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18 June 1998
Source: http://www.usia.gov/current/news/latest/98061807.elt.html?/products/washfile/newsitem.shtml

United States Information Service Washington File

18 June 1998

TEXT: UNDER SEC. HOLUM TESTIMONY ON CHINA SATELLITE EXPORTS

(Holum: China indispensable to nonproliferation policy) (3020)

Washington -- "China is indispensable to any effective
nonproliferation policy," said Acting Under Secretary of State for
Arms Control and International Security Affairs John D. Holum.

"China's approach can make the crucial difference between success and
failure -- whether in negotiating international arms control and
nonproliferation agreements, dealing with difficult regional
proliferation challenges, or constraining the transfer of potentially
destabilizing goods and technology," Holum said before the Senate
Subcommittee on International Security, Proliferation, and Federal
Services June 18.

Holum said the program to allow the launch of U.S.-made satellites and
satellites composed of mainly U.S. parts beginning in 1988 was an
incentive to China. "This policy has been used judiciously as a
'carrot' to encourage China to enforce strengthened nonproliferation
standards," he said.

In order to protect U.S. national security, the bilateral technology
safeguards agreement between the United States and China sets limits
the level of technical data that may be provided to the Chinese, Holum
said. "The agreement provides for the right of the United States
Government oversight of all stages of a planned Chinese launch,
including preparations, satellites transportation, and launch," he
said.

Holum assured the subcommittee that the recent waiver of the Tiananmen
Sanctions earlier this year for Loral's Chinasat-8 project was handled
in a normal manner.

The State Department had been aware Loral was under investigation by
the Department of Justice at the time their waiver was submitted,
Holum said. "The State Department's policy has been that, provided the
activity proposed for waiver is consistent with United States national
security and foreign policy, we do not deny export privileges to
United States firms that are under investigation but have not been
indicted."

Following is the text of Holum's testimony, as prepared for delivery:

(begin text)

Testimony of the Honorable John D. Holum
Acting Under Secretary of State for
Arms Control and International Security Affairs
Before the
Senate Subcommittee on International Security,
Proliferation, and Federal Services

June 18, 1998

Mr. Chairman and members of the Committee, thank you for the
opportunity to address U.S. policy regarding the launching of U.S.
satellites from China.

I'd like to make several fundamental points to place this issue in
context. The first is that nonproliferation of weapons of mass
destruction is a cornerstone in U.S. foreign and national security
policy. We have placed great emphasis on strengthening international
standards -- a permanent NPT, completing the comprehensive test ban
treaty, entry into force of the Chemical Weapons Convention, efforts
to strengthen the Biological Weapons Convention, tighter multilateral
restraint such as in the Missile Technology Control Regime. We have
pressed better detection -- our own technologies, enhanced IAEA
safeguards, and others. We have pursued all the tools of diplomacy at
all levels.

In her speech last week at the Stimpson Center, Secretary Albright
catalogued in some detail our emphasis on nonproliferation and arms
control and our broad strategy for pursuing those goals. Trends such
as Iran's progress toward a medium range missile capability and the
nuclear tests in South Asia make clear that these are not theoretical
concerns, but looming threats. There is no disagreement between the
Executive Branch and the Congress on the vital importance of these
issues.

The second point is that China is indispensable to any effective
nonproliferation policy.

China is a nuclear weapon state. Since the 1980s it has had a small
but potent arsenal of ballistic missiles, some of which are capable of
reaching the United States. It is a potential supplier of weapons,
materials and technology to countries of proliferation concern.
China's approach can make the crucial difference between success and
failure -- whether in negotiating international arms control and
non-proliferation agreements, dealing with difficult regional
proliferation challenges, or constraining the transfer of potentially
destabilizing goods and technologies.

Unquestionably, China has been part of the proliferation problem. Its
relationship with Pakistan's nuclear weapons has been a major concern
since the 1970's; by 1990, the U.S. could no longer certify the
absence of a nuclear weapons program in Pakistan. We also take sharp
issue with China's chemical and missile cooperation with Iran. In
1991, the Bush Administration sanctioned two Chinese entities, and in
1993 the Clinton Administration sanctioned eleven Chinese entities,
for transferring missile equipment and technology to Pakistan.

At the same time, my third basic point is that although we still have
serious concerns, China's approach to nonproliferation has changed
markedly in recent years.

Recall that China once advocated proliferation of nuclear weapons as a
means of "breaking the hegemony of the superpowers." But in 1992 China
joined the Nuclear Non-Proliferation Treaty (NPT) and thereby accepted
a legal obligation not to assist others to acquire nuclear arms. As an
NPT member, China has proven to be a constructive partner in our
efforts to constrain the nuclear ambitions of North Korea. China has
ratified the Chemical Weapons Convention and signed the Comprehensive
Test Ban Treaty.

In 1994, China committed not to export MTCR-class ground-to-ground
missiles. China's exports of missile-related components and technology
appear to reflect a narrower understanding of the MTCR Guidelines than
ours, but we have no evidence that China has acted inconsistently with
its basic 1994 commitment. Similarly, we assess that China continues
to abide by its 1996 agreement to end assistance to unsafeguarded
nuclear facilities in Pakistan or anywhere else. China is taking steps
to improve its export controls, including recent announcement of new
dual use nuclear-related controls. And last year, China agreed to
conclude its nuclear cooperation with Iran, and also to terminate its
export of cruise missiles to that country. Today, it is working with
us in efforts to promote stability and prevent an arms race in South
Asia.

So the picture is mixed. The progress is substantial, but not enough,
especially given the stakes. Therefore, my final broad point is that
we must continue to use all the tools at our disposal to make China
part of the nonproliferation solution. And we need to fashion the mix
of tools in the way best designed not necessarily for psychic
satisfaction, but for nonproliferation results.

What are the tools?

-- Intensive diplomacy at all levels, including that of President
Clinton and his predecessors.

-- The front-line, day-to-day work of nonproliferation, with experts
sifting through intelligence reports and generating demarches aimed at
preventing specific transfers.

-- Technical collaboration, such as our expanding cooperation to
improve China's export controls.

-- Sanctions. China's undertakings on missile restraint in 1992 and
1994 came about through waivers of sanctions then in force. The
potential for sanctions was part of the atmosphere in 1996, when China
pledged not to assist unsafeguarded nuclear facilities, and in 1997
when China agreed to cease sales of cruise missiles to Iran.

-- And positive incentives. Unquestionably, China's recent
far-reaching steps on nuclear nonproliferation were motivated, at
least in part, by the prospect of civil nuclear cooperation with the
United States.

Let me emphasize, however, that there are clear limits to incentives.
Specifically, the United States continues our long-standing support
for and cooperation with Taiwan, as President Clinton's actions during
the 1996 crisis demonstrated. And, of particular relevance to the
subject of this hearing, neither this Administration nor its
predecessors have been willing to sell China arms or transfer
sensitive technologies that could contribute to China's own WMD or
missile programs.

One aspect of our efforts to persuade China to adopt a more
responsible nonproliferation policy, particularly regarding missile
transfers, has been the basic policy of three administrations,
beginning in 1988, to allow U.S.-made satellites and foreign
satellites with significant U.S. components and technology to be
launched on Chinese rockets. This policy has been used judiciously as
a "carrot" to encourage China to enforce strengthened nonproliferation
standards.

But, again, the incentive is clearly limited, to exclude transfer of
sensitive missile or satellite technology when satellites are licensed
for launch from China. The U.S. has a very strict policy, secured in a
bilateral technology safeguards agreement between the U.S. and China,
designed to prevent the transfer of sensitive missile technology to
China that could assist its space launch vehicle program. The
agreement specifically precludes U.S. persons from assisting China in
any way on the design, development, operation, maintenance,
modification, or repair of launch vehicles.

The agreement itself also limits the level of technical data that may
be provided to the Chinese to specific interface data related to form,
fit and function that are necessary to mate the satellite to the
launch vehicle. And the agreement provides for the right of U.S.
Government oversight of all stages of a planned Chinese launch,
including preparations, satellite transportation, and launch.

The Department of State has delegated the responsibility for
implementing this agreement to the Department of Defense. The Defense
Technology Security Administration (DTSA) acts as the executive agent
for the U.S. side.

Licenses for the export of satellites for launch from China are issued
subject to conditions designed to ensure the protection of sensitive
technologies, including a requirement that the U.S. licensee conform
to the technology safeguards agreement. Under current regulations DTSA
representatives attend meetings between manufacturers and Chinese
launch service providers to ensure that there is no transfer of
unauthorized technology or technical data.

We do not believe that the commercial space launch activities that
have been authorized by licenses and monitored under these procedures
have benefited China's missile or military satellite capabilities.

Against this background, I would like to give you the State
Department's perspective on two events that have been the subject of
broad reporting and commentary: first, the transfer of jurisdiction
from the State Department to the Commerce Department for commercial
communications satellites, and second, the most recent waiver, in
February 1998, for Loral's Chinasat-8 project.

One unfinished piece of business facing the Clinton Administration
when it took office in 1993, was a set of amendments to the
International Traffic in Arms Regulations (ITAR) that had been
prepared at the end of President Bush's Administration. The ITAR,
administered by the State Department, implements the President's
authorities under Section 38 of the Arms Export Control Act. The ITAR
contains the U.S. Munitions List, which specifies articles and
services which require a State Department license before they may be
exported or, in certain cases, discussed with a foreign person.

In 1990, Congress inserted specific provisions in reauthorization of
the Export Administration Act calling for removal of certain items
from the U.S. Munitions List. In his veto message on the bill,
President Bush said his Administration nonetheless would act to remove
dual-use items from the U.S. Munitions List, except for those
warranting the special controls of the ITAR. This led to an
inter-agency study, and then draft amendments to the ITAR to remove
certain dual use items, including commercial communications
satellites.

However, since the conclusion of that study generally coincided with
the election of President Clinton, the State Department deferred
implementation so the incoming Administration could review the matter.

In July 1993 following further interagency study, the Clinton
Administration approved the Bush Administration's proposed ITAR
amendments without change. As a result, many commercial communications
satellites were removed from the U.S. Munitions List and placed under
the export licensing jurisdiction of the Department of Commerce.
Commercial satellites remaining on the Munitions List were outlined in
Category XV of the list, and cover nine specific performance
characteristics such as antennae capabilities, encryption devices, and
propulsion systems. Over the next two years, those characteristics
continued to define which communications satellites required a U.S.
Munitions License and which required approval by the Department of
Commerce.

The U.S. aerospace industry continued to press for treatment
comparable with other communications trade, such as fiber optics and
telephone switching equipment, which were controlled under the
Commerce Department's Control List. They pointed out that
characteristics once unique to military satellites were now routinely
employed on commercial communications satellites. And they argued that
the 30-year U.S. lead in building and exporting commercial
communications satellites was under challenge from Japan, Europe and
Canada, who were promoting the view that American manufacturers were
unreliable because of the U.S. Government's restrictive export
policies.

Secretary Christopher agreed on the need to ensure that U.S. Munitions
List controls in this area are up to date and justified, and requested
that an interagency study be undertaken on whether the characteristics
specified in the International Traffic in Arms Regulations
appropriately identified those communications satellites having
significant military or intelligence capability. This inter-agency
study was organized by the State Department and included the
participation of the Defense Department, the Intelligence Community,
the Arms Control and Disarmament Agency, the Department of Commerce,
NASA and other interested agencies.

In September 1995, Secretary Christopher received and approved
recommendations from the interagency group narrowing, but not
eliminating, U.S. Munitions List controls. Those recommendations were
supported by the Defense Department and the Intelligence Community.
The Commerce Department supported removal of all commercial
communications satellites from the U.S. Munitions List. Commerce then
exercised its right to seek Presidential review.

This led to additional inter-agency review under the aegis of the
National Security Council. As distinct from the earlier, split
recommendation, this review produced a common recommendation from
State, Commerce, Defense and the Intelligence Community, with two
important parts.

Henceforth, commercial communications satellites would be controlled
by Commerce even if they had embedded in them individual munitions
list components or technologies; in all other cases, munitions list
technologies or components themselves would continue to be controlled
on the U.S. Munitions List, subject to State Department licensing.

However, the further shift in control was accompanied by new control
procedures and regulations to strengthen safeguards. Interagency
review was strengthened, giving State and Defense the right to review
all Commerce export license applications. A new foreign policy and
national security control was established in Commerce's Export
Administration Regulations whereby State and Defense could recommend
denial of a satellite export to any destination on the basis of
national security or foreign policy interests. Commercial
communications satellites were made exempt from the foreign
availability requirements of the Export Administration Act.

As Secretary Christopher noted in a recent letter published in the Los
Angeles Times, these new features made it possible for the State
Department to change its position and support the March 1996
recommendation to the President.

The bottom-line question is, of course, has this change resulted in a
degradation of protection for U.S. national security. It was Secretary
Christopher's conclusion, and remains the judgment of the Department
of State, that the changes made in the Commerce export licensing
system in 1996 were sufficient to deal with the national security
sensitivities associated with foreign launches of communications
satellites. They provide a degree of protection for these items when
under Commerce control that approximates the strict controls of the
International Traffic in Arms Regulations. Therefore, the State
Department was provided with reasonable assurance that U.S. national
security would not be adversely affected with the jurisdictional
change.

Finally, let me report that the waiver of Tiananmen Sanctions earlier
this year for Loral's Chinasat-8 project was handled in a normal
manner, in accordance with the procedures used in previous waiver
requests.

This dealt with the proposed export under a Commerce license of a
commercial communications satellite to the China National Postal and
Telecommunications Appliances Corporation for launch from China. The
satellite, once launched, will provide commercial voice, video and
data traffic to China. The State Department received applications to
approve technical assistance agreements in conjunction with the
export, and these were distributed for interagency review. After all
consulted agencies concurred in the issuance of the proposed technical
assistance agreements, subject to the normal limitations and
conditions, the State Department recommended to the President that he
waive Tiananmen sanctions, in accordance with established procedures.

When we recommended the waiver, senior Administration decision-makers
were aware that Loral was under criminal investigation for alleged
violations of the Arms Export Control Act. But the State Department's
long-standing policy has been that, provided the activity proposed for
waiver is consistent with U.S. national security and foreign policy,
we do not deny export privileges to U.S. firms that are under
investigation but have not been indicted. However, if a U.S. firm is
indicted, the Department does adopt a denial policy on the basis of
the indictment, and does not wait for a conviction.

The State Department recommended the Presidential waiver for
Chinasat-8 in line with the established policy that such exports are
in our national interest. Permitting the launch of satellites from
China is part of our broader engagement policy, which includes a
strong basis for U.S.-Chinese cooperation on missile nonproliferation
issues.

Of course there were other arguments for the waiver, including the
desire to help preserve the U.S. lead in telecommunications industry
and jobs for American workers. But these aspects would not outweigh
nonproliferation and national security considerations.

It is against this backdrop that the United States conducts commercial
space launch cooperation with China. We strive to accommodate U.S.
commercial and economic interests -- including promoting U.S.
satellite exports -- but within our paramount nonproliferation and
national security objectives. We have a system, involving the
licensing and technical safeguards processes, to deny access to
sensitive missile technology by China. At the same time, if any
persons violate our laws and regulations in this area, then such
violations need to be investigated fully and prosecuted accordingly.

The United States has engaged China at the highest levels regarding
its nonproliferation policies and practices. We continually encourage
China to strengthen its export controls and to bring its
nonproliferation polices and practices more in line with international
norms. The prospect of launching U.S. satellites -- under technology
safeguards and according to the disciplines of our commercial space
agreement -- is an important inducement to a positive evolution in
Chinese policy, which, in turn, is indispensable to the containment of
proliferation in a dangerous world.

(end text)