Which Military Sales by the United States Are 
Authorized (Section 4 of the Arms Export Control Act). The purposes for 
which sales of defense articles and services by the United States are 
authorized are detailed in section 4 of the Arms Export Control Act. 
This section of the act states that defense articles and defense 
---------------------------------------------------------------------------
services shall be sold to friendly countries ``solely for'':

   ``Internal security'';
   ``Legitimate self-defense'';
   Enabling the recipient to participate in ``regional or 
        collective arrangements or measures consistent with the Charter 
        of the United Nations'';
   Enabling the recipient to participate in ``collective 
        measures requested by the United Nations for the purpose of 
        maintaining or restoring international peace and security'';
   Enabling the foreign military forces ``in less developed 
        countries to construct public works and to engage in other 
        activities helpful to the economic and social development of 
        such friendly countries.''

It should be stressed that the Arms Export Control Act as amended, the 
Foreign Assistance Act of 1961 as amended, and predecessor acts do not 
define such critical terms as ``internal security'' and ``legitimate 
self-defense.'' It remains for the President or the Congress, as the 
case may be, to define the meaning of such terms as they may apply to 
the question of a possible violation by a foreign country of an 
applicable agreement governing the sale of U.S. defense articles or 
defense services.
    Presidential Report to Congress on Possible Violations. Section 
3(c)(2) of the Arms Export Control Act requires the President to report 
promptly to the Congress upon the receipt of information that a 
``substantial violation'' described in section 3(c)(1) of the AECA 
``may have occurred.'' This Presidential report need not reach any 
conclusion regarding the possible violation or provide any particular 
data other than that necessary to illustrate that the President has 
received information indicating a specific country may have engaged in 
a ``substantial violation'' of an applicable agreement with the United 
States that governs the sale of U.S. defense articles or services.
    Procedures for Making Foreign Countries Ineligible for Receipt of 
U.S. Defense Articles and Services. Should the President determine and 
report in writing to Congress or if Congress determines by joint 
resolution pursuant to section 3(c)(3)(A) of the Arms Export Control 
Act that a ``substantial violation'' by a foreign country of an 
applicable agreement governing an arms sale has occurred, then that 
country becomes ineligible for further U.S. military sales under the 
AECA. This action would terminate provision of credits, loan 
guarantees, cash sales, and deliveries pursuant to previous sales. The 
President could, under section 3(c)(3)(B) of the AECA, continue to 
permit ``cash sales and deliveries pursuant to previous sales'' by 
certifying in writing to Congress that termination of such sales and 
deliveries would have a ``significant adverse impact on United States 
security.'' Such a Presidential waiver could not be invoked, however, 
if Congress, under section 3(c)(3)(A), had adopted or were to adopt a 
joint resolution finding that country ineligible. The President retains 
the prerogative of vetoing any such joint resolution. Congress would 
then have to override the veto in order to impose its will. Congress 
also has the option of adopting regular legislation imposing varying 
degrees of penalties upon any country for violations of the conditions 
of an applicable agreement regarding use of U.S.-supplied defense 
equipment. Such legislation would also be subject to the veto 
process.\4\
---------------------------------------------------------------------------
    \4\ It should be noted that the obligations, restrictions, and 
possible penalties set out in section 3 of the Arms Export Control Act 
also apply to the re-transfer by foreign recipients of U.S. supplied 
defense articles, defense services, and related technical data to 
another nation. Should such a re-transfer occur, in the absence of 
prior approval by the President of the United States to do so, then the 
nation making such a transfer could be determined to be in violation of 
its agreement with the United States not to take such an action without 
prior consent from the U.S., and therefore could be subject to the 
penalties provided for such a violation set out in section 3 of the 
AECA. See section 3(a)(2) of the AECA where the retransfer prior to 
consent obligation is set out (22 U.S.C. 2753(a)(2)).
---------------------------------------------------------------------------
    Restoration of Eligibility. Once a country is made ineligible for 
sales or deliveries under the Arms Export Control Act provisions, it 
can regain its eligibility only when: (1) Under section 3(c)(4) of the 
act, the President ``determines that the violation has ceased'' (the 
violation which led to the status of ineligibility in the first place), 
and (2) the country involved ``has given assurances satisfactory to the 
President that such violation will not recur.'' Alternatively, Congress 
could pass regular legislation that would exempt the particular country 
from specific sanctions imposed through AECA procedures, although that 
legislation would be subject to a Presidential veto.
    Suspension or Cancellation of Contracts and/or Deliveries by the 
United States. It should be noted that the United States has additional 
options to prevent transfer of defense articles and services for which 
valid contracts exist short of finding a foreign country in violation 
of an applicable agreement with the United States. Authority for 
suspension of deliveries or defense items or cancellation of military 
sales contracts is found in sections 2(b), 42(e)(1) and 42(e)(2) of the 
AECA. Section 2(b) of the Arms Export Control Act permits the Secretary 
of State, under the President's direction, to, among other things, 
determine ``whether there shall be delivery or other performance'' 
regarding sales or exports under the AECA in order that ``the foreign 
policy of the United States is best served thereby.''
    Section 42(e)(1) of the Arms Export Control Act states that:

          Each contract for sale entered into under sections 21, 22, 29 
        and 30 of this Act, and each contract entered into under 
        section 27(d) of the Act, shall provide that such contract may 
        be canceled in whole or in part, or its execution suspended, by 
        the United States at any time under unusual or compelling 
        circumstances if the national interest so requires.

    Section 42(e)(2)(A) of the Arms Export Control Act further states 
that:

          Each export license issued under section 38 of this Act shall 
        provide that such license may be revoked, suspended, or amended 
        by the Secretary of State, without prior notice, whenever the 
        Secretary deems such action to be advisable.

Thus, all government-to-government agreements or licensed commercial 
contracts for the transfer of defense articles or defense services may 
be halted, modified, or terminated by the Executive branch should it 
determine it is appropriate to do so.
    Use of this authority does not prejudice the larger question of 
whether a ``substantial violation'' of an applicable agreement 
governing use of U.S. arms did in fact occur. That question can still 
be answered affirmatively or negatively, or left unanswered, depending 
on how the President or the Congress chooses to deal with it. To date, 
the President has never taken the next step and actually determined 
that a violation did occur thus necessitating the termination of 
deliveries or sales or other penalties set out in section 3 of the Arms 
Export Control Act.

Illustrative Responses of the United States Government to Possible 
        Violations of Agreements on Use of U.S.-Provided Defense 
        Articles
    Argentina. On April 30, 1982, Powell A. Moore, Assistant Secretary 
of State for Congressional Relations, reported to Congress that the 
President had determined that Argentina--through its use of U.S.-
supplied military equipment in its occupation of the Falkland Islands 
(Islas Malvinas) on April 2, 1982--``may'' have substantially violated 
the applicable agreements with the United States governing use of this 
equipment. In his April 30 report, Assistant Secretary Moore noted that 
in light of these circumstances the United States was ``suspending 
until further notice all deliveries to Argentina of defense articles 
and services for which commitments were made prior to October 1, 
1978.'' Other restrictions on military aid to Argentina were already in 
place. The Reagan Administration removed the suspension on September 
24, 1982.
    Israel. Questions raised regarding the use of U.S.-supplied 
military equipment by Israel in Lebanon in June and July 1982, led the 
Reagan Administration to determine on July 15, 1982, that Israel 
``may'' have violated its July 23, 1952, Mutual Defense Assistance 
Agreement with the United States (TIAS 2675). Concerns centered on 
whether or not Israel had used U.S.-supplied anti-personnel cluster 
bombs against civilian targets during its military operations in 
Lebanon and the siege of Beirut.\5\ The pertinent segment of that 1952 
agreement between Israel and the United States reads as follows:
---------------------------------------------------------------------------
    \5\ See U.S. Congress. House. Committee on Foreign Affairs, The Use 
of United States Supplied Military Equipment in Lebanon. Hearings 
before the Committee on Foreign Affairs and its Subcommittees on 
International Security and Scientific Affairs and on Europe and the 
Middle East. 97th Congress, 2nd sess. July 15 and August 4, 1982. 68p. 
These hearings were held in open and closed sessions.

          The Government of Israel assures the United States Government 
        that such equipment, materials, or services as may be acquired 
        from the United States . . . are required for and will be used 
        solely to maintain its internal security, its legitimate self-
        defense, or to permit it to participate in the defense of the 
        area of which it is a part, or in United Nations collective 
        security arrangements and measures, and that it will not 
---------------------------------------------------------------------------
        undertake any act of aggression against any other state.

It should be noted that none of the critical terms such as ``internal 
security,'' ``legitimate self-defense,'' or ``act of aggression'' are 
defined within this 1952 U.S.-Israeli agreement. The House Foreign 
Affairs Committee held hearings on this issue in July and August 1982. 
On July 19, 1982, the Reagan Administration announced that it would 
prohibit new exports of cluster bombs to Israel. This prohibition was 
lifted by the Reagan Administration in November 1988.\6\
---------------------------------------------------------------------------
    \6\ Facts on File. Annual Yearbook 1982, p. 518; Associated Press, 
July 19, 1982. Washington Post, December 7, 1988, p. A36; Associated 
Press, December 6, 1988.
---------------------------------------------------------------------------
    In light of the Israeli attack on the Iraqi nuclear reactor on June 
7, 1981, Secretary of State Alexander M. Haig, Jr., reported to 
Congress on June 10, 1981, that the Israeli use of American-supplied 
military equipment in this raid ``may'' have constituted a substantial 
violation of the applicable 1952 U.S.-Israeli agreement. As a 
consequence--and pending review of the facts of the case--the President 
chose to exercise the authority set forth in sections 2(b) and 42(e)(1) 
of the Arms Export Control Act to suspend ``for the time being'' the 
shipment of four F-16 aircraft that had been scheduled for delivery to 
Israel. As the result of this decision, the subsequent delivery of 10 
F-16 and 2 F-15 aircraft to Israel was also suspended. However, on 
August 17, 1981, the Reagan Administration lifted its suspension on 
deliveries to Israel and all of the planes were transferred.
    On two other occasions--April 5, 1978, and August 7, 1979--the 
Carter Administration chose to find that the Israelis ``may'' have 
violated their 1952 agreement with the United States through the use of 
American-origin military equipment in operations conducted in Lebanon. 
However, the U.S. did not suspend or terminate any Israeli arms sales, 
credits, or deliveries in either of these cases.
    In two notable instances, questions concerning the improper use by 
Israel of U.S. weapons were raised, but the President expressly 
concluded that a violation of the agreement regarding use of U.S. 
supplied equipment did not occur. On October 1, 1985, Israel used U.S.-
supplied aircraft to bomb Palestine Liberation Organization (PLO) 
headquarters in Tunis, Tunisia. The Reagan Administration subsequently 
stated that the Israeli raid was ``understandable as an expression of 
self-defense,'' although the bombing itself ``cannot be condoned.'' On 
July 14, 1976, following the Israeli rescue mission at Entebbe, Uganda 
in early July 1976, the Department of State declared that Israel's use 
of U.S.-supplied military equipment during that operation was in 
accordance with the 1952 U.S.-Israeli agreement.
    Indonesia and East Timor. Following the military intervention of 
Indonesia in East Timor on December 7, 1975, the Ford Administration 
initiated a ``policy review'' in connection with the U.S. military 
assistance program with Indonesia. Because of the possible conflict 
between the Indonesian use of U.S.-origin equipment in East Timor and 
the provisions of U.S. law and U.S.-Indonesian bilateral agreements, 
the Ford Administration placed a ``hold'' on the issuance of new 
letters of offer (contracts) and Military Assistance Program (MAP) 
orders to Indonesia. However, military equipment already in the 
pipeline continued to be delivered to the Indonesians. The ``policy 
review'' was completed in late May 1976. Military assistance and sales 
resumed in July 1976. No formal finding of ``substantial violation'' of 
applicable U.S.-Indonesian agreements involving use of U.S.-origin 
military equipment, conditional or otherwise, was made by the 
administration or by the Congress.
    Turkey and the Congressionally-Imposed Embargo. In July 1974, 
Turkey used U.S.-origin equipment during its intervention on Cyprus. 
The President and Congress disagreed on whether Turkey had 
``substantially violated'' the applicable 1947 agreement with the 
United States governing the use of U.S.-supplied military equipment 
during its Cyprus operations. the President independently suspended the 
issuance of new Foreign Military Sales credits and guarantees and major 
new cash sales for Turkey from late July until October 17, 1974. The 
President did permit routine cash sales of spare parts and components 
for items already purchased by Turkey during this same period. The 
Congress imposed an embargo on military sales, credits, assistance, and 
deliveries to Turkey with the enactment of H.J. Res. 1167 (the 
Continuing Appropriations Resolution for FY75, P.L. 93-448). However, 
section 6 of H.J. Res. 1167 gave the President the option to waive the 
effect of the embargo until December 10, 1974. President Ford exercised 
this waiver authority on October 17, 1974. On December 10, 1974, the 
Turkish arms embargo went into effect.
    Subsequently, the Foreign Assistance Act of 1974, enacted on 
December 30, 1974, continued the Turkish embargo and made it part of 
permanent law. Yet it also gave the President the option of temporarily 
waiving the embargo's effect until February 5, 1975. President Ford 
used this waiver to suspend the embargo from December 30, 1974, until 
February 5, 1975, at which time the Turkish embargo was restored. On 
October 6, 1975, President Ford signed into law P.L. 94-104, which 
partially lifted the arms embargo on Turkey. Successive statutes 
modified military aid and sales levels for Turkey while a partial 
embargo remained in effect. Finally, on September 26, 1978, President 
Carter signed into law P.L. 95-384, which authorized him to end the 
arms embargo against Turkey. The President exercised this authority on 
September 26, 1978.
                                 ______
                                 

CRS Report for Congress--European Union's Arms Control Regime and Arms 
            Exports to China: Background and Legal Analysis

                                SUMMARY

    In recent months, discussions have been held within the European 
Union (EU) on the question of lifting the embargo on arms exports to 
the People's Republic of China that was imposed on China on June 27, 
1989. The prospect that the EU would lift its embargo on arms exports 
to China has led to a number of on-going discussions between EU member 
states and the United States government, which strongly opposes such an 
action at this time on human rights and security issues grounds. Key 
nations within the European Union, particularly France and Germany, 
strongly support lifting of the embargo. And, the United Kingdom has 
advised the Bush Administration that it will also support lifting the 
embargo when the subject is formally addressed by the EU, most likely 
during the spring of 2005.
    The Council of the EU has stated that if the arms embargo on China 
were to be lifted, that action should not result in either a 
quantitative or qualitative increase in EU arms exports to China. The 
United Kingdom has argued that it believes that the European Union's 
Code of Conduct on Arms Exports, while not legally binding on EU 
members, with some enhancements, would provide a solid safeguard 
against worrisome arms exports by EU states to the Chinese in the 
future.
    The President and senior members of the Bush Administration have 
lobbied the European Union to keep the arms embargo on China in place. 
Many Members of Congress share the Bush Administration's concerns about 
an end to the EU arms embargo. On February 2, 2005, the House of 
Representatives passed H. Res. 57, a resolution strongly urging the EU 
not to lift the embargo, by a vote of 411-3. Other Congressional 
actions on the issue may be taken.
    This report provides detailed background and legal analysis of the 
nature of the current European Union embargo on arms exports to China. 
It also provides detailed background on the European Union's current 
Code of Conduct on Arms Exports. A strengthened version of the Code 
would be one of the control mechanisms that would remain should the EU 
lift the embargo on arms exports to China. This report also gives 
information on recent EU arms exports authorized for China. It further 
summarizes U.S. concerns regarding the lifting of the arms embargo, and 
notes the prospective timing of EU action on the embargo issue. This 
report may be updated should events warrant.

                              INTRODUCTION

    In recent months, discussions have been held within the European 
Union (EU) on the question of lifting the embargo on arms exports to 
the People's Republic of China that was imposed on China on June 27, 
1989. Following the lead of the United States, the European Union took 
this action in the wake of the June 4, 1989 crackdown on Chinese 
citizens by the Chinese military in Tiananmen Square in Beijing and the 
serious infringement of human rights in China that followed. The 
prospect that the EU would lift its embargo on arms exports to China 
has led to a number of on-going discussions between EU member states 
and the United States. The United States government continues to 
maintain its own arms embargo against China and the U.S. strongly 
opposes lifting the EU embargo at this time on human rights and 
security issues grounds. Key nations within the European Union, 
particularly France and Germany, strongly support lifting of the 
embargo. And, the United Kingdom has advised the Bush Administration 
that it will also support lifting the embargo when the subject is 
formally addressed by the EU, most likely during the early spring of 
2005. All 25 members of the EU must agree before the arms embargo can 
be lifted.\1\
---------------------------------------------------------------------------
    \1\ ``Germany: Schroeder Calls for EU to End China Arms Embargo,'' 
Dow Jones International News, December 6, 2004; ``France Reiterates 
Support for End to China Arms Embargo,'' Agence France Presse, December 
6, 2004; ``EU Arms Embargo on China Probably Lifted Within Six Months; 
Britain,'' Associated Press, January 19, 2005; Barry Schweid, 
``Britain's Straw, Rice Differ on China Arms,'' Associated Press, 
January 24, 2005. The French Defense Minister, Michele Alliot-Marie, 
has argued that lifting the EU arms embargo against China could be a 
beneficial step because ``China is rapidly developing its industry, and 
today our experts say in five years China could make exactly the same 
arms that we have today. And they will do it if they cannot import. So 
maybe if we sell them arms, they will not make them. And in five year's 
time they will not have the technology to make them.'' Peter Spiegel 
and John Thornhill, ``France Urges End to China Arms Embargo,'' 
Financial Times, February 15, 2005.
---------------------------------------------------------------------------
    The Chinese have been seeking a lifting of the arms embargo arguing 
that it is discriminatory. They note that other nations deemed pariahs, 
such as Sudan or North Korea, do not have such an embargo imposed on 
them. The Chinese also view lifting of the embargo as an important 
symbolic political act by the EU, as they see the embargo as a Cold War 
era relic, and thus an impediment to better relations with European 
Union members. France, Germany, and other EU members claim the embargo 
hinders stronger EU political and economic relations with China. After 
their December 16 and 17, 2004 meeting, EU leaders pledged to address 
lifting the embargo.\2\ The Council of the EU noted that if the arms 
embargo on China were to be lifted, that action should not result in 
either a quantitative or qualitative increase in EU arms exports to 
China.\3\ The United Kingdom has argued that it believes that the 
European Union's Code of Conduct on Arms Exports, while not legally 
binding, would, with some enhancements, provide a solid safeguard 
against worrisome arms exports by EU states to the Chinese in the 
future.\4\ Meanwhile, as the President and Bush Administration 
officials have lobbied the European Union to keep the arms embargo on 
China in place, many in Congress have also expressed strong concerns 
and support for that position. On February 2, 2005, the House of 
Representatives passed H. Res. 57, a resolution strongly urging the EU 
not to lift the embargo, by a vote of 411-3. Other Congressional 
actions on the issue may be taken.
---------------------------------------------------------------------------
    \2\ Marcus Walker, Marc Champion and Scott Miller, ``EU Maintains 
China Arms Embargo--Pressure to Lift Ban Grows as States Risk Defying 
U.S. to Cultivate Economic Ties,'' Wall Street Journal Europe, December 
9, 2004, p. A1; Daniel Dombey and Peter Spiegel, ``Why Europe Is Ready 
to Lift Its Weapons Ban on China,'' Financial Times, February 9, 2005; 
Mure Dickie, Guy Dinmore, Daniel Dombay, Kathrin Hille, Demetri 
Sevastopulo and Peter Spiegel, ``The EU's Ban on Selling Military 
Equipment to Beijing Lacks Credibility But Washington Believes Any 
Change Would Be Irresponsible,'' Financial Times, February 10, 2005; 
Peter Sparaco and Robert Wall, ``Chinese Checkers; Widening Business 
Opportunities Drive EU's Review of China Arms Embargo,'' Aviation Week 
& Space Technology, December 13, 2004, p. 37.
    \3\ Council of the European Union, 16/17 December 2004. Presidency 
Conclusions. 16238/1/04 REV 1, p. 19. Published February 1, 2005.
    \4\ ``Straw Defends Lifting of China Arms Ban,'' Guardian 
Unlimited, January 21, 2005; Daniel Dombey, ``EU Finalizes Plan to Lift 
Arms Embargo on China,'' Financial Times, February 3, 2005, p. 4. Marc 
Champion, ``EU Aims to Calm U.S. Arms Fears--Officials Say Likely End 
to Sales Embargo on China Won't Increase Imports,'' Asian Wall Street 
Journal, February 21, 2005, p. A1.
---------------------------------------------------------------------------
    This report provides detailed background on the nature and history 
of the current European Union embargo on arms exports to China. It also 
provides detailed background on the European Union's current Code of 
Conduct on Arms Exports. The EU plans on issuing a strengthened Code, 
which would be one of the control mechanisms that would remain should 
the EU lift the embargo on arms exports to China. This report also 
gives information on the level of recent EU arms exports authorized for 
China. It further summarizes U.S. concerns regarding the lifting of the 
arms embargo, and notes the prospective timing of EU action on the 
embargo issue.

General Background on European Union Embargoes
    Arms embargoes fall within the sanctions or restrictive measures 
imposed by the European Union against third countries. In general, EU 
embargoes are either adopted to implement U.N. Security Council 
resolutions acting under Chapter VII, or are ``autonomous.'' In the 
latter case, embargoes are legally founded in a specific provision of 
the treaties establishing the European Union. EU members have full 
jurisdiction to decide on imposing arms trade restrictions.\5\ Prior to 
1992, decisions on embargoes were made by the member states through an 
informal political process, the so-called European Political 
Cooperation.\6\ In several instances, member states convened as a body, 
the European Council, adopted declarations to impose embargoes.\7\ 
Within such a context, the embargo on China was imposed in 1989, by the 
then twelve members of the European community, the EU's precursor. The 
objective was to introduce arms trade restrictions against the regime 
in China in reaction to the killing of demonstrators in Tiananmen 
Square.
---------------------------------------------------------------------------
    \5\ Article 296 of the Treaty Establishing the European Community. 
Available at [http://europa.eu.int/eur-lex/lex/en/treaties/index.htm].
    \6\ It refers to the informal network of communication and 
cooperation on foreign policy issues among the governments of the EC 
Member states, between the period of 1970-1992.
    \7\ External Relations, Common Foreign & Security Policy (CFSP), 
Sanctions. Available at: [http://europa.eu.int/comm/external_relations/
sfcp/sanctions].
---------------------------------------------------------------------------
    The introduction of the Common Foreign and Security Policy (CFSP) 
by the Treaty on European Union (Maastricht Treaty), effective in 
November 1993, altered the procedural basis for EU embargoes. Decisions 
to impose an embargo still require unanimity among EU member states, 
but such decisions are now based on Common Positions, rather than 
declarations.\8\ Often, implementing regulations are also adopted. 
Members are required to conform with the provisions or regulations and 
Common Positions. Both instruments contain a detailed description of 
the type of material covered as well as the terms and conditions of 
implementation by the member states. Arms embargoes are also subject to 
EU standards on arms exports, such as the 1998 Code of Conduct on Arms 
Exports (hereafter the EU Code). Consequently, in the implementation of 
the arms embargo on China, EU members are expected not only to abide by 
the restrictions on arms trade on China but also with the EU 
requirements on arms exports. Ultimately, what a given embargo entails 
may be viewed differently by different member states. And, as a 
political statement by the European Union, the EU Code on Arms Exports 
is not legally binding on the EU member states.
---------------------------------------------------------------------------
    \8\ Decisions are made based on articles 12 and 15 of the Treaty on 
European Union. Available at [http://europa.eu.int/eurlex/lex/en/
treaties/index.htm].
---------------------------------------------------------------------------
European Union's Arms Embargo on China
    On June 27, 1989 the European Council, convened in Madrid, agreed 
to impose an arms embargo on China. The entire text of the embargo, 
which is in the form of a political declaration, is rather brief. In 
the first two paragraphs, it condemns the repression in China and 
requests that the Chinese authorities cease executions and respect 
human rights. The fourth paragraph contains the measures agreed by the 
members states. These include the suspension of military cooperation 
and high-level contacts, reduction of cultural, scientific and 
technical cooperation programs and prolongation of visas to Chinese 
students. The specific wording of the arms restrictions on China calls 
for: ``. . . interruption by the Member States of the Community of 
military cooperation and an embargo on trade in arms with China.'' \9\
---------------------------------------------------------------------------
    \9\ Conclusions of the European Council, adopted in Madrid on June 
27, 1989, available at [http://www.eurunion.org/legislat/
Sanctions.htm#China].
---------------------------------------------------------------------------
    The declaration does not clarify the meaning of the term ``military 
cooperation'' nor does it contain a list of arms that come within the 
scope of the phrase ``trade in arms.'' Neither does it contain 
exceptions or review clauses. By contrast, other EU embargoes imposed 
later in the CFSP context are more elaborate and specific in their 
scope and coverage. For instance, the Burma/Myanmar embargo, which was 
first adopted in 1991, has been updated and revised a number of times 
due to the lack of progress in democratization and continuous violation 
of human rights, and appears as a Common Position, which is binding. It 
contains, inter alia, a ban on technical assistance related to military 
activities and the provision, maintenance and use of weapons and 
ammunition, paramilitary equipment and spare parts.\10\
---------------------------------------------------------------------------
    \10\ Common Position 2004/423/CFSP and Council Regulation (EC) No. 
798/2004 Renewing the Restrictive Measures in Respect of Burma/Myanmar 
and repealing Regulation No. 1081/2000.
---------------------------------------------------------------------------
    The arms embargo against China has not been interpreted uniformly 
by the EU members since it was imposed. This has been attributed to 
several factors, including lack of specificity in the political 
declaration, absence of a legally binding document, such as a Common 
Position, as is the case with subsequent embargoes imposed on other 
countries and, more importantly, the existing loopholes and weak points 
in the EU arms control system. For instance, the UK interpreted the 
embargo in a narrow manner, as to include the following items: lethal 
weapons such as machine guns, large-caliber weapons, bombs, torpedoes 
and missiles; specially designed components of the above, and 
ammunition; military aircraft and helicopters, vessels of war, armored 
fighting vehicles and other weapons platforms; and equipment which 
might be used for internal repression.\11\ The French have interpreted 
the embargo similarly.\12\
---------------------------------------------------------------------------
    \11\ Robin Niblett, The United States, the European Union, and 
Lifting the Arms Embargo on China, 10 EURO-FOCUS No. 3 (Sept. 30, 
2004). Center for Strategic and International Studies. See also: 
Amnesty International. Undermining Global Security: The European Union 
Exports, at [http://web.amnesty.org/library/index/engact300032004].
    \12\ EU arms embargo on China. [http://projects.sipri.se/expcon/
euframe/euchiemb.htm].
---------------------------------------------------------------------------
    Since 1989, European non-governmental organizations have reported 
that the embargo on China has been bypassed by several EU members and 
has been reduced to a mere ``symbolic instrument.'' \13\ One arms trade 
expert with the Stockholm International Peace Research Institute 
(SIPRI) of Sweden has stated that ``many European licenses for the arms 
trade are actually issued for material which, on paper, can be used for 
civilian purposes; what is known as `dual usage' . . . The embargo has 
actually been circumvented in this way for years.'' \14\ Amnesty 
International in its 2004 report, Undermining Global Security: the 
European Union Arms Exports, contains several examples of EU members 
that have made exports to China within the framework of the existing 
arms embargo.\15\ For instance, the United Kingdom exported components 
for Chinese military aero engines as well as technology, software and 
related systems for weapons platforms; an Italian joint venture company 
was involved in the manufacture of vehicles reportedly used as mobile 
execution chambers in China. In addition, the German Deutz AG diesel 
engines were incorporated into armored personnel carriers that were 
transferred to China.\16\
---------------------------------------------------------------------------
    \13\ Thijs Papot, `` `A Symbolic Instrument' the EU's Arms Embargo 
Against China,'' Current Affairs, January 25, 2005.
    \14\ Ibid.
    \15\ Amnesty International. Undermining Global Security: The 
European Union Exports. Available at [http://web.amnesty.org/library/
index/engact300032004].
    \16\ Press Release of Coalition of European NGOs including 
Saferworld, Oxfam, Pax Christi, and Anmesty International: ``Flimsy 
Controls Fail to Prevent EU Countries Selling Arms to Human Rights 
Abusers.'' September 30, 2004. The text of this document can be found 
at [http://web.amnesty.org/library/index/ENGACT300152004].
---------------------------------------------------------------------------
European Union's Arms Exports Regime
    To place in context any potential actions European Union members 
may take with respect to the Chinese arms embargo, it is important to 
understand the general EU regime on arms export controls. The following 
EU instruments apply to arms embargoes and arms exports in general: (1) 
the 1998 European Code of Conduct on Arms Exports, a non-binding 
instrument, which lays down minimum standards to be applied on export 
licenses \17\; (2) Regulation (EC) No 1334/2000 setting up a Community 
Regime for the Control of Exports of dual-use items and technology 
\18\; and (3) Common Position 2003/468/CFSP on the Control of Arms 
Brokering.\19\ The EU Code of Conduct, analyzed in detail below, 
establishes eight criteria to be applied by EU members on the exports 
of conventional arms, including software and technology.\20\ A Common 
List of Military Equipment was agreed upon in 2000 and updated 
recently.\21\ In general, arms embargoes, unless specific guidance is 
otherwise provided, cover at least all the items included in the Common 
List.\22\ Regulation No. 1334/2000 as amended (whose scope extends to 
any items that could be used for civilian and military purposes) is 
directly applicable to the member states. Under its provisions, member 
states grant authorizations for exports, called Community General 
Export Authorization (CGE) of dual-use items. Such authorizations are 
valid throughout the Community, subject to certain specific cases for 
which consultation is needed among EU members prior to granting or 
denying an authorization. The items and technology listed in Annexes I, 
H and IV of the Regulation are based on the lists prepared by the 
international export control regimes. The Regulation includes a 
``catch-all'' clause which allows controls on goods not included in the 
Annex of the Regulation. Under this clause, EU members have the 
discretion to impose or not to impose controls on exports and 
technology not listed in the Regulation. The objective of Common 
Position, 2003/468/CFSP, is to control arms brokering \23\ in order to 
prevent circumvention of U.N., EU, or Organization for Security and Co-
Operation in Europe (OCSE) embargoes on arms exports and the criteria 
established in the EU Code. Under its provisions, Member states are 
urged to put in place legal norms for lawful brokering activities, 
including obtaining a written authorization prior to engaging in arms 
brokering and to keep records for at least 10 years.\24\
---------------------------------------------------------------------------
    \17\ Adopted by the Council of the European Union on June 8, 1998.
    \18\ 2000 O.J. (L159) 1.
    \19\ 2003 O.J. (L156) 79.
    \20\ Article XXI of GATT allows the imposition of trade 
restrictions on arms exports and imports and military equipment and 
those imposed by the U.N. Charter VII resolutions.
    \21\ List included in the Council Declaration of June 13, 2000. It 
was issued on the occasion of the adoption of the common list of 
military equipment covered by the EU Code of Conduct on Arms Exports, 
2000 O.J. (C191).
    \22\ See Guidelines on Implementation and Evaluation of Restrictive 
Measures (Sanctions) in the Framework of the EU Common Foreign and 
Security Policy, at 17, available at EU Council Website, CFSP Section.
    \23\ Regarding arms brokering, the Wassenaar Arrangement should be 
noted. In December 2003, a group of conventional arms exporting Member 
states agreed to establish national legislation to control the 
activities of those engaged in the brokering of conventional arms. 
[http://www.wassenaar.org/docs/]; See EU Common Position 2003/468/CFSP, 
adopted June 8, 1998 by the Council of the European Union.
    \24\ 2003 O.J. (L156) 79.
---------------------------------------------------------------------------
European Union Code of Conduct on Arms Exports: Background and 
        Assessment
    The European Union (EU) Code of Conduct on Arms Exports was adopted 
on June 8, 1998, during the Presidency of the United Kingdom.\25\ The 
EU Code sets up eight criteria for the export of conventional arms and 
a denial notification procedure obligating EU member states to consult 
on possible undercutting arms sales one EU state might make even though 
another EU state has chosen not to make a comparable arms export. Under 
this procedure, member states are required to transmit through 
diplomatic channels information on licenses refused and reasons for the 
denial. Thus, before a member state authorizes a license which has been 
refused by another member state for the same transaction, it is 
necessary to consult the state that rejected the license in the first 
place. If the member state decides to issue the license, it must inform 
the state that refused to grant authorization.\26\
---------------------------------------------------------------------------
    \25\ The full text of the European Union Code of Conduct on Arms 
Exports is in Appendix 1.
    \26\ See Fourth Annual Report According to Operative Provision 8 of 
the European Union Code of Conduct on Arms Exports, 2002 O.J. (C319) 1.
---------------------------------------------------------------------------
    The EU Code's eight criteria, which are to be utilized by EU 
members when reviewing license requests and making decisions whether or 
not to make an arms export, can be briefly summarized as follows:

          (1) Consistency of export with the exporter's international 
        commitments arising from U.N., EU, or OSCE arms embargoes;
          (2) Risk that export would be used for internal repression or 
        where the recipient country has engaged in serious violations 
        of human rights;
          (3) Risk that export would provoke or prolong armed 
        conflicts;
          (4) Risk of recipient using export to undermine regional 
        peace and security;
          (5) Effect of export on defense and national security 
        interests of friends and allies;
          (6) Commitment of purchaser to fight terrorism and uphold 
        international law;
          (7) Risk of diversion to third parties or to a terrorist 
        organization;
          (8) Risk that export would undermine the sustainable 
        development of the recipient country.

    It is important to emphasize that these eight criteria, and the EU 
Code on Arms Exports in its entirety, are political statements by the 
European Union, and not legally binding on the member states of the EU, 
although the Code is supposed to represent a moral imperative that EU 
member states are expected to uphold and enforce. Nevertheless, no 
matter how strong the language of purpose and intent contained in the 
Code's eight Criteria is, the 12 Operative Provisions of the EU Code--
the sections of the Code which set out the manner in which the Code is 
to be carried out--contain significant loopholes which militate against 
it being a strong regime, in its current form, for the control of 
conventional arms exports from EU member states. This circumstance is 
illustrated by the following examples:
    1. While each EU member state is to review export license 
applications made to it on a ``case-by-case basis'' against the eight 
specific criteria in the EU Code, Operative Provision 3 of the Code 
expressly states that ``The decision to transfer or deny the transfer 
of any item of military equipment will remain at the national 
discretion of each Member State.'' Thus, each EU member state is free 
to make an arms sale based on its own determination regarding whether 
it is appropriate or not.\27\
---------------------------------------------------------------------------
    \27\ Operative provision 6 of the EU Code states that the criteria 
in the Code and the consultation procedure provided for in the Code 
shall apply to ``dual-use goods as specified in Annex 1 of Council 
Decision 94/942/CFSP as amended, where there are grounds for believing 
that the end-user of such goods will be the armed forces or internal 
security forces or similar entities in the recipient country.'' As with 
sales of military equipment, the decision to grant or not grant a 
license for the sale of ``dual-use'' equipment is left to each EU 
nation to decide on its own.
---------------------------------------------------------------------------
    2. Operative Provision 10 provides additional guidance to member 
states in application of the EU Code. It states: ``It is recognized 
that Member States, where appropriate, may also take into account the 
effect of proposed exports on their economic, social, commercial and 
industrial interests, but that these factors will not affect the 
application of the above criteria.'' A literal reading of that sentence 
could mean that those who adopted the EU Code recognized that national 
economic or commercial interests would weigh importantly in the 
decision-making process regarding any given arms sale, and may even 
trump the larger stated EU-wide interest in restricting problematic 
arms exports. Yet in the same sentence the provision effectively states 
that while national economic self-interest may compel a member state to 
sell, that state is expected not to do so to remain true to the 
principles of the EU Code.
    3. A major oversight mechanism within the EU Code is Operative 
Provision 8, which requires that a confidential annual report is to be 
circulated by each EU member state to the other EU states dealing with 
its defense exports and its own implementation of the Code. These 
reports are to be discussed at an annual meeting of the member states 
where the operation of the EU Code is reviewed, and any 
``improvements'' to it can be recommended to the EU Council. 
Subsequently, a public report is produced based on the submissions of 
individual EU members. However, the complete details of actual arms 
exports made by EU states are not set out in this public document, 
although the published annual reports made pursuant to Operative 
Provision 8 of the Code do provide values of arms export licenses 
issued, and values of deliveries made, if available, by the exporting 
country. A supplier list is also provided, giving a total of sales 
denials made, but not what specific weapon sale was denied, nor to 
whom. Individual states are free to give as much or as little detail in 
their national reports as they choose. Most have taken a minimalist 
approach. Furthermore, individual states have different arms trade 
licensing, data collecting and reporting practices, thus calling into 
question the accuracy of some of the data provided in the annual public 
report. In the most recent EU annual report on the Code, the Sixth, 
covering calendar year 2003, categories of military systems are 
indicated in the data tables. Yet this standardized reporting is still 
not universal among member states, given the varied export licensing 
systems and practices individual countries currently employ.\28\
---------------------------------------------------------------------------
    \28\ For details of individual EU member state arms data reporting 
practices see generally: Sibylle Bauer and Mark Bromley. The European 
Union Code of Conduct on Arms Exports: Improving the Annual Report. 
SIPRI Policy Paper No. 8. November, 2004. Stockholm International Peace 
Research Institute, found at [http://www.sipri.org/contents/armstrad/
PP8].
---------------------------------------------------------------------------

   Arms Exports Authorized for China by European Union Member States

    The European Union has published official documents which provide 
general data regarding the total values of EU member states' arms 
exports licenses to China. Some countries provide the total values of 
actual exports. There is no uniformity in this reporting across the 
membership of the EU. As noted above, these annual reports are made 
pursuant to Operative Provision 8 of the EU Code. The most recent two 
reports provide data for calendar years 2002 and 2003 (the Fifth and 
Sixth reports respectively). What follows are the data from those 
reports for arms export licenses for China as approved by named EU 
countries in rank order of their license values, together with the 
total license values of the European Union as a whole.\29\
---------------------------------------------------------------------------
    \29\ 2003 O.J. December 31, 2003 (C320) 9, 14, 30, 42. The Sixth 
report is found at Official Journal C316, December 21, 2004, pp. 001-
215.

CY2002: Total value of export licenses approved for China (expressed in 
Euros):
      France--105,431,246
      United Kingdom--79,500,000
      Italy--22,836,976
      Austria--2,025,925
      All European Union countries--209,794,157

CY2003: Total value of export licenses approved for China (expressed in 
Euros):
      France--171,530,641
      Italy--127,128,192
      United Kingdom--112,455,000
      Czech Republic--3,610,819
      Germany--1,096,261
      All European Union countries--415,820,913

    In the Sixth annual report, made in accordance with Operative 
Provision 8, the EU for the first time breaks down the export data by 
EU Common Military List category.\30\ So, for those states whose 
licensing systems categorize their arms export licenses in detail, it 
is possible to get a sense of what general types of military equipment 
are being licensed. These data do not provide information on EU 
members' transactions involving dual-use equipment and items--and there 
is no publicly available official source that provides details on such 
transactions. This EU report does cover the broad spectrum of military 
equipment licensed for export by the European Union of EU Common 
Military List categories. See Appendix 2 for a detailed descriptive 
summary of these EU Military List categories. This descriptive list 
uses an abbreviation scheme whereby a number is attached to a specific 
category of military equipment, and this number/category is given in 
the license data table to indicate the value of licenses granted for 
sales of that specific category. For example, ML10 is: ``Aircraft,'' 
unmanned airborne vehicles, aero-engines and ``aircraft'' equipment, 
related equipment and components, specially designed or modified for 
military use.
---------------------------------------------------------------------------
    \30\ Ibid.
---------------------------------------------------------------------------
    The United Kingdom provides no detailed breakdown of its licenses 
in the Sixth report since the way its standard export licenses are 
valued in its licensing system currently preclude this. The same is 
true for Italy, and the Czech Republic. However, France and Germany are 
able to break down the categories of their licenses for purposes of the 
EU report. The data in the report indicate that the largest share of 
French license approvals for China in 2003 were in categories ML11--
electronic military equipment (98.5 million Euros), ML10--aircraft and 
related equipment (45.4 million Euros), and ML15--imaging or 
countermeasure military equipment (24.1 million Euros). In the case of 
Germany, its largest share of license approvals for China in 2003 were 
in categories ML14--specialized military training equipment or 
simulators (528 thousand Euros), ML11--electronic military equipment 
(433.1 thousand Euros), and ML21--software for items controlled in the 
EU Common Military List (134.4 million Euros).
    Thus, most of the arms exports authorized for China by EU members 
have been made by France, the United Kingdom and Italy. The Czech 
Republic, Austria, and Germany granted substantially smaller valued 
licence approvals.

United States Concerns
    As the European Union has moved towards lifting the existing 
embargo on arms exports to China in recent months, significant emphasis 
has been placed by some EU members on the proposition that the European 
Union's Code of Conduct on Arms Exports, with additional modifications, 
would be a more effective control device than the existing embargo on 
arms exports to China. At the same time, some EU members have argued 
that ending the existing arms embargo on China would acknowledge that 
some progress has been made in China since the 1989 Tiananmen Square 
actions that originally led to the embargo. The U.S. Government, 
however, remains skeptical that a strengthened EU Code would provide an 
effective deterrent to increased arms sales to China.
    The United States' objections to the lifting of the European 
Union's arms embargo on China center on three major concerns. First, 
the United States is concerned that China would use EU member state 
weapons or weapons technology to enhance the capability of China's 
military by providing them with items they could not obtain elsewhere, 
including from their principal arms supplier, Russia, or from other 
non-EU suppliers, such as Israel. Such items could include electronic 
warfare equipment, command and control systems and technology, advanced 
communications equipment, radar, sonar, avionics, and fire control 
systems. Advanced air-to-sea and air-to-ground missiles might also be 
obtained. A number of the above items could contain advanced, state-of-
the-art technology which could be used to upgrade existing Chinese air 
and naval weapons systems. Should China obtain high technology items 
such as these from EU sources, the United States military operating in 
Asia could face a notably increased threat from the Chinese military as 
they conduct their operations in areas close to China and to Taiwan, a 
capability China has been pursuing in recent years. Second, the United 
States is concerned that through EU arms exports, China could secure 
sufficient enhancement of its military equipment and capabilities that 
it could be emboldened to seriously threaten Taiwan in its continuing 
dispute over Taiwan's political status. Such an event could increase 
Sino-U.S. tensions and increase the prospects of a military 
confrontation between the two countries. Third, the United States 
believes that China has not seriously addressed the human rights 
violations against its own people since the 1989 Tiananmen Square 
events, and therefore, the arms embargo should not be lifted until 
significant steps to improve human rights in China have taken 
place.\31\
---------------------------------------------------------------------------
    \31\ Robert J. Saiget, ``China Will Upgrade Technology if EU Lifts 
Arms Embargo,'' Agence France Presse, December 15, 2004; Agence France 
Presse, December 17, 2004, ``EU Leaders Hint at June Date for Lifting 
China Arms Ban''; Joe McDonald, ``End to European Ban Could Make Little 
Difference to China's Arms Ambitions,'' Associated Press, February 7, 
2005; John Rossant and Dexter Roberts, ``An Arms Cornucopia for China? 
Europe Will Probably Lift Its Embargo, But Companies Will Be Careful 
What They Sell,'' Business Week, February 21, 2005, p. 26; Eric Schmit, 
``Rumsfeld Warns of Concern About Expansion of China's Navy,'' New York 
Times, February 18, 2005, p. 9; Daniel Blumenthal and Thomas Donnelly, 
``Feeding the Dragon, Hurting the Alliance,'' Washington Post, February 
20, 2005, p. B5.
---------------------------------------------------------------------------
    The President and senior Bush Administration officials have made 
such arguments to the European Union membership. During Secretary of 
State Condoleezza Rice's European trip in February 2005, Secretary Rice 
stated, on February 9, that with respect to the arms embargo, that 
``human rights concerns need to be taken into consideration in any 
decision that was tied to Tiananmen,'' noting that the status of the 
2,000 Tiananmen prisoners had not been resolved. She added that she had 
``made clear our concerns about the military balance, the fact that 
there are still American forces in that region, and about the need to 
be concerned about the transfer of technology that might endanger in 
some way that very delicate military balance.'' \32\ The U.S. House of 
Representatives had earlier raised such concerns through passage of H. 
Res. 57 on February 2, 2005, in which the House strongly urged the EU 
not to lift the arms embargo on China. During his European trip, on 
February 22, 2005, President Bush noted that ``[T]here is deep concern 
that a transfer of weapons [to EU states] would be a transfer of 
technology to China, which would change the balance of relations 
between China and Taiwan. . . .'' The President stated that European 
leaders had informed him that they could develop a ``protocol'' that 
could address U.S. concerns. He added . . . ``whether they can or not, 
we'll see.'' The President also said that when the Europeans settled on 
the new code of conduct, they would have to ``sell it to the United 
States Congress.'' \33\ Senator Richard Lugar, Chairman of the Senate 
Foreign Relations Committee, in a press interview noted the 
implications of not addressing Congressional concerns on the issue, 
reportedly stating: ``The technology the U.S. shares with European 
allies could be in jeopardy if allies were sharing that through these 
commercial sales with the Chinese.'' He further said that if the 
lifting of the EU arms embargo on China resulted in such a diversion, 
he would support restrictions on sales of American arms technologies to 
Europe.\34\
---------------------------------------------------------------------------
    \32\ Transcript of remarks by Secretary of State Condoleezza Rice 
at February 9, 2005 news conference with European Commission President 
Jose Manuel Barroso. Federal Document Clearing House. CIA Director 
Porter Goss and Vice-Admiral Lowell E. Jacoby, DIA Director, in 
testimony before the Senate Select Committee on Intelligence on 
February 16, 2005 both took note of Chinese military modernization 
efforts, which they concluded were affecting the military balance of 
power in the Taiwan Strait. This modernization effort, they said, was 
improving the capabilities of China's military to threaten U.S. forces 
in the region, as well as its capability to take military action 
against Taiwan, should China choose to do so. Statements at the 
committee's website: [http://intelligence.senate.gov].
    \33\ [http://www.whitehouse.gov/news/releases/2005/02/print/
20050222-3.html] gives text of President Bush's press conference of 
February 22, 2005 in Brussels at NATO headquarters; Elisabeth Bumiller, 
``Bush Voices Concern on Plan to Lift China Arms Embargo,'' New York 
Times, February 22, 2005, p. A1, A10; for House debate on H. Res. 57 
see Congressional Record, February 2, 2005, pp. H299-H303 [daily 
edition]. The full text of H. Res. 57 is at page H299.
    \34\ Edward Alden and Demetri Sevastopulo, ``Lugar Makes Threat on 
EU Arms Sales to China,'' Financial Times, February 21, 2005.
---------------------------------------------------------------------------
Status of European Union Action
    Based on the directive given to the Luxembourg Presidency of the EU 
during the European Council meetings on December 16 and 17, 2004, the 
EU expects to review a report on the issue of lifting the Chinese arms 
embargo during the first half of 2005, and could address the matter as 
early as March 2005 at the meeting of the European Council scheduled 
for that month. A formal EU decision is not expected until May or June 
2005. Since the European Council has already stated its ``political 
will to continue to work towards lifting the arms embargo,'' the 
prospects of it doing so when the issue is formally addressed are 
high.\35\ What is not clear, should the EU lift the Chinese arms 
embargo, is what will be the nature and scope of ``the revised Code of 
Conduct, and the new instrument on measures pertaining to arms exports 
to post-embargo countries''--what is referred to by the EU as the 
``Toolbox.'' The details of any such changes to the Code of Conduct 
will not be known until the EU announces them. Internal consultations 
among EU members on this question are continuing. What is reasonably 
clear is that the issue of lifting the EU embargo on Chinese arms has 
become a contentious issue in U.S-EU relations and could have important 
implications for future cooperation between the U.S. and EU member 
states in the military sphere, if the U.S. becomes convinced that 
military technology shared with EU nations could end up being 
transferred to China in a post-embargo period.
---------------------------------------------------------------------------
    \35\ Council of the European Union, 16/17 December 2004. Presidency 
Conclusions. 16238/1/04 REV 1, p. 19. Published February 1, 2005.
---------------------------------------------------------------------------

       Appendix 1--European Union Code Of Conduct On Arms Exports

Adopted on 8 June 1998 by Council of the European Union.\36\
    BUILDING on the Common Criteria agreed at the Luxembourg and Lisbon 
European Councils in 1991 and 1992,
---------------------------------------------------------------------------
    \36\ Source: Council of the European Union, European Union Code of 
Conduct on Arms Exports, document 8675/2/98 Rev 2, Brussels, 5 June 
1998.
---------------------------------------------------------------------------
    RECOGNIZING the special responsibility of arms exporting states,
    DETERMINED to set high common standards which should be regarded as 
the minimum for the management of, and restraint in, conventional arms 
transfers by all Member States, and to strengthen the exchange of 
relevant information with a view to achieving greater transparency,
    DETERMINED to prevent the export of equipment which might be used 
for internal repression or international aggression or contribute to 
regional instability,
    WISHING within the framework of the Common Foreign and Security 
Policy (CFSP) to reinforce cooperation and to promote convergence in 
the field of conventional arms exports,
    NOTING complementary measures taken against illicit transfers, in 
the form of the EU Programme for Preventing and Combating Illicit 
Trafficking in Conventional Arms,
    ACKNOWLEDGING the wish of Member States to maintain a defence 
industry as part of their industrial base as well as their defence 
effort,
    RECOGNIZING that States have a right to transfer the means of self-
defence, consistent with the right of self-defence recognized by the UN 
Charter,
    HAS DRAWN UP the following Code of Conduct together with Operative 
Provisions:

                             CRITERION ONE

    Respect for the international commitments of Member States, in 
particular the sanctions decreed by the UN Security Council and those 
decreed by the Community, agreements on non-proliferation and other 
subjects, as well as other international obligations.
    An export licence should be refused if approval would be 
inconsistent with, inter alia:
          (a) The international obligations of Member States and their 
        commitments to enforce UN, OSCE and EU arms embargoes;
          (b) The international obligations of Member States under the 
        Nuclear NonProliferation Treaty, the Biological and Toxin 
        Weapons Convention and the Chemical Weapons Convention;
          (c) The commitments of Member States in the framework of the 
        Australia Group, the Missile Technology Control Regime, the 
        Nuclear Suppliers Group and the Wassenaar Arrangement;
          (d) The commitment of Member States not to export any form of 
        anti-personnel landmine.

                             CRITERION TWO

    The respect of human rights in the country of final destination.
    Having assessed the recipient country's attitude towards relevant 
principles established by international human rights instruments, 
Member States will:

          (a) Not issue an export licence if there is a clear risk that 
        the proposed export might be used for internal repression;
          (b) Exercise special caution and vigilance in issuing 
        licences, on a case-by-case basis and taking account of the 
        nature of the equipment, to countries where serious violations 
        of human rights have been established by the competent bodies 
        of the UN, the Council of Europe or by the EU.

    For these purposes, equipment which might be used for internal 
repression will include, inter alia, equipment where there is evidence 
of the use of this or similar equipment for internal repression by the 
proposed end-user, or where there is reason to believe that the 
equipment will be diverted from its stated end-use or end-user and used 
for internal repression. In line with paragraph 1 of the Operative 
Provisions of this Code, the nature of the equipment will be considered 
carefully, particularly if it is intended for internal security 
purposes. Internal repression includes, inter alia, torture and other 
cruel, inhuman and degrading treatment or punishment, summary or 
arbitrary executions, disappearances, arbitrary detentions and other 
major violations of human rights and fundamental freedoms as set out in 
relevant international human rights instruments, including the 
Universal Declaration on Human Rights and the International Covenant on 
Civil and Political Rights.

                            CRITERION THREE

    The internal situation in the country of final destination, as a 
function of the existence of tensions or armed conflicts.
    Member States will not allow exports which would provoke or prolong 
armed conflicts or aggravate existing tensions or conflicts in the 
country of final destination.

                             CRITERION FOUR

    Preservation of regional peace, security and stability.
    Member States will not issue an export licence if there is a clear 
risk that the intended recipient would use the proposed export 
aggressively against another country or to assert by force a 
territorial claim.
    When considering these risks, Member States will take into account 
inter alia:

          (a) The existence or likelihood of armed conflict between the 
        recipient and another country;
          (b) A claim against the territory of a neighboring country 
        which the recipient has in the past tried or threatened to 
        pursue by means of force;
          (c) Whether the equipment would be likely to be used other 
        than for the legitimate national security and defence of the 
        recipient;
          (d) The need not to affect adversely regional stability in 
        any significant way.

                             CRITERION FIVE

    The national security of the Member States and of territories whose 
external relations are the responsibility of a Member State, as well as 
that of friendly and allied countries.
    Member States will take into account:

          (a) The potential effect of the proposed export on their 
        defence and security interests and those of friends, allies and 
        other Member States, while recognizing that this factor cannot 
        affect consideration of the criteria on respect for human 
        rights and on regional peace, security and stability;
          (b) The risk of use of the goods concerned against their 
        forces or those of friends, allies or other Member States;
          (c) The risk of reverse engineering or unintended technology 
        transfer.

                             CRITERION SIX

    The behavior of the buyer country with regard to the international 
community, as regards in particular its attitude to terrorism, the 
nature of its alliances and respect for international law.
    Member States will take into account inter alia the record of the 
buyer country with regard to:

          (a) Its support or encouragement of terrorism and 
        international organized crime;
          (b) Its compliance with its international commitments, in 
        particular on the non-use of force, including under 
        international humanitarian law applicable to international and 
        non-international conflicts;
          (c) Its commitment to non-proliferation and other areas of 
        arms control and disarmament, in particular the signature, 
        ratification and implementation of relevant arms control and 
        disarmament conventions referred to in point (b) of Criterion 
        One.

                            CRITERION SEVEN

    The existence of a risk that the equipment will be diverted within 
the buyer country or re-exported under undesirable conditions.
    In assessing the impact of the proposed export on the importing 
country and the risk that exported goods might be diverted to an 
undesirable end-user, the following will be considered:

          (a) The legitimate defence and domestic security interests of 
        the recipient country, including any involvement in UN or other 
        peace-keeping activity;
          (b) The technical capability of the recipient country to use 
        the equipment;
          (c) The capability of the recipient country to exert 
        effective export controls;
          (d) The risk of the arms being re-exported or diverted to 
        terrorist organizations (antiterrorist equipment would need 
        particularly careful consideration in this context).

                            CRITERION EIGHT

    The compatibility of the arms exports with the technical and 
economic capacity of the recipient country, taking into account the 
desirability that states should achieve their legitimate needs of 
security and defence with the least diversion for armaments of human 
and economic resources.
    Member States will take into account, in the light of information 
from relevant sources such as UDP, World Bank, IMF and OECD reports, 
whether the proposed export would seriously hamper the sustainable 
development of the recipient country. They will consider in this 
context the recipient country's relative levels of military and social 
expenditure, taking into account also any EU or bilateral aid.

                          OPERATIVE PROVISIONS

    1. Each Member State will assess export licence applications for 
military equipment made to it on a case-by-case basis against the 
provisions of the Code of Conduct.
    2. The Code of Conduct will not infringe on the right of Member 
States to operate more restrictive national policies.
    3. Member States will circulate through diplomatic channels details 
of licences refused in accordance with the Code of Conduct for military 
equipment together with an explanation of why the licence has been 
refused. The details to be notified are set out in the form of a draft 
pro-forma set out in the Annex hereto. Before any Member State grants a 
licence which has been denied by another Member State or States for an 
essentially identical transaction within the last three years, it will 
first consult the Member State or States which issued the denial(s). If 
following consultations, the Member State nevertheless decides to grant 
a licence, it will notify the Member State or States issuing the 
denial(s), giving a detailed explanation of its reasoning. The decision 
to transfer or deny the transfer of any item of military equipment will 
remain at the national discretion of each Member State. A denial of a 
licence is understood to take place when the Member State has refused 
to authorize the actual sale or physical export of the item of military 
equipment concerned, where a sale would otherwise have come about, or 
the conclusion of the relevant contract. For these purposes, a 
notifiable denial may, in accordance with national procedures, include 
denial of permission to start negotiations or a negative response to a 
formal initial enquiry about a specific order.
    4. Member States will keep such denials and consultations 
confidential and not use them for commercial advantage.
    5. Member States will work for the early adoption of a common list 
of military equipment covered by the Code of Conduct, based on similar 
national and international lists. Until then, the Code of Conduct will 
operate on the basis of national control lists incorporating where 
appropriate elements from relevant international lists.
    6. The criteria in the Code of Conduct and the consultation 
procedure provided for by paragraph 3 of these Operative Provisions 
will also apply to dual-use goods as specified in Annex 1 to Council 
Decision 94/942/CFSP,\37\ where there are grounds for believing that 
the end-user of such goods will be the armed forces or internal 
security forces or similar entities in the recipient country.
---------------------------------------------------------------------------
    \37\ (1)OF L367, 31.12.1994, p. 8. Decision as last amended by 
Decision 98/232/CFSP (OJ L92, 25.3.1998, p. 1).
---------------------------------------------------------------------------
    7. In order to maximize the efficiency of the Code of Conduct, 
Member States will work within the framework of the CFSP to reinforce 
their cooperation and to promote their convergence in the field of 
conventional arms exports.
    8. Each Member State will circulate to other Member States in 
confidence an annual report on its defence exports and on its 
implementation of the Code of Conduct. These reports will be discussed 
at an annual meeting held within the framework of the CFSP. The meeting 
will also review the operation of the Code of Conduct, identify any 
improvements which need to be made and submit to the Council a 
consolidated report, based on contributions from Member States.
    9. Member States will, as appropriate, assess jointly through the 
CFSP framework the situation of potential or actual recipients of arms 
exports from Member States, in the light of the principles and criteria 
of the Code of Conduct.
    10. It is recognized that Member States, where appropriate, may 
also take into account the effect of proposed exports on their 
economic, social, commercial and industrial interests, but that these 
factors will not affect the application of the above criteria.
    11. Member States will use their best endeavors to encourage other 
arms exporting states to subscribe to the principles of the Code of 
Conduct.
    12. The Code of Conduct and Operative Provisions will replace any 
previous elaboration of the 1991 and 1992 Common Criteria.

                                 ANNEX

Details to be notified
[name of Member State] has the honor to inform partners of the 
        following denial under the EU Code of Conduct:
Destination country:
Short description of equipment, including quantity and where 
        appropriate, technical specifications:
Proposed consignee:
Proposed end-user (if different):
Reason for refusal:
Date of denial:

 Appendix 2--Brief Descriptions of EU Common Military List Categories 
                                  \38\

    ML1  Smooth-bore weapons with a caliber of less than 20 mm, other 
arms and automatic weapons with a caliber of 12,7 mm (caliber 0,50 
inches) or less and accessories, and specially designed components 
therefor.
---------------------------------------------------------------------------
    \38\ See OJ C314 of December 23, 2003 for the full EU Common 
Military List. Sixth Annual report according to Operative Provision 8 
of the European Union Code of Conduct on Arms Exports. Official Journal 
C316, December 21, 2004, pp. 1-215.
---------------------------------------------------------------------------
    ML2  Smooth-bore weapons with a caliber of 20 mm or more, other 
weapons or armament with a caliber greater than 12,7 mm (caliber 0,50 
inches), projectors and accessories, and specially designed components 
therefor.
    ML3   Ammunition and fuze setting devices, and specially designed 
components therefor.
    ML4   Bombs, torpedoes, rockets, missiles, other explosive devices 
and charges and related equipment and accessories, specially designed 
for military use, and specially designed components therefor.
    ML5   Fire control, and related alerting and warning equipment, and 
related systems, test and alignment and countermeasure equipment, 
specially designed for military use, and specially designed components 
and accessories therefor.
    ML6   Ground vehicles and components.
    ML7   Chemical or biological toxic agents, ``tear gases,'' 
radioactive materials, related equipment, components, materials and 
``technology.''
    ML8  ``Energetic materials,'' and related substances.
    ML9  Vessels of war, special naval equipment and accesories, and 
components therefor, specially designed for military use.
    ML10  ``Aircraft,'' unmanned airborne vehicles, aero-engines and 
``aircraft'' equipment, related equipment and components, specially 
designed or modified for military use.
    ML11  Electronic equipment, not controlled elsewhere on the EU 
Common Military List, specially designed for military use and specially 
designed components therefor.
    ML12  High velocity kinetic energy weapon systems and related 
equipment, and specially designed components therefor.
    ML13  Armored or protective equipment and constructions and 
components.
    ML14   Specialized equipment for military training or for 
simulating military scenarios, simulators specially designed for 
training in the use of any firearm or weapon controlled by ML1 or ML2, 
and specially designed components and accessories therefor.
    ML15  Imaging or countermeasure equipment, specially designed for 
military use, and specially designed components and accessories 
therefor.
    ML16  Forgings, castings and other unfinished products the use of 
which in a controlled product is identifiable by material composition, 
geometry or function, and which are specially designed for any products 
controlled by ML1 to ML4, ML6, ML9, ML10, ML12 or ML19.
    ML17  Miscellaneous equipment, materials and libraries, and 
specially designed components therefor.
    ML18  Equipment for the production of products referred to in the 
EU Common Military List.
    ML19  Directed energy weapon systems (DEW), related or 
countermeasure equipment and test models, and specially designed 
components therefor.
    ML20  Cryogenic and ``superconductive'' equipment, and specially 
designed components and accessories therefor.
    ML21  ``Software'' specially designed or modified for the 
``development,'' ``production,'' ``use'' of equipment or materials 
controlled by the EU Common Military List.
    ML22  ``Technology'' for the ``development,'' ``production'' or 
``use'' of items controlled in the EU Common Military List, other than 
that ``technology'' controlled in ML7.

    The Chairman. Well, thank you very much, Dr. Grimmett.
    I will ask a couple of questions and then I will ask my 
colleague, Senator Biden, to ask some questions. We will 
continue until duty calls on the floor for these rollcall votes 
regarding the budget that the Congress is discussing, the 
Senate more particularly.
    Let me start by pointing out that we really would hope that 
the Europeans might consider Asian security, and our policies 
toward Taiwan and China. Nonproliferation is important for all 
the countries involved in the war against terrorism. You have 
suggested, Dr. Grimmett, moral imperatives. Clearly that 
dictates the eight conditions that you listed in terms of our 
screening.
    At a luncheon, today, sponsored by the Ripon Society as a 
part of their ambassadorial roundtable, I heard a talk, after I 
gave one, on this subject from Dr. Bruton, the former Prime 
Minister of Ireland who is now an Ambassador to the United 
States. He accompanied the delegation that Senator Biden 
mentioned. He visited him and visited me and visited with many 
people in this city this week. He is very articulate on these 
subjects.
    He suggested that one method of proceeding is not 
inconsistent with what you have suggested; namely, that we have 
never thought together with Europe about Asian policy, that we 
have thought a great deal about our relations with Europe, even 
Africa, and more recently the Middle East under some duress, 
but that we have not ever come together to really think through 
how we think about Asia. This is a good time to do that, and I 
think we would agree.
    I hope that maybe, in the new spirit that has been 
initiated through our President visiting the EU and NATO and 
what have you, that the agenda might be broadened to discuss 
common policies on Asia, in addition to these moral imperatives 
and nonproliferation concerns.
    Now, you have all made the point that essentially 
indigenous supplies of arms are not what we cover. We are 
talking about things in which we believe there is an American 
component, something that is highly classified or important. 
How large, as you have cited these arms sales by European 
countries, are the indigenous arms? What part does that play 
now? To what extent are we so integrated in most of our systems 
that there are American components, some American intellectual 
property? In other words, if we were to go into a strict 
separation of this, and we were to withdraw whatever we have, 
what does that mean to Europe in terms of its own defense, 
quite apart from whatever it may want to export to China or 
others? Does anyone have any thought about that?
    Dr. Gill. Let me respond just very quickly to a couple of 
your remarks, Mr. Chairman.
    First, I am very encouraged to hear that both European and 
American sides recognize the importance of regularized dialog 
and discussion about Asia and China. It is my understanding in 
the past, while some of these discussions have been carried 
out, it has not been done on a regularized basis, more on an ad 
hoc basis and often involving not really the right experts in 
the room. I think our East Asia experts need to go talk to the 
East Asia experts in Europe and vice versa rather than our 
European experts talking to one another about Asia, if you see 
my point.
    There have been some academic and think-tank consultations 
of this type over the past 3 to 5 years and have involved, from 
time to time, mid-level serving officials traveling in their 
unofficial capacity, and that has been very useful. I think we 
should hope to expand that, but more importantly, to make sure 
that it is regularized and occurring often enough that these 
sorts of issues can be caught.
    On the second point, I think this is precisely the kind of 
work that perhaps could be tasked out of this committee to look 
very, very carefully at precisely the questions you ask because 
it is my sense that the internationalization of the global arms 
industry is such that it will become, over time, increasingly 
difficult to make those fine distinctions between so-called 
indigenous and so-called joint weapons programs. It may be 
possible to undertake some kind of research and get answers to 
questions that you are looking for, but I think the longer we 
wait, the more difficult it is going to be to make those kind 
of distinctions.
    Dr. Grimmett. I would just add, Mr. Chairman, that for the 
moment, a good deal of the export trade we have in weapons to 
Europe involves pretty sophisticated technology and items that 
we make that they cannot make, or items they buy and integrate 
into a number of defense systems. We have some advanced 
projects underway right now. The Joint Strike Fighter is one 
that comes to mind. There are, obviously, a lot of smaller 
sales of a variety of things. But we retain some rights to the 
contents that we sell. That is why the buyers have to sign a 
no-retransfer provision when they sign any contract for a small 
item or a big item.
    So in the meantime, until we get to the point that Dr. Gill 
referred to where everything in defense production has gotten 
to be so internationalized in terms of its total content, we 
still have some control of those things we sell. I think it is 
still a matter of concern as to how we might be able to affect 
foreign sales of advanced items, integrated or developed solely 
as indigenous products. I would be hard-pressed to give you, 
off the top of my head, a significant European defense product 
that has some American content in it at this time over which we 
can't claim control. Now, that may change, but I think 
currently that is not the case.
    The Chairman. Now let me quickly ask the second question. 
At this luncheon that I cited and just enjoyed, there were 
ambassadors from countries that shall remain nameless in Europe 
who do not sell any arms to anybody. As a matter of fact, they 
do not have very large----
    Senator Biden. You kind of narrowed the scope pretty 
quickly, almost to the point of identifying them. [Laughter.]
    The Chairman. In any event, the point is that you have 
talked about unanimous votes of the EU. Let us say that the EU 
tries to get together and think through what sort of a policy 
we are going to have. Some countries might say, well, we do not 
really have a dog in the fight, as a matter of fact. We are not 
going to be selling anything to China, and we value our 
relationship with the United States.
    So, where are we then? Now, you could say, well, we are 
back where you have cited, with hundreds of millions of dollars 
of sales under various categories that these countries are 
making. Or maybe they have never really considered, nor maybe 
have we, precisely what the doctrine is. So, we all signed up, 
and we understood our constitutional principles here. Rather, 
it may have been more of an ad hoc interpretation, country by 
country, as it stands.
    But if we were to say to our friends in Europe, fair 
enough, if the EU, the EU all together, unanimously, has a 
policy, that is interesting, but are all of you really in the 
same situation? My guess is not. What is your interpretation of 
that?
    Dr. Gill. I take your point that some countries do not have 
a dog in the fight. They are not interested. They do not even 
have arms producers to be concerned about lifting the embargo. 
I think that is the wrong way to look at this. Lifting the 
embargo is not about selling arms to China. It really is not 
ultimately. I think it is about much bigger things, about a 
better economic relationship, about trying to, in the 
Europeans' mind, treat China in a way that can draw them into 
the international community. So, for those countries that do 
not have an arms production capacity, a vote ``yes'' on lifting 
the embargo is not going to be about the possibility of selling 
weapons. It is going to be about a belief in this larger sense 
that by lifting it and replacing it with something stronger, it 
is going to improve the overall relationship they can have with 
China going forward.
    The Chairman. Well, I agree with you, and I think Senator 
Biden has indicated that, too. This has been taken in some 
quarters as a rather cynical way of looking at it. Some say 
this is purely an arms control type of thing, national defense. 
What an undercutting thought that, in fact, we are talking 
about commercial sales, and just regular old trade and 
competitive elements, and utilizing something that we think is 
very serious, in terms of potential harm to our Armed Forces or 
to things in foreign policy that we value. That, I suspect, has 
to become a more important part of the dialog. It is not a 
cynical view. It may, in fact, come to reflect a sense of 
considerable realism about people who have no arms and, as you 
suggest, still might like a little trade with China and would 
be willing to come under the umbrella of this advantage.
    Mr. Brookes. This is also the third side, Mr. Chairman, of 
the triangle: What does China want out of this? Obviously, we 
are talking about the United States and Europe and the 
commercial aspects of it and advantages potentially to 
Europeans by lifting this, which has a symbolic side to it as 
well. But what China is going to try to pull out of this 
relationship through joint ventures, forced technology 
transfers, commercial dual-use technologies, are the things we 
really need to worry about.
    They can get a lot of large weapons systems right now from 
the Russians, but China ultimately wants to be self-sufficient 
in its military industrial complex, and wants to be able to 
challenge the United States militarily in the out-years in 
Asia. That is something we need to be concerned about. So, we 
have to think about what is China going to try to get using its 
own methods from the Europeans to support its own military 
industrial complex. So, it is not just a matter of the United 
States and the Europeans, as you know, but there is the third 
side of the triangle that we have to, obviously, keep in mind 
at all times, and so do the Europeans.
    The Chairman. Thank you.
    Senator Biden.
    Senator Biden. Thank you.
    I would like to just touch on three seemingly disparate 
aspects of this issue.
    The first one is the one that the chairman raised, which I 
think is the single most important one, and that is, that 
without ascribing blame or responsibility, the fact is, from my 
perspective, we lost a lot of time in the last 4 years of not 
doing what we should have been doing with Europe and because of 
misunderstandings, misstatements, individual European countries 
taking advantage of mistakes we made, us taking advantage of 
mistakes they made, and us all ending up worse off.
    The President has initiated what appears to be a new spirit 
in terms of our relationship. I take him at his word. I have 
praised his efforts since his second inauguration. I think his 
large prescription for advancing freedom is what we should be 
talking about and should be doing. I noted that an article--I 
do not know what newspaper it was in Germany, but a Green 
newspaper--said after Bush's inaugural address, ``Bush 
threatens freedom,'' which tells us a little bit about the 
messenger, rather than the message, I think.
    But the bottom line of all this is, to paraphrase--my staff 
is tired of hearing me say this--Yates, writing about Ireland 
in 1916, said, ``the world has changed. It has changed utterly. 
A terrible beauty has been born.'' The world has changed 
utterly in the last 10 years, and we have, unlike in the 
previous 50 years, had very little regularized, consistent, 
hard-nosed discussion dealing with consequential topics with 
our European allies. That we do not have regularized meetings 
at the subcabinet level on a monthly basis, working out 
everything from the notion of preemptive use of force to a 
China policy, is, I think, close to criminal. It is 
understandable how we got here, but close to criminal that we 
are not trying to do that because, maybe I am a little too 
optimistic, but I am convinced that the value set that propels 
our European friends and us is essentially the same. We may 
disagree, and we do. Every think tank from Brookings to 
Heritage, to Cato writes about our differences on choice, our 
differences on the death penalty, our differences on religion, 
et cetera, that is all true. But the core questions, the core 
value set that propels our democracies, I do not think are very 
much different. And we have not done any real hard thinking or 
discussion as the world has changed. We have not gone down and 
done the same kind of rigorous intellectual debate, discussion, 
seeking consensus that we did in the fifties after World War II 
and through the sixties, I think. That is just my view.
    So, I think the chairman is correct about this idea, as I 
understood it, that this, maybe, should be another wake-up call 
that real hard-nosed discussion is needed. I do not mean even 
bargaining. I just mean an honest debate with our counterparts 
in the EU, which is not a defense establishment, and NATO, most 
of the members of which are members of the EU as well. This is 
something that we should be getting underway.
    Intellectuals like yourselves and the think tanks, I 
respectfully suggest, have great influence on us. You have 
great influence on administrations, and I mean left, right, and 
center, although I do not know any left think tanks these days, 
but center and right. I wish there were.
    But all kidding aside, I really think--this is a bit of 
proselytizing here--it would be a useful thing for us to be 
generating discussion about this notion of a regularization of 
discussions with our European allies of what we know are the 
main issues on the agenda. If you know anything about foreign 
policy and international economic policy, they are sitting 
right there, issues yet to be resolved and, I would argue, 
resolvable with honest intentions, which I presume with regard 
to our friends, and if serious intellectual horsepower is put 
to work on them.
    I have been trying to figure out how, from a legislative 
perspective, you can promote that. I do not know how to do 
that. Institutionally we are not built for that purpose. We can 
try to do it, as the chairman has in trying to--and I have 
joined him, but it has been him trying to figure out post-
conflict resolution issues. It is a genuine effort. He has 
gotten the administration involved. He has gotten people to 
participate who hold office now, et cetera. But it needs to be 
much larger than just here.
    So I respectfully suggest that you all talk about that, 
because you influence us. Your organizations, not that you are 
all CRS, are organizations we rely on heavily.
    But that leads me to my second point here. In the past, our 
relationships with our European friends in particular were so 
good, although we had bumps in the road all the time from 
neutron bombs to Pershing missiles--there have always been 
disagreements and sometimes serious. But there was a sense, in 
the first 28 years I was a Senator, that there was an 
inevitability to consensus. It did not mean that, but there was 
that notion that, we would end up on the same page because we 
talked a lot about it. And we were accustomed to dealing from 
capital to capital. If you got the German Chancellor to agree 
with the American President, there was no need to talk to the 
German people, which leads me to this point. I will start with 
you, Mr. Grimmett, if I may, because you just recently made a 
little tour. Right? You were on the road.
    Dr. Haltzel of my staff translated for me from German, 
because I do not read or speak German, a letter that was 
addressed to Chancellor Schroeder from leading members of the 
FDP, the CDU, the SPD, and the Greens, signed by four specific 
members of the European Parliament. These are members of each 
of the parties within Germany.
    They are opposed to this change in policy on the part of 
Germany and the EU generally. They talk about human rights. 
They talk about the impact on the strategic stability in 
Northeast Asia, and they talk about transatlantic relations.
    I will ask unanimous consent this letter be placed in the 
record, Mr. Chairman.
    The Chairman. The letter will be placed in the record.
    [The letter follows:]
                                         Strasbourg, March 7, 2005.
Mr. Gerhard Schroder,
The Federal Chancellor of the Federal Republic of Germany,
Federal Chancellor's Office, 11011 Berlin.
    Dear Mr. Chancellor: It is with great concern that we--Members of 
the European Parliament of the CDU, SPD, FDP, and the Greens--observe 
the efforts of the [German] Federal Government in the European Council 
to lift the weapons embargo against the People's Republic of China.
    1. We are worried about human rights in China. The embargo was 
instituted after the brutal suppression of the freedom movement on 
Tienanmen Square. Participants in this peaceful democracy movement are 
still being held in captivity, and there is no reason to believe that 
they are being treated better than the other prisoners in penal and 
reeducation camps who are, in part, being treated in a degrading 
manner.
    2. We are worried about strategic stability in northeast Asia. The 
region is the site of two serious international crises: the one in 
North Korea, the other concerning Taiwan. Other territorial questions 
such as the Kuriles and the Spratley Islands also remain unresolved. In 
the region there are no security structures in which dialogues are 
being pursued and conflicts peacefully settled. All multilateral 
organizations are significantly weaker than comparable European 
structures.
    3. We are worried about transatlantic relations. The just completed 
visit of President Bush offers the chance to overcome the tensions of 
the last few years between Europe and the U.S.A. The U.S. House of 
Representatives voted 411 to 3 against the lifting [of the China arms 
embargo] and in concrete terms threatened a worsening of relations. 
This is understandable since the U.S.A. guarantees the security of 
Japan, Taiwan, and South Korea according to the wishes of those 
countries' governments. Therefore, the United States has a legitimate 
interest in special consideration of its interests in this region.
    The lifting of the arms embargo would be a contradiction to a 
consistent human rights policy, to a strategically farsighted foreign 
policy, and to transatlantic solidarity. For all these reasons we call 
on you publicly and in the Council to speak out against a lifting of 
the arms embargo.
            Sincerely,
                                 Count Alexander Lamsdorff,

                               Elmar Brok, Erika Mann, Cem Ozdemir.

    Senator Biden. Now, here is the reason why I raise the 
issue. I do not know this to be the case, but through 
interlocutors and public officeholders in Germany, we are 
told--my staff has been told--that their estimate is--and they 
range across the party spectrum--that if this came up for a 
vote in the Bundestag--the assertion was made by a well-
respected member of the Bundestag to us--the vote would be 80/
20, 80 percent against lifting the embargo; 80 against, 20 for. 
Now, I do not know that to be true, which raises this question, 
a long way to get to a very basic question.
    I realize this may be above your pay grade and mine in 
terms of expertise. But it seems to me one of the reasons why 
we need a much more aggressive public diplomacy program is to 
be able to make our case to the German population, to the 
French population, to the British population in order to 
connect with them about our motives and characterize our 
position in a way in which, I believe, having been in and out 
of Europe a lot the last 33 years, the majority of Europeans 
would agree with us.
    Am I missing something here, Doctor? What is your sense? I 
know you are not a pollster. I know this is not your expertise. 
What is your sense? If each of you would chime in. What is your 
sense about whether or not we are really that far off from our 
European friends, meaning the populations in the EU, or is this 
driven by, in part, as happens here, special interest 
requirements that lead one to believe that it is more important 
to sell Airbus--I am overstating it in the interest of time; it 
is not fair, but I am trying to figure out how to summarize 
this notion--that you have got to do this to give a leg up on 
Airbus, say, versus Boeing. Because everybody has to be looking 
at this gigantically expanding Chinese economy as the ultimate 
enchilada, that this is the place, man. You have got to get 
there whether it is insurance you are selling or whether you 
are selling commercial aircraft or you are selling widgets. 
Would you be willing, any one of you, to be crazy enough to 
respond to those general propositions I have laid out?
    Dr. Grimmett. I guess if we can define the frame of 
reference, the answer will not be too far off the mark. I could 
just say, based on my experience as a senior staffer over the 
years, traveling back and forth to Europe and talking with 
people in the political elites, you get one perception because 
these people are focused on the issues and they have got some 
kind of a context with which to work.
    On the other hand, you hear these casual comments from 
them. Even though it sounds like an urban legend--they'll say, 
``well, I do not agree with your government's policy, but I 
like Americans.'' You hear that all the time. I can honestly 
say that I have actually had people say that to me personally, 
outside of an official context, and I think it is true.
    With respect to the specific question that is before the 
committee today, I have been somewhat surprised at the level of 
misunderstanding in the EU of where we are coming from on this 
particular issue. I do not think it is necessarily a function 
of people not wanting to understand what the various positions 
are and the rationale. When you get down to the details, start 
talking to people, and get past the initial shock of why we 
seem to be going off in such divergent paths on something so 
fundamental as this, I think you grasp there is a difference in 
political culture in Europe compared to the United States. That 
is just a part of the explanation. They have parliamentary 
systems. They have a series of histories that are different 
from ours. We have had a government that has evolved in a 
certain way, and the way that people here interact politically 
is different. They are more consensus driven in the EU. It is 
very important for them to take a variety of peoples' views on 
board. And that is why, if you think about the unanimity 
principle in the EU, any one EU nation can, theoretically, 
block nearly anything.
    Senator Biden. I am taking too much time, Mr. Chairman, I 
realize. But here is my worry. Maybe if I articulate the worry, 
you may be able to allay it or give me some sense of how we 
should respond.
    I am worried about the instinct here, because of the 
different sort of political cultures here, for us to say, 
``hey, wait a minute. They have all American components in all 
these various systems. So if you go ahead and sell, we are 
going to go ahead and we are going to essentially embargo 
you.'' And that will be read, wrongly, I believe, in Europe 
among populations at large as the unilateral United States 
dictating policy, deciding to use its economic, political, and 
military strength to try to determine an outcome when, in fact, 
I think to overstate it, if our position were accurately 
articulated on every major talk show in Europe, the average 
European sitting there listening would go, ``that makes 
sense.'' I know why they are concerned. I do not want my 
scenario to happen. I do not want the balance to change in 
Northeast Asia, either; I do not want that to happen. I am 
worried about it. That is what I am trying to drive at.
    Dr. Gill. There have been resolutions passed in several 
parliaments in Europe, including the Bundestag, the European 
Parliament. Even the House of Commons has passed nonbinding 
resolutions opposed to the idea of lifting. So the general 
point that you are making is absolutely right.
    It also, I think, underscores the point that even if we 
have a tougher code of conduct and greater scrutiny, et cetera, 
et cetera, at the EU level, it is still not going to be legally 
binding in the way that it is in our country. So our efforts 
definitely have to be focused on the individual countries and 
their export control guidelines. We have to bring to bear the 
kinds of pressures that we can in bilateral contexts on certain 
countries of concern in Europe that we are worried about what 
they might do. So both in terms of a public policy, sort of the 
carrot and the sort of intellectual richness of our explanation 
on the one hand, but, I think, also the stick of pressure 
bilaterally needs to be brought to bear.
    Senator Biden. It would be nice to inform their societies 
of our position, it seems to me. I have spoken too long. The 
doctor may want to respond.
    Mr. Brookes. I think there is a big difference between the 
populations and the governments in Europe on this issue. I have 
not met many people who really support the lifting of the arms 
embargo. I think this is being driven by the French and big 
business, and that is what is driving this right now. Remember, 
when you talk about Europe, there are all sorts of--I do not 
think it is very popular in the UK. But the French are the 
dominant power in Europe, along with the Germans, and they are 
driving it, along with business interests.
    Senator Biden. Maybe we should compete with their own 
constituency.
    The Chairman. Thank you, Senator Biden.
    The chair would just recognize that the first vote has 
started. Therefore, we are in that zone.
    We have been joined by the distinguished chairman of our 
European Subcommittee, Senator Allen, and I want to recognize 
him. I would say to the Senator that when we get into the 
second half of the votes, I may even yield the chair to the 
Senator so that he can preside and conclude. But for the 
moment, I recognize him for his comments.
    Senator Allen. Thank you, Mr. Chairman. I thank you and 
Senator Biden for having this hearing on a very important 
issue, and I thank all our witnesses for being here.
    This hearing this afternoon is on an issue of great concern 
to many members of this committee on a bipartisan basis, as 
well as I believe all members of the Senate when they are 
confronting it. It is important for us to analyze how the 
removal of this embargo affects our own interests, our own 
security, as well as the symbol, the symbol it sends to the 
rest of the world.
    I heard Mr. Brookes saying, well, this is being driven by 
economic reasons, financial reasons, and that is probably the 
case. I have met with European leaders, including those from 
the country of France in the last several weeks, heard their 
arguments. They talk about their toolbox and their code of 
conduct and how they are going to somehow make the controls 
tighter and more consistent. I will be frank with you, 
gentlemen, I am less than convinced that this is really an 
approach. Reality is that the embargo was put on because of 
Tiananmen Square and that massacre. What has changed since then 
in the People's Republic of China's Government? Nothing. It is 
still a recalcitrant government.
    The collaboration issue on our arms, things such as the 
joint strike fighter and others. I think we need to examine 
what are we going to do in the future in the event that we have 
this joint effort, which makes sense with our NATO allies so 
that we get the best, they get the best, the training on the 
equipment, whether it is French, whether it is United States, 
whether it is British, maybe Italian, maybe German, that there 
is that cooperation. But how can we have any confidence in the 
future and what safeguards could be put into place that then 
these technologies, these systems, this equipment would then be 
transferred, sold to China.
    I want to commend whoever wrote, Mr. Chairman, the briefing 
for this committee. What an outstanding piece that everyone 
should read. It is not just about Europe. It is about the 
growth in the military equipment and capability of the People's 
Republic of China, and it is not just missiles. It is not just 
aircraft. It is helicopters. It is submarines. And while we are 
cutting back on our Navy and cutting back in certain areas, it 
is something all Americans need to be aware of in the larger 
context.
    So, here they are selling advanced equipment, new 
technologies to the Chinese. Look at China's latest efforts 
that are trying to use threats of duress and military might 
against the free will of the people of Taiwan. Japan is 
concerned. You add from their threats to the region, China also 
is a proliferator. They sell arms to belligerents, countries 
that are not friends of ours or our allies, and plus, they sell 
it to terrorist groups. They also prop up the North Koreans who 
are also notorious proliferators as well.
    So, before we start any more advancements and joint 
military capabilities and construction and manufacturing, I 
think the ending of this embargo is going to put a big damper 
on it.
    Then, finally, it is a message. What message does this 
send, even if they put in their codes of conduct and toolboxes 
and so forth, which really is again unconvincing to me in their 
arguments? But the message is that China, a country that has 
not made any demonstrable improvement or progress in protection 
of human rights, nonetheless, the Europeans are going to lift 
the embargo at virtually the same time the Chinese are enacting 
policies that are belligerent toward Taiwan, and Europe is 
considering making it easier for them to get more weaponry. 
Japan is concerned. So, what does that say to our allies, 
whether they are Japan, whether they are South Korea, whether 
they are our friends in Taiwan?
    So, I do not know what can be done. I hope the Europeans 
will reconsider it. But, maybe, since the motivation is clearly 
one of financial rather than human rights--and that is the 
bottom line message that is sent, is the Europeans are more 
about business relationships, making sales, and finances than 
they do about human rights. There is no other conclusion that 
one could draw. I think the people of Europe, speaking to 
Senator Biden's comments, would actually care about human 
rights. They are sovereign countries, but they share many of 
our values, of course.
    So the question is: As Europe is looking to compromise the 
concept of human rights for a sale, how can we get them 
possibly to reconsider, or at least, understand that if 
finances is what motivates them the most, how would 
transatlantic defense cooperation be affected by the EU's 
decision to lift the 1989 arms embargo with China? If they saw 
that as a greater negative, maybe they would find it not in 
their interest to do it.
    From any of you all, what rational objective statement 
could we say, for example, on trade controls on their defense 
programs that--you take joint strike fighter or some other 
advanced weapons systems. Would any of those in your judgment 
be compromised by the lifting of this arms embargo because of 
the fear of the transfer of these capabilities? And, if any of 
them are, is there a quantifiable way that we could explain to 
our European friends that cooperation in the future will be 
lessened, therefore, trade with the United States will be 
diminished?
    The Chairman. Let me intervene just briefly to give credit 
to Dr. Grimmett for the fine memo that you mentioned.
    Senator Allen. Where is this gentleman?
    The Chairman. Right here.
    Senator Allen. You wrote this memo?
    The Chairman. Well, he contributed very substantially to 
that, and we appreciate that.
    Senator Allen. It is outstanding. I have been using it for 
a lot of other things other than this hearing.
    Dr. Gill. Mr. Chairman, if I could respond to the Senator's 
question.
    The Chairman. Let me just also yield the gavel to Senator 
Allen. Then please conclude the meeting, if you will.
    I appreciate your testimony.
    Dr. Gill. On the issue of the embargo, it is a little bit 
confusing to me in a logical sense. On the one hand, we are 
already unhappy with the Europeans that under the current so-
called embargo they are providing the Chinese already with 
military technology. And yet, we are asking them not to lift 
the embargo. I do not understand that.
    Clearly what we should be saying is your current embargo 
does not work and you need to do something to improve it, which 
is exactly what they claim that they will do. I would just 
slightly disagree and say that I do think that the current 
embargo, as it stands, is not effective, and they do need to 
take measures to strengthen it. We can only hope that they 
will. I guess I am more convinced than many that they will. 
They understand very clearly what is at stake in terms of 
relations with the United States, in terms of relations with 
their own populations, and in terms of their relations with 
important friends in the region such as Taiwan and Japan.
    The current embargo is not going to work anymore. It never 
did very well, and asking them to keep it is really against our 
own interests to do that. We should be saying do something 
better than what you have got, and we can only hope that they 
will.
    Mr. Brookes. Senator Allen, I am not sure--you know, we 
have to disaggregate Europe, too, because we are dealing with 
different countries. The UK is often considered part of Europe. 
You are dealing with the French and Germans and Italians. Some 
of them have been supportive of us on security issues, 
obviously, in Iraq and other places. But in some senses, you 
have to look at it that if we are able to limit defense 
cooperation, it would have an effect on our joint strike 
fighter program, for example.
    But I am not so sure that every European country 
considering the small amount many are spending on defense 
today, would really care. I know we are all casting about for 
ways to find some sort of way to, perhaps, punish the Europeans 
if they do not come along with us. I think one of the drivers 
for the Europeans is that they do not have any security 
responsibilities in Asia. The United States is the security 
structure in Asia right now based on our five bilateral 
alliances. So they are being driven by commercial issues and 
then probably human rights, but not security. You do not see 
the French Navy--there are some French Navy ships actually out 
in the South Pacific, but you do not see the French Navy like 
the United States 7th Fleet patrolling the waters of the 
Pacific. So they do not feel that the same way, emotionally, we 
do when we think about the Pacific Command, the 7th Fleet, our 
soldiers and marines in Japan and Korea. The Europeans do not 
have that same sort of feeling.
    I am not sure that there is much we can do in that respect, 
but I think we should look at options to get them to come 
around by limiting defense cooperation. But because a lot of 
them, if you see how little they are really spending on 
defense, I do not know if it would really make a big difference 
to them. Remember, the European defense industry is very 
beleaguered right now. They certainly might look for another 
market in China, but I am not sure how much effect that will 
really have on them ultimately.
    Dr. Grimmett. Senator, as far as your basic question of how 
you might influence the EU on this, I can tell you the 
following. I just came back from an official trip to London. I 
was there for a week discussing this matter with a lot of 
people. And I can tell you, they got the message that people in 
the United States Government are upset about this. It is not 
that they are not seized of the fact that there are a variety 
of concerns such as those that have been laid out and 
articulated by yourself and the chairman and others about this 
whole larger strategic question.
    Now, there was some level of confusion--maybe that is not 
the right word. I am not sure I know what the exact word would 
be, so I will go with confusion for now--as to why this issue 
was something that we let get to the place we are now; how this 
whole controversy evolved to the point that we seem to be going 
in significantly different directions. I find that a little 
worrisome because I think that there are enough people on both 
sides of the Atlantic that have talked about this issue and 
have talked about defense trade controls and export control 
systems. We have had talks on other issues, such as the ITAR 
waiver and things like that that have been going on for a 
couple of years. So, it was a bit surprising to me that there 
was a lack of appreciation of why this was going to be a very 
significant matter for the United States. But they certainly 
know it is now. Notwithstanding how we got to where we are 
today, they know now that the United States is very much 
concerned about this.
    I think by that fact alone, you have got the predicate laid 
for a follow-on series of discussions and consultations to 
maybe resolve the issue in a way that would satisfy U.S. 
concerns. But those are matters above my pay grade. That is for 
policymakers--people in government with influence to address.
    Mr. Brookes. And I think, Senator, the Chinese passage of 
the anti-secession law on Monday may help our cause because it 
looks like--since the lifting of the arms embargo has been 
talked about for a long time--in fact, they actually thought 
they were going to lift the arms embargo last December during 
their China-EU summit. It got put off and now we are talking 
about June and who knows when now. But the Chinese may have 
seen it as a green light to move forward with the anti-
secession law, and I think people are very concerned about that 
since they have kind of codified their policy--a less than 
peaceful policy toward Taiwan. So, it could have an affect on 
public opinion, as well as the opinion of legislators and 
officials in Europe since it passed on Monday.
    Senator Allen [presiding]. That is a good point. That is a 
follow-on question. There have been loopholes in the existing 
embargo, but clearly the motivation here is not to make the 
embargo stronger. They may say, gosh, these codes of conduct 
and toolboxes will make it better. But, if you just look at 
what has been going on, you must admit that there has been an 
increase in sales.
    Things have happened since last fall/last winter, such as 
with Japan being more concerned about Taiwan, their passage of 
this anti-secession act. Actually things were getting better 
with us transatlantically with our European friends, and 
actually the air flights back and forth from the People's 
Republic of China to Taiwan and so forth. And then they have 
come up with this anti-secession law which really is an 
irritant in the peaceful stand-off that has existed across the 
Taiwan Strait for many decades.
    The question I have for you gentlemen, because I am going 
to have to wrap this up and vote, is that regardless of the 
embargo and its efficacy and protocols and standards of 
conduct, toolboxes, and all the rest and how this might affect 
our relationships with the Europeans in joint military ventures 
and so forth is: How will the human rights situation in China 
be affected by this? How will the Chinese portray this? My gut 
reaction is the Chinese will say, look, that was Tiananmen 
Square.
    They do not allow people to celebrate Tiananmen Square or 
recognize it. I just came from the 40th anniversary of Selma, 
marching across the bridge in the civil rights pilgrimage. 
Could you imagine if in Selma and Alabama they did not allow 
people to recognize Bloody Sunday, which was like, for the 
civil rights movement, what the Alamo was for Texas 
independence? Could you imagine if that were not the case, that 
we could not reflect on what happened there and how we have 
progressed as a country? But in China's case, we cannot have 
any talk about Tiananmen Square.
    How will they portray this? What will be the human rights 
impact on the people of China?
    Mr. Brookes. I think they will portray it as a victory. I 
think as much for China wants getting access to appropriate 
technology for their military industrial complex, they will see 
this as a major symbolic victory. They just had the passing of 
one of the major reformers, Zhao Ziyang, with very little 
fanfare about that. He was there at Tiananmen Square, and I 
think this will be another nail in the coffin on this issue of 
addressing the Tiananmen Square crackdown.
    Now, that is not to say that human rights may not progress 
in China for other reasons, but I think that the Chinese 
certainly will see it as a symbolic victory. If you look at the 
State Department's most recent human rights report, it says 
that human rights is poor in China. I think that is the exact 
term, ``poor,'' and serious human rights abuses continue. So I 
do not think that this will help the situation at all.
    Dr. Gill. In terms of our discussions and dialogue with 
European friends on this, the human rights question is 
absolutely the weakest link in the European argument on this 
question. No doubt. I think it is one we ought to try to 
leverage even harder because I think we can agree that, by and 
large, European populations, as well as leaders, are attuned 
and sensitive to the need for the spread of democracy and human 
rights. They are. And we can point very clearly to the fact 
that on a number of specific requests made to the Chinese as a 
part of this whole arms embargo lifting business, the Chinese 
have not come forward and complied with what the Europeans are 
asking them to do.
    In particular, Senator, I think Europeans had expectations 
that during the most recent National People's Congress a couple 
of weeks ago, the National People's Congress would consider and 
ratify the International Convention on Political and Civil 
Rights, which they did not. This is making some people in the 
European capitals rather unhappy. I think, again, by pressing 
on this human rights issue with our European friends, I think 
we can make a very strong case that the Chinese are not doing 
what the Europeans have asked them to do. And so, therefore, 
the notion of lifting the embargo or moving ahead into some 
different direction is not ripe. It is not ready.
    I think it also would send a very strong signal to our 
Chinese friends that they are going to have to take some 
actions, some better concrete action, allowing access, for 
example, to the prisons by the International Committee on the 
Red Cross and other important steps before they can expect the 
Europeans to offer up this trophy of lifting the embargo.
    Mr. Brookes. I think the Chinese think that it is a done 
deal and that is why they did what Bates talked about: Not 
passing the convention and also moving ahead with the anti-
secession law. They feel that there is so much momentum in 
Europe over this that the train has already left the station 
and they can go ahead on these other issues even though they 
are counter to European interests.
    Senator Allen. Dr. Grimmett, do you have anything to add?
    Dr. Grimmett. I think they have covered it, Senator.
    Senator Allen. Thank you. I want to thank Peter Brookes, 
Dr. Gill, and Dr. Grimmett for your testimony. Thank you, Dr. 
Grimmett, for truly an outstanding brief for our committee, to 
the extent you contributed to it.
    What I get from this is what will touch the heart strings, 
maybe not the purse strings, of the Europeans will be, do you 
really want to reward a regime that represses its people, has 
not made any demonstrable improvement in human rights 
opportunities for the people of China since Tiananmen Square, 
and indeed, most recently have become even more embolden, and 
in fact, in the years since, in the last several years, has 
really been on quite a trend of a strong military buildup. And 
rather than passing that civil rights protocol or law, that 
same congress rubber-stamped the anti-secession law, 
threatening the free will and peacefulness of the people of 
Taiwan to determine their own destiny as to which government 
they care to pledge allegiance to in a peaceful manner and not 
under duress.
    So, while Mr. Gill makes a good point that there were 
loopholes, big loopholes I suppose you might say, in the 
embargo, you have given me, at least this Senator, some insight 
as to how best to make our point to our European friends. And 
they are friends. They are sovereign countries and people. I do 
not want to characterize their views on things, but I do think 
that that issue of human rights, do you really want to be on 
the side of repressors as opposed to the side of freedom, and I 
think that they will aspire to be on the side of freedom and 
liberty as opposed to the side of repression and strong 
military buildup and threatening of neighbors.
    So, gentlemen, thank you all so much. I am sorry that this 
hearing is the way it is with the way votes are right now. 
Thank you for being great patriots. I appreciate your 
forbearance.
    This hearing is adjourned.
    [Whereupon, at 4:12 p.m., the committee was adjourned.]

                                  
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