China: Possible Missile Technology Transfers Under U.S. Satellite Export Policy -- Actions and Chronology
Released: 2003-10-06T00:00:00

Congressional Concerns and Issues for Policy (1)

Members of Congress were concerned about allegations that U.S. firms provided expertise tothe People's Republic of China (PRC) that could be used in its ballistic missile and space programsand that the Clinton Administration's policies on satellite exports facilitated legal or illegal transfersof military-related technology to China. The New York Times reported in April 1998 that the JusticeDepartment began a criminal investigation into whether Loral Space and Communications Ltd. (ofNew York), and Hughes Electronics Corp. (of Los Angeles) violated export control laws. (2) The firmswere alleged to have shared their findings with China, without approval from the U.S. government,on the cause of a PRC rocket's explosion while launching a U.S.-origin satellite in February 1996. In sharing their conclusions, the companies allegedly provided expertise that China could use toimprove the accuracy and reliability of its ballistic missiles, including their guidance systems. Several classified government studies reportedly concluded that the U.S. technical assistanceprovided to China damaged U.S. national security by helping the PRC to improve the guidancesystems on its ballistic missiles developed for China's military, the People's Liberation Army (PLA).

In addition, the media reports alleged that President Clinton in February 1998 issued a waiver of sanctions that undermined the investigation by allowing the issuance of licenses for the export oftechnology or expertise similar to that in question -- despite "strong opposition" from Justice. Moreover, political considerations allegedly influenced the Administration's decision, with Loral'schairman being the largest individual donor to the Democratic Party in 1996.

Congressional investigations also led to media reports in early 1999, confirmed by U.S. intelligence in April and the Cox Committee's declassified report in May 1999, that the PRCobtained secret information on U.S. nuclear weapons. (3) Members were concerned about the PRC'smodernization of its ballistic missiles. (4)

There were also congressional concerns about the U.S. space industry (satellite-makers as well as space launch businesses), aside from questions about China. (5)

This CRS Report discusses security concerns, significant congressional and administration action, and a comprehensive chronology pertaining to satellite exports to China (since 1988 underthe Reagan Administration). The events summarized below, based on open sources and interviews,pertain to various issues for U.S. foreign and security policy (including that on China and weaponsnonproliferation):

Should Congress exercise strong oversight of the Administration's policy on satellite exports, including ensuring congressional review?

What are the benefits and costs of satellite exports to China for U.S. economicand security interests?

Should the United States continue, change, or cease the policy in place sincethe Reagan Administration that has allowed exports of satellites to China (for its launch and,increasingly, for its use)?

Do satellites provide military applications for China?

Have U.S. firms contributed intentionally or unintentionally to China'sdevelopment of ballistic missiles in ways that harmed U.S. national security, and what should be thegovernment's response to findings of such alleged transfers of U.S.technology?

Should the Presidential waiver (of post-Tiananmen sanctions) for Loral'sChinasat-8 have been issued during an ongoing criminal investigation into alleged assistance byLoral and Hughes to China's missile program?

Are there adequate controls and monitoring on exports of U.S.-origin satellitesand/or satellite technology, and on technical exchanges with PRC engineers that could contributeto China's programs on missiles or military satellites and other spacecraft?

Should commercial space cooperation, especially allowing China to gain theeconomic benefits of satellite launches, be used as leverage in U.S. policy on weaponsnonproliferation? Should sanctions for missile proliferation be imposed on China's space launchcompany, China Great Wall Industry Corporation, and other companies, to improve China'snonproliferation practices?

Should the United States negotiate a new space launch agreement with China,and did the country abide by the previous agreements?

Security Concerns

China's Aerospace Organizations

China Great Wall Industry Corporation (CGWIC, or China Great Wall) has been China's commercial space launch company since 1986. It has marketed the use of rockets developed by theChina Academy of Launch Vehicle Technology (CALT) and other aerospace academies. ChinaGreat Wall and CALT have been part of China's defense-related aerospace industry under the ChinaAerospace Corporation (abbreviated by China as CASC). CASC, established in 1993, has overseenspace as well as missile research and development. CASC and its subordinate companies, researchacademies, and factories have developed and produced strategic and tactical ballistic missiles, spacelaunch vehicles, surface-to-air missiles, cruise missiles, and military (e.g., reconnaissance andcommunications satellites) and civilian satellites. CASC was previously known as the Ministry ofAerospace Industry, also called the Seventh Ministry of Machine Building. The PLA has exercisedcontrol over satellite launches (under the new General Equipment Department since April 1998).

China reportedly launched its first satellite, Dongfanghong ("East is Red"), on April 24, 1970. By the end of 1997, China reportedly launched 40 domestic satellites: 17 retrievable reconnaissancesatellites, 3 meteorological satellites, 8 communications and broadcasting satellites, and 12"experimental" (probably military) satellites. China has used satellites and space technology toenhance its national defense, economy, and international prestige. (6) On April 7, 1990, China GreatWall launched a foreign satellite (Asiasat) for the first time. Since then, the company has expandedits foreign business, especially with U.S. firms such as Hughes Electronics, Lockheed Martin, andLoral Space and Communications. China probably has sought foreign capital and technology toapply to its domestic satellite research and development efforts, in part to lessen reliance onpurchasing foreign satellites. The president of the Chinese Academy of Space Technology said thatthe PRC's Dongfanghong (East is Red) satellites matched the capacities of advanced satellites builtby Hughes, but were backward in satellite navigation and stabilization technologies. The Academyhad hoped to sell satellites at world standards by 2000. (7)

China experienced a number of embarrassing and costly failed satellite launches until 1996. In 1992, a PRC rocket stalled while attempting to launch the Optus-B1 satellite, and another rocketexploded and destroyed the Optus-B2 satellite (both built by Hughes). In 1995, a Long March rocketexploded and destroyed the Apstar-2 satellite (built by Hughes). In 1996, another PRC rocketexploded and destroyed the Intelsat satellite (built by Loral). Aside from the dramatic explosions,other problems prevented the PRC rockets from successfully launching satellites into the correctorbits. However, since the launch of a "scientific" satellite on October 20, 1996, China reported 27consecutive, successful space launches through 2002, raising questions as to whether U.S.technology contributed to this achievement.

China's aerospace industry shifted from denying all responsibility in failed launches of foreign satellites to a willingness to work with foreign companies in determining the causes of explosionsand other failures. This practice may have been a strategy to learn from foreign companies methodsto improve China's rockets, satellites, aerospace facilities, and other related space technology. Chinamay also have tried to reassure foreign insurance companies and satellite manufacturers that it cansolve problems with the Long March rockets.

Missile Technology or Expertise

Security Concerns. One question in the controversy involves the applicability of satellite-launch technology to the modernization of China'sballistic missiles. China Great Wall uses the Long March series of rockets to launch satellites. China's "Long March (LM)" (" Chang Zheng ") space launch vehicles (SLVs) are related to its "EastWind" (" Dong Feng " (DF)) intercontinental ballistic missiles (ICBMs). China has used the LMrockets to launch its own satellites (since 1970) and foreign satellites (since 1990). The Long Marchboosters are also produced as China's CSS-3 (DF-4) and CSS-4 (DF-5A) ICBMs deployed in theSecond Artillery, the PLA's missile force. China's launch facilities, e.g., Xichang Satellite LaunchCenter in Sichuan province, are at PLA bases.

A review of open sources found agreement that the first Long March rockets used to launch satellites were derived from ballistic missiles developed earlier and that there has been parallelresearch and development for the modernization of the SLVs and ICBMs. (8) The CSS-3 ICBM hasalso been produced as the booster for the LM-1 SLV. The CSS-4 ICBM has also been used as thebooster for the LM-2, LM-3, and LM-4 series of SLVs. In a 1984 publication, the DefenseIntelligence Agency (DIA) called the LM-1 SLV the "booster variant" of the CSS-3, and LM-2 the"booster variant" of the CSS-4. Indeed, this factor has made it difficult to accurately count thenumbers of ICBMs that China has produced and has allowed for China to increase the potentialnumber of ICBMs available for deployment.

When the Reagan Administration first decided to allow China to launch U.S.-origin satellites, it cited the need to protect "legitimate U.S. national security interests" and promised Congress thatan agreement would be concluded with China to safeguard U.S. technology from "possible misuseor diversion." (9) Such an agreement on technologysafeguards was signed on December 17, 1988, butapparently required renegotiation. A new agreement was signed on February 11, 1993. Onequestion concerns whether China has abided by these agreements.

After the end of the Cold War and with increase in U.S.-China trade, some said that national security interests need not be sacrificed by commercial interests. Within the current controversy,some argued that launching satellites from China conformed to national security interests becauseof the benefits to U.S. satellite manufacturers. (10)

Loral. The Department of Justice's investigation looked at Space Systems/Loral (SS/L), Loral's subsidiary in Palo Alto, CA, which chaired a reviewcommittee on the launch failure of the Intelsat-708 satellite in February 1996. As for Loral's case,Acting Undersecretary of State John Holum confirmed on April 9, 1998, that after the accident inFebruary 1996, the Department of State "became aware that there may have been a violation." Thecase was referred to the Department of Justice for investigation. He said that there were "stronglegal remedies" for violations of export control laws, including a denial of future licenses.

In 1997, when China signed a $200 million contract to buy the Chinasat-8 satellite from Loral, Henry Stackpole, president of Loral Asia-Pacific, said that Loral was "confident" that China GreatWall took steps "to overcome the systemic problems and some of the human aspects of theengineering" to be able to launch Chinasat-8. Stackpole also said that China Aerospace Corporationand China Great Wall used foreign technological know-how to improve their rockets and launchingprocedures. (11)

Loral issued a statement on May 18, 1998, saying that allegations that it provided missile guidance technology to China were wrong. Loral also said that it did not advise China "on how tofix any problems with the Long March rocket." The company stated that "the Chinese aloneconducted an independent investigation of the launch failure [in February 1996] and they determinedthat the problem was a defective solder joint in the wiring -- a `low-tech' matter." Loral denied thatit and Hughes conducted an independent investigation to determine the cause of that launch failure. At the insistence of insurance companies, which required non-PRC confirmation of resolutions ofproblems with Long March rockets, Loral formed an "Independent Review Committee" of severalsatellite companies, including Hughes, to review the PRC investigation. According to Loral, the"Independent Review Committee" obtained information from the PRC and was not formed to helpthem solve their problems. The review agreed with the PRC conclusion (that a defective solder jointwas responsible), without performing tests or providing any test data to the PRC. The committeedid note that further tests by China would be required to establish certainty. Loral said that, duringthe review, it discussed the committee's work with U.S. officials. As far as Loral's engineers coulddetermine, the statement said, "no sensitive information--no significant technology--was conveyed"to China.

Loral further disclosed that in April 1996, at China's request , Wah L. Lim, then a senior vice president and engineer at Loral, chaired the "Independent Review Committee" to study China'stechnical evaluation of the cause of the accident on February 15, 1996. Loral said China hadidentified the problem as residing in the inertial measurement unit (IMU) of the guidance system ofthe rocket. Loral believed that it did not have to request U.S. government licensing and monitoring.

However, the first meeting of the "Independent Review Committee" was held in Palo Alto, CA, but the second meeting took place in Beijing, China. Notably, PRC aerospace engineers attendedthe meetings: four at the 1st meeting on April 22-24, 1996, and 22 participants at the 2ndmeeting onApril 30-May 1, 1996. (12) They included engineersand officers from:

China Great Wall Industry Corporation

Beijing Control Device Institute

China Academy of Launch Vehicle Technology

China Aerospace Corporation

Moreover, the committee held meetings in hotel rooms in China which were probably not securefrom listening devices planted by China's intelligence service, conducted unmonitored technicalinterviews with over 100 PRC engineers and technical personnel, and generated over 200 pages ofdata and analyses.

Loral admitted that, contrary to its policies, "the committee provided a report to the Chinese before consulting with State Department export licensing authorities." According to Loral, as soonas its executives found out in May 1996, the company notified the Departments of State and Defense. (The Customs Service then began an investigation in May 1996. (13) ) In June 1996, Loral providedto the U.S. government a detailed, written report concerning all communications with China. Loraladded that it was in full cooperation with the Justice Department in its investigation and withcongressional committees. Loral concluded that based upon its own review, it did not believe that"any of its employees dealing with China acted illegally or damaged U.S. national security." Inaddition, the statement said that Loral's chairman, Bernard Schwartz, was not personally involvedin any aspect of this matter: "No political favors or benefits of any kind were requested or extended,directly or indirectly, by any means whatever." Loral also denied any connection between the launchfailure in February 1996 and the Presidential waiver for another Loral-built satellite in February1998. The export license for the latest launch (for Chinasat-8) "applied the strictest prohibitions ontechnology transfer and specified that any new launch failure investigation would require a separatelicense." Loral stressed that it complied strictly with export control laws and regulations.

Clinton Administration officials said that export licensing procedures and strict security measures (including monitoring by the Defense Department of pre-launch meetings and thelaunches) precluded any assistance to the design, development, operation, maintenance,modification, or repair of any launch facility or rocket in China. Moreover, Undersecretary ofCommerce William Reinsch testified to Congress on April 28, 1998, that effective export controlson dual-use technology (with military and civilian applications) allow U.S. exporters to competewhile protecting U.S. security interests. He disputed that there were objections within theAdministration to allowing satellite exports to China, saying that after November 1996 (when thelicensing jurisdiction was transferred from the Department of State to Commerce), the CommerceDepartment issued three export licenses for satellites to be launched from China -- with theconcurrence of all agencies.

However, at least three classified studies found serious concerns about the U.S. firms' assistance to China's ballistic missile modernization program. A classified report at the Departmentof Defense's Defense Technology Security Administration (DTSA) reportedly concluded on May16, 1997, that Loral and Hughes transferred expertise to China that significantly enhanced theguidance and control systems of its nuclear ballistic missiles and that "United States national securityhas been harmed." (14) Significantly, the U.S. firmswere suspected of helping China to improvequality control and diagnostic techniques that would enable its aerospace engineers to detectproblems in guidance systems applicable to missiles. These concerns were first raised in a classifiedreport at the Air Force's National Air Intelligence Center (NAIC) in March 1997 and supported bythe State Department's Intelligence and Research Bureau (INR). (15) Also, analysis by CIA at the timedid not find "proliferation concerns." These reports apparently prompted the Justice Department'scriminal investigation that began in September 1997.

Also, the Justice Department had expressed concerns about the February 1998 Presidential waiver for the Chinasat-8 satellite. A memorandum, dated February 12, 1998, written by NationalSecurity Adviser Samuel Berger for President Clinton, acknowledged that the Justice Department"cautioned" that such a waiver "could have a significant adverse impact on any prosecution thatmight take place" in Loral's case. (16) Finally, therewas little public information on the export licensesissued by the State Department or Commerce Department for Technical Assistance Agreements(TAAs) concerning the transfer of technical assistance and data needed to mate satellites to launchvehicles (so-called "form, fit, and function" technical data).

While Loral's case continued to be under investigation by a federal grand jury, two incidents occurred with some embarrassment for the Clinton Administration. On March 16, 2000, U.S.Ambassador Joseph Prueher hosted a dinner in Beijing for representatives of Loral, LockheedMartin, Hughes, CASC, and ChinaSat. The Embassy denied that the subject of an export license forChinaSat 8 was discussed. (17) On July 17, 2000,the Defense Security Service issued an award for"outstanding security performance and practices" to Loral and 49 other companies, but thenrescinded the award for Loral after realizing it remained under investigation. (18)

Meanwhile, the Justice Department's campaign finance task force reportedly found no evidence that Loral's chairman Bernard Schwartz corruptly influenced President Clinton in his decision toapprove Loral's export of a satellite to China in 1998, according to the contents of an internal memoand related documents disclosed by the press. (19) At a Senate Judiciary Subcommittee hearing on May2, 2000, Senator Specter referred to this memo, written to Attorney General Janet Reno in thesummer of 1998 by Charles LaBella, then chief of the task force. According to Senator Specter,Schwartz had donated $1.5 million to the Democratic National Committee. LaBella was said to havewritten that Schwartz' case "was a matter which likely did not merit any investigation." Nonetheless, LaBella recommended that Reno appoint an independent prosecutor to dispose of thecase, because the allegations of political favors involved the President. LaBella reportedly alsocriticized Justice Department officials for ordering the investigation of Schwartz while excludingPresident Clinton. Reno denied LaBella's recommendations for the special counsel.

In the summer of 2001, it was disclosed that the George W. Bush Administration was negotiating with Loral and Hughes to reach civil settlements with the State Department, rather thanface the prosecution of criminal charges from the Justice Department. (20) Finally, on January 9, 2002,Loral announced that it had reached a $20 million settlement, whereby it agreed to pay a civil fineof $14 million to the State Department, "without admitting or denying the government's charges,"and to expend at least $6 million to strengthen its export control compliance program (with $2million already spent). Loral said that the Justice Department had ended its criminal investigationof the company and declined to pursue the case further.

Beyond the Loral Case. Beyond the 1996 incident involving Loral and Hughes, there were wider concerns that the policy of allowing China to launchU.S.-built satellites has effectively subsidized and assisted China's missile modernization. Observers pointed out that the same PRC companies and engineers work in both civilian and militaryprograms and that much of the technology used in launching satellites can be used in militaryprograms on missiles, satellites, and other areas.

Future developments in China's ICBM program have been related to the space launch program. U.S. intelligence reportedly has gained information about developments in China's ICBMs frominformation about PRC SLVs. (21) Jane's SpaceDirectory 1997-98 noted that China was not knownto use liquid oxygen/kerosene engines that were used extensively in other countries, "reflecting thespace variants' parallel development alongside storable propellant long range missiles."

There have been concerns that China may deploy ICBMs with multiple independently targetable reentry vehicles (MIRVs) in the future. In 1999, the House Select Committee on U.S. NationalSecurity and Military/Commercial Concerns with the People's Republic of China (popularly knownas the "Cox Committee") judged that, by 2015, the PLA could deploy up to 100 ICBMs with asmany as 1,000 thermonuclear warheads.

The Director of Central Intelligence (DCI)'s unclassified damage assessment of the PRC's suspected acquisition of U.S. nuclear weapon secrets found that China already has the "technicalcapability" to develop a MIRV system for the currently deployed ICBM but has not deployedMIRVs. Nonetheless, the DCI warned that "U.S. information acquired by the Chinese could helpthem develop a MIRV for a future mobile missile." (22) China first decided to develop MIRVs fordeployment in 1970. Development was in part stalled, however, by a lack of capability tominiaturize warheads. (23) The priority for theproject on MIRVs was lowered in March 1980, butresearch and development on MIRVs resumed on November 10, 1983, as part of the DF-5modification program. Also, China reportedly planned to add a new solid-propellant third stage (TS)to introduce a new LM-2E/TS SLV, with this third stage having a multiple-satellite dispenser tolaunch up to 12 satellites. Jane's Space Directory 1997-1998 reported that China developed arestartable, cryogenic (extremely low temperature) stage 3 for the LM-3 SLV.

Motorola. There were concerns that Motorola's use of a PRC-developed multi-satellite dispenser (called "Smart Dispenser") on a variant of theLM-2C to launch two Iridium satellites at a time helped the PRC to develop MIRV capability. The Washington Times reported that a December 1996 classified study by the Air Force's National AirIntelligence Center (NAIC) concluded that the new PRC-developed "smart dispenser," anupper-stage booster used to launch two satellites for Iridium on one LM 2C/SD rocket, could bemodified to deploy multiple re-entry vehicles. Nevertheless, the report noted that there was noevidence that China was using the dispenser, built in 1996, for warheads and that the PRC multiplewarhead system would be less accurate than U.S. and Russian systems. (24) A Pentagon spokesmansaid on July 14, 1998, that Motorola provided data to allow the PRC to attach satellites to thedispenser that it designed without U.S. help and that releasing multiple satellites and targetingmultiple warheads require different technology. Moreover, the Cox Committee concluded that"Motorola did not provide the PRC with information on how to design the Smart Dispenser; but thePRC built the Smart Dispenser indigenously to Motorola's specifications." (25)

Hughes. Some were especially concerned about PRC launches in 1995 and 1996 of three satellites built by Hughes which were not monitored by theDefense Department. On June 18, 1998, Jan Lodal, Principal Deputy Under Secretary of Defensefor Policy, testified to a joint hearing of the House National Security and International RelationsCommittees that there were three launches that were not monitored by the Defense Department,because the satellites did not require State Department licenses and monitoring had been tied tolicenses from the State Department for Munitions List items. The Director of DTSA, Dave Tarbell,testified to the Senate Select Committee on Intelligence on July 15, 1998, that the three unmonitoredlaunches took place in January 1995 (Apstar-2), July 1996 (Apstar-1A), and August 1996(Chinasat-7). The Department of Defense then concluded that full monitoring should be requiredfor satellites licensed by the Commerce Department, and the requirement was added after late 1996,he said. Nevertheless, Tarbell stated that "we are not aware of any transfer of technology from theseunmonitored launches that contributed to China's missile or military satellite capabilities." Hughesresponded that its security measures prevented unauthorized technology transfers.

However, Air Force Lieutenant Colonel Al Coates, a former Pentagon official who monitored launches in China until he resigned in November 1998, said that even with monitoring, Hughesemployees were more concerned about successful launches and were often careless about discussingsensitive information with the PRC. Coates said he did not get responses from superiors in thePentagon to his reports of security problems, but told Congress and the Justice Department. (26)

Some experts said that monitoring of technical exchanges was more crucial than monitoring the launches. Senator Kyl said on July 16, 1998, that, in addition to the three unmonitored launches,there was no monitoring of pre-launch technical exchanges on the mating of satellites to the launchvehicles for three satellite projects: Optus B-3 (Hughes), Echostar-1 (Martin Marietta), andChinastar-1 (Lockheed Martin). (27)

Congress and the Justice Department also began to investigate Hughes' review of the PRC launch failure on January 26, 1995 (of the Apstar-2 satellite). (28) Testifying before a joint hearing ofthe House National Security and International Relations Committees on June 18, 1998, UnderSecretary of Commerce for Export Administration William Reinsch acknowledged that, in the 1995case, his department alone had allowed Hughes to provide launch failure analysis to China. Hestated that after the Apstar-2 launch failure in 1995,

the company involved [Hughes] conducted an analysis without the participation of the Chinese launch service provider. The analysis was written in orderto satisfy insurance requirements. The analysis was reviewed by the Department of Commerce,which determined that it contained only information already authorized for export under the originalCommerce license issued in February 1994. The unclassified report was provided first to aconsortium of Western insurance companies and later to the Chinese launch serviceprovider.

At that hearing, David Tarbell, Director of the Defense Technology Security Administration (DTSA), confirmed that the Department of Defense (DOD) did not monitor the launch or the launchfailure analysis. Reinsch acknowledged that the Commerce Department did not consult with eitherthe Department of State or DOD. The decision to release the report to the PRC was made solely bya Commerce Department licensing officer. (29) Reinsch also acknowledged, however, that the authorityfor an additional license to conduct launch failure analysis was later specified to be the Departmentof State, not Commerce, when the licensing jurisdiction was transferred to Commerce in 1996.

At the request of Congress, DOD's DTSA and NAIC prepared and issued, on December 7, 1998, an initial assessment of the documents concerning Hughes' 1995 investigation that theDepartment of Commerce provided to DOD in July 1998. The unclassified report said thatCommerce did not consult with DOD or State (although the technical assistance constituted a"defense service" under State's export control jurisdiction and subject to DOD's monitoring) nordisclosed the documents until the June 1998 congressional hearings. The report concluded thatHughes' technical exchanges with the PRC raised national security concerns regarding violatingstandards of not improving PRC satellite or missile capabilities and "potentially contributing toChina's missile capabilities." While the report added that the benefits likely did not alter theU.S.-China "strategic military balance," the report did not look at whether China used theinformation for the PLA. DOD and State further examined whether the transferred informationbenefitted China's military. (30) On December 18,1998, the State Department's Office of DefenseTrade Controls (DTC) completed a sensitive but unclassified report, concluding that Hughes, inreviewing the January 1995 launch failure of Apstar-2, provided technical lessons that are"inherently applicable" to PRC missile as well as satellite launch programs. (31)

DOD said that, from February to August 1995, Hughes conducted the investigation closely and jointly with the PRC, specifically, CALT and China Great Wall, that included "significantinteraction" and meetings in China. Hughes gave PRC aerospace engineers specific information tomake their rockets more reliable. According to DOD, Hughes provided "sufficient know-how tocorrect the overall deficiencies" of "oversimplified" mathematical models used in designing launchvehicles, modifications for launch operations, details about satellite designs, as well as "insights"into U.S. diagnostics for improving rocket and satellite designs. Specifically, Hughes showed Chinahow to improve its coupled loads analysis that was "critically important" for ensuring the integrityof the rocket during flight and "serious flaws" in PRC modeling of aerodynamic loads on the rocketfairing (the top part of the rocket that covers payloads). Hughes denied advancing China's missilesand said that its report was approved by the Commerce Department. (32)

A task force formed by Hughes in December 1999 to assess its export compliance program issued its report on July 25, 2000. Former Senator Sam Nunn and former Undersecretary of DefensePaul Wolfowitz led the task force. They recommended 12 "best practices" for ensuring compliancewith export controls. (33)

In January 2002, when Loral announced that it reached a civil settlement with the State Department, Hughes began its own negotiations for a civil settlement. At that time, the JusticeDepartment ended its investigation of Hughes as well. (34)

Then on December 26, 2002, the Department of State's Office of Defense Trade Controls issued a letter charging the Hughes Electronics Corporation and Boeing Satellite Systems (whichacquired the Hughes Space and Communications Company in 2000) with 123 violations of the ArmsExport Control Act and International Traffic in Arms Regulations in connection with technologytransfers to China after the failed launches of the Apstar-2 satellite in January 1995 and theIntelsat-708 satellite in February 1996, and other activities. (35) The charges related to Hughes'interactions with China covering the following satellite projects:

Optus-B2

Apstar-2

Intelsat-708

Apstar-1A

APMT

Asiasat-3

Astra-1G/1H

In charging the companies, the State Department contrasted their response with the cooperation ofLoral, saying "unlike Loral, Hughes and Boeing have both failed to recognize the seriousness of theviolations and have been unprepared to take steps to resolve the matter or to ensure no recurrenceof violations in the future." (36)

The State Department also charged that Hughes, in July 1996, submitted a munitions export license application to have a PRC national, Shen Jun, serve as interpreter, without notifying thedepartment that Shen was the son of PLA Lieutenant General Shen Rongjun, a Deputy Director ofthe PLA's Commission of Science, Technology, and Industry for National Defense (COSTIND) withresponsibility for missiles and satellites. (The license was granted and later suspended on July 2,1998.)

On March 5, 2003, Hughes Electronics Corporation and Boeing Satellite Systems announced that they reached a settlement with the State Department with a civil penalty of $32 million ($4million for past expenditures on enhancing export programs, $8 million in future investments tostrengthen export control compliance programs, and $20 million paid over seven years). Thecompanies also said that they "acknowledge the nature and seriousness of the offenses charged bythe Department of State, including the harm such offenses could cause to the security and foreignpolicy interests of the United States." They further acknowledged that "assistance to a launchoperator ... could aid in the development of missile system technology and, thus, have a negativeimpact on national security." They expressed regret for not obtaining export licenses. (37)

Lockheed Martin. On April 4, 2000, the Department of State charged Lockheed Martin Corporation with 30 violations of the Arms Exportand Control Act. (38) The charges were civil chargesand did not involve criminal law. LockheedMartin denied that it violated export control laws and said that Martin Marietta (later acquired byLockheed) had obtained a license from the Department of Commerce before it assessed, in 1994, aPRC kick motor for the Asiasat-2 satellite. A kick motor is fired after launching a satellite to sendit into its final orbit. Asiasat-2 is owed by the Asia Satellite Telecommunications Company, basedin Hong Kong, that is partly owned by the China International Trust and Investment Corporation(CITIC), a PRC state-owned enterprise. Lockheed said that it had sent its 50-page technicalassessment to the Department of Defense for review and removal of sensitive information beforesending copies of the study to Asiasat and China Great Wall Industry Corporation. China alsodenied the charge, claiming that it had developed the kick motor by "entirely relying on its ownefforts." (39)

However, the State Department charged that Lockheed had sent the unedited version to Asiasat, before the Defense Department blacked out all but five pages of the report. The charges also allegedthat Lockheed failed to inform the Pentagon that it had already sent 10 unedited copies of the reportto Asiasat, until the U.S. Customs Service discovered them. The State Department also said thatsharing even the redacted version with China Great Wall violated export controls by sharingtechnical assistance that might enhance the PRC's space launch vehicles. Lockheed was alsocharged with identifying flaws in PRC testing procedures, confirming the results of PRC tests thatidentified faulty insulation, and identifying problems with U.S. solid rocket motor technologies.

On June 14, 2000, the Department of State announced that it had reached a consensual settlement with Lockheed Martin that involved total penalties of $13 million. Lockheed agreed topay $8 million over four years and use $5 million to set up a comprehensive computer control systemto which the Departments of Defense and State will have access over the next four years andimproved oversight procedures. The State Department said "we think that the information that wastransferred was inappropriate, and that the reports that were transferred were not appropriate, andthat there was a serious problem here that information had the potential to be used to be applied tomissile development." (40)

Military Benefit. Beyond the issue of whether sensitive technology or technical expertise in connection with satellite launches was transferred toChina, there has been disagreement on the extent to which such transfers have military benefit in thecontext of China's modernization of its nuclear-armed ballistic missiles and space systems. Chinareportedly has developed new land-mobile, solid-fuel DF-31 ICBMs for deployment in the early partof the 21st century. (41) As forsatellites with military applications, the PRC's military newspaperreported President Jiang Zemin as declaring in June 1991 that "in such a big country as ours, as itis neither possible nor necessary to build separate telecommunications systems for military use andcivil use respectively, we should take such a road as building a telecommunications system usablefor both military and civil purposes, which meet both peacetime and wartime needs." (42)

Some, including officials in the Clinton Administration, stressed that there were differences between the PRC SLVs and ICBMs and there have been no authorized missile technology transfersto China. On September 17, 1998, Principal Deputy Assistant Secretary of Defense Franklin Millertestified only about authorized significant technology transfers and that satellite launches have notprovided any benefits to current generation PRC ICBMs. He was not able to elaborate publicly onpotential improvements to new PRC ICBMs under development. (43) Admiral Joseph Prueher,Commander in Chief of U.S. Pacific forces, said on October 23, 1998, that any transfers of missiletechnology or know-how in connection with launching U.S. satellites in China have improved PRCICBMs "only incrementally, not by any quantum leaps and bounds" and "accelerated solution of atechnical guidance problem for one of their missiles." (44)

John Pike, Director of the Space Policy Project at the Federation of American Scientists, argued that there are significant differences between China's ballistic missiles and the Long March SLVs. (45) He said that the Long March SLVs were longer than the CSS-4 ICBM, so they flexed more duringascent. They also had bigger nose cones to hold satellites that were bigger than warheads. Thesecharacteristics resulted in stresses on the Long March. He also argued that deploying two satellitesfrom one Long March (as China has done for Iridium) was very different from launching MIRVs. Warheads, unlike satellites, were designed to survive greater vibrations and the heat of reenteringthe atmosphere.

Other experts stressed the commonalities between the technology as well as technical expertise used in rockets and missiles. A Senate subcommittee provided a graphical comparison of theapplicability of technology in SLVs and ballistic missiles prepared by the Central IntelligenceAgency (CIA). (46) In general terms, the CIAcompared 11 categories of technology and equipment. Six, or more than half, of the categories are the same for the SLV and ICBM; four categories aresimilar; while only missiles contain warheads. (See the table below.)

Table 1. Comparison of SLVs and Missiles

Henry Sokolski (Executive Director of the Nonproliferation Policy Education Center and a Defense official in the Bush (I) Administration) argued that "all of our satellite transfers have helpedChina perfect its military rocketry." He also wrote that "intangible technology" was critical to thetimely, reliable, and accurate placement of satellites into space as well as launches of warheadsagainst targets by ballistic missiles. Intangible technologies included: coupling load analysis,guidance data packages, upper-stage solid rocket propellant certification, upper-stage control designvalidation, lower-stage design validation, and general quality assurance. Also, multi-satellitedispensers could be modified as multiple-warhead dispensers, thus assisting China's reported effortsto develop a capability in MIRVs for its ICBMs. (47) China used such dispensers to launch multiplesatellites for Iridium.

Experts at the Monterey Institute of International Studies also pointed out that a significant portion of the components, technology, and expertise used in the research and development of SLVswere "virtually interchangeable" with that of ballistic missiles. These overlaps included: launchingmultiple satellites from a single SLV and delivering multiple warheads on a single missile. Similartechnology involved upper stage control systems (separation and ignition of the upper stage, attitudecontrol, and spin release of satellites), satellite dispensers (delivery of multiple satellites to separateorbits), coupling load analysis (to assure launches without damaging payloads), upper stagesolid-fuel engines, and kick motors (to deliver satellites into correct orbits). (48)

Nevertheless, they also argued that having the capability to launch multiple satellites would not translate into having a military capability to deliver MIRVs. Delivering multiple reentry vehicles intoplanned trajectories was more difficult than launching multiple satellites into orbit. MIRV capabilitywould require greater precision. Reentry vehicles, unlike satellites, would not have their own kickmotors. A MIRV capability would require rocket motors that can stop and restart.

Finally, in charging Lockheed Martin in April 2000 with violating the Arms Export Control Act by assessing a PRC kick motor for the Asiasat-2 satellite, the State Department spokesman declaredthat "any assistance to China that enhances its capabilities in space launch has the potential to beapplied to missile development." (49)

Administration and Congressional Action

Policies on Sanctions

China's organizations, such as China Great Wall Industry Corporation, have been affected by two categories of U.S. sanctions: those imposed for the 1989 Tiananmen crackdown and thoseimposed for missile proliferation.

Tiananmen Crackdown. In 1990, the United States imposed post-Tiananmen sanctions as required in the Foreign Relations Authorization Actfor FY1990 and FY1991 ( P.L. 101-246 ). Sec. 902(a) have required suspensions in programs relatedto: (1) Overseas Private Investment Corporation, (2) Trade and Development Agency, (3) exportsof Munitions List items, (4) exports of crime control equipment, (5) export of satellites for launchby China, (6) nuclear cooperation, and (7) liberalization of export controls. Suspensions (3) and (5)have affected export of satellites to China. Sec. 902(b) have allowed Presidential waivers of thosesuspensions by reporting that "it is in the national interest" to terminate a suspension.

Missile Proliferation. As for sanctions related to missile proliferation, (50) on April 30, 1991, theGeorge H.W. Bush Administration denied licensesfor the export of U.S. parts for a PRC satellite, the Dongfanghong-3, citing "serious proliferationconcerns." On May 27, 1991, President Bush declared sanctions on China for transferring toPakistan technology related to the M-11 short-range ballistic missile (category II), but not for thetransfer of complete missiles (category I). These sanctions, required by Sec. 73(a) of the ArmsExport Control Act (P.L. 90-629) and Sec. 11B(b)(1) of the Export Administration Act ( P.L. 96-72 ),were intended to enforce the international Missile Technology Control Regime (MTCR). Thesesanctions, which took effect on June 16 and 25, 1991, denied export licenses and waivers ofsanctions for: (1) high-speed computers to China, which can be used for missile flight testing; (2)satellites for launch by China; and (3) missile technology or equipment. They affected two PRCaerospace corporations: China Great Wall and China Precision Machinery Import ExportCorporation. President Bush waived these sanctions on March 23, 1992, after China agreed to abideby the MTCR guidelines.

The Clinton Administration imposed similar, category II sanctions on August 24, 1993, after China was again determined to have transferred M-11 related equipment to Pakistan, but notcomplete missiles. A total of 11 PRC defense industrial companies were sanctioned, includingChina Great Wall again. In 1993-1994, the U.S. aerospace industry and aerospace companyexecutives, including then-CEO of Hughes, C. Michael Armstrong, lobbied against sanctions andfor expansion of satellite exports to China. (51) China, on October 4, 1994, agreed not to export"ground-to-ground missiles" inherently capable of delivering at least 500 kg to at least 300 km --an understanding the U.S. side sought to include the M-11 missiles under the MTCR. On November1, 1994, the Administration waived those sanctions.

Still, questions persisted until 2000 about how to respond to persistent reports of PRC missile proliferation and whether new U.S. sanctions should be imposed for reported PRC missileproliferation in countries such as Pakistan and Iran, including the suspected transfer of completeM-11 missiles to Pakistan in November 1992. In preparing for the 1998 U.S.-PRC summit, theClinton Administration reportedly proposed supporting China as a partner in the MTCR, issuing ablanket waiver of post-Tiananmen sanctions on satellites, and increasing the quota on the numbersof satellites China is allowed to launch -- in return for further cooperation in missilenonproliferation, according to a Secret March 12, 1998, National Security Council memo (printedin the March 23, 1998 Washington Times ).

Then, on November 21, 2000, the Clinton Administration announced a U.S.-PRC agreement on missile nonproliferation. On the same day, the PRC Foreign Ministry first issued a statement that"China has no intention of assisting any country in any way in the development of ballistic missilesthat can be used to deliver nuclear weapons (i.e., missiles which can deliver an effective payload ofat least 500 kilograms a distance of at least 300 kilometers)." Additionally, the ministry stated that"China will further improve and strengthen its export control system in keeping with its own missilenon-proliferation policies and export control practices, and this will include issuing a comprehensiveexport control list for missile-related items, including dual use items." (52) Following that statement,the State Department announced that the United States had determined that PRC entities hadcontributed to missile proliferation in Pakistan (Category I and II items) and Iran (Category II items),and that U.S. sanctions would be waived on PRC entities for the past transfers, but imposed onPakistani and Iranian ones. Furthermore, the United States agreed to resume processing -- notnecessarily approving -- licenses for exporting satellites to China. Thirdly, the United States agreedto resume discussions on extending the 1995 U.S.-China Agreement Regarding International Tradein Commercial Launch Services (due to expire on December 31, 2001). (53)

After the George W. Bush Administration began, the U.S. Trade Representative (USTR) led the U.S. team to hold consultations on the space launch agreement in Beijing in March 2001. Thenon July 28, 2001, visiting Beijing ahead of President Bush's travels there in October, Secretary ofState Powell confirmed that there are "outstanding issues" about China's fulfillment of theNovember 2000 missile nonproliferation agreement and reported that expert talks would be held onnonproliferation. The expert talks were held on August 23 in Beijing, but the State Departmentreported that additional work was needed to "clarify China willingness to implement fully" thatagreement, while "the results have been mixed."

Thus, on September 1, 2001, the State Department imposed sanctions for 2 years on a PRC company, the China Metallurgical Equipment Corporation (CMEC), for proliferation of missiletechnology (Category II items of the MTCR) to Pakistan. Imposed under the Arms Export ControlAct (AECA) and Export Administration Act, the sanctions also applied to Pakistan's NationalDevelopment Complex. (54) The sanctionseffectively denied licenses for the export of satellites toChina for use or launch by its aerospace entities, because the Category II sanctions deny U.S.licenses to transfer missile equipment or technology (MTCR Annex items) to any PRC "person,"which was defined by Section 74(8)(B) of the AECA (popularly known as the "Helms Amendment")as any PRC government activity related to missiles, electronics, space systems, or military aircraft,and the State Department has considered that satellites are covered by the MTCR Annex sincesatellite parts are listed there. With persistent questions about China's adherence to its missilenonproliferation pledges, President Bush did not waive the sanctions. Then, on September 19, 2003,the State Department imposed sanctions on a PRC defense industrial entity (NORINCO) for missileproliferation, effectively banning satellite exports to China for 2 more years. (See CRS Report RL31555 , China and Proliferation of Weapons of Mass Destruction and Missiles: Policy Issues , byShirley Kan.) China has had no commercial satellite launches since 2000 (see Table 3 ).

Waivers for Post-Tiananmen Sanctions

After sanctions for the Tiananmen crackdown were imposed in 1989, Presidents Bush and Clinton issued 13 waivers for 20 satellite projects (projects may involve multiple satellites), basedon "national interest," on a case-by-case basis, to allow the export to China of U.S.-origin satellitesor components subject to export controls. (See the table below.) Waivers have been increasinglyissued for satellites used by China -- not just launched from China. Some waivers under Section902 of P.L. 101-246 have specified whether sections 902(a)(3) and 902(a)(5), on Munitions Listitems and satellites, applied; others simply referred to section 902 or 902(a).

The policy of allowing China to launch U.S.-built satellites has been tied to the missile proliferation issue, partly because the same PRC aerospace organizations have been involved in both. However, a month before the Bush Administration issued missile proliferation sanctions on May 27,1991, the President issued a waiver of post-Tiananmen sanctions for Australian and Swedishsatellites (while denying an export license for U.S. parts for a PRC satellite). The ClintonAdministration again imposed missile proliferation sanctions on August 24, 1993, but PresidentClinton first issued a waiver of post-Tiananmen sanctions on July 2, 1993, for the export of Iridiumand Intelsat-8 satellites to China. Then, even while sanctions were in place on China Great Wall andother PRC companies for missile proliferation, President Clinton issued another waiver ofpost-Tiananmen sanctions on July 13, 1994.

Additional Congressional Mandates

In 1998, Congress passed the Defense Authorization Act for FY1999 ( P.L. 105-261 ), with additional language on Presidential actions affecting satellite exports to China (also discussed belowunder Legislation). First, Section 1511 of the Act expressed the sense of Congress, among otherviews, that the President should not issue any blanket waiver of post-Tiananmen sanctions forexports of satellites to be launched by China. Second, Section 1512 required the President to certifyto Congress at least 15 days before exporting missile equipment or technology to China that suchexport would not be detrimental to the U.S. space launch industry and would not measurablyimprove PRC missile or space launch capabilities. Third, Section 1515 required a detailedjustification (covering 13 national security and economic areas) to accompany the President'swaiver, based on "national interest," of post-Tiananmen sanctions for satellite exports to China.

Table 2. Presidential Waivers of Post-Tiananmen Sanctions forExports of Satellites or Parts to China

Notes:

a. Asia Satellite Telecommunications was a consortium based in Hong Kong and owned by ChinaInternational Trust and Investment Corporation (CITIC) of China, Cable and Wireless ofBritain, and Hutchison Telecommunications Ltd. Of Hong Kong.

b. In the first waiver, President George H.W. Bush had waived sanctions for Aussat satellites, but he reissued a new waiver and licenses. He also denied export licenses for U.S. components fora PRC satellite, Dongfanghong-3 (waived later).

c. Used by China Oriental Telecom Satellite Co.

d. Various PRC state-owned companies invested in the project.

e. Cooperative product between Daimler-Benz Aerospace and China Aerospace Corp.

Hearings of the 105th Congress

Since the Reagan Administration's decision in September 1988 to allow U.S.-built satellites to be launched from China, Members of Congress periodically have expressed concerns about theimplications for U.S. national security. After the press reports in April 1998 on Loral and Hughes,the 105th Congress held a number of open and closed hearings to examine the allegations ofcorporate misconduct and weaknesses in U.S. policy, including those by the following committees.

Joint Economic Committee, April 28, 1998.

Senate Governmental Affairs Subcommittee on International Security, Proliferation, and FederalServices, May 21, 1998.

Senate Intelligence Committee, June 4, 1998.

Senate Intelligence Committee, June 5, 1998.

Senate Intelligence Committee, June 10, 1998.

Senate Foreign Relations Committee, June 11, 1998.

House National Security/International Relations Committees, June 17, 1998.

House National Security/International Relations Committees, June 18 and 23, 1998.

Senate Foreign Relations Subcommittee on East Asian/Pacific Affairs, June 18, 1998.

Senate Governmental Affairs Subcommittee on International Security, Proliferation, and FederalServices, June 18 and July 8, 1998.

Senate Intelligence Committee, June 24, 1998.

House Science Committee, June 25, 1998.

Senate Foreign Relations Committee, June 25, 1998.

Senate Governmental Affairs Committee, June 25, 1998.

Senate Intelligence Committee, July 8, 1998.

Senate Armed Services Committee, July 9, 1998.

Senate Intelligence Committee, July 15, 1998.

Senate Governmental Affairs Subcommittee on International Security, Proliferation, and FederalServices, July 29, 1998.

Senate Commerce, Science, and Transportation Committee, September 17, 1998.

Investigations

Cox Committee. In addition to those hearings in the 105th Congress, House Speaker Gingrich announced on May 19, 1998, that he wanted to createa select committee, headed by Congressman Cox, to investigate the various allegations concerningthis case. The House voted on H.Res. 463 (Solomon) (409-10) on June 18, 1998, tocreate the Select Committee on U.S. National Security and Military/Commercial Concerns with thePeople's Republic of China, popularly known as the "Cox Committee." (55) The committee had ninemembers: five Republicans (Representatives Cox, Goss, Hansen, Bereuter, and Weldon) and fourDemocrats (Representatives Dicks, Spratt, Jr., Roybal-Allard, and Scott). The panel held numerousclosed hearings and received wide-ranging briefings. The committee expanded its investigations toinclude policies before the Clinton Administration, other dual-use technology exports, includinghigh-performance computers and machine tools, (56) and suspected acquisitions of U.S. nuclearweapons secrets.

On December 30, 1998, Rep. Cox and Dicks, the chair and ranking Democrat, said in a news conference that the bipartisan committee unanimously approved a 700-page, classified report on itsbroad, six-month investigation. The committee was extended for the first three months of the 106thCongress to work with the Administration on a declassified version. (57) Meanwhile, the White Houserevealed the recommendations in its February 1, 1999 response.

There were then disagreements between the Select Committee and the White House on how much to declassify, particularly about the cases at the nuclear weapon labs. Representative Cox saidon March 3, 1999, that the House may vote during the week of March 22 to release an edited,unclassified version of the report, if there were no agreement with the Administration. However,Representative Dicks described such a move as a "dangerous precedent" to release classifiedinformation over the President's objections. (58) TheHouse did not vote to release the report withoutthe Administration's approval, and on March 24, 1999, passed H.Res. 129 to furtherextend the Select Committee on China for a month, until April 30, 1999. Meanwhile,Representatives Cox and Dicks briefed President Clinton on April 22, 1999, about the findings ofthe committee's report. (59) The House agreed to H.Res. 153 , on April 29, 1999, to furtherextend the committee until May 14, 1999, and approved H.Res. 170 , on May 13, 1999,to extend the date to May 31, 1999. On May 25, 1999, the Cox Committee released the declassifiedversion of its January 3, 1999 classified report on its investigation of U.S. technology transfers toChina. (60) (See CRS Report RL30220(pdf) .)

The committee concluded that, over at least the last 20 years, China has pursued a "serious, sustained" effort to acquire advanced American technology -- covering "more serious nationalsecurity problems than the Loral-Hughes cases," and that technology acquisition has harmed U.S.national security. The Committee's report agreed with intelligence assessments that Loral andHughes helped to improve China's missile capabilities. The committee made 38 recommendationsfor remedies, including possible legislation, mostly to tighten export controls (e.g., giving theDepartments of Defense and State more say) and security at the national labs. The committeeapparently did not focus on the question of PRC political donations nor requested the JusticeDepartment to begin new investigations. Loral and Hughes denied having violated the law. (61)

Shifting attention from missile technology to nuclear weapons, the Cox Committee reviewed the most serious concerns that the PRC had stolen information on nuclear weapons allegedly fromU.S. national laboratories of the Department of Energy. A third incident has been made publicinvolving the W-88 nuclear warhead (deployed on the Trident II submarine-launched ballisticmissile). (62) The Federal Bureau of Investigation(FBI) investigated that incident in which Chinareportedly received data from Los Alamos National Lab in the mid-1980s, but the case wasuncovered in 1995. Two other cases involving China and U.S. labs were previously reported. (63) Representative Dicks said that the most important matter to be learned from the committee's reportwill be "that for 20 years, starting in the 1980s, we had a major counterintelligence failure at LosAlamos and at other national labs that is now being corrected." (64) Allegations of the PRC'sacquisition of nuclear weapon secrets were publicly confirmed by U.S. intelligence on April 21,1999. (65) In 2000, U.S. intelligence reportedlyconcluded from additional translations of PRCdocuments obtained in 1995 that PRC espionage has gathered classified information on U.S. ballisticmissiles and reentry vehicles, in addition to that on nuclear weapons. (66)

According to the Cox Committee, "the PRC has stolen or otherwise illegally obtained U.S. missile and space technology that improves the PRC's military and intelligence capabilities." Afterthree failed satellite launches in 1992, 1995, and 1996, U.S. satellite makers (Hughes and Loral)transferred missile design information and know-how to China without required export licenses fromthe Department of State "in violation of the International Traffic in Arms Regulations." The U.S.firms gave technical information that has improved the "reliability" of PRC rockets used to launchsatellites with civilian and military purposes. The information was also useful for the design andimproved reliability of "future PRC ballistic missiles." Specifically, the committee found that in1993 and 1995, Hughes "illegally" recommended to the PRC improvements to the fairing (nose conethat protects the payload), and in 1996, Loral and Hughes helped the PRC improve the guidance ofa failed rocket, and in so doing, "deliberately acted without the legally required license and violatedU.S. export control laws."

Regarding Hughes, the committee's report printed an unclassified assessment completed on December 18, 1998, by the State Department's Office of Defense Trade Controls. That officeconcluded that, in reviewing the PRC launch failure of January 1995 that involved a LM-2E spacelaunch vehicle (SLV) and the Apstar-2 satellite, Hughes engaged in technical discussions with thePRC, without U.S. government monitors, that resulted in "significant improvement to the PRCspacelift program and contributed to China's goal of assured access to space." Moreover, "thelessons learned by the Chinese are inherently applicable to their missile programs as well, sinceSLVs and ICBMs share many common technologies."

As for Loral and Hughes' activities in 1996, the committee reported that a 1998 interagency review determined that the "technical issue of greatest concern was the exposure of the PRC toWestern diagnostic processes, which could lead to improvements in reliability for all PRC missileand rocket programs." The improvements to China's missile program could come from "increasedproduction efficiency, and improved reliability through adoption of improved quality control andreliability-enhancing measures in design and manufacturing that were introduced after the accidentinvestigation, including some that the [Loral-led] Independent Review Committee advocated." Thecommittee judged that the guidance system of the Long March 3B rocket, reviewed by Loral andHughes in 1996, was "among the systems capable of being adapted for use in the PRC's plannedroad-mobile intercontinental ballistic missiles" (i.e., the DF-31).

There were previous concerns that after the explosion that destroyed the Loral-built Intelsat-708 satellite in 1996, classified U.S. encryption boards were lost to China. The committeereported that while the two FAC-3R encryption boards were not recovered from the crash site byLoral, they "most likely were destroyed in the explosion." While it is not known whether the PRCrecovered the boards, even if they did, "it would be difficult for the PRC to determine thecryptographic algorithm that was imprinted on them," and "reverse-engineering of a damaged boardwould be even more difficult." Thus, "the National Security Agency remains convinced that thereis no risk to other satellite systems, now or in the future, resulting from having not recovering theFAC-3R boards from the PRC."

Contrary to earlier allegations of U.S. assistance for China's development of multiple satellite dispensers and MIRVs, the committee determined that "Motorola did not provide the PRC withinformation on how to design the Smart Dispenser; rather, the PRC built the Smart Dispenserindigenously to Motorola's specifications."

The Cox report agreed with earlier public assessments of the Administration that, in the 1990s, the PRC has deployed a total of approximately 20 CSS-4 ICBMs in silos, but contrary to the WhiteHouse's June 1998 announcement of a detargeting agreement with China, "most" of those ICBMsremain targeted on the United States. Nonetheless, the report noted previous statements by U.S.intelligence that the "CSS-4s are deployed in their silos without warheads and without propellantsduring day-to-day operations." The committee judged that "within 15 years," China's missilemodernization program could result in the deployment of up to 100 ICBMs. Moreover, if Chinaaggressively developed MIRVs, it could deploy "upwards of 1,000 thermonuclear warheads onICBMs by 2015." Confirming suspicions of problems in China's SLBM force, the committeereported that while China developed a JL-1 SLBM to be launched from the PLA's Xia-classnuclear-powered submarine, the PRC has not yet deployed the JL-1 SLBM.

In June 1999, Loral Space and Communications published a full-page response to the Cox report. Loral said that its employees "acted in good faith and did nothing to violate export controlregulations or the law or to harm national security." Nonetheless, Loral's statement acknowledgedthat "mistakes were made." Loral also referred to sensitive information that could have beenconveyed at the meetings, saying that "unfortunately, the [Review] Committee secretary, a Loralengineer, had already faxed a copy of the report [reviewing the launch failure] to the Chinese in theprocess of sending it to the Committee members. However, prior to doing so, the secretary tookmeasures to delete all sensitive material from the report." (67)

In its recommendations related to satellite exports, the Cox Committee:

Expected that the executive branch will aggressively implement the Satellite Export Control provisions of the Strom Thurmond National Defense Authorization Act forFY1999.

Stated that the congressional judgment that the Department of State is theappropriate agency for licensing both exports of satellites and any satellite launch failureinvestigations must be faithfully and fully implemented.

Stated that the Department of State must ensure, consistent with nationalsecurity, that satellite export licenses and notices to Congress are acted on in a timely fashion andthat exporters are informed about the progress of their applications and have access to appropriatedispute resolution procedures. The executive branch and Congress should ensure that theDepartment of State has adequate personnel and resources devoted to processing export licenseapplications.

Recommended that congressional committees report legislation to ensure thatsatellite manufacturers are not disadvantaged in collateral areas such as tax credits by the transferof licensing responsibility to the Department of State.

Stated that DOD must give high priority to obligations under the StromThurmond National Defense Authorization Act, including requirements for monitoring launches andtechnology control plans.

Recommended that congressional committees report legislation providing that,in connection with foreign launches of U.S. satellites, DOD shall contract for security personnel whohave undergone background checks to verify their loyalty and reliability. The number of guards shallbe sufficient to maintain 24-hour security of the satellites and all related missile and other sensitivetechnology. The satellite export licensee shall be required to reimburse DOD for all associated costsof such security.

Recommended that DOD shall ensure sufficient training for space launchcampaign monitors and the assignment of adequate numbers of monitors to space launchcampaigns.

Recommended that DOD monitors shall maintain logs of all informationauthorized for transmission to the PRC, and such information shall be transmitted to DOD, State,Commerce, and the CIA.

Recommended that relevant departments and agencies ensure that the laws andregulations on export controls are applied in full to communications among satellite manufacturers,purchasers, and the insurance industry, including communications after launchfailures.

Recommended that, in light of the impact on U.S. national security ofinsufficient domestic, commercial space launch capacity and competition, congressional committeesreport legislation to encourage and stimulate further the expansion of such capacity andcompetition.

Clinton Administration's Response. The Clinton Administration expressed concerns about implications of the Cox Committee's recommendationsfor U.S. exports. Under Secretary of Commerce William Reinsch said in a speech on export controlsto high-tech companies that there were those in Congress who "do not understand" the "political andeconomic transformations" in recent years and "respond to them by trying to return to the simplerera of the Cold War and a single bipolar adversary. Only this time, it is China. A good example ofthis is the Cox Committee. . ." (68)

On February 1, 1999, the National Security Council (NSC) of the White House issued a 32-page unclassified version of its response to the House Select Committee's 38 recommendations, (69) even before the committee's report was declassified. Those issues pertained to several broad areas:

security on nuclear weapons at national labs;

multilateral export control and weapon nonproliferation efforts;

satellite launches;

high-performance computers;

export controls; and

counter-intelligence.

The White House said it agreed with some of the recommendations or has already addressed those concerns. The NSC, however, opposed other recommendations, including the followingobjections:

assessments at the Departments of State, Defense, Energy, and Justice, and the CIA on security risks in U.S.-PRC lab-to-lab exchanges should be conducted by intelligence experts,not inspector generals;

the United States should not deny exports of high-performance computers ifChina does not permit effective end-use verification, including surprise on-site inspections, by an"arbitrary deadline" of September 30, 1999;

export control procedures do not need longer review periods where an agency'smid-level officials may "stop the clock" on national security grounds with "indefinite" and"unjustified" delays;

export control procedures requiring consensus of reviewing agencies would"hinder the deliberative process;"

new legislation, beyond the Hong Kong Policy Act of 1992, was not neededto require examination of: trade flows to China through Hong Kong, U.S. export control policy oftreating Hong Kong differently from China, and unmonitored border crossings by PRC militaryvehicles;

legislation that would amend the Defense Production Act of 1950 to requiremandatory notifications to the Committee on Foreign Investment in the United States (CFIUS) byany U.S. national security-related business of any planned mergers, acquisition, or takeovers by aforeign or foreign-controlled entity could "chill legitimate foreign investment" that is strongly inU.S. interests;

the Department of Justice deemed it "unnecessary" to have legislation directingit to promptly share national security information with other agencies through the establishment ofan interagency mechanism.

Senate Task Force. In the Senate, Majority Leader Lott announced, on May 20, 1998, the creation of a Task Force, with Senators Shelby, Helms,Thurmond, Thompson, Cochran, Kyl, and Hutchinson. The task force, which first met on June 2,1998, oversaw the four investigations of the Committees on Intelligence, Foreign Relations, ArmedServices, and Governmental Affairs. (70) On May29, 1998, Senate Democratic Leader Daschleapproved a Democratic Task Force, with Senators Kerrey, Biden, Sarbanes, Glenn, Leahy, Levin,Kerry, and Feinstein.

On July 14, 1998, Senator Lott made a floor statement on interim findings that sensitive U.S. technology relating to satellite exports has been transferred to China and that those transfers providedmilitary benefits. He reported five "major interim judgments:"

the Clinton Administration's export controls on satellites were wholly inadequate;"

sensitive technology related to satellite exports was transferred toChina;

China received military benefit from U.S. satelliteexports;

the Administration ignored overwhelming information regarding PRCproliferation and has embarked on a de facto policy designed to protect China and U.S. satellitecompanies from sanctions under U.S. proliferation laws;

new information came to light about China's efforts to influence the U.S.political process.

Senator Shelby stated on July 14, 1998, that "some of the tendencies of the evidence tend to support" Senator Lott's statement, but that "the Intelligence Committee has not reached anypreliminary judgment." The Pentagon's spokesman, Kenneth Bacon, responded to Senator Lott bysaying that the Administration submitted requested documents to Congress and had inheritedsafeguards from previous Administrations that prevent inappropriate technology transfers to China.

The Senate Intelligence Committee's investigations covered two categories:

U.S. export control policies, since 1988, on PRC launches of U.S.-built satellites and implications for U.S. national security;

any secret PRC program to contribute political donations and influence theU.S. political process in 1996. (71)

On May 7, 1999, the Senate Committee on Intelligence released its 45-page, unclassified report that it had approved two days before in a bipartisan 16-1 vote. (72) The office of Senator Graham, whodissented, explained he was concerned that the process did not allow sufficient time for the membersto review the report before the vote. As urged by Senator Levin, the sections on possible missiletechnology transfers and PRC efforts to influence U.S. policies were kept separate, because noevidence of a link between the two issues was found. (73) The report included a number of findings andrecommendations.

On security implications of any U.S. technology transfers for China's military and missile programs, the committee found no evidence that U.S. technology had been incorporated into the currently deployed PRC ICBM force, while noting that such integration may not be apparent forseveral years if at all. The report also stated that "extensive assistance from non-U.S. foreign sourcesprobably is more important" than technology transfers associated with satellite launches. Nonetheless, the committee concluded that "the technical information transferred during certainsatellite launch campaigns enables the PRC to improve its present and future ICBM force thatthreatens the United States," as well as short-range and intermediate-range ballistic missiles thatthreaten U.S. military forces and allies in Asia. Further, U.S. national security may be harmed,according to the report, if China proliferated missile systems improved by U.S. technology. Thecommittee also found that improvements to China's space launch capability also enhanced its useof space for military reconnaissance, communications, and meteorology, posing challenges to U.S.national security. The committee found, that despite assurances of government monitoring andsecurity safeguards, there were security violations and "significant weaknesses" in theimplementation of the satellite export policy since the Reagan Administration. U.S. satellite exportsto China, the committee concluded, have "created a tension between U.S. national security interestsand U.S. commercial interests," and "this tension and conflict of interests have been problematicthroughout the U.S.-PRC satellite launch relationship."

The Committee made 10 recommendations related to strengthening controls over satellite exports. These included:

authority for monitors from the Defense Threat Reduction Agency (DTRA) to suspend launch-related activities;

strengthening DTRA to monitor satellite launchesoverseas;

annual reports from DTRA to Congress on implementation of technologysafeguards;

adherence by the Department of State to strict timetables in reviewing licenseapplications;

intelligence review in the licensing process;

intelligence assessments of foreign efforts to acquire U.S.technology;

consideration of investigations for export control violations associated withsatellite exports;

call for the Administration to use all available means to obtain PRCcompliance with the MTCR;

efforts by the Administration and Congress to encourage expansion of the U.S.commercial launch industry; and

reappraisal of the policy to export satellites to China, including whether itshould be phased out.

Clinton Administration's Response. The White House issued a response to the Senate Intelligence Committee's report on May 7, 1999. (74) TheAdministration acknowledged that it shared the Committee's concern that "unauthorized assistanceand transfers of technology relevant to space launch vehicles and ballistic missiles may haveoccurred during certain space launch failure analyses." The statement also noted the Department ofJustice's investigations into those allegations. The White House agreed and confirmed that U.S.concerns did not center on China's "currently deployed ICBM force," but that "unauthorizedassistance and transfers of space launch vehicle and satellite technology could assist China in thedevelopment of future ballistic missiles." While concurring with most of the committee'srecommendations, the Administration disagreed with the last one, saying that "the longstandingpolicy of permitting the launch of U.S. commercial satellites by China, with strong technologycontrols, serves our overall national interest." However, this statement did not cover China'sincreasing use (not just launch) of such satellites.

Export Controls and Intelligence. In addition, congressional investigations expanded to include concerns about alleged politicization of exportcontrol and intelligence in the Clinton Administration. Export control specialists skeptical ofliberalizing controls on dual-use technology transfers to China complained that decision-makers, inapproving exports, ignored evidence of U.S. firms helping China's military. One manager in DTSA,Michael Maloof, reportedly kept a diary of export control cases critical of the Commerce Departmentand his superiors at DTSA, including David Tarbell. Maloof's information was shared with theHouse Select Committee in August 1998 and also with the Department of Justice and CustomsService. His criticisms reportedly covered alleged close ties between Tarbell and Hughes. Tarbelldenied showing favoritism to Hughes. The Pentagon's spokesman dismissed Maloof's charges as"ideological differences" about U.S. policy toward China, while Peter Leitner, another DTSAemployee who briefed Congress, criticized "long-time ideological opponents" of export controls. (75)

Meanwhile, at the request of the Senate Intelligence Committee, the Justice Department began an unusual criminal investigation in 1998 into whether the CIA obstructed justice when it allegedlywarned Hughes about the committee's interest in some of its employees. CIA officials agreed totestify before a federal grand jury in Washington in December 1998. In April 1996, a CIA analyst,Ronald Pandolfi, had reportedly prepared a National Intelligence Estimate (NIE) on how Hughesmay have helped to improve China's missile capabilities, but the CIA reportedly did not approve theNIE. In September 1998, Pandolfi briefed the committee on what he found in 1995 (after Hughesreviewed the explosion of a Long March rocket in January 1995). The CIA then told Hughes aboutPandolfi's briefing for the committee. Administration officials said that the CIA advised Hughesabout providing names of its executives to the committee in order to urge Hughes to cooperate anddenied that the CIA tried to hinder the committee's investigation. Nonetheless, the committeequestioned whether the Clinton Administration's policy of engagement with China influencedintelligence assessments about China. (76) Confirming that he and Senator Bob Kerrey, the vicechairman, had found out about the CIA's contact with Hughes in an internal CIA cable datedSeptember 23, 1998, and then asked Attorney General Janet Reno for the criminal investigation,Senator Shelby said in September 2000 that the Justice Department decided not to charge anunnamed CIA official with obstructing a Senate investigation. (77)

In another case, the Cox Committee asked the CIA to provide a classified cable written in March 1996 on Hughes and Loral that had not been provided to the Justice Department until thesecongressional investigations began. The CIA's inspector general began investigating the allegedfailure to pass the cable to Justice, which the CIA characterized as an oversight. The message wassaid to have reported on an American consultant, Bansang Lee, who worked for Hughes from 1989to 1995, when Loral hired him to work on sales of satellites, including Chinasat-8. In helping to sellsatellites to China and to export them for launch from there, Lee allegedly made illegal payments toand received payments from PRC aerospace executives. Lee's lawyer stated that Lee "has nevermade any unlawful or improper payments of any kind to any Chinese official," and spokesmen forHughes and Loral also denied any wrongdoing. (78)

Senator Specter's Investigation. In October 1999, Senator Specter, under the jurisdiction of the Senate Judiciary Subcommittee on AdministrativeOversight and the Courts, began holding hearings in his investigation into the Justice Department'shandling of the PRC's suspected acquisition of missile technology and nuclear weapon secrets,campaign finance, Waco, and other issues.

Legislation

105th Congress. In the 105th Congress, theHouse-passed National Defense Authorization Act for FY1999 ( H.R. 3616 ) includedamendments (sections 1206-1209) passed on May 20, 1998, that sought to express the sense ofCongress that the United States should not enter into new agreements with China involving spaceor missile-related technology (Spence, agreed 417-4); prohibit U.S. participation in investigationsof PRC launch failures (Bereuter, agreed 414-7); prohibit transfers of missile equipment ortechnology to China (Hefley, agreed 412-6); and prohibit the export or re-export of U.S. satellitesto China (Hunter, agreed 364-54). Also, section 1212 sought to return control over licensing exportof satellites from the Commerce Department to the State Department (under the Munitions Listcontrolled under the Arms Export Control Act).

On June 4, 1998, Senator Hutchinson submitted an amendment to the Senate-passed Defense Authorization Act for FY1999 ( S. 2057 ), which was ordered to lie on the table. Itsought to amend the language authorizing Presidential waivers of post-Tiananmen sanctions bysubstituting a narrower basis ("in the vital national security interest") for the current language ("inthe national interest"), and add a requirement for the President to submit a detailed justification foreach waiver.

On July 22, 1998, Senator Hutchinson filed but did not offer Amendment 3250 to the Senate-passed Defense Appropriations Act for FY1999 ( S. 2132 / H.R. 4103 ) to transfer the export control of satellites back to the State Department and require a detailedjustification for Presidential waivers of post-Tiananmen sanctions for exports of satellites or defensearticles. On July 30, 1998, Senator Kyl proposed Amendment 3398 to this bill to limit the use offunds pending the establishment of the position of Deputy Under Secretary of Defense forTechnology Security Policy who would also serve as the director of DTSA.

Although the Senate's version of the Defense Authorization Act for FY1999 ( S. 2057 ) did not include the restrictions on satellite exports, the Senate Task Force led by MajorityLeader Lott, as proposed by Senator Helms of the Foreign Relations Committee, was in favor oftransferring the licensing authority over satellites back to the State Department. (79) At a conferencecommittee meeting on September 17, 1998, House and Senate conferees agreed to transfer thelicensing authority over commercial satellites back to the State Department in an effort to strengthenexport controls. (80) They did not agree to banfurther satellite exports to China, as some advocated incalling for a reassessment of the policy of allowing China to launch U.S.-origin satellites. (81) U.S.policy might have also distinguished between exports of satellites for PRC launch only and satellitesfor PRC use. Some said it would be difficult to prevent the PLA from using commercial satellitesowned by China. Others said that it was up to Congress to assess the state of U.S. dual-use exportcontrols by passing a law to replace the Export Administration Act that expired in 1994. (82)

Section 1511 of the Act ( P.L. 105-261 ) expressed the sense of Congress, among other views, that the President should not issue any blanket waiver of post-Tiananmen sanctions (in P.L. 101-246 )for satellite exports to China. Section 1512 required the President to certify to Congress beforeexporting missile technology to China that such export will not be detrimental to the U.S. spacelaunch industry and will not measurably improve PRC missile or space launch capabilities. Section1513 transferred satellites controlled under the Commerce Department's Commerce Control Listback to the State Department's Munitions List, effective March 15, 1999. That section also requireda report from the Secretary of State on implementation, improvement to the timeliness andtransparency of the license review process, adequacy of resources, and recommendations foramending the Arms Export Control Act. Section 1514 mandated additional requirements tostrengthen national security controls over satellite exports, including mandatory licenses for launchfailure investigations, mandatory intelligence review of license applications and TAAs consideredby the Departments of Commerce and State for foreign launches of satellites, and notification toCongress of export licenses issued for satellite launches; with the exception of satellites exportedfor launch by members of the North Atlantic Treaty Organization (NATO) or a major non-NATOally. Section 1515 required a detailed justification to accompany the President's waiver ofpost-Tiananmen sanctions for satellite exports to China. Section 1521 required the establishmentof a Deputy Under Secretary of Defense for Technology Security Policy to serve as the director ofDTSA.

There had been concerns in Congress about how the Administration would implement the requirement to shift licensing authority back to State. Despite signing the Act on October 17, 1998,President Clinton said he "strongly opposed" the transfer of authority. He also warned that he would"take action to minimize the potential damage to U.S. interests" and order appropriate agencies toimplement the change "in a manner consistent with current dual-use export license processing." (83) National Security Adviser Samuel Berger reportedly urged a veto and included the strong language. (84) In coordination with the U.S. satellite industry which has preferred speedier and more predictablelicensing procedures, (85) the White House's NationalSecurity Council reportedly drafted an executiveorder for the President to issue to accord the Commerce Department a continuing role in licensingsatellite exports, perhaps the authority to appeal the decisions of the State Department on MunitionsList items, including satellites. (86) In response, thechairmen of six House and Senate committees(National Security, Armed Services, International Relations, Foreign Relations, Intelligence) wrotea letter on December 9, 1998, warning the President against "direct contravention" of the legislation.

As required by section 1513, the Secretary of State submitted to Congress on January 21, 1999, the plan on regaining licensing authority over commercial satellites as Munitions List items onMarch 15, 1999. It included a goal (but not a limit) of timely review of licenses within 90 workingdays; procedures for Commerce to comment, but not veto, licensing reviews; and veto authority forthe Defense Department (that would not be subject to appeal by the Commerce Department). Itstated that "no new Executive Order is needed," and decisions on defense exports are madeexclusively by the Departments of State and Defense and "solely on the basis of national security andforeign policy." (87) The Defense Department's newSpace Launch Monitoring Division of the DefenseThreat Reduction Agency reportedly was hiring 39 engineers and other staff to review licenses forsatellite exports and monitor foreign launches. U.S. firms were to reimburse the costs ofmonitoring. (88)

Congress also passed omnibus legislation ( P.L. 105-277 , Sec. 101(b)) appropriating funds for the Department of Commerce in FY1999 that required notification to Congress before expendingfunds to process licenses for satellite exports to China.

106th Congress. In the 106th Congress, Rep.Sweeney introduced H.R. 281 on January 6, 1999, to prohibit the export to China ofsatellites and related equipment. On May 19, 1999, he sponsored an amendment to the NASAauthorization bill ( H.R. 1654 ) to require NASA to certify, before any cooperativeagreement with the PRC, that the technology transfer will not improve PRC ballistic missile or spacelaunch capabilities. The House agreed to the amendment. The NASA Authorization Act for FYs2000, 2001, and 2002 ( P.L. 106-391 , signed into law on October 30, 2000) included the requirementfor certification to Congress, at least 15 days before such an agreement, that it would not bedetrimental to the U.S. space launch industry and would not improve the PRC's ballistic missile orspace launch capabilities (Section 126(a)(2)).

During the mark-up of the Foreign Relations Authorization Act for FY2000, H.R. 1211 , by the Committee on International Relations on April 14, 1999, Representative Rohrabacherintroduced an amendment to give preferential treatment in licensing for export of satellites andrelated items to NATO allies, major non-NATO allies, and other friendly countries; but not forChina, countries that potentially pose a security threat to the United States, or countries likely toproliferate satellite technology to countries of security concern. (The FY1999 National DefenseAuthorization Act already exempted NATO and non-NATO allies from the more stringent exportcontrols.) As amended by Representative Gejdenson, however, the approved section 210 of H.R. 1211 ( H.Rept. 106-122 ) did not have references to China and other countries notsubject to preferential treatment. Rohrabacher's amendment also directed the Secretary of State toobligate $2 million to the Office of Defense Trade Controls to expedite the review of satellite exportlicenses. (89)

On May 27, 1999, the Senate agreed by voice vote to Senator Lott's amendment to the National Defense Authorization Act for FY2000 ( S. 1059 ). The amendment sought to improvethe monitoring of satellite exports and strengthen safeguards, security, and counterintelligence atDOE facilities. (90) On June 9, 1999, RepresentativeCox introduced an amendment (91) to the House'sversion ( H.R. 1401 ). The amendment consisted of 27 sections, with 25 sectionsrequiring reports or other actions, or amending the law; a section simply providing a short title; anda section providing a definition of "national laboratory." The sections or subsections of the Coxamendment addressed fully or partially 21 of the 38 recommendations of the Cox Committee. TheHouse agreed to the Cox amendment by 428-0 on that day and passed H.R. 1401 onJune 10, 1999. In September 1999, Congress approved the conference report ( H.Rept. 106-301 ) on S. 1059 . The act, signed into law ( P.L. 106-65 ) on October 5, 1999, includes sections1401-1412 that addressed export controls as they related to missile technology, satellites,high-performance computers, multilateral export controls, monitoring of foreign satellite launches,State Department licensing, improved intelligence consultation, and notification to Congress ofinvestigations into possible export control violations by satellite makers. In addition, section 1612(b)expressed the sense of Congress that the policy of exporting satellites to the PRC for launch shouldbe reexamined, with a review of whether to phase out that policy. Congress did not require a reporton this review.

On May 10, 2000, Representative Gejdenson introduced H.R. 4417 to transfer export controls over satellites back to the Secretary of Commerce and provide for certain proceduresfor satellite exports to the PRC.

107th Congress and 108th Congress. In February2001 briefings for Representatives Cox and Rohrabacher, the Satellite Industry Association (SIA)argued that California's satellite industry lost $1.2 billion in potential revenues and over 1,000 newjobs in the face of greater European competition, because the State Department's export controlsover satellites negatively affected U.S. firms after March 1999. SIA also contended that the U.S.share (vs. European share) of orders of Geostationary Earth Orbit (GEO) commercial satellitesdropped from a high of 76 percent (19 orders) in 1997 to 45 percent (13 orders) in 2000. (92) Releasedby Representatives Berman and Tauscher in April 2002, a report by the Center for Strategic andInternational Studies (CSIS) also argued that legislation "to return jurisdiction to Commerce forcommunications satellites, which includes extensive technology safeguards, would go far to repairdamage." (93)

However, others reported difficulties for U.S. satellite-makers due to lower demand in the worldwide market for satellites after 2000. (94) Worldwide, there were 35 commercial satellitelaunches in 2000, 16 in 2001, and 24 in 2002. (See Table 3 .) Boeing Launch and SatelliteSystemsreported a significant reduction in demand with the resulting over-capacity in the launch and satelliteindustry by 2002. (95) The table also shows thatsatellite launch companies of the United States andother countries (Russia, European countries, Japan, India, Brazil, and Israel) continued to sellservices, with no commercial launch business going to China since 2000.

Table 3. Satellite Launches: 1998-2002

Source: Aerospace Daily , July 2, 2003.

Some argued for keeping satellite export controls under the State Department but with expeditious and fair processing of license applications. In March 2001, the conservative HeritageFoundation said that "though the satellite industry lobbied to get license authority transferred backto the Commerce Department, given the sensitive nature of the technology involved in theengineering and launch of satellites, the State Department's licensing authority combined with theDefense Department's approval of a technology transfer control plan and close monitoring of alllaunches is prudent to make sure that commercial interests have been weighed against security risksposed by each transaction." (96) Supporters ofkeeping satellites as Munitions List items cited a June2001 report by GAO that found similar export licensing times at the Departments of State andCommerce. (97) Also, some in Congress have beenmindful that satellites licensed by the StateDepartment are subject to congressional review, particularly by the Foreign Relations Committee.

On May 3, 2001, Representative Howard Berman introduced H.R. 1707 (the Satellite Trade and Security Act of 2001), with Representative Dana Rohrabacher as the co-sponsor. The bill sought to shift the jurisdiction over satellite exports back to the Department of Commerce. On August 1, 2001, Representative Berman added the legislation as an amendment (co-sponsoredby Representative Rohrabacher) to the House version of a new Export Administration Act (EAA), H.R. 2581 . While Representatives Bereuter and Hyde opposed the amendment, theHouse International Relations Committee approved it on a voice vote. However, the languagesought to exempt satellites going to China for launch, which would remain under the oversight ofthe State Department. (98) As the Committee onInternational Relations reported on November 16,2001 ( H.Rept. 107-297 , Part 1), Section 704 would keep satellite exports for PRC launch as subjectto the Arms Export Control Act and require that, in issuing certifications to Congress for suchexports under Section 36(c) of that Act, the President do so without regard to the values of theproposed contracts. However, the House Armed Services Committee disagreed with the proposalto return jurisdiction of satellite exports to the Commerce Department and, on March 8, 2002,reported the bill with the language struck out ( H.Rept. 107-297 , Part 2). The House did not vote on H.R. 2581 .

In addition, Congress passed appropriations legislation for fiscal years 2002 and 2003 ( P.L. 107-77 and P.L. 108-7 ) to require that the Department of State notify the Committees onAppropriations at least 15 days in advance of obligating or expending funds for processing licensesto export U.S.-origin satellites (including commercial satellites and satellite components) to China. Legislation for State Department appropriations in FY 2004 ( H.R. 2799 and S. 1585 ) would continue the requirement.

Denied and Pending Satellite Exports

Congressional Oversight and Bush Policy Reviews. In addition to the FY1999 Defense Authorization Act, Congress alsopassed omnibus legislation ( P.L. 105-277 , Sec. 101(b)) appropriating funds for the Department ofCommerce in FY1999 that required notification to Congress before expending funds to processlicenses for satellite exports to China. On November 20, 1998, the Commerce Department reportedprocessing of two export license applications. Commerce again notified Congress on February 1,1999, that it was processing three additional applications to export satellites to China. Those fivesatellite projects considered by Commerce were: Chinasat-8R, Asia Pacific MobileTelecommunications (APMT), Asiasat-3sb/4, Command and Control Software for Satellites, andIridium.

As exports of Munitions List items licensed by the State Department, satellite exports have been subject to congressional review, particularly by the Senate Foreign Relations Committee. Under Section 36(c) of the Arms Export Control Act (AECA), P.L. 90-629, the Department of Stateis required to notify Congress of any proposed licenses for the export of any major defenseequipment sold commercially under a contract worth $14 million or more or for the export of defensearticles or services sold commercially under a contract worth $50 million or more. Such a licensemay not be issued for an export to China until at least 30 calendar days after Congress receives thecertification and shall not be issued if Congress, during the review period, enacts a joint resolutionto prohibit the proposed export. In the case of exports to the PRC, approvals for export licenses arealso contingent upon a presidential waiver of post-Tiananmen sanctions.

On July 2, 2001, Senators Helms, Shelby, Thompson, and Kyl signed a letter to President George W. Bush, urging him to deny waivers for proposed satellite exports to China based onweapons nonproliferation and human rights reasons. (99) They expressed their concern that "China hascontinued to transfer missile equipment and technology" in contravention of both the MissileTechnology Control Regime and its November 2000 pledge on missile nonproliferation. They urgedthe President not to present the Congress (particularly, the Senate Foreign Relations Committee) withproposed licenses for satellite exports to China, under review at the State Department.

On July 20, 2001, Senator Helms, ranking member of the Foreign Relations Committee, issued a letter to other Senators urging them to call for a re-evaluation of policy toward the PRC and tosupport President Bush should he decide to deny China the opportunity to "launch United Statessatellites for profit," focusing on those satellites that might be exported for launch from China. Senator Helms also issued a chart describing China's nonproliferation pledges and violations ofthem, including the assurance of November 2000. He wrote that "none of these pledges has beenhonored." (100)

On March 27, 2002, the NASA Administrator said that he and Deputy Secretary of State Richard Armitage were spending "a lot of time" reviewing whether U.S. policy should allow Chinato cooperate with the United States in space, although China's military runs the manned spaceprogram. (101) In October 2002, Armitageannounced that the Bush Administration decided to reviewits policy on defense trade controls. The comprehensive review of arms export controls, includingthe Munitions List, would cover policy, processes, technology, and organizational structure, he said. The next month, the White House said the policy review would be completed in six months. (102) Intestimony to the Senate Foreign Relations Subcommittee on East Asia and the Pacific in March2003, Deputy Assistant Secretary of State Randall Schriver assured Senator Brownback that theDepartment of State has exercised strict controls over exports to China's space programs and hastried to ensure that any cooperation with China would not benefit its military. (103)

APMT and China's Military. At least one pending export to China, the APMT satellite project, encountered controversy about militaryapplications. On July 2, 1998, the State Department suspended a license issued in 1996 to Hughesthat permitted Shen Jun, son of a PLA lieutenant general, to work on the $450 million deal for theAPMT consortium. Shen Jun's father, Lt. Gen. Shen Rongjun, was a Deputy Director of theCommission on Science, Technology, and Industry for National Defense (COSTIND) (104) from 1985to 1998, with special responsibility for missiles and satellites in the aerospace sector. Also, theAdministration re-examined the APMT project, in part because the PRC governmental investorsincluded those with ties to the military: COSTIND, China Launch and Tracking Control, CASC,Ministry of Information Industry, and China Telecommunications Broadcasting Satellite Corp.(Chinasat). (In April 1998, COSTIND was reorganized as a civilian organization under the StateCouncil, while the PLA retained control over satellite launches under the new General EquipmentDepartment.) Some were concerned that the APMT satellite (with powerful spot beams) could beused by the PLA to improve command and control and that the satellite contained sensitivetechnologies, including a huge 40-ft.-wide antenna and on-board digital processor, also used inHughes' classified, communications satellites used by the U.S. military. There were also concernsabout Hughes' past record of interaction with PRC aerospace engineers, including the review of theJanuary 1995 launch failure. (105)

On February 23, 1999, the Clinton Administration announced that it decided to deny approval to Hughes for the export of the APMT satellite, after the Departments of Defense and State objectedto the export, while the Commerce Department favored it. (106) The Administration cited concerns thatthe end-user would be the PLA. Hughes responded on March 15, 1999, asking the Administrationfor a detailed justification for the denial. But on April 14, 1999, Hughes said that the APMTconsortium dropped Hughes as the satellite supplier. (107)

As for the PLA's possible use of ostensibly civilian communication satellites, a DTSA official, Michael Maloof, wrote a July 1998 memo about his concerns that the PRC military has usedU.S.-made satellites to improve its encrypted command, control, communications, and intelligence(C 4 I), using the Asiasat and Apstar satellites built by Hughes. (108) In an unclassified report submittedas required by FY1999 appropriations legislation, the Secretary of Defense reported on February 1,1999, that China's military and civilian leaders were paying "specific attention" to the C 4 Iinfrastructure. The report further said that "the military's lack of communications satellites couldforce the PLA to rely on foreign satellite services to meet military needs in wartime or a crisis" andthat, in a crisis, "the military would preempt the domestic satellite systems for combat operations." (109)

Concerning military satellites, a report said that the indigenous satellite (Chinasat-22) launched by China on January 26, 2000, was also called the Feng Huo-1, representing the first of China'smilitary communications satellites for a new battle management system, called the Qu Dian C 4 Isystem. The news story cited a classified report by the Defense Intelligence Agency, reportedlydescribing the Qu Dian system, when fully deployed in several years, as intended to be similar to theU.S. Joint Tactical Information Distribution System (JTIDS), a secure data link network used by U.S.and allied forces. (110) China has planned todeploy three major satellite systems for remote-sensing,navigation and positioning, and communications. (111) China's first Ziyuan-2 satellite, launched onSeptember 1, 2000, was reportedly used by the PLA as a reconnaissance satellite and secretlydesignated as Jianbing-3. (112) In April 2003,a newspaper of China's space industry reported that themilitary used satellites, including the Fengyun meteorological satellites to gather intelligence on theU.S. war in Iraq, such as pictures of damage to runways. (113)

Chinasat-8. Meanwhile, Loral encountered delay in obtaining approval from the Department of State for the export to China of the Chinasat-8satellite, the subject of the Presidential waiver in February 1998 that raised controversy. (114) In afull-page ad in the May 6, 1998 Washington Post , Loral boasted that Chinasat-8 was the "mostpowerful satellite China has ever purchased." Originally, Chinasat-8 had been scheduled for launchin May 1999. The PRC government entity buying the satellite was named as the ChinaTelecommunications Broadcast Satellite Corporation, subordinate to the Ministry of InformationIndustry (MII). (115) The MII represents a PRCdefense industrial sector that was formed in March1998 in a reorganization that merged the Ministry of Electronics Industry and the Ministry of Postsand Telecommunications. (116) Loral's chairman,Bernard Schwartz, argued that the government'sdelay in granting a technical assistance agreement (TAA) for Chinasat-8 risked the "commercialviability" of the whole U.S. satellite manufacturing industry in Asia. (117) The trade publication, SpaceNews , alleged in September 1999 that "the State Department is delaying approval of the Chinasat-8TAA to punish Loral for the still unproven allegation that the company broke the law whileparticipating with Hughes in an independent review of a Chinese launch accident investigation." Italso protested that "the export licensing process should not be used as a substitute for the judicialsystem." (118) The Department of State reportedlyreturned the license without action in January2001. (119)

Other Satellite Projects. Other satellite projects subject to U.S. export controls, Presidential waivers, and congressional review have included thefollowing. On May 10, 1999, as required by section 1512 of the FY1999 National DefenseAuthorization Act ( P.L. 105-261 ), President Clinton issued a certification for the export of satellitefuels and separation systems for the Iridium satellite project (owned by Motorola). He certifiedthatthe export would not be detrimental to the U.S. space launch industry and that the material andequipment, including any indirect technical benefit that could be derived from such export, wouldnot measurably improve PRC missile or space launch capabilities. (120)

In September 2000, AsiaSat, the Hong Kong-based company partly owned by the PRC's China International Trust and Investment Corporation (CITIC) and Societe Europeenne des Satellites(SES), announced that it ordered AsiaSat-4 from Hughes Space and Communications (lateracquiredby Boeing). AsiaSat-4 originally was scheduled for launch in the first half of 2002 from CapeCanaveral on an Atlas 3 rocket owned by U.S.-based International Launch Services -- not on a PRCrocket. (121) Under section 36(c) of the AECA,the State Department, on October 11, 2000, notifiedCongress of a proposed export license for AsiaSat-4, and on May 25, 2001, notified Congress of aproposed export license for technical data and assistance to support the launch of the satellite. (122) AnAtlas 3B rocket launched AsiaSat-4 from Cape Canaveral, FL, on April 11, 2003. (123)

In January 2001, Hong Kong-based APT Satellite Co. (partly owned by China Aerospace Science and Technology Corporation) ordered the Apstar-5 communications satellite fromLoral. (124) APT had planned to launch the satellite from China on a Long March 3B rocket in 2003. (125) InNovember 2001, the State Department granted Loral a TAA to discuss the satellite. (126) Then, inSeptember 2002, Loral purchased 50 percent ownership of Apstar-5 for $115 million from APTSatellite Company. (127) Loral and APT Satellitethen arranged a launch of the satellite by Sea Launch(Long Beach, CA) in 2003, presumably because of the lack of a U.S. license to launch the satellitefrom China. (128) With Loral's partial or perhapsfull ownership of Apstar-5, and subsequent lease ofthe use of the satellite to APT Satellite (depending on which company controls the satellite), Loralmay not need to obtain an export license and a Presidential waiver of post-Tiananmen sanctions.

In February 2001, Intelsat concluded an agreement to order the APR-3 satellite from Astrium SAS of France, which would be used by the PRC's Sinosat company after launch by China GreatWall Industry Corporation in the spring of 2002. The satellite reportedly would include U.S.components. (129) However, the project laterappeared defunct. In 2002, Sinosat (owned by CASC,People's Bank of China, and the Shanghai Development Bank) announced plans to add Sinosat-2 (built by China Academy of Space Technology using a new Dongfanghong (DFH)-4 satellite,withimported components, and scheduled for launch in 2005). (130) DFH-4 was reported as part of thecooperation between China Aerospace Corporation and Alcatel Space of France, with amemorandum of understanding signed on October 23, 2001, by which Alcatel would provide parts(possibly with U.S. components) for the DFH-4 satellite that will be designed with a life span of 15years. (131)

Chronology of Major Events Since 1988