Chapter 9 Contents
AND REGULATORY CONTROLS:
Alleged violations of the 1979 Act or the Export Administration Regulations are investigated by the Department of Commerce's Office of Export Enforcement.104
Consisting of about 100 special agents and other personnel, the Office of Export Enforcement operates from eight field offices located in key areas of the United States. In addition to conducting criminal and administrative investigations, it performs:
In 1993, the Commerce Department and the U.S. Customs Service signed a Memorandum of Understanding to enhance their cooperation on export enforcement. The agreement contains provisions to facilitate information sharing, to coordinate enforcement activities, and to delineate responsibilities between the two agencies.
While the Export Administration Regulations provide that voluntary self-disclosure may be considered a mitigating factor in determining the appropriate administrative penalties, the regulations also make clear that the weight to be given a self-disclosure is entirely within the discretion of the Commerce Department, and that it will not prevent transactions from being referred to the Department of Justice for criminal prosecution.105
Penalties for Violation of the Export
Penalties Under the 1979 Act (Expired
Criminal penalties for knowing violations under the 1979 Act included:
Willful criminal violations were punishable by:
Civil penalties under the 1979 Act included:
Civil penalties under the 1979 Act were held by at least one federal court to be subject to a strict liability standard, with no necessity to show knowledge or intent.109
When necessary to prevent the occurrence of an imminent violation, the Assistant Secretary of Commerce for Export Administration can issue an order temporarily denying export privileges without a hearing.112
All Commerce Department export licenses and license exceptions are subject to revision, suspension, or revocation without notice whenever it becomes known that the Export Administration Regulations have been violated, or that a violation is about to occur.113
A further sanction prescribed in the Export Administration Regulations is the exclusion of professionals involved in the export process - such as attorneys, accountants, consultants, and freight forwarders - from practice before the Bureau of Export Administration.114
Finally, illegal exports are subject to seizure together with any vessel, vehicle, or aircraft used in the export or attempt to export.115
Penalties Under the International
Emergency Economic Powers Act
Commerce Undersecretary for Export Administration William A. Reinsch notes that the maximum civil fine under IEEPA - $10,000 per violation - may not be a significant cost for a major company.118
One role of the Customs Service is to work with the State Department's Office of Defense Trade Controls in conducting end-use checks - the BLUE LANTERN program. The State Department sets criteria for when these end-use checks should be performed, but asks the Customs Service to carry them out. (In contrast, the Commerce Department schedules its own end-use checks and uses its own staff to implement them, although they are coordinated with the Customs Service and overseas attaches.)
The Customs Service receives leads from a variety of sources, including information from licenses issued by the Commerce Department and the State Department. In turn, it also shares information with Commerce and State.
The Customs Service maintains overseas offices, including one in Hong Kong, to support its investigations. Foreign national employees hired by the Customs Service are subject to full background investigations.
Classification Requests Under
The Commerce Control List consists of categories of items grouped by Export Control Classification Number.119 If an exporter is uncertain regarding the correct Export Control Classification Number for a commodity to be exported, the exporter may obtain the appropriate number by submitting a "Classification Request" to the Bureau of Export Administration at Commerce.120 The Commerce Department handles approximately 5,000 classification requests each year.
The Commerce Department rarely coordinates commodity classification requests with other U.S. Government departments or agencies. However, pursuant to procedures approved by President Clinton in April 1996, the Commerce Department shares responsibility with the State Department and the Defense Department for classification requests involving:
The Commerce licensing officer handling a commodity classification request would need to determine whether the request met the above criteria for referral.
Since the adoption of the April 1996 procedures, the Commerce Department indicated it had referred to the State Department only 22 classification requests out of a total of 3,374 in 1997 (that is, 0.65 percent). It referred four out of 3,191 in 1998 (that is, 0.13 percent).122
Commerce's commodity classification process is different from the commodity jurisdiction process administered by the State Department. At State, all commodity jurisdiction requests are sent to the Departments of Defense and Commerce.
Iain S. Baird, Deputy Assistant Secretary of Commerce for Export Administration, says that copies of classification requests are maintained and filed "consistent with normal recordkeeping." However, Baird adds that the classification requests are disbursed by the licensing divisions, and these records are archived periodically along with other documents.123 Also, records of classification requests are not kept in the Export Control Automated Support System database maintained by Commerce.
The Commerce Department was unable to comply with a request from the Select Committee for copies of classification requests acted on since 1992, as such documents are not readily accessible. Commerce plans to include information concerning classification requests in the anticipated redesign of the Commerce database.124
If, in response to a commodity classification request, the Commerce Department incorrectly decides an item does not require a license to be exported, the classification decision is not reviewed by another department or agency, and the exporter is free to export the item without a license. Only if Commerce decides the item requires a license to be exported will the Departments of State, Defense, and Energy, and the Arms Control and Disarmament Agency, have an opportunity to review the license application (including the commodity classification) pursuant to Executive Order 12981.
Since the State Department does not review the classification decision when the Commerce Department determines that no license is required under the Commodity Control List, it is possible that the State Department, if consulted, might have determined the item to be a defense article or defense service covered under the U.S. Munitions List.
Export Licenses for Militarily Sensitive
Technology: Department of State
Procedures for Referral to Other Departments and Agencies of Requests to Export U.S. Munition List Items
Any license application submitted to the Department of State's Office of Defense Trade Controls to export a "defense article" or "defense service" on the U.S. Munitions List may be reviewed by the Department of Defense.
William Lowell, Director of the Office of Defense Trade Controls at State, describes the process as follows: When an application arrives at the State Department, it is assigned to a licensing officer125 who reviews relevant information and then recommends approval or denial of the application, or approval with conditions.126 The licensing officer's decision typically is accepted, unless another entity recommends denial.127
If the State Department licensing officer needs additional information to understand the technology covered by an application, the licensing officer sends the application to the Defense Department.128 There, the Defense Technology Security Administration determines who else in the Defense Department should review the application, and provides the State Department with a coordinated Defense Department review.
In 1997, the State Department referred about 30 percent of its cases to the Defense Department.129 The Commerce Department is not involved in the review of U.S. Munitions List license applications.130
There is no memorandum of understanding between the State and Defense Departments on this subject. Lowell says none is needed, given the good relations between the departments. The State Department refers applications to the Defense Department in hardcopy form, as Defense is not connected electronically to State for this purpose. Nevertheless, the Defense Department sends its comments and final position on applications to State via a Defense database.
According to Lowell, the Defense Department has a veto in the State Munitions List system on exports, based on national security grounds. The State Department also has a veto on exports, based on foreign policy grounds. State and Defense tend to defer to one another, and appeals are extremely rare.131
By contrast, in the Commerce Department licensing process, none of the five participating departments and agencies - Commerce, Defense, State, Energy, and the Arms Control and Disarmament Agency - has a veto over license applications.132 In all cases except at Commerce's Operating Committee level (where the decision of the Commerce Department Chair prevails), a majority vote determines the outcome at the Advisory Committee for Export Policy and the Export Administration Review Board levels. The decision of the Operating Committee Chair, and the result of a vote by the ACEP or the Export Administration Review Board, can be appealed by any of the five participating agencies.
There is no provision in the International Traffic in Arms Regulations to consider either commercial factors or the foreign availability of a U.S. Munitions List item, according to Lowell.133 This is because independent of whether foreigners can sell an item, the U.S. Government may wish to preserve a technology lead, or would not want certain countries to obtain the military technology from the United States. According to the regulations:
For dual-use items covered by the Export Administration Regulations, the foreign availability of a commodity can be the basis for removing export controls on that commodity. It cannot, however, override national security.135
Commodity Jurisdiction Process
The commodity jurisdiction process involves a State Department decision as to whether and where a commodity belongs on the Munitions List. Before making its determination that an item is covered by the Munitions List, the State Department may consult the Defense Department, the Commerce Department, other U.S. Government agencies, and industry where appropriate. The determination includes an assessment of whether an article or service has predominantly civil or military applications.136
The State Department is required to submit a report to Congress at least 30 days before any item is removed from the U.S. Munitions List by the commodity jurisdiction process. An exporter can invoke the State Department's commodity jurisdiction procedure for either of the following reasons:
However, a commodity jurisdiction decision cannot be used as the sole basis to justify an export, according to William Lowell, Director of the Office of Defense Trade Controls at the Department of State.137
Lowell says that the administration of the Munitions List via the commodity jurisdiction process started informally in the 1960s or 1970s. 138 Today, there are several hundred commodity jurisdiction cases per year. In the spring of 1996, the National Security Council disseminated new procedures on commodity jurisdiction and commodity classification approved by President Clinton. The new procedures require State to refer all commodity jurisdiction cases to Defense and Commerce, and include an escalation process. Under this process, a State Department decision can be appealed to the assistant secretary level, then to the under secretary level, and then to the President.139 Since the new procedure was announced in early 1996, two cases have been appealed to the White House, according to Lowell and Rose Biancaniello, Deputy Director for Licensing at the Office of Trade Controls. 140
Lowell says that although State sometimes sees a commodity classification case from the Commerce Department, referral from Commerce to State does not occur systematically. Lowell says that it has always been State's view that there should be more interagency coordination on Commerce's commodity classification cases, and that State's commodity jurisdictions cannot be determined by any agency other than State.141
A fundamental difference between the State Department and Commerce Department export control systems, according to the State Department's Lowell, is that exporters of munitions are required by law to register with the State Department in order to apply for a license.
The names of the registrants are vetted with the law enforcement community, and maintained in a database of about 10,000 names. The database also contains registered munitions manufacturers who are assigned a State Department identification code.142
Congressional Oversight and Required Reports
Lowell notes that another difference between Commerce Department and State Department export licensing systems is the greater level of congressional oversight of U.S. Munitions List exports compared to Commerce Control List exports.
For example, the State Department is required by the Arms Export Control Act to provide Congress with quarterly reports of U.S. Munitions List exports by country. The foreign affairs committees respond to these reports with many questions.143
Moreover, exports of "major defense equipment" - equipment costing over $200 million or involving over $50 million in research and development - must be reported to Congress.144 Exports of such equipment to the PRC are subject to a 30-day waiting period.
The State Department must also report to Congress regarding political fees, contributions, and commissions paid by U.S. companies overseas. It must also provide Congress with an annual report, pursuant to the Foreign Assistance Act, showing the total dollar value of exports and commodities it licenses by country per year.
The State Department processes over 150 sales of major defense equipment per year, according to Lowell. The State Department must clear these cases with Congress before it may allow the export.145 In 1997, Congress was sent approximately 140 cases, about 40 percent of the dollar value of all the U.S. Munitions List cases. These received considerable scrutiny and were reviewed widely, with some going to the congressional armed services committees.
The State Department is not legally required to explain any licensing decision to the applicant, according to Office of Defense Trade Controls officials. However, if the decision can be explained in an unclassified way, State may explain the decision to the applicant. A company can ask for a case to be reviewed, but most often this occurs by the company calling its Representative in Congress, like any other constituent. If the case involves a denial because it exceeds the level of sophistication that may be sent to a particular country, the State Department can inform the company, which sometimes can reconfigure the item to be acceptable for export.146
Foreign-Origin Items with U.S. Content
U.S. Munitions List items do not lose their controlled identity when incorporated into foreign systems, according to Lowell.147
State has nothing like Commerce's de minimis rule that determines whether U.S. control of foreign-origin items is appropriate based on the percentage of U.S. content. Rather, the Department of State controls technology using a "look-through" policy: if another country wants to sell a controlled "defense article" (for example, an aircraft) with U.S. parts, it will need U.S. approval.
This requirement was not stated in the original Arms Export Control Act, but a 1996 amendment to section 3 of the Act - authorizing re-transfers between NATO partners without advance U.S. consent - indicates that the general rule is to require prior U.S. approval.
Carol Schwab of the State Department Legal Adviser's office affirms State's legal position that there is no basis in the Arms Export Control Act for a country to terminate U.S. controls by re-transferring equipment containing U.S.-origin components to a third party.148
Penalties for Violation of the Arms
Export Control Act and ITAR
Civil fines under the International Traffic in Arms Regulations are the same as those provided under the 1979 Act and the Export Administration Regulations, except that the maximum civil penalty imposed on the export of "defense articles" and "defense services" is $500,000.149
Administrative sanctions under the International Traffic in Arms Regulations include:
The People's Republic of China does not allow the conduct of BLUE LANTERN checks, the State Department's equivalent of Commerce's pre-license checks and post-shipment verification.
Lowell says that the State Department is not concerned for two reasons:
Lowell says that only a small number of State Department licenses are reviewed for civilian end users, such as private security forces. On the other hand, Lowell says, the State Department does use BLUE LANTERN checks to detect diversions of its approved exports.
The State Department also uses BLUE LANTERN end-use checks to reduce brokering and to check on dealers on its Watch List. To obtain a BLUE LANTERN check, the State Department cables the Embassy to check out the end user, and the Embassy cables back with details on the check.153
Export Control Policy Toward the PRC
From 1949 to 1971, exports from the United States to the PRC were subject to restrictive export controls. The export control policy was liberalized in 1972, when the Coordinating Committee on Multilateral Export Controls (COCOM) agreed to change the licensing status of the PRC to allow it to be treated the same as the Soviet Union. Subsequently, beginning in 1981, the PRC was given access to higher levels of technology than the Soviet Union.154
In December 1985, COCOM adopted what was called a "green line" policy toward the People's Republic of China. That policy gave preferential licensing treatment for the export to the PRC of 27 categories of controlled items as compared with other COCOM-proscribed countries. Further liberalizations in the "green line" licensing policy toward the PRC by COCOM continued until early 1989.
In response to the repressive actions taken by the PRC in Tiananmen Square on June 4, 1989, COCOM decided in October 1989 to cancel plans for additional liberalization of export controls toward the PRC. However, COCOM did not make any changes to the PRC "green line" policy that was in effect at the time.
Following Tiananmen Square, the Bush Administration imposed a policy of denial regarding applications for exports to military and police entities in the PRC. In addition, the Bush Administration decided not to support further liberalization of the "green line" policy toward the PRC by COCOM.155
A COCOM meeting in June 1990 eliminated or significantly reduced the differences between items that could be exported to the PRC under the "green line" policy and the items that could be exported to other proscribed destinations. The PRC benefited from the decontrols adopted by COCOM for all proscribed destinations subsequent to that meeting. COCOM did not, however, adopt any additional favorable treatment specifically for the export of items to the PRC.156
Launches of Satellites on PRC Rockets
In September 1988, President Reagan approved a plan to permit the export of U.S. commercial communications satellites to the PRC for launch on PRC rockets. In order for such export licenses to be approved, however, the PRC was required to meet three U.S. conditions:
Regarding the first condition, a Memorandum of Agreement on Satellite Technology Safeguards was signed in December 1988 between the United States and the PRC.157 The purpose of this agreement was to preclude the unauthorized transfer to the PRC of sensitive U.S. satellite technology. The agreement specified the security procedures to be followed for the proposed launch of two Aussat satellites and one Asiasat satellite, all three of which were manufactured by Hughes Aircraft Company. The agreement also addressed the disclosure of authorized technical data, and restrictions on the transfer of unauthorized technical data and assistance.
Regarding the second condition, the December 1988 Memorandum of Agreement provided that the PRC was not to launch more than nine communications satellites for international customers during the six-year period ending on December 31, 1994.158 The agreement required the PRC to support the application of market principles to international competition among providers of commercial launch services, including the avoidance of below-cost pricing, government inducements, and unfair trade practices.
Regarding the third condition, PRC liability for satellite launches,159 the December 1988 agreement provided, subject to conditions, that the PRC was to assume the responsibility for, and was required to compensate the United States for, any and all amounts for which the U.S. Government might become liable under the Convention on International Liability for Damage Caused by Space Objects.
A second Memorandum of Agreement on Satellite Technology Safeguards between the United States and the PRC was signed in February 1993.160 This agreement specified the security procedures to be followed for the launch of "U.S.-manufactured satellites" in the PRC, and was not limited, as was the December 1988 agreement, to specific satellites.
When the 1988 Memorandum of Agreement on PRC commercial launch services expired on December 31, 1994, a third Memorandum of Agreement was signed in January 1995.161 This new agreement indicated that the PRC was not to launch more than 11 principal payloads to geosynchronous earth orbit or geosynchronous transfer orbit for international customers during the seven-year period ending on December 31, 2001. This January 1995 agreement was amended in October 1997 to include an annex regarding the pricing of commercial launch services to low earth orbit.162
Paul Freedenberg, a former Assistant Secretary for Trade Administration and Under Secretary for Export Administration at Commerce in the Reagan Administration, has commented on the 1988 policy decision to use PRC rockets for U.S. commercial communications satellites:
Satellite Launches in the PRC Following Tiananmen Square
In addition to the policy adopted by the Bush Administration after Tiananmen Square - to deny export license applications to military and police entities in the PRC, and not to seek further COCOM liberalization in export controls toward the PRC - Congress passed PRC sanctions legislation in the fall of 1989.
In the Fiscal Year 1990 Appropriations Act for the Departments of Commerce, Justice, and State, the Judiciary, and Related Agencies (P.L. 101-162, November 21, 1989), Congress prohibited the reinstatement or approval of any export license applications for the launch of U.S.-built satellites on PRC-built rockets in the PRC. This prohibition can be waived in either of two cases:
Pursuant to this provision, President Bush submitted a "national interest" determination to Congress on December 19, 1989, regarding the Aussat-1, Aussat-2, and Asiasat commercial communications satellites.
In early 1990, Congress passed the Foreign Relations Authorization Act for Fiscal Years 1990 and 1991 that included additional sanctions provisions regarding the Tiananmen Square crackdown.165 Among other things, the Act suspended the issuance of licenses by the Department of Commerce or the Department of State for export to the PRC of:
The Act also provided the President with the authority to terminate the suspension of export licenses for U.S.-origin satellites by making a "national interest" determination and transmitting it to Congress.
The first "national interest" determination under the Foreign Relations Authorization Act was made by President Bush on April 30, 1991. This "national interest" determination, or "waiver," covered the Freja satellite that was to be built for Sweden. It also included a reissuance of the waiver for the Hughes-built Aussat satellites that had been identified in the December 19, 1989 "national interest" determination.
Between 1989, when Congress imposed the requirement for a Presidential "national interest" determination, and the beginning of 1998, 12 "national interest" waivers were granted for launches of commercial communications satellites on PRC rockets. President Bush made three of these "national interest" determinations, on December 19, 1989, April 30, 1991, and September 11, 1992. President Clinton made nine of these "national interest" determinations: July 2, 1993, July 13, 1994, February 6, 1996 (three determinations), June 23, 1996, July 9, 1996, November 19, 1996, and November 23, 1996.166
The most recent "national interest" determination regarding the launch of a U.S.-manufactured commercial communications satellite on a PRC rocket was made by President Clinton on February 18, 1998.167 This waiver applied to the Chinasat-8 satellite manufactured by Space Systems/Loral (Loral).
The Chinasat-8 satellite waiver became controversial after the New York Times reported on April 13, 1998, that President Clinton had approved the "national interest" determination, or waiver, despite an ongoing Department of Justice criminal investigation of Loral's alleged earlier unauthorized transfer of missile guidance technology to the PRC.
The Times also reported that the Chairman of Loral Space & Communications Ltd., Bernard L. Schwartz, was the largest individual donor to the Democratic Party in 1997.168
On May 22, 1998, the White House publicly released a number of documents regarding the Chinasat-8 waiver. One of the released documents, a decision memorandum for the President, discussed the pending criminal investigation and concluded:
This decision memorandum for the President was accompanied by a transmittal memorandum, dated February 18, 1998, from Phil Caplan (Executive Clerk, Office of the White House) which stated:
Robert S. Litt, Principal Associate Deputy Attorney General in the Department of Justice, recalls he had two conversations with Charles F. C. Ruff, the Counsel to the President, on this matter. Litt also indicates that there were one or more conversations between Mark M. Richard, Deputy Assistant Attorney General in the Criminal Division, and James E. Baker, the Special Assistant to the President and Legal Adviser to the National Security Council. Litt does not characterize these conversations as "extensive."
Regarding whether the Justice Department had chosen not to oppose the waiver, Litt says:
The transmittal memorandum from Caplan to the President also stated:
Litt does not recall whether Justice was contacted by the Commerce Department prior to the approval of the Chinasat-8 license application by Commerce on March 23, 1998.173
A January 1998 draft of a National Security Council memorandum for the President regarding the request for a "national interest" waiver for the Loral Chinasat-8 communications satellite project included a reference to the ongoing review of the PRC's transfers to Iran of C-802 anti-ship cruise missiles.174 These transfers by the PRC were included in the list of "Essential Factors for the President to Consider in Deciding Whether to Waive Restrictions on U.S.-Origin Exports to China for the Chinasat-8 Satellite Program" that was attached as Tab A to the State Department's memorandum to the NSC regarding the Chinasat-8 waiver.175
The reference to the transfers was deleted from the memorandum that ultimately was sent to the President.176
Missile Proliferation Sanctions on the PRC
The National Defense Authorization Act for Fiscal Year 1991 requires mandatory U.S. sanctions against foreign persons who export an item on the Missile Technology Control Regime (MTCR) Annex to a country that is not an MTCR member country.177
The sanctions are to be applied even though the Annex item is not subject to U.S. export controls.
If the exported items are MTCR Category I items (that is, missile systems and key subsystems), all export licenses are required to be denied for two years. If the exported items are MTCR Category II items (dual-use items), all export licenses for controlled missile technology items are required to be denied for two years.178
The State Department Bureau of Political-Military Affairs announced the imposition of missile proliferation sanctions on entities in the PRC and Pakistan in May 1991, because of PRC transfers to Pakistan of technology related to the M-11 short-range ballistic missile.179 These sanctions denied export licenses for two years for:
The sanctions were effective on June 25, 1991, and applied to the following foreign entities:
The sanctions also denied U.S. Government contracts relating to such items.181
These May 1991 sanctions were lifted by President Bush on March 23, 1992, after the PRC agreed to adhere to the initial MTCR 1987 Guidelines and Annex.182 But MTCR Category II (dual use) sanctions were again imposed on entities in the PRC and Pakistan on August 24, 1993, as a result of the PRC's sale of M-11 missile-related equipment to Pakistan.183
The August 1993 missile proliferation sanctions were imposed on the PRC Ministry of Aerospace Industry, including China Precision Machinery Import-Export Corporation (CPMIEC), and the Pakistani Ministry of Defense.184 The sanctions also applied to the divisions, subunits, and any successor organizations to these entities, including:
The August 1993 sanctions affected seven planned launches of U.S. commercial communications satellites in the PRC.
On November 1, 1994, President Clinton lifted the sanctions after the PRC issued a statement agreeing not to export ground-to-ground missiles inherently capable of delivering at least a 500-kilogram payload with a range of at least 300 kilometers.186
Authority to impose missile proliferation sanctions pursuant to the National Defense Authorization Act for Fiscal Year 1991 has been delegated by the President to the Secretary of State. There have been reports of additional possible violations of the missile technology control provisions of this Act by the PRC.187 No additional sanctions, however, have been imposed as a result.
U.S. Munitions List Changes Regarding Satellites
COCOM used three lists to control the export of items to proscribed
destinations: the International Munitions List, the Industrial List, and
the International Atomic Energy List.188 "Dual-use" items were identified
on the Industrial List, if not included in another COCOM list. Except for
the United States, most COCOM countries conformed their national lists to
correspond to the COCOM International Munitions List and the Industrial
Relaxation of Satellite Export
At the time, commercial communications satellites were on the COCOM "dual-use" Industrial List, not the COCOM International Munitions List. But in the United States, they were included on the State Munitions List rather than on the Commerce Control List. In accordance with the directive in the Memorandum of Disapproval, therefore, the State Department formed an Interagency Space Technical Working Group in August 1991 to evaluate whether jurisdiction over the export of such satellites should be removed from the U.S. Munitions List, and placed instead on the Commerce Control List.
On October 23, 1992, the Departments of State and Commerce issued regulations transferring only certain commercial communications satellites from the State Munitions List to the Commerce Control List.191 The regulations provided that satellite parts, components, accessories, attachments, and associated equipment, including ground support equipment, would remain on the State Department Munitions List. These items could, however, be included on a Commerce Department export license application if the items were needed for a specific launch of a commercial communications satellite under Commerce Department jurisdiction.
All detailed design, development, manufacturing, and production technical data for satellites continued to be controlled under the State Department Munitions List. Technical data, including marketing data, necessary to launch, operate, and maintain satellites and associated ground equipment for satellites was to be controlled under the Commerce Control List by the Department of Commerce.
The October 1992 regulatory changes did not transfer all commercial communications satellites to the jurisdiction of the Commerce Department. Commercial communications satellites that had any of the following nine characteristics would continue to be licensed by the State Department:
The Trade Promotion Coordinating
The Secretary of Commerce chairs the Trade Promotion Coordinating Committee.
One of the duties of the Committee was to develop and implement a strategic plan for U.S. trade promotion efforts. The 1992 Act indicated that the strategic plan should:
The 1992 Act stated that the Trade Promotion Coordinating Committee was to "coordinate export promotion and export financing activities of the U.S. Government." The Act did not state expressly that the Committee was a mechanism to conduct a review of the Commerce Department's export control program under the Export Administration Act, or a review of the State Department's export control program under the Arms Export Control Act.
However, under the direction of Secretary of Commerce Ronald H. Brown, the Trade Promotion Coordinating Committee seized the opportunity to review the nation's export controls. The controls were viewed in terms of "regulatory obstacles to exports" in developing the congressionally-mandated strategic plan report.194 On September 29, 1993, Commerce Secretary Brown issued the first Trade Promotion Coordinating Committee report, "Toward a National Export Strategy - Report to the United States Congress."
This report indicated that there had been "numerous consultations with exporters" in preparation of the section on export controls. But it did not indicate whether the Department of Defense, or the Intelligence Community, analyzed the national security implications of the proposed liberalizations of export controls. Chapter 5 of the report, "Regulatory Obstacles to Exports," quoted the President:
Chapter 5 of the report described a number of specific actions the Clinton administration was taking to liberalize export controls on computers (see the chapter on High Performance Computers for a more detailed discussion of the Select Committee's investigation of these matters) and telecommunications products. In addition, it stated that the administration was taking the following action:
An outgrowth of the Trade Promotion Coordinating Committee is the Advocacy Center within Commerce's International Trade Administration. The Advocacy Center is designed as a coordination point to marshal the resources of the U.S. Government agencies in the Trade Promotion Coordinating Committee to assist the sales of U.S. products and services abroad. The Advocacy Center's web site home page indicates that assistance can include "a visit to a key foreign official by a high-ranking U.S. government official" and "direct support by U.S. officials (including Commerce and State Department officers) stationed at U.S. embassies." Businesses interested in being considered for acceptance as a "client" of the Advocacy Center are requested to submit a "background data form" and a "bribery agreement form" to Commerce's Advocacy Center.197
The 1996 Transfer of
This effort included a joint industry meeting in March 1995 with Commerce Department representatives hosted by C. Michael Armstrong, Chairman and Chief Executive Officer of GM Hughes Electronics.198 Also, Armstrong submitted in March 1995 a report, "White Paper on Commercial Communications Satellites: Issues and Answers," to Anthony Lake, Assistant to the President for National Security Affairs.199
An interagency working group chaired by the State Department started in April 1995 to review and clarify the commercial satellite jurisdiction issue.200
During 1995, the Clinton administration was lobbied by companies interested in transferring the responsibility for commercial satellite export licensing from the State Department to the Commerce Department. For example, Armstrong sent a letter to Samuel R. Berger, Assistant to the President for National Security Affairs, in September 1995, following a meeting with him on September 20, that stated:
Also, Armstrong, along with Bernard L. Schwartz, Chairman of Loral, and Daniel M. Tellep, Chairman and Chief Executive Officer of Lockheed Martin Corporation, sent a letter to the President on October 6, 1995, that stated:
After a series of meetings of the State-chaired interagency working group formed in April 1995, there was no interagency agreement on the commercial satellite jurisdiction issue. In particular, Secretary of State Warren Christopher and the State Department objected to the transfer to Commerce.
At this point, the National Security Council "took charge of the process" and conducted "high-level, informal discussions" that resulted in the March 1996 decision by President Clinton to include all commercial communications satellites in the Commerce Control List, with interagency appeal procedures that appear to have satisfied Secretary Christopher.203
Commercial communications satellites having the nine identifying characteristics that remained under the jurisdiction of State's U.S. Munitions List were transferred formally to the Commerce Control List in October 1996. At the same time, the jurisdiction for jet engine "hot section" technology for the development, production, or overhaul of commercial aircraft engines was moved from the U.S. Munitions List to the Commerce Control List.
Commerce's Federal Register notice regarding this change imposed foreign policy controls on all commercial communications satellites and jet engine hot section technology under the Commerce Control List. The Federal Register notice also clarified that technical data provided to the launch provider (form, fit, function, mass, electrical, mechanical, dynamic/environmental, telemetry, safety, facility, launch pad access, and launch parameters) for commercial communications satellites would be under the Commerce Control List.
In addition, the October 1996 notice clarified that all other technical data, defense services, and technical assistance for satellites and rockets - including compatibility, integration, or processing data - would continue to be controlled under the State Department's Munitions List.204
Other items that were moved from the U.S. Munitions List to the Commerce Control List included:
The 1999 Return of Jurisdiction
The Act also required that all export licenses for satellites and related items have a Technology Transfer Control Plan that is approved by the Secretary of Defense and an Encryption Technology Transfer Control Plan that is approved by the Director of the National Security Agency.207
The Act included a requirement for a detailed report to Congress that must accompany any Presidential "national interest" determination pursuant to the Foreign Relations Authorization Act for Fiscal Years 1990 and 1991 to waive the Tiananmen Square sanctions and permit the export of satellites for launch in the PRC.208 The detailed justification must include:
In early December 1998, Space News reported that the White House and the Commerce Department, in coordination with the U.S. aerospace industry, were developing an executive order that would give Commerce the right to appeal State licensing decisions on license applications regarding items on the U.S. Munitions List.210
At the present time, these applications are not referred to Commerce for review. The proposed executive order reportedly would allow Commerce to review the license applications and to appeal State's decisions on them. As reported, the change would permit Commerce to review State license applications for all items in the U.S. Munitions List, including commercial communications satellites.
After Tiananmen Square in June 1989, COCOM did not adopt any further favorable treatment applying specifically to the export of items to the PRC. And as a result of the transfer of ballistic missile technology by the PRC to Pakistan in May 1991, President Bush imposed restrictions on the export to the PRC of computers above a composite theoretical performance of 41 MTOPS (millions of theoretical operations per second) in June 1991.211
In May 1992, the United States imposed foreign policy controls on "supercomputers" (defined then as 195 MTOPS and above).212 This decision was based on a 1991 bilateral agreement with Japan, the other major supercomputer exporting country.213 Supercomputers are also subject to special safeguard conditions.
President Clinton wrote to a number of industry leaders who attended a White House luncheon in mid-September 1993 regarding the issue of export controls. In his letter to Edward McCracken, Chief Executive Officer, Silicon Graphics, the President stated:
The first Trade Promotion Coordinating Committee report, "Toward a National Export Strategy," which was issued by Secretary of Commerce Brown in September 1993, indicated that the Clinton Administration was planning to make a number of proposals to COCOM, including:
Discussions were held within COCOM during December 1993 and January 1994 regarding computers.
The COCOM member countries reached an agreement in January 1994 to raise the level of computers that would not require an export license to most destinations, including the PRC, from 12.5 MTOPS to 260 MTOPS. On February 24, 1994, Commerce published in the Federal Register an amendment to the Export Administration Regulations that reflected this COCOM decision.216
The February 1994 Federal Register notice also lifted the licensing requirement for computers with a performance level of 500 MTOPS or less that were exported to "free world countries" as listed in the Nuclear Nonproliferation Special Country List.217 And it raised the supercomputer threshold from 195 MTOPS to 1,500 MTOPS and above.218 Prior to February 1994, exporters were required to obtain a Commerce Department license to export to most destinations computers with a performance level of 12.5 MTOPS or more.219
On March 30, 1994, one day before the demise of COCOM, the Administration announced that it would be taking another step to "balance" the proliferation of dangerous weapons and sensitive technologies with U.S. economic growth: removing the licensing requirement for the export of computers and telecommunications equipment with less than 1,000 MTOPS to civil and nonproliferation end-users in the formerly COCOM-controlled countries (except North Korea), effective April 4, 1994.220 This included the PRC, the former Soviet Union, and countries in Eastern Europe.221
The Clinton administration indicated that this action was consistent with national security requirements, because licenses still would be necessary for the export of "high-end" computers and for the transfer of such items to military end-users.222
In October 1995, the President announced that further changes in export controls for high performance computers would be made to "balance" national security and nonproliferation interests with the rapid developments in computer technology. Also, the Clinton administration cited the need for a computer export control policy that would remain effective for 18 to 24 months.
The computer export control changes were based on a study prepared by Seymour Goodman and others with the Center for International Security and Arms Control at Stanford University.223 The study was performed under a sole-source contract awarded by the Bureau of Export Administration within the Department of Commerce. The cost of the contract was approximately $60,000, which was funded by both Commerce and Defense.224
The Department of Defense did not prepare a formal threat assessment related to changes in the export control policy for high performance computers to the People's Republic of China. However, Mitchel B. Wallerstein, then Deputy Assistant Secretary for Counter-Proliferation Policy at the Department of Defense, remembers a conversation with his Joint Staff counterpart:
The concept underlying the Clinton administration's 1995 decision to liberalize computer export controls based on the level of computer performance that would be available 18 to 24 months in the future is called "forward looking foreign availability" by Reinsch.226 He explains that this concept was applied to computers "because of the applicability of Moore's law." Moore's law - devised by Gordon Moore, one of the founders of Intel - essentially is that microprocessor capabilities double every 18 months. The concept of "forward looking foreign availability" has not been applied by the Department of Commerce to the liberalization of controls on items other than computers.227
Neither Reinsch nor other Commerce officials were apparently aware of the PRC's possible use of HPCs in nuclear weapons development when the policy decision to liberalize computer export controls was made. Commerce published the changes in computer export controls as amendments to the Export Administration Regulations in the Federal Register on January 25, 1996.228 The Federal Register notice stated that, in developing these reforms,
The revised Export Administration Regulations identified four Computer Country Groups for export controls on computers:
The National Defense Authorization Act for Fiscal Year 1998 required that exporters provide advance notification to the Commerce Department for the export or re-export of a high performance computer over 2,000 MTOPS and up to 7,000 MTOPS to end users in Tier 3 countries.230 The PRC is included in the list of Tier 3 countries. Prior to this Act, the Export Administration Regulations allowed exports of high performance computers up to 7,000 MTOPS to civil end-users in the PRC with no notice to Commerce.
Under the 1998 Act, the Commerce Department is required to notify the Departments of Defense, Energy, and State, and the Arms Control and Disarmament Agency, within 24 hours of receipt of advance notification from an exporter.231 If within nine days Defense, Energy, State, or ACDA provides specific objections in writing to Commerce, then Commerce is to inform the exporter by the tenth day after receipt of the advance notification that an export license will be required for the proposed export.
The 1998 Act provides that the President can revise the composite theoretical performance threshold level of 2,000 MTOPS regarding export of computers to Tier 3 countries. This would take effect 180 days after the President submits a report, with a justification for the revision, to the appropriate congressional committees.
Finally, the Act requires the Commerce Department to perform post-shipment verifications on all exports of high performance computers over 2,000 MTOPS to Tier 3 countries.
In addition to high performance computer export controls, the Clinton administration has undertaken export licensing liberalization efforts in a number of other categories, including:
In January 1994, Commerce's Bureau of Export Administration published the first quarterly edition of "Deregulation in Export Controls," which measured the "progress being made in eliminating dual-use licensing obstacles." 233
Under COCOM, export controls on machine tools did not change significantly from the mid-1970s until 1990. In 1990, the COCOM member countries agreed to a U.S. proposal - the "core list" proposal that is discussed above - that resulted in significant reductions in the COCOM Industrial List, including those relating to machine tools.
This relaxation in export controls permitted about 75 percent of advanced machine tools produced in the United States to be exported without a license. Prior to the 1990 COCOM changes, only about 10 percent of these did not require a license.234
For the most part, the 1990 export control changes pertained to the degree of positioning accuracy of the machine tool as measured in microns (that is, millionths of a meter). In general, the pre-1990 COCOM controls required an export license for machine tools that had a positioning accuracy exceeding 10 microns.235 Depending on the type of machine tool, the post-1990 COCOM controls - generally continued under the Wassenaar Arrangement - require an export license if the machine tool has a positioning accuracy exceeding 6 microns. 236 Grinding machines are controlled at 4 microns.237
Machine tools capable of simultaneous five-axis motion were controlled under COCOM, and remain so under the Wassenaar Arrangement.238
Under the Wassenaar Arrangement, certain dual-use commodities, including machine tools, require the unanimous consent of the member states to renew the controls that are currently in effect.
Unless changed or extended again, the current export control criteria for machine tools will remain valid until December 5, 2000.239
In 1992, the United States granted preferential licensing treatment to Hong Kong as a result of its designation as a COCOM "cooperating country." 240 The same year, the United States expressed its support for Hong Kong's autonomous status in the United States-Hong Kong Policy Act of 1992.241
The 1992 Act called upon the U.S. Government to continue to treat Hong Kong as a separate territory in regard to economic and trade matters. It also provided for Hong Kong's continued access to sensitive U.S. technologies for so long as such technologies are protected.
The result of the 1992 Act has been to continue a less restrictive export control policy for Hong Kong than for the rest of the PRC. Many more dual-use items may be exported to Hong Kong without prior Commerce review than may be exported to the PRC without review. Even when prior review is required, Commerce more readily grants export licenses to Hong Kong.
In contrast, more categories of dual-use items require prior review before export to the PRC, and the U.S. Government has refused to export certain items to the PRC that would have been allowed to go to Hong Kong without prior review or approval.242
Hong Kong reverted to the PRC in July 1997 under a negotiated arrangement between the PRC and the United Kingdom. Under the terms of a 1984 Joint Declaration, Beijing and London pledged that Hong Kong would become a Special Administrative Region of the PRC with a "high degree of autonomy" for 50 years. The U.S. Government has made clear its intent to change its export control policy towards Hong Kong only if there is evidence that Hong Kong authorities are unable to operate an effective export control system. The U.S. Government has pledged to monitor various indicators of Hong Kong's autonomy in export controls.243 The Commerce Department has reported to the General Accounting Office that it has established comprehensive benchmarks and gathered baseline information on each benchmark, and that it intends to evaluate this data on a monthly basis.244
State Department officials Lowell and Biancaniello say that the current level of diversion activity in Hong Kong is consistent with that which occurred in the period prior to Hong Kong's reversion to PRC sovereignty. However, Biancaniello says that checks are done more to ensure that all pre-reversion policies were still in place.245
The more relaxed controls on the export of militarily-sensitive technology to Hong Kong have been allowed to remain in place even though Hong Kong was absorbed by the PRC and PLA garrisons took control of the region on July 1, 1997. U.S. trade officials report that no inspections by the Hong Kong regional government nor by any other government, including the United States, are permitted when PLA vehicles cross the Hong Kong border.
Various U.S. Government analyses have raised concerns about the risk of the diversion of sensitive U.S. technologies not only to the PRC, but to third countries as well through Hong Kong because of the PRC's known use of Hong Kong to obtain sensitive technology.246 Some controlled dual-use technologies can be exported from the United States to Hong Kong license-free, even though they have military applications that the PRC would find attractive for its military modernization efforts.
The Select Committee has seen indications that a sizeable number of Hong Kong enterprises serve as cover for PRC intelligence services, including the MSS. Therefore, it is likely that over time, these could provide the PRC with a much greater capability to target U.S. interests in Hong Kong.
U.S. Customs officials also concur that transshipment through Hong Kong is a common PRC tactic for the illegal transfer of technology.247
John Huang, Classified U.S. Intelligence, and the PRC
In late 1993, the U.S. Department of Commerce hired John Huang as the Principal Deputy Assistant Secretary of Commerce for International Economic Policy.248
Prior to starting at the Department of Commerce, Huang had been the Lippo Group's principal executive in the United States. Lippo's principal partner in the PRC is China Resources (Holdings) Co., a PRC-owned corporation based in Hong Kong.249
According to Nicholas Eftimiades, a Defense Intelligence Agency analyst writing in his personal capacity, and Thomas R. Hampson, an investigator hired by the Senate Governmental Affairs Committee, China Resources is "an agent of espionage, economic, military, and political." 250
China Resources is also one of several PRC companies (including China Aerospace Corporation) that share a controlling interest in Asia Pacific Mobile Telecommunications Satellite Co., Ltd (APMT).251 The PRC-controlled APMT is preparing to use China Great Wall Industry Corporation to launch a constellation of Hughes satellites on PRC rockets.252 The launches scheduled to date have required Commerce Department approval and presidential waivers of the Tiananmen Square sanctions.253
While at the Department of Commerce, Huang was provided with a wealth of classified material pertaining to the PRC, Taiwan, and other parts of Asia. He had a Top Secret clearance, but declined suggestions by his superiors that he increase that clearance to the Sensitive Compartmented Information (SCI) level (the level held by his predecessor).254
Between October 1994 and November 1995, Huang received 37 briefings from a representative of the Office of Intelligence Liaison at the Department of Commerce.255 While Huang's predecessor was briefed weekly, Huang received approximately 2.5 briefings per month.256
The vast majority of Huang's briefings focused on the PRC and Taiwan, including "raw intelligence" that disclosed the sources and methods of collection used by the U.S. intelligence community.257 The Office of Intelligence Liaison representatives indicated that Huang was not permitted to keep or take notes on raw intelligence reports and did not ask many questions or otherwise aggressively seek to expand the scope of his briefings.258
During the briefings, Huang reviewed and commented on raw intelligence reports about the PRC. Huang also signed receipts to retain finished intelligence products. The classified finished intelligence that Huang received during his tenure at Commerce included PRC economic and banking issues, technology transfer, political developments in the PRC, and the Chinese Communist Party leadership. Huang commented on or kept copies of materials on these topics.
Huang was also given access by the Office of Intelligence Liaison to diplomatic cables classified at the Confidential or Secret level.259 Specifically, 25 to 100 classified cables were set aside for Huang each day.260
No record exists as to the substance of the cables that were reviewed by Huang.261 Huang could have upgraded the level of the cable traffic made available to him to include Top Secret information, but never did so.262
Huang also had access to the intelligence reading room at the Commerce Department, as well as to classified materials sent to his supervisor, Charles Meissner,263 who had a higher level clearance.264 The three Office of Intelligence Liaison representatives who were interviewed by the Senate Committee on Governmental Affairs indicated that they were not personally aware of any instance in which Huang mishandled or divulged classified information.265
Huang maintained contact with representatives of the Lippo Group while he was at the Department of Commerce. During the 18 months that he was at Commerce, Huang called Lippo Bank 232 times, in addition to 29 calls or faxes to Lippo Headquarters in Indonesia. Huang also contacted Lippo consultant Maeley Tom on 61 occasions during the same period. Huang's records show 72 calls to Lippo joint venture partner C. Joseph Giroir.266
During his tenure at the Commerce Department, Huang used a visitor's office across the street at the Washington, D.C. branch of Stephens Inc., an Arkansas-based brokerage firm with "significant business ties to the Lippo Group." 267 Stephens employees indicated that these visits were short in duration.268 Huang used this office "two, three times a week" most weeks, making telephone calls and "regularly" receiving faxes and packages addressed to him.269
No one at the Commerce Department, including Huang's secretary, knew of this additional office.270
Huang met with PRC Embassy officials in Washington, D.C. on at least nine occasions. Six of these meetings were at the PRC Embassy.271 When informed of these contacts, Jeffrey Garten, the Department of Commerce Under Secretary for Trade Administration, was "taken aback" to learn that Huang ever dealt with anyone at the PRC Embassy.272 The purpose of the contacts is unknown.
On December 1, 1998, the Select Committee served Huang with a subpoena through his attorney. On December 3, 1998, Huang's attorney indicated that Huang would only testify before the Select Committee pursuant to a grant of immunity.273 The Select Committee declined to immunize Huang from prosecution, and Huang refused to appear before the Select Committee, invoking his Fifth Amendment rights.
Chapter 9 Notes
1 P.L. 96-72, 93 Stat. 503, 50 U.S.C. app. sec.