U.S. GOVERNMENT PRINTING OFFICE

67–607 CC WASHINGTON : 2000

MUNITIONS LIST EXPORT LICENSING ISSUES

HEARING

BEFORE THE

COMMITTEE ON

INTERNATIONAL RELATIONS

HOUSE OF REPRESENTATIVES

ONE HUNDRED SIXTH CONGRESS

SECOND SESSION

MARCH 28, 2000

Serial No. 106–155

Printed for the use of the Committee on International Relations

(

Available via the World Wide Web: http://www.house.gov/international—relations

(II)

COMMITTEE ON INTERNATIONAL RELATIONS

BENJAMIN A. GILMAN, New York, Chairman

WILLIAM F. GOODLING, Pennsylvania

JAMES A. LEACH, Iowa

HENRY J. HYDE, Illinois

DOUG BEREUTER, Nebraska

CHRISTOPHER H. SMITH, New Jersey

DAN BURTON, Indiana

ELTON GALLEGLY, California

ILEANA ROS-LEHTINEN, Florida

CASS BALLENGER, North Carolina

DANA ROHRABACHER, California

DONALD A. MANZULLO, Illinois

EDWARD R. ROYCE, California

PETER T. KING, New York

STEVE CHABOT, Ohio

MARSHALL ‘‘MARK’’ SANFORD, South

Carolina

MATT SALMON, Arizona

AMO HOUGHTON, New York

TOM CAMPBELL, California

JOHN M. MCHUGH, New York

KEVIN BRADY, Texas

RICHARD BURR, North Carolina

PAUL E. GILLMOR, Ohio

GEORGE RADANOVICH, California

JOHN COOKSEY, Louisiana

THOMAS G. TANCREDO, Colorado

SAM GEJDENSON, Connecticut

TOM LANTOS, California

HOWARD L. BERMAN, California

GARY L. ACKERMAN, New York

ENI F.H. FALEOMAVAEGA, American

Samoa

MATTHEW G. MARTINEZ, California

DONALD M. PAYNE, New Jersey

ROBERT MENENDEZ, New Jersey

SHERROD BROWN, Ohio

CYNTHIA A. MCKINNEY, Georgia

ALCEE L. HASTINGS, Florida

PAT DANNER, Missouri

EARL F. HILLIARD, Alabama

BRAD SHERMAN, California

ROBERT WEXLER, Florida

STEVEN R. ROTHMAN, New Jersey

JIM DAVIS, Florida

EARL POMEROY, North Dakota

WILLIAM D. DELAHUNT, Massachusetts

GREGORY W. MEEKS, New York

BARBARA LEE, California

JOSEPH CROWLEY, New York

JOSEPH M. HOEFFEL, Pennsylvania

RICHARD J. GARON, Chief of Staff

KATHLEEN BERTELSEN MOAZED, Democratic Chief of Staff

JOHN WALKER ROBERTS, Senior Professional Staff Member and Counsel

JILL N. QUINN, Staff Associate

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C O N T E N T S

WITNESS

Page

The Honorable John D. Holum, Senior Advisor for Arms Control and International Security, U. S. Department of State .................................................... 11

APPENDIX

Prepared statements:

The Honorable Benjamin A. Gilman, a Representative in Congress from New

York and Chairman, Committee on International Relations ........................... 30

The Honorable Steven T. Kuykendall, a Representative in Congress from

California .............................................................................................................. 31

John D. Holum ......................................................................................................... 32

Additional material:

Washington Post article by Vernon Loeg, dated March 29, 2000, entitled,

‘‘U.S. Satellite Sales Lag Since Regulatory Shift’’ ............................................. 44

(1)

MUNITIONS LIST EXPORT LICENSING ISSUES

TUESDAY, MARCH 28, 2000

HOUSE OF REPRESENTATIVES,

COMMITTEE ON INTERNATIONAL RELATIONS,

Washington, DC.

The Committee met, pursuant to notice at 2 p.m., in room 2200,

Rayburn House Office Building, Hon. Benjamin A. Gilman (Chairman of the Committee) presiding.

Chairman GILMAN. The meeting will come to order. The purpose

of today’s hearing is to hear from the Administration on the issues

related to defense exports. To present the Administration views, we

are pleased to welcome the Honorable John Holum who is the senior advisor to the Secretary of State for Arms Control and International Security.

Mr. Holum, as you may be aware, when the Secretary was before

the Committee in February, I raised with her our concerns about

the recently signed Declaration of Principals for Defense Equipment and Industrial Cooperation between our nation and the U.K.

That agreement which, as you know, is not legally binding was negotiated between our Department of Defense and the British Ministry of Defense. Neither the State Department, nor any other U.S.

agencies with equities in this document were involved. I expressed

particular concerns about the language on export controls in the

declaration. I then noted and reaffirm now that I don’t support exemptions for munitions licenses for the U.K. or any other allied

country, for that matter.

In fact, Mr. Holum, I trust that you’re aware of our March 16th

letter to the Secretary signed by Mr. Gejdenson and myself as well

as by Senator Helms and Senator Biden which among other things

we make clear our united and strong opposition to any proposals

extending exemptions to allied countries. We expect to hear today

in rather clear terms your position on any exemptions.

In addition, our letter made it clear that we expect full consultation by the Administration on those initiatives involving defense

exports that you expect to unveil at the May NATO Ministerial

Meeting. The U.S.-U.K. declaration is but the latest manifestation

of the so-called ‘‘globalization efforts’’ of our good friends over at

the Pentagon. We have significant reservations about those efforts,

particularly as they infringe upon our shared responsibilities to ensure that the spirit and the letter of the Arms Export Control Act

is going to be fully met.

Finally, let me note that I expect that other Members will raise

with you pointed questions about the efficiency of our munitions liVerDate 11-MAY-2000 11:59 Nov 28, 2000 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 67607.TXT HINTREL1 PsN: HINTREL1
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censing process. Your testimony addresses this issue. We look forward to hearing you out.

I would like to note that I share those concerns and have therefore worked hard to try to find additional resources for you over the

past 2 fiscal years. But you need to do more to make certain that

the right things get to the right people as quickly as possible.

Are there any other opening statements?

Mr. GEJDENSON. Mr. Chairman.

Chairman GILMAN. Mr. Gejdenson.

Mr. GEJDENSON. Mr. Chairman, like you, I am frustrated to see

that State was—and by the way, DOD seems to be doing the right

thing, you might want to take lessons from them in other areas by

taking down some of the restrictions on our closest allies. But, I

mean, it’s as if your agency disappeared on this one and you ought

to be setting policy, not the Defense Department. So we would obviously like to hear what you have to say.

Then as much to my colleagues as to the witness, when this happened, I said that we would devastate our industry to no effect on

the transfer of technology and science. We now have a report in today’s Washington Post that says, the United States has lost 40 percent of its share of satellites since we transferred the regulatory

process on satellites from Commerce to State Department. And

Daimler-Benz which is—at least partially was an American company now says it’s not going to buy any American parts because

of the process being so unpredictable. Here we are, we’re not going

to go back to making blankets, you know, our economy is not going

to succeed at the bottom end of technology. The Congress, I think,

in a somewhat—I won’t characterize it, but not in the wisest of

moves, moved this regulatory process to State and now we see the

net results. The people who want to get these items are getting

these items. They’re just not getting them from the United States.

What is our benefit in this kind of process? Where do we gain by

having other countries just get all this technology someplace else

and lose market share which means we will end up in that old circle; at some point the United States will have to be asking other

countries for technology because their companies will have made

the profit, they’ll be the ones out in front, and we’ll be where we

were with the machine tool industry.

I’m going to tell this story once more, and I know it frustrates

me because it seems to me there are some things that don’t take

graduate degrees from Harvard or Yale. When you look at what

happened with the machine tool industry, the Defense Department

in that case, stopped our machine tool industry from exporting its

best machine tools. Very rapidly we got to the point where the Defense Department wanted to buy Japanese machine tools because

ours were no longer the front end of the market.

When this Administration came in, I hoped we would see an improvement. What we saw was the case of telephone switching systems. The Chinese wanted to buy 565’s, we wouldn’t sell it to them.

So what happened? They made their own, the Israelis sold them

625’s. What did we accomplish?

I asked the same question about the satellite industry. I know

you’re getting more staff, do you think you’ll be able to do better?

What we have here is a product that’s almost a commodity at the

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top end of technology. While we sit around shuffling papers, other

countries are going to take market share, and that means jobs.

That’s maybe not that important at this stage to some people. I

think it’s pretty important. I think that, you know, if we lose this

top end of technology, our economy is going the go south at some

point, but what are we accomplishing by shifting other countries to

buy products from our allies? You know, I’ve heard now for a decade that we’re going to have this new agreement.

First it was on encryption, now it’s going to be on sales again.

You know, frankly COCOM didn’t work with our allies when we

had a Soviet Union to worry about. Now, when the Administration

and half of Congress is trying to give most favored nations status

to China, I’m not sure who we are trying to keep equipment from

that they cannot get almost anywhere else. If I was a public official

who was responsible for losing a 40 percent share of what was a

pretty darned important market to us, I’d have to have an explanation besides, ‘‘gee, we’re trying to get some more people in here

so we can run this paper around in a big circle.’’ You’ve got to find

a way to make this work. This is damaging our national security

and our economy.

I’d be happy to yield.

Mr. BERMAN. I thank you for your time. As I remember the situation, it was the Clinton Administration that administratively

moved commercial satellites from State to Commerce back in 1993.

Prior to that time it had always been a munitions list item and it

was this Administration that moved those commercial satellites to

the Commerce Department. It was only——

Chairman GILMAN. They moved it back.

Mr. BERMAN. It was Congress that moved it back after the initial

reports of technology transfers on the missile technology came out

in the papers and the context of the creation of the Cox Committee

and all of that.

Chairman GILMAN. The gentleman’s time has expired. You will

get your own time shortly.

I would like to welcome Congressman Kuykendall of California.

He’s not a Member of the Committee, but he requested to join us.

He’s a Member of the Armed Services Committee.

Mr. Bereuter.

Mr. BEREUTER. I thank you, Mr. Chairman. Mr. Holum, I do

have some views that are slightly different than the gentleman

from Connecticut. I am concerned that the recent announcement by

the Commerce Department that it was continuing to exert export

control jurisdiction over a number of satellite technologies pending

a review by the NSC.

This declaration, which was posted on the Commerce web site,

contravenes the clear intent of Congress when it enacted provisions

addressing the jurisdiction issue in the Fiscal Year 1999 Defense

Authorization Act. Through the enactment of that law, I believe the

Congress made it absolutely clear that it wants all export jurisdiction decisions regarding commercial communication satellites to be

under the jurisdiction of the Department of State and not the Department of Commerce. Licensing review for export of militarily

sensitive technology to countries of proliferation concern—countries

such as China—should be guided by those agencies which, pursuVerDate 11-MAY-2000 11:59 Nov 28, 2000 Jkt 000000 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 67607.TXT HINTREL1 PsN: HINTREL1
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ant to U.S. law and practice, give an overriding priority to national

security considerations.

This declaration also demonstrates, unbelievably, in my view,

that the Administration apparently has not learned from its previous problems which were revealed by the bipartisan Cox Select

Committee on which I serve and by the Senate Select Committee

on Intelligence where it was pointed out that granting the Commerce Department jurisdiction over export controls contributed to

the PRC’s acquisition of ballistic missile technology from U.S. defense firms. I’m particularly concerned to learn that some of the

satellite technology still under Commerce Department jurisdiction

are also used in U.S. military satellites including reconnaissance

satellites.

I have a slightly different view on this issue as you can see, Mr.

Holum. I’m wondering why it is that the Administration has not

done what Congress told them to do—to give the State Department

the responsibility.

Thank you, Mr. Chairman.

Chairman GILMAN. Thank you, Mr. Bereuter.

Mr. Berman.

Mr. BERMAN. No, thanks.

Chairman GILMAN. Mr. Rohrabacher.

Mr. ROHRABACHER. Thank you very much, Mr. Chairman. The

national security issues concerning licensing of arms exports has

never been more critical. As Mr. Bereuter just noted, the Cox report on the transfer of United States technology to modernize and

perfect China’s missile and satellite systems is a profound example

of the resulting danger from a lack of proper export controls. The

transfers of critical American technologies and know-how to Communist China is having a dramatic impact on the security of the

people of the United States and the safety of our military forces in

Asia. One less of this episode has to be that when it comes to space

technology, much less other technologies, you cannot separate military from civilian capabilities. Other technologies may be in a different situation. But space technologies, that relationship is something that seems to be inseparable.

As Chairman of the Science Space and Aeronautics Subcommittee, I drafted legislation, which became law last year, clarifying the difference between selling missile-related technologies to

America’s friends and potential enemies. Mr. Gejdenson may think

the world is divided between other countries and the United States,

but it’s a little more complicated than that.

Fact is, there are some other countries that pose a threat to the

safety of the United States of America, the security of our country

and pose a great danger to us and other countries that don’t.

While the success rate of China’s dual purpose rocket and missile

systems, back to their satellites in space alone, and these systems,

the rocket and missile systems that have been enhanced by American technology and know-how, has enabled Chinese leaders to

make threats against the United States of America. They’re right

up front about it, and I quote, ‘‘United States leaders value the

lives of 200 million Americans over the lives of 23 million Taiwanese.’’ In addition we must note that the recent successful

launch of the Chinasat–22 communications satellite on a Long

5

March 3A rocket—both the satellite and the rocket improved significantly by the gift of American ‘‘rocket failure analysis’’ and

America’s sophisticated technology; this has dramatically improved

the communist Chinese military’s command and control capabilities

for combat against Taiwan and against American military forces in

that part of Asia, should there be a confrontation. The satellite is

what was labeled a force multiplier. What are we doing providing

technology and know-how to Communist China that permits them

to have a force multiplier which makes their military more effective

in killing adversaries when someday those adversaries might be

American military personnel.

On the other hand, the Clinton Administration is refusing to cooperate with this Committee on central issues concerning the defense needs of Taiwan, a treaty ally of the United States. The Administration has steadfastly refused to let Congress ever see a

DOD report on two defense systems that are needed to deter attack

against Taiwan from the mainland. I am submitting for the record

an article from today’s South China Morning Post that describes

how Chinese strong man Jiang Zemin is ordering his military commanders to ‘‘act soon ’’ with force against Taiwan.

Chairman GILMAN. Without objection it will be made part of the

record.

[The information appears in the appendix.]

Mr. ROHRABACHER. Today’s Washington Times reports that

China is deploying new missiles along its southern coast opposite

of Taiwan. Frighteningly reminiscent of the period that led to the

Korean War, the Administration is giving Beijing signals that we

are not committed to Taiwan’s defense. At the same time what’s

happening? We’ve been giving them military technologies. While

these lax controls, these signals, this technology transfer has benefited China’s military modernization, but has also given an incredibly wrong signal to the Chinese communists that may lead to tragic consequences for the people of China and the people of the

United States.

I am in full agreement with a suggestion made by representatives of American industry that recently testified before Ms. RosLehtinen’s Economic Policy and Trade Subcommittee that we

should expedite the licensing and processing to friendly nations of

satellite technologies and other technologies as well. I hear we have

a thermal transfer unit from, I guess it’s Lockhart Technology Industries in California. There’s no reason why we have to hold up

the sale of this type of technology to Belgium or Brazil. But, yeah,

there is a reason we might want to look at it when it comes to enemies of the United States like—like potential enemies like China,

or perhaps other—North Korea, that’s very reasonable.

What we have here is the Administration dragging its feet on

trying to make the difference on this company’s ability to have success as well as our satellite company’s ability to succeed and selling

their product overseas, because they’re unwilling to differentiate

between a potential enemy and a friend of the United States. This

is a sin against the American people and a sin against our national

security.

I believe that a list should have been made, based on what has

already been passed through Congress, concerning what countries

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are a potential enemy of the United States and what countries pose

no threat to the United States. I’m looking forward to hearing the

explanation of why those lists haven’t been made and why we

aren’t moving forward so that companies like this who want to export don’t find themselves hampered at a time—in other words, we

can control exports to those countries that pose a threat to us and

there’s nothing wrong with that, but at the same time we can open

up a pre-trade with the other countries that are friends of the

United States. There’s nothing wrong with that type of analysis

and it’s beyond me why we’re getting so much hesitation and so

much complication in trying to establish that as the rule of the

land.

Mr. BERMAN. Mr. Chairman, I ask unanimous consent that——

Mr. ROHRABACHER. Well, I would be very happy to yield whatever time I have left.

Mr. BERMAN. Mr. Chairman, I ask unanimous consent the gentleman have 2 additional minutes.

Chairman GILMAN. Without objection. The gentleman is recognized.

Mr. BERMAN. In, I believe it was the fall of 1994——

Mr. ROHRABACHER. Right.

Mr. BERMAN [continuing]. The Clinton Administration imposed

sanctions on satellite and missile technologies going to the PRC because of the PRC’s proliferation of MTCR controlled items to Pakistan. The result of that was that the only munitions list items

going to China, satellites, were blocked. At that time a number of

Members of the California delegation, including my friend, Mr.

Rohrabacher, wrote a letter and pushed this Administration to

move commercial satellites to the Commerce Department list on

the grounds that it had no implications whatsoever for the Chinese

missile program and that therefore those sanctions should not

apply to commercial satellites.

What the gentleman says now is very different and I’m curious

about what caused the change in thinking in this regard.

Mr. ROHRABACHER. Anybody who stays committed to one policy

even though it doesn’t look like it’s working is a fool, and the fact

is, I learn from situations as they evolve, and there is no—and

what has happened since 1994 has indicated to me that the Communist Chinese regime is not evolving toward democracy, the regime is still committing genocide and is becoming more belligerent

to the United States, not less belligerent, plus what resulted from

that, and those of who signed that letter were given every assurance—and if you read the letter you will see that those assurances

were mentioned in the letter—that there would be no transfer of

technology to the Communist Chinese whatsoever, and that all the

safeguards would be taken and that the Administration—we were

counting on the Administration to do that, those safeguards were

not included.

This Administration trashed the very safeguards that we’ve

talked about and there was a transfer of technology that threatened the safety of our country. Yes, I learned from that and I

would hope that other Members of Congress would learn from that

as well.

Mr. BERMAN. Would the gentleman yield further?

7

Mr. ROHRABACHER. I certainly will.

Mr. BERMAN. First of all I asked——

Chairman GILMAN. The gentleman’s time has expired.

Mr. ROHRABACHER. I ask for 1 additional minute.

Mr. BERMAN. I very much appreciate the gentleman’s candor in

acknowledging that his position has changed.

Mr. ROHRABACHER. Which, there’s nothing wrong with that.

Mr. BERMAN. The only thing I would say was that in 1994 China

was not democratic, was still persecuting religious minorities and

was certainly a proliferator of missile technology which is why the

sanctions were imposed. The representations concerning what will

be provided with that satellites came from a company called

Hughes, not from the Administration. It was based on Hughes’ representations that Members of Congress signed those letters.

Mr. ROHRABACHER. If I could reclaim the one last 30 seconds of

that minute.

No, it was based on briefings given to me by the Administration,

by officials of the Administration, as you probably received those

very same briefings——

Mr. BERMAN. But the Administration imposed the sanctions.

They ended up going along with the Congressional pressure to

transfer these satellites——

Mr. ROHRABACHER. The Administration——

Mr. BERMAN [continuing]. Off the munitions list.

Mr. ROHRABACHER [continuing]. Behind the scenes, the Administration was fully behind this move. It was a move on part of the

Administration.

Mr. BERMAN. No, it wasn’t.

Mr. ROHRABACHER. And this letter was being used as a cover.

Mr. BERMAN. No.

Mr. ROHRABACHER [continuing]. So that they could fulfill their

own policy goals.

Chairman GILMAN. The gentleman’s time has expired.

Mr. ROHRABACHER. I learned from my mistake.

Chairman GILMAN. Mr. Manzullo?

Mr. GEJDENSON. I would ask unanimous consent for 30 seconds.

Chairman GILMAN. The gentleman is recognized for 30 seconds.

Mr. GEJDENSON. Thank you. I just hope that my friend Mr. Rohrabacher, being able to evolve his positions, would now look at the

fact that those allies he talked about are selling everything that we

wouldn’t sell the Chinese and others, that there’s been no diminution of what the Chinese get now. It was a mistake sending it over

to State. They can buy these products anywhere in the world and

the only result of your actions is that all our allies are taking over

market share.

Chairman GILMAN. The gentleman’s time has expired.

Mr. MANZULLO. This is getting pretty spirited up here.

[Laughter.]

Mr. MANZULLO. I never thought I’d be to the right of Dana Rohrabacher.

[Laughter.]

Mr. MANZULLO. Usually you sit to my right in the seating chart

in the full Committee.

8

My concern here is very simple. There’s a mentality that applies

not only to these satellites, which are sophisticated, but not unique

to other technologies. It’s critical to make that statement. When we

don’t sell a satellite to China, France will; the same technology.

The technology is going to them. They say, ‘‘all right, if you don’t

want to sell it to us we’ll buy it from someone else.’’ This sort of

piousness and self-righteousness that we’re going to make a value

judgment on governments and then determine the type of products

to sell to them. This works to a certain extent. But in this case it’s

working against us because that mentality has also applied to the

sale of machine tools.

We are in a difficult position. I represent a city that led the Nation in unemployment in 1980 at 27 percent, Rockford, Illinois. In

a city of less than 140,000 people, we lost 100 factories and 10,000

highly skilled jobs. We can’t get a four-axis machine into India. The

Chinese bought 27 four-axis, five-axis machines in 1997. One of

them came from the United States and the rest came from Germany, Switzerland, and Sweden. This is ridiculous.

We sit here in Washington passing all these rules, making all

these value judgments upon who is the bad actor, and the very

same device that we look upon as being sacrosanct in our hands

is being sold by our friends, the French, the Italians, the Germans.

Thus, what’s going to happen is this: Our companies are going to

move offshore. They’ll just sell all their assets in the United States,

go over to Europe, go over to Asia. They’ll say, why should we stay

in the United States where we can’t even export these items. At

the same time, U.S. companies get branded with the reputation of

being an unreliable supplier. So they’re just going to leave. For

those who are interested and think the trade deficit is of significance, at least should take a look at our export policy. I think it’s

archaic and naive. Surely we know a weapon when we see one. A

commercial satellite is not a weapon.

You could use binoculars and see 5 miles. You could attach military significance to almost anything. So here were are behind the

eight ball, we are facing a 28-percent decline in orders for machine

tools. The great economy that is surging along has such soft pockets it’s unbelievable and that’s right in the heart of our manufacturing capability. So not only are we losing manufacturing jobs,

we’re going to lose the whole high-tech market.

There was an article in the international magazine, Mr. Chairman, that’s a consortium of the Washington Post and the New York

Times, called the International Herald Tribune. About 2 months

ago, there was an article talking about a group of European companies expressing concern over their market share of companies involved in high-tech. Because of the tremendous regulations and

rules that the Europeans face with regard to labor, etc., that

they’re concerned that Americans will continue to monopolize hightech. Well, I’ve got news for them, the United States is just going

to give it to them. Unless we change these trade laws and come to

a realization that a super computer is nothing more than a computer that does the same things only faster, and that there’s nothing that critical about it except for the extreme high end, we’re

going to see a continuous erosion of jobs.

9

So I commend the Chairman for having this meeting. I think reference has already been made to the article that appeared today

in the Washington Post about the reduction of production of American satellites. If we continue our present policy, America will no

longer be in the business of manufacturing commercial satellites.

Chairman GILMAN. The gentleman’s time has expired. Thank

you.

I would like to recognize Mr. Kuykendall.

Mr. KUYKENDALL. Thank you, Mr. Chairman, for letting me sit

in today. I have a statement that I’ll leave for the record, but just

a couple of other——

Chairman GILMAN. Without objection the statement will be made

part of the record.

Mr. KUYKENDALL. And I also think that Washington Post article

that we talk about today ought to be in the record as well.

Chairman GILMAN. Without objection.

[The prepared statement of Representative Kuykendall and the

article appear in the appendix.]

STATEMENT OF HON. STEVEN T. KUYKENDALL, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA

Mr. KUYKENDALL. Two or three just short little facts. In California we represent 60 percent of the total satellite production of

the world; 60 percent of the whole world was built there. That’s

both communication and otherwise.

One of these satellites can be hundreds of millions of dollars

each. It’s like selling a 747 every time we sell one little satellite.

We also represent the interests of the launch community because

much of the launch community is headquartered there as well.

Now, we have got to figure out how to know what is good and

what’s bad and how not to give away secrets important to us, and

it’s got to be done quickly. I’m concerned that the changes that

were made last year have not been implemented fully this year and

I have already experienced job loss in my district for people building satellites that could not be exported or could not be exported

on the timeline they were meant to be exported on and for the

launch vehicles and they’re now standing down some of these jobs.

I’m concerned about our product being technologically good, but

I’m also concerned about how can we do that in a world marketplace. So we’ve transferred to your responsibility that job and we

would like to hear from you on how you’re doing it. Right now I’m

having trouble seeing it being very successful.

Thank you for the time.

Chairman GILMAN. Thank you, Mr. Kuykendall.

I’m pleased to welcome John Holum, Director for the Arms Control and Disarmament Agency since 1993. On April 1st, 1999, Mr.

Holum assumed the duties of senior advisor for Arms Control and

International Security after ACDA was merged with the Department of State in accordance with the Foreign Affairs Agency Consolidation Act of 1998. John Holum was nominated for the position

of Under Secretary of State for Arms Control and International Security and in that capacity will also serve as senior advisor to the

President and Secretary of State for Arms Control, for nonproliferaVerDate 11-MAY-2000 11:59 Nov 28, 2000 Jkt 000000 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 67607.TXT HINTREL1 PsN: HINTREL1
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tion and disarmament. He will also have the responsibility for coordinating security assistance programs.

We welcome Mr. Holum. Mr. Holum, before you commence, I

may be called to the floor in a few minutes. We have several measures on the floor. I hope that you would note a concern I have.

On October 28th of last year, Bloomberg reported that a German

firm, Daimler-Chrysler Aerospace was going to bar the use of various United States components for United States satellites due to

what was described as an uncertain export license situation in the

State Department. A variety of senior officials in the Administration seemed to relish the announcement. Under Secretary Reinsch

at the Commerce Department was quoted in the same story as

stating, ‘‘We opposed what the Congress did’’ in moving the authority of licensed satellites out of Commerce. The Daimler announcement, Under Secretary Reinsch said, ‘‘was just more proof that the

transfer of satellite jurisdiction was in error.’’

In the same Bloomberg article, Deputy Defense Secretary Hamre

was quoted as regretting the DASA directive in saying that ‘‘it was

news to him.’’ The article went on to quote David Oliver, Deputy

Under Secretary of Defense for Acquisition as saying ‘‘that the

Daimler directive would play a prominent role in the Pentagon’s efforts to reform this State Department’s export control process.’’

Two weeks later in the November 15th issue of Defense Week,

Mr. Oliver was quoted as saying, the Daimler’s directive is ‘‘a

smoking-gun example of what’s wrong with the State Department’s

system.’’

The Committee has recently come in the possession of an exchange of letters between the German firm, Daimler-Chrysler, and

Pentagon officials in the days leading up to the Bloomberg article

in which the Daimler-Chrysler directive was announced. Significantly, one of those letters on October 25th of last year to Under

Secretary Ganzler at DOD from Dr. Manfred Bishop, the CEO of

Daimler-Chrysler, was provided to the Pentagon on the day of a

dinner hosted by Deputy Secretary Hamre for European industrialists, and the dinner is referred to in that letter. The letter from

Daimler-Chrysler informs Dr. Gansler that DASA is going to issue

their directive to bar American satellite supplies in light of a report

he had received from Dr. Gansler’s office considering the status of

certain pressing licenses that are said to be mired in the State Department. The letter also expresses support for DOD’s effort to

change the State Department licensing system.

So despite the official surprise expressed by the Pentagon and

the press stories that were to come out in the next week, it appears

the top Pentagon officials were well aware of what was going on

with Daimler-Chrysler and has been consulting with that German

firm about their plans to change the State Department’s licensing

process. Indeed, they provided him with a report which encouraged

Daimler’s and Chrysler’s announcement.

This Committee is intensely disturbed by that correspondence.

On its face it appears it as if senior Administration officials had

been secretly involving foreign firms in their initiatives to reform

this country’s export laws behind the back of the Congress, and in

particular this Committee which had jurisdiction over those matters. If that’s true, it’s simply outrageous. What is particularly

11

troublesome is if this apparently DOD-engineered attack by

Daimler-Chrysler were to spread to other European defense firms,

thereby costing American jobs. DOD is playing with absolute fire

and I hope that you would comment on that.

Please proceed, Mr. Holum.

STATEMENT OF THE HONORABLE JOHN D. HOLUM, SENIOR

ADVISOR FOR ARMS CONTROL AND INTERNATIONAL SECURITY, U.S. DEPARTMENT OF STATE

Mr. HOLUM. Thank you, Mr. Chairman. I would like to reflect on

some aspects of that statement and the questions for the record.

But portions of it will certainly be addressed in my prepared statement. I’ve spent some time condensing that so we can get to further questions. But I very much appreciate the opportunity to appear before your Committee to discuss the vital topic of Munitions

Export Controls Administered by the Department of State.

The challenge of advancing U.S. foreign policy and national security goals in an era of globalizing defense industries is a daunting

one and one that the State Department is very much engaged in

as is the Department of Defense.

As you and the Congress at large appreciate the regulation of

arms for commercial export both in terms of licensing and enforcement and compliance requirements is a complicated and often sensitive process involving billions of dollars of U.S. exports. Defense

export licensing has important implications for the national security, economic security, and foreign policy interests of the United

States as well as the well being of thousands of American companies and their employees.

But let me say at the outset that the word ‘‘controls’’ in terms

of export regulation and enforcement is not a dirty word at the Department of State. Control for the State Department is a reminder

of two things; first, that we in Government have a well-defined responsibilities and authorities aimed at ensuring the defense trade

is conducted in a manner that furthers U.S. national foreign policy

objectives and national security interests.

Second, that U.S. companies has a substantial role in protecting

U.S. security because we share some of our most sophisticated

technologies with foreign countries and companies. The State Department is committed to giving the regulation and facilitation of

responsible defense trade the attention and resources it deserves

and to improving the efficiency, timeliness, and security with which

you would carry out these functions.

The stakes are high. Our success or failure to manage the technology revolution and changes in international defense trade will

have broad implications for various countries’ economic prosperity

as well as for their ability to support or threaten regional and

international stability. It is imperative that our conclusions reflect

broad U.S. foreign policy and national security goals, and not only

defense industrial-based considerations.

I believe that the new shape of the part of my organization supporting this effort will make an important difference. Our conventional arms transfer policy aims to strike the right balance between

support to our friends and allies, the U.S. defense industrial base,

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bility and security goals. We try to prevent the transfer of technologies that threaten regional stability or contribute to arms

races.

A good example of this effort is our work on small arms and light

weapons. Those items are low tech and inconsequential in terms of

directly threatening U.S. national security. But consider the foreign

policy implications, items that are as low-tech as machine guns,

mines, mortars and grenades are responsible for most of the killing

that’s taken place in intra-state conflict since the end of the Cold

War. In some regions small arms are weapons of mass destruction.

At the other end of the technology spectrum, our decisionmaking

aims to protect the U.S. technological edge. We take into account

non-proliferation objectives in an attempt to control the ultimate

possessor and end user of U.S.-manufactured advance weapons.

The risk of diversion of advance weapons into the hands or rogue

states and non-state actors grows every day. We need to use all the

tools at our disposal to guard against an upward spiral of conventional arms acquisitions with the stabilizing consequences.

Our most effective tool in this quest to date has been a comprehensive defense trade control system. In that state we remain

convinced that the existing export control system provides essential

tools for advancing U.S. foreign policy and must be preserved. The

Department is equally mindful of the changes that have taken

place in the defense marketplace as a result of globalization. We

recognize that technology advances and political developments have

altered the international environment substantially over the past

decade. As a result it’s imperative that we in the export control

business proceeded as quickly as possible to acquire sufficient fiscal

and human resources, streamline our processes, and adopt modern

business practices.

The United States has its own strategic interest in arms transfers, namely to promote interoperability with our key allies and

friends to help them improve their defense capabilities and to protect the viability of our industrial base. We recognize that defense

industrial cooperation can help both U.S. and allied defense establishments spread the fiscal burden of new system development and

production while helping allies improve their defense capabilities.

This is a significant element in the United States’ Government’s

commitment to the NATO Defense Capabilities Initiative and the

European Security and Defense Initiative.

Globalization poses tremendous challenges for the U.S. Policy

Community. How can we effectively control items in this environment while enabling necessary technological cooperation. Many

argue that defense trade today has become so globalized that controlling it is both hopeless and counterproductive. They would say

that the United States should simply abandon our export control

system as an outdated relic of the Cold War. Others contend that

the U.S. defense trade control system is nonfunctional and needs

to be rebuilt from scratch. They would suggest focusing only on

controlling especially sensitive technologies while permitting essentially unrestricted commerce and so-called low-risk technologies.

In my view neither of those arguments is correct. A comprehensive export control system is needed now more than ever to protect

our national interest in an international security environment that

13

is increasingly unpredictable. So I believe what is required is a reformist approach that recognizes and takes due account of the political military and technological realities of globalization.

However, it must be a system that can quickly arrive at the

proper answer that will get the right equipment to the right place,

on time. That is where were are headed now, modifying or adapting the system so that it remains viable in this era of globalization

is a top priority for the Department, and one which we are committed to addressing in a timely but carefully considered manner.

Despite resource constraints, we are now in the process of examining munitions export controls to look for ways to expedite the review of licenses, especially for close allies. We are confident that it

will be possible within the existing defense trade control system to

facilitate defense industrial cooperation with our allies without sacrificing necessary controls.

We are already making progress in this effort. In the case of satellites, for example, despite some significant obstacles and despite

the fact that we were instructed to treat satellites and their components as munitions, the State Department is doing better than

some had predicted.

Since Congress transferred licensing jurisdiction for commercial

satellites from the Commerce Department last spring, we’ve been

processing license applications well within the 90-working day target date set in the Administration’s report to the Congress. The average time for completing hardware licenses for ITAR category

15—that’s spacecraft and associated equipment—is approximately

55 calendar days. For those licenses that are not interagency

staffed, the average is about 21 days. We expect these processing

times to decrease even further as a result of the 2000 State authorization bill which provides specific funding for a new commercial

satellite regulatory regime, and I recognize your contribution, Mr.

Chairman, to that effort. We welcome it.

Our Office of Defense Trade Controls is consulting with industry

and will be proposing an appropriate mechanism in the near future. It will include expedited satellite licensing approval for NATO

and major non-NATO allies. We are also strengthening our Defense

Trade Controls Office. We have already received authorization from

State personnel and financial management to hire an additional 23

licensing compliance and administrative staff; with strong support

from Department management, we are dealing with this as a resource emergency. We hope to complete the first staffing phase by

the end of this year, effectively doubling the number of licensing

personnel.

The Department of State is also exploring a number of ideas to

improve export licensing efficiency and effectiveness. This includes

ideas in the general areas of umbrella approaches such as a global

cooperative project license where there are programs covered by a

government to government or defense agency memorandum of understand which along with related documentation sets forth detailed parameters for bilateral cooperation; special handling for

cases associated with particularly important programs such as the

defense capabilities initiative with NATO allies; streamlining of retransfers for NATO, Australia, and Japan; and extending the duration of certain types of licenses.

14

Additionally the State Department would support more extensive

Department of Defense use of licensing exemptions that currently

are provided in the ITAR. We believe that better use can further

interoperability, coalition war fighting, and other national security

objectives.

A major issue that the Chairman noted in his opening statement

that is in the context of our work on licensing reform is whether

to extend regulatory provisions like the Canadian ITAR exemption

to countries willing to align their export controls with ours. Such

a step would, in effect, exempt defined categories of defense exports

to specific countries from USG licensing. That question raises for

us many difficult, legal, regulatory, and policy issues. Strong arguments are being raised on both sides of the case.

Secretary Albright as chief manager of defense export controls

under the AECA is consulting with her colleagues considering

these issues before coming to a decision. Today’s hearing is timely

in that it will enable me to convey to the Secretary the views of

the Members of the Committee, reinforcing what was stated in the

letter from the Chairman and Ranking Member.

Underlying many of the reform proposals is a common appreciation that review of licenses supported by voluminous hard copy documentation can be cumbersome and that reduction of this material

to an electronic format is highly desirable. The State Department

is working hard with DOD to meet this goal. We believe that in the

near future much of the information we collect and disseminate in

the licensing process can be handled via electronic medium. Likewise, we’re hotly pursuing the electronic collection of actual export

shipment data under our direct shipment verification program and

expect in the relatively near future to promulgate regulations that

will institutionalize this program throughout the U.S. defense industry, also a recent legislative mandate that we welcome. This

system’s development will be a considerable boon to our analytical

capabilities as well as our enforcement efforts.

Our aim in these efforts is to develop a plan for reforming and

adapting defense trade controls that will serve all of us well

through years to come. I need to emphasize that these are ideas

under discussion within the Administration and that no final decision has been made. As soon as we have an Administration position

we will consult with the Congress.

The basic premise of defense trade controls exercised by the Department of State, the premises are long-standing. My staff reminds me that Jefferson’s Washington proclamation about the

exportability of cannonballs dates back to 1793. One does not have

to be a historian to appreciate the fact that the modern day controls have underpinnings in sound law, principles, and policy consideration that have withstood times of isolationism, interventionist undertakings, the Cold War, and the ‘‘new world order’’ following the collapse of the Berlin Wall.

While the workplace circumstances and global environment have

changed rather dramatically, the basic requirement for defense export controls and the dedication that the Department of State

brings to the task solidly remain. I have no doubt that this new

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ments of U.S. friends and allies and to encourage legitimate commercial enterprise.

I look forward to working with the Committee both personally

and through my staff on advanced technology and U.S. arms transfer decisions that look ahead to the future. Decisions that take account of the trends in the global security environment as well as

in the global arms and technology marketplace. Many of these decisions are not easy. Finding the right balance often requires close

interaction between Congress, State, Defense, the NSC, and industry. We want America to retain its predominance and we’ll do our

part to achieve that objective, thank you, Mr. Chairman.

Mr. ROHRABACHER. Thank you very much. As you can see the

Chairmanship has short of shifted here. I don’t want to think that

Congress shifts its position at all at any time period.

Let me just state after listening to your testimony that I personally—from your testimony it would appear that you’re being up

front and this Administration is simply having trouble implementing something that Congress has mandated. I will have to say

that from a distance it appears to me that some of the problems

that we have been experiencing and the pressure that is now being

generated, because of the problems in export are not simply a product of a slow startup in implementing what was the will of Congress, but—and I’m going to ask you to convince me that this is not

what’s happening with these roadblocks and these delays are not

a cynical attempt by this Administration to basically hamper our

export industries that are involved with the technology in order to

provide pressure in order the undo a policy that they don’t like.

In fact, it is clear that this Administration is dedicated to remaining in a relationship with Communist China that would have

us believe that Communist China is our strategic partner and that

they will do anything—anything in order to maintain that illusion.

Including set up senseless roadblocks for the export of American

technology to friendly countries in order to pressure us to have a

system that will permit them to have an illusionary relationship

with Communist China as a strategic partner, meaning so we can

export to them as well.

Now, please, I’m open to be convinced that what we’re not talking about is some cynical underhanded attempt as compared to an

honest disagreement or an inability to actually implement what

Congress has set down.

Mr. HOLUM. Mr. Chairman, I have to begin by saying that if you

could see the hours of effort that are being exerted by Will Lowell

and his staff, the professionals in the Department of State who

work these issues to try to recruit additional manpower and try to

sort out what are in fact a lot of complex issues, I don’t think you

would make that statement. This is a very difficult undertaking.

Mr. ROHRABACHER. Of course, I remember a hearing we had and

the insistence by the State Department that there was no technology transfer going on that would improve the rocket capability

of the Communist Chinese. I remember that very well.

Yet, it’s been documented now that that was not the case. That

the Cox Report went out as a bipartisan commission set forth, yes,

there has been technology transfers that did improve their capabilities.

16

Mr. HOLUM. I would like to answer the rest of your first question

before getting to the second one.

Mr. ROHRABACHER. OK. Go right ahead.

Mr. HOLUM. Yes, sir. But there is—when Congress returned commercial satellite jurisdiction to the State Department, it wasn’t

saying just that the State Department should license this, it said,

you should treat commercial satellite as munitions. That put commercial satellites and specially designed parts and components of

satellites into a system that pre-existed. We don’t have two parallel

licensing systems in the State Department; we have one that’s designed to deal with munitions. Munitions are considered apart from

commercial products.

There are no deadlines, for example, in commercial satellite or in

munitions lists because we want to examine and have ample time

to examine the intelligence problems, the regional impact, the

human rights impact, a whole range of considerations. So this is

a slow-moving process that satellites were moved into.

Now, in addition to that, there are—and industry has a basis for

being concerned about this—we found when we got commercial satellites back in the State Department that a lot of issues or a lot

of items, parts and components were being transferred license free

by the Department of Commerce, they had been put on the general

list that doesn’t require a license. When they came back to the Department of State, they all require a license because they’re munitions. So in cases where no license was required before, particularly

for parts and components, now licenses are required. That delays

things that otherwise could have gone freely.

Mr. ROHRABACHER. What’s taking so long about creating a list of

countries in which, as you mentioned in your testimony, that you

are moving forward——

Mr. HOLUM. The list of countries is very easy. We know what the

list is. It is Nato and Australia and Japan. But then what, do we

just exempt everything? Or do we try to set up a system that expedites exports to those specific countries? Because you have other

concerns if they’re munitions. For example, the UK has no controls

on re-exports from products in their country; can we harmonize

their system with ours? In other words, it’s more complex than it

sounds. We are diligently engaged, I guarantee you, in what I’m

sure the Committee will find to be a very productive effort to come

up with new procedures both for allies and generally.

Mr. ROHRABACHER. Let me just say, the frustration on my part—

and, again, I wanted to give this policy a chance to succeed and I

saw it was failing. But then to sit and watch and to complain about

the transfer of technology to a potential hostile power, Communist

China, and for a matter of years complaining about this and having

a blase response from the Administration to this great—what I consider to be a great threat to our national security, and so did the

Cox Report, and then—and now, asking the other countries that

are friendly countries be able that we free them up at least so that

companies like this in California can send things over to Belgium,

for Pete sakes, but yet there doesn’t seem to be any, you know, any

real energy being put into freeing up—on one side you’re letting

technology flow to an enemy, or at least this Administration has,

or potential enemy. On the other hand, it’s sort of blase about the

17

restrictions now that are being in the way of sending this to a

friendly country.

Mr. HOLUM. I’m glad you raised that again because it was the

second question you raised.

Mr. ROHRABACHER. Go right ahead.

Mr. HOLUM. And you suggested that I said no technology had

flowed to China. I said we reported to the Department of Justices

cases where we thought that had happened, and those cases are

under investigation. So I think you’re—I did not ask for commercial

satellite licensing to be returned to the Department of State. I

thought it could be handled with the enhanced monitoring and

strength and controls in the Department of Commerce and we

wouldn’t be in a lot of this difficulty. But I didn’t say that there

hadn’t been any problems.

Mr. ROHRABACHER. OK. The red light is on. Mr. Berman.

Mr. BERMAN. Mr. Chairman, I’m quite confused.

Mr. ROHRABACHER. All right. So am I.

Mr. BERMAN. You’re saying that we should speed up the licensing

of munitions to our allies and that the fact that we aren’t doing

that is a cynical effort by American companies who make these

products to put pressure on the Administration and on Congress to

weaken the law so that we can truly implement our desire to send

munitions list items to China?

Mr. ROHRABACHER. To undermine the development of a twotiered system in which China—if we do not have a two-tiered system, China is put on the same level as our NATO allies. Yes, that’s

exactly what I’m suggesting.

Mr. BERMAN. Wait a minute, tell me if you disagree with a couple of assertions. That with whatever weaknesses we have, No. 1,

there’s no country that has a more rigorous export control regime

with respect to China than the United States and that every single

one of our allies is far more willing to sell far more quickly far

more things to the People’s Republic of China than we are. The notion that somehow by letting everything go to our allies we can

then maintain a dual standard and not assume that our allies will

re-export or companies in those countries will re-export anything to

China is absurd. If anything, the whole purpose of export licensing

to our allies is not because of what our allies will do with them,

it’s because of the danger of re-export by our ‘‘allies’’ and we can

start with the French if you would like——

Mr. ROHRABACHER. Would the gentleman yield to that point?

Mr. BERMAN [continuing]. To countries that we want to have a

tougher control with.

Mr. ROHRABACHER. Would the gentleman yield to that point?

Mr. BERMAN. Sure.

Mr. ROHRABACHER. I don’t find there to be any threat of transfer

of technology. When we sell a satellite and permit a satellite to be

launched on a French rocket for Belgium or Germany, or whoever,

or Japan, but, yes, I think that there is a major concern now that

we’ve learned that when you try to permit the Chinese to launch

American satellites they end up with having their rockets and their

missiles upgraded in their capability and their reliability which is

what the Cox Report found.

Mr. BERMAN. Wait, wait, wait.

18

Mr. ROHRABACHER. That’s what this is all about.

Mr. BERMAN. Let’s dissect this a little bit. I don’t think it was

the U.S. Government that transferred missile technology to the

Chinese. I think it was called, American companies tired of watching their satellites land on the ground shattered because of inadequate launches that made those transfers.

Second, I personally believe you can transfer commercial satellites under proper safeguards even to the Chinese and the one

danger you get from that——

Mr. ROHRABACHER. That’s what I was told all right——

Mr. BERMAN [continuing]. But the one danger you get from that

is you enhance the Chinese capability to make launches because

the more launches they try, the better they’re going to get at making launches. The only problem with not providing them with the

commercial satellites is you don’t solve that problem because other

countries provide them with the commercial satellites to make

those launches and so they improve and enhance their rocket capabilities using other countries satellites and at the cost of American

satellite manufacturers.

The question I wanted to get into was my concern that the Canadian model would become the model for other of our allied countries and that we would charge huge exemption holes in exports—

our allies without them having adopted our same export controls

with respect to re-exports of these items. I guess I’m wondering

what the status of that is within the Administration and what are

the constraints that we’re going to ensure are in place before we

would make such an exemption?

Mr. HOLUM. Well, first of all the Department of State and the

Department of Defense have been engaged for some months in an

effort to sort out new procedures for licensing. I’ve outlined some

of those in my statement, umbrella approaches that would allow

basically a broad project type or endeavor type license and then

you wouldn’t have to get individual licenses within that until the

project was completed, or unless the character of the project

changed. So it would eliminate a lot of the licenses. This would be

focused on allies, NATO allies, Australia and Japan. When that

process is very near to completion we’ll be consulting with the

Committee about it in the near future.

Mr. BERMAN. Would what those countries do with those items

play a role in our deciding whether to give that kind of project exemption?

Mr. HOLUM. Of course, yes. But this is a case where we—the

structure would specify if, at all, for example, retransfers were allowed, and if they were, to what countries.

In the context of that, some agencies or one agency has argued

for an exemption—Canada-type exemptions for additional countries, close allies, from arms export controls generally. That process—any department can put an issue on the table for interagency

consideration—is not completed. So we don’t have the definitive administrative position, but let me tell you what some of my personal

concerns are about that.

The Canada exemption was established for a specific purpose. It

was back and forth defense trade. The defense industries of the

United States and Canada are integrated and we have a contigVerDate 11-MAY-2000 11:59 Nov 28, 2000 Jkt 000000 PO 00000 Frm 00022 Fmt 6633 Sfmt 6633 67607.TXT HINTREL1 PsN: HINTREL1
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uous border. The purpose of license-free exports to Canada and vice

versa was largely for their manufacturing of those components or

technology into products that came back to the United States.

If you’re going outside the United States-Canada defense perimeter, you have a circumstance where the purpose would be to export elsewhere. In cases where they don’t have the same re-export

restrictions that we have, a point that you alluded to earlier, it

would be very hard under circumstances like that to make it work

in a European context, for example, where they’re trying to build

a common defense industry. How could one of them have special

access and the others wouldn’t? What kind of political problems do

you create when one gets special access and others who have less

strong export control systems don’t. We’ve, in the course of considering this issue, defined the kind of parallelism that we’d require

in export controls for a country that had license-free relations with

the United States. There is no country that I know of that has anywhere close to that kind of detailed system that would be sufficient

to be reliable, at least from my perspective. You also have the enforcement problem. If there’s no paper trail, then how do you track

violations, and we’ve heard concerns from other agencies including

Justice of the difficulties with a totally license-free environment of

enforcing against violations. So those are some of the policy and

legal concerns that I raise that have to be——

Mr. BERMAN. When I listen to you talk, I feel comfortable as long

as you prevail. This is the State Department’s decision in the end;

isn’t it?

Mr. HOLUM. Yes.

Mr. BERMAN. Absent the President giving a direction. I mean,

this is not a DOD decision, this is not a Commerce, this is a State

Department.

Mr. HOLUM. This is not something that can be done without the

State Department’s approval. Unless the President, as you say,

makes a different choice.

Mr. ROHRABACHER. Mr. Manzullo.

Mr. MANZULLO. Thank you. I don’t know if you’re going to be

able to come up with a solution that Mr. Rohrabacher wants. But

to have a two-tiered system saying that we’re going to sell our commercial satellite here, but we’re not going to sell it here, or our

good ally here has no re-export policy, and they could turn right

around and sell it here. Isn’t the issue that as long as this is not

a bomb or a missile, an export license should be granted? Isn’t the

issue as simple as something as readily available to a foreign country from another source, that if it’s not obviously something

explodable, or of that nature, that a license should be granted and

summarily?

Mr. HOLUM. To China you’re saying?

Mr. MANZULLO. That’s correct. Or the equivalent of the tier-three

countries with regard to computers.

Mr. HOLUM. Well, that’s something that is very hard to do when

an item is classified as a munition.

Mr. MANZULLO. Therein lies the problem. You didn’t ask for the

problem, Congress gave it to you.

Mr. HOLUM. Right. But what we are striving for is to develop a

system, including protections against re-exports. Let me say there

20

are two different endeavors underway at the same time. One is for

defense trade generally with allies and that would not just be limited to commercial satellites, it would be across the board to expedite the process. That would facilitate co-production and joint ventures and international consolidations and so forth. There’s a separate effort underway to address the particular problems that are

associated with satellite-related sales to allies.

I don’t think we have the flexibility within the law to say, as long

as China can get a satellite from France, it will be easily available

from the United States. Our policy is to continue to license satellite

launches in China and we’ll continue to do that. But we want the

facilitate the kind of trade in components, in insurance, the various, the problems that have become most acute on the basis of the

transfer. Issues where our system is not well set up in the Department of State because it’s a munitions system to deal with

other——

Mr. MANZULLO. Do you deal with bombs and grenades and explosives?

Mr. HOLUM. That’s what we deal with. But again, we’ve been

told that commercial satellites are like things that explode. They

go through the whole panoply of considerations that apply to munitions. What we are trying to do is adapt our system to deal with

the satellite problems. One of the most compelling ones to put the

problem in acute relief is that you can have a satellite that is built

in the United States, launched on a United States booster, in the

United States, and it still requires export licenses on the munitions

system. Why is that? Well, because they have to get insurance.

Most of the insurance for satellite launches is underwritten outside

of the United States. That requires a transfer of technology to satisfy the underwriters that the system is going to work. Well, that’s

one of the problems that we’re trying to deal with in this specialized satellite regime that we’re in the process of completing.

But keep in mind there’s something that’s very important to recognize here. All of these problems are attributed to the State Department’s licensing system. The fact is that the aerospace industry as a whole and aerospace exports in military aircraft, in missiles, that business is growing very dramatically—still growing

very dramatically.

All of those regimes are subject to our licensing requirement. If

our licensing system was so screwed up that nobody could count on

it or get a license, then wouldn’t those same areas—those additional areas also be in trouble? So I don’t accept the premise that

this is all related to licenses or to the State Department system.

I will say that because of the problem of components which Commerce required no license at all for in many cases, and which are

now licensable by the Department of State, there is a genuine problem; and that’s one we’re addressing again with this targeted approach to try to exempt certain aspects of the satellite business.

Mr. MANZULLO. Well, I would hope that you could come up with

such a regime. If you don’t, I would not be surprised, because I

don’t think it can be done. We’re mixing missiles with satellites,

which is the same as apples with oranges here. I was one of 17 Republicans who voted against the ban of the sale of communication

satellites to the People’s Republic of China. I’m no soothsayer or

21

prophet, but when the Commerce Department turned down the export license for Hughes, which was worth $400 million, Hughes not

only paid a huge fine; but Alcaltel sold the Chinese the very same

satellite. I scratch my head trying to figure this out. This doesn’t

make sense. You’ve been given involuntarily a task that I don’t

think that you can do. I say that with the greatest amount of respect because I know of your background. But I don’t think there’s

a way that we’ll ever be able to come down to have a system of licensing when in fact the very object you’re trying to license is readily available from ‘‘one of our allies’’.

Mr. HOLUM. Well, maybe not, but we’re going to give it our best

shot.

Mr. MANZULLO. Absolutely. I appreciate it.

Mr. HOLUM. And I think what we come up with will go a long

way to mitigate the concerns.

Mr. MANZULLO. Anything to help the sales is fine. Thank you

very much. I appreciate your coming.

Mr. HOLUM. Thank you.

Mr. ROHRABACHER. Mr. Kuykendall.

Mr. KUYKENDALL. I’ve got a couple of more just specific kind of

questions. Some of our products—in fact it was touched upon in

that Washington Post article, one company wants to sell a product

and it requires an export license, the same component from another company, maybe it’s a heat exchanger, doesn’t require the export license, what are we doing to try to clean up that system

where you’ll have pieces of—if they take it apart and sell them individually, well, some of the pieces are—don’t require licenses and

at other times they do require licenses, Commerce will say go

ahead and State will say stop.

Mr. HOLUM. I think what you’re referring to and it is a very

large problem, there’s the question of space qualified parts and

components. When we started out the process, the transfer, we

made—we undertook to make a decision on 16 categories of space

qualified items much more quickly than we’ve been able to do it because it’s proven to be more contentious and more difficult than we

thought it would be.

A number of companies would come in and say, we’re not sure

where this belongs, and we would say, you did the right thing, it

needs a license and then put it in the process. Whereas if they go

to Commerce——

Mr. KUYKENDALL. So the State Department is the arbitrator of

dual-use technology and decides whether it goes to Commerce or it

goes to State?

Mr. HOLUM. No. For these items it is a bilateral State-Commerce

process to work it out and we’ve—but in the near term until we

do work it out, we’ve concluded that those space-qualified items remain under the—or the disputed subjects remain under the Commerce Department jurisdiction. So I think that general problem has

been temporarily addressed while we sort out the details.

Mr. KUYKENDALL. Another issue where some of our satellites, I

believe, require like 10 or 15 different licenses to export one. Have

you looked at programs to consolidate that into like a single license

so that you don’t have so many different lines of processing going

on to kind of thin out the number of pounds of paperwork we have

22

to shuffle? And the reason I put this in, especially when you’re

talking about things like communications, television kind of satellites. I mean, these satellites are to the point, I mean, you could

say the Chinese Army uses them, yes, because they pick up the

phone and talk on the telephone. Everybody in the world uses them

because they pick up a phone. That kind of technology, for that

kind of equipment——

Mr. HOLUM. Our basic approach and I may want to get back to

you with more—I should get back to you with a more detailed answer, but our basic approach is to require as few licensing documents as we can manage. We don’t want to handle more paper

than we have to. What usually occurs is that the project or the export will change over the course of license submission so that additional licenses are required for additional features. Is that basically

right?

We’re also trying to thin them down more deliberately with our

allies.

Mr. KUYKENDALL. I mean, how many licensing officers are assigned to a satellite case.

Mr. HOLUM. It would depend on the complexity.

Mr. KUYKENDALL. No, in that department, the ODTC?

Mr. HOLUM. You mean overall?

Mr. KUYKENDALL. Yes, how many are in there?

Mr. HOLUM. I think we have currently 43 licensing officers.

Mr. KUYKENDALL. Has it been enough to get them done?

Mr. HOLUM. There are 43 overall. Well, no, it’s not and we are,

with the additional funding that we’ve received from the Congress

are, as I said in my statement, engaged in a crash effort to hire

and advance more people because that’s one of our major concerns.

We don’t have enough people. We also have been plagued with the

problem of the people in our structure are at lower grades, or have

tended to be at lower grades than in other departments or in industry. So once they get trained and get really good at their jobs

they become very attractive for the Department of Defense or for

private industry.

Mr. KUYKENDALL. To me those are management issues that need

to be worked out within the Department and make sure we get satellites exported with the right license in a timely fashion.

Mr. HOLUM. That’s right.

Mr. KUYKENDALL. What are you doing—oh, never mind, time’s

up.

Mr. ROHRABACHER. Go ahead.

Mr. KUYKENDALL. What are you doing on the launch vehicles?

We’ve had failures both here as well as overseas. What are you

doing to try to ensure that we’ve got some flexibility in launch vehicles that are satellite manufacturer? Right now, you know, our

satellite manufacturers can put a satellite in space with a whole

lot of people’s launch vehicles. Is there any flexibility that you all

are trying to build in to how we can put it up there?

Mr. HOLUM. You mean by encouraging the domestic launch industry?

Mr. KUYKENDALL. I mean, does the manufacturer of the satellite

always have to bring you a launch vehicle and make it all one

package in order to get it, or can they bring you a satellite and say,

23

hey, look, I want put this over there, why don’t you tell me which

satellite launcher I can use? Or how does that work with you guys?

Mr. HOLUM. We don’t set up business transactions, we deal with

what’s brought to us. But, you know, we’re open to a variety of different arrangements.

Mr. KUYKENDALL. So if they bring you a French one, you’ll look

at a French launch vehicle to go with a United States satellite or

a Chinese launch vehicle to look with the United States satellite

or——

Mr. HOLUM. Yes.

Mr. KUYKENDALL [continuing]. Domestic launch vehicle to look at

a U.S. satellite.

Mr. HOLUM. If it’s a domestic launch vehicle it probably wouldn’t

come to us unless it was in insurance.

Mr. KUYKENDALL. The only problem is, that’s just the point, it’s

going to be insurance or it’s the satellites for Indonesia.

Mr. HOLUM. Right.

Mr. KUYKENDALL. We’ve got to get the export license and we

have to export license even our own domestic launch capacity?

Mr. HOLUM. On some occasions depending on the insurance.

Mr. KUYKENDALL. I mean, I’m not on this Committee, but I

would certainly hope from all the questions you’re getting here that

you would be thinking long and hard about the kinds of either—

I hate to use the word ‘‘relaxation’’ but the kinds of guidelines you

need to have approved by Congress if that’s where they need to

come from, it sounds like some of them may need to since we dictated some of this transfer of this tightening, what kind of guidelines you need to make some of these what just seem like ludicrous

decisions be made easier. Because I don’t want our technology

being transferred anymore than anybody else does, but when you

have domestic rockets and domestic satellites that can’t be exported because some foreign insurance company can’t issue a policy

because they can’t read the documentation, they’re not qualified to,

I mean, those kinds of things, to me, that’s just how do you make

business function right and we shouldn’t be the roadblock, we

should be the facilitator.

Mr. HOLUM. And I want to underscore, it’s not that you can’t do

it. If you have to get a license, you get a license, and we grant licenses very quickly. In cases that are considered inside the Department of State over the last 6 months, we’ve been turning them

around in 17 days, if it’s not something that has to be staffed out

to other agencies. That’s pretty quick. For cases that have to go

outside the Department of State, it’s 51 days or 55 days, that’s over

the last 6 months.

Mr. KUYKENDALL. So one of these where I’ve got a domestic

launch vehicle and a satellite, but I’ve got to go outside because of

insurance, that’s a 51-day——

Mr. HOLUM. That would almost certainly be inside the State Department, but it depends on the circumstances. But it turns around

pretty fast.

Mr. KUYKENDALL. I’m real concerned that we’ve got a major commercial product and products that we hold the edge in the world

on and we’ve now found ourself bollixed up and not being able to

properly control it, and at the same time export it. It sounds like

24

it’s much more a management issue within the State Department

or within Commerce, or the combination than it is within Congress.

If it’s our problem, give us a list of what you need changed so we

know what it is we have to work on, and then we can figure out

if it’s our problem or not. It may not be.

Thank you.

Mr. ROHRABACHER. One last round of questions if I can, seeing

that I’m the Chairman. I’ll take advantage.

Mr. HOLUM. Do whatever you want.

Mr. ROHRABACHER. Does the State Department still insist on

calling China our strategic partner?

Mr. HOLUM. I don’t know the answer to that. I’ll take it for the

record, because I have not been in the business of applying labels

to our relationship so much as trying to make it work.

Mr. ROHRABACHER. So you’re not—you don’t know whether or not

the official position of this Administration is still that China is our

strategic partner or not?

Mr. HOLUM. I can tell you that——

Mr. ROHRABACHER. This is phenomenal, you’re——

Mr. HOLUM [continuing]. The United States is making major efforts to enlist China’s cooperation and partnership, if you will, on

a number of strategic issues including the ones that I work on most

aggressively which are non-proliferation.

Mr. ROHRABACHER. But you’re hot sure whether or not the Administration is—is there a reason for you to believe that the Administration has changed its position?

Mr. HOLUM. No, I do not think so.

Mr. ROHRABACHER. All right. So as far as you can tell, the Administration still is committed to the policy of characterizing our

relationship with this regime in Beijing as a strategic partner?

Mr. HOLUM. As I said, my interest is in trying to enlist their

partnership in areas where I think their behavior has a major impact on our security.

Mr. ROHRABACHER. Right. As compared to recognizing that perhaps trying to enlist the support of someone who is incapable of—

an adversary is not someone that you’re going to try to enlist as

a partner. An adversary you’re going to treat as an adversary and

not try to treat as a partner.

Mr. HOLUM. I like that question because it is an important subject.

Mr. ROHRABACHER. Yeah it is, I think it’s the basis of what we’re

talking about today.

Mr. HOLUM. But what I have tried to avoid in the experience

that I’ve had in this job is the conclusion that once you’ve decided

who are the good guys and who are the bad guys, the job was done.

Because you have to get the bad guys to behave in ways that serve

your security. So you still have to engage with them.

Mr. ROHRABACHER. But until they actually change the way they

behave, they’re still the bad guys; right?

Mr. HOLUM. Well, that’s what I resist, is saying there are good

guys and bad guys. I think what the key is to find ways to cooperate across the range of countries——

Mr. ROHRABACHER. That’s the problem right there——

Mr. HOLUM [continuing]. In order to get to——

25

Mr. ROHRABACHER. I think that’s what this whole discussion is

about. There are people who don’t want to admit in the world there

are good guys and bad guys. Not to say that you can define, everything is so definitive, but there are good guys and bad guys and

we shouldn’t be treating everybody across the range as if they’re

similar. That is not the case.

Mr. HOLUM. Nobody——

Mr. ROHRABACHER. That’s what I tried to point out earlier.

Mr. HOLUM [continuing]. And nobody does that. What we try to

do——

Mr. ROHRABACHER. I thought that’s what you just described?

Mr. HOLUM. No, you try to engage whatever countries you are

working with to get them to take steps that are consistent with

U.S. national interests. Concluding that they’re a bad guy or a good

guy doesn’t get you very far in doing that. Well, obviously you do

it with your eyes open.

Mr. ROHRABACHER. Yeah, I would think that in a world where

there are some people who mean us harm and disagree with every

basis of our system that our—for example, the world’s worst

human rights abuser who happens to be Communist China, or a

power that is belligerent and says things like, we might nuke Los

Angeles if we get in a conflict with us over Taiwan, that you might

want to recognize that as being significant in how you deal with

them as compared to, well, should we sell a satellite to Belgium or

not?

Mr. HOLUM. But does your analysis mean that if I can persuade

China that they should not engage in nuclear cooperation with Iran

I shouldn’t do it?

Mr. ROHRABACHER. I guess it just means you treat people differently and you wouldn’t really expect to be dealt with on a, you

know, let’s say, up front basis as you would with a democratic society when you’re dealing with the world’s worst human rights

abuser.

By the way, the President just signed the Code of—or has signed,

I should say, the Code of Conduct, which I am co-author of, saying

that the United States should not be selling weapons to dictatorships. Is your analysis that this also includes Communist China?

Mr. HOLUM. The Human Rights report, I’m not an expert in that

field, but I think the Human Rights report that just came up to the

Hill recently had some pretty tough language about China. We certainly have been outspoken about their human rights behavior.

Mr. ROHRABACHER. And earlier on when I talked about how the

testimony that we had earlier, remember a couple of years ago

when we got in a little confrontation on——

Mr. HOLUM. I don’t recall a confrontation.

Mr. ROHRABACHER [continuing]. Missile technology transfers, are

you suggesting that your testimony earlier during hearings here on

that issue in no way contradicted the Cox Report? You were not in

contradiction to the Cox Report when you testified about this?

Mr. HOLUM. You mean my previous testimony?

Mr. ROHRABACHER. Yes, your previous testimony.

Mr. HOLUM. I can’t remember every detail of the Cox Report. I

don’t think we agreed with all of its conclusions and recommendations. But I’ve not, to my knowledge said anywhere that no techVerDate 11-MAY-2000 11:59 Nov 28, 2000 Jkt 000000 PO 00000 Frm 00029 Fmt 6633 Sfmt 6633 67607.TXT HINTREL1 PsN: HINTREL1
26

nology has gone to China as a result of this launch failure investigation. That’s a question——

Mr. ROHRABACHER. I don’t think we were concerned about no

technology, we were concerned about whether or not Communist

Chinese rockets or their military counterpart, you know, weapons

carrying military missiles were in some way improved in terms of

their capabilities or the reliability. Isn’t it fair to say that as the

Cox Report found, that due to our relationship with China which

we were expecting the Administration to oversee and obviously

there was something went astray because isn’t it now fair to say

that there was a transfer of technology that made their rockets

more reliable and more effective?

Mr. HOLUM. The problem I have with that question is that there

are cases that are still under investigation by the Department of

Justice. We were then and are now precluded from discussing the

content of those cases.

Mr. ROHRABACHER. Well, when my friend, Mr. Manzullo, mentioned he didn’t understand about, you know, why a satellite—you

know, why there would be this restriction on satellites, I’m sorry

that he’s not here because it doesn’t have to be—a missile doesn’t

have to be armed with a weapon that explodes and kills millions

of people to put America in jeopardy.

Mr. HOLUM. Absolutely.

Mr. ROHRABACHER. I mentioned in my opening statement about

command and control satellite that just went up, I think it was last

week, in China that was called a multiplier—a force multiplier for

the Chinese, do you know if that rocket had any benefits from our

relationship over the years with China? In other words, the Chinese abilities to deal with Hughes, and Loral and other American

companies perhaps helped that rocket go up and be successful?

Mr. HOLUM. I don’t know.

Mr. ROHRABACHER. But it’s highly likely, isn’t it?

Mr. HOLUM. Highly likely?

Mr. ROHRABACHER. Yeah, it is highly likely that that rocket—

there was a 50 percent—at least my staff seems to think that there

was a long march 3A that it was a 50 percent failure rate until

after their consulting with—after their dealings with American

companies and now it has a very high, if not a 100 percent success

rate?

Mr. HOLUM. You’re testing my memory beyond its capacity here.

I looked at those things very closely when we were testifying on

that subject.

Mr. ROHRABACHER. But the satellite itself, the command and control satellite itself could—permitting them to coordinate their antiaircraft systems and their missile systems and their other systems

in the Taiwan Straits, that could, if we ever get into a confrontation, that could result in the death of hundred, if not thousands of

American lives if we choose to confront an act of Chinese aggression there, couldn’t it?

Mr. HOLUM. As I have said, it is our policy in appropriate cases,

and not in every case, because as you’ve heard, we turned down the

Hughes license that included MTCR-related materials, but it is our

policy to approve satellite launches in China on a case-by-case

basis appropriately safeguarded including monitoring by the DeVerDate 11-MAY-2000 11:59 Nov 28, 2000 Jkt 000000 PO 00000 Frm 00030 Fmt 6633 Sfmt 6633 67607.TXT HINTREL1 PsN: HINTREL1
27

partment of Defense. But one of the things we would consider in

any licensing decision is the military utility of the satellite itself as

distinct from the launcher. The launcher as you and I both know

is essentially the same as an ICBM.

Mr. ROHRABACHER. Well, I have the sneaking suspicion that the

technology that we would find technology in this command and

control satellite that looks suspiciously like American technology,

technology that our taxpayers paid for. Now that their command

and control satellite is up and I have a sneaking suspicion that the

long march 3A rocket might have a nose cone that is designed the

way the Hughes engineers described to me how they were helping

ensue that the satellite launches were going to be effective and

they were actually going to be able to launch the satellite because

they redesigned the nose cone that covered the satellite which also

can, of course, cover up a satellite that’s a command and control

satellite. Or can cover up a weapon that would incinerate millions

of people in Los Angeles, for example. This is a very serious issue

and I think—and, again, I think there’s an honest disagreement as

to how you approach the problem of China, and I think that’s the

basis of all these—of all the confusion. I think that’s the basis of

why some people can export and can’t export, and why the problems right now; because the Administration is trying to juggle this

strategic partnership concept in a real world. It’s an illusion in a

real world, and that’s what is causing our problems here today.

I know that would require about an hour’s worth of discussion

to understand exactly how that all works together, but that’s what

I perceive. I think the American people will be making their decision this year as to what direction they want to go.

Mr. HOLUM. That’s certainly true. We can agree on that one

point.

Mr. ROHRABACHER. Yes.

Mr. HOLUM. First of all, I do agree with you that there is an honest difference over how we approach China and it affects—there

are people who think China is—if we just trade with them

enough—in enough——

Mr. ROHRABACHER. Right. Sure.

Mr. HOLUM [continuing]. In enough——

Mr. ROHRABACHER. They’ll become better. It’s hug a Nazi, make

a liberal, that’s what I——

[Laughter.]

Mr. HOLUM. And there are others who think closer to your point

of view. What I’ve been moved by in the course of my service is the

proposition that China has to be a part of the solution. I don’t have

any illusions about China’s intentions or character. But it is also

the case that China by itself, leaving aside anything that the

United States provides, has nuclear, chemical, biological, ICBM capabilities. To the extent that we are going to be successful in controlling the spread of those technologies to more countries that are

even more dangerous to us than China is, then we need to have

China as part of the solution.

Mr. ROHRABACHER. Absolutely. And China, I just was watching

the History channel the other night and it talked about how

Hindenberg gave power to the Nazis and it was important, the significance of that act, of just giving that power over to——

28

Mr. HOLUM. I saw the same program.

Mr. ROHRABACHER [continuing]. I think that China is not the

Communist party that controls Beijing. Communist China is Beijing and that cliche that runs that country. China itself is all of

these millions of people who are our best allies and friends, the

Chinese people. China itself is—you’re right, that’s got to be part

of the solution. Unfortunately that means that democracy and

China are at least a loosening up of those controls and——

Mr. HOLUM. I hope so.

Mr. ROHRABACHER [continuing]. That’s the real solution here and

not us being armed to the teeth and whatever and acting like

they’re enemies.

Mr. HOLUM. But we can’t wait for a regime change to address

proliferation.

Mr. ROHRABACHER. Well, I’m going to leave you with that last

word and, again, thank you very much and I know that I come on

real strong at times, but I think it’s been a good exchange.

Mr. HOLUM. Thank you very much.

Mr. ROHRABACHER. Thank you. The meeting is adjourned.

[Whereupon, at 3:43 p.m., the Committee was adjourned to reconvene subject to the call of the Chair.]

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