In 1987 the United States and its six major trading partners created the MTCR to restrict the proliferation of missiles and related technology. The MTCR, the only multilateral missile nonproliferation regime, is a voluntary arrangement among countries that share a common interest in arresting missile proliferation. It is not a treaty. The regime consists of common export policy guidelines applied to a common list of controlled items that each MTCR member implements in accordance with its national legislation. Currently, 25 states are formal partners to the MTCR, while an additional 7 states, including China, have adhered or declared an intention to adhere to the MTCR Guidelines. (See app. I for a complete list of current MTCR partners and adherents or declared adherents.) The MTCR Annex divides controlled items into two categories, Category I and Category II items. Category I items are subject to a strong presumption of denial and are rarely licensed for export. They include such items as complete missile systems; unmanned air-vehicle systems, such as cruise missiles; and certain complete subsystems, such as rocket engines and guidance sets. Category II (dual-use) covers a wide range of commodities, including propellants, test equipment, and flight instruments, that could be used for missiles or satellite launches. Category II items must be evaluated case-by-case against specified criteria and if judged to be destined for use in weapons of mass destruction (nuclear, chemical, or biological) are subject to a strong presumption of denial. Federal law regulates the exports of missiles and related technology and requires licenses for the export from the United States of certain missiles, components, and technology specified in the MTCR Annex. The State Department supervises and directs all governmental arms transfers and licenses commercial arms transfers, including U.S. exports of missile items and technology. The Commerce Department licenses exports of dual-use goods and technology, which are controlled for missile technology reasons pursuant to the MTCR Annex to all countries. It has jurisdiction over production equipment for MTCR Annex items, which is controlled as either Category I or Category II, depending on the type of equipment involved. Violators of U.S. export laws are subject to criminal and civil penalties and economic sanctions. Federal laws require the President to impose sanctions on U.S. and foreign individuals and entities that improperly conduct trade in controlled missile technology. Also, such sanctions would apply to a country with a nonmarket economy, such as China, to all activities of that government, with some qualifications (1) relating to the development or production of any missile equipment or technology and (2) affecting the development or production of electronics, space systems or equipment, and military aircraft. MTCR-related licenses comprised a very small portion of total export license activity for China. However, DOD has questioned whether Commerce has been adequately identifying for interagency referral and review all the applications for the export of dual-use missile-related technologies. The Commerce Department initially determines which commodities might contain missile technology. It independently determines that dual-use license applications do not involve missile technology, but if it believes that they might contain missile technology and the destination is a country of concern, Commerce is to refer these applications to the interagency Missile Technology Export Controls (MTEC) group. The group consists of working-level representatives of DOD, the Departments of State and Commerce, the Joint Chiefs of Staff, Arms Control and Disarmament Agency (ACDA), National Aeronautics and Space Administration, U.S. Customs Service, the intelligence community, and others at the invitation of the Chair and concurrence of the group. The MTEC’s charter calls for it to meet as required to review license applications for U.S. exports of missile proliferation concern, referred according to agreed criteria. The MTEC evaluates the transfer in terms of the MTCR and U.S. nonproliferation policy. Commerce can also refer applications to the Central Intelligence Agency’s Nonproliferation Center for information on the suitability of end-users. In addition to the multilateral MTCR, the Enhanced Proliferation Control Initiative (EPCI) of December 1990, a unilateral U.S. control, provides a “catch-all” control by directing that items going to destinations of concern, regardless of whether they are on proliferation control lists, are to be referred to the interagency review process. The Initiative expanded missile technology export controls by requiring U.S. exporters to request an export license for any item that they know or have been informed by the U.S. government is destined for a project of proliferation concern. The Initiative was designed to give the U.S. government a safety net by allowing it to apply export controls when it learns about a pending transaction that risks helping a weapon program, but which is not explicitly covered by the current Commerce Control List. To deter and detect the diversion of dual-use exports to proliferation activities, Commerce or other consulting agencies may request pre-license checks or post-shipment verifications. Pre-license checks are used to establish the legitimacy of the end user or verify the intended use of the export; post-shipment verifications are used to ascertain whether exported items are being used appropriately. The State Department operates a similar program of end-use checks, called the BLUE LANTERN program. The government may also seek assurances from foreign governments that items will not be diverted to proliferation-related uses. The Commerce and State Departments approved a total of 67 export licenses worth about $530 million for missile-related items for China for fiscal years 1990 through 1993. Figure 1 shows the final action that each agency took for all export license applications for China involving missile technology during this period. State-approved licenses (48) Commerce-approved licenses (19) 8% State-denied applications (10) 8% Commerce-denied applications (9) Between fiscal years 1990 and 1993, the Commerce Department identified 33 export license applications for China as containing missile-related technology commodities. It approved, with interagency concurrence, 19 of these applications valued at about $6.5 million. During the same period, Commerce approved a total of 8,600 applications for China, valued at about $6.4 billion, out of a total of 10,860 applications for exports to China. Thus, Commerce-identified dual-use missile technology exports totaled less than 1 percent of all exports requiring individual validated licenses to China. (See app. III for a complete list of dual-use applications for China approved by Commerce after MTEC review.) Figure 2 shows the final status for all 10,860 Commerce Department export license applications for China for fiscal years 1990 through 1993, with approved applications broken down by Export Control Classification Number category. At the time of our review, commodities that were subject to foreign policy controls on weapons delivery systems were grouped under 116 Export Control Classification Numbers (ECCNs) listed in the U.S. Export Administration Regulations. The Commerce Department also can refer items that are contained in other ECCNs to interagency review for potential missile technology. Approved—Partial missile technology ECCNs (5,281) Approved—Non-missile technology ECCNS (3,024) Other actions include returned without action, revoked, suspended, or withdrawn. Percentages do not total 100 percent due to rounding. Between fiscal years 1990 and 1993, the State Department identified 85 export license applications for China as containing missile-related technology commodities. State approved, with interagency concurrence, 48 of these applications—40 with provisos—valued at $523.5 million. During the same period, State approved a total of 96 applications for other arms exports for China, out of a total of 369 applications. U.S. Munitions List license applications for China for the fiscal years 1990-93 period generally were related to (1) satellite equipment, (2) aircraft spare parts, and (3) technical data. DOD officials have expressed concern that Commerce is not referring potential missile technology applications for interagency review. Commerce is solely responsible for deciding if dual-use export license applications are not missile-related technology. In those cases where Commerce determines that applications are not missile-related technology, it does not share all data with other agencies. There currently is no routine mechanism for DOD or other agencies to understand or question Commerce’s analysis and conclusions on the full range of 8,600 approved licenses for China between fiscal years 1990 through 1993, aside from the 33 applications that Commerce referred for interagency review. As a result, there is little transparency into the dual-use missile technology licensing process by officials outside of the Commerce Department. Increasing the transparency of the license applications that Commerce reviews would have the result of either allowing other agencies to find deficiencies in Commerce’s efforts at identifying missile-related exports or, conversely, of reassuring them that Commerce’s review procedures are appropriate and properly implemented. Commerce officials said that Commerce has sole responsibility for classifying commodities on the Commerce Control List. According to the officials, although it is routinely a clear-cut technical matter of checking the parameters on the Control List against the technical specifications of the item on the application, occasionally some interpretation is required. Nevertheless, making this determination in some cases is difficult and requires further review and consultation. Commerce officials also said that, according to agreed interagency procedures, DOD reviewed all Commerce license applications for China for national security reasons and MTCR Annex items, except where there were specific delegations of authority to Commerce. However, high-level Defense Technology Security Administration officials said that they were unfamiliar with referral criteria for MTCR Annex items and that there was no written agreement on such referrals between DOD and the Commerce Department. In fact, DOD requested a review of criteria and referral procedures in May 1994 and corresponded with Commerce several times on how to implement it. Also, the current and past chairmen of MTEC criticized Commerce’s referral of missile technology cases for interagency review.