United States General Accounting Office

GAO Report to the Chairman, Committee on

International Relations, House of

Representatives

April 1995 EXPORT CONTROLS

Some Controls Over

Missile-Related

Technology Exports To

China Are Weak

GAO/NSIAD-95-82

GAO United States

General Accounting Office

Washington, D.C. 20548

National Security and

International Affairs Division

B-258323 

April 17, 1995

The Honorable Benjamin Gilman

Chairman, Committee on

 International Relations

House of Representatives

Dear Mr. Chairman:

As you requested, we are providing information regarding the Missile

Technology Control Regime (MTCR) and U.S. missile technology-related

exports to the Peoples Republic of China. Specifically, you asked that we

determine (1) the nature and extent of U.S. dual-use and missile

technology exports to the Peoples Republic of China, and the extent to

which these items are exported to sensitive end-users; (2) the ability of the

U.S. government to monitor China’s compliance with conditions attached

to U.S. missile technology-related exports and with the terms of the

U.S.-China bilateral understanding on MTCR adherence; (3) the terms of the

U.S.-China bilateral understanding on MTCR adherence and the degree to

which the understanding commits China to adhere to the full range of MTCR

commitments; and (4) the effectiveness of U.S. sanctions imposed on

China.

Background In 1987 the United States and its six major trading partners created the

MTCR to restrict the proliferation of missiles and related technology.1 The

MTCR, the only multilateral missile nonproliferation regime, is a voluntary

arrangement among countries that share a common interest in arresting

missile proliferation. It is not a treaty. The regime consists of common

export policy guidelines applied to a common list of controlled items that

each MTCR member implements in accordance with its national legislation.

Currently, 25 states are formal partners to the MTCR, while an additional 

7 states, including China, have adhered or declared an intention to adhere

to the MTCR Guidelines. (See app. I for a complete list of current MTCR

partners and adherents or declared adherents.)

The MTCR Annex divides controlled items into two categories, Category I

and Category II items. Category I items are subject to a strong

presumption of denial and are rarely licensed for export. They include

such items as complete missile systems; unmanned air-vehicle systems,

1

The six trading partners were Canada, the former Federal Republic of Germany, France, Italy, Japan,

and the United Kingdom.

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such as cruise missiles; and certain complete subsystems, such as rocket

engines and guidance sets. Category II (dual-use) covers a wide range of

commodities, including propellants, test equipment, and flight

instruments, that could be used for missiles or satellite launches. Category

II items must be evaluated case-by-case against specified criteria and if

judged to be destined for use in weapons of mass destruction (nuclear,

chemical, or biological) are subject to a strong presumption of denial.

Federal law regulates the exports of missiles and related technology and

requires licenses for the export from the United States of certain missiles,

components, and technology specified in the MTCR Annex. The State

Department supervises and directs all governmental arms transfers and

licenses commercial arms transfers, including U.S. exports of missile items

and technology. The Commerce Department licenses exports of dual-use

goods and technology, which are controlled for missile technology reasons

pursuant to the MTCR Annex to all countries. It has jurisdiction over

production equipment for MTCR Annex items, which is controlled as either

Category I or Category II, depending on the type of equipment involved.

Violators of U.S. export laws are subject to criminal and civil penalties and

economic sanctions. Federal laws require the President to impose

sanctions on U.S. and foreign individuals and entities that improperly

conduct trade in controlled missile technology. Also, such sanctions would

apply to a country with a nonmarket economy, such as China, to all

activities of that government, with some qualifications (1) relating to the

development or production of any missile equipment or technology and

(2) affecting the development or production of electronics, space systems

or equipment, and military aircraft.

Results in Brief For fiscal years 1990 through 1993, the Commerce and State Departments

approved a total of 67 export licenses worth about $530 million for

missile-related technology commodities for China. Commerce approved 

19 of 33 missile technology applications, valued at $6.5 million. During the

same period, the State Department approved 48 of 85 export license

applications with missile technology to China, valued at about

$523.5 million. Most of this amount was for licenses in support of satellite

projects—to be owned or operated by other countries or by multinational

telecommunications corporations for or within China—for which the

President waived applicable sanctions.

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In general, export licensing process and monitoring controls for missile

technology and dual-use export license applications cannot ensure that

such U.S. exports to the Peoples Republic of China are kept from sensitive

end users. Commerce and State Department officials acknowledged this

point. Only controls for satellite-related exports to China seem sufficiently

stringent to reduce risk to a minimum.

U.S. government officials believe that the United States generally performs

adequate monitoring of China’s compliance with the terms of its MTCR

commitments. However, our review indicates that the U.S. end-use check

program to monitor license conditions has only marginal effectiveness for

exports to China. The Commerce Department’s pre-license

check/post-shipment verification program is inadequate, hampered by

Chinese government reluctance to cooperate. Previously, we reported

several weaknesses in this program concerning nuclear dual-use exports

and the Commerce Inspector General reported weaknesses in the overall

program.2

 The State Department’s BLUE LANTERN end-use check

program in China is minimal. The State Department rarely monitors the

end use of missile technology exports that it licenses for China. However,

because of sanctions restrictions, relatively few munitions licenses were

granted to China in recent years. Most exports were provided for satellites

intended for launch from Chinese boosters, which a separate Department

of Defense (DOD) program appears to monitor closely.

Given the weaknesses in monitoring commodities after their export to

China, it is all the more important that dual-use license applications be

scrutinized in accordance with clear procedures before their approval.

However, DOD officials are concerned that the Commerce Department

might not be identifying and seeking interagency concurrence on all the

export applications for China that might be missile technology-related.

The terms of the 1992 U.S.-China bilateral understanding on China’s

adherence to MTCR commit China, as a nonmember, to less restrictive

requirements than currently apply to full members of the regime. China

agreed to commit to only the MTCR Guidelines and Annex of 1987, in force

at the time of its MTCR pledge, but not to the guidelines and annex as

subsequently revised. China’s 1992 commitments were articulated in a

series of written U.S.-Chinese diplomatic exchanges. Although U.S.

expectations for Chinese behavior were clear, the terms of China’s 1992

MTCR commitments were limited and ambiguous. China’s renewed

2

Nuclear Nonproliferation: Export Licensing Procedures for Dual-Use Items Need to Be Strengthened

(GAO/NSIAD-94-119, Apr. 26, 1994) and The Federal Government’s Export Licensing Processes for

Munitions and Dual-Use Commodities, Final Report, Special Interagency Review, Sept. 1993.

Page 3 GAO/NSIAD-95-82 Export Controls
B-258323 

commitment to the MTCR, expressed in a signed bilateral agreement with

the United States in October 1994, is more explicit than its 1992

commitment. While the 1994 agreement included China’s pledge not to

export particular missiles to other countries, China still does not accept

the revised guidelines and annex.

The effectiveness of U.S. sanctions on China is unknown. U.S. government

officials share no consensus on a definition of, or criteria for, measuring

effectiveness of proliferation sanctions imposed on China. In addition,

State Department officials said that State is not responsible for assessing

effectiveness, noting that such sanctions are congressionally mandated

and that the executive branch is not required by law to assess the

effectiveness of such sanctions.

Extent of

MTCR-Related

Exports to China

MTCR-related licenses comprised a very small portion of total export

license activity for China. However, DOD has questioned whether

Commerce has been adequately identifying for interagency referral and

review all the applications for the export of dual-use missile-related

technologies.

The Commerce Department initially determines which commodities might

contain missile technology. It independently determines that dual-use

license applications do not involve missile technology, but if it believes

that they might contain missile technology and the destination is a country

of concern, Commerce is to refer these applications to the interagency

Missile Technology Export Controls (MTEC) group. The group consists of

working-level representatives of DOD, the Departments of State and

Commerce, the Joint Chiefs of Staff, Arms Control and Disarmament

Agency (ACDA), National Aeronautics and Space Administration, U.S.

Customs Service, the intelligence community, and others at the invitation

of the Chair and concurrence of the group. The MTEC’s charter calls for it to

meet as required to review license applications for U.S. exports of missile

proliferation concern, referred according to agreed criteria. The MTEC

evaluates the transfer in terms of the MTCR and U.S. nonproliferation

policy. Commerce can also refer applications to the Central Intelligence

Agency’s Nonproliferation Center for information on the suitability of

end-users.

In addition to the multilateral MTCR, the Enhanced Proliferation Control

Initiative (EPCI) of December 1990, a unilateral U.S. control, provides a

“catch-all” control by directing that items going to destinations of concern,

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regardless of whether they are on proliferation control lists, are to be

referred to the interagency review process. The Initiative expanded missile

technology export controls by requiring U.S. exporters to request an

export license for any item that they know or have been informed by the

U.S. government is destined for a project of proliferation concern. The

Initiative was designed to give the U.S. government a safety net by

allowing it to apply export controls when it learns about a pending

transaction that risks helping a weapon program, but which is not

explicitly covered by the current Commerce Control List.

To deter and detect the diversion of dual-use exports to proliferation

activities, Commerce or other consulting agencies may request pre-license

checks or post-shipment verifications. Pre-license checks are used to

establish the legitimacy of the end user or verify the intended use of the

export; post-shipment verifications are used to ascertain whether exported

items are being used appropriately. The State Department operates a

similar program of end-use checks, called the BLUE LANTERN program.

The government may also seek assurances from foreign governments that

items will not be diverted to proliferation-related uses.

The Commerce and State Departments approved a total of 67 export

licenses worth about $530 million for missile-related items for China for

fiscal years 1990 through 1993. Figure 1 shows the final action that each

agency took for all export license applications for China involving missile

technology during this period.

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Figure 1: Missile Technology Export

Licenses for China (Fiscal Year

1990-93)

41% • State-approved licenses (48)

16% • Commerce-approved licenses (19)

•

8%

State-denied applications (10)

•

8%

Commerce-denied applications (9)

•23%

State applications - other actions

(27)

•

4%

Commerce applications - other

actions (5)

Note: Other actions include returned without action, revoked, suspended, or withdrawn.

Between fiscal years 1990 and 1993, the Commerce Department identified

33 export license applications for China as containing missile-related

technology commodities. It approved, with interagency concurrence, 19 of

these applications valued at about $6.5 million. During the same period,

Commerce approved a total of 8,600 applications for China, valued at

about $6.4 billion, out of a total of 10,860 applications for exports to China.

Thus, Commerce-identified dual-use missile technology exports totaled

less than 1 percent of all exports requiring individual validated licenses to

China. (See app. III for a complete list of dual-use applications for China

approved by Commerce after MTEC review.) Figure 2 shows the final status

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B-258323 

for all 10,860 Commerce Department export license applications for China

for fiscal years 1990 through 1993, with approved applications broken

down by Export Control Classification Number category. At the time of

our review, commodities that were subject to foreign policy controls on

weapons delivery systems were grouped under 116 Export Control

Classification Numbers (ECCNs) listed in the U.S. Export Administration

Regulations. The Commerce Department also can refer items that are

contained in other ECCNs to interagency review for potential missile

technology.

Figure 2: Total Commerce License

Applications for China (Fiscal Years

1990-93)

48.6% • Approved—Partial missile

technology ECCNs (5,281)

27.8%•

Approved—Non-missile technology

ECCNS (3,024)

•

2.3%

Denied (253)

•18.5%

Other actions (2,007)

•

2.7%

Approved—Entire entry missile

technology ECCNs (295)

Notes: Missile technology ECCNs here indicate only that commodities were initially categorized

under missile technology ECCNs, not that the final Commerce Department determination

identified the necessity for missile technology controls.

Other actions include returned without action, revoked, suspended, or withdrawn.

Percentages do not total 100 percent due to rounding.

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B-258323 

Between fiscal years 1990 and 1993, the State Department identified 

85 export license applications for China as containing missile-related

technology commodities. State approved, with interagency concurrence,

48 of these applications—40 with provisos—valued at $523.5 million.

During the same period, State approved a total of 96 applications for other

arms exports for China, out of a total of 369 applications. U.S. Munitions

List license applications for China for the fiscal years 1990-93 period

generally were related to (1) satellite equipment, (2) aircraft spare parts,

and (3) technical data.

DOD Officials Are

Concerned That They Do

Not See All Commerce

Department Missile

Technology Applications

DOD officials have expressed concern that Commerce is not referring

potential missile technology applications for interagency review.

Commerce is solely responsible for deciding if dual-use export license

applications are not missile-related technology. In those cases where

Commerce determines that applications are not missile-related

technology, it does not share all data with other agencies. There currently

is no routine mechanism for DOD or other agencies to understand or

question Commerce’s analysis and conclusions on the full range of 

8,600 approved licenses for China between fiscal years 1990 through 1993,

aside from the 33 applications that Commerce referred for interagency

review. As a result, there is little transparency into the dual-use missile

technology licensing process by officials outside of the Commerce

Department. Increasing the transparency of the license applications that

Commerce reviews would have the result of either allowing other agencies

to find deficiencies in Commerce’s efforts at identifying missile-related

exports or, conversely, of reassuring them that Commerce’s review

procedures are appropriate and properly implemented.

Commerce officials said that Commerce has sole responsibility for

classifying commodities on the Commerce Control List. According to the

officials, although it is routinely a clear-cut technical matter of checking

the parameters on the Control List against the technical specifications of

the item on the application, occasionally some interpretation is required.

Nevertheless, making this determination in some cases is difficult and

requires further review and consultation.

Commerce officials also said that, according to agreed interagency

procedures, DOD reviewed all Commerce license applications for China for

national security reasons and MTCR Annex items, except where there were

specific delegations of authority to Commerce. However, high-level

Defense Technology Security Administration officials said that they were

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unfamiliar with referral criteria for MTCR Annex items and that there was

no written agreement on such referrals between DOD and the Commerce

Department. In fact, DOD requested a review of criteria and referral

procedures in May 1994 and corresponded with Commerce several times

on how to implement it. Also, the current and past chairmen of MTEC

criticized Commerce’s referral of missile technology cases for interagency

review. The current chairman said that Commerce would not release to

State the Licensing Officer’s Operating Manual, which contains referral

criteria. The officials further said that Commerce does not have the

technical expertise to properly review missile technology applications and

should not be pre-screening them.

Commerce Department officials believe that the question of referrals and

other agencies’ concerns has already been resolved by the executive

branch’s 1994 proposal to amend the Export Administration Act.

According to Commerce officials, that proposal would have afforded all

relevant agencies, including DOD, the right to see all dual-use license

applications. However, the proposed legislation was not enacted and the

executive branch has not implemented this provision. In November 1994,

Commerce Department officials began discussing with the Defense

Technology Security Administration means to implement the proposal.

While Commerce said that it refers virtually all applications for exports to

China, as indicated above, our review of Commerce database information

indicated that Commerce referred to DOD less than 49 percent of all

approved applications for exports to China in fiscal year 1993, and

referred to the Coordinating Committee for Multilateral Export Control

less than 47 percent of all approved applications for exports to China for

the same period.

In addition, a September 1993 report3

 by a joint team of four inspector

general offices noted that there is no agreement between Commerce and

most of the other federal agencies regarding which export applications

should be referred for comments. Although not specifically addressing

missile technology licenses, the report’s findings emphasized the agencies’

general concerns with Commerce’s referrals of export licenses. It

concluded until this issue is resolved, the agencies will not have adequate

assurance that the license review process is working as efficiently and

effectively as it should. The agencies involved—State, Commerce, DOD, and

Energy—generally agreed with the concerns raised about interagency

3

The Federal Government’s Export Licensing Processes for Munitions and Dual-Use Commodities,

Final Report, Special Interagency Review, Sept. 1993.

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B-258323 

referral issues. (See app. II for information about the disposition of various

applications by dollar value processed by the Commerce Department.)

Licensing Process and

Monitoring Controls

Cannot Ensure That

U.S. Exports to China

Are Kept From

Sensitive End Users

Licensing process controls for dual-use and missile technology export

applications cannot ensure that U.S. proliferation-related dual-use and

munitions exports to China, aside from separately monitored satellite

exports, are kept from sensitive end users. We did not find direct evidence

of diversions of U.S.-supplied dual-use technology or of exports of

commodities to China approved in contradiction of export licensing

procedures. However, we noted that a DOD classified report indicated that

diversions might have occurred. Also, our request for officials of the

involved agencies to assess whether specific exports that did not receive

interagency review might have benefited from it was denied. (See app. IV

for a discussion of our methodology to identify such evidence and the

limitations that the executive branch placed on our efforts to find such

evidence.)

An important premise of the U.S. export licensing process is the ability to

assess legitimate end uses and end users of U.S. technology exports.

According to the MTCR Guidelines, in evaluating the transfer of MTCR Annex

items, the licensing process will consider, among other factors, (1) the

capabilities and objectives of the missile and space programs of the

recipient state; (2) the significance of the transfer in terms of the potential

development of delivery systems (other than manned aircraft) for

weapons of mass destruction; and (3) the assessment of the end-use of the

transfers.

Missile technology licensing procedures for the Commerce Department

from the Licensing Officer’s Operating Manual section labeled “MTCR

Determination” require missile technology review if an application lists

identified classified entities—end users in a country listed in a separate

classified memorandum—as the end user and/or ultimate consignee,

regardless of the reason for control. In addition, on any application, when

the end use is missile-related, the end user is known to be involved in

missile activities, or questions are raised, missile technology review is

required. The procedures note that it is especially important to have

detailed information on the end use.

Commerce Department procedures permit Commerce officials to refer

license applications to the Central Intelligence Agency’s Nonproliferation

Center for assistance in identifying sensitive end users. However, the

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Central Intelligence Agency recommended 22 general types of foreign end

users that Commerce could exempt from Nonproliferation Center review.

These types include some foreign government entities whose activities are

usually self-explanatory, public service organizations, and some foreign

trade organizations. Available data showed that about 31 percent of all

10,860 license applications for China during fiscal years 1990 through 1993

were referred to the Nonproliferation Center. However, Commerce

officials said that this percentage would be higher because inconsistent

recording of license application referrals by licensing officers precluded

an accurate accounting of the number of applications referred to the

Nonproliferation Center.

Officials from various U.S. government agencies indicated that it is

difficult to determine which companies in China are truly privately owned

and operated and which are adjuncts to the Chinese government.

Sometimes, however, agencies within the intelligence community

disagreed over the extent of the problem. A 1993 DOD report cited multiple

examples of suspected diversion or use of U.S. civilian technology in

China’s aeronautics and astronautics industries. The Central Intelligence

Agency’s Nonproliferation Center characterized the report as overstating

the case, but did not question the potential for diversion in many of the

cases cited.

Information on Sensitive

End Users Is Not Routinely

Shared

Information that is available on sensitive end users in China is not always

shared efficiently or routinely between the intelligence and licensing

communities. In June 1994 we reported that, although State and

Commerce each use an automated computer system to screen export

applications for ineligible or questionable parties, they did not include on

their watchlists many pertinent individuals and companies.4

 We also noted

that the agencies do not routinely share names on their respective

watchlists, and their procedures to add names to their lists and ensure that

data is complete and current are inadequate. Commerce noted that,

although it disagreed with the report’s conclusions, it agreed to share with

State all potentially pertinent parts of each agency’s watchlist.

Also, there is no central database on sensitive end users of missile-related

technology for routine intelligence or information-sharing with Commerce

in the licensing or intelligence communities. Several U.S. government

organizations, such as the Los Alamos and Lawrence Livermore National

4

Export Controls: License Screening and Compliance Procedures Need Strengthening

(GAO/NSIAD-94-178, June 14, 1994).

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Laboratories, and organizations within DOD, independently maintain—or

plan to create—databases containing sensitive end-user information. In

fact, a May 1994 report by the Office of Technology Assessment noted that

multiple agencies are already developing their own unique proliferation

databases for internal use, rather than coordinating their efforts.5

U.S. Government

Monitoring of China’s

Compliance With MTCR

Commitments and License

Conditions

U.S. government officials believe that the U.S. government generally

performs adequate monitoring of China’s compliance with the terms of its

MTCR commitments not to export MTCR technology out of China. However,

the U.S. government performs limited monitoring of China’s compliance

with conditions attached to U.S. missile-related technology exports.

The intelligence community has primary monitoring responsibilities of

countries’ adherence to MTCR commitments. The interagency Missile Trade

Analysis Group analyzes intelligence information concerning missile

proliferation and MTCR. The group consists of working-level

representatives of DOD, the Departments of State and Commerce, the Joint

Chiefs of Staff, ACDA, National Aeronautics and Space Administration, U.S.

Customs Service, the intelligence community, and others at the invitation

of the chair and concurrence of the group. U.S. government officials

generally expressed confidence in U.S. monitoring abilities to detect

violations of MTCR commitments not to export such technology. To the

degree that Commerce and State monitor license conditions relevant to

“no retransfers, resales, or reexports” of U.S.-licensed missile technology

commodities, they share indirect responsibility for monitoring adherence

to MTCR commitments.

Both the Commerce Department’s pre-license checks and post-shipment

verifications program and the State Department’s BLUE LANTERN

programs are restricted in China. They are restricted partly because the

Chinese government does not accept the need to link cooperating with

U.S. pre-license checks and post-shipment verifications in order to gain

U.S. approval for Chinese export license applications. According to an

Assistant Secretary of the International Trade Administration, Commerce

has not given China a clear demonstration that if there is no pre-license

check, an application would be rejected.

DOD, on the other hand, insists that it oversee foreign launches of U.S.-built

satellites in China through its Technology Safeguards Monitoring Program.

5

U.S. Congress, Office of Technology Assessment, Export Controls and Nonproliferation Policy,

OTA-ISS-596, May 1994.

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Limited Commerce

Department Program

Commerce policy does not require pre-license checks be completed in

order that an export license application be approved. Commerce data

showed that it requested three pre-license checks for applications

involving missile-related technology. Two were conducted and one was

canceled. Commerce officials said that the application with the canceled

pre-license check was approved after interagency review, while the other

two applications were not. Commerce returned the second application

without action and advised the applicant to apply to the State Department

because it determined that the license application was under State’s

jurisdiction. The third application was rejected. Commerce officials said

that the pre-license check for the approved missile technology application

was canceled the same day it was requested.

Commerce officials noted that pre-license checks can be canceled for

legitimate reasons. For example, one pre-license check was canceled after

the U.S. Embassy in Beijing provided additional information on the

transaction, according to Commerce officials.

In comparison, for all types of exports, the Commerce Department

requested a total of 77 pre-license checks for China between fiscal years

1990 and 1993, and conducted 37 checks, or about 48 percent, while 

22 pre-license checks were canceled for various reasons, and 18 were still

pending at the time of our review. Compared to 20 other countries of

proliferation concern, China had the lowest percentage of completed

pre-license checks. Commerce records showed that nine of the export

license applications whose requested pre-license checks were canceled

received an approved license.

The U.S Embassy conducted no post-shipment verifications related to

missile technology. One was requested for a missile technology export, but

was canceled when the license expired without the shipment being made.

In comparison, the U.S Embassy conducted one post-shipment verification

with the authorization of the Chinese government out of a total of seven

requested for all types of export items. Commerce officials indicated that a

post-shipment verification also was requested and canceled for the one

missile technology license with a canceled pre-license check noted above.

MTEC dropped its request for the condition after a Commerce official said

that it would be difficult to conduct the post-shipment verification in

China. The group alternatively required the exporter to report to

Commerce after it installed the item. At the time of this report, the export

had not been shipped.

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Commerce officials said that Commerce conducted few pre-license checks

because of such factors as Chinese sensitivity over sovereignty issues and

expense in time, dollars, and distances required to conduct pre-license

checks. Noting that discussions were in progress with China on expanding

pre-license checks and post-shipment verifications, Commerce officials

said they expect no breakthroughs in the near future. According to these

officials, Commerce has made continuous efforts for the past 10 years to

reach an understanding with China on routinely allowing the United States

such checks and verifications, without success.

The Foreign Commercial Service Officer at the U.S. Embassy in Beijing is

responsible for conducting pre-license checks. However, he said that his

role is split between conducting checks and his trade promotion activities.

The export controls function is secondary to the trade promotion role.

Although some Foreign Commercial Service Officers at consulates in

China in the past year have been tasked and trained to conduct pre-license

checks, they do not have the required backgrounds for this function and

also face conflicts with their trade promotion duties. The Foreign

Commercial Service Officer in Beijing said that those at the consulates

would have difficulty conducting pre-license checks in China, unless they

received well-written cables detailing what to look for.

There was little monitoring required of China’s compliance with the

conditions associated with five missile technology export licenses that

included provisos as conditions of approval. Of the five licenses with

conditions, only two required that the exporter provide subsequent

documentation. In one case, receipt of the documentation would have

initiated a post-shipment verification. The Commerce Department did no

follow-up on this 1992 license until 1994, when it learned that the shipment

was never sent. Commerce officials said that there would be no follow-up

until receipt of the exporter’s documentation, indicating that the shipment

had been made. They also noted that the license would expire after 

2 years, at which time Commerce would verify that the shipment had not

occurred. The interagency MTEC Group, which recommended approval of

the license with the proviso, did no follow-up to ensure that the condition

was included as part of the license or that the post-shipment verification

was ever done. The interagency group typically trusts the licensing agency

to implement its recommendations, according to the group’s chairman. In

the other case, the exporter was required to report on its installation of

equipment after it occurred. Commerce records indicate that the export

had not been shipped at the time of this report.

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Our previous report concerning end-use checks for nuclear dual-use items

found systemic weaknesses in the pre-license check/post-shipment

verification program for nuclear dual-use items. In the September 1993

special interagency report, which included China in its review, Commerce

Department’s Inspector General reported that there is no assurance that

either pre-license checks or post-shipment verifications are achieving their

objectives. We found some of the same conditions in China, such as

insufficient information provided to Foreign Commercial Service Officers

in requesting cables and misleading data in the Bureau of Export

Administration’s database for tracking the status of pre-license checks, as

had been identified in these two reports.

State Department’s BLUE

LANTERN Program Is Minimal

in China

The State Department’s BLUE LANTERN end-use check program in China

is minimal. State currently performs few BLUE LANTERN checks in China

because relatively few Munitions List exports are licensed for China. State

Department officials said that relatively few Munitions List licenses are

granted to China because of (1) the “Tiananmen Square” sanctions,

established by Public Law 101-246, which suspended exports of items on

the U.S. Munitions List to military and security end users unless a

presidential waiver is obtained and (2) existing International Traffic in

Arms Regulations, which require approval of exports to China only as an

exception to the standing U.S. policy of denial since China is a proscribed

destination. Most of these exports involve satellite projects, monitored

under the separate DOD program. According to a State Department official,

most of the few remaining munitions items licensed to China are not

militarily significant or are not amenable to post-license verification.

During the period from fiscal years 1990 through 1993, no pre-license

checks for missile technology exports were requested by State. In

comparison, three pre-license checks were requested for other non-missile

export applications handled by State. Two of the requests were canceled

and State issued the licenses, but they were never used. The State

Department completed the third check. The State Department requested

one post-shipment verification during this period for the application that

had received the pre-license check, but could not verify the results.

In addition, most of the missile technology exports during the 4-year

period involved satellite technology associated with launches of

foreign-owned satellites on Chinese boosters. DOD’s Technology

Safeguards Monitoring Program provides for continuous monitoring of

such exports while they are in China. From December 1989 through

January 1993, DOD participated in monitoring five launch campaigns of 

Page 15 GAO/NSIAD-95-82 Export Controls
B-258323 

U.S. satellite equipment launched by Chinese rockets. Personnel from

technical and engineering backgrounds, and experts on space systems and

test ranges performed the monitoring.

China Recently

Updated Its MTCR

Commitments and Did

Not Agree to Current

Standards

China’s 1992 commitments to the MTCR were limited and ambiguous. State

Department officials agreed that the terms of China’s commitments

contained ambiguities. On the other hand, the terms of U.S. expectations

for China’s commitments were straightforward and unambiguous.

Nevertheless, these expectations were based on some outdated MTCR

standards, which differed from the changed standards subsequently

agreed to by MTCR members. The different expectations remained

unreconciled.

In October 1994, China renewed its commitment to the original MTCR

Guidelines and Annex in a signed bilateral statement. This statement

further committed China not to sell Category I ground-to-ground missiles

and technology to any country. Moreover, China resolved a key ambiguity

in its 1992 commitment by agreeing to define MTCR-class missiles using a

U.S.-proposed concept.

The 1992 U.S.-Chinese understandings were based on a series of classified

diplomatic exchanges. The United States established clear standards

against which to measure Chinese behavior, even though it could not have

been positive that the Chinese government agreed with the 1992 standards.

Relative to the 1992 commitments, the October 1994 Chinese

commitments are phrased in a jointly agreed manner and are more clearly

stated.

MTCR partners’ commitments to the regime include abiding by terms of the

current MTCR Guidelines and Annex. These provide no payload threshold.

China was committed, on the other hand, to only the original 1987 MTCR

Annex and Guidelines in effect at the time of its original commitment. At

that time, the purpose of the regime was to limit the spread of missiles and

unmanned air vehicles/delivery systems capable of carrying a 500-kilogram

(1,100 pounds) payload at least 300 kilometers (186 miles). MTCR partners

revised the MTCR Guidelines in January 1993 to cover delivery vehicles for

all types of weapons of mass destruction (chemical and biological as well

as nuclear), regardless of their payload, and revised the annex, most

recently in July 1994, to make its terms more specific.

Page 16 GAO/NSIAD-95-82 Export Controls
B-258323 

Under the terms of its October 1994 commitment, China and the United

States will conduct in-depth discussions concerning a Chinese

commitment to the current MTCR Guidelines and Annex and prepare the

way for eventual Chinese MTCR membership, according to a State

Department official.

Effectiveness of U.S.

Sanctions on China Is

Uncertain

The effectiveness of U.S. sanctions on China is difficult to determine

because, to date, no consensus on a definition of, or criteria for, measuring

the effectiveness of proliferation sanctions imposed on China has been

established. In fact, State Department officials said that they are not

responsible for assessing effectiveness of proliferation sanctions, which

are congressionally mandated, and that assessing them is not required in

the Arms Export Control Act or other laws.

In June 1991, the U.S. government imposed sanctions on two Chinese

entities because of their trade in missile technology. The U.S. government

waived sanctions against these entities in 1992 when the Chinese

government committed to observing the MTCR Guidelines. In August 1993,

the U.S. government imposed sanctions on 10 Chinese entities, upon

determining that they had transferred missile technology from China to

Pakistan. However, in October 1994, the State Department announced that

the U.S. government would lift these sanctions on Chinese entities in

exchange for new Chinese missile nonproliferation commitments,

including a reaffirmed commitment to the MTCR. These sanctions

subsequently were lifted.

In addition, Congress legislated sanctions specifically against China in

response to the June 1989 massacre at Tiananmen Square. These sanctions

included suspension of (1) all exports of items on the U.S. Munitions List

to China, including items for inclusion in civil products if intended for end

users in Chinese military or security forces and (2) the license for the

export of any U.S.-manufactured satellites for launch on launch vehicles

owned by China. The President can waive either of these suspensions. In

addition, exports of munitions items are approved for export to China only

as exceptions to the standing U.S. policy of denial because China is a

proscribed destination under the International Traffic in Arms

Regulations. This prohibition also must be waived in order to approve an

export.

State Department and ACDA officials attribute China’s agreeing to the

original MTCR as of March 1992 to the proliferation sanctions in place at

Page 17 GAO/NSIAD-95-82 Export Controls
B-258323 

that time. ACDA officials and the State Department indicated that the 1991

proliferation sanctions on two Chinese companies were effective because

China met the U.S. condition for suspending the sanctions—declaring

adherence to the MTCR Guidelines and Annex.

Discussions with numerous experts, including those from involved U.S.

government agencies, yielded several suggestions that effectiveness of

sanctions could be measured in terms of (1) limits on exports to

sanctioned entities, (2) changes in China’s missile proliferation behavior,

and (3) China’s agreement to current MTCR Guidelines and Annex. During

our review, we learned that:

• U.S. export licensing procedures call for automatically denying export

licenses for sanctioned entities. Licenses for MTCR Annex items to

sanctioned entities require presidential waivers of both the general missile

sanctions and “Tiananmen Square” sanctions and must be reported to

Congress. A number of such waivers were granted and duly reported.

• Several analysts saw no change in China’s missile program or proliferation

behavior resulting from the 1993 proliferation sanctions.

• The 1993 proliferation sanctions have not yet resulted in China’s

agreement to commit to the current MTCR Guidelines and Annex. Rather,

China in October 1994 committed to further discussions on the MTCR,

which will include the issue of a Chinese commitment to the current MTCR,

according to a State Department official.

Recommendations To ensure that the appropriate licenses are referred to the MTEC Group, we

recommend that the Secretary of Commerce provide periodic reports to

the interagency group on those dual-use licenses for China whose

commodities are classified under ECCNs containing items subject to missile

technology controls. The reports should include, as a minimum, license

and ECCN numbers, names of the end user and/or ultimate consignee,

end-use descriptions, and descriptions of the commodities to be licensed.

We further recommend that the Secretaries of DOD, Commerce, and State

and the Director of ACDA use licensing information contained in these

reports to establish mutually acceptable criteria and guidelines for

selection of other licenses for interagency review.

We recommend that the Secretary of Commerce establish criteria to

determine under what conditions approval of dual-use technology exports

to China should be conditioned on the successful performance of

pre-license checks. Such criteria might include the nature and

Page 18 GAO/NSIAD-95-82 Export Controls
B-258323 

proliferation credentials of the end user, the potential end uses of the

commodities to be exported, or the favorable outcome of the check.

Views of Agency

Officials

As requested, we did not request written agency comments. However, we

discussed the results of our work with officials from DOD, the Departments

of Commerce and State, and ACDA. Commerce officials said that the other

agencies’ characterizations of problems with its licensing application

referral efforts were unsubstantiated and unfounded. However, State, DOD,

and ACDA officials generally agreed with the information in this report.

Each of these agencies provided suggestions and comments to improve

the clarity and technical accuracy of the report. We have incorporated

their suggestions and comments into the body of the report where

appropriate. We believe that implementing our recommendations would

go a long way toward reconciling the concerns among the involved

agencies.

Our work was performed from October 1993 through October 1994 in

accordance with generally accepted government auditing standards. The

scope and methodology for our review is discussed in appendix IV.

We plan no further distribution of this report until 30 days from its issue

date. At that time, we will send copies of the report to other interested

congressional committees; the Secretaries of State, Commerce, and DOD;

and the Director of ACDA. Upon request, copies may also be made available

to others having appropriate security clearances and a need to know.

If you or your staff have any questions concerning this report, please call

me on (202) 512-4128. Major contributors to this report are listed in

appendix V.

Sincerely yours,

Joseph E. Kelley

Director-in-Charge

International Affairs Issues

Page 19 GAO/NSIAD-95-82 Export Controls
Contents

Letter 1

Appendix I 

Partners and

Adherents to the

MTCR

22

Appendix II 

Data on U.S. Dual-Use

License Applications

for Exports to China

23

Appendix III 

Dual-Use

Commodities

Approved for Export

to China Reviewed for

Missile Technology

Concerns Fiscal Years

1990-93

25

Appendix IV 

Scope and

Methodology

27

Appendix V 

Major Contributors to

This Report

29

Tables Table I.1: MTCR Partners as of October 1994 22

Table I.2: Declared Adherents or States Declaring Intention to

Adhere as of October 1994

22

Page 20 GAO/NSIAD-95-82 Export Controls
Contents

Figures Figure 1: Missile Technology Export Licenses for China 6

Figure 2: Total Commerce License Applications for China 7

Figure II.1: Value of Commerce-Licensed Exports to China by

Export Control Classification Number

23

Figure II.2: Value of All Commerce License Applications for

China

24

Abbreviations

ACDA Arms Control and Disarmament Agency

DOD Department of Defense

ECCN Export Control Classification Numbers

EPCI Enhanced Proliferation Control Initiative

MTCR Missile Technology Control Regime

MTEC Missile Technology Export Controls

Page 21 GAO/NSIAD-95-82 Export Controls
Appendix I 

Partners and Adherents to the MTCR

Table I.1: MTCR Partners as of

October 1994

Argentina Greece New Zealand

Australia Hungary Norway

Austria Iceland Portugal

Belgium Ireland Spain

Canada Italy Sweden

Denmark Japan Switzerland

Finland Luxembourg United Kingdom

France Netherlands United States

Germany

Table I.2: Declared Adherents or States

Declaring Intention to Adhere as of

October 1994

Brazil Israel Russia

China Romania South Africa

Ukraine

Page 22 GAO/NSIAD-95-82 Export Controls
Appendix II 

Data on U.S. Dual-Use License Applications

for Exports to China

Commodities on export license applications that are subject to foreign

policy controls on weapons delivery systems were grouped under 

116 Export Control Classification Numbers (ECCN) listed in the U.S. Export

Administration Regulations at the time of our review. Exporters are

instructed to consult the “Reason for Control” paragraph in each number

to determine the specific item subject to these foreign policy controls. In

practice, the 116 ECCNs subject to control for missile technology reasons

were divided at the time of our review into 85 “entire entry” ECCNs and 31

other missile technology ECCNs that would contain at least 1 item relevant

to missile technology.

The following figures show the dollar values of U.S. export license

applications and approved licenses for dual-use commodities to China for

the period fiscal years 1990 through 1993.

Figure II.1 shows the value of exports to China, licensed by the Commerce

Department, according to their ECCNs for fiscal years 1990 through 1993.

Figure II.1: Value of

Commerce-Licensed Exports to China

by Export Control Classification

Number (Fiscal Years 1990-93, Dollars in

Millions)

49.5% • Partial missile technology ECCNs

($3,187.7 million)

0.9%

Entire entry missile technology

ECCNs ($60.2 million)

•49.6%

Non-missile technology licenses

($3,192.0 million)

Note: Missile technology ECCNs here indicate only that commodities were initially categorized

under missile technology ECCNs, not that the final Commerce Department determination

identified the necessity for missile technology controls.

Page 23 GAO/NSIAD-95-82 Export Controls
Appendix II 

Data on U.S. Dual-Use License Applications

for Exports to China

Figure II.2 shows the values of all Commerce Department license

applications for exports to China for fiscal years 1990 through 1993.

Figure II.2: Value of All Commerce

License Applications for China (Fiscal

Years 1990-93, Dollars in Millions)

79.8% • Approved ($6,439.1 million)

0.9%

Denied ($73.1 million)

•19.3%

Other actions ($1,552.8 million)

Note: Other actions include returned without action, revoked, suspended, or withdrawn.

Page 24 GAO/NSIAD-95-82 Export Controls
Appendix III 

Dual-Use Commodities Approved for Export

to China Reviewed for Missile Technology

Concerns Fiscal Years 1990-93

Numbers of

approved

licenses ECCN ECCN description

1

1518

Telemetering and telecontrol equipment suitable

for use with aircraft (piloted or pilotless) or space

vehicles, and test equipment specially designed

for such equipment.

2a

1B21 (2)b

Other equipment for the production of fibers,

prepegs, preforms, or composites.

1a

1B96

Other test, inspection, and production

equipment for materials.c

1

1C22

Tungsten, molybdenum, and alloys of these

metals in the form of uniform spherical or

atomized particles of 500 micrometer diameter

or less with a purity of 97 percent or higher for

fabrication of rocket motor components; that is,

heat shields, nozzle substrates, nozzle throats,

and thrust vector control surfaces.

1

1C31

Propellants, constituent chemicals, and

polymeric substances for propulsive propellants.

1

2A52

Pipes, valves, fittings, heat exchangers, or

magnetic, electrostatic or other collectors made

of graphite or coated in graphite, yttrium

compounds resistant to the heat and corrosion of

uranium vapor.c

1 2B40 Vibration test equipment.c

1

2B50

Spin-forming and flow-forming machines

specially designed or adapted for use with

numerical or computer controls and specially

designed parts and accessories therefor.c

1

3A22

Radiographic equipment (linear accelerators)

capable of delivering electromagnetic radiation

produced by “bremsstrahlung” from accelerated

electrons of 2 MeV or greater or by using

radioactive sources of 1 MeV or greater, except

those specially designed for medical purposes.

1

3A93

Electronic test equipment in Category 3A, not

elsewhere specified.c

1

3A96 (2)b

Other equipment, assemblies, and components

in Category 3A, not elsewhere specified.c

3 5A20 (4)b Telecontrol and telemetering equipment.

1

5B01

Equipment specially designed for the

“development,” “production,” or use of

equipment, materials, or functions controlled by

the entries in the telecommunications sections of

Category 5 for national security reasons.c

1

6A22

Photosensitive components not controlled by

ECCN 6A02.

(continued)

Page 25 GAO/NSIAD-95-82 Export Controls
Appendix III 

Dual-Use Commodities Approved for Export

to China Reviewed for Missile Technology

Concerns Fiscal Years 1990-93

Numbers of

approved

licenses ECCN ECCN description

2

7A23 (2)b

Inertial or other equipment using accelerometers

or gyros described in 7A21B or 7A22B, and

systems incorporating such equipment and

specially designed components therefor.

1

9B27 (2)b

Test benches or stands that have the capacity to

handle solid or liquid propellant rockets or rocket

motors of more than 20,000 pounds of thrust, or

which are capable of simultaneously measuring

the three axial thrust components.

aOne license was issued for commodities under these two ECCNs.

bNumber in parentheses indicates total number of applications for commodities in that ECCN

when more than one application was received.

cCommerce identified the commodity as not on the MTCR Annex.

Page 26 GAO/NSIAD-95-82 Export Controls
Appendix IV 

Scope and Methodology

To develop information for this report, we talked to cognizant officials and

obtained documents in the Washington, D.C., area from the Departments

of Commerce, State, and Defense, and at the Arms Control and

Disarmament Agency, and the U.S. Customs Service. In addition, we

discussed the MTCR, China, and missile proliferation issues with officials at

the Defense Intelligence Agency, Central Intelligence Agency, National

Security Agency, and the National Air Intelligence Center at

Wright-Patterson Air Force Base, Ohio. We reviewed annual proliferation

reports to Congress, a report on exports of sensitive technologies to

Chinese sensitive end users, hard copy of a database on sensitive end

users in China, and excerpts pertaining to China of the log of an MTCR

interagency group. We also talked with officials at the Lawrence

Livermore National Laboratory in Livermore, California, and Los Alamos

National Laboratory in Los Alamos, New Mexico.

We reviewed files and talked with U.S. government officials at the U.S.

Embassy in Beijing, China, and the American Consulate General in Hong

Kong. In addition, we met with officials of the Chinese government in

Beijing, China, to discuss U.S. export controls and U.S. sanctions on

China. Also, we discussed export controls, missile proliferation issues, and

potential diversions of U.S. missile technology into China with Hong Kong

government officials.

To assist us in identifying sensitive end users in China receiving missile

technology, we provided a sample of export licenses drawn from the

Commerce Department’s Export Control Automated Support System and

approved by the Commerce Department to teams of analysts at the

Defense Intelligence Agency and National Security Agency. The licenses

were categorized under ECCNs designated as controlled for missile

technology reasons. The analysts provided some information on sensitive

end users, but the Commerce Department, after a technical review of the

data, said that the license applications did not involve restricted missile

technology.

To assist us in performing an independent technical evaluation of

Commerce Department license approvals, we originally requested three

teams of analysts from the Defense Intelligence Agency, National Security

Agency, and Defense Technology Security Administration to indicate if the

available information on specific exports and technology might have

suggested the need for interagency review. This was important because

the Commerce Department makes unilateral determinations that license

applications are not MTCR-related and, therefore, do not require full

Page 27 GAO/NSIAD-95-82 Export Controls
Appendix IV 

Scope and Methodology

interagency review for approval. We also asked that they identify sensitive

end users among the listed ultimate consignees on the applications to be

provided. After we presented this request to the teams of analysts and one

team agreed to provide this analysis, we were told that a high-level

interagency meeting of involved agencies resulted in directing the agencies

of the three teams not to provide an analysis of the need for interagency

review because it was not within their authority to do so. Consequently,

two teams agreed to perform the analysis of sensitive end users only. As a

result, we were unable to benefit from the expertise of the technical

specialists in assessing the technology of the sample of licenses and the

appropriateness of Commerce Department decisions. In addition, the

agency of the third team of analysts did not decide within our required

timeframes whether or not it would participate in the requested analysis.

To evaluate the Commerce Department’s pre-license check/post-shipment

verification program in China for dual-use items, we reviewed records at

both the Commerce Department in Washington, D.C., and at the U.S.

Embassy in Beijing. We also talked to officials at both locations. Our

review included gathering statistical data and reviewing cable traffic on

checks and verifications done in China for all types of technology for the

period of fiscal years 1990 through 1993. This was necessary, in part,

because Embassy records identified many more checks being done for

missile technology concerns than shown by Commerce records.

Commerce Department officials said that their records were authoritative.

Page 28 GAO/NSIAD-95-82 Export Controls
Appendix V 

Major Contributors to This Report

National Security and

International Affairs

Division, Washington,

D.C.

F. James Shafer

Jeffrey D. Phillips

Beryle Randall

Jai Lee

Douglas E. Cole

(711047) Page 29 GAO/NSIAD-95-82 Export Controls
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