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14 July 1998



JUNE 18, 1998

Mr. Chairman, I want to thank the subcommittee for this opportunity to testify on the export of commercial communications satellites to China. I believe this Administration's policy on the export of commercial communications satellites to China both protects our national security and facilitates our economic well-being. In allowing China to launch U.S. satellites and transferring licensing jurisdiction for commercial communications satellites to Commerce, this Administration has continued and enhanced the policy of the Reagan and Bush Administrations and has been consistent with Congress' expressed intent.

Our current policy continues the decision by previous administrations to allow China to launch U.S.-built satellites subject to bilateral agreements on price, number of launches and technology safeguards. President Reagan began this policy in light of the growing demand for satellite launches, a demand which could not be met by U.S. launch service providers. His decision was a wise one, and he deserves credit for ensuring that the U.S. would continue its lead of the commercial communications satellite industry. Our view, like that of Presidents Reagan and Bush, is that under the appropriate safeguards these launches need not pose a risk to national security. In a moment I will describe these safeguards as they apply to Commerce licensed commercial communications satellites.

Commerce licensing of commercial communications satellites grew out of a 1990 decision by President Bush to veto a revised Export Administration Act which would, among other things, have moved all communications satellites to Commerce jurisdiction. President Bush's veto was not related to the satellite issue, but in his veto message he directed that State review its control list to determine if a range of items, including communications satellites, could be moved to Commerce jurisdiction, in light of the strong interest expressed by members of both parties in the jurisdictional issue and as the U.S. was the only country in the world to control communications satellites as munitions items. As a result of this directive, the State Department transferred an initial tranche of roughly half of all commercial communications satellites to Commerce licensing jurisdiction at the end of the Bush Administration. President Clinton committed in 1993 to continue the list rationalization exercise begun by President Bush. It is also worth noting that in 1990 and 1992 both houses of Congress passed legislation that would have transferred jurisdiction over commercial communications satellites to Commerce, and in 1994, committees in the House introduced and in the Senate reported bills with this provision. These actions are in addition to the letters the Administration received from a number of Members of Congress urging either the jurisdiction transfer or the export of satellites to China.

The 1992 transfer had established nine technical parameters relating to communications satellites' components and capabilities. Satellites with capabilities above the parameters were controlled by State. Those with lesser capabilities were controlled by Commerce. A 1995 review, undertaken by a working level group of technical experts led by the State Department, attempted to adjust these parameters to see if additional satellites could be moved to Commerce jurisdiction. However, this technical working group was unable to resolve several issues. Rapid technological change in the current generation of commercial communications satellites meant that the nine parameters could not consistently separate "military" from "commercial" communications satellites. These changes made the parameters outdated and illustrate the migration of military technology into the commercial communications satellite sector as the demand for satellite telecommunications services grows.

A cursory review of some of the parameters illustrates the problem. For example, a satellite flown at high earth orbit has a larger "footprint" on the ground than one flown at a low earth orbit. Even though the two satellites could be exactly the same, the one with the larger footprint would be treated as a munition if it flew at a higher orbit. As satellites become lighter, the same propulsion system provides greater acceleration. This means that new satellites, which weigh less than old models, would be controlled as munitions only because of their lighter weight.

Another parameter, cross-link capability, allows satellites to exchange data without going through an intermediary ground station. In 1990, only military satellites needed to "talk," but the development of communications satellites for a global mobile phone network means that civil satellites also needed to be able to ensure global coverage and to avoid the expense of numerous ground stations. Satellite antennae size was also a parameter. Satellite antennas allow the transmission and reception of signals from the ground. The larger the antenna, the better it can receive signals from small transmitters like cell phones. Successful implementation of global mobile telephone systems required that future civil communications satellites use these specialized antennas. Using these parameters to determine licensing jurisdiction means that Iridium, Teledesic and other satellite systems would now be licensed as arms exports.

With respect to the transfer of jurisdiction, Secretary of State Christopher, in a June 8 statement in the Los Angeles Times, makes clear that his 1995 decision was to task State and its industry advisory group to continue the process begun by President Bush in 1990 to determine what additional communications satellites could be moved to Commerce control. It was the Secretary's instruction that led to the eventual transfer of all satellites to Commerce, a decision which all agencies involved -- State, Defense, Commerce -- supported.

As Secretary Christopher noted, this unanimous recommendation was due in part to President Clinton's December 1995 Executive Order 12981, which revised the Commerce licensing process. This executive order provided the participating agencies -- State, Defense, Energy, and ACDA -- with the right to review and make recommendations on any Commerce license application they wished, and it established time lines and rules for interagency review and procedures for dispute resolution and allows any agency the chance to object to proposed exports through a hierarchy of committees from the working level all the way to the President. Moreover, as part of the transfer of jurisdiction, President Clinton amended Executive Order 12981 to specifically give State, Defense, Energy, and ACDA greater ability to object to a proposed export of commercial communications satellites.

In reality, no licenses have ever been sent to either Cabinet Secretaries or the President in this Administration, but disagreements go as high as the assistant secretary level in perhaps five percent of our cases. Every license approved by Commerce for commercial communications satellites since the 1996 transfer has had the unanimous assent of State, Defense, and ACDA, has been subject to the same level of stringent technology safeguards as satellites licensed at State, and has made clear to exporters that no rocket technology could be transferred.

The President's decision applied only to commercial communications satellites and the minimum equipment and technology needed for launch. Space launch vehicles and all detailed design or manufacturing data for space launch vehicles or communications satellites were not transferred to Commerce as part of this decision. Nor was there a transfer of numerous satellite components, if they were being exported separately rather than as part of a single satellite launch package.

The Presidents decision to transfer jurisdiction required that Commerce impose enhanced controls on satellites. These new controls excluded commercial communications satellites from certain provisions of the Commerce regulations, such as foreign availability, which can be used to release items from licensing. In addition, the enhanced controls created a new and higher standard for reviewing communications satellite licenses which requires a review of every application to determine if the export is consistent with U.S. national security and foreign policy interests. Language from the Arms Export Control Act was used with the intent of providing the same level of control under Commerce regulations as was found under State regulations.

Commerce licenses for communications satellites contain numerous conditions and provisos developed in conjunction with the Departments of Defense and State. Under Commerce licenses, exporters are obliged to comply with the terms of the satellite technology safeguards agreement between the U.S. and China, which requires them to:

-- develop a technology transfer control plan which identifies the level and extent of technical data to be released, and which also includes plans for securing the satellite during its transportation to the launch site;

-- have all technical data under the license reviewed by the Defense Department prior to its release to the launch service provider and have a Defense Department monitor present at technical meetings and launch activities with the Chinese launch service provider;

-- transport the satellite in a sealed container allowing no access to equipment or technical data and with U.S. monitors to accompany the satellite if it is transported on a non-U.S. aircraft;

-- have a separate cryptographic equipment safeguard plan for communications security equipment;

-- limit technology which can be released under the Commerce license to only form, fit and function data used to mate the satellite to the rocket and require the exporter, in the event of a launch failure, to obtain a license from State before releasing any new technical data.

In light of these safeguards, I believe the existing Commerce licensing system fully protects our nationals security and foreign policy concerns. There have been no allegations regarding export control violations of Commerce satellite licenses since the transfer of jurisdiction.

I understand there have been questions raised about an analysis conducted of the 1995 APSTAR II launch failure. After that failure, the company involved conducted an analysis without the participation of the Chinese launch service provider. The analysis was written in order to satisfy insurance requirements. The analysis was reviewed by the Department of Commerce, which determined that it contained only information already authorized for export under the original Commerce license issued in February 1994. The unclassified report was provided first to a consortium of Western insurance companies and later to the Chinese launch service provider.

I would also like to correct some misunderstandings which have arisen regarding the Commerce licensing process as a result of an earlier review by the General Accounting Office. In particular, GAO asserted that there are five differences in the treatment of satellite licenses at Commerce and at State. A closer look shows these differences do not affect national security. GAO reported that:

-- Congressional notification of individual licenses is not required in the Commerce system. Commerce regularly briefs the Hill, issues annual reports, provides licensing documentation and answers inquiries upon request. We have provided briefings on satellite exports, and we briefed on the transfer of jurisdiction in 1996.

We are not aware that the Congress has ever objected to any satellite export, and the message that Congress has consistently sent is that it wants satellites controlled as dual-use items under the Export Administration Act, which does not generally provide for Congressional review of individual licenses. In the specific case of satellites, of course, there can be no exports to China without a Tiananmen Square waiver which is notified to the Congress.

-- Sanctions for missile proliferation do not apply to Commerce licenses. Sanctions do apply to Commerce in cases of Category I violations, and the President generally has flexibility to include dual use export sanctions in other cases. Normally, however, Category II missile sanctions apply only to munitions and dual-use items controlled under the Missile Technology Control Regime. Commercial communications satellites fall into neither category. Congress clearly intended Category II sanctions to be less onerous than Category I sanctions, which do cover dual use items.

-- Defense's power to influence the decision making process has diminished. DOD's authority has not diminished in this regard. Commerce has denied licenses when Defense has raised national security concerns found credible by the reviewing agencies, but Executive Order 12981 does not give Defense or any other agency a veto over licensing, which would be contrary to legislative authorities and Congressional intent. It does, however, permit an agency, including DOD, to prevent approval of any license until the President has heard and decided on its objections.

-- Technical information may not be as clearly controlled under Commerce procedures. Since Commerce technology conditions are almost identical to those used at State, it is hard to see how the level of control on technology has changed.

-- The additional controls placed on communications satellites transferred in 1996 do not apply to those transferred in the Bush Administration. This the assertion misses the point. In practice, all satellite applications subject to Commerce license after the transfer are subject to the same safeguards, and the other agencies have the same review and escalation rights.

Let me also suggest that as a matter of policy there are several reasons why allowing Chinese launches of U.S.-manufactured satellites is in our interest. First, this is a large and important industry that is growing rapidly. U.S. industry revenues last year were $23.1 billion, a 15% increase from the previous year. Employment in 1997 was over 100,000, a 10% increase from the previous year. The industry indicates that it currently has $1.7 billion in launch contracts on Chinese rockets, with 8,000 U.S. aerospace jobs directly supported by those contracts. With over 1200 satellites expected to be launched over the next ten years, it is clear that the U.S. industry will continue to need access to the fill range of launch providers if it is to remain the world's leader. And that is a status I think we all support, because it is not only good for our economy, it is good for our military and our national security as well. As the line between military and civilian technology becomes increasingly blurred, what remains clear is that a second class commercial satellite industry means a second class military satellite industry as well -- the same companies make both products, and they depend on exports for their health and for the revenues that allow them to develop the next generation of products.

Second, some of these satellites bring telephone, television, and Internet services to the Chinese people. I believe such services are an integral part of any effort to bring democracy and freedom to China. History has shown that it was the successful example of the West -- not only in military strength but in standard of living and freedom of expression -- that brought the Cold War to an end. Our goal should be to bring not only our products but our ideas and values to China, but we cannot do that if they do not have the technological tools to receive them.

International security since the end of the Cold War poses very real problems for the United States. We are in the midst of a serious debate as to whether we should seek to constructively engage those with whom we have disputes or whether we should simply try to punish them through unilateral embargoes and sanctions. It may make us feel good to impose Cold War-style embargoes on these countries -- even though they rarely work -- but they do not help us achieve our objective of changing the other country's behavior. Those who find it in their interest to exaggerate the threat of trade with China seem incapable of defining our relations with this emerging power in any terms but those of military conflict. However, we believe that treating China as a committed adversary is the quickest way to ensure it becomes one, and we remain convinced that it is better to engage China frankly in dialogue, in trade, and in ideas than it is to seek to isolate them.