14 July 1998
Source: http://www.usia.gov/products/pdq/pdq.htm

STATEMENT OF JAN M. LODAL PRINCIPAL DEPUTY UNDER SECRETARY OF DEFENSE FOR POLICY BEFORE A JOINT HEARING OF THE COMMITTEE ON NATIONAL SECURITY AND THE COMMITTEE ON INTERNATIONAL RELATIONS U.S. HOUSE OF REPRESENTATIVES

June 18, 1998

I am pleased to appear today to discuss U.S. policy regarding the export of satellites to China. In my statement I will outline the policy framework and the role of the Department of Defense in implementing this policy.

In September 1988, President Reagan decided to permit the launch of U.S. commercial communication satellites by China. This decision was motivated by the desire to allow commercial relations with China to expand in a more normal manner. The Reagan administration understood the potential risk that such a program could lead to the transfer of missile-related technology to China, but also recognized that China had for many years had the basic technology necessary to develop and deploy effective ballistic missiles, including intercontinental missiles capable of hitting the United States.

To help ensure that no significant missile or satellite technology is transferred to China, the U.S. negotiated a bilateral technology safeguards agreement with the PRC in 1988. This bilateral technology safeguards agreement was renewed with minor modifications in 1993 and remains in force today. The agreement has two important features to protect U.S. national security interests: (1) it prohibits the transfer of specific technical data and assistance by U.S. companies to China and prohibits the Chinese from seeking that technical data or assistance; and (2) requires oversight and monitoring of the launch campaign by the U.S. government. I will address these particulars of this monitoring activity later in my statement.

The requirements of the bilateral technology safeguards agreement are implemented through conditions on export licenses. From 1988 to today, the jurisdiction for export licensing of satellites has shifted between the State Department munitions system and the Commerce Department dual-use system. There are three periods of time where the jurisdiction was different: (1) 1988 to 1992; (2) 1993 to 1996; and (3) 1996 to today. I will discuss each of these periods in turn.

From 1988 to the end of 1992, all communications satellites were licensed by the State Department under the International Traffic in Arms Regulations. Up to 1988, State had always had jurisdiction over such satellites and the decision by President Reagan to permit transfers to China did not change this system. In brief, State controlled all of the technical data and technical assistance required to perform a launch of a U.S. built satellite in China. These controls also extended to all design, development, and manufacturing data on communication satellites. Licenses issued by State for satellite transfers to China for launch contained several safeguards including conditions that required USG monitoring of the launch campaign as outlined in the U.S.-China bilateral technology safeguards agreement. During this period, there were four licenses issued by State for the launch of U.S. built satellites in China.

In late 1990, Congress passed the "Omnibus Export Amendments Act" which President Bush ultimately vetoed. One of the bill's provisions was a requirement to transfer to Commerce jurisdiction over those items on the State munitions list that were on the then-COCOM dual-use list. As an administrative matter, President Bush directed a review to accomplish this jurisdictional transfer in a manner that also ensured national security interests would be protected.

One result of this review was a decision by the Bush Administration in 1992 to transfer license jurisdiction for purely commercial communication satellites from the State Department to the Commerce Department. Commerce controls also extended to include "form, fit and function" technical data necessary to mate the satellite to the launch vehicle. Nine technologies were identified as giving a satellite specific military capabilities, and any satellite containing any of these nine technologies continued to require a license from the Department of State. For example, satellites with large antennas, intersatellite relay links, and specialized on- board processing remained under State control as did the "kick motors" necessary to launch satellites into high earth orbits. State also retained control over: (1) all launch vehicles; (2) all technical data beyond "form, fit, and function" that is - associated with the integration of satellites with launch vehicles; (3) all design, development, and manufacturing data on satellites; and (5) all technical assistance (e.g., engineering services) that might be provided by U.S. companies to the foreign launch service provider including any analyses of launch failures. The Clinton Administration issued some of the regulations implementing this jurisdictional change shortly after taking office in 1993.

During this period, monitoring by the U.S. government was required in all licenses for launches of satellites that contained one or more of the identified military-related technologies or kick motors, any launch vehicle integration technical data or any technical assistance - that is, in all the licenses issued by the Department of State. There were three launches during this period that were not monitored. These were launches of purely commercial satellites, licensed by Commerce, that did not include DoD monitoring. Monitoring had always been associated with the licenses issued by the State Department, and DoD license review procedures anticipated that there would be at least one State license required for the launch of even these commercial satellites now licensed by Commerce. However, these launches did not require any State licenses. We are not aware of any transfer of technology from these unmonitored launches that contributed to China's missile or military satellite capabilities. Nevertheless, DoD did conclude that full monitoring would be a strong safeguard at relatively low cost to the companies that should be applied to all license cases, even those that did not require Department of State licenses. This was agreed by all agencies and incorporated as a requirement in 1996 when jurisdiction was transferred to Commerce for all commercial communication satellites

The basic approach to implementation of the Bush Administration policy was to follow the established interagency procedures for the review of dual-use export licenses. During this period, it became increasingly clear that these procedures needed reform, not just for satellites, but across the board. The Clinton Administration undertook such a review, which led to the issuance of Executive Order 12981 in December of 1995. This Executive Order established strict timelines for license reviews, and put into place a disciplined dispute resolution process.

In 1996, President Clinton decided to transfer additional jurisdiction for commercial communication satellites from the State Department to the Commerce Department. DoD supported this transfer because the transfer did not involve certain sensitive technology associated with satellites and launch vehicles and because the transfer was accompanied by several changes in procedures that protect DoD's ability to ensure that transfers are consistent with U.S. national security. The system is now the following:

(1) Companies can export complete commercial communication satellites under a Commerce license even if they contain one or more of the individual military technologies that defined State jurisdiction over communication satellites prior to 1996. All of those individual military technologies, however, must still get a State license when not exported as part of a complete communications satellite.

(2) Commerce continues to control certain limited "form, fit, and function" technical data necessary to mate the satellite to the launch vehicle.

(3) State retains control over all launch vehicles, all technical data associated with launch vehicles or the integration of satellite payloads with launch vehicles, all design and manufacturing data for satellites, and all technical assistance that might be provided by U.S. companies to Chinese launch service providers including any launch failure analyses.

In addition, several changes were made to strengthen the Commerce system and the 1995 Executive Order governing interagency reviews of dual-use licenses. The changes in procedures that are now in effect include:

(1) License determinations are subject to majority vote of reviewing agencies with a continuing right of any dissenting agency to escalate the matter up to and including the President.

(2) Licenses can be denied for broad national security reasons to any destination.

(3) Communication satellites are not subject to formal foreign availability determinations under the Export Administration Act.

(4) All communication satellite licenses must include strong safeguards including DoD monitoring and payment of DoD monitoring expenses by the companies.

DOD currently reviews all communication satellite licenses to ensure that the proposed export would be consistent with U.S. national security interests. DOD's recommendations reflect inputs from relevant DoD components such as the Air Force and the National Security Agency. DoD's recommendations to approve such satellite exports are conditional on strong safeguards including:

-- A requirement that the satellite exporter prepare a Technology Control Plan which must be approved by DOD.

-- The Technology Control Plan must include: (1) a detailed transportation plan for shipping the satellite to ensure that only U.S. personnel have access to the satellite at all times; and (2) a detailed physical and operational security plan including procedures for the supervised mating of the satellite to the launch vehicle.

-- A requirement that technical data that the U.S. company wants to transfer to the Chinese launch service provider is approved in advance by DoD's Defense Technology Security Administration.

-- A requirement that a DOD monitor be present at technical meetings between the U.S. exporter and Chinese launch service personnel to ensure that no information is exchanged that would improve Chinese missile or satellite capabilities. This includes a requirement that DOD monitors be present at the launch site in China to oversee physical site security and launch operations.

Statutory Tiananmen sanctions require that the President issue a "national interest" waiver before a license may be issued for any U.S. satellite export to China. A memorandum with a recommendation is prepared for the President, typically by the State Department. In this connection, DOD has reviewed such memoranda to ensure that the memorandum accurately describes the safeguards and other conditions that DoD has recommended for inclusion on the license.

As the committees know, allegations that Loral Space Systems and Hughes Aircraft Company have committed export violations in connection with a failure of a Chinese launch of a Loral satellite in February 1996 are the subject of an ongoing criminal investigation by the Department of Justice. There is little that I can say about this matter beyond assuring you that DOD is cooperating fully with all Department of Justice inquiries into this matter. DoD was aware of these allegations at the time it was asked to review the export license applications for the launch of Loral's Chinasat-8 satellite in 1998. Those applications were reviewed carefully taking into account all the relevant information available to DoD at that time. DoD's decision to recommend approval of those licenses was based on the facts of those particular cases and on the specific safeguards required by the licenses.

In addition, DOD is cooperating fully with all Congressional inquiries and requests for a broad range of documents. DOD has already provided some documents even as we continue to collect and assemble additional documentation. I should note that the range and scope of those document requests is quite voluminous. We are committed to being fully responsive, but this means taking the time to make sure we are providing all of the materials that you and others have requested.

In summary, DoD takes its overall role in the development and implementation of export control policies very seriously. The case of commercial communication satellites and China presents significant challenges to the U.S. export control system as we seek to ensure that no technology is transferred that would improve China's indigenous missile or satellite capabilities. We believe that the current system protects our national security.

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