The Chemical Weapons Convention: Effects

on the U.S. Chemical Industry

August 1993

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Recommended Citation:

U.S. Congress, Office of Technology Assessment, The Chemical Weapons Convention:

Effects on the U.S. Chemical Industry, OTA-BP-ISC-1O6 (Washington, DC: U.S.

Government Printing Office, August 1993).

ii

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— .

Foreword

H

istorically, arms control treaties have had little direct impact on private industry.

With a few rare exceptions--such as the onsite inspections of missile-production

plants mandated by the Intermediate-range Nuclear Forces (INF) Treaty—such

agreements have not covered manufacturing facilities but have sought to limit the

numbers of deployed weapon systems. For this reason, the impending implementation of

the Chemical Weapons Convention (CWC) will bring about a fundamental change in the

practice of arms control.

The Convention, which is expected to enter into force in early 1995, bans the

development, production, and use of chemical weapons. Since these activities are hard to

detect with national technical means of verification such as reconnaissance satellites, the

CWC is unprecedented in its requirement for intrusive onsite inspections of commercial

production facilities, particularly those manufacturing “dual-use” chemicals that have

legitimate commercial applications but can also be converted into chemical-warfare agents.

Indeed, the ability to conduct onsite inspections at any one of tens of thousands of chemical

plants worldwide will be essential to maintain confidence that all parties to the treaty are

complying with its provisions,

This background paper explores the multifaceted challenge of integrating a private,

primarily civil industry into the global arms-control regime established by the CWC. The

interaction between industry and arms control raises new and challenging issues, such as

reconciling the intrusive verification provisions of the treaty with the privacy protections

of the U.S. Constitution, and addressing the concern that CWC-mandated declarations and

inspections of chemical plants could provide opportunities for industrial espionage.

Implementation of the Convention will entail an unavoidable tradeoff between the need to

gather enough information to verify treaty compliance and the risk that intrusive inspections

could jeopardize valuable trade secrets. The background paper concludes, however, that

advance preparation by industry can mitigate such concerns.

The Senate Select Committee on Intelligence and the House Permanent Select

Committee on Intelligence requested this background paper. It is one product of a larger

OTA assessment, requested by several congressional committees, of the proliferation of

weapons of mass destruction.

Roger C. Herdman, Director

. . .

Ill
James E. Goodby, chairl

Distinguished Service Professor

Carnegie-Mellon University

James F. Leonard, chair2

Executive Dirtxtor

Washington Council on

Non-Proliferation

George Anzelon

Associate Division Leader

Lawrence Livermore National

Laboratory

Will D. Carpenter

Chemical Industry Consultant

Lewis A. Dunn

Assistant Vice President

Science Applications

International Corp.

Randall Forsberg

Executive Director

Institute for Defense and

Disarmament Studies

Thomas R. Fox

Director

Office of National Security

Technology

Pacific Northwest Laboratories

Alan R. Goldhammer

Director of Technical Affairs

Industrial Biotechnology

Association

John M. Googin

Senior Staff Consultant

Martin Marietta Energy

Systems, Inc.

Robert G. Gough

Senior Member, Technical Staff

Sandia National Laboratories

Elisa D. Harris3

Senior Research Analyst

The Brookings Institution

Geoffrey Kemp

Senior Associate

Carnegie Endowment for

International Peace

Joshua Lederberg4

Rockefeller University

John W. Lewis

Center for International

Security and Arms Control

Stanford University

Lee W. Mercer

Corporate Export Manager

Digital Equipment Corp.

Matthew S. Meselson

Department of Biochemistry

and Molecular Biology

Harvard University

Stephen M. Meyer

Center for International Studies

Massachusetts Institute of

Technology

Gary Milhollin

Director

Wisconsin Project on Nuclear

Arms Control

Marvin M. Miller

Senior Research Scientist

Department of Nuclear Engineering

Massachusetts Institute of Technology

Janne E. Nolan

Senior Fellow in Foreign Policy

The Brookings Institution

William C. Potter

Director

Center for Russian and Soviet Studies

Monterey Institute of

International Studies

Barbara Hatch Rosenberg

Division of Natural Sciences

State University of

New York at Purchase

Lawrence Scheinman

Associate Director

Peace Studies Program

Cornell University

Leonard S. Spector

Senior Associate

Carnegie Endowment for

International Peace

Sergio C. Trindade

President

SE2T Interrnational, Ltd.

1 Resigned Mar. 22, 1993.

2 Panel member until June 1, 1993;

Panel chair after June 1, 1993.

3 Resigned Jan. 29, 1993.

4 Ex-officio; Member of Technology

Assessment Advisory Council.

NOTE: OTA appreciates and is grateful for the valuable assistance and thoughtful critiques provided by the advisory panel

members. The panel does not, however, necessarily approve, disapprove, or endorse this background paper. OTA assumes

full responsibility for the background paper and the accuracy of its contents.

iv
Peter Blair

Assistant Director, OTA

Energy, Materials, and International

Security Division

Alan Shaw

Program Manager

International Security and

Commerce Program

Preject Staff

PROJECT STAFF ADMINISTRATIVE STAFF

JONATHAN B. TUCKER Jacqueline Robinson Boykin

Office Administrator

Thomas Karas

Louise Staley

Administrative Secretary

CONTRACTOR

Dan Fenstermacher Madeline Gross

Contractor

Gerald L. Epstein

Project Director

v
Expert Reviewers

Calissa W. Brown

Counsel, Legal Department

E.I. Du Pent de Nemours & Co.

Wilmington, DE

Gordon M. Burck

Senior Policy Analyst

EAI Corp.

Alexandria, VA

Sigmund R. Eckhaus

Consultant, Bureau of Multilateral

Affairs

U.S. Arms Control &

Disarmament Agency

Washington, DC

Barry Kellman

Professor of Law

DePaul University College of Law

Chicago, IL

Kyle B. Olson

Director, Industry and Arms Control

chemical and Biological Arms

Control Institute

Alexandria, VA

Richard M. Patterson

Government Relations Manager

Dow Chemical Co.

Washington, DC

Susan D. Leibbrandt

Special Assistant

Assistant to the Secretary of

Defense for Atomic Energy

(Chemical Matters)

Pentagon

Raymond R. McGuire

Treaty Verification Office

Lawrence Livermore National

Laboratory

Livermore, CA

Michael H. McMillan

Chief, Security Office

On-Site Inspection Agency

Washington, DC

Dominic Pastore

Attorney-Advisor

Office of Intelligence Policy

& Review

U.S. Department of Justice

Washington, DC

Brad Roberts

Senior Research Fellow

Center for Strategic and

International Studies

Washington, DC

Dawn Shiley

Assistant Manager, Government

Affairs

Synthetic Organic Chemical

Manufacturers Association

Washington, DC

Jessica Stern

Special Projects Program

Lawrence Livermore National

Laboratory

Liver-more. CA

Edward A. Tanzman

Manager, Economics and

Law Section

Argonne National Laboratory

Argome, IL

Michael P. Walls

Senior Assistant General Counsel

Chemical Manufacturers

Association

Washington, DC

Leo Zeftel

Chemical Industry Consultant

Wilmington, DE

NOTE: OTA appreciates and is grateful for the valuable assistance and thoughtful critiques provided by outside reviewers. These

individuals do not, however, necessarily approve, disapprove, or endorse this background paper. OTA assumes full responsibility for

the background paper and the accuracy of its contents.

vi
contents

1 Overview and Findings 1

Findings 2

2 The Chemical Weapons Convention 5

Verification Challenges 6

Steps Toward Implementation 9

Changing Industry Attitudes 10

Companies Affected by the CWC 12

3 Treaty Obligations for Industry 19

Reporting Obligations 19

Inspection Obligations 24

Costs of Inspections 28

4 Constitutional and Other Legal Issues 33

Routine Inspections 34

Challenge Inspections 37

Penal Sanctions 38

Compliance with Environmental and Safety Laws 39

Liability Issues 40

Export Controls 40

5 Protection of Proprietary Information 43

Patent and Trade-Secret Law 46

Proprietary Data and Reporting 47

Proprietary Data and Inspections 48

Preparing for Inspections 50

Inspector Reliability 53

Safeguarding Reported Data 54

Compensation for Loss of Proprietary Information 57

6 Verification Technologies and Industry 61

Nonintrusive Verification Technologies 62

Unattended Monitoring Equipment 63

. -

Index 6 7

vii
Overview

and

Findings 1

T

he Chemical Weapons Convention (CWC), which is

expected to enter into force in early 1995, differs from

previous arms-control treaties in the magnitude of its

effects on private industry, including extensive reporting requirements and onsite inspections of commercial chemical

plants. While the CWC will have a direct impact on chemical

manufacturers, it will also affect a wide variety of firms that

process or consume chemical products, Treaty implementation

will involve a delicate balance between the need for intrusive

verification to ensure that the participating states are complying

with the regime and the desire to minimize any negative

consequences for legitimate industrial activities.

Major U.S. chemical companies support the CWC and believe

the goal of eliminating chemical weapons warrants accepting

additional regulatory burdens. They are concerned, however, that

compliance costs may be significantly higher than government

officials assume and that the treaty’s reporting and inspection

requirements could open the door to industrial espionage,

harming the international competitiveness of one of the strongest

U.S. industrial sectors. Other treaty proponents respond that

implementation will not pose undue burdens and that the

objective of a chemical weapons-free world is worth some

investment and sacrifice on the part of industry.

Congress will need to address these issues in the CWC

implementing legislation, which will convert the CWC’s provisions into domestic law and codify the procedural and substantive rights and obligations of commercial industry in complying

with the treaty. This background paper examines the implications

of the CWC for U.S. industry, focusing on industrial compliance

with the treaty’s declaration and reporting requirements and the

protection of trade secrets. These issues are examined with

respect to the extent to which they are covered in the treaty text

itself or must be included in the implementing legislation.

44 I i

- .

.,
2 I The Chemical Weapons Convention: Effects on the U.S. Chemical Industry

The paper also examines some ways to ensure that

CWC verification is both effective and consistent

with the basic protections in the U.S. Constitution.

FINDINGS

1. Many U.S. chemical manufacturers, processors, and consumers will have at least

some declaration and/or inspection obligations under the treaty. The U.S. Government is ultimately responsible for the

treaty compliance of all the companies located on its territory, including foreignowned branches and subsidiaries. Because of

the difficulty of identifying and notifying

smaller firms that may have treaty obligations, effective implementation of the CWC

will require an extensive program of industry

education and outreach.

2.

3.

Data needed for CWC verification will

differ, both quantitatively and qualitatively, from that collected for management

and regulatory purposes, and hence will

require some augmentation of existing

corporate reporting systems. Although the

precise reporting obligations are still being

worked out, the need to report production

data within a shorter timeframe than is typical

of domestic reporting may require the development of new accounting subroutines that

improve the speed of data collection and

analysis. While CWC reporting requirements

will only marginally increase the paperwork

burden on larger firms, they will be proportionately more onerous for smaller companies.

Because the first reporting deadlines are

fast approaching, industry will need to

proceed rapidly to establish appropriate

/ . . w - - * -1 - -

United Nations Special Commission inspector in Iraq tests a 500 kilogram botifilled with mustard agent.
Chapter l–Overview and Findings I 3

mechanisms for tracking the production,

processing, and use of treaty-controlled

chemicals. Each State Party to the CWC must

provide an initial declaration only 30 days

after the treaty enters into force, which could

be as early as January 1995. After the initial

declaration, annual reports on production of

treaty-controlled chemicals will be due 90

days after the end of each calendar year.

4. Routine onsite inspections of commercial

chemical plants should largely preclude

the need for challenge inspections at such

facilities, since governments will be unlikely to “waste’ a challenge inspection on

a declared site. Challenge inspections at

chemical plants may still occur, however, if

persistent suspicions of noncompliance cannot be resolved through routine inspections.

U.S. defense contractors will need to balance

the fairly low probability of a challenge

inspection at any given plant against the costly

preparation needed to minimize the loss of

proprietary or national-security information.

5. The chemical industry’s primary concern

about onsite inspections is the potential for

compromise of trade secrets, which are

often vital to a firm’s competitive edge.

CWC inspections will be carried out by

multinational teams including inspectors from

U.S. political adversaries and economic competitors, who may be tempted to collect

collateral information. The extent to which

onsite inspections result in a significant loss

of proprietary data will depend on a number

of factors, including how frequently a site is

inspected; the inspectors’ prior knowledge,

experience, and intent to engage in industrial

espionage; and the existence of a party

willing to pay handsomely for the stolen

information. Given the many other means of

conducting industrial espionage, however,

CWC inspections may only marginally increase the threat.

6. Although the threat of industrial espionage may arise during CWC inspections,

it can be managed with effective planning

and preparation. Chemical companies have

a number of effective means at their

disposal to protect trade secrets, such as

shrouding sensitive equipment. The CWC

also provides for advance notice of inspections and limits on their duration, and allows

States Parties to negotiate facility agreements

specifying the terms and scope of the inspections. Nevertheless, effective preparation will

require careful planning and action on the

part of inspected facilities. The U.S. Government could help chemical companies prepare

for treaty implementation by assisting them

in their assessment of which sensitive technologies need to be protected, proposing costeffective solutions, and testing out procedures

with mock inspections of commercial plants.

7. Legal challenges to the CWC could result

in significant delays in treaty implementation that could seriously embarrass the

U.S. Government. Unless questions over the

constitutionality of onsite inspections are

clearly resolved, chemical companies may

seek judicial relief in an attempt to keep

foreign inspectors out of their facilities.

Solutions to these constitutional problems

will have to be laid out in the implementing

legislation.

8. The implementing legislation will need to

include a mechanism to protect proprietary business information. Under such a

provision, information that companies designate as confidential would be shielded from

unauthorized disclosure. The chemical industry also wants to clarify the current

trade-secret exemption to the Freedom of

Information Act so that sensitive data submitted to the U.S. Government under the

CWC are not released to competing companies or the public.

9. The chemical industry seeks a nonburdensome administrative process for the

arbitration and payment of just claims

arising from CWC implementation. Indus-
4 I The Chemical Weapons Convention: Effects on the U.S. Chemical Industry

try may wish to hold the U.S. Government

liable for compensating economic darnage to

American companies resulting from abuses

committed by international inspectors, but

the government would have to accept this

liability voluntarily.

10. In-process monitoring and sampling systems installed in chemical plants for purposes of CWC verification might be vulnerable to tampering and deception. Nevertheless, the limited use of such systems in

conjunction with onsite inspections could

help reduce the intrusiveness needed to verify

the nonproduction of chemical-warfare agents.

11. Harmonization of U.S. export controls

with those mandated by the CWC could

eventually result in some liberalization of

trade with States Parties that are currently

subject to strict export controls. This reform, although unlikely to be fully implemented for several years, would give the U.S.

chemical industry a strong incentive to support the treaty.

12. Overall, OTA’s analysis suggests that extensive preparation on the part of U.S.

industry will be needed to minimize the

burdens of CWC compliance. Close cooperation between the executive branch and the

chemical industry will be essential for the

smooth implementation of the treaty provisions.
The

T

Chemical

Weapons

Convention 2

he Chemical Weapons Convention (CWC) was opened

for signature in mid-January 1993 after two decades of

arduous negotiations and is expected to enter into force

in early 1995.1 A true disarmament treaty, the CWC bans

the development, production, possession, stockpiling, transfer,

and use of chemical weapons, with the long-term goal of

eliminating this particularly cruel and abhorrent form of warfare

(see box 2-A).

After the treaty enters into force, the participating states will

have 10 years to destroy their existing stockpiles of chemical

weapons and associated production facilities.2 To prevent states

from secretly reacquiring chemical weapons, the treaty imposes

controls on ‘‘dual-use’ chemicils that have both legitimate uses

and can be illegally diverted to the production of warfare agents.

Companies must file detailed annual reports about the nature of

their production, processing, and consumption of these chemi- C

cals and, in many cases, host intrusive onsite visits by intema- @-1

. —~ D

tional inspectors: The purpose of this global monitoring regime

is to verify the nonproduction of chemical weapons without

unduly constraining the chemical industry’s legitimate commercial activities.

Implementation of the CWC will be administered by the

Organization for the Prohibition of Chemical Weapons (OPCW),

a new international agency to be established in The Hague,

1 Entry into force of the CWC will occur 6 months after the 65th country ratifies the

treaty, but not earlier than 2 years after the treaty is opened for signature. Thus, the earliest

date of ermv-into-force is JanuaIY 13, 1995. Since more than 145 countries have already

signed the &eaty, it appeam likely that the 65 ratifications will be obtained by July 1994

so as to meet the targeted January 1995 deadline. A key unresolved questiou however,

is whether the United States would ratify the treaty if the Russian Federation does not.

2 There are provisiom in the CWC for (1) a 5-year extension of the chemicalweapons destruction deadline if absolutely necessary, and (2) the conversion of chemical

weapons production facilities to civilian commercial use, Assuming Russia ratifies the

treaty, it is likely to avail itself of both these options.

5
—

6 I The Chemical Weapons Convention: Effects on the U.S. Chemical Industry

Box 2-A—Banning Chemical Warfare

Chemical warfare has been a scourge of the 20th century. The first chemical-warfare agent--chlorine

gas-was introduced on the battlefield by Germany in 1915 during World War 1. Over the next 3 years, both sides

engaged in chemical warfare with a total of 17 different toxic agents, including phosgene, hydrogen cyanide, and

sulfur mustard, which causes severe damage tot he skin, eyes, and lungs. The physical and psychological effects

of gas warfare were so horrifying that during the interwar period, countries negotiated the 1925 Geneva Protocol

banning the use of chemical weapons in war.

Despite the ban on use, however, the major powers continued to develop, produce, and stockpile new

poisonous agents; these activities were not prohibited by the Geneva Protocol. Before and during World War II,

Germany developed and stockpiled potent nerve agents (e.g., tabun, sarin) capable of causing convulsions and

rapid death, and the Allied powers followed suit. Although thousands of tons of mustard and nerve agents were

stockpiled by both sides, they were not used in combat. During t he Cold War, t he United States, the Soviet Union,

and their allies continued to accumulate vast quantities of chemical weapons, raising the spectre of chemical

warfare in a NATO-Warsaw Pact conflict in Central Europe.

This threat, combined with the growing proliferation of chemical weapons in the developing worldparticularly in the Middle East-prompted the Committee (later Conference) on Disarmament, a multilateral forum

in Geneva affiliated with t he United Nations, to begin work in the early 1970s on a treat y banning t he production,

stockpiling, and use of chemical weapons. Some 40 countries participated directly in the negotiations, and many

others sent observers. Although the talks moved at a glacial pace for more than two decades, the waning of the

Cold War created an opportunity for rapid progress, and Iraq’s large-scale use of chemical weapons during its war

with Iran gave renewed political impetus for a global ban.

During the 1991 Persian Gulf War, Saddam Hussein’s threat to initiate chemical warfare against U.S. and

other coalition forces also brought home the dangers of chemical-weapons proliferation for the United States and

its allies. The negotiators in Geneva realized that they had a limited window of opportunity to bring the treaty to

completion before international interest and consensus were lost. After a final push to resolve the most contentious

issues (e.g., the conduct of challenge inspections), the negotiations were brought to a successful conclusion in

early September 1992 and the treaty was opened for signature in mid-January 1993.

Netherlands. The OPCW will be an analogue at responsibilities include serving as a liaison bethe international level of U.S. domestic environmental and safety regulatory agencies such as the

Environmental Protection Agency. It will include

a Technical Secretariat made up of international

civil servants who will compile data on chemical

plants and conduct onsite inspections. Furthermore, since the States Parties to the CWC are

ultimately responsible for the treaty compliance

of the relevant industrial facilities operating on

their territories, each participating government

must establish a “National Authority’ whose

tween its domestic industry and the OPCW,

collecting data from industry, and ensuring that

inspections are carried out.3

VERIFICATION CHALLENGES

Close monitoring of the global chemical industry will be essential to ensure that commercial

plants are not diverted to illicit production of

chemical weapons. Unlike nuclear weapons, which

require a large, specialized, and costly industrial

base, chemical-warfare (CW) agents can be made

3 The structure of the U.S. National Authority is still being developed. It will probably be based on the current responsibilities of U.S.

Gov ermnent agencies involved in CWC implementation (the Departments of Commerce, Defense, Energy, Justice, and State, and the Arms

Control and Disarrnament Agency).
—

Chapter 2–The Chemical Weapons Convention 17

Signing ceremony for the Chemical Weapons Convention, Paris, January 1993.

U.S. Secretary of State Lawrence Eagleburger

expresses strong support for the treaty at the signing

ceremony.

with commercial equipment generally available

to any country. Moreover, nearly all of the

chemicals used to make CW agents have legitimate commercial uses in the manufacture of

products such as pesticides, pharmaceuticals,

plastics, and paints. For example, thiodiglycol, a

sulfur-containing solvent used in ballpoint pen

ink and other legitimate products, is easily

converted to mustard agent in a one-step process.

The effectiveness of the CWC will depend on

the signatories’ faith in the verification regime,

which is designed to assure all participating states

that dual-use chemicals are not being illegally

diverted to make chemical weapons. As thenVice President George Bush told CWC negotiators in 1984:

For a chemical weapons ban to work, each

party must have confidence that the other parties

are abiding by it . . . . No sensible government

enters into those international contracts known as

treaties unless it can ascertain-or verify—-that it

is getting what it contracted for.4

Some analysts consider it likely that some

current and future signatories of the CWC may

eventually attempt to violate the treaty; it is also

4 Vice ~esident George Bush, address before the Conference on Dis armament in Geneva on Apr. 18, 1984, Department oj.!irate Brdlerin,

vol. 84, June 1984, pp. #43.
8 The Chemical Weapons Convention: Effects on the U.S. Chemical Industry

possible that a rogue chemical company motivated by greed could produce CW agents under

contract to a foreign power without the knowledge or approval of its national government.5

Given these potential threats, the CWC verification regime will serve five primary functions:

1.

2.

3.

4.

5.

assure the destruction of existing chemicalweapons stocks and production facilities,

detect violations through rigorous accounting and monitoring,

deter noncompliance by increasing the economic and political costs of cheating,

build confidence in the regime by demonstrating that States Parties are abiding

by their treaty obligations, and

provide strategic warning of a country’s

intent to violate the treaty so that the other

Parties can take defensive measures.6

The intrusive monitoring needed to detect—

and thereby deter—treaty violations will make

unprecedented demands on private industry, and

will entail some unavoidable costs.7 Unlike the

Nuclear Non-Proliferation Treaty, which distinguishes between nuclear-weapon states and nonweapon states, the CWC is nondiscriminatory in

that it imposes a uniform set of rights and

obligations on all participants. Each State Party,

whether or not it possesses chemical weapons,

will be subject to the same reporting and inspection requirements.

Because of the large size and economic importance of the U.S. chemical industry and allied

sectors, the CWC has important implications not

only for national security but also for the health of

the American economy. The United States is

home to roughly 20,000 chemical manufacturing

plants, or about a third of the world’s total

chemical production capacity. Chemical manufacturers of varying size and capability are

distributed throughout the country, with no state

having fewer than 25 facilities. In 1991, U.S.

chemical manufacturers sold more than 101

billion metric tons of raw materials and specialty

organic chemicals valued at $85.5 billions That

same year, the total value of shipments of

primary, intermediate, and formulated chemical

products was $292.3 billion, and the U.S. chemical industry employed 846,400 people with a

payroll of $31 billion.9 The chemical industry is

also important to U.S. competitiveness because of

its positive trade balance. In 1992, net exports of

U.S. chemical products were worth about $16

billion, compared to the overall U.S. merchandise

trade balance of -$96.3 billion.10

Given the large size and importance of the

chemical industry to the U.S. economy and to

— —

5 Kathleen C. Bailey, ‘‘Problems With a Chemical Weapons Ban" Orbis, vol. 36, No. 2, spring 1992, pp. 239-251.

6 J. Aroesty, K. A. Wolf, and E. C. River, Domestic Implementation of a Chemical Weapons Treaty, report No. R-3745-ACQ (Santa Monica,

CA: RAND Corp., October 1989), p. 45.

7 Previous arms control accords have affected U.S. industry only tangentially. The safeguards associated with the Nuclear Non-Proliferation

Treaty (NPT) call for materials-accounting and inspection of a relatively small number of civilian nuclear facilities to ensure there is no

diversion of plutonium or enriched uranium to illicit nuclear-weapons production. Since the United States is considered a nuclear-weapon state

under the NPT, it is not required to adopt these standards; it has, however, voluntarily offered to place civilian nuclear facilities under

safeguards, The 1987 Intermediate-range Nuclear Forces (INF) Treaty also entitles Soviet—now Russian-teams to inspect two

contractor-operated U.S. aerospace facilities: Martin-Marietta’s missile-launcher production plant in Middle River, MD, and Hercules Corp. ’s

missile production plant in Magna, UT.

8 U.S. International Trade Commission Synthetic Organic Chemicals: United States Production and Sales, 1991, USITC Publication 2607

(Washington DC: International Trade Commission February 1993), p. 3.

9. U.S. Bureau of the Census, Annual Survey of Manufacrurers 1991, report No. M91(AS)- 1 (Suitland, MD: Bureau of the Census, December

1992), p. 1-16.

10. Net chemical trade figure calculated from 1992 total export and import figures in U.S. Bureau of the Census, Economics and Statistics

Administration U.S. Merchandise Trade: Exports, Imports (C.I.F. Value), December 1992 (Suitland, MD: Bureau of the Census, Feb. 18,

1993), exhibit 4, p. 6. The merchandise trade balance in 1992 was obtained from U.S. Department of Commerce, Bureau of Economic Analysis,

Survey of Current Business, vol. 73, No. 3, March 1993, p. 73.
world trade, the implementation of the CWC must

be perceived as fair and as not imposing heavier

burdens on some nations than on others. To this

end, the negotiators of the CWC sought to

develop a verification system that would effectively negate the military potential of the industry

without unduly constraining its legitimate commercial activities. This task proved to be a major

challenge, and it took negotiators several years to

hammer out an inspection regime that achieves a

delicate balance between the intrusiveness needed

for effective verification and the protection of

legitimate national-security and trade secrets.ll

STEPS TOWARD IMPLEMENTATION

Before the CWC can enter into force and be

implemented, two additional steps must take

place. First, at least 65 countries must ratify the

treaty six months before it can enter into force.

Second, for implementation to occur, a Preparatory Commission (PrepCom), made up of representatives of the initial signatory states, must

negotiate the details of treaty implementation

(including reporting formats and procedures for

conducting onsite inspections) and establish out

of whole cloth the international organization that

will administer the treaty regime. The PrepCom,

in which the U.S. Government participates, has

begun meeting in The Hague and is aiming to

complete its work on verification procedures by

the end of 1993.12

Since the CWC is binding on governments

rather than private individuals and corporations,

States Parties must pass enabling legislation that

— —

Chapter 2–The Chemical Weapons Convention |9

translates the treaty obligations into domestic law

and thus obligates companies to comply .13 The

Us.

need

1.

2.

3.

4.

5.

6.

7.

implementing legislation for the CWC will

to include provisions that, inter alia:

establish the organizational structure, powers, and responsibilities of the U.S. National

Authority;

lay out the rights and obligations of the U.S.

chemical and related industries with respect

to declarations, reporting, and inspections;

impose penal sanctions on firms and individuals that violate the treaty;

protect classified information at government facilities and proprietary data at commercial plants;

satisfy the constitutional concerns of private

companies with respect to protection from

unreasonable searches and seizures, due

process, and fair compensation for damages, while preventing companies from

obtaining court injunctions to block inspections;

comply with Federal and State environmental regulations that cover the destruction

of CW agents and inspections of chemical

plants; and

modify U.S. export control regulations to

harmonize them with treaty requirements. 14

The Clinton administration is expected to

include a draft of the U.S. implementing legislation along with the CWC when it submits the

treaty to the Senate for its advice and consent to

ratification, The first draft of the implementing

I I see ~ ‘The SPY in tie oin~ent fOr Negotiators, ‘‘ New’ Scientist, No, 1647, Jan. 14, 1989, p. 27. Although U.S. negotiators often stressed

industry concerns about protecting proprietary information, a much greater problem in the CWC negotiations was the need to shield sensitive

national-security information from foreign spying, particularly during challenge inspections of military and intelligence facilities.

12 For ~ ~ven,lcw of tie ~cpcom process, see bis R. Embert “Chemical Arms Treaty Makes Unprecedented Demands of Industry, ”

Chemical and .Eng/necring New)s, vol. 71, No. 23, June 7, 1993, pp. 7-18. The Henry L. Stimon Center, a policy research institute based in

Washington, DC, also publishes The CWC Chronicle, a periodic newsletter devoted to CWC implementation.

13 1n the jmgon of intemtlom] ]aw, somep~s of [he CWC Me not ‘ ‘se~-exmuting” because ~~eproyisiorlscanrlot eIlkX ktO fOrCe Wi~OUt

additionat domestic legislation.

IX For exmplc, Cumcnt U,S, ~xpofl control laws requiremeus,Government to issue an export license before certain fOXEign IMtiOXldS (XIIl

inspect any U.S. chemic,al plant. Obtaining such a license now lakes as long as 6 months. As a result, the implementing legislation will have

to create exceptions for OPCW inspectors with regard to export-control regulations that apply to inspections by non-U.S. nationals.
10 I The Chemical Weapons Convention: Effects on the US. Chemical Industry

legislation will be prepared as a collaborative

effort by lawyers from the Departments of Commerce, Defense, Justice, State, the Arms Control

and Disarmament Agency, and others; this draft

will then be introduced in Congress and considered by the congressional committees with jurisdiction. Unlike the treaty itself, which must be

ratified by a two-thirds majority of the Senate, the

implementing legislation must be approved by a

simple majority of both the House and the Senate.

To meet the planned entry-into-force deadline of

January 1995, Congress will need to complete the

treaty ratification process (including passage of

the implementing legislation) by July 1994.

CHANGING INDUSTRY ATTITUDES

The attitude of the U.S. chemical industry

toward a ban on chemical weapons has changed

markedly over the past 70 years. During World

War I, a segment of the industry was heavily

involved in the production of chemical weapons

and lobbied successfully against Senate ratification of the 1925 Geneva Protocol banning their

use.

15 During the Vietnam War, however, tie

public outcry over the employment of napalm and

the herbicide Agent Orange convinced U.S.

chemical manufacturers that military production

could seriously damage their public image. Since

then, mainstream U.S. corporations have sought

to avoid any association with chemical warfare

and have taken a much more supportive attitude

toward chemical arms control.

The Chemical Manufacturers Association (CMA),

the U.S. industry’s leading trade association,

represents 180 chemical companies that own

more than 90 percent of the nation’s chemical

production capacity. In 1978, the CMA began

supporting the negotiation of a global ban on

chemical weapons, for three reasons:

●

●

●

The U.S. chemical industry was no longer

involved in manufacturing chemical weapons and hence did not have an economic

stake in military production.

The association recognized that it would be

better off participating in the negotiations

and shaping the treaty proactively rather

than being faced with an unsatisfactory fait

accompli. 16

Industry representatives noted the positive

public-relations benefits to be gained by

strongly supporting a ban on chemical weapons, and the seriously adverse effects on the

industry’s image of opposing a ban.

As a result, the CMA actively supported the

multilateral chemical weapons negotiations in

Geneva, while seeking verification measures that

would reasonably deter illicit military production

without unduly burdening legitimate commercial

activities. In October 1987, the CMA’s Board of

Directors formally adopted a policy committing

the chemical industry to work on behalf of the

treaty .17 The Association also established a Chemical Weapons Work Group made up of senior

executives from 10 major chemical companies.

This body has since met on a regular basis with

U.S. Government officials to discuss outstanding

issues in the negotiations.

The Government-Industry Conference Against

Chemical Weapons, held in September 1989 in

Canberra, Australia, was another watershed event.

Attended by some 400 delegates from more than

60 countries, this conference brought diplomats

engaged in the Geneva talks together with representatives of about 95 percent of the world’s

chemical production capacity. During the conference, trade associations from the United States,

Australia, Canada, Japan, and Western Europe

jointly issued a formal statement pledging “to

IS me ufit~ states finally ratified the Geneva Protocol in 1975.

16 Kyle B+ 01s04 “Dis~~ent and the Chetical ~dusq, ‘‘ in Brad Roberts, cd., Chemical Disarmament and U.S. Security (Boulder,

CO: Westview Press, 1992), p. 99.

‘7 Kyle B. Olson, “The Proposed Chemical Weapons Convention: An Industry Perspective, ” Chemical Weapons Convention Bulletin, No.

3, autumn 1988, p. 2.
work actively with governments to achieve a

global ban on chemical weapons, and . . . to

contribute additional momentum to the Geneva

negotiating process. ’

The Canberra Conference also spawned a new

international industry forum that subsequently

met regularly in Geneva to provide practical input

to the CWC negotiating process. 19 Participation

by this industry forum resulted in a number of

treaty provisions designed to limit the intrusiveness of inspections and to safeguard proprietary

information. In particular, chemical industry experts helped shape the procedures for inspections

of commercial plants. According to Will Carpenter, chairman of the CMA’s Chemical Weapons

Work Group: ‘‘We were able, through very good,

effective communications, to bring the diplomats

to reality as to what needed to be involved in the

treaty for it to be technically sound. ’ ’20

For example, in June 1991 the CMA and its

foreign counterparts urged the negotiators to

expand the verification regime beyond plants

producing dual-use chemicals—which are located primarily in Western countries-to cover a

wide variety of chemical plants throughout the

world. According to this proposal, all chemical

plants with the capability to produce CW agents

or their precursors would be subject to randomized inspections. 21 Industry was prepared to

accept such a broad verification regime if the

CWC negotiators developed inspection proce-

—

Chapter 2–The Chemical Weapons Convention |11

dures that would allow companies to safeguard

their legitimate business interests.22 Although the

probability would be low that any given plant

would be inspected, the expanded coverage would

distribute the burden of inspections more equitably among the States Parties and help deter

proliferants from using ordinary chemical plants

for illicit CW agent production. In response to this

proposal, the CWC negotiators expanded the

scope of the inspection regime considerably,

although not as much as industry had suggested.23

Now that the treaty has been concluded, the

CMA plans to support the treaty through the

ratification process. The chemical industry’s endorsement of the CWC is not unconditional,

however. As one analyst has observed: “The

chemical industry believes that the convention

will not be unduly injurious to its interests, but

only if the inspection procedures are carefully

developed and scrupulously honored. ’24 If chemical companies perceive the treaty’s verification

provisions as too onerous, they could trigger a

political backlash that would make it more

difficult for the United States and other countries

to implement the treaty regime.

Because of strong public support for banning

chemical weapons, U.S. chemical producers are

unlikely to go on record opposing Senate ratification of the CWC. Instead, they will try to ensure

that their interests are protected in the implementing legislation and during the deliberations of the

IS Cited in Julian Perry Robinson, “TheCanbemaConference,” Chemical Weapons Convention Bulletin, No. 6, November 1989, pp. 18-19.

1!J me p~cipat~g indus~ associations were the CMA, the Council of European Chemical IndusV Federations. tie Jwan ChemiC~

Industry Association, the Canadian Chemical Producers Association, the Chemical Confederation of Australia, and the Chemical Industries

Association (UK).

Zo “chemical Indus~ Rallies Behind Chemical Weapons Bin, ’ Chemeco/ogy, vol. 21, December 1992/January 1993, p. 4.

2] Will Carpenter, ‘‘Completing the Chemical Weapons Convention: An Industry View, ’ Chemical Weapons Convention Bulletin, No. 15,

March 1992, p. 3.

22 Olson, ‘‘Disarmament and the ChemicaJ Industry, ’ op. cit., p. 10’2.

23 me U,S, Government, titer initlally favoring tie indus~ proposal, ~carne concerned about a n~~r of highly sensitive milit~

facilities that produce or store treaty-controlled chemicals, In order to avoid exposing such sensitive sites to routine international inspections,

U.S. negotiators narrowed the definition of the facilities covered by the routine-inspection regime. Some developing counrnes also sought to

narrow the definition to minimize what they perceived to be the negative impact of the inspection regime on their nascent chemical industries.

~ Brad Roberts, ‘ ‘Framing the Ratification Debate, ‘‘ in B, Roberts, cd., Chemical Disarmament and [J.S. Security (Boulder, CO: Westview

Press, 1992), p. 145.
—— .

12 I The Chemical Weapons Convention: Effects on the U.S. Chemical Industry

Table 2-l—Chemical Schedules and Associated Treat y Obligations

Schedule 1 Schedule 2 Schedule 3 Other relevant

Agents

Commercial uses

Annuai production

threshold for

reporting

Activities to be

reported annuaily

Deadline for initial

declaration

Deadilne for

annual reports

Production

threshold for

inspections

CW agents, key finalstage precursors.

Low or none

100 g

Production, processing,

consumption, acquisition, import, and export data for the previous calendar year, and

antiapated forthe next

year.

30 days after entry into

force.

90 days after end of

previous calendar year.

10 kg

Potentiai CW agents,

other key precursors.

imw to moderate

1 kg (for BZ), 100 kg (for

other potential CW

agents), 1 metric ton (for

precursors).

Production, processing,

consumption, import and

export data for the previouscaiendar year, and

anticipated for the next

year.

30 days after entry into

force.

90 days after end of

previous caiendar year.

10 kg, 1 metric ton, or 10

metric tons, depending

on subciass

Oid CW agents, other

precursors.

High

30 metric tons

Production, import, and

export data for the previous caiendar year, and

anticipated for the next

year.

30 days after entry into

force.

90 days after end of

previous calendar year.

200 metric tons

Discrete organic chemicals and organic chemicafscontaining phosphorus, suifur, or fiourine

(PSF chemicals).

High

200 metric tons for nonPSF chemicals; 30 metric tons for PSF chemicais.

Production data for the

previous caiendar year.

30 days after entry into

force.

90 days after end of

previous caiendar year.

200 metric tons

PrepCorn. The upcoming debate over the implementating legislation in both houses of Congress

is likely to attract extensive participation by

corporate general counsels and industry lobbyists, including chemical trade associations such as

the CMA, the Synthetic Organic chemical Manufacturers Association (SOCMA), the National

Agricultural chemicals Association (NACA),

and the Pharmaceutical Manufacturers Association (PMA). Another possible channel for industry dialogue with U.S. Government policymakers

on CWC implementation may be the Industry

Sector Advisory Committee for Chemicals and

Allied Products (ISAC-3), a private-sector panel

reporting to the U.S. Trade Representative

Office o

25

COMPANIES

The CWC

regardless of

AFFECTED BY THE CWC

bans any toxic chemical agent,

origin, that interferes with life

processes and does not have legitimate civil

applications in the quantities in which it is

produced. This so-called “general-purpose criterion’ allows the treaty to apply to all conceivable

CW agents, including production of novel chm_nicals that might be developed in the future, even if

25 me Trade&t of 1974 e~tablished a private-sector advisory system for tie Office of tie U.S. Trade Representative (uSTR). The primary

forum is the Advisory Committee on Trade Policy and Negotiations, which reports directly to USTR. Subordinate to the Advisory Committee

are 17 industry sector advisory committees (ISACS) and 3 functional committees (on standards, customs, and intellectual property rights). ‘There

is some question, however, about whether ISAC-3 has the legal authority to advise the U.S. Government on CWC matters.
-- ———...——

Chapter 2–The Chemical Weapons Convention I 13

Table 2-l—Cent inued

Schedule 1 Schedule 2 Schedule 3 Other relevant

Initial inspection &

facility agreement

Mandatory Mandatory (unless State

Party and OPCW agree

to waive it)

Optional Optional

Notice of routine 48 hours 120 hours 120 hours

Inspections

24 hours

Duration of routine As specified in facilit y 24 hours

inspections

96 hours 24 hours

agreement.

Automatic access

dectared plants.

Access during

rout Ine

Inspections

Automatic access to plant

site and specified areas

within declared plants;

agreed access to other

areas and plants at plant

site.

Automatic aczess to plant

site and specified areas

within declared plants;

agreed access to other

areas and plants at site

for clarification of ambiguities.

Automatic access to plant

site; managed access

todedared plants; agreed

access to other plants at

site for clarification of

ambiguities.

to

2 per year per plant site,

plus limit on the combined number of inspections of Schedule 3 and

“other relevant” sites.l

2 per year per plant site;

plus limit on the combined number of inspections of Schedule 3 and

“other relevant” sites.

Maximum number

of routine

inspections

Determined based on

characteristics of facility.

2 per year per plant site.

Exports only to States

Parties and non-Parties

that file certifications of

non-prohibited use; possibility of stricter controls after 5 years.

Restrictions on No restrictions.

exports

Exports to States

Parties only

For first 3 years, exports

only to States Parties

and to non-Parties that

file certifications of nonprohibited use; after 3

years, to States Parties

only.

SOURCE: Arms Control and Disarmament Agency, Office of Technology Assessment, 1993.

~ The ~ombined number of annual insp~tions ~hall not exceed 3 plus s percent of the total num~r of plant sites declared by a StatO Party, or 20

inspections, whichever is less.

they are not now listed in the treaty itself. Further,

the CWC bans or controls certain intermediate

compounds, or ‘‘precursors, ’ that can be converted to known CW agents in one or a few

reaction steps. The treaty also bans the military

use of biological toxins, which can be purified

from living matter, produced by microbial fermentation, or synthesized chemically.

Known treaty-relevant chemicals that are explicitly covered by the verification provisions of

the CWC range from actual chemical-warfare

agents to key final-stage precursors and more

distant precursors. Depending on their utility for

producing chemical weapons and the extent to

which they have legitimate commercial and

industrial uses, these compounds (or families of

compounds) are listed in three ‘‘schedules’ in an

annex to the treaty. Each schedule is associated

with a different set of reporting requirements and

inspections, which are structured so that the most

hazardous compounds are subject to the most

stringent controls (see table 2-l).

. Schedule 1 covers 12 toxic chemicals or

groups of chemicals that have no or low

commercial use. These compounds include

standard CW agents (e.g., sulfur and nitrogen mustards, lewisite, and the nerve agents

tabun, sarin, soman, and VX), and key
14 I The Chemical Weapons Convention: Effects on the U.S. Chemical Industry

Plant that produces the ‘ ‘dual-use” chemical

thiodiglycol, which is both a key ingredient of

ballpoint pen ink and an immediate precursor of

mustard agent.

final-stage precursors used in “binary”

26 Two biological toxins chemical weapons.

are also included on the list: ricin (extracted

from castor beans) and saxitoxin (purified

from contaminated shellfish). Although largescale production of Schedule 1 chemicals is

banned and existing stockpiles must be

destroyed, States Parties may maintain a

total of 1 metric ton (about 2,200 pounds) of

Schedule 1 chemicals for the development of

defenses and for medical, pharmaceutical, or

research purposes .27

. Schedule 2 covers toxic chemicals and precursors that have low to moderate commer-

●

●

cial use. The list includes three chemicals

with warfare potential that have never been

used in combat (the pesticide Amiton, the

hallucinogen BZ, and the toxic gas perfluoroisobutene), and several precursor chemicals or groups of chemicals that are one or

more steps removed from CW agents but are

produced cornmercialy volumes for

legitimate industrial applications. An example of a Schedule 2 precursor is thiodiglycol,

the immediate precursor of sulfur mustard.

Producers of Schedule 2 chemicals above an

annual threshold quantity must declare the

relevant plants and production volumes, and

all such facilities will be subject to an initial

(baseline) inspection and no more than two

routine inspections per year.

Schedule 3 covers “dual-use” chemicals

produced in high commercial volume. It

includes precursor chemicals that are several

reaction steps removed from CW agents,

such as phosphorus trichloride. This category also covers some highly toxic gases

(e.g., phosgene, hydrogen cyanide, cyanogen chloride) that were used as warfare

agents in World War I but are currently

produced in the millions of tons annually for

industrial purposes, Facilities producing 30

metric tons per year of any Schedule 3

chemical must be declared; those producing

200 metric tons or more are subject to

randomized inspection.

Reporting obligations also apply to “other

relevant’ facilities that produce more than

200 metric tons per year of any discrete

organic chemical, with the exception of pure

hydrocarbons (to exclude oil refineries) and

26 “Binary” chemical weapons contain two separate cannisters filled with relatively nontoxic precursor chemicals that must react to produce

a lethal agen4 such as sarin or VX. The two components are either mixed together manually immediately before use or are brought together

automatically while the bimwy bomb or shell is in flight to the target.

27 ~corfig to the CWC, production of Schedule 1 chemicals for protective purposes may take place only at a single small-scale Facility

and atone other designated facility, both of which are subject to systematic inspections. Synthesis of Schedule 1 chemicals for research medical,

or pharmaceutical purposes, but not for protective purposes, maybe carried out at laboratories in aggregated quantities of less than 10 kilograms

per year per facility. Laboratories that produce more than 100 grams of agent per year will be subject to reporting and inspection

obligations.
Chapter 2–The Chemical Weapons Convention 115

explosives (which are covered by other

regulations). 28 A lower production threshold

for reporting (30 metric tons) applies to

facilities that produce so-called "PSF" chemicals, that is, organic chemicals containing

phosphor-us (P), sulfur (S), or fluorine (F),

the basic building blocks of CW agents.

The CWC covers all companies and other

relevant facilities on the territory of a State Party

that manufacture, process, or consume Schedule

2 chemicals or that manufacture Schedule 3 and

other treaty-controlled chemicals beyond the

specified threshold quantities, For this reason,

various ‘‘downstream’ users of Schedule 2

chemicals may have to file declarations and

accept routine inspections, including firms in

such diverse sectors as plastics, automobiles,

aerospace, electronics, pharmaceuticals, paper,

mining, and photographic materials.

Only a few pharmaceutical companies that

produce toxic anticancer drugs are covered under

Schedule 1. According to preliminary estimates,

however, between 200 and 300 U.S. plants

produce, process, or consume more than the

threshold quantity of Schedule 2 chemicals, and

roughly 1,000 produce more than the threshold

quantity of Schedule 3 chemicals. Finally, at least

10,000 plants are believed to produce more than

the threshold quantity of discrete organic chemicals.29 These rough estimates suggest that because of the broad scope and relatively low

production thresholds of the CWC, a majority

of U.S. chemical manufacturers and some

processors and consumers will face declaration

and/or inspection obligations under the treaty.

Many smaller, privately owned producers,

formulators, processors, and downstream users of

scheduled chemicals are not yet aware that they

are covered by the CWC. Although the Chemical

Manufacturers Association has kept its members

well informed about the treaty, it represents only

a portion of the U.S. chemical industry. The great

majority of smaller firms and their respective

trade associations have not had the time or

resources to track the negotiations in Geneva or to

assess the full implications of the concluded

treaty. Small chemical companies may not even

subscribe to the Federal Register, and informing

them of regulatory changes has been a serious

problem in the past,

Since the U.S. Government will be held legally

accountable for industry compliance with the

CWC, it will be necessary to prepare a national

register containing a complete inventory of all

companies and facilities on U.S. territory that are

subject to treaty obligations. Developing such a

register is a challenging task that still remains to

be accomplished, despite preliminary attempts.30

Given the widespread ignorance of the CWC

among smaller chemical companies, effective

implementation of the treaty will require an

extensive program of industry education and

outreach.

As a first step in this outreach process, in

February and March 1993 the U.S. Arms Control

and Disarmament Agency (ACDA) sponsored

one-day seminars in five cities across the United

States to inform chemical manufacturers, pharmaceutical companies, and other downstream

processors about their treaty obligations.31 Although ACDA sent invitations to 2,400 compa2S The treaty defines a discrete organic chemical as a compound of carbon other than an oxide, sulfide, or metal carbomte. The extent to

which this definition covers polymers is not yet clear.

‘g Interview with Sigmund R. Eckhaus, consultant to the U.S. Arms Control and Disarmament Agency, Dec. 23, 1992.

30 C)~er p~cipat~g cou~es face a similar challenge, although on a smaller scale. The Japanese Trade Ministry has conducted m initial

survey of Japanese factories that will be subject to CWC reporting and inspection obligations. Rough estirnatti are that about 100 chemical

manufacturing facilities in Japan will be liable to inspection, while between 2,000 to 3,000 plants-about half of all chemical factories in

Jap~will have to file annual reports on their operatiom to the government. See ‘‘Chemical Plants Face Inspection Under CW Convention+

KYODO (Tokyo) in English, Mar. 27, 1993, reprinted in JPRS-TAC-93-O07, Apr. 13, 1993, p. 1.

31 The semju were held in Washington, DC, New Brunswick, NJ, Houston, TX, LOS Angeles, CA, and Chicago, ~.
—- . . - -

16 I The Chemical Weapons Convention: Effects on the U.S. Chemical Industry

Table 2-2—Selected List of U.S. Chemical

Trade Associations

Number of

Name of Assoclatlon Active Members

Adhesive and Sealant Councii. . . . . . . . . . . . . .

Adhesives Manufacturers Association. . . . . . . .

American Coke and Coai Chemicais

Institute, . . . . . . . . . . , . . . . . . . . . . . . . . . . . .

American Wood Preservers institute. . . . . . . . .

Chemicai Manufacturers Association. . . . . . . . .

Chemicai Specialities Manufacturers

Association. . . . . . . . . . . . . . . . . . . . . . . . . . .

Chiorine institute. . . . . . . . . . . . . . . . . . . . . . . . . .

Compressed Gas Association. . . . . . . . . . . . . . .

Cosmetic, Toiietry and Fragrance

Association. . . . . . . . . . . . . . . . . . . . . . . . . . .

Drug, Chemicai and Aiiied Trades

Association. . . . . . . . . . . . . . . . . . . . . . . . . . .

Dry Coior Manufacturers Association. . . . . . . . .

Formaldehyde institute. . . . . . . . . . . . . . . . . . . .

Metai Finishing Suppiiers Association. . . . . . . .

Nationai Agricuiturai Chemicals Association. . .

Nationai Association of Printing ink

Manufacturers. . . . . . . . . . . . . . . . . . . . . . . . . .

Nationai Paint and Coatings Association. . . . . .

Pharmaceutical Manufacturers Association. . . .

Powder Coating institute. . . . . . . . . . . . . . . . . . .

Roof Coatings Manufacturers Association. . . . .

Soap and Detergent Association. . . . . . . . . . . . .

Society of the Piastics Industry. . . . . . . . . . . . . .

Synthetic Organic Chemicai Manufacturers

Association. . . . . . . . . . . . . . . . . . . . . . . . . . .

180

22

75

150

180

440

190

221

230

600

50

57

225

85

150

500

100

97

43

140

2000

225

NOTE: Companies may belong to more than one association.

SOURCE: Council of Chemical Association Executives, 1993 Staff and

ksues Directory (Washington, DC).

nies that deal in chemicals listed in the treaty,

attendance at the seminars was disappointing,

with a total of only 110 companies participating.

Many chemical manufacturers appear to be waiting for the domestic implementing legislation to

learn about their treaty obligations. Another way

of reaching smaller firms might be through

specialized trade associations, which often alert

their membership to new regulations (see table

2-2). The U.S. Government also plans to launch

a major public-affairs campaign both before and

after the CWC enters into force to explain the

purpose and modalities of the treaty.

I Industrial Sectors

The CWC will affect the various segments of

the chemical industry in different ways. Although

the industry is often viewed as a coherent sector,

in fact it is a highly heterogeneous group of

manufacturing companies whose operations differ both qualitatively and quantitatively. Some

chemical firms produce feedstock and intermediate compounds, while others chemically convert

or mechanically process and formulate these

basic chemicals into products such as plastics,

pesticides, detergents, pharmaceuticals, dyes, inks,

flavors and fragrances, and gasoline additives.32

In general, chemical products are divided into

two broad classes: commodity chemicals, or basic

chemicals that are produced in vast quantities and

where fims compete mainly on the basis of price;

and specialty chemicals, more complex molecules with unique properties that allow them to

command higher prices and require a major

investment in research and development. Whereas

commodity chemicals are manufactured continuously by feeding raw materials into a process

reactor and simultaneously removing the reaction

product, specialty chemicals are usually produced

through a batch process in which raw materials

are introduced intermittently into a reactor under

changing process conditions and the product

removed at the end.

Batch production ranges in sophistication from

“tolling’ (in which the customer provides a raw

material and receives a product, often after a

single reaction step) to ‘‘custom’ syntheses of

complex intermediates or end-products made to

order for large manufacturers of drugs, pesticides,

and other specialty chemicals.33 The roughly 230

custom chemical companies in the United States

32 ML. BUst~l, “me Indus~~ Context of Chemical Warfare,’ in Julian Perry Robinsoq cd., The Chemical Industry and the Projected

Chemical Weapons Convention: Proceedings of a SIPRIIPugwash Conference, SIPRI Chemical & Biological Wa@are Studies No. 4 (New

York NY: Oxford University Press, 1986), p. 36.

33 sw~etic Orgaic ~emical Manufacturers Association “The Batch Chemical Industry: Fact Sheet, ” April 1993.
Chapter 2–The Chemical Weapons Convention I 17

generally have fewer than 100 employees (many

of whom perform several different jobs) and

annual sales of less than $40 million each.34 As

discussed below, small to medium-sized batch

producers may have more difficulty in complying

with CWC reporting requirements because they

have smaller staffs and must change their production processes more frequently.

I Foreign Ownership

Another characteristic of the U.S. chemical

industry that is relevant to CWC implementation

is the fact that foreign-owned companies account

for roughly a third of U.S. chemical production .35

Numerous U.S.-based chemical manufacturers

also have overseas branches and subsidiaries,

some of which operate plants in developing

countries. The CWC holds the U.S. Government

responsible for the treaty compliance of all the

companies on its territory (including foreignowned branches and subsidiaries) but not for

treaty violations committed by a U.S.-owned

company located on foreign soil. Nevertheless,

the treaty does make the United States responsible for violations committed by U.S. citizens

living abroad and requires the government to take

action against them.

Although it is widely agreed that a state has

broad powers to enforce rules on the persons and

property within its borders, international law is

not settled with regard to "‘extraterritoriality, ’ or

a government’s claim of authority to control

companies outside its national borders. Foreign

courts have rejected attempts by the United States

to apply export controls to overseas companies

that are owned or controlled by U.S. nationals or

that process goods of U.S. origin.36 The CWC

clearly states that its obligations apply extraterritorially with respect to individuals but is silent

with respect to companies. Some legal scholars

contend, however, that the U.S. Government

should prosecute all U.S.-owned entities that

engage in treaty-prohibited activities, regardless

of their location.

The issue of extraterritoriality is important

because a State Party might seek to circumvent

the treaty by colluding with a foreign subsidiary

of one of its domestic companies to manufacture

chemical weapons on the territory of a non-Party

to the treaty .37 (If the weapons were subsequently

given to the host state, however, the State Party

would violate the treaty’s ban on assisting another

state to acquire chemical weapons; if they were

shipped to the State Party’s own territory, that

would violate the ban on possession.) In order to

close such potential loopholes, some analysts

argue that States Parties should be encouraged to

extend their extraterritorial jurisdiction as far as

possible in an effort to induce overseas subsidiaries to comply with the treaty .38

A potential source of leverage may derive from

the fact that the CWC will ban exports of

Schedule 2 chemicals to non-Parties 3 years after

the treaty comes into force; until then, exporters

must obtain end-use certificates ensuring that

recipients employ the chemicals only for legiti34 stephenc, stinso~ ‘‘ Custom Chemicals,’ Chemical andEngineering News, vol. 71, No. 6, Feb. 8, 1993, p. 35. Of the 230 batch producers

in the United States, 95 produce specialty fine chemicals and the other 135 are divers~lcd companies that perform some batch production of

intermediates or fme chemicals for sale or internal use. Because most large chemical manufacturers also engage in some batch processing,

however, the total number of batch-processing facilities in the United States is more than 2,000.

35 ~c~el p. Walkj, Cknkal Manufacturers Association pCrSOllid CO mmmunication. In 1987, the book value of EuropearI chemical

companies’ assets in the United States reached $26.5 billion, the largest investment of foreign-owned assets in any one industry. “World

Chemicals: The Challenge of Asia, ” The Economist, vol. 326, No. 7802, Mar. 13, 1993, p. 28.

36 Charles Doyle, ‘‘Extratcrritorial Application of American Criminal Law, ’ CRS Report for Congress (U.S. Congress, Congressioml

Research Service, Report No. 92-713A, Sept. 11, 1992).

37 David A. Koplow, ‘‘Imng Arms and Chemical Arms: Extratcrritoriality and the Draft Chemical Weapons Convention, ” YaZe .Journa/ of

Znfernafional Luw, vol. 15, No. 1, winter 1990, p. 68.

38 Ibid, p. 70.
—- -----

18 I The Chemical Weapons Convention: Effects on the U.S. Chemical Industry

mate commercial purposes. Export of Schedule 3 country that refines to sign or comply with the

chemicals to non-Parties may also be banned 5 CWC could eventually lose its ability to import

years after the treaty enters into force, although a key precursor chemicals from treaty adherents

final decision on this proposal has yet to be made. and might have to cease operations.39

Thus, a U.S.-owned subsidiary located in a

39 Gordon BI,uc& ~n.ior policy analyst, EAI Corp., personal CO-UIliCatiOn.
Treaty

Obligations

for Industry 3

T

he CWC empowers an international authority to collect

unprecedented quantities of information from private

nondefense companies and to conduct intrusive inspections of their manufacturing facilities. Those treaty

obligations affecting U.S. industry are discussed in the following

sections.

REPORTING OBLIGATIONS

The CWC will require producers and some processors and

consumers to create a paper trail for all the treaty-controlled

compounds they work with, so that inspectors can monitor their

manufacture and ultimate use. To this end, the companies will

have to file initial declarations and annual reports on their

activities. Although the reports will allow a margin of error of a

few percentage points, they will provide a general picture of each

relevant plant’s activities and a baseline for inspection. The U.S.

National Authority will collect the required data from industry

and transmit reports on a yearly basis to the OPCW’s Technical

Secretariat. l

I Overlap With Other Reporting Requirements

U.S. chemical companies must already report on a regular

basis to several regulatory authorities, including the Environmental Protection Agency (EPA), the Occupational Safety and

Health Administration (OSHA), the International Trade Commission, the Bureau of the Census, and hundreds of State and

local agencies. These statutory reporting requirements cover all

] The data may be collected by one or more U.S. Government agencies with current

regulatory responsibilities, such as the Department of Commerce, EPA, or OSHA, so as

to build on existing channels with industry.

19
20 I The Chemical Weapons Convention: Effects on the U.S. Chemical Industry

aspects of commercial chemical production, including quantities of feedstock materials, processed materials, and end-products; characteristics

and toxicity of materials; statistical and chemical

data on gaseous, liquid, and solid wastes; and

reports on the transportation of hazardous materials and on worker health and safety.2 For example, each chemical manufacturing facility must

file on a yearly basis a Toxic Release Inventory

covering the use of317 toxic chemicals and their

release into air, water, and solid waste.

According to the Chemical Manufacturers

Association, compliance with U.S. environmental

regulations cost the industry about $4,9 billion in

1992. 3 Collection and tabulation of regulatory

data require a major effort on the part of large

chemical companies, which may have more than

150 separate production sites. For example, atone

major chemical manufacturer with some 50,000

employees, about 1,700 people spend most of

their time satisfying the requirements of Federal

and State regulatory agencies for environmental

and statistical data.4 The U.S. chemical industry’s

long experience with such domestic regulations

will be helpful in preparing the additional reports

mandated by the CWC. Indeed, many firms may

view the treaty as a form of ‘‘supranational

regulation.

Nevertheless, the information currently envisioned as necessary for CWC verification

differs both quantitatively and qualitatively

from that collected for internal management

or for domestic regulatory purposes. 6 T h e

major discrepancies between the reporting requirements mandated by the CWC and by U.S.

domestic environmental regulations are listed in

table 3-1, and can be surnmarized as follows:

●

●

●

●

●

Environmental regulations do not cover all

of the chemicals relevant to the CWC.

Of the chemicals that are covered, some of

the annual production thresholds at which

companies must file reports are higher than

those specified by the CWC.

Some environmental regulations apply to

chemical manufacturers but not to processors or consumers, which are covered under

the CWC.

Some environmental regulations require

prospective rather than retrospective reporting.

The reporting deadlines for the CWC are

shorter than those required by EPA, and

estimates of futrue production must be

updated more frequently.

There is also a difference in certain key

definitions between the Toxic Substances Control

Act (TSCA) and the CWC. In TSCA, the “processing’ of a chemical may result in a ‘‘different

2 Relevant regulations are derived from several laws that control toxic chemicals in the workplace, transportation% and the environment,

including the Tbxic Substances Control Act (TSCA), the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA), the Resource

Conservation and Recovery Act (RCRA), the Superfund Amendments and Reauthorization Act (SARA), and the Occupational Safety and

Health Act (OSHA). See Kyle B. OISOU “Domestic Regulation of the U.S. chemical Industry and Its Application to a chemical Weapons

Ban,’ in Thomas Stock and Ronald Sutherland, eds., National Implementation of the Future Chemical Weapons Convention, SIPRI Chem”cal

& Biological Wa~are Studies No. 11 (New York NY: Oxford University Press, 1990), p. 102.

3 Michael P. Walls, Senior Assistant General Counsel, CMA, letter in response to OTA questionnaire, Feb. 26, 1993.

4 Julian P. Perry Robinson and Ralf Trapp, ‘‘S ummary Report of the Proceedings, “ in J. P. Robinso& cd., The Chemical Industry and the

Projected Chemical Weapons Convention: Volume II, SIPRI Chem’cal and Biological Waglare Studies No. 5 (New Yorlq NY: Oxford

University Press, 1986), p. 6.

5 Will D. Carpenter, “Implementing Global Chemical Weapons Disamnament: Chemical Indus~ Perspective, ” in Eric H. Arnett, cd.,

Implementing a Global Chemical Weapons Convention: Proceedingsfiom a 1989 Annual Meeting Symposium (Washington DC: AAAS

Program on Science, Arms Control, and National Security, 1989), p. 23.

6 Mark Mulle~ Verification of a Chemical Weapons Convention: Summary of Lessons Learnedfiom the Verification Experience oj” the

International Atomic Energy Agency, Briefing, vol. 2, No. 6, Dec. 20, 1991 (UM Alamos National Laboratory, Center for National Security

Studies), p. 22.
.. . -—. — — —

form or physical state from that in which it was

received . The CWC, in contrast, draws a clear

line between processing (defined as “a physical

process, such as formulation, extraction and

purification, in which a chemical is not converted

into another chemical’ and consumption (’‘conversion into another chemical via a chemical

reaction ").8

In addition to these discrepancies, U.S. regulatory laws do not permit releasing industry data

submitted to the government to an international

organization such as the OPCW. Employing EPA

and OSHA data for CWC compliance would

therefore require amending the various regulatory

laws, which would be a long and drawn-out

process. For these reasons, the U.S. Government

cannot simply ‘‘piggyback’ on existing reporting

requirements to meet its CWC declaration obligations. Nevertheless, U.S. officials hope to minimize the added burden to industry by building as

much as possible on existing reporting channels.

| Direct Costs of Reporting

The major U.S. chemical companies currently

track production activities with computerized

accounting systems, which integrate plant manufacturing data with inventory and import-export

accounts. To satisfy CWC requirements, companies will need to modify these systems to collect

additional information and to meet shorter reporting deadlines. Within 30 days after the treaty

enters into force, each State Party must submit to

the OPCW an initial declaration that provides

data for the previous 3 calendar years on the

quantities of each Schedule 2 chemical produced,

processed, consumed, imported, or exported, and

Chapter 3–Treat y Obligations for Industry | 21

less extensive information on other treatycontrolled chemicals. In subsequent years, companies will have to file annual reports updating

the initial declarations 90 days after the end of the

calendar year; these reports will contain data on

prior-year activities and plans for the upcoming

year.

If the United States is to meet its CWC

obligations, U.S. chemical companies will need

to generate production statistics more quickly, in

greater detail, and on more compounds than in the

past.9 These tasks may require the development of

new accounting software and subroutines that

improve the speed and timeliness of data collection and analysis. Since U.S. manufacturers will

have to submit initial declarations—including

data on the previous calendar year’s activities—

within 30 days after the CWC enters into force

(most likely in January 1995), companies must

start preparing to collect such data by the beginning of 1994.

Although the CWC will increase the cumulative reporting burden on firms that produce,

process, or consume scheduled chemicals, the

largest chemical companies anticipate no signiflcant increase in employees or compliance costs as

a result of the treaty. 10 For large chemical

companies, the time and effort to comply with

CWC reporting requirements will be small

relative to total sales and other regulatory

costs. According to Will Carpenter, a retired

Monsanto executive and consultant to the Chemical Manufacturers Association, the costs of CWC

implementation will be ‘‘incremental’ and ultimately ‘‘acceptable. ’ 1 Nevertheless, the size of

7 Seetion 3, Toxic Substances Control Act, P.L. 94-469.

8 $ CDeffitiom arid Criteria, ’ ‘ article II, paragraph 12, in Conference on Disarmament Drafi Convention on the Prohibition of the

Development, Production, Stockpiling and Use of Chemical Weapons and on their Destruction, extmcted from CD/1 173, Sept. 3, 1993

(henceforth “Draft Chemicxd Weapons Convention”), p. 12.

9 ~temlew ~~ Kyle B ()~son, Dke~tor, ~dus~ and &con~ol, Chemical and Bio]ogic~ Armscontrol Institute, Wexandria, VA,

Dec. 22, 1992.

10 ~c~el p. Walls, CMA, letter in response to OTA questionnaire, Feb. 26, 1993.

1 I “Indus~ urges Quick Implementation of U.N. Chemical Weapons Agreement, “ International Trade Reporter, vol. 10, Jan. 20, 1993,

p. 79.
Table 3-l-Comparison of Reporting Requirements for the CWC and Selected U.S. Environmental Laws

TSCA FIFRA TRI CWC

Types of chemicals

Companles covered

Production

threshold for

reporting

Type of data reported

All chemical substances manufactured or imported into the United

States except for R&D substances,

pesticides, tobacco products, nuclear materials, firearms and am

munition, food, food additives,

drugs, and cosmetic devices.

Manufacturers and importers.

(Under some sections of TSCA,

processors and distributors.)

No threshold quantity.

Before beginning production of a

new chemical, firms must submit

a Pre-Manufacture Notice (PMN)

stating quantity of new chemical

to be produced during first year

and maximum quantity during

anyone of the first 3 years. PMN

submissions also require all available data on chemical toxicity,

byproducts, use, environmental

releases, disposal practoces human

exposure, and effects on health

and the environment. Firms must

submit a Significant New Use

Notice (SNUN) for new uses of

existing chemicals that have been

designated in a Significant New

Use Rule (SNUR).

Active ingredients in pesticides

(rodenticides, insecticides, herbicides, fungicides, and antimicrobial).

Manufacturers of active ingredients, formulators, and registrants.

No threshold quantity.

Each active ingredient and formulation must be registered with the

EPA, along with voluminous testing data on health and environmental effects. No quantity information required for registration.

Companies must also submit annual reports on quantities of active

ingredients and formulated products made at each production facility.

317toxic chemicals and 20 chemical categories.

Manufacturers, processors, users.

A facility must file a form if it

manufactures or processes 25,000

pounds or more of a listed toxic

chemical or uses 10,000 pounds

of a listed toxic chemical.

Releases of each listed chemical

to the environment, transfers of

the chemical to off-site locations,

source reduction, and recycling

activities.

CWC agentsand precursors largevolume toxic chemicals used as

warfare agents in the past, and

other discrete organic chemicals.

Threshold ranges from 100 g to

200 metric tons per year depending on the type of chemical

and its utility for production of

CW agents.

Production, processing, or consumption of schedule 2 chemicals and production of Schedule 3 and “other relevant” chemicals.

. .

m

s

0

G
Table 3-1-(Continued)

TSCA FIFRA TRI CWC

Aggregation of

production data

Protection of

proprietary data

Varies according to section of

TSCA.

Reported for each chemical at

each facility, aggregated over the

reporting year.

Reported for each chemical at

each facility, aggregated over the

reporting year.

Reported for each chemical at

each plant or plant site, aggregated over the reporting year.

Firms may protect certain limited

data from release.

Reported data are made available

to the general public in various

formats, including a publically accessible on-line database.

Firms may designate proprietary

data as confidential and protect them from release.

Firms may designate proprietary

data as confidential and protect

them from release. Health and

safety data cannot be claimed

confidential under most circumstances.

Reports must be fried on or before

July 1 for the previous calendar

year.

U.S. National Authority must

issue an annual report on previous year’s activities 90 days

after end of the calendar year,

so data maybe required earlier

from industry.

Firms must file a PMN on a

one-time basis at least 90 days

before prodution begins. ASNUN

must be fried 90 days before

production begins. There are certain exemptions for abbreviated

review periods.

Firms are required to report on

production of controlled chemicals

during the previous calendar year

by March 1, and must also report

estimated production for the coming year.

Timellne

Civil penalties of up to $25,000

per violation per day, and/or criminal penalties of fine plus up to 1

year in prison.

Civil penalties (up to $5,000) and

criminal penalties (up to $25,000,

1 year in prison) maybe assessed

for serious violations of the Act.

Civil and administrative penalties

of up to $25,000 per chemical per

day.

Civil and/or criminal penalties

may be specified in the U.S.

implementing legislation.

Penalties for late

fillng or fallure to

file

Revised

declarations

Firms must keep EPA informed Companies must file a revised

of new data on substantial risk of

chemicals, including test data.

Registrants must keep EPA informed of new testing data on the

adverse health and environmental

Not required by law.

report if new orders result in

unexpected production of scheduled chemicals, in some cases

5 days before production

starts.

effects of pesticides.

TSCA - Toxic Substances Control Act, P.L. 94-469

FIFRA - Federal Insectiade, Fungicide, and Rodenticide Act, 7 U.S.C. 136-136y.

TRI - Toxic Release Inventory, Sec. 313, Emergency Planning and Community Right-to-Know Act, 40 CFR 370

SOURCE: U.S. Environmental Protection Agency, Office of Technology Assessment, 1993.
- —. -- - . - . . . . . . .

24 I The Chemical Weapons Convention: Effects on the U.S. Chemical Industry

the additional burden will depend to a large extent

on the design of the reporting formats to be issued

by the OPCW Technical Secretariat; these formats are still being negotiated by the PrepCom.

To keep paperwork within reasonable bounds, it

would be desirable to develop simple, standardized data declaration forms so that companies can

simply check off boxes and fill in blanks. U.S.

industry representatives also want to ensure that

the PrepCom and the implementing legislation

require industry to submit no more information

than is truly essential to verify treaty compliance.

Obviously, the more information that is requested, the greater the risk that trade secrets may

be disclosed---either deliberately or unintentionally.

The reporting burden will be proportionately more onerous for small and mediumsized companies, which have a smaller base of

management and operating personnel and less

experience in providing information to regulatory agencies. Since the reporting thresholds in

the CWC are relatively low, some smaller companies may be required to fill detailed production

reports for the first time. In addition, the treaty

requires that a chemical plant report to the

National Authority any significant change in its

declaration of anticipated activities for the next

year; each such change must be reported 5 days

before it occurs. This requirement will impose a

greater burden on custom manufacturers, who

make small batches of chemicals on order to meet

short-term or seasonal demand. Since these films

are often unable to predict their production over

the coming year, they will have to amend their

annual reports fairly often. 12 Many small companies could benefit from specialized datacollection packages designed to their requirements.

INSPECTION OBLIGATIONS

To confirm that the activities of commercial

plants that produce, process, or consume scheduled chemicals are consistent with their declared

purpose, the CWC verification regime calls for

two types of onsite inspections. Declared commercial facilities that produce, process, or consume Schedule 2 chemicals, which could be

converted fairly easily to military use, will be

subject to routine inspections. The number,

intrusiveness, and duration of these inspections

will vary according to the chemicals used at a

given facility, its process equipment, and its

production activities. Schedule 3 and “other

relevant’ facilities will also be subject to routine

inspection on a less stringent basis. Supplementing the routine-inspection regime will be the right

of a State Party to request a challenge inspection

of any declared or undeclared facility on the

territory of another State Party that is suspected of

clandestine activities such as CW agent production or storage.

Unlike onsite inspections by domestic regulatory agencies, which are performed by U.S.

Government officials, inspections under the CWC

will be carried out by international civil servants

employed by the OPCW Technical Secretariat

and drawn from the countries participating in t-he

treaty regime. Depending on the size and complexity of a site, the typical inspection team will

probably consist of 6 to 10 people, including a

team leader, a chemical engineer, a process

engineer, an analytical chemist, and technicians

and interpreters. This team may break up into

subteams during the inspection.13 The inspectors

may be equipped with portable analytical instruments, computers, and safety equipment, although the technical parameters of these devices

remain to be determined by the PrepCom. Inspectors visiting U.S. facilities will be accompanied

by escorts from the inspected facility who are

12 Dan Charles, “Chemical Weapons Ban: Now for the Hard Work, ” New Scientist, vol. 137, No. 1857, Jan. 23, 1993, p. 7.

13 ~, ho ~ftel, ‘Plant Inspections, ’ presentation at a Seminar on the Chemical Weapons Convention and Its Impact on the U.S. Chemical

Industry, sponsored by the U.S. Arms Control and Disarmam ent Ageney, Washington DC, Feb. 11, 1993.
.

Chapter 3-Treaty Obligations for Industry 125

well-versed in its layout and activities; in some

cases, they may also be escorted by one or more

U.S. Government officials who are familiar with

the provisions of the treaty.

| Routine Inspections

Routine inspections of commercial chemical

plants are designed to detect—and thereby deter—

the use of declared facilities for CW agent

production. In particular, routine inspections will

verify that:

●

●

●

the plant is not being used to manufacture

CW agents;

the quantities of dual-use precursor chemicals produced, processed, or consumed are

consistent with legitimate declared needs;

and

controlled chemicals are not diverted to a

secret onsite or offsite location for illicit

purposes.

14

Commercial facilities subject to routine inspection are those involved in the production,

processing, or consumption of Schedule 1 and 2

chemicals or the production of Schedule 3 chemicals. For example, a few U.S. defense contractors

will be subject to routine inspection because they

consume more than the threshold quantity of

Schedule 2 chemicals (e.g., for the production of

composite materials) or use Schedule 1 chemicals

for the development of chemical defenses (e.g.,

detectors and protective gear). Inspections of

Schedule 2 and 3 facilities will begin as soon as

possible after the treaty enters into force, while

inspections of ‘ ‘other relevant’ facilities will

likely be phased in later.

Before routine inspections begin at Schedule 2

facilities, the OPCW Technical Secretariat will

conduct an initial (baseline) inspection of each

plant to assess the risk it poses to the goals of the

treaty and hence the frequency and intensity of

future inspections. These initial inspections are

Reactor used for the production of dimethyl

methylphosphonate (DMMP), a chemical that has

commercial applications but can also be converted

into nerve agents.

likely to take up to 3 years to complete. Priority

in making the initial inspections will go to the

facilities of higher risk, that is, those plants that

could be used most easily to produce chemical

weapons.

During the initial inspection of each Schedule

2 facility, the OPCW and the U.S. National

Authority will negotiate a facility agreement with

the close participation of the plant owners. This

agreement will define the verification procedures

on a plant-specific basis, laying out areas of the

site that will be inspected, where samples can be

taken, which plant records can be audited, necessary safety measures, and ground rules for escorts.

Some parts of a site maybe excluded from routine

inspection, such as research and development

laboratories, pilot plants, and nonrelevant production units.

The CWC requires the negotiation of facility

agreements for all Schedule 2 facilities, unless

14 Yuri v. Skripkin, ‘‘Some ‘Ikchnical Aspects of Verification of the Non-Production of Chemical Weapons in the Chemical Industry, ’ in

S. J. Lund& cd., Venfi”cation of Dual-use Chemicals Under the Chemical Weapons Convention: The Case of Thiodiglycol, SIPRI Chemical

& Biological Wa~are Studies No. 13 (Oxford, England: Oxford University Press, 1991), pp. 118-119.
26 I The Chemical Weapons Convention: Effects on the U.S. Chemical Industry

both the OPCW and the State Party specifically

waive it as unnecessary. Facility agreements are

not required for Schedule 3 and ‘‘other relevant’

facilities, which pose less of a threat to the goals

of the treaty and thus require less intrusive

inspection. At the latter sites, plant officials are

expected to work out an informal ‘‘inspection

plan’ when the inspectors arrive at the plant gate.

Nevertheless, States Parties have the option of

negotiating a more detailed facility agreement for

Schedule 3 and ‘‘other relevant” plants if they so

choose.

The OPCW Technical Secretariat will select

Schedule 3 and “other relevant” plants for

inspection using software that takes into account

weighting factors to ensure an equitable geographic distribution. Each Schedule 2 or 3 plant

may not receive more than two routine inspections per year, and there is a annual ceiling on the

total number of inspections of Schedule 3 and

‘‘other relevant’ facilities.

Routine inspections will involve three mutually reinforcing elements: visual inspection of

production equipment, chemical sampling and

analysis, and auditing of plant records. In some

cases, it maybe possible to determine from visual

inspection alone if a chemical plant is capable of

engaging in illicit activities, since production of

CW agents would probably involve the use of

corrosion-resistant reactors and special containment measures. Nevertheless, if a government is

bent on acquiring a CW capability and is willing

to cut corners on agent shelf-life, environmental

protection, and worker safety, CW agents could

be manufactured with standard chemical production equipment, which would simply be replaced when corroded. For this reason, chemical

sample collection and analysis will be needed to

provide evidence of clandestine CW agent production that cannot be detected by visual inspection alone.

Sensitive analytical instruments (e.g., combined gas chromatography and mass spectrometry)

can detect telltale traces of CW agents or their

degradation products in samples from the production line, the waste stream, or even the walls and

floor of a plant. Onsite analysis of samples should

normally be able to verify the presence or absence

of scheduled compounds or their degradation

products. Nevertheless, if a treaty violator has

attempted to eliminate or conceal traces of CW

agent production before an inspection by decontaminating the production line or by producing a

closely related commercial chemical in the same

reactors (e.g., the pesticide methyl-parathion

instead of the nerve agent sarin), the results of

onsite chemical analysis may be inconclusive. in

such cases, the treaty gives the inspection team

the right to send a sample to an offsite laboratory

for more sophisticated testing.

The facility agreement may rule out sampling

at certain points along the production line that

could disrupt production or reveal sensitive proprietary information, as long as the plant officials

offer acceptable alternative ways to resolve the

inspectors’ compliance concerns. For example, if

a plant is using a process containing a proprietary

catalyst, the plant managers could give the

inspectors samples of both the feedstock and the

final product, but not of the intermediate mass

containing the catalyst. While the facility agreement should be structured to protect proprietary

information unrelated to CWC verification, it

should also give the inspectors enough flexibility

to make cheating difficult, thereby reinforcing the

deterrent effect of the inspections. For example,

the agreement might permit random sampling of

undeclared vessels connected to declared reactors

if such vessels could be used to divert chemicals

for CW agent production.15

If suspicions of illegal activity emerge during

an inspection, the inspectors may request to go

beyond the explicit terms of the facility agree-

—

15 co~erence on r)i~ment, ‘ ‘Report on the Second United States Trial Inspection document No. CD/CW/WP.301, J~e 27, 1990,

p. 13.
Chapter 3-Treaty Obligations for Industry | 27

ment; if plant officials refuse, they could be

suspected of hiding something. In this case, plant

officials must find a way to satisfy the inspectors’

concerns, for example by allowing them to

examine additional records or by permitting a

walk-through of an additional area of the plant

after taking the time to shroud sensitive equipment. Since CWC inspectors will generally seek

to avoid controversy, they are unlikely to overstep

their authority by making unreasonable requests.

The full impact of routine inspections on

U.S. industry is not likely to be felt until about

a decade after the CWC enters into force. For

the frost 5 to 10 years of CWC implementation,

most inspection resources will go to the task of

monitoring the elimination of chemical-weapons

stockpiles and CW agent production facilities.

Commercial sites not subject to inspection initially will be phased gradually into the system. As

a result, it will take several years before the CWC

reaches a steady state in which international

inspectors are routinely inspecting chemical

plants. 16

Another factor constraining the number of

inspections of U.S. chemical plants will be the

limited resources of the international inspectorate

in terms of time, money, and manpower. The

OPCW Technical Secretariat will employ at most

about 1,000 international civil servants, of whom

between 250 and 400 will be inspectors. Since a

team of roughly 6 to 10 inspectors will be required

to inspect each site, no more than a few dozen

sites can be inspected at a time, or a few thousand

per year, only some of which will be in private

industry. Given that more than 25,000 chemical

plants worldwide will be subject to inspection, the

odds that any given U.S. plant will be inspected

will be fairly low. Thousands of U.S. chemical

plants will be declared, but only a small fraction

will actually be inspected.

I Challenge Inspections

A State Party to the CWC that seeks to violate

the treaty might engage in clandestine agent

production at an undeclared site. For this reason,

routine inspections of declared sites will be

supplemented by the right of any participating

state to request a ‘‘challenge ‘‘ inspection of any

facility on the territory of another State Party that

is suspected of containing a clandestine CW

storage or production facility. In this way, challenge inspections provide a “safety net’ to cover

violations that cannot be detected through routine

inspections; they also allow the participating

countries to ventilate their compliance concerns

before the court of world opinion.

Challenge inspections can take place at any

government or privately owned facility, declared

or undeclared. For challenges of undeclared

facilities, the inspection team will arrive onsite

within 48 hours after the host country has been

notified; the two sides may then negotiate for a

maximum of 72 hours over the degree of access

needed to demonstrate treaty compliance.17 Officials at undeclared plants must grant some access

to the site 102 hours (5 days) after the challenge

is announced. (For declared plants, some access

must be granted 39 hours after a challenge is

announced.) The duration of a challenge inspection may not exceed 84 hours, unless extended by

agreement with the inspected State Party.

Depending on the outcome of negotiations

during the inspection, inspection of the site may

involve visual exarnination of production facilities (including the taking of instant photographs),

sample collection and analysis, and access to

plant records pertinent to production of treatycontrolled chemicals. To reduce the potential for

mischievous or intelligence-motivated challenge

inspections, the OPCW’s 41-country Executive

Council can block a challenge request within the

frost 12 hours after it is presented if the request is

lb Will D. Cqenter, chemical industry consultant, personal communicatio~ my 12, 193.

17 Commulcatiom$ channels for informing a challenged site of an impending inspection remain tO be worked out.
-- - - - . . . . -- - — . . - . -

28 I The Chemical Weapons Convention: Effects on the U.S. Chemical Industry

judged to be “frivolous, abusive, or beyond the

scope’ of the treaty. Since representation on the

Executive Council gives weight to States Parties

with the largest chemical industries, these countries will be in a position to oppose inspections

that appear motivated primarily by intelligencegathering.

Moreover, although the CWC imposes no

numerical limit on challenge inspections, the U.S.

chemical industry believes they will be relatively

rare, high-profile events. Since challenge requests

will be tantamount to an allegation of noncompliance, they will carry a political cost that States

Parties will most likely only wish to incur for the

most serious suspected violations. For this reason, governments will probably not wish to

expend their political capital by challenging a

declared commercial facility that is already

subject to routine inspections.18 Challenges of

commercial plants may still occur, however, if

persistent suspicions of noncompliance cannot be

resolved through routine inspections alone.

During a challenge inspection, plant officials

are obligated to provide only the minimum

amount of information necessary to demonstrate

treaty compliance and need not disclose military

or business secrets. At plants in the United States,

the U.S. Government may provide escorts to

make sure that the international inspectors follow

the guidelines set out in the CWC. (Although

government escorts are not required by the treaty,

they will probably be present at least during initial

routine inspections and challenge inspections, if

finding permits.) Should an adversarial situation

develop during an inspection, the government

escorts may intervene to help resolve the controversy without embarrassment for the United

States. At the end of the visit, the inspection team

must make a preliminary draft report on the

inspection available to the host country for review

and attempt to resolve any compliance concerns

in discussions with plant officials.

COSTS OF INSPECTIONS

Estimates of the cost of preparing for and

hosting CWC inspections at U.S. chemical plants

vary greatly, since they depend primarily on the

labor costs of personnel involved with the inspections. In order to test out procedures for both

routine and challenge inspections, countries participating in the CWC have conducted more than

200 National Trial Inspections (NTIs) at their

own government and industrial facilities.19 To

date, the United States has performed seven NTIs,

two of which were simulations and five actual

mock inspections. The second U.S. NTI, for

example, was a mock inspection of a production

facility for a Schedule 2 chemical (thiodiglycol,

the immediate precursor of mustard agent), including an initial declaration, a baseline inspection and preparation of a facility agreement, and

a routine inspection. 20 while these exercises have

served primarily as a means to develop and refine

monitoring and verification measures for the

treaty, they have also helped to assess the

potential impact of the inspections on industry.

After the first U.S. NTI, the participating

company reported a cost of $10,000 for its time

(100 man-hours) in preparing for the trial inspec18 Micbel p. wT@ “The Private Sector and Chemical Disarrnam en<” in Brad Roberts, cd., The Chemical Weapons Conventr’on:

Implementation Issues, Significant Issues Series, vol. XIV, No. 13 (Washington DC: Center for Strategic and International Studies, 1992), p.

44. Indeed, during the CWC negotiations the chemical industry favored routine inspections as a way of minimizing challenge inspections of

industry, which would have been suggestive of a treaty violation.

19 Battelle Memori~ ~titute and EER Systems Corp. have developed a computer database on these iIISpeCtiOIM known M tie ‘‘chemical

Weapons Convention National Trial Inspections Information System. ’

~ SigmUd R. ~khaus, ‘‘U.S. National Trial Inspection at a ThiOdiglycol Facility, in S. J. Lund@ cd., Verijkafion ofDual-use Chem”culs

Under the ChemicaI Weapons Convention: The Case of Thiodiglycol, SIPRI Chemical & Biological Wa@are Studies No. 13 (New Yorlq NY:

Oxford University Press, 1991), pp. 106-117.
Chapter 3–Treaty Obligations for Industry 1 29

tion, including the use of its own analytical

capabilities. 21 Industry representatives stressed,

however, that this cost estimate was of questionable accuracy because it assumed different procedures than would probably be used for real

inspections involving foreign nationals. In practice, the cost of hosting routine inspections will

depend on several factors, including the size of

the inspection team, the amount of access granted

to the facility, and the number of samples

analyzed onsite.

Inspections will also be more costly if they

interfere with normal production. For example,

the treaty entitles the inspectors to ask plant

officials or workers to take samples from the

production line under the inspectors’ supervision

and to operate idle equipment to demonstrate its

function. Interference with production is likely to

be rare, however, because the CWC states explicitly that onsite inspections must be conducted so

as to cause the ‘‘least possible. . . disturbance to

the facility or area inspected. The inspection team

shall avoid unnecessarily hampering or delaying

the operation of the facility and avoid affecting its

safety. ’22 Industry expects the inspectors to

follow this guideline closely, only interfering

with ongoing production if such action is absolutely necessary to resolve compliance concerns.

Officials of the inspected plant also have the right

to deny unreasonable requests for reasons of

safety or undue disruption, provided they can find

some other means of demonstrating to the inspectors’ satisfaction that the facility is treatycompliant.

The upper bound of estimates for the cost of an

onsite inspection at a commercial site apply to

facilities that:

●

●

●

are particularly large and complex,

have extensive areas containing activities

relevant to the CWC, and

are engaged in highly proprietary or classified defense activities, such as the manufacture of advanced composite materials for

‘‘stealth’ aircraft.

In such cases, the Department of Defense has

estimated that the cost per facility could be as

high as $200,000 to $500,000 because of the need

for extensive site preparation involving a large

number of man-hours, including training escorts,

shrouding sensitive equipment, and conducting

mock inspections.23

The higher range of inspection costs could also

result if a chemical company decides to:

●

●

shut down production temporarily in areas to

be visited by inspectors for safety reasons or

to protect trade secrets; or

reconfigure or relocate production or consumption of scheduled chemicals to protect

trade secrets related to other, commercially

more important products manufactured in

the same plant.24

While such shutdowns and relocations would

result in considerable costs and job losses, they

are likely to be quite rare. The Pentagon’s higher

range of cost estimates for CWC inspections may

also

●

●

be exaggerated for three reasons:

some preparation expenses will be one-time

only, such as the purchase of shrouds or the

reconfiguration of controls and gauges;

the figures probably overestimate the number of personnel (and hence man-hours)

required to prepare for and conduct inspections; and

21 Coderence on Disarrn~ent, ‘‘Report on a United States National Trial Inspection Exercise, ’ document No. CDB22, June 22, 1989, p.

13.

zz 6&conduct of Inspections, ‘‘ appendix I, annex 2, paragraph 40, Drafi Chemical Weapons Convention, op. cit., p. 80.

23 Susm D, ~lbbrandt, special Assist~t to tie Assis~t to tie Secre- of Defense for Atomic Ener~ (Chemical Matters), OffiCe Of the

S~retary of Defense, personal cornrnunicatiou April 1993.

24 ~temiew ~~ Dr. ho ~ftel, chefical indus&y comulmt, Dec. 22, 1992.
30 I The Chemical Weapons Convention: Effects on the U.S. Chemical Industry

Initial plant briefing Perimeter monitoring

Inspection of equipment Inspection of product
. . .

Chapter 3-Treaty Obligations for Industry 131

Sample collection Sample analysis

The U.S. Government has conductedfour National

Trial Inspections (NTIs) of commercial chemical

plants that produce some of the dual-use chemicals

listed in the Chemical Weapons Convention. These

mock inspections have served two purposes: to help

negotiators develop effective onsite inspection

procedures and to enable companies to prepare for

future inspections of their own facilities. The

photographs shown here were taken during the first

three U.S. trial inspections, NTI-1 took place in

February 1989 at the Akzo Chemicals plant in

Gallipolis Ferry, WV which produces DMMP, a

Schedule 2 chemical; NTI-2 occurred in March 1990

at the Alcolac plant in Baltimore, MD, which then

produced thiodiglycol, another Schedule 2 chemical;

and NTI-3 was conducted in September 1990 at the

Monsanto Agricultural Co. plant in Luling, LA, which

produces a phosphorus herbicide. The purpose of the

first two NTIs was to test procedures for routine

inspections; the third tested procedures for a

challenge inspection of industry using a negotiated,

managed-access approach.

Records audit
-— —-— — — . - - . . . - .-. . . . . . —- .

32 I The Chemical Weapons Convention: Effects on the U.S. Chemical Industry

. costs to industry will tend to decline over

time as plant officials move down the

learning curve and develop more efficient

ways to prepare for and host inspections.

A number of factors may also influence the

frequency and intrusiveness of onsite inspections.

First, as mentioned above,the limited resources of

the OPCW Technical Secretariat in terms of

workforce, money, and time will constrain the

total number of inspections per year. Second, the

degree of experience and expertise demonstrated

by the international inspectors, and the extent of

industry cooperation with the verification regime,

could lead to a reduction over time in the number

of inspections and the relative size of inspection

teams. Finally, the frequency and intrusiveness of

inspections may be influenced by the prevailing

international political situation. If international

tensions are low, inspections of chemical facilities may tend to be pro forma and relatively

nonintrusive, requiring only modest preparations

that can be undertaken at low cost. If, however,

the international community enters a renewed

period of heightened tensions, CWC inspections

might be used increasingly for harassment and

espionage, forcing companies to undertake more

extensive protective measures and hence increasing implementation costso

25

No specific U.S. Government fund has been

established to defray the costs to industry of

preparing for inspections. Instead, companies

will have to absorb these expenses as an

additional cost of doing business. Some of these

costs may, of course, be passed on to the

consumer in higher prices. Although defense

contractors are generally prepared to spend money

to prepare for inspections on the assumption that

they will be reimbursed by the U.S. Government,

this issue has not yet been decided. Indeed,

companies without government contracts would

object strongly if they were required to absorb the

costs of inspections while competitors with defense contracts were reimbursed by the taxpayers,

giving them an unfair advantage. U.S. chemical

companies also want to ensure that the costs of

preparing for and hosting inspections are allocated equitably among all of the States Parties so

that treaty compliance does not weaken the

international competitiveness of U.S. fins.

Z5 ROW G. Goug~ s~~a National Laboratories, persord communication.
Constitutional

and

Other Legal

Issues 4

u

navoidable tensions exist between the U.S. Govemment’s responsibility to uphold the basic constitutional

rights of its citizens and the intrusive verification

measures needed to ensure that no chemical weapons are

being produced on its territory. For example, the Fourth

Amendment of the U.S. Constitution shields both citizens and

corporations against “unreasonable searches and seizures, ’

while the Fifth Amendment protects them from selfincrirnination and government confiscation of private property

without due process and fair compensation.l These constitutional

protections cannot simply be preempted by an international

treaty. While arms-control treaties have the force of law, they can

only be implemented domestically to the extent that they meet

the legal standards of the U.S. Constitution.2

Although the great majority of U.S. companies will want to be

good corporate citizens by complying voluntarily with the

CWC’s reporting and inspection obligations, it is possible that a

handful of firms may consider onsite inspections a form of

harassment and refuse to allow an inspection team to enter their

plants. Indeed, the large number of facilities potentially subject

to routine or challenge inspections makes it likely that a few such

cases will arise. Thus, unless the legal questions over the

constitutionality of the CWC are clearly resolved, a company

might be able to keep foreign inspectors out of its plants. Such

1 The Fourth Amendment reads, ‘ ‘The right of the people to be secure in their

persons, houses, papers, and effects, against unreasomble searches and seizures, shall not

be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or

affirmation% and particularly describing the place to be searched, and the persons or things

to lx seized. ” The Fifth Amendment states, in part, “No person shall . . . be compelled

in any criminal case to be a witness against himself, nor be deprived of life, liberty, or

property, without due process of law; nor shall private property be taken for public use,

without just compensation. ’

2 Eric Hamburg, Arm.r Conrroi Verification and the U.S. Constitution, working

paper (Stanford University: Center for International Security and Arms Control, August

1989).

33
34 I The Chemical Weapons Convention: Effects on the U.S. Chemical Industry

a legal challenge could result in significant delays

in treaty implementation, seriously embarrassing

the U.S. Government. It will therefore be necessary to address these constitutional issues in the

domestic enabling legislation before the treaty

enters into force.

ROUTINE INSPECTIONS

CWC inspection teams will expect to conduct

routine inspections of privately owned facilities

in the United States without the need to obtain a

valid search warrant. Yet the Fourth Amendment

generally bans Government searches conducted

at random or on the basis of vague suspicions,

without ‘‘probable cause’ to believe that the

search will uncover evidence of illegal activity.

Although the meaning of “probable cause” is

somewhat ambiguous, it has been characterized

as ‘‘a fair probability that contraband or evidence

of a crime will be found in a particular place. ’

According to numerous Supreme Court rulings, a

constitutionally valid search cannot occur until

the government persuades a U.S. judge or magistrate that probable cause exists and the judge has

issued a valid search warrant. The purpose of this

procedure is to allow a neutral intermediary to

evaluate the legitimacy of the government’s

search request. However, the Supreme Court has

explicitly avoided any ruling on whether foreign

policy or national security interests can justify an

exemption from the usual Fourth Amendment

requirement for search warrants to precede searches.4

Both routine and challenge inspections of

declared commercial facilities under the CWC

raise Fourth Amendment issues because they call

for possibly warrantless searches in some areas

where there is a reasonable expectation of privacy. Routine inspections are less problematic

than challenge inspections from a constitutional

standpoint because of the scope and nature of the

affected entities (routine inspections apply to

selected commercial facilities, whereas challenge

inspections cover potentially any location in the

United States, including private residences) and

the reasons for the search (routine inspections are

preplanned, whereas challenge inspections are

based on suspicion). Accordingly, while the

CWC does not explicitly address the constitutionality of routine inspections, U.S. negotiators

insisted that the treaty provisions on challenge

inspections recognize the right of privacy enshrined in the Fourth Amendment. To this end,

Part X of the CWC Verification Annex states that

a challenged facility must give the inspection

team the greatest possible access “taking into

account any constitutional obligations it may

have with respect to proprietary rights or searches

and seizures. ’ Ironically, because the CWC

provides an explicit waiver on constitutional

grounds for challenge inspections but not for

most routine inspections, the latter are now

actually somewhat more problematic from a

Fourth Amendment standpoint.

In the great majority of cases, routine inspections will not pose Fourth Amendment problems

because companies will consent to inspection by

negotiating a facility agreement in advance. In

cases where U.S. companies seek to deny entry to

CWC inspectors on constitutional grounds, legal

scholars have proposed two possible remedies.

| “Pervasive Regulation” Exception

The Supreme Court has ruled that a company’s

expectation of privacy under the Fourth Amendment can be reduced by the extent to which it is

regulated or licensed by the government. Indus-

—

s Illinois v. Gates, 462 U.S. 213 (1983).

4 Edwwd A. lhnzman, C’Constitutionality of Warrantless On-Site Arms Control Inspections in the United !StMX,” Yale ~ournal of

International Law, vol. 13, No. 1, 1988, p. 67.

5 “conduct of ks~tiow’ appendix I, annex 2, paragraph 41, in Conference on Disarmament, Draji Convention on the Prohibition of

the Development, Production, Stockpiling and Use of Chemical Weapons and on Their Dest~ction, ex@acted tim@/l 173, Sept. 3, 1~3.

p. 159.
tries that are “pervasively regulated” because

they pose risks to public health or safety may be

required to submit to warrantless searches, on the

grounds that requiring a warrant would give the

target of the search sufficient advance notice to

conceal violations. The legal premise of pervasive regulation is that the statute that regulates the

industry is the fictional equivalent of a search

warrant.

For example, in a 1981 case, Donovan v.

Dewey 6

, the Supreme Court established a new

standard permitting extensive government inspections of commercial property without a

warrant. The case concerned the Federal Mine

Safety and Health Act, which directs Federal

officials to inspect underground mines at least

four times a year and surface mines at least twice

a year to enforce safety standards. This statute

specfically provides for inspections without advance notice and requires the Secretary of Labor

to institute court actions in cases where inspectors

are denied admission. In declaring the Act constitutional, the Supreme Court found that the government had ‘‘greater latitude’ to conduct warrantless inspections of commercial property than

of private homes.7

The Court ruled that warrantless safety inspections of mines were justified because of the

notorious history of serious accidents and unhealthful working conditions in the mining industry, along with Congress’s determination that

unannounced inspections were necessary if the

safety laws were to be effectively enforced. Yet

the Court warned that warrantless inspections of

commercial property would be constitutionally

objectionable if their occurrence was ‘‘so random, infrequent, or unpredictable that the owner

has no real expectation that his property will from

time to time be inspected by government offi-

 . . .

Chapter 4-Constitutional and Legal Issues |35

Onsite inspections under the CWC must be consistent

with constitutional protections against ‘‘unreasonable

searches and seizures. ’

cials. Dewey therefore appears to permit warrantless inspections of commercial establishments if the law specifies a regular number of

inspections that must be carried out within a

prescribed period and according to reasonable

standards.

In a 1987 case, New York v. Burger, the Court

established three tests that must be met for a

pervasively regulated industry to be searched

without a warrant:

1. there must be a ‘‘substantial government

interest’ involved,

2. the warrantless inspections must be “necessary to further the regulatory scheme, ’ and

3. there must be “certainty and regularity of its

application.

The 1986 case of Dow Chemical Co. v. the

United States raises some doubt, however, about

the extent to which the “pervasive regulation”

rationale for warrantless inspections applies to the

U.S. chemical industry. 10 Dow filed suit against

the EPA after some of the agency’s inspectors,

who had been denied access to one of the

6452 U.S. 594 (1982).

7 Donovan v. Dewey, 452 U.S. 594, 598-599 (1981).

8 Ibid.

g New York v. Burger, 482 U.S. 691 (1987).

IIJ Dow Chemica/ CO. v. (he United States, 476 U.S. 227 ( 1986), p. 23*.
36 I The Chemical Weapons Convention: Effects on the U.S. Chemical Industry

company’s plants, hired a commercial plane to

overfly the plant and take high-resolution color

photographs for regulatory purposes. The company’s attorneys argued that the overflight constituted an illegal search under the Fourth Amendment. Although the Supreme Court rejected this

line of argument, it found that individual chemical firms still have some constitutional right to

privacy, albeit not as much as private citizens in

their homes.l1

Edward A. Tanzman, a legal scholar at Argonne National Laboratory, contends that because of the Court’s dicta in the Dow case, there

is some uncertainty as to whether the U.S.

chemical industry qualifies as being pervasively

regulated. In order to meet the Burger criteria for

warrantless inspections, he contends, the implementing legislation would have to provide probable cause for a pervasive regulatory scheme (e.g.,

that the treaty-controlled facilities pose a potential threat to public health and safety) and

mandate inspections that are ‘ ‘certain and regular” (e.g., every few months).

One way to meet the latter requirement,

Tanzman suggests, would be for the implementing legislation to establish a comprehensive

inspection scheme that ‘‘pervasively regulates’

the domestic chemical industry. Under this proposal, the U.S. National Authority would conduct

its own regular inspections of declared chemical

plants to verify that the initial CWC declarations

are accurate and complete. Once the National

Authority had established a‘ ‘certain and regular’

presence of its own inspectors and thus lowered

the industry’s expectation of privacy at declared

sites, the international inspectors would have

legal grounds to conduct their own warrantless

inspections.

It is unlikely, however, that the U.S. National

Authority would have the resources to implement

a pervasive regulation scheme, which would also

be anathema to industry. Thousands of U.S.

Government inspections would have to be conducted to establish the legal basis to conduct far

fewer international inspections. Whether this

complex and costly solution is really necessary

remains a matter of debate. Some analysts believe

that the “certain and regular” test can be met in

other ways than the timing of the inspections, for

example, by ensuring consistency and regularity

in the overall application of the regulatory

scheme.

I Administrative Warrants

Another proposed solution to the Fourth Amendment problem would be for the implementing

legislation to allow CWC inspectors to use the

‘‘administrative warrant’ procedure developed

by U.S. regulatory agencies for unannounced

inspections of private companies.12 In a 1978

case, Marshall v. Barlow’s, Inc.13, the Supreme

Court struck down as violating the Fourth Amendment a provision of the Occupational Safety and

Health Act authorizing Federal inspectors to

conduct warrantless searches of any employment

facility covered by the Act for safety hazards and

violations. The Court held that Federal regulation

for limited purposes did not constitute ‘‘pervasive

regulation, and that giving OSHA inspectors

unlimited discretion to choose which businesses

to inspect and when to do so could render

companies potentially vulnerable to arbitrary

searches with no assurance as to limitations on

scope. The Court also found that warrantless

inspections were not necessary to serve an impor-

* 1 David A. Koplow, ‘‘Back to the Future and Up to the Sky: Legal Implications of ‘Open Skies’ Inspection for Arms Control, ” Ca/@rnia

Luw Review, vol. 79, No. 1, March 1991, pp. 467-469, For example, the chemical industry believes that aerial overflights of chemical plants

using aircraft equipped with sensitive ‘‘sniffers” for scheduled compounds could present a threat to proprietary data and would thus be subject

to legal challenge on Fourth Amendment grounds.

12 J. Aroesv, K. A. WOlf, and E. C. River, Domestic Implementation of a Chemical Weapons Treaty, report No. R-3745-ACQ (S~@ Monic%

CA: RAND Corp., October 1989), p. 26.

13436 U.S. 307 ( 1978).
tant governmental interest, since most businesses

would consent to inspection. 14

In those cases where a business to be inspected

refused consent, the Court ruled that OSHA

inspectors should apply to a Federal judge or

magistrate for an administrative search warrant,

using a streamlined procedure that does not

require notifying the inspected party in advance.

To obtain such a warrant, the government must

demonstrate ‘ ‘administrative probable cause, ’

meaning that the public interest in the inspection

(e.g., protection of public health and safety)

outweighs the invasion of privacy involved .15 The

standard for obtaining an administrative warrant

is much less demanding than that for a criminal

warrant, and the procedure is relatively easy and

straightforward. The inspectors need only show

that a specific business has been chosen for

inspection on the basis of a general administrative

plan. Even without the need to show criminal

probable cause, however, the requirement for an

administrative warrant assures the interposition

of a neutral officer to establish that the inspection

is reasonable and properly authorized,lb

Administrative warrants can only be used for

searches that are conducted primarily on the basis

of neutral and objective criteria rather than on

suspicion of a violation. For example, when

administrative searches are used to enforce building codes, the choice of which building to inspect

must be based on its age, the date of the last

inspection, or whether the structure has exterior

fire escapes or a sprinkler system. If the principal

intent of the inspection is to find evidence of a

suspected violation, a criminal search warrant is

required.

Critics of the administrative-warrant solution

argue that routine CWC inspections do not fully

meet the constitutional criteria for administrative

Chapter 4-Constitutional and Legal Issues

searches, since they are based only partly

——

37

on

neutral and objective criteria. Routine inspections

will occur with some regularity but not as much

as required for administrative searches under

domestic regulatory schemes, and the choice of

which facilities to inspect will be influenced by

the ease with which they could be misused to

produce chemical weapons. As a result, Tanzman

contends that U.S. courts may find the process of

issuing administrative warrants for routine inspections too pro forma and not sufficiently

protective of Fourth Amendment rights.

Advocates of the administrative-warrant approach respond that routine inspections meet the

broad constitutional standards for issuing administrative warrants and that the courts will not hold

an international treaty to the same strict legal

standard as a domestic regulation. These analysts

also point out that routine inspections are not

based on suspicion but are simply intended to

verify that a plant operations are consistent with

its declared activities. Moreover, the advancenotice requirement makes the inspections less

arbitrary.

In sum, legal analysis suggests that the CWC

verification regime can and should respect

constitutionally protected rights while fulfilling treaty obligations. The debate over the best

way to ensure that routine inspections comply

with the Fourth Amendment has not yet been

resolved, however, and will have to be addressed by the government attorneys drafting

the CWC implementing legislation.

CHALLENGE INSPECTIONS

Under the challenge-inspection provisions of

the CWC, a State Party can request an international inspection and have it carried out at any

location or facility (public or private) on the

14 ~ar$hall v. Bar/ow’s, Inc., 436 U.S. 307, 314 (1978).

15 ~wad A. Tanzrnan and Barry Kellrnan, Harmonizing the Chenu”cal Weapons Corn’ ention With the United States Constitution, technical

report No, DNA-TR-91-216 (Alexandria, VA: Defense Nuclear Agency, Apr. 1992), p, 46.

16 Con=essioml Reswch Service, The Consrzrurion of the United Scutes of America: Analysis and Interpretation (washin@on, DC: U.S.

Government Printing Office, 1987), p. 1167.
38 I The Chemical Weapons Convention: Effects on the U.S. Chemical Industry

territory of another participating country that is

suspected of a treaty violation (e.g., clandestine

production or stockpiling of CW agents). The

CWC also states that if the inspected State Party

provides less than fill access to the facility,

activities, or information in question, it must

make ‘‘every reasonable effort’ to provide alternative means to clarify the possible noncompliance concern that generated the challenge

request. 17

Challenge inspections are by definition based

on suspicion because they can only be triggered

when the requesting State Party has ‘‘questions

concerning possible noncompliance with the

provisions of this Convention. ”18 Indeed, the

general nature of the noncompliance concern

must be included in the inspection request. Since

the purpose of the inspection is to find evidence

of a suspected treaty violation, more is involved

than simply assessing compliance with a regulatory scheme. Challenge inspections are therefore

inherently discriminatory and cannot justify the

use of an administrative warrant. Instead, if a

challenged facility refuses to grant access to

international inspectors, U.S. officials will need

to obtain a search warrant that meets the criteria

for criminal probable cause, which are stricter.

There are good reasons, of course, why it would

be undesirable in most cases to require a criminal

search warrant for challenge inspections. First,

the need to establish probable cause for an

inspection could compel the challenging party to

disclose sensitive intelligence information it would

not want to release. Second, obtaining a warrant

could impose an unacceptable delay on the

inspection, whose effectiveness derives largely

from being carried out on relatively short notice .19

Nevertheless, search warrants will probably be

sought where the challenged facility does not

voluntarily provide access.

While plant officials may not use constitutional

privacy rights as an excuse to evade their treaty

obligations, they may refuse on legitimate Fourth

Amendment grounds to allow the inspectors to

enter arbitrarily into private homes or businesses

to search for contraband or telltale evidence.2

Because the CWC states that challenge inspections must respect constitutionally protected

privacy rights, the United States cannot be

held in violation of the treaty if, after a search

warrant has been denied on constitutional

grounds, the owners of the challenged plant

continue to block access to international inspecters. In nearly all cases, however, the CWC

should satisfy the chemical industry’s constitutional concerns by allowing States Parties to

negotiate the extent and nature of intrusiveness

before a challenge inspection begins.

PENAL SANCTIONS

The CWC requires States Parties to enact

legislation making violations of the treaty a crime

under domestic law, and imposing penal sanctions on individuals or corporations that engage in

such activities. In addition, the treaty allows

inspectors to ask questions of plant personnel;

although answers are not compelled, there would

be pressure to respond. Some legal scholars

believe that these provisions may conflict with

the Fifth Amendment, which protects individuals

from being forced to give self-incriminating

testimony. For example, if evidence garnered

during an inspection could lead to the bringing of

criminal charges against the plant manager for

violating the CWC or, more likely, some other

domestic statute, forcing the manager to answer

17 Appendix 1, hex 2, p~~aph 43, Draft Chemical Weapons Convention, op. cit., P. 160.

la “pr~~mes for Challenge Inspections, ” Article tX, paragraph 8, Draji Chem”cai Weapons Convention, op. cit., p. 37.

19 Mwa(j A. Tanzxnan and Barry KelIrnW “Legal Implications of the Multilateral Chemical Weapons Convention: Integrating

International Security With the Constitution” International Law and F’olitics, vol. 22, 1990, p. 498.

m David A. Koplow, “Arms Control Inspection: Constitutional Restrictions on Treaty Veritlcation in the United States, ” New York

University Law Review, vol. 66, May 1988, p. 355.
domestic statute, forcing the manager to answer

questions might violate his or her Fifth Amendment protection against self-incrimination. Thus,

for the treaty to comply with the Constitution, a

plant manager questioned by international inspectors must retain the right not to respond to

questions in a way that might be incriminating.

A related issue is whether evidence obtained

from a CWC inspection of the violation of an

unrelated statute, such as an environmental or

worker-safety law, could be used in a subsequent

criminal prosecution against the plant owner.21 In

legal parlance, this issue is known as the ‘‘fruit of

the poisonous tree” problem: is evidence obtained from a potentially tainted source admissible in a criminal prosecution? Some legal scholars

contend that the transfer of information from

CWC inspectors to U.S. law enforcement officials should be strictly regulated so that treaty

inspections do not become criminal searches in

the guise of administrative inspections. This

constitutional problem can be avoided if the

implementing legislation states that evidence

gathered during CWC inspections may only be

used in prosecutions directly related to the treaty.

Such “use immunity” means that no evidence

obtained during a CWC inspection could be used

against the plant manager if he were subsequently

prosecuted for another offense on the basis of

independent evidence.

Promising use immunity for evidence of crimes

unrelated to the CWC would encourage cooperation with inspections by companies that are in full

compliance with the treaty but fear being accused

of violations of domestic environmental or workersafety laws.22 Advocates of this approach also

contend that U.S. courts would be more likely to

uphold the constitutionality of warrantless CWC

inspections if evidence of unrelated criminal

conduct discovered during an inspection could

not be used to prosecute plant personnel.23

— ——. —. —

Chapter 4-Constitutional and Legal Issues |39

Since reasonably effective mechanisms for

enforcing U.S. domestic environmental and workersafety laws already exist, government authorities

should not have to rely on CWC inspections for

this purpose. Nevertheless, some legal analysts

argue that violators of domestic laws should not

be able to exploit use immunity under the CWC

as a shield for criminal activity, and that if U.S.

Government officials escorting international inspectors happen to observe evidence of violations

of domestic laws, that evidence should be admissable in court. The issue of use immunity will

have to be resolved in the implementing

legislation.

Congress will also have to decide whether

penal sanctions should be invoked only for

violations of the fundamental ban on acquisition

of chemical weapons, or whether they should also

apply to mere technical breaches of the reporting

obligations. A related issue is whether the penal

sanctions required by the CWC should be criminal (including prison sentences), civil (fines or

other administrative penalties such as the loss of

a license), or some combination of the two.

COMPLIANCE WITH ENVIRONMENTAL AND

SAFETY LAWS

Onsite inspections under the CWC will have to

comply with U.S. Federal, State, and local

environmental regulations, raising issues that

may have to be addressed in the implementing

legislation. Some analysts have raised the concern that if toxic chemicals are involved in the

production of a commercial product, samples

obtained from the production line might have to

be considered hazardous waste. As a result, the

transport and disposal of such samples would

have to follow regulations pursuant to the Clean

Air Act, the Clean Water Act, the Resource

Conservation and Recovery Act (RCRA), and

‘1 Tanzrnan and Kellman, Harmonizing the Chemical Weapons Convention, op. cit., p, 61.

22 Tanzman and Kcllman, “tigal triplications of the Multilateral Chemical Weapons Convention, ’ op. cit., p. 517.

‘~ Tanzman and Kellman, Harmonizing the Chemical Weapons Convention, op. cit., p. 62.
- - . - . .— ---- - - . . . . —

40 | The Chemical Weapons Convention: Effects on the U.S. Chemical Industry

other laws. Plant owners would also have to

include accidental releases of toxic chemicals

during inspections in their Emergency Response

Plans.

The samples taken by the inspection teams are

expected to be relatively small in volume (in the

hundreds of grams), minimizing the problem of

disposing of them according to established procedures. Nevertheless, since State environmental

regulations can be more (but not less) stringent

than Federal regulations and thus vary in severity,

some legal scholars have suggested that the CWC

implementing legislation should preempt State

environmental laws by establishing a uniform

Federal standard for the disposal of toxic samples. 24 Environmental groups such as Greenpeace

oppose this proposal, however, on the grounds

that applying a single Federal standard to the

disposal of samples would set a bad precedent.

Not only would it undermine the States’ authority

to regulate other hazardous wastes unrelated to the

treaty, but it could weaken their ability to ensure

that the destruction of chemical-weapon stockpiles meets adequate public-health standards.25

LIABILITY ISSUES

U.S. chemical companies are concerned about

being held liable for damages should members of

a CWC inspection team be injured or killed by

exposure to plant hazards, or should inspections

result in the accidental release of hazardous

chemicals that damage plant workers or the

surrounding environment. In order to ensure the

safety of the inspectors, the OPCW will be

required to certify and issue protective equipment

such as gas masks and flashlights. The precise

technical parameters of these items are to be

negotiated by the PrepCom, giving the United

States an opportunity to make sure this equipment

meets the necessary safety standards.

Nevertheless, U.S. companies are currently

responsible for any serious injury suffered inside

their facilities; to limit their liability, they require

all visitors to sign a waiver freeing the company

from future litigation. Since the CWC does not

address the liability issue, chemical companies

want legally binding guarantees from the U.S.

Government that they cannot be sued or held

responsible for physical injury, including death,

that occurs during an inspection.26 Such a waiver

might be provided in the implementing legislation, the facility agreement, or both. Another

solution might be for the OPCW to set up an

insurance find to cover injury or death suffered

by inspectors in the line of duty and to waive any

claim on the inspected facilities. The PrepCom

and the implementing legislation will also need to

assign liability for accidental damage to a chemical facility caused by international inspectors.

EXPORT CONTROLS

Another task for the implementing legislation

is to establish punishments for U.S. companies

that violate the trade restrictions on dud-use

chemicals mandated by the CWC, At the same

time, the U.S. chemical industry wants the

implementing legislation to remove any discrepancies between the multilateral export controls

imposed by the CWC and unilateral U.S. controls

on chemical precursors and equipment, both in

terms of the items controlled and the proscribed

destinations, At present, U.S. companies must

obtain an export license to sell dual-use chemicals

and equipment to states that are not members of

the Australia Group, a forum of chemicalexporting countries that since 1985 has coordinated national export controls in this area. U.S.

chemical exports are also subject to unilateral

export-control regimes such as the Enhanced

Proliferation Control Initiative (EPCI) and the

m Prof. B~Ke~~ Depa~ universi~ College of Law (Chicago), presentation on ‘Implementing Legislation of the Chemical Weapons

Convention” sponsored by The Committee for National Security, Washingto% DC, Apr. 16, 1993.

~ Sebia Haw~, Greenpeace, personal COmmtiCatiOXl+ June 7, 1993.

26 Barry Schneider, ‘‘The Russians Are Coming, “ Across the Board, vol. 28, No. 3, March 1991, p. 27.
Iran-Iraq Arms Nonproliferation Act. Although

the CWC mandates export controls only on

specilled chemicals, the U.S. unilateral controls

also cover chemical production equipment, technical data, and licensed process technologies.

The U.S. Government defends unilateral controls on the grounds that they slow the spread of

chemical weapons by making their acquisition

more difficult and costly. But industry representatives complain that unilateral controls increase

the time, cost, and uncertainty associated with

foreign trade and reduce the ability of U.S. firms

to compete in foreign markets. According to a

statement by the Dow Chemical Co., U.S. unilateral export controls restrict the company’s efforts

to supply its customers and subsidiaries efficiently and to share product, process, and production technology and innovations intra-company.27

After the CWC enters into force, the Australia

Group countries are likely to liberalize their

export controls on “dual-use’ chemical precursors and equipment for countries that sign, ratify,

and demonstrate full compliance with the treaty,

while tightening controls on chemical trade with

non-Parties. 28 Such a liberalization of U.S. chemical export controls would benefit U.S. industry.

For example, if a country that is currently subject

to stringent export controls ratifies the CWC and

Chapter 4-Constitutional and Legal Issues | 41

remains in full compliance with the treaty, then

one could make the case that U.S. companies

should have an easier time obtaining export

licenses to sell that country precursor chemicals

and technologies. 29 Tightened trade restrictions

with likely non-Parties (e.g., Iraq, Libya, Syria,

and North Korea) would not create much of a

problem for U.S. firms because these states are

not major export destinations, at least for treatycontrolled chemicals. At the same time, liberalized trade with States Parties would eliminate

many of the unilateral constraints that have put

U.S. companies at a disadvantage with respect to

their foreign competitors.

An opportune time to reform U.S. export

controls might be either during the drafting of the

CWC implementing legislation or the reauthorization of the Export Administration Act. Given

the likely delay in fully implementing the inspection regime, however, the U.S. Government may

be reluctant to relax unilateral export controls

until certain states of proliferation concern that

have signed and ratified the CWC have clearly

demonstrated their compliance. For this reason,

restrictive chemical export controls-and, presumably, their impact on U.S. industry--+ould

well continue for at least the next decade.

27 Dow che~c~ CO., Government Relations Department, “Issue Profile: Chemical Weapons, ” 3-page unpublished document, Feb. 12,

1993, p. 1.

28 Under the CWC, COnhOIS on export of Schedule 2 chemicals will begin 3 years after the treaty enters into force until ~en, end-use

certificates will be required certifying that the chemicals will be used strictly for civilian purposes. Controls on export of Schedule 3 chemicals

may also be implemented 5 years after entry-into-force, although a final decision has not yet been made.

29 Dan Charles, “Chemical Weapons Ban: Now for the Hard Work, ” New Scientist, vol. 137. No. 1857, Jan. 23, 1993, p. 7.
I

Protection

I

u

of Proprietary

Information 5

S. industry’s primary concern about CWC inspections

is the potential loss of ‘‘confidential business information’ (CBI), a general term covering trade secrets and

other types of proprietary data. A trade secret is a

commercially valuable plan, process, device, or formula, such as

the chemical structure of a new pesticide or the recipe for

Coca-Cola. CBI also applies to information on a company’s

costs, profits, suppliers, customers, manufacturing capacity,

production schedules, and marketing plans. (See table 5-l.)

Protection of CBI is particularly critical in the chemical

industry because U.S. chemical manufacturers face a highly

competitive business environment both at home and abroad in

which proprietary knowledge related to chemical products and

processes is vital to a firm’s success. Since basic synthesis

methods have been published for most commodity chemicals, a

company’s competitive edge in the marketplace is often based on

know-how or production techniques that provide small but

significant margins of efficiency, yield, and cost, or result in a

superior product that is purer, more attractive, or has a longer

shelf-life. According to one analysis:

In many cases, it is a small difference in expertise which gives

one company the competitive edge over its competition—small

differences which can ‘‘make or break’ a company’s balance

sheet. 1

Because proprietary information is often the basis for a

chemical company’s competitive edge, both nationally and

] L. Zeftel, P. Weinberg and J. Schroy, ‘‘Approaches to the Use of Instruments in

Monitoring the Production of Chemical Weapons and Precursor Chemicals, ” in S. J.

Lundin, cd., Non-Production by Industry of Chemical-Wa+are Agents: Technical

Ven>”cation Under a Chemical Weapons Convention, SIPRI Chemical & Biological

Wa~are Studies No. 9 (New YorIq NY: Oxford University Press, 1988), p. 147.

43
44 | The Chemical Weapons Convention: Effects on the U.S. Chemical Industry

Table 5-l-Examples of Confidential

Business Information

Manufacturing and process Information

●

●

●

●

●

●

●

The formula of a new drug or specialty chemical

A synthetic route that requires the fewest steps or

the cheapest raw materials

The form, source, composition, and purity of raw

materials or solvents

A new catalyst that improves the selectivity,

efficiency, or yield of a reaction

The precise order and timing with which chemicals

are fed into a reactor

Subtle changes in pressure or temperature at key

steps in a process

Isolation methods that give the highest yields

consistent with good recycling of solvents and

reagents

Business Information

● Expansion and marketing plans

. Raw materials and suppliers

● Manufacturing costs

● Prices and sales figures

. Names of technical personnel working on a

particular project

● Customer lists

SOURCE: Office of Technology Assessment, 1993.

internationally, the theft of trade secrets can

result in a major loss of revenue and investment—

even for a large company. Industrial espionage

can enable a competitor to obtain at minimal cost

information that its originator acquired only

through an enormous investment of time and

money, thereby erasing the competitive advantage of that investment in R&D. For this reason,

the theft of trade secrets ‘‘can cripple even a giant

company, and can be fatal to a smaller enterprise. ’ This threat to proprietary information is

probably greatest for U.S. chemical companies,

which currently lead the world in many innovative processes. In contrast, chemical manufactureers in many other countries use older generations

of chemical processes that are more widely

known, so that there is less of value to “steal.”

The value of proprietary information also

depends on the industrial sector. Highly competitive, leading-edge industries such as speciality

chemicals, biotechnology, and pharmaceuticals

invest large amounts in research and development

and must protect the resulting technical knowledge in order to recoup their investment and

return a profit. Development and testing of a new

pesticide takes an average of 10 years and $25

million.3 Innovation in the pharmaceutical industry is even costlier. Each new drug that reached

the market in the 1980s required an average of 12

years of research, development, and testing, and

an after-tax investment (compounded to its value

on the day of market approval) of roughly $194

million in 1990 dollars.4 Yet although trade

secrets are most critical to specialty-chemical

producers, even commodity-chemical manufacturers using mature technologies can suffer serious economic losses from stolen trade secrets.5

The U.S. chemical industry has long been a

major target of industrial espionage, which has

been termed a serious threat to the nation’s

economic competitiveness.6 For example, Rohm

and Haas, a Philadelphia chemical manufacturer,

spent more than 5 years investigating the theft of

a secret formula for making latex paints. This

search ultimately led to an Australian competitor,

which was duplicating the Rohm and Haas

product ‘‘molecule for molecule, ’ according to

—

z Kyle B. Olson, “The U.S. Chemical Industry Can Live With A chemical Weapons Convention%” Arms Control Today, vol. 19, No. 9,

November 1989, p. 21.

3 Tom Mauro, “When the Government Gives Away Companies’ Trade Secrets, ” Nation’s Business, Nov. 1983, pp. 62-64.

4 U.S. Congress, Office of lkchnology Assessment Pharmaceutical R&D: Costs, Risks, and Rewards, OTA-H-522 (Washington DC: U.S.

Government Printing Office, February 1993), p, 1,

5 J. Aroesty, K.A. Wolf, and E.C. River, Domestic Implementation of a Chemical Weapons Treaty, report No. R-3745-ACQ (Santa Monica,

CA: RAND Corp., October 1989), p. 73.

6 William Cwley, “As Cold War Fades, Some Nations’ Spies Seek Industrial Secrets, Wall Street Journal, June 17, 1991, pp. Al,

As.

7 Orr Kelly, “Where There’s a Profi4 There’s a Spy, ” U.S. News and World Report, May 9, 1983, pp. 16-17.
Chapter 5-Protection of Proprietary Information | 45

company officials.7 In addition to corporate

spying, industrial espionage is reportedly conducted by the intelligence agencies of certain

foreign governments, including U.S. political and

military allies. With respect to the chemical

industry, one analyst writes:

U.S.-designed chemicals are counterfeited in

large quantities abroad, cutting into three billion

to six billion dollars in sales annually. German,

French, South Korean, Japanese, Israeli, and

Taiwanese chemical companies, at times in cooperation with their government, work hard to

procure information on the American chernical

industry and on each other. Free-lance consultants are paid hundreds of thousands of dollars a

year to track technological developments in this

U.S. industry. The methods of collecting information include both the complex and the mundane.

A surprisingly common method is flying over

chemical plants, particularly during their construction or renovatio.8

A nationwide survey of U.S. companies conducted in 1992 under the auspices of the American Society for Industrial Security’s Standing

Committee on Safeguarding Proprietary Information

offers more detailed insights into the nature of the

industrial espionage problem.9 Out of a pool of

5,000 companies that were sent the questionnaire,

246 companies responded anonymously. These

companies were from a wide variety of industries,

including the chemical industry. Compared to an

earlier survey conducted in 1985, the results of

the 1992 survey showed a large rise in both the

number of incidents involving the loss of proprietary information (an increase of 280 percent) and

foreign involvement in these incidents (an increase of 360 percent).

Analysis of the data provided by the 11

respondents from the U.S. chemical industry

yielded the following findings:10

●

●

●

●

●

Eight of the 11 companies (73 percent)

reported attempts to misappropriate proprietary business information, including technology and business plans, compared with

49 percent of all survey respondents.

The 8 affected companies reported a total of

21 incidents, 6 of which cost the companies

$86.25 million. (Costs were not provided for

the other incidents, nor was the methodology

by which the specified costs were calculated.)

Customer lists, pricing data, and manufacturing process information were the types of

proprietary information stolen most often.

Current or former company employees were

involved in 37 percent of the chemicalindustry incidents, compared with 58 percent for the survey as a whole. Foreign firms

or governments were involved in 35 percent

of the chemical-industry incidents.

The methods used to steal information from

the chemical industry were varied and much

more high-tech than the average industry.

Approximately 24 percent of the incidents of

communications intercept and electronic surveillance reported in the overall survey took

place in the chemical industry.

The findings of this survey may be questioned

on methodological grounds, since those companies affected by industrial espionage would arguably be more likely to return the questionnaire

than others. Nevertheless, taken at face value, the

data suggest that the chemical industry is one of

the top five industries targeted by foreign companies and governments, and that the problem of

industrial espionage is growing.

8 Peter Schweizer, Friendly Spies: How Americats Allies Are U~ing Economic Espionage To Steal Our Secrets (New York+ NY: Atlantic

Monthly Press, 1993), p. 256.

9 Richard J. Heffernan and Dan T. Swartwood, “Trends in Competitive Intelligence, ” Security Management, January 1993, pp. 70-73.

10 Dm T, Swmwmd, Resident, S~ate@c Covorate safegu~ding, ~c (seve~ Pas~ ~), ‘ ‘proprietary and Trade Secret Theft k the U.S.

Chemical Industry, ” unpublished manuscript May 1993.
46 I The Chemical Weapons Convention: Effects on the U.S. Chemical Industry

PATENT AND TRADE-SECRET LAW

One way to safeguard proprietary technology is

to file for patent protection. In exchange for a

temporary monopoly that prevents others from

producing, using, or selling an invention for a

period of 17 years, the inventor makes a detailed

description publicly available by filing it with the

U.S. Patent and Trademark Office.ll Much proprietary information in the chemical industry

remains unpatented, however, for three reasons:

1.

2.

3.

Under U.S. law, a patent can be obtained

only for a process, machine, product, or

composition of matter that is novel, nonobvious, and useful, Industrial know-how

may be nonpatentable because it involves

an improvement on a known process rather

than a true innovation.

Access to the information contained in a

patent might help a rival firm to develop a

similar but competing product or process.

Since patents require disclosures in applications and grants, companies may wish to

protect sensitive information through secrecy instead.

U.S. chemical companies often complain

that enforcing a patent can be difficult or

impossible because there are inadequate

safeguards against patent infringement by

unscrupulous foreign competitors. Indeed,

many countries either do not protect intellectual property rights or do not enforce the

laws they do have.12 As a result, many U.S.

companies view published patents as ‘‘a

license to steal’ and prefer to leave certain

types of intellectual property unpatented

and to protect them through secrecy.

U.S. State laws protect a company’s trade

secrets against unauthorized use or disclosure.

According to the Uniform Trade Secrets Act,

adopted by about half of the U.S. States, a trade

secret may be any kind of information that

requires at least some minimal investment or

expense to generate and gives the holder an actual

or potential commercial advantage

not widely known to competitors or

Unlike a patent, ownership of a

provides no legal protection against

ent discovery by others; the chief

because it is

to the public.

trade secret

its independadvantage is

that a trade secret does not require any public

disclosure of information. On the contrary, the law

states that the holder of a trade secret must take

concrete steps to preserve its confidentiality .13

Given the importance of proprietary business

information for the U.S. chemical industry, company representatives are worried that intrusive

declarations and inspections could allow trade

secrets to fall into the hands of foreign competitors, adversely affecting the U.S. industry’s competitiveness in both domestic and international

markets. The most sensitive proprietary information concerns production process technologies

and marketing data, such as customer and price

lists. To recover damages in court for the theft of

CBI, a company must prove that the information

was stolen. Yet in many cases, the first indication

that trade secrets have been compromised is when

a foreign competitor starts selling a similar product

1 I Patent p~tection appfies to the idea underlying an inventio~ rather than any specific expression Of it. The patented kvention my be

licensed, publically disclosed, or distributed during the period of protection without altering its legal status. A patent also protects against

independent discovery: in suing for patent infringemen~ it is not necessary to prove that a competitor deliberately copied the invention. See

U.S. Congress, Office of ‘IkcImology Assessment, Finding a Balance: Computer Sojiware, Intellectual Property, and the Challenge of

Technological Change, OTA-TCT-527 (Washington DC: U.S. Government Printing OffIce, May 1992), p. 12.

IZ U.S. comp~= do bve one r~oume in such cases. Under the Omnibus Trade and Com@tiveness Act of 1988, the U.S. Trade

Representative (USTR) is authorized to identi&, investigate, and retrdiate against foreign countries that deny adequate and effective protection

of intellectual property rights. Any interested party may file a petition with the USTR requesting that such an action be taken. This measure

is known as ‘‘Special’ 301, since it is an expansion of section 301 of the Trade Act of 1974. Even so, there is no guarantee that such an action

will be effective.

IS U.S. Congess, Offim of WChnOIOg Assessment, Finding a Balance, op. cit., pp. 78-82.
Chapter 5–Protection of Proprietary Information | 47

at a lower price that does not reflect the costs of its

own investment in research and development.

Perhaps the greatest threat of loss of proprietary data would be to small chemical companies

that concentrate on particular markets or technology niches and whose business depends on the

exclusive possession of highly specialized knowhow. For example, some custom-chemical producers are expert in a single process (e.g.,

phosgenation, bromination, or sulfonation) while

others have concentrated on serving a particular

market (e.g., pharmaceuticals, pesticides, or photographic chemicals). 14 A specialty-chemical com -

pany whose economic survival depends on a cost

or quality advantage in one type of reaction or

product would be particularly vulnerable to industrial espionage carried out by a CWC inspector linked to a foreign company. Even visual

inspection alone might reveal a unique process

configuration that could be of great value to a

competitor.

PROPRIETARY DATA AND REPORTING

Environmental laws that affect the chemical

industry, such as the Toxic Substances Control

Act (TSCA) and the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA), include

specific provisions to protect trade secrets and

other proprietary data reported to regulatory

authorities. For example, Section 10 of FIFRA

permits a manufacturer to mark portions of

submitted data as confidential and imposes criminal penalties on Federal employees who knowingly disclose such information.

15 In response to

these laws, U.S. domestic regulatory agencies

such as EPA and OSHA have developed complex

and often legalistic procedures for preventing the

disclosure of such information, and they generally do an effective job.16

Despite these controls, however, there appears

to be a certain amount of “leakage” of proprietary information from U.S. regulatory agencies.

Indeed, a recent study commissioned by the

Chemical Manufacturers Association suggests

that even if individual pieces of data do not

warrant trade-secret protection, a trained engineer

could combine them with other available information to ‘‘reverse-engineer’ a company’s technological secrets. The study also found that many

chemical companies obtain their competitors’

compliance reports under false pretenses by

hiring consulting or law firms to serve as anonymous intermediaries.

17 Given this experience, the

Chemical Manufacturers Association is concerned that proprietary information submitted to

the U.S. Government for purposes of CWC

verification might not be adequately protected

from deliberate or inadvertent disclosure. To

address this problem, the CMA seeks to minimize

the quantity and sensitivity of information that

must be included in treaty-mandated declarations

and reports. For example, industry would prefer

to declare production of scheduled chemicals in

broad ranges rather than precise figures.

The chemical industry is also concerned that

the Freedom of Information Act (FOIA), which

allows individuals and companies to request the

declassification and release of official U.S. Government documents, might be interpreted to

provide broader access to proprietary information

submitted to the National Authority under the

CWC. Particularly worrisome to industry is the

fact that foreigners have the same rights under the

14 Stephen c. StinSOL ‘‘Custom Chemicals, ’ Chemical and Engineering News, vol. 71, No. 6, Feb. 8, 1993, p. 35.

15 Ekjward A. Tanzrnan and Barry Kellm~ “kgal Implications of the Multilateral chemical Weapons Convention: Integrating

International Security With the Constitution “ International Luw and Politics, vol. 22, 1990, pp. 515-516.

16 Kyle B. Olsom 1‘Domestic Re@atiOn of tie U.S. Chemid Industry and Its Application to a Chemical weapons B-’ in Thomas ‘twk

and Ronald Sutherland, eds., National Implementation of the Future Chemical Weapons Convention, SIPRI Chemical & Biological Wa@are

Studies No. 21 (Oxford, England: Oxford University Press, 1990), p. 106.

17 sw ~temtio~, Ana[vSis of 1rnpu~t of U,S. Federal and State Reporting Req~irements on sensitive and proprietary cO??tpU/ly

Information: Final Report (M~nlo ParlL CA: SRI International, Project 3307, July 1992), p. 4.
. . . . . . . . .

48 I The Chemical Weapons Convention: Effects on the U.S. Chemical Industry

FOIA as do U.S. citizens. Some analysts allege

that foreign corporations, often working through

U.S. consulting and law firms, systematically file

FOIA requests to gather information on U.S.

corporate secrets.18

U.S. Federal courts have ruled that proprietary

data qualifies for withholding under the FOIA if

government disclosure would be likely to harm

the competitive position of the person or corporation that submitted the information. Many agencies notify a submitter of business information

that disclosure is being considered; the submitter

then has an opportunity to convince the agency

that the information qualifies for withholding. If

the submitter and the government disagree on

whether the information is confidential, the submitter may file a ‘‘reverse’ FOIA lawsuit to

block disclosure under the law.19 Nevertheless,

the U.S. Court of Appeals for the District of

Columbia has ruled that certain corporate information provided to the U.S. Government and

designated confidential may not be withheld from

disclosure under the FOIA if it does not meet the

definition of a “trade secret. ”20 The chemical

industry believes that this interpretation is too

narrow and wants all information that companies

consider confidential to be exempted from disclosure.

21

To protect proprietary data submitted for

CWC verification purposes, the implementing

legislation might include strict rules against

unauthorized disclosure. A useful model that

already exists in U.S. law is the Chemical

Diversion and Trafficking Act (CDTA) of 1988,

which is designed to help combat the diversion of

legitimate chemical shipments to illegal drug

manufacturing. 22 The CDTA requires chemical

manufacturers and distributors to file reports on

transactions involving precursor chemicals and

equipment used in the manufacture of illicit

drugs, and gives the U.S. Drug Enforcement

Administration (DEA) the authority to monitor

potential diversions of chemical shipments. According to the statute, the Attorney General must

take ‘such action as maybe necessary’ to prevent

the unauthorized disclosure of information contained in the reports, and to “issue guidelines that

limit, to the maximum extent feasible, the disclosure of proprietary business information. . . .’ A

company that suffers damages from the unauthorized disclosure of information may bring a civil

action against the violator for appropriate relief,

although not against DEA personnel.23

PROPRIETARY DATA AND INSPECTIONS

The U.S. chemical industry has been inspected

for years, but only by domestic Federal and State

agencies. 24 CWC inspections, in contrast, will be

carried out by multinational teams under the

auspices of an international organization that is

la Sdweuer, Friendly Spies, op. cit., p. 270.

19 U.S. House, Cotittee On Government Operations, A Citizen’s Guide on Using the Freedom of Information Act and the Privaq Act of

Z974 to Request Government Records, 103rd Congress, 1st Session, House Report 103-104 (Washington, DC: U.S. Government Printing

Office, 1993), p. 13.

ZO Nationa/Parksand ConSe~ation Association v. Rogers, 498 F.2d 765 (D.C. Cir. 1974), andNational Parks and ConservationAssociation

v. KZeppe, 547 F,2d 673 (D.C. Cir. 1976).

21 MicMel P. WaHS, ‘ ‘The private Sector and Chemical Disarmam en$” in Brad Roberts, cd., The Chenu”cal Weapons Convention:

Implementation Issues, Sigmj?cant Issues Sen’es, vol. XIV, No. 13 (Washington+ DC: Center for Strategic and International Studies,

1992), p. 46.

’22 Tifle VI, Subtifle A, public IAW No. 100690, Anti-Drug Abuse Amendments Act of 1988, 21 U.S.C. para 830 et seq.

23 p.L, 1W69Q sec. 6052, in LUWS of100th Congress—2nd Sess., p. 102 STAT.4314.

24 me one exception t. ~s tie Concerns a few us. ph~~eutic~ cornp~es tit produce st~lc drugs for injection or ophthhic

use for sale in the United Kingdom. These companies must register with the British Medicines Control Agency, which periodically inspects

the U.S. plants. The inspected facilities are given a notice of between 1 and 2 months, and must bear the costs of the inspection. In order to

protect proprietary dat% the Medicines Control Agency must obtain the U.S. company’s permission before releasing any information.
Chapter 5–protection of proprietary Information |49

not accountable to U.S. law, raising concerns

about the potential loss of trade secrets. According to industry analysts, proprietary data might be

compromised during an onsite inspection of a

chemical plant in the following ways:

manifests and container labels could disclose the nature and purity of feedstock

materials ,and the identity of key suppliers;

instrument panels might reveal the precise

temperature and pressure conditions for a

specific production process;

chemical analysis of residues taken from a

valve or seal on the production line could

disclose proprietary information about other

products made with the same equipment;

access to piping and instrumentation diagrams, combined with visual information,

could enable a trained chemical engineer to

deduce certain flow and process parameters;

and

audits of plant records, ranging from cus -

tomer lists to process documentation, could

reveal a variety of sensitive information,

How serious is the threat of industrial espionage under the cover of a CWC onsite inspection?

Although the innards of a chemical plant are

bewildering to a neophyte, a skilled chemical

engineer might be able to deduce a fair amount of

valuable information from the configuration of

the plant. According to an industrial-security

expert, ‘ ‘There’s a lot that can be learned about a

plant from an onsite inspection, provided that you

know exactly what you’re looking for. "25 This

expert claims that an international inspector

intent on spying would come equipped with

extensive knowledge of the target facility and a

laundry-list of specific questions to be answered.

The third U.S. National Trial Inspection, held

at Monsanto Agricultural Co. Luling, LA plant,

tried to assess the potential for industrial espionage during a CWC inspection. The team that

carried out the trial inspection included a MonPotential sources of proprietary information that

might be divulged during onsite in s

piping configurations (top), instrument panels

(middle), and container labels (bottom).

25 Telephone jntem, jew ~i[h HCqJ C]emen(s, \rlcC president, TeChn~]~~, S [rc}legl~ Pl:uming, Inc. ( Stumt, FL), Mtiy ~ 6, 1993 .
. . .- . . . . .

50 I The Chemical Weapons Convention: Effects on the U.S. Chemical Industry

santo chemical engineer, unfamiliar with the

operation of the Louisiana plant, who was asked

to determine how much useful proprietary data he

could collect during the course of the inspection.

By visually examining the plant and auditing

plant records, he was able to deduce enough

information about the production process to save

a potential competitor signficant development

time and money. This finding maybe a worst-case

assessment, however, since the Monsanto engineer was allowed to concentrate on his “spying’

assignment for two and a half days, did not

perform regular inspection duties, and was not as

closely supervised as the other team members.26

In practice, it would not be easy for a company

or a foreign government to infiltrate a CWC

inspection team for purposes of industrial espionage. To steal trade secrets from a particular

plant, an unethical inspector with links to a

foreign company or government would have to be

assigned to the team that visited the facility of

interest. He would also have to know precisely

what type of information to look for and where in

the plant to find it. Moreover, his access to the

plant site would be governed by the agreed

parameters of the inspection. Given the technical

difficulties and political risks involved in suborning an international inspector, companies or

foreign governments would probably favor less

risky methods of gaining access to trade secrets.

Hiring, bribing, or blackmailing a current or

former company employee would almost certainly be easier and more cost-effective.

Another industrial espionage scenario would

be for an individual CWC inspector to come

across valuable proprietary information in the

course of an inspection that he might then be

tempted to sell to his own former employer or

some other interested company. Industry officials

also worry that even if the international inspectors

have no intention of disclosing trade secrets, they

might do so inadvertently. The inspectors will

inevitably have access to highly sensitive proprietary information in the course of their work,

which they will tend to discuss informally among

themselves. This exchange of information---even

if innocent in itself-could result in inadvertent

leaks.

It seems likely that the extent to which CWC

inspections could result in significant losses of

proprietary information will depend on a number

of situational factors, including:

1.

2.

3.

4.

5.

6.

how frequently a site is inspected (the treaty

permits a maximum of two routine inspections per year of commercial plants);

the amount of access provided to the site

and to related documentation;

the inspectors’ prior knowledge, experience, and intent to engage in industrial

espionage;

the existence of a private company or foreign

government willing to pay handsomely for

misappropriated information; and

the relative cost of obtaining information

from a CWC inspection compared with

alternate means, such as bribing a current or

former employee.

any event, one should keep the U.S. chemical industry’s concerns over proprietary information in perspective. Given that the chemical

industry has long been targeted for industrial

espionage, it is likely that the CWC’s reporting

and inspection requirements will only marginally

increase the industry’s exposure to foreign spying. By improving routine security practices,

chemical manufacturers should be able to reduce

losses of proprietary information from all sources,

only a fraction of which will be directly attributable to CWC implementation.

PREPARING FOR INSPECTIONS

Although the threat of industrial espionage will

exist during CWC inspections, it can be managed

26 Conference on Disarmament, ‘‘Report on the Third United States Trial Inspection Exercise, ” document No. CD/1 100, Aug. 14, 1991,

p. 20.
Chapter 5–protection of proprietary Information 151

through advance preparation and planning. An

respected facility can limit the ability of inspectors to collect proprietary data through a good

understanding of potential collection techniques,

effective assessment procedures. and well-trained

personnel and escorts.

The CWC states that ‘‘ [i]n conducting verification activities, the Technical Secretariat shall

avoid undue intrusion into the State Party’s

chemical activities for purposes not prohibited

under this Convention. ’27 Clearly, inspectors

will not need to know the details of a proprietary

process to determine that it is not involved in the

production of chemical weapons. The treaty also

entitles companies to take active measures to

minimize any loss of proprietary information

associated with CWC inspections. Special provisions for this purpose were built into the treaty at

industry’s request. For example, the inspected

facility may request that all sample analyses be

carried out onsite and limited to determining the

presence or absence of treaty-controlled chemicals.

In preparing for inspections, it is essential to

assess which items need to be protected and to

follow up this assessment with a concrete plan of

action. A chemical plant preparing for a CWC

inspection might undertake some or all of the

following measures:

1. inventory plant equipment and processes

and identify which activities are particularly

sensitive and vulnerable to observation;

2. determine which aspects of a critical process or item of equipment must be protected,

such as its size, shape, or very existence;

3. prepare an inspection route through the

facility to keep inspectors out of areas

containing activities unrelated to the treaty;

4. train a core group of senior plant managers

to escort the inspectors;

5. inform plant personnel about which parts of

the facility will be subject to inspection,

how to make their work areas secure, and

how to interact with the inspectors to

prevent them from damaging the facility

and to answer their questions without revealing sensitive information;

6. shield proprietary equipment by installing

shrouds, boxes, or screens (although shrouding control panels and other equipment

could interfere with production to some

extent);

7. turn off computers, cover up labels and

manifests, and remove sensitive documents;

and

8. in those few cases where proprietary information cannot be protected by covering or

shrouding, limit the inspectors’ access to

highly sensitive areas of the facility—

provided the plant officials can satisfy the

inspectors’ compliance concerns by other

means,

| Auditing Records

Since giving inspectors access to production

records arguably creates the greatest risk for loss

of proprietary data, companies will need to draw

the line at that information essential to verifying

treaty compliance.28 Facility agreements and

established guidelines will determine the types of

records that can be examined. For example, CWC

inspectors may request access to production

records to determine the relative amounts of raw

materials consumed and to verify the production

figures stated in the declaration. The inspectors

may also wish to calculate a rough materials

balance for the plant by comparing records on the

consumption of raw materials with those on the

production and shipping of finished product.

To the greatest extent possible, however, companies will be allowed to screen records for

proprietary information. Plant officials should not

have to open up their most sensitive files,

‘~ Article IV, paragraph 10, in Conference on Disarmament, Draft Corn) enrion on (he Prohibition of the Development, Production,

Stockpiling and Use of Chemical Weapons and on Their Destruction, extracted from CD/l 173, Sept. 3, 1993, p. 23.

28 Michael P. Walls, Chemical Manufacturers Association, personal communication.
52 I The Chemical Weapons Convention: Effects on the U.S. Chemical Industry

including data on process variables (temperature,

pressure, catalysts, and reaction times), production yields, product mix, or supplier and customer

lists. CWC inspectors, for their part, will be

expected to retiain from engaging in “fishing

expeditions and to use auditing only to answer

specific compliance questions that arise during an

inspection.

Companies subject to CWC inspections can

also take measures to protect sensitive production

records. Multiuse plants often keep records on

feedstock materials used to manufacture both

treaty-controlled and uncontrolled chemicals at

the same site. Since all production records relating to scheduled chemicals are potentially subject

to audit, however, chemical companies may find

it desirable to segregate these records to protect

proprietary data not directly relevant to treaty

compliance. 29 Although setting up a separate

accounting system for scheduled chemicals would

entail a significant upfront investment, it would

make it easier for companies to generate and

update reports and would probably save money in

the long run.

Inspected companies can also make arrangements with the OPCW Technical Secretariat to

protect proprietary information that does not need

to be removed from the facility. During the

second U. S. National Trial Inspection, for

example, the host company installed a locked

container at the site for storing sensitive documents and drawings that would be needed by the

inspection team for reference on subsequent

visits. Although the inspectors took away some

calculations and sketches to write their report, no

confidential facility drawings, piping and instrumentation diagrams, documents, or descriptions

of operating procedures were removed from the

site. 30

In sum, concerns about loss of proprietary

information can generally be minimized

through adequate preparation. Since preparing

for inspections costs money, however, companies

will generally undertake the bare minimum needed

to protect their legitimate trade secrets. The extent

to which commercial chemical plants (including

certain defense contractors) will need to prepare

for inspections depends on the sensitivity of the

work being done there. Ideally, the vulnerabilityassessment process should identify the most

cost-effective approach for shielding proprietary

or national security information. Without careful

planning, companies may tend to overprotect

their proprietary assets, resulting in unnecessary

preparation costs. For example, instead of preparing a costly shroud, it may be sufficient to cover

a label or gauge with a piece of tape, move an

object to another room, or turn it around.

The U.S. Government could support the

chemical industry by providing guidance on

how companies can best prepare for inspections so as to protect their trade secrets.

Measures the government could take to facilitate

industrial preparation include:

●

●

●

●

●

providing special vulnerability-assessment

and training programs,

encouraging companies to pool their resources,

providing tax breaks and material aid such as

shrouds,

carrying out additional National Trial Inspections of commercial plants as a useful

training mechanism for both government

and industry personnel, and

encouraging chemical plants to prepare facility agreements for Schedule 3 plants, even

though they are not mandated by the CWC.

Since facility agreements specify which

parts of a plant are subject to inspecticm,

29 It is possible, however, that Some inspection teams may insist on seeing all production reCOrdS on chemicals manufactured in a given plmt

to make sure that the segregated information on treaty-controlled chemicals is accurate.

30 co~erence on Disarmament, Ad Hoc Committee on Chemical Weapons , ‘‘Report on the Second United States Trial Inspection Exercise, ’

document No. CD/CW/WP.301, June 27, 1990, p. 5.
what records may be reviewed, and where

samples may be taken, drawing them up

could help companies prepare for routine

inspections.

The U.S. Department of Defense has created an

interagency program known as the Defense Treaty

Inspection Readiness program (DTIRP), which is

administered by the On-Site Inspection Agency

(OSIA). This program is designed to help defense

contractors and government-owned facilities prepare for foreign arms-control inspections such as

those mandated by the INF, START, and Open

Skies treaties and the CWC.31 In advance of CWC

implementation, the OSIA has already undertaken vulnerability assessments of certain government facilities and is prepared to conduct

similar assessments of defense contractors; the

agency is also working with the Department of

Commerce to provide advice and assistance for

private industry .32 Non-defense chemical manufacturers could benefit from a civilian version of

DTIRP.

In conclusion, CWC implementation involves an unavoidable tradeoff between the

need to protect U.S. trade secrets and to

establish a treaty verification regime with

enough teeth to deter violators and build

international confidence in the regime. The

CWC as written, however, provides ample

flexibility to balance these two desirable objectives.

INSPECTOR RELIABILITY

Because of the technical complexity of CWC

verification, the international inspectors will need

to be highly trained specialists who possess a

detailed knowledge of chemical engineering,

industrial processes, or analytical chemistry techChapter 5–Protection of Proprietary Information | 53

niques. Although some individuals currently

employed by local or national regulatory authorities might have the necessary qualifications,

many inspectors will probably come from the

chemical industry. Unfortunately, the recruitment

of inspectors from industry could give rise to real

or perceived conflicts between the role of an

international civil servant and residual identification with national or corporate interests. Individuals who maintain strong ties to their fomer

employers—particularly those who plan eventually to return to their previous jobs—may be

tempted to engage in industrial espionage. Furthermore, in those countries where the government owns, controls, or is closely aligned with the

national chemical industry, an inspector linked to

a government entity or a nationalized company

may be tempted to funnel sensitive data from

reports and inspections to the state-run industry.

In sum, as one analyst has pointed out, “The

dilemma is that the very people who would be

best qualified for inspection duties because of

their industrial experience could also be most

capable of violating confidentiality while performing those duties. ”33

This dilemma might be addressed in a number

of ways. First, within 30 days after the treaty

enters into force, the OPCW Technical Secretariat

will publish a list of inspectors for review by the

participating countries, and States Parties to the

CWC will have the right to prohibit individuals

whom they consider untrustworthy from conducting inspections on their territory. This ability to

vet inspectors will enable countries to screen out

those considered most likely to engage in abuses.

Although participating countries can reject inspectors at any time, each request will only

become effective after 30 days to prevent coun31 U,S. Semte, Se]&t (_’Omfittee on Intelligence, ]nte//jgence and ~eruri~t Imp/icafionS Ofthe Trea~, OrI Open S.kie.r, 103rd Congress, 1 st

Sessiom report No, 10344 (Washington, DC: U.S. Government Printing Office, 1993), p. 16.

32 Inte~iew wi~ ~chael H. McMill~ Chief, Security Office, On-Site Inspection Agency, June 3, 1993.

33 J~la p. pq Rob~Son, cd,, The ChemlCal 1~dU~t~ ad the projected chemical weapons con~~enlion: Vofurne II, SIPRI Chemical and

Biological Warfare Studies N0,5 (New York NY: Oxford University Press, 1986), p. 29.
54 I The Chemical Weapons Convention: Effects on the U.S. Chemical Industry

tries from rejecting inspectors as a means of

delaying an inspection.

Second, the OPCW should seek the highest

standards of inspector reliability and impartiality,

backed up with an active internal-security program and stringent disciplinary measures. Although the CWC empowers the Director General

to strip inspectors of their diplomatic immunity if

they are found guilty of a serious breach of

confidentiality, it will take political courage to

implement this provision. Some analysts contend

that CWC inspectors should not be allowed to

return to employment in private industry for at

least 5 years. Others go further, arguing that it

would be preferable not to draw inspectors from

industry at all but to train them from the ground

up so that their first loyalty is to the international

organization. 34

Finally, because of the economic insecurity

associated with short-term appointments, one

way to reduce the temptation for inspectors to

engage in spying would be to give them greater

job security by creating a professional corps and

a career track for them within the agency .35 The

availability of permanent positions would also

make it easier to attract the most qualified

individuals. Given the inherently stressful nature

of field inspection work, which tends to cause

‘‘burn out” after a few years, inspectors might be

rotated at regular intervals to desk jobs within the

Technical Secretariat, where they could analyze

data obtained from other onsite visits. Unfortunately, the financial constraints on OPCW funding may severely limit the number of career-track

positions open to inspectors.

SAFEGUARDING REPORTED DATA

Protecting the proprietary information contained in the declarations and inspection reports

submitted under the CWC from unauthorized

disclosure will require special safeguards, both

during the collection of data from industry by the

U.S. National Authority and the subsequent

transfer of this information to the OPCW Technical Secretariat. Both the National Authority and

the Technical Secretariat plan to establish secure

databanks to store confidential information

provided by companies.36

In response to suggestions from the world

chemical industry, the CWC also contains a

special ‘‘Annex on the Protection of Confidential

Information, ’ which is designed to safeguard

proprietary business information disclosed in

required declarations, reports, and inspections.37

This annex includes the following provisions:

●

●

●

●

●

●

In administering the treaty, the OPCW will

demand ‘only the minimum amount of information and data necessary for the timely and

efficient carrying out of its responsibilities.

Data designated by industry as confidential

will be subject to a system of formal

classification, secure storage, and other security measures to protect against unauthorized disclosure.

Staff members of the Technical Secretariat

must enter into individual secrecy agreements covering their period of employment

and 5 years thereafter.

Dissemination of confidential business information within the OPCW will be on a

strict ‘‘need-to-know’ basis.

Officials will handle as much information as

possible in a form that precludes direct

identification of the facilities concerned.

Inspectors will not be allowed to participate

in challenge inspections of chemical plants

in their native countries.

—

34 Bmb~ Hatch Rosen~rg, State University of New York at Purchase, personal Commticatiom May 28, 1993.

35 Aroes~ et al., Domestic Implementation, Op. cit., p. 54.

36 E p yeso~m, ‘ ‘me chemical Weapons Convention: A Point of View from Industry, ’ UNIDIR Newsletter, No. 20, December 1992,

p. 29.

37 Draft chemical Weapons Convention, op. cit., pp. 169-174.
●

●

If

The OPCW plans to establish a ‘ ‘Commission for the Settlement of Disputes Related

to Confidentiality, ’ which will consider

breaches of confidentiality involving members of the Technical Secretariat.

The Director General of the OPCW will

develop ‘ ‘appropriate punitive and disciplinary measures’ for the wrongful disclosure

of confidential information. He will have the

power to waive immunity from prosecution

for individual inspectors accused of “serious breaches of confidentiality.

the monetary rewards of industrial espionage

— —

Chapter 5–Protection of Proprietary Information | 55

are sufficiently high, however, they could blunt

the deterrent effect of the threatened punishment.

The Director General’s power to waive the

diplomatic immunity of an inspector will also

have little practical effect unless the accused

individual is in the custody of a government with

both the power and the political will to prosecute.38 One possible solution would be to require

all parties to the CWC to either prosecute or

extradite inspectors found guilty of violating the

confidentiality guidelines. There is a trade-off,

however, between the need to maintain industry’s

confidence in the integrity of the OPCW and the

possibility that aggressive measures to enforce

the security regulations could undermine the

morale and effectiveness of the inspectors. Indeed, CWC violators might even use false allegations of espionage to intimidate honest inspectors

from carrying out their tasks. The reason international civil servants enjoy immunity from prosecution is so that they can perform their work free

from threats and harassment; exceptions to this

important principle of international law are warranted only if there is clear evidence of abuses.

1 The IAEA Experience

Useful lessons about the ability of large international organizations to keep secrets can be

drawn from the experience of the International

Atomic Energy Agency (IAEA), the multilateral

organization charged with administering the provisions of the Nuclear Non-Proliferation Treaty.

Similarities between the nuclear and chemical

nonproliferation regimes include extensive reliance on private-sector declarations, reports, and

onsite inspections, although the scope of IAEA

activities is much narrower.

39 The founding

Statute of the IAEA forbids the disclosure of

proprietary data, as do the individual safeguards

agreements negotiated between the agency and

signatory countries. According to the Statute,

IAEA staff

We shall not disclose any industrial secret or other

confidential information coming to their knowledge by reason of their official duties for the

Agency. Each member undertakes to respect the

international character of the responsibilities of

the Director General and the staff and shall not

seek to influence them in the discharge of their

duties.40

The IAEA has also established staff rules and

regulations for implementing these principles,

and the Director General may impose disciplinary

measures or summarily dismiss a staff member

for serious misconduct.

41 For example, the confidentiality of safeguards-related information is

ensured by access on a ‘‘need-to-know’ basis

38 Burrus M. Carnahan, ‘ “Chemical Arms Control, Trade Secrets, and the Constitution: Facing the Unresolved Issues, ” The International

Lawyer, vol. 25, No. 1, spring 1991, p. 174.

39 Although the IAEA has always had, in theory, the power to conduct ‘‘ Spaial’ or challenge inspections, until recently all i~s inspectors

have focused only on decl’ared nuclear facilities intended for peaceful uses and have relied primarily on record checks and mass balances of

a few fissionable materials.

40 Afllclc vn,F, c ‘Staff, ,n ,$tarllte of [he [nfernatl{>n~[Atc)~li<- Energ), A~encv AS Amended Up 10 .2,9 December 1989 (Vienna: IAEA, June

1990), p. 18.

Q I A. von Baeckmann, ‘The Chemical Weapons Convention and Some IAEA Experiences, ‘‘ in S. J. Lundin, cd., Non-Production by Industry

of Chemical-Warfare A,qcnts. Technical Verification (Jndcr a Chemical Weap(ms Cmncntim, SIPRI Chcmical & Biological Wa~are Studies

No. 9 (New York, NY: Oxford University Press, 1988), pp. 183-184.
56 | The Chemical Weapons Convention: Effects on the U.S. Chemical Industry

only by those individuals charged with inspecting

a particular facility.

Although the best rules cannot rule out the

unauthorized disclosure of confidential information through theft, accidents, or misconduct of

individual staff members, the IAEA does not

appear to have had serious problems with the

leakage of information, When the agency was

established, protecting proprietary data was a

matter of deep concern to Western Europe and

Japan, yet no member-country or operator has

ever lodged a complaint against the IAEA alleging that trade secrets have been compromised.42

In view of this experience, the Chemical Manufacturers Association believes that there is “a

reasonable likelihood” that the OPCW will be

able to safeguard the confidential business information in its possession.43 Even so, given the

difficulty of limiting access to data within a

multinational organization, the most effective

means of protecting proprietary information may

be to store and handle it in a form that has limited

utility for industrial espionage—for example, by

not identifying specific facilities by name.

Like the IAEA, the OPCW will face conflicting

demands in its handling of data related to

monitoring activities. Whereas the IAEA observes strict limits on the release of such information both internally and in public statements, it

must also make enough data publicly available to

maintain the credibility of its assurances.44 In

recent years, the IAEA has come under increasing

pressure to provide more detailed information on

safeguards implementation to the agency’s Board

of Governors and, through its annual report, to the

public. While such greater openness might allow

countries to exploit sensitive information for

political or commercial purposes, the advantages

appear to outweigh the disadvantages. As Lawrence Scheinman has pointed out:

There is a tension between interest in confidentiality of information on the one hand, and

demand for. . . providing more and more detailed

information on safeguards implementation in the

name of increasing credibility, on the other.

Optimizing between these two values is a problem of political choice that may be even more

significant in a Chemical Weapons Convention

due to the even more intense degree of competition in the world chemical market than in the

nuclear market and the resulting likely higher

sensitivity regarding proprietary information.45

COMPENSATION FOR LOSS OF

PROPRIETARY INFORMATION

The CWC gives industry no mechanism for

financial compensation if inspections result in the

loss of valuable proprietary information through

inadvertence or industrial espionage. U.S. companies have generally been willing to absorb the

incidental expenses associated with treaty compliance as a cost of doing business, but some firms

contend that they should be able to sue for

economic damages resulting from the theft or

inadvertent disclosure of proprietary information

by members of the U.S. National Authority or the

OPCW Technical Secretariat. Although it has not

yet been decided whether such a compensation

mechanism is justified or how such claims would

be adjudicated, various legal approaches to this

issue are discussed below.

42 ~wrence Scheinmm Cornell University, perSOIXd co~~cation.

4S ~c~el p. walIs, CMA, response to OTA questionnaire.

+$ James F, Ke~ley, ])lter~u[i[)~al Atomic Energy Agerzcy Safeguards: Obsenations on Lasons for Ver.fYing a Chemical ‘eaP~yns

.

Convention, Arms Control Verification Occasiona/ Papers No. 1 (Ottawa Canada: Dept. of External Affairs, Arms Control and Dis armament

Division, September 1988), p. 31.

45 Lawrence Scheinman, ‘ ‘Operational Considerations, ‘‘ in H. Bruno Schiefer and James F. Keeley, International Atomic Energy Agency

Safeguards as a Model for l’er@catic>n of a Chemical Weapons Com’ention, Arms Control Verification Occasional Papers No. 3 (Ottawa,

Canada. Dept. of External Affairs, Arms Control and Disarmament Divisio~ October 1988), p. 57.
Chapter 5—Protection of Proprietary Information | 57

I Claims Against the OPCW

Under certain circumstances, American companies can sue a foreign government or an

international organization in U.S. Federal court

for damage or loss to property in the United States

resulting from actions committed by foreign or

international civil servants in their official capacity. The CWC, however, specifically rules out this

legal avenue for compensation by granting the

OPCW legal immunity and thus shielding it from

law suits. By ratifying the treaty, the U.S.

Government would accept this stipulation.

I Claims Against an Inspector

The Director General of the OPCW has the

power to waive the immunity of an individual

inspector suspected of stealing trade secrets. To

win a civil suit against the inspector, the damaged

company would only need to present a preponderance of evidence; proof beyond a reasonable

doubt would not be necessary. Even so, there are

obvious problems of proof when the only evidence for theft of trade secrets is that several

months after a U.S. company is inspected, a

foreign plant starts shipping a product believed to

have been made according to a secret process

developed by the U.S.firm. It would be extremely

difficult to prove that the theft had occurred, much

less identify the guilty party in a multinational

inspection team or trace his connection to the

benefited company. Even in the unlikely event it

were possible to catch and convict an inspector

for divulging trade secrets, the harmed company

could not obtain compensation if the guilty

individual were unable to pay damages. A more

appropriate target for a damage suit would be the

foreign company that benefitted from the stolen

information, but here again, it would be hard to

prove that a theft of trade secrets had occurred.

| Claims Against the US. Government

The Fifth Amendment provides that if private

property is seized by the U.S. Government, the

affected individual or corporation is entitled to

due process of law and compensation for the fair

market value of the loss. Such government

expropriation can result either from a‘ ‘taking’ of

private property in the public interest (e.g., by

‘‘eminent domain’ or from a ‘‘tort’ such as the

theft or breakage of property by a U.S. official. In

Ruckelhaus v. Monsanto Co., the Supreme Court

ruled that trade secrets are a form of property and

are thus protected by the Fifth Amendment from

government expropriation.% Even if U.S. officials reveal trade secrets, however, such disclosure is only considered an unjust ‘‘taking’ if it

results in tangible economic damage to the

affected company. In such cases, American firms

may have grounds to sue the U.S. Government for

fair compensation.47

Whether the U.S. Government would be liable

for the loss of proprietary data resulting from

CWC inspections under the Fifth Amendment

‘ ‘takings’ ‘ clause is a matter of legal debate.

Under the ‘‘state action’ doctrine, the court must

examine whether ‘‘a sufficiently close nexus

exists between the state and a challenged action,

so that the action may fairly be treated as that of

the state itself. ” 48 According to one view, the

U.S. Government cannot be accused of ‘taking’

private property simply by complying with the

CWC verification regime, since it bears no direct

responsibility for the theft of corporate trade

secrets by international inspectors operating outside their mandate.

The counterargument is that the U.S. Government, in pursuing the security benefits of participation in the CWC, is deliberately putting private

U.S. companies in a position where they will be

vulnerable to losses of proprietary information.

46 Ruc~e/haus v. &fonsanto Co,, 467 U.S. 986, IM1-04 (1984) .

47 such a Suit could & filed under the ‘Ihckcr AX, 28 U.S.C. 1491.

48 Black’s ~HI Dicfionar-},, 6th ed. (St. Paul, MN: West Publishing CO., 1990), p. 1407.
58 I The Chemical Weapons Convention: Effects on the U.S. Chemical Industry

This argument is strengthened by the fact that

industry’s participation in the veification regime

is involuntary and may even be enforced by

government officials through administrative or

criminal search warrants. It is therefore possible

to argue under the “state action’ doctrine that

any economic harm to private companies arising

from the inspections is the result of a deliberate

decision by the United States to sign and ratify the

CWC and to implement the verification regime.49

Yet even if the courts establish that the theft of

trade secrets by international inspectors is indeed

a “state action,’ the U.S. Government would not

be financially liable for the resulting damages

unless it took an affmative step to accept this

liability. The reason is that the doctrine of

‘‘sovereign immunity’ allows the Federal Government to deny recovery of damages resulting

from the acts of Federal employees or foreign

inspectors. Although the Federal Tort Claims Act

(FICA) provides a limited waiver of this immunity by permitting suits against the United States

for official misconduct, in recent years the right to

sue the U.S. Government for damages under the

FTCA has been limited by several exceptions,

which have been broadly applied to matters

affecting national security.

50 Thus, if Congress

wishes to enable companies harmed by CWC

inspections to recover monetary damages from

the U.S. Government, it will need to waive

sovereign immunity under the FTCA. Such a

waiver might be included in the implementing

legislation.

| Administrative Claims Procedure

In all of the legal remedies discussed above, the

costs and risks of litigation (either against an

individual inspector or the U.S. Government)

would give the chemical industry little assurance

that it could recover damages resulting from

CWC verification. As an alternative to litigation,

some analysts want Congress to establish a

‘‘nonburdensome administrative process’ for the

arbitration and payment of just claims.51 This

process would have the effect of placing on the

U.S. Government the financial liability created by

the misconduct of international civil servants,

unless and until fair compensation can be obtained from some other source. Given the size of

the U.S. Federal deficit, however, any additional

fmancia1 burden of this type would be undesirable.

Complex legal questions would also attend the

establishment of a nonburdensome administrative

claims procedure, including what criteria a complainant would have to meet to justify payment of

claims arising from CWC implementation, and

how the value of lost proprietary data would be

quantified. Should Congress decide to set up a

compensation mechanism, the implementing legislation might establish guidelines for assigning

the ‘‘burden of proof” to a company’s claim that

a CWC inspection resulted in the loss of a

valuable trade secret. If the burden of proof is set

too high (e.g., the requirement for an exact causal

link), this test could probably not be met and

companies would never be compensated for their

losses. Yet if the burden of proof is set too low, the

U.S. Government would effectively become an

insurer of last resort for any loss of trade secrets,

even those unrelated to CWC inspections. A

reasonable balance between these alternatives

might be to expect a firm to provide a ‘ ‘preponderance of evidence” that a trade secret was lost

as a direct result of treaty compliance and not

through some other form of industrial espionage.

Companies making claims might also be required

—

49 Tanzman and Kelhnan, ‘‘Legal Implications of the Multilateral Chemical Weapons Convention’ op. cit., pp. 510-511.

w The “discretio~ fuIICtiOn” exemptio~ for example, provides that an administration official who exercises discretion within his

delegated regulatory function cannot be held liable for the consequences of that decision.

51 Edwud A.T~and Barry KellW Harmonizing the Chemical Weapons Convention With the United States Consn’tufi”on, techmcal

report No, DNA-TR-91-216 (Alexandria, VA: Defense Nuclear Agency, April 1992), p. 67.
Chapter 5–Protection of Proprietary Information | 59

to demonstrate that trade secrets were lost despite

concerted efforts to protect them.52

I International Trust Fund

The OPCW might establish its own administrative procedure for compensating companies or

individuals for losses suffered as a result of CWC

verification activities. In this case, the government of the inspected state would adjudicate or

settle damage claims arising out of onsite inspections and would be reimbursed by the OPCW for

somewhat less than 100 percent of the loss. All of

the other States Parties would cover the reimbursement by paying into an international trust

fund set up for this purpose. Since the United

States will contribute about a quarter of the

OPCW’s budget, it would end up providing a

substantial share of any trust fund set up to

compensate industry, no matter who was at fault

for the loss of trade secrets and without retaining

any direct influence over the procedures established to adjudicate claims. Nevertheless, requiring all States Parties to the CWC to share in the

costs of industrial espionage committed by members of the Technical Secretariat would give the

participating states a stake in ensuring that the

rules on handling confidential information are

enforced to the maximum extent possible.53 The

proposal to create such an international trust fund

may eventually be addressed by the PrepCom.

I Industry Self-Insurance Scheme

The U.S. chemical industry might set up its

own self-insurance fund, which would not have to

be specified in the implementing legislation.

Under such a scheme, chemical companies would

contribute to the fund an amount proportional to

their yearly profits or market share, and would be

insured for the loss or theft of proprietary

information during CWC implementation. All

participating firms would then be able to submit

damage claims to an adjudication process. U.S.

industry is unlikely to support such a selfinsurance scheme, however, on the grounds that

companies should not be held responsible for any

damages arising from treaty-mandated inspections.

As a politically more viable alternative, a hybrid

scheme might be established in which the U.S.

Government provides some of the funding or

assumes responsibility for the task of examining

and adjudicating claims.

In sum, the drafters of the implementing

legislation will need to decide whether to

establish a mechanism for compensating firms

for losses of proprietary information and, if so,

the best way to go about it.

52 ~of, B~ Kellman, presentation on‘ ‘Implementing Legislation for the Chemical Weapons Convention, ’ sponsored by The Committee

for National Security, Washington, DC, Apr. 16, 1993,

53 c@q ‘‘chemic~ AITIIS Control, Trade Secrets, and the Constitution, ’ Op. CIL, pp. 178-179 .
I

II

T

Verification

Technologies

and

Industry 6

he PrepCom now meeting in The Hague will determine

the types and parameters of monitoring equipment that

will be permitted for CWC verification. Ideally, such

equipment should permit effective detection of violations while minimizing unnecessary intrusiveness and avoiding

the collection of proprietary information. Some verification

experts have proposed establishing a series of ‘decision points’

in the inspection routine so that a plant visit could be terminated

early if visual inspection or nonintrusive sampling techniques

demonstrate that a plant is not producing chemical weapons. If

suspicions persist, then more intrusive inspection measures—

such as sophisticated chemical analysis or auditing of plant

records-could be applied in a graduated manner.1 For example,

chemical sampling and analysis might begin with ‘classification

testing, ’ or screening samples for the presence of the basic

molecular components of CW agents (e.g., a phosphorus-alkyl

bond or the presence of fluorine). If no such signatures are found,

the inspection could be terminated.ated. If classification testing gives

positive results, however, more intrusive analytical methods

would be warranted.2

Since auditing of plant records during an inspection risks

compromising proprietary data, companies will generally try to

demonstrate their treaty compliance through visual inspection

and chemical sampling, providing access to production records

only if needed to resolve compliance concerns that cannot be

1 Kemeth E. Apt, Robert K. Sander, and Lawrence E. Wangeu ‘‘Chemical Analysis

for Vetilcation of a CW Treaty, ’ Verification Technologies, March/April 1991, pp. 7-12.

2 Cla.ssitlcation testing for elements such as phosphorus, sulfur, or fluorine has

certain limitations because some known agents do not contain these elements (e.g.,

lewisite, nitrogen mustards, and BZ). Furthermore, detection would be complicated by

significant environmental contaxnimtion from pesticides and herbicides conminin g sulfur

and phosphorus. Thus, in many cases, classit5cation tests will need to be more specii5c

than simply identifying elements, particularly if non-classical agents are suspected.

61
-— .-. . .

62 | The Chemical Weapons Convention: Effects on the U.S. Chemical Industry

addressed by other means. A graduated approach to verification would help satisfy industry’s desire to protect proprietary data, while

facilitating the OPCW’s task of inspecting a

large number of sites with limited financial

and technical resources.3

The PrepCom will have to develop procedures

for standardizing analytical instruments for use in

inspections, Some analysts worry that monitoring

instruments might be abused for purposes of

industrial espionage. According to one scenario,

a monitoring instrument might be built with a

covert microelectronic memory chip that would

store all the raw data from a sample analysis.

Later on, the data stored on the chip could be read

out to identify proprietary chemical components

present in the sample. In order to mitigate such

concerns, instruments must be designed such that

no nonvolatile memory can be taken from the

inspection site without the approval of plant

officials. More generally, all analytical instruments used in CWC inspections will need to be

certified and maintained by the OPCW and

checked by the inspected State Party before being

brought onsite. Standardization (or at least prior

approval) will also be necessary to ensure that

instrumentation used in the inspections does not

pose a safety hazard.4

NONINTRUSIVE VERIFICATION

TECHNOLOGIES

One way to mitigate the conflict between

warrantless inspections and Fourth Amendment

privacy rights would be through the development

of ‘constitutionally nonintrusive verification technologies. Since Fourth Amendment protections do not extend to evidence of illegal conduct

(e.g., drug smuggling), the Supreme Court has

ruled that a warrantless search may be constitutionally permissable if it is performed with a

highly selective monitoring device that can detect

an illegal activity without picking up collateral

information. 6 For example, a suspicious package

can be searched for illegal drugs without a

warrant if the search method (e.g., sniffing by a

trained dog) indicates only the presence or

absence of contraband, without revealing any

additional information or exposing personal items

that would otherwise remain hidden from public

view.7 Thus, onsite inspections would not contravene the privacy protections of the Fourth Amerndment if the monitoring instruments were highly

selective for evidence of a treaty violation, while

minimizing access to collateral information.

So-called “blinded’ instrumentation involves

the use of special software to indicate only

whether or not a sample contains treatycontrolled chemicals. Extremely sensitive analytical instruments, such as a combined gas

chromatograph/mass spectrometer (GC/MS), can

detect trace amounts of CW agent byproducts in

samples taken from a plant’s production line or

waste stream. (Waste stream samples must be

taken before or shortly after the effluent is

discharged into a river, where dilution can rapidly

exceed the detection threshold.) A GC/MS normally displays the spectral peaks of unknown

compounds on the screen and matches them with

a computer against a stored library of reference

spectra, yielding a list of candidate identifica-

—

3 Kyle B. OlsorL ‘‘The Proposed Chemical Weapons Convention: An Industry Perspective, ’ Chemical Weapons Convention Bulletin, No.

3, autumn 1988, p. 3.

4 The PrepCorn will have to agree on the detailed technical parameters of all analytical instruments to be used during on-site inspections

of chemical facilities.

5 Edward Tanzman and Rebecca Haffenden, “Constitutional and Legal Implications of Arms Control Verification lkchnologies, ”

conference paper for the U.S. Defense Nuclear Agency Conference on Arms Control and Verification lkchnology, Williamsburg, VA, June

2, 1992, p. 3.

6 Ibid, pp. 4-5.

7 Ibid, p. 4.
Chapter 6–Verification Technologies and Industry | 63

tions. The results are given in terms of ‘goodness

of fit’ according to a predetermined mathematical algorithm, and indicate the probability that a

compound detected in the sample is the same as

a reference compound. In principle, a blinded

instrument would perform the computer matching

without displaying the actual spectral data on the

screen; the readout would indicate only which

treaty-controlled chemicals were present in the

sample. Although the raw data might indicate the

presence of other, proprietary compounds, the

operator would not have access to this information.

Critics note, however, that blinded instrumentation suffers from two technical drawbacks.

First, since the output is normally expressed in

terms of the probability of a match between the

sample and the reference compound, it is almost

always necessary for the analyst to examine

visually the spectra of samples with a fit of greater

than some predetermined probability and make a

subjective judgment. Second, since the analysis

would be limited to the list of known reference

compounds programmed into the computer’s

memory, it would not detect novel or unusual CW

agents. While one can program an analytical

instrument to detect families of CW agents rather

than specific compounds, even a large spectral

library could not detect a supertoxic agent with an

entirely new chemical structure, such as a rare

biological toxin. Although a standard instrument

would also be unable to match the spectrum of a

novel CW agent to that of any known reference

compound, the raw data might well suggest to the

operator that a novel agent was present. For these

reasons, blinded instrumentation may not provide

an optimal solution to the problem of achieving

effective verification while protecting proprietary

information.

UNATTENDED MONITORING EQUIPMENT

Some analysts contend that deploying unattended monitoring equipment in commercial

chemical plants would help reduce the frequency

Portable gas chromatograph/rnass spectrometer (GC/

MS) developed to support onsite analysis for the

Chemical Weapons Convention. This equipment can

detect and identify minute quantities of organic

chemicals controlled by the CWC.

and intrusiveness of onsite inspections, thereby

saving scarce resources and reducing the verification burden on industry. Two proposals for the

deployment of such devices are discussed below.

| Continuous Monitoring of Production

Continuous surveillance of chemical-plant operations with permanently emplaced instruments

may eventually offer a means to detect illicit CW

agent production while minimizing the number of

onsite inspections. Unattended monitoring stations would be controlled by a microcomputer

and coupled to a safeguarded recording system

for in-house record-keeping. Flow meters and

other sensors would record the quantity of raw

material that enters the reaction vessel, the

amount of product leaving the vessel, and confirm

the identity of the end-product.

Some chemical companies have begun using

unattended monitoring stations to obtain a continuous record of plant operations in case a plant

accident or spill leads to environmental or workersafety litigation. In the context of CWC verification, unattended monitoring stations might be

used to confirm that CW agents are not being
— . .

64 | The Chemical Weapons Convention: Effects on the U.S. Chemical Industry

produced and that the quantities of precursor

chemicals moving through a plant are consistent

with legitimate declared production. A precedent

for this type of remote surveillance is the use by

IAEA inspectors of unattended video recorders to

monitor safeguarded nuclear facilities. With advances in communications technology, it is now

possible to monitor plant operations from great

distances by transmitting data over telephone

lines or satellite links. An unattended monitoring

station installed in a chemical plant might therefore be programmed to notify the OPCW Technical Secretariat in The Hague automatically when

a suspected treaty violation occurred. Alternatively, the data could be recorded onsite and read

out manually during routine inspections for comparison with the plant’s own records.8

Unattended monitoring stations would be

anathema to most of the U.S. chemical industry, however, if the stations were emplaced in

critical process areas and were able to collect

proprietary information, either inadvertently

or deliberately. For example, if a proprietary

catalyst were being used in a manufacturing

process in the same plant as the synthesis of a

scheduled chemical, an unattended monitoring

station might pick up the catalyst in the plant

atmosphere. Moreover, although the use of unattended monitoring stations might reduce the

frequency of onsite inspections, it would not

necessarily reduce their intrusiveness. The reason

is that in order to set up the monitoring equipment, the inspectors would have to learn more

about the chemical process being monitored than

they would during a routine inspection.

Apart from industry objections, unattended

monitoring stations have technical drawbacks

that would complicate their use in CWC verification. At present, no entirely automated monitoring system is capable of guaranteeing the accuracy of the information it collects or of offering

sufficient long-term consistency for fully remote

operation. One difficulty is that the measuring

instruments must be maintained and calibrated at

regular intervals to ensure accuracy, In addition,

all elements of an unattended monitoring station

must be protected against intentional tampering,

which can be very difficult to police. Changing

the calibration of an instrument, for example, can

make a large flow of material appear small. One

way to minimize tampering is to enclose the

instrument and transmitter in a secure box that can

only be opened by authorized personnel, and to

incorporate data-protection and authentication

features to ensure that the signals being transmitted are from the actual monitoring instrument and

not from a process simulator.9

Over the next several years, improved, selfcalibrating instruments are likely to be developed

that can function reliably for extended periods of

time. Even so, considerable time and money

would have to be spent to make such instruments

tamper-proof, and such measures still would not

preclude covert activities designed to bypass the

instruments and violate the CWC.10 For example,

since multipurpose plants change their piping

configuration fairly often, a cheater could install

new feed pipes to divert chemicals around an

online sensor or a reactor fitted with a continuous

monitoring device. This circumvention scenario

might be countered by inspecting the plant at

regular intervals to ensure that deliberate repiping

around sensors has not occurred. According to

one chemical verification expert, however, instruments capable of useful continuous monitoring

would be ‘‘horrendously expensive and more

— —

8 Conference on Disarmament, “Report on a United States National Trial hxspectiom ” document No. CD/922, June 22, 1989, p. 9.

9 D. D. Drayer, cd., Equipment for Potential Unattended Use in Treaty Ven~”cation Applications (Albuquerque, NM: Sandia National

Laboratories, report No, SAND-90-0572, May 1990), pp. 22-23.

1° O. V. Perroni, “Possibilities for Automatic Monitoring of Chemical Products, “ in S. J. Lundi~ cd., Non-Production by Industry of

Chemical-Warfare Agents: Technical Verification Under a Chemical Weapons Convention, SIPRI Chemical & Biological Waglare .$tudie,~ No,

9 (New York, NY: Oxford University Press, 1988), p. 101.
Chapter 6–Verification Technologies and Industry I 65

intrusive than inspections, ” while instruments of

lesser capability and cost would not provide

reliable data. 11

| Automatic Sampling Systems

As an alternative to fully unattended monitoring stations, automated sampling devices might

be installed in chemical plants at established

points along the production line. The frequency of

in-line sampling could be determined by the

inspectors, and might be conducted on a random

basis or in accordance with the inspection schedule. 12 One such approach, known as ‘‘Sample

Now, Analyze Later” (SNAL), involves taking

samples automatically from the production line at

random intervals, The collected samples would

then be analyzed once or twice a year during a

routine onsite inspection.13

A prototype SNAL device, developed by a

team at the University of Hamburg, can store

1,200 samples over a period of a year on a single

polyethylene cassette tape. The device extracts a

few micrograms of material directly from the

production line through a silicon transfer membrane and deposits the sample on a magnetic

cassette tape along with data on the location, date,

and time of the sampling. The polyethylene tape

can be stored for long periods under conditions

that preserve the sample. Several months later,

inspectors can use a portable instrument to

analyze the sample and read the associated data.14

Nevertheless, industry may resist the installation

of SNAL systems, which could also be vulnerable

to tampering or circumvention.

In sum, because of the drawbacks of automated

monitoring and sampling systems, exclusive reliance on such systems will not ‘square the circle’

of ensuring effective verfication while protecting

legitimate industrial secrets. Nevertheless, the

limited use of such systems in conjunction with

routine inspections could help reduce the

intrusiveness and frequency of onsite visits

needed to verify the nonproduction of C W

agents.

11 ~POnd R MC_ju@ Treaty ve~ication Office, Lawrence Livermore National LdXXatOry, ~rsoti comm~catio~ May 13) 1993.

12 Yfi V. Stipti, “some TIxhnical Aspects of Verification of the Non-Production of Chemical Weapons in the Chetid mdus~,” ~

S. J. Lund@ cd,, Verification of Dual-use Chemicals Under the Chemical Weapons Convention: The Case of Thiodiglycol, SIPRI Chemical

& Biological Wat71are Series No. 13 (New York NY: Oxford University Press, 1991), pp. 120-123.

13 A. Veweij md H. L, Boter, “Veritlcation of Non-Production of Chemical-Warfare Agents in the Civil Chemical Industry,” in S. J.

Lund& cd., Non-Production by Industry of Chemical- Wa~areAgents, Technical Vertj5cation Under a Chemical Weapons Convention, SZPRl

ChemicaZ & Biological Warfare Srudies No. 9 (NCW York NY: Oxford University Press, 1988), p, 94.

la Ger~d mu, University of Hamburg, ‘‘Sampling Organics on a Magnetic Tape Reporter System for Retrospective Analysis by a Mobile

Mass Spectrometer, ” paper given at the Chemical Weapons Convention Verification lkchnology Research and Development Conference,

Hemdon, VA, Mar. 3, 1993.
Index

Accounting software, 21

ACDA. See U.S. Arms Control and Disarmament Agency

Administrative claims procedure, 58-59

Administrative warrants, 36-38

American Society for Industrial Security, 45

Auditing of plant records, 26-27,51-53,61-62

Australia Group, 4041

Automatic sampling systems, 65

“Blinded” instrumentation, 62-63

Bush, George, 7

Canberra Conference, 10

Carpenter, Will, 11,21

Challenge inspections

constitutional and lega

costs of, 28-32

OTA findings on, 3

11

issues, 34, 37-38

treaty obligations affecting industxy, 24, 27-28

Chemical Diversion and Trafficking Act, 48

Chemical industry, described, 16-17

Chemical Manufacturers Association

companies affected by CWC, 15

on costs of compliance with environmental regulations, 20

on costs of CWC implementation, 21

industry attitudes toward CWC, 10-12

proprietary information and reporting, 47

safeguarding reported data, 56

Chemical sampling and analysis, 4, 26-27,3940,61-65

Chemical schedules and associated treaty obligations, 12-15,

24-26

Chemical trade associations, 12, 16. See also Chemical

Manufacturers Association

Chemical Weapons Convention

companies affected by CWC, 12-18

constitutional and legal issues, 33-41

implementation steps, 9-10

industry attitudes toward, 10-12

industry impacts ovewiew and findings, 14

protection of proprietary information, 43-59

provisions of, 5-6, 11

reporting requirements, compared with those for

environmental laws, 20-23

treaty obligations affecting industry, 19-32

verification system challenges, 6-9

verification technologies and industry, 61-65

Claims for 10ss of proprietary information. See Compensation for loss of proprietary information

Clean Air Act, 3940

Clean Water Act, 39-40

CMA. See Chemical Manufacturers Association

Committee on Disarmament, 6

Commodity-chemical manufacturers, 16-17,44

Compensation for loss of proprietary information

administrative claims procedure, 58-59

approaches to compensation issue, 56-57

claims against inspectom, 57

claims against OPCW, 57

claims against U.S. Government, 57-58

OTA findings on, 3

industry self-insurance scheme, 59

international trust fund for, 59

Competitiveness

CWC provisions and, 8-9

disclosure of proprietary information, 48

inspection costs and, 32

patent and trade secret law enforcement and foreign

competitors, 46J17

protection of proprietary information, 43-44

Conference on Disarmament, 6

Conildential business information. See Proprietary

information

Constitutional and other legal issues, See also Proprietary

information

challenge inspections, 37-38

compliance with environmental and safety laws, 3940

extraterntoriality, 17-18

export controls, 40-41

foreign ownership of chemical companies, 17-18

importance of resolving legal issues, 9, 33-34

liability issues, 40

OTA findings on, 3
68 I The Chemical Weapons Convention: Effects on the US. Chemical Industry

penal sanctions, 38-39

routine inspections, 34-37

Continuous monitoring of production, 63-65

Cost issues. See Economic impacts

crirninal search warrants, 37-38

CWC. See Chemical Weapons Convention

Defense Treaty Inspection Readiness Program, 53

Disclosure of proprietary information, 4648,54-56

Donovan v. Dewey, 35

Dow Chemical Co., 41

Dual-use chemicals, 5,7, 11, 14,25,4041

Economic impacts

compensation for loss of proprietary information, 56-59

on chemical industry of compliance with environmental

regulations, 20

of CWC reporting requkments, 21-24

of inspections, 28-32, 52

revenue and investment losses from trade secret thefi,

43-45

of verification technology, 64-65

Education and outreach efforts, 2, 15-16

Enhanced Proliferation Control Initiative, 4041

Environmental Protection Agency, 21, 35-36,47

Environmental regulations

costs to chemical industry of compliance with, 20

evidence of violation obtained from CWC inspections, 39

onsite inspection compliance with, 39-40

“pervasive regulation” rationale for warrantless inspections, 35-36

proprietary information and reporting, 47

reporting requirements compared with CWC requirements, 20-23

EPA. See Environmental Protection Agency

Export Administration Act, 41

Expat controls, 4, 17-18,4041

Extraterritoriality, 17-18

Facility agreements, 3, 25-27, 34,40,51

Federal Insecticide, Fungicide, and Rodenticide Act

(FIFRA), 47

Federal Mine Safety and Health Act, 35

Federal Tort Claims Act, 58

FIFRA. See Federal Insecticide, Fungicide, and Rodenticide

Act

Fifth Amendment rights, 33,38-39,57-58

Foreign involvement in industrial espionage, 3,44-47,53-54

Foreign ownership of chemical companies, 17-18

Fourth Amendment rights, 33-38,62-63

Freedom of Information Act, 3,47-48

Geneva Protocol, 6, 10

Government-Industry Conference Against Chemical

Weapons, 10-11

IAEA. See International Atomic Energy Agency

Implementing legislation

compensation for loss of proprietary information, 58-59

constitutional and other legal issues, 33-34, 37, 39

enactment of, 9-10

export controls, 4041

industry attitudes toward CWC, 11-12

industry impact overview and findings, 1-4

liability issues, 40

‘‘pervasive regulation“ inspection scheme, 36

protection of proprietary information, 24,48

required provisions in, 9-10

Industrial espionage

compensation for loss of proprietary information, 56-59

inspector reliability, 53-54

OTA findings on, 3

proprietary information and inspections, 49-51

revenue and investment losses from trade secret theft,

43-45

safeguarding qm-ted data, 55

use of monitoring instrument for, 62

Industry Sector Advisory Committee for Chemicals and

Allied Products, 12

Industry self-insurance scheme, 59

Inspections

chemical schedules and, 12-15

claims against inspectors, 57

constitutional and legal issues,

costs of, 28-32

inspector reliability, 53-54

OTA findings on, 3

preparing for, 50-53

34-38

proprietary information and, 48-50

safeguarding reported data, 11, 54-56

treaty obligations affecting industry, 2, 24-28

International Atomic Energy Agency (IAEA), 55-56,64

International trust fund for compensation to companies, 59

Iraq-Iran Arms Nonproliferation Act, 4041

ISAC-3. See Industry Sector Advisory Committee for

Chemicals and Allied Products

hgal issues. See Constitutional and other legal issues

Liability issues, 40

Marshall v. Barlow’s, Inc., 36-37

Monitoring equipment. See Verification technologies

Monsanto Agricultural Co., 49-50

National Authorities, 6. See also U.S. National Authority

New York v. Burger, 35-36

Noncompliance concerns. See Challenge inspections

Nonintrusive verification technologies, 62-63

NT’I. See U.S. National Trial Inspections

Nuclear Non-Proliferation Treaty, 8,55

Occupational Safety and Health Act, 36-37

Occupational Safety and Health M.m.uu“ “stration, 21,47

On-Site Inspection Agency, 53

OPCW. See Organization for the Prohibition of Chemical

Weapons

Organization for the Prohibition of Chemical Weapons

auditing of plant records, 52

claims against, 57

compensation for loss of proprietary information, 56-59

costs of reporting, 21-24
Index I 69

establishment of, 5-6

inspection obligations, 24-28, 32, 62

inspector reliability, 53-54

liability issues, 40

preparing for inspections, 51

safeguarding reported data, 54-56

U.S. National Authority reports to, 19

OSHA. See Occupational Safety and Health Administration

“Other relevant” facilities, 12-15,24-26

Outreach efforts, 2, 15-16

Patent law, 46-47

Penal sanctions, 38-39

Persian Gulf War, 6

‘‘Pervasive regulation “ legal premise, 34-36

Preparatory Commission

international trust fund proposal, 59

liability issues, 40

monitoring equipment guidelines and provisions, 61-62

negotiation of reporting format, 24

negotiation of treaty implementation, 9

PrepCorn. See Preparatory Commission

Production records. See Auditing of plant records

Production reports. See Reporting requirements

Proprietary information. See also Constitutional and legal

issues

compensation for loss of propriety information, 56-59

facility agreements and, 26-27, 51

importance of protecting, 4345

inspections and, 48-53

inspector reliability, 53-54

OTA findings on, 3

patent and trade secret law, 46-47

reporting and, 4748

safeguarding reported data, 11, 54-56

verification technologies and industry, 61-65

Ratification of Chemical Weapons Convention, 9-11

RCRA. See Resource Conservation and Recovery Act

Reporting requirements

chemical schedules and, 12-15, 17

costs of reporting, 21-24

CWC overlap with other reporting requirements, 19-21

OTA findings on, 2-3

proprietary information and, 47J18

safeguarding reported data, 11, 54-56

Resource Consewation and Recovexy Act (RCRA), 39-40

Rohrn and Haas, 44

Routine inspections

challenge requests and, 28

constitutional and legal issues, 34-37

costs of, 28-32

OTA findings on, 3

treaty obligations affecting industry, 24-27

Ruck.e[haus v. Monsanto Co., 57

Safeguarding reported data, 11,54-56

Safety regulations, 39-40. See also Environmental

regulations

Schedule 1 chemicals, 12-15, 25

Schedule 2 chemicals, 12-15, 17,21,24-26,28-32

Schedule 3 chemicals, 11, 12-15, 18,24-26,40-41

Scheinrnan, Lawrence, 56

Specialty-chemical producers, 16-17,44,47

Tanzman, Edward A., 36, 37

Toxic Release Invento~, 20, 22-23

Toxic Substances Control Act ~SCA), 20-23,47

Trade restrictions, 4,40-41

Trade secrets. See Proprietary information

Treaty obligations

chemical schedules and, 12-15, 24-26

destruction of chemical weapon stockpiles and production

facilities, 5

inspection obligations, 24-28

reporting obligations, 19-24

TRI. See Toxic Release Inventory

TSCA. See Toxic Substances Control Act

Unattended monitoring equipment, 63-65

Uniform Trade Secrets Act, 46

U.S. Arms Control and Disarmament Agency (ACDA),

15-16

U.S. Court of Appeals for the District of Columbia, 48

U.S. Department of Commerce, 53

U.S. Department of Defense, 29,53

U.S. Drug Enforcement Administration, 48

U.S. National Authority

compensation for loss of proprietary information, 56

direct costs of reporting, 24

establishment of, 6, 9

facility agreement negotiations, 25-27

‘‘pervasive regulation “ inspection scheme, 36

proprietary information and reporting, 47

reports to OPCW, 19

safeguarding reported data, 54-55

U.S. National Trial Inspections, 28-32,49-50,52

U.S. Patent and Trademark Office, 46

U.S. Supreme Court, 34-37, 57,62

“Use immunity,” 39

Veritlcation system. See also Inspections; Reporting

requirements

challenges of verification, 6-9

companies affected by CWC, 12-18

implementation steps, 9-10

industry attitudes toward CWC, 10-12

OTA findings on, 2

Verification technologies

automatic samplin~ systems, 65

continuous mo-tito-fig of production, 63-65

OTA findings on, 4

monitoring equipment guidelines and provisions, 61-62

nonintrusive veriilcation technologies, 62-63

unattended monitoring equipment, 63-65

Visual inspections, 26-27,61-62

Warrantless searches, 35-37,62