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Enforcement
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:
� Pre-license checks
� Post-shipment
verifications
� Liaison with other law
enforcement agencies
� Outreach programs to educate
businesses engaged in export activities
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.
Voluntary Disclosures
In
addition to reliance on standard methods of enforcement, the Commerce
Department has procedures for exporters to self-disclose their own
violations.
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
Administration Regulations
Since the 1979 Act expired in
August 1994, the Export Administration Regulations have been enforced
under the authority of the International Emergency Economic Powers Act.
The penalties that can be imposed under this law are less than the
penalties provided under the 1979 Act.
Penalties Under the 1979 Act (Expired
Since 1994)
The 1979 Act provided for criminal and civil
penalties, as well as administrative sanctions such as debarment from the
privilege of exporting.
Criminal penalties for knowing violations under the 1979 Act
included:
� Maximum fines of five times
the value of exports or $50,000, whichever is greater
� Imprisonment for a maximum of
five years106
Willful criminal violations were punishable by:
� Maximum fines of
$250,000
� Imprisonment of five to ten
years
� Fines of up to $1 million for
companies107
Civil penalties under the 1979 Act included:
� Fines of up to $10,000 per
violation
� In cases involving violations
of national security controls, fines of up to $100,000 per
violation108
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
Administrative
Sanctions
Administrative sanctions imposed under the Export
Administration Regulations include denial of export privileges for up to
ten years.110 Persons convicted under specified national security laws,
including the 1979 Act, may also lose export license privileges for up to
ten years.111
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
The criminal and civil penalties
under the International Emergency Economic Powers Act (IEEPA) are
substantially less than those provided under the 1979 Act. The maximum
civil fine is $10,000 per violation.116 The maximum criminal penalties
under IEEPA are $50,000 and/or ten years' imprisonment.117
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
Customs Enforcement
The U.S.
Customs Service is the principal border enforcement agency in the U.S.
Government. It has the authority to search any shipment that crosses the
U.S. border, whether entering or exiting the country.
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.
Commodity
Classification Requests Under
the Commerce Control List
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:
items/technologies specifically designed, developed, configured,
adapted and modified for a military application, or derived from
items/technologies specifically designed, developed, configured, adapted
or modified for a military application.121 [Emphasis
added]
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:
The intended use of the article or service after its export (i.e.,
for a military or civilian purpose) is not relevant in determining
whether the article or service is subject to the [International Traffic
in Arms Regulations] controls. . . 134
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:
� If doubt exists as to whether
an article or service is covered by the U.S. Munitions List or the
Commerce Control List
� To consider a redesignation
of an article or service that is covered by the Munitions
List
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
Registration
of Exports
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
Enforcement
Penalties for Violation of the Arms
Export Control Act and ITAR
The Arms Export Control Act
provides criminal penalties for willful violations, including one or both
of the following:
� Fines up to $1
million
� Imprisonment for not more
than ten years
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:
� Debarment from participating
directly or indirectly in the export of defense articles
� Interim suspension
� Seizure or forfeiture of
illegally exported articles
� Seizure of any vessel,
vehicle, or aircraft involved in illegal exports150
Voluntary Disclosures
The
International Traffic in Arms Regulations contain provisions for exporters
to self-disclose their violations. Voluntary self-disclosure may be
considered as a mitigating factor in determining the appropriate
administrative penalties. However, the weight to be given to a
self-disclosure is entirely within the discretion of the State Department.
Self-disclosure does not prevent the State Department from referring
transactions to the Department of Justice for criminal prosecution.151
BLUE LANTERN
Checks
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:
� First, most items that State
has approved for export to the PRC are commercial communications
satellites for launch in the PRC
� Second, State licenses the
export of U.S. munitions directly to the military of other
countries, and does not have the same requirement as Commerce to
check on end users and end uses in order to avoid diversions from civil
to military applications152
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
Background
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:
� The United States and the PRC
must agree on specific technology transfer safeguards
� The PRC must agree to take
steps that would protect the U.S. launch industry from future unfair PRC
pricing and trade practices
� An agreement had to be
negotiated establishing PRC responsibility for liability in case a
commercial launch caused third-party damage
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:
No one in the Reagan administration thought of this new policy as
a long term policy, let alone the beginning of a decade-long dependence
on Chinese rockets. Unfortunately, that's precisely what it's
become.163
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:
� If the President makes a
favorable report to Congress on the PRC's political and human rights
reforms
� If the President determines
that issuance of the license is in the national
interest164
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:
� Any defense article on the
U.S. Munitions List
� Any crime control and
detection instruments and equipment
� Any satellite of United
States origin that is intended for launch from a rocket owned by the
PRC
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:
We believe that the advantages of this project outweigh the risk,
and that we can effectively rebut criticism of the waiver. . . .
The project is in the national interest because the development of
China's civil communications infrastructure will promote access by
Chinese citizens in remote areas to people and ideas in democratic
societies. . . .
The current project also will help the competitiveness of U.S.
satellite exporters in a most important satellite
market.169
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:
Chuck Ruff, the cousel to the President, notes that there have
been extensive discussions with Justice on this matter.
The Department [of Justice] realizes the potential adverse impact
on a potential criminal prosecution but has chosen not to oppose the
waiver.
Therefore, in balancing national security and criminal justice
interests, Chuck agrees that the balance, under these special
circumstances, is properly struck by granting the waiver.170
[Emphasis added]
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:
Certainly the Department was put on notice that there was a waiver
application, and in that sense, we had an opportunity to weigh
in.
On the other hand, as I said, I didn't believe that we were being
asked for our views on whether or not the waiver should be granted as a
matter of policy.171
The transmittal memorandum from Caplan to the President also
stated:
Commerce must issue a second license within 90 days of this
waiver; if the Justice Department's evidence warrants, Commerce could
withhold this license and block the project.172
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:
� High-speed computers
� Commercial communications
satellites for launch by the PRC
� Missile technology or
equipment
The sanctions were effective on June 25, 1991, and applied to the
following foreign entities:
� China Great Wall Industry
Corporation
� China Precision Machinery
Import-Export Corporation
� The Space and Upper
Atmosphere Research Commission of Pakistan180
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:
� China National Space
Administration
� China Aerospace
Corporation
� Aviation Industries of
China
� China Precision Machinery
Import-Export Corporation
� China Great Wall Industries
Corporation or Group
� Chinese Academy of Space
Technology
� Beijing Wan Jun Industry
Corporation
� China Haiying Company
� Shanghai Astronautics
Industry Bureau
� China Chang Feng
Group185
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
List.189
In the United States, the State Department's Munitions
List contained items listed in COCOM's International Munitions List, and a
few items listed in COCOM's Industrial List. The Commerce Control List,
meanwhile, included most but not all of the items on COCOM's Industrial
List.
Relaxation of Satellite Export
Rules
When President Bush pocket-vetoed the Omnibus Export
Amendments Act of 1990 (H.R. 4653), which contained amendments to the 1979
Act, he issued a Memorandum of Disapproval that directed:
By June 1, 1991, the United States will remove from the U.S.
munitions list all items contained on the COCOM dual-use list [that is,
the COCOM Industrial List] unless significant U.S. national security
interests would be jeopardized.190
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:
� Anti-jam capability
� Antennas with certain
characteristics
� Intersatellite data relay
links
� Space-borne baseband
processing equipment
� Cryptographic items
controlled under the U.S. Munitions List
� Radiation-hardened
devices
� Certain on-orbit propulsion
systems
� Certain attitude control and
determination systems
� Permanent orbit transfer
engines (that is, kick motors)192
The Trade Promotion Coordinating
Committee
Recommends Moving Satellites to Commerce Department
Jurisdiction
The Export Enhancement Act of 1992 required the
President to establish the Trade Promotion Coordinating Committee:
(1) to provide a unifying framework to coordinate the export
promotion and export financing activities of the United States
Government; and
(2) to develop a governmentwide strategic plan for carrying out
the Federal export promotion and export financing
programs.193 [Emphasis added]
The 1992 Act stated that the Trade
Promotion Coordinating Committee would include representatives from the
Departments of Commerce, State, Treasury, Agriculture, Energy, and
Transportation, the Office of the United States Trade Representative, the
Small Business Administration, the Agency for International Development,
the Trade and Development Program, the Overseas Private Investment
Corporation, and the Export-Import Bank of the United States.
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:
� Establish a set of priorities
for Federal activities in support of U.S. exports
� Review current programs to
promote U.S. exports
� Identify areas of overlap and
duplication
� Propose an annual unified
Federal trade promotion budget
� Review efforts by the states
to promote U.S. exports
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:
[F]or some time the United States has imposed stringent export
controls on many of our most competitive exports . . . One reason I ran
for President was to tailor export controls to the realities of a
post-Cold War world.
Let me be clear. We will continue to need strong controls to
combat the growing threat of proliferation of weapons of mass
destruction and dangerous conventional weapons, as well as to send a
strong signal to countries that support international terrorism. But we
also need to make long overdue reforms to ensure that we do not unfairly
and unnecessarily burden our important commercial
interests.195
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:
The administration will review immediately those COCOM
International Industrial List items that currently are contained on the
US Munitions List (e.g., civil developmental aircraft, commercial
satellites) in order to expedite moving those items to the Commerce
Control List.196
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
Jurisdiction
Over Commercial Satellites To Commerce
In
January 1995, the Department of Commerce began to work with other
departments and agencies to transfer the rest of the commercial
communications satellites, including those which possessed any of the nine
militarily sensitive characteristics, from the State Department's
Munitions List to the Commerce Department's Control List.
 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:
Efforts by the State Department to keep commercial communications
satellites on the State Department Munitions List should not be allowed
to succeed.201
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:
Continuing to license export of these technologies under the more
stringent and cumbersome Munitions List places American companies at a
distinct disadvantage in global markets.202
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:
� Commercial products with
image intensifier tubes (1994)
� Commercial encryption items
(December 1996)
� Satellite fuels (April
1998)205
The 1999 Return of Jurisdiction
Over
Commercial Satellites to the State Department
The Strom
Thurmond National Defense Authorization Act for Fiscal Year 1999 directed
that all satellites and related items that are included in the Commerce
Control List should be transferred on March 15, 1999 back to the State
Department's Munitions List and controlled under the Arms Export Control
Act.206
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:
� Detailed description of all
militarily sensitive characteristics integrated within, or associated
with, the satellite
� Estimated number of U.S.
contractor personnel required in the PRC to carry out the satellite
launch
� Detailed description of the
U.S. Government's plan to monitor the satellite launch, including the
estimated number of required U.S. personnel
� Estimated cost to the
Department of Defense for monitoring the satellite launch, and the
amount to be reimbursed to the Defense Department
� Reasons why the satellite
launch in the PRC is in the national security interest of the United
States
� Impact of the proposed export
on employment in the United States on a state-by-state basis
� Impact of the proposed export
on reducing the current U.S. trade deficit with the PRC
� Impact of the proposed export
on the PRC transition from a nonmarket to market economy
� Impact of the proposed export
on opening new markets in the PRC to U.S. products
� Impact of the proposed export
on reducing significant PRC trade barriers to U.S. export and foreign
direct investment209
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.
High
Performance Computers
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:
As a part of [the Trade Promotion Coordinating Committee] process,
the National Security Council has led an effort to develop specific
export controls reforms . . .
I am optimistic that the steps we take will help liberalize
controls on many of our most competitive exports, while protecting
important national security concerns . . .
I am also engaged in seeking major reforms to COCOM, which should
lead to significant liberalization of controls on computers,
telecommunications and machine tools . . .214
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:
� Proposing an increase in the
level of computers that would not require an export license to most
destinations from 12.5 MTOPS to 500 MTOPS
� Proposing an increase in the
definition of a supercomputer from 195 MTOPS to 2,000 MTOPS and an
update to the safeguard requirements for
supercomputers215
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:
 I will say that he had concerns, but he
made it clear that on the whole, given the alternatives, that he felt
that the risks were not unreasonable.225
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 Administration has determined that computers capable of up to
7,000 million theoretical operations per second (MTOPS) will become
widely available in open international markets within the next two years
[i.e., by January 1998]. The Administration has also determined that
computers with performance capabilities at and above 10,000 MTOPS have a
significant number of strategic applications.
The revised Export Administration Regulations identified four Computer
Country Groups for export controls on computers:
� Tier 1 - most industrialized
countries. Exporters may ship computers with any level of
performance without a license to these countries. The exporter is
required to maintain records and must submit certain information to the
Commerce Department if requested regarding shipments of computers with
2,000 MTOPS and above.
� Tier 2 - countries with mixed
proliferation and export control records. Exporters may ship
computers up to 10,000 MTOPS without a license to these countries. The
exporter is required to maintain records on computer exports at 2,000
MTOPS and above, and to submit this information to the Commerce
Department if requested. Exports of computers over 10,000 MTOPS require
a license from the Commerce Department. (Hong Kong is included in
Tier 2.)
� Tier 3 - countries posing
proliferation, diversion, or other security risks. Exporters are
allowed to ship computers up to 7,000 MTOPS without a license to these
countries. The exporter must obtain a license from the Commerce
Department to export computers above 2,000 MTOPS to military and
proliferation end uses and end users, or to export computers above 7,000
MTOPS for all end uses and end users. Also, exporters must maintain
records of exports of computers from 2,000 MTOPS to 7,000 MTOPS. (The
People's Republic of China is included in Tier 3.)
� Tier 4 - terrorist countries.
A license is required for exports or re-exports of any computer,
regardless of MTOP level, to Cuba, Iran, Iraq, Libya, and North Korea.
Exports or re-exports of computers to Syria and Sudan with a performance
of 6 MTOPS and above are permitted with a license from the Commerce
Department. (Cuba, Iran, Iraq, Libya, North Korea, Sudan, and Syria
are included in Tier 4.)229
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:
� Semiconductors
� Semiconductor manufacturing
equipment
� Telecommunications
equipment
� Nuclear-controlled items
(e.g., oscilloscopes)
�
Chemicals232
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
Machine
Tools
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
Treatment of
Hong Kong
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. | 
