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[EXCERPTS] FY 98 Security Assistance Budget Request

Thomas McNamara Assistant Secretary of State for Political-Military Affairs.
Senate Subcommittee on International Economic Policy, Export and Trade Promotion
March 12, 1997

Confronting Transnational Security Threats

With the dissolution of the Soviet Union, the proliferation of weapons of mass destruction, their delivery systems, and advanced conventional weapons now poses the gravest threat to the security of the United States and our allies. As Secretary Albright emphasized to you last month, arms control and non-proliferation efforts remain a key part of our foreign policy strategy to keep America safe. The objectives of our non-proliferation programs are to reduce the risk of war by limiting and reducing destabilizing forces, inhibiting the spread of weapons of mass destruction and delivery systems, and building confidence through measures which enhance transparency and verification of compliance with national commitments. In addition to enhancing our security directly, these measures also support other important U.S. interests, including economic and political reform in Russia and the oilier newly independent states, our economic interests in Asia and the Pacific, and our broader political efforts to resolve long-standing disputes in the Middle East and South Asia.

FY 98 Budget Request - Non-proliferation

IO&P = International Organizations and Programs NDF = Non-proliferation and Disarmament Fund IAEA = International Atomic Energy Agency KEDO = Korean Energy Development Organization DEF = Defense Enterprise Fund

                                 (dollars in millions)
                           IO&P      NDF      NIS     TOTAL
NDF                                 15.000            15.000 Science Centers                              15.000   15.000 IAEA Voluntary Contr.      36.000                     36.000 KEDO                       30.000                     30.000 Defense Enterprise Fund                       5.000    5.000
       Total               66.000   15.000   20.000  101.000

To help us achieve our overall non-proliferation objectives, we are requesting $101 million in FY 98. Through the Non-proliferation and Disarmament Fund (NDF), we will undertake a variety of bilateral assistance programs, including export control assistance. Under the International Organizations and Programs (IO&P) account, we will contribute to the International Atomic Energy Agency (lAEA) and support the Korean Energy Development Organization (KEDO). Under the FREEDOM Support Act, we are also seeking funding for the International Science Center in Russia, the Science and Technology Center in Ukraine, and the Defense Enterprise Fund (DEF).

The Non-proliferation and Disarmament Fund

The Non-proliferation and Disarmament Fund (NDF) was established in 1994 to implement specific non-proliferation projects. Since its inception, the NDF has funded numerous projects for dismantling and destroying conventional weapons and weapons of mass destruction and their delivery systems, and for strengthening international safeguards, export control, and nuclear smuggling efforts. Current NDF projects include:

-- Elimination of SCUD missiles and their launch systems from Romania and Hungary;

-- Dismantlement of South Africa's Category I missile production infrastructure;

-- Assistance in the procurement of highly enriched uranium stocks from the former Soviet Union;

-- Procurement of verifications and safeguards equipment for the IAEA;

-- Procurement of seismic arrays in support of the Comprehensive Test Ban Treaty;

-- Completion of the Phase I engineering assessment needed to convert Russian plutonium production reactors to a power only mode of operation;

-- Provision of export licensing and enforcement assistance to Central Europe, the Baltics, and the former Soviet Union; and

-- Successful deployment of an automated system in Poland for tracking the export of sensitive materials.

To date, NDF has considered over 90 project proposals with an estimated cost of $120 million, and has approved projects totaling over $30 million. On March 5, we notified Congress of our intent to provide $12.2 million for new NDF activities, leaving an available balance of $10.6 million in the NDF. The FY 98 request of $15 million will continue to provide funding for proposals to achieve our goals of preventing the proliferation of weapons of mass destruction and combating nuclear smuggling.

lAEA Voluntary Contribution

For the United States, the most critical function of the IAEA is the implementation of safeguards to nuclear activities to deter, through timely detection, the diversion of material and equipment for nuclear weapons purposes. Safeguards establish the critical arms control precedent of voluntary verification of compliance with non-proliferation obligations, including on-site inspection, by a sovereign state.

For FY 98, we are requesting a $36 million voluntary contribution to the lAEA within the lO&P account to support safeguards and non-safeguards-related technical assistance. Safeguards are the principal but not exclusive U.S. concern with the IAEA. Another fundamental premise of U.S. nuclear non-proliferation policy, also embodied in the Treaty on the Non-proliferation of Nuclear Weapons, is the commitment to facilitate the exchange of equipment, materials, and scientific and technological information for the peaceful uses of nuclear energy. A significant portion of the U.S. voluntary contribution to the IAEA is used to fulfill this obligation. Because the vast majority of IAEA member states consider this objective of paramount importance, continued U.S. support for technical cooperation is crucial to maintain support for a strong safeguards system.

Korean Peninsula Energy Development Organization (KEDO)

KEDO is the international consortium established to implement the Agreed Framework between the United States and the Democratic People's Republic of Korea (DPRK) signed on October 21, 1994. The Agreed Framework will ultimately dismantle North Korea's nuclear weapons capability. KEDO's central task is to manage the financing and construction of the light-water reactor (LWR) project in North Korea, to provide annual shipments of heavy fuel oil to the DPRK, and to implement other aspects of the Agreed Framework. The U.S. role in this consortium is to organize and lead KEDO and, with the help of the Republic of Korea (ROK) and Japan, support the consortium in fulfilling its tasks.

Our FY 98 request for $30 million within the IO&P account for KEDO is essential to finance KEDO's administrative expenses and projects, particularly the provision of heavy fuel oil to the DPRK. Support for the LWR project and the majority of KEDO administrative expenses and heavy fuel oil deliveries will come from cash and in-kind contributions from other KEDO members, especially the ROK and Japan. Eleven countries, spread over five continents, have become members of KEDO, reflecting the organization's global character, composition, and significance. The U.S. contribution is necessary to demonstrate U.S. leadership and to supplement and leverage contributions from other countries. Without this funding, KEDO will not be able to operate or carry out its objectives, thereby weakening the credibility of U.S. leadership, jeopardizing the implementation of the Agreed Framework, and contributing to rising security tensions on the Korean Peninsula. Full funding of this request is the best way to promote U.S. objectives for peace, security, and nuclear non-proliferation in Northeast Asia.

International Science and Technology Centers

The International Science and Technology Center (ISTC) in Moscow, operational since 1994, and the Science and Technology Center in Ukraine (SYCU), which began to fund scientific research in early 1996, help to counter the weapons expertise proliferation threat by putting former Soviet weapons scientists to work on civilian projects. These projects benefit all Science Center members and partners, including -- in many instances -- U.S. universities, national laboratories and corporations, which participate as unfunded partners. This program seeks: 1) to encourage the transition to market-based economies; 2) to help find solutions to nationally- and internationally-recognized problems, such as nuclear safety, energy production and environmental protection; and 3) to integrate NIS scientists and engineers into the international community.

In FY 98, we anticipate providing up to $15 million under the Freedom Support Act to continue the important work of these two centers. The European Union and Japan also provide voluntary contributions to the ISTC, and Sweden and Canada contribute to the STCU. Procedures have recently been implemented to allow other governments, inter-governmental organizations and NGOs (including the private sector) to participate in Science Center activities. To date, the ISTC has funded 202 projects in Russia, Kazakstan, Georgia, Belarus and Armenia, with the participation of nearly 17,000 scientists and engineers, the majority of whom have expertise on weapons of mass destruction or their delivery systems.

Defense Enterprise Fund

Our FY 98 assistance for the NIS includes $5 million for the U.S. contribution to the Defense Enterprise Fund (DEF), which is now expected to reach self-sustainability in 1999. The DEF, initially authorized by Congress and established with a grant from the DOD Cooperative Threat Reduction (Nunn-Lugar) program, was incorporated as a private, non-profit venture capital fund in March 1994. Responsibility for funding the DEF shifted to the State Department in FY 97.

Like other enterprise funds, the DEF assists the NIS in the development of successful private sector entities which contribute to a stable market economy. However, the DEF focuses on the privatization of weapons of mass destruction (WMD)-related defense industries and conversion of WMD-related military technologies and capabilities into civilian activities. It provides both equity investments and loans to qualified joint venture initiatives which include personnel and/or facilities currently or formerly involved in research, development, production or operation, and support of the former Soviet Union WMD-related defense sector.

The DEF encourages private sector participation in the ownership and management of the entities in which the DEF invests, and only makes investments involving enterprises committed to privatization. U.S. assistance to the DEF significantly leverages private U.S. investment: every $1 we have provided to date has leveraged an average of $5 of private investment. Thus, the DEF supports both the national security objective of non-proliferation -- eliminating WMD production capability -- as well as economic reform objectives by promoting the development of market economies.

Mr. Chairman, these non-proliferation programs are both critical for the security of America and extremely cost effective. By making very small investments today to help other countries prevent the spread of sensitive materials and technologies, we obviate the need to spend larger sums in the future to protect ourselves against weapons that have fallen into the wrong hands.