FAS CURATOR'S NOTE: In case you are having a bit of difficulty remembering just what this is all about, return with us now to those thrilling days of yesteryear
[09 June 1998, to be precise], and recall Rep. ROHRABACHER's charges concerning " ... the worst scandal in terms of the transfer of deadly technology to a potential enemy of the United States since the Rosenbergs transferred the atomic bomb secret to Josef Stalin back in the late 1940s."
Released by the National Security Council Press Office
02 February 1999 |
TOP SECRET NOFORN
RECOMMENDATIONS
RE: Cox Committee Report
Nuclear Weapons
1. (S/NF) The Select Committee recommends that the President
report to the Speaker and Minority Leader of the House and the Majority Leader and Minority Leader of the Senate no less frequently than every six months on the steps, including preventive action being taken by the Department of Energy, the
Department of Defense, the Federal Bureau of Investigation, the
Central Intelligence Agency, and all other relevant Executive
departments and agencies to respond to espionage by the People's
Republic of China (PRC)
Response:
(S/NF) The Administration takes extremely seriously the issue
We have taken vigorous preventive action against such efforts. We note that the Federal Bureau of Investigation (FBI) and the Central Intelligence Agency (CIA), as the interagency leads on counterintelligence issues, currently conduct regularly
scheduled joint briefings of the House Permanent Select Committee on Intelligence (HPSCI) and the Senate Select Committee on Intelligence (SSCI) on significant and sensitive counterintelligence matters, and that, in response to a Congressional Directed Action in the Intelligence Authorization Act of 1998, Section 308, the FBI and CIA jointly provide Congress with an annual report on the intelligence activities Of
the PRC. We also note that the Department of Energy (DOE) regularly joins the FBI and CIA on these briefings when they are relevant to DOE issues, and that DOE independently briefs the appropriate committees on DOE CI issues. Nonetheless, we support the preparation of a report that will address this important issue, and the Director of Central Intelligence, in coordination with the appropriate agencies will produce semi-
annual reports for the 106th Congress, and will brief the appropriate committees on the results of these reports. The
and report the findings to the appropriate
congressional committees.
- The appropriate congressional committees should report legislation, if necessary, to facilitate accomplishment of the objectives set forth above.
3. (S) The Select Committee recommends that the Secretaries of State, Defense, and Energy, the Attorney General, and the Director of Central Intelligence direct their respective Inspectors General and appropriate counterintelligence officials to examine the risks to U.S. national security of international scientific exchange
programs between the United States and the PRC that involve the National Laboratories. Such Executive department and agency heads shall transmit the results of these examinations, together with their views and recommendations, to the Speaker and the
Minority Leader of the House, the Majority and Minority Leaders of the Senate, and appropriate congressional committees no later than July 1, 1999.
4. (S) The Select Committee recommends that the appropriate congressional committees consider whether the current arrangements for controlling U.S. nuclear weapons development, testing and maintenance within the Department of Energy are adequate to protect such weapons and related research and technology from theft and exploitation.
5. (TS) In light of the fact that the heads of Executive departments
and agencies of the intelligence community failed to adequately comply with congressional notification requirements of the National Security Act with respect to
the Select Committee urges Congress to
insist again on strict adherence to such legal obligations.
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All findings will be forwarded to the relevant
committees. The target date for completion of the damage assessment is March 31, 1999.
(U) The Administration supports the actions called for in Recommendation #2 and is implementing them under existing authorities. we believe that legislation to accomplish the objectives of this recommendation is unnecessary.
3. (U) The Select Committee recommends that the Secretaries of State, Defense, and Energy, the Attorney General, and the Director of Central Intelligence direct their respective Inspectors General and appropriate counterintelligence officials to examine the risks to U.S. national security of international scientific exchange programs between the United States and the PRC that involve the National Laboratories. Such Executive department and agency heads shall transmit the results of these examinations, together with their views and recommendations, to the Speaker and the Minority Leader of the House, the Majority and Minority Leaders of the Senate, and appropriate
congressional committees no later than July 1, 1999.
Response:
(U) The Administration supports the intent of this recommendation. While clearly there are benefits to be gained from international scientific exchanges, no collaboration is
completely risk free and we must recognize the potential for, and vigilantly guard against, the leakage of sensitive national security-related technology that might occur in programs between the U.S. National Laboratories and any foreign country.
(U) We believe that assessments of these programs would be more effectively conducted by intelligence experts, rather than the various Inspectors General. The expertise necessary to evaluate the risks inherent in international scientific exchange programs
resides in the various intelligence and counterintelligence components of the agencies mentioned. The Department of Energy will promptly convene an interagency group to examine the risks and benefits of such exchanges. This group will augment a comprehensive review already underway by the DOE office of Counterintelligence. In addition, the relevant agencies will request the relevant Inspectors General to review the implementation of the counterintelligence program outlined in PDD-61. The Administration will provide the Speaker and the Minority Leader of the House, the Majority and Minority Leaders
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of the Senate and the appropriate Committees with the results of these reviews by July 1, 1999.
4. (U) The Select Committee recommends that the appropriate congressional committees consider whether the current arrangements for controlling U.S. nuclear weapons development, testing, and maintenance within the Department of Energy are adequate to protect such weapons and related research and technology from theft and exploitation.
Response:
(U) The Department of Energy, in close partnership with other Executive agencies and the Congress, has taken critical steps to strengthen the current security arrangements for protecting US nuclear weapons, material and research from theft and physical
exploitation. The DOE is continually improving these "safeguards and security programs" and believes they currently are adequate. (The work of the safeguards and security programs is closely linked with that of the DOE counterintelligence program which also is being strengthened.) The following steps are representative of this strengthening and the close coordination between DOE, other Executive agencies, and the Congress:
- (U) Both the Department's Office of Security Affairs and the independent Office of oversight have provided to Executive and Congressional leadership detailed reports on the status of safeguards and security across the nuclear complex. Both reports highlighted the need for improvements in several areas, but concluded that there was no immediate danger to nuclear material at any DOE site.
- (U) The DOE established an internal Security Council, comprised of Assistant Secretary-level officials and chaired by the Deputy Secretary. The purpose of the Council is to address the issues and implement the recommendations presented in the aforementioned reports and provide continuous senior-level attention to security issues as they arise.
- (U) The DOE, in compliance with section 3161 of the National Defense Authorization Act for FY 1998, established the DOE Security Management Board. This Board is comprised of five external members (DOD - three, FBI - one, and CIA - one) and five senior DOE management officials and is chaired by the
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Secretary. The purpose of the Board is to "advise the Secretary on Policy matters, operational concerns, strategic planning, personnel, budget, procurement, and development of priorities relating to the security functions of the Department of Energy."
- (U) The Department reports annually to the President, through the National Security Council, on the Status of Safeguards and Security at Domestic Nuclear Weapons Facilities. This report is a requirement of National Security Directive, 309, Nuclear
Safety, Security and Control dated June 27, 1988. The National Defense Authorization Act for FY 1998 requires that this report be submitted to the congressional defense
committees. The current report, which will cover calendar years 1997 and 1998, is currently being coordinated within the Department and will be ready for distribution to appropriate congressional committees in February 1999.
5. (S/NF) In light of the fact that the heads of Executive
departments and agencies of the intelligence community failed adequately to comply with congressional notification requirements of the National Security Act
the Select Committee urges Congress to insist again on strict adherence to such legal obligations.
Response:
(U) The Administration has fulfilled its responsibility to keep appropriate Congressional committees informed of significant counterintelligence/espionage matters as required by the National Security Act. As noted previously, the FBI,CIA, and DOE routinely brief HPSCI and SSCI on significant developments in these areas.
(S/NF)We believe that the Administration has complied with
Congressional notification requirements regarding the PRC investigation which was of particular interest to the Select Committee.
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International Actions
6. (U) With respect to international actions by tho United
States, the Select Committee roommates:
- (U) A. The United States should insist that the PRC adhere fully to, and abide by, the Missile Technology Controls Regime (MTCR) and all applicable guidelines.
- (U) B. The United States must vigorously enforce, and seek multilateral compliance with, the MTCR.
- (U) C. In light of the demise of the Coordinating Committee on Multilateral Export Controls (COCOM) and the insufficiency of the Wassenaar Arrangement on Export Controls for Conventional Arms and Dual-Use Goods and Technologies, the United States
should work, including in the context of the scheduled 1999 review of the Wassenaar Arrangement, to establish new binding international controls an technology transfers that threaten international peace and U.S. national security.
(U) D. In light of the demise of COCOM and the insufficiency of the Wassenaar Arrangement, that Select Committee recommends that the United States take appropriate action, including in the context of the schedule 1999 review of the Wassenaar
Arrangement, to improve the sharing of information by nations that are major exporters of technology so that the United states can track movements of technology and enforce
technology control and re-export requirements.
- (U) E. In light of the PRC's aggressive military technology acquisition campaign and its record as a proliferator, the United States should work to reduce the transfers of weapons systems and other militarily significant technologies from Russia and other nations to the PRC. These actions should include strengthening international measures, including economic incentives, to encourage Russia to become a full partner in stemming the proliferation of weapons.
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- (U) F. Appropriate congressional Committees should report legislation requiring the Secretary of State, the Director of Central Intelligence, and the heads of other relevant Executive departments and agencies to report in a timely fashion to appropriate congressional committees, including the House Permanent Select Committee on Intelligence and the Senate Select Committee on Intelligence, on technology transfers that raise a proliferation concern and on the implementation of all the foregoing recommendations in this paragraph.
Response:
(U) A. The Administration supports this recommendation, The U.S. uses every appropriate opportunity to urge Chinese adherence to the MTCR Guidelines, and we will continue to do so. We also make every effort to urge China to expand its commitment to include the current MTCR Annex. In June 1998, Chinese President Jiang announced that China will actively study joining the MTCR; joining the regime would require China to implement effective missile export controls fully consistent with MTCR Guidelines and Annex and cease activities inconsistent with the Guidelines. On this basis, we will continue to seek Chinese membership in the MTCR.
(U) B. The Administration agrees with the Committee's recommendation that other countries should be encouraged either to fulfill the MTCR commitments that they have assumed or, in the case of countries that have not yet done so, to adopt and abide by such commitments. The United States makes all efforts to actively promote observance of the MTCR Guidelines and has aided members and adherents in fulfilling their commitments
under it.
(U) Measures employed by the U.S. and its MTCR partners in order to curb missile proliferation include: (1) approaching countries that have engaged in missile proliferation to encourage them to desist; (2) information-sharing; (3) stopping shipments of proliferation concern; (4) holding briefings / seminars /workshops to increase non-member awareness of the global proliferation threat and priority nonproliferation concerns; (5) persuading major suppliers to regulate their exports in accordance with international norms; (6) inducing countries with MTCR-class missile systems to eliminate them; and (7) assisting other countries to improve the effectiveness of their export controls, including on missile technology.
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(U) The United States imposes sanctions against foreign entities engaged in certain proliferation activities, as required by law and appropriate in furthering nonproliferation aims. This Administration and the previous Administration imposed MTCR missile sanctions on Chinese entities when the facts warranted, and did not waive the sanctions until China made significant non-proliferation commitments.
(U) C. The Administration already is pressing to gain a stronger international consensus on comprehensive and voluntary multilateral controls on transfers of arms and related technology. The vigorous and determined diplomatic efforts of the USG during the period 1993-96 leading up to the establishment of the Wassenaar Arrangement are a notable example. Without these efforts on the part of the United states, there would have been no successor to the COCOM regime.
(U) Throughout the negotiations leading up to creation of the Wassenaar Arrangement, the United States pressed aggressively for the tightest attainable controls on transfers of sensitive goods and technology. We did obtain firm commitments with respect to our highest priority objective i.e., preventing transfers of arms (and controlled dual-use items to military end-users) to Iran, Iraq, Libya and North Korea. This remains the most valuable achievement to date of the Wassenaar Arrangement.
(U) The Wassenaar Arrangement works on the basis of national discretion in establishing appropriate export control measures. In the absence of a compelling, global threat to world security such as that posed by the Soviet union during the Cold War, the receptivity of other countries to binding technology transfer controls is no greater today than when the Wassenaar Arrangement was being negotiated. Any effort to negotiate binding controls in Wassenaar or elsewhere has a low likelihood of success, and
could harm our efforts to make the Wassenaar Arrangement a more effective and viable institution for the control of conventional arms and dual-use technologies, including related information sharing.
(U) D. The Administration agrees with the committee's conclusion that more emphasis needs to be placed on gaining a stronger international consensus on controlling arms and related technology transfers and that this can be achieved, in part, by strengthening the Wassenaar Arrangement.
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(U) Since the conclusion of the negotiations leading to the Wassenaar Arrangement, the United States has sought to improve information sharing by pressing for additional transparency requirements on transfers of conventional arms and dual-use items and technologies to non-members (including China). In addition, we have proposed individual notification of transfers to non-members of dual-use items on the Very Sensitive List. We will continue to promote these improvements to the Arrangement, as well as others affecting both conventional arms and dual-use technologies, in the context of Wassenaar's 1999 review.
(U) We agree with the Committee that Wassenaar's transparency requirements regarding both arms and dual-use technologies should be improved. In this regard, it should be noted that transparency regarding dual-use transfers is already greater than it is for transfers of conventional arms. At present, Wassenaar requires only semi-annual reports on transfers to non-members of the seven categories of major weapon systems already
reported under the UN Register. No reporting is required for transfers of other military items or for denials of any items on the munitions list. (The United States, with support from other Wassenaar members, has proposed significant expansion of reporting on arms transfers.)
(U) In contrast to its reporting requirements for conventional arms transfers, Wassenaar currently requires semi-annual aggregate reporting on denials of all controlled dual-use items. Transfers of items on the Sensitive (and Very Sensitive) List are reported on an aggregate semi-annual basis, and denials are reported on in individual basis within 30 to 60 days. As noted, the Administration has proposed expansion of these transparency requirements for dual-use technologies, as well as arms.
(U) E. The Administration shares the Committee's concern about transfers of potentially destabilizing weapons and technologies from Russia and other countries to China and maintains an active dialogue on arms sales issues with both Russia and China. At
the insistence of the United States, Russia has made some progress in limiting sales to some of its most important arms markets (including Iran and Iraq), although some Russian entities continue to provide technology to Iranian programs of concern. We continue to work with Russia, and our dialogue with Russia on arms transfers has given highest priority to blocking transfers of conventional arms, missile and nuclear-related technology to pariah states, such as Iran. However, we have also raised with Moscow our concerns about nuclear and missile assistance to China, and we will continue to do so.
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(U) F. The Administration supports the intent of this recommendations and notes that it already takes numerous measures to keep Congress apprised of technology transfers of
proliferation Concern to China and other countries and to carry out the preceding recommendations in this section. These measures include various written reports and extensive consultations on the whole range of proliferation issues and nations of concern. The Administration currently submits annual reports to Congress detailing transfers of concern and responses to them. These reports include the Annual Report on the Proliferation of Missiles and Essential Components of Nuclear, Biological and Chemical 'Weapons, the Report on Chemical and Biological Weapons Policy Control Efforts, and bi-annual reports on Weapons of Mass Destruction and Related Proliferation Activities and Responses, submitted by the Administration pursuant to section 204 of the International Emergency Economic powers Act. In addition to these written reports, Administration officials regularly brief members of Congress and
Congressional staff on military technology transfers, nonproliferation activities, and concerns regarding the PRC and other countries and would be willing to brief them on the Wassenaar Arrangement if requested.
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(U) We believe that separate additional legislative reporting requirements are not required. We are prepared to meet with Congressional Committees to review the information that the Administration already provides to Congress and discuss whether
additional reporting is needed.
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Satellite Launches
7. (U) Implementation of the Strom Thurmond National Defense Authorization Act for FY 1999:
- (U) A. The Select Committee expects that the Executive branch will aggressively implement the Satellite Export Control Provisions of the Strom Thurmond National Defense Authorization Act for FY 1999:
(U) a. To protect the national security, the congressional judgement that the Department of State is the appropriate agency for licensing both exports of satellites and any satellite launch failure investigations must be faithfully and fully implemented.
(U) b. To protect the national interest in foreign commerce, the Department of State must ensure, consistent with national security, that satellite export licenses and
notices to Congress are acted on in a timely fashion and that exporters are informed about the progress of their applications and have access to appropriate dispute
resolution procedures. In order to achieve the foregoing, the Executive branch and the Congress should ensure that the Department of State has adequate personnel and
resources devoted to processing export license applications.
(U) c. To ensure that satellite manufacturers are not disadvantaged in such collateral areas as tax credits by the transfer to the State Department of responsibility to
license satellite exports, the appropriate congressional committees should report necessary legislation.
- (U) B. The Department of Defense must give high priority to its obligations under the Act, including requirements for (i) recruiting, training, and maintaining a staff dedicated to monitoring launches in foreign countries of U.S. satellites; and (ii) establishing and monitoring technology control plans to prevent any transfer of information that could be used by the PRC to improve its missile launch capabilities.
Response:
(U) A. The Administration is working to fully implement the requirements of the National Defense Authorization Act (ND-AA)
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for FY 1999. The Department of State is preparing to assume licensing responsibility for commercial communications satellites on March 15. The procedures which State has developed for review of communications satellites export licenses are designed to improve the license review process including timeliness and transparency within the existing legal and regulatory framework. State's plans for implementing the NDAA satellite-related provisions for which it is responsible are contained in the report to Congress of January 21st, the relevant portions of which are summarized here.
(U) Assuming additional financial and personnel resources (which are in the process of being identified), the Department of State plans to implement certain organizational measures prior to March 15, 1999 (the effective date of the statutory change in export licensing for satellites and related items) to facilitate implementation of the measures described in the report. The Congress will be briefed when these plans are
further refined.
(U) Further, in coordination with the Department of Defense and the Department of commerce, the Department of State will prepare for promulgation prior to March 15, 1999 (the effective date of subsection (a) of section 1513) an amendment to the
International Traffic in Arms Regulations (ITAR), which broadens the scope of United States Munitions List to include control of satellites and related items currently on the CCL of dual-use items. The amendment will also make explicit provision in the
ITAR for other requirements of the NDAA (many of which are already provided for in current law, regulation or practice), including those pertaining to technology control plans, and monitoring and crash (i.e., launch failure) investigations. Before these draft regulations are finalized, the Department will consult with the Senate Foreign Relations Committee, the House International Relations Committee, the Senate and House
Armed Services Committees, and other interested Committees of Congress.
(U) The Department of State and the Department of Defense have agreed on the goal of providing a timely and transparent process for those items transferred on March 15, 1999, to the United States Munitions List pursuant to section 1513 (i.e., satellites
and related items) -- mindful that such goal must be implemented strictly within the fundamental policy and legal framework provided by the AECA and the regulatory framework developed pursuant thereto in the ITAR, as well as long standing practice
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thereunder, and within the constraints of each department's available resources.
(U) The State-Defense understanding establishes a goal of 90 working days in which to complete the review of munitions licenses for satellites and related items currently on the CCL of dual-use items. The goal of the Department of State and the Department of Defense will be to conclude their initial reviews of security and foreign policy concerns, including review by the Missile Technology Export Committee, within 50 working days, or thereafter escalate positions within their departments in order
to permit final action by the end of a 90 working day period.
(U) An ad-hoc consultative committee will be established by State to review general policy matters relating to satellites and related items currently on the CCL of dual-use items and, as appropriate, to coordinate, among other things, reports to the
Congress. The Under Secretary for Arms Control and International Security Affairs will chair this Committee, which will be comprised of representatives of the Department of State, Department of Defense, intelligence community, the Departments of Commerce, Energy and Transportation, USTR, and others as appropriate. This consultative committee will not, consistent with the relevant law and munitions practices, participate in
the normal inter-agency review of a munitions request. It may meet as necessary in order to facilitate timely policy input into any complex cases that exceed the 90 working day time frame.
(U) After expiration of the 90 working day period, any member of the consultative committee may request a meeting to discuss, for purposes of providing such policy input on, an outstanding case (except those pending review by Congress). At any point, the Under Secretary (T) may inform the participating agencies that there are sufficient national security or foreign policy reasons that justify a delay or deferral. An Assistant Secretary of a member agency of the consultative committee may,
at any time, convey to the Assistant Secretary for Political Military Affairs an explanation of a particular interest, within that agency's competence, in an outstanding munitions license request involving satellites or related items currently on the CCL of dual-use items.
(U) However, neither the conveying of such an explanation of interest nor any other element of these procedures is intended to depart from the legal and regulatory framework for decision-making under the AECA and long-standing practices under the
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munitions system. In particular, the Department of State has plenary authority over all proposed exports of defense articles and defense services, as delegated by the President. By longstanding tradition and practice, the Department of Defense has the right to deny or limit any proposed export on national security grounds. Decisions are made solely on the basis of national security and foreign policy. Decisions made by the
Department of State and "vetoes" submitted by the Department of Defense will not be subject to appeal by other Cabinet Departments or Agencies. Finally, it is important to emphasize that the procedures established above only concern satellites and related items currently on the CCL of dual-use items. They are not intended to apply, nor will they be applied, to matters dealing with the export of any other items on the USML and
moreover do not create any precedent for broadening USML procedures.
(U) Within the existing statutory framework provided in the AECA for notifications to Congress of individual sales or agreements pursuant to sections 36(c) or (d) and long-standing practice thereunder, the Department anticipates continued close consultation, including a review of the Congressional notification process, with the Senate Committee on Foreign Relations and House International Relations Committee in order to ensure that the requirements of law are faithfully executed and the role of Congress in this area is duly recognized in a manner that will enable timely exports of satellites and related items, where deemed consistent with the national security and foreign policy of the United States.
(U) The Administration supports the recommendation of the Committee to report legislation that would ensure that satellite manufacturers are not disadvantaged in such collateral areas as tax credits by the transfer to the State Department of
responsibility to license satellite exports.
(U) B. The Administration, in fulfilling its responsibilities under the NDAA and in reviewing this recommendation, notes that the Department of Defense has established a new office within the Defense Threat Reduction Agency - the Space Launch Monitoring Division (SLMD). The SLMD is proceeding to recruit, train, and maintain a staff dedicated to all aspects of monitoring the export of space launch and satellite technology from the United States. Specific actions in this regard are discussed in the response to Recommendation 8.
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8. (U) The Select Committee recommends that the appropriate congressional committees report legislation providing that:
- (U) In connection with foreign launches of U.S. satellites, the Department of Defense shall contract for security personnel who have undergone background checks to verify their loyalty and reliability. The number of guards shall be sufficient to maintain 24-hour security of the satellite and all related missile and other sensitive technology. The satellite export licenses shall, as a condition of licensure, be required to reimburse the Department of Defense for all associated costs of such security.
- (U) The Department of Defense shall ensure sufficient training for space launch campaign monitors and the assignment of adequate numbers of monitors to space launch campaigns. The Department of Defense also shall ensure continuity of service by monitors for the entire space launch campaign period, from satellite marketing to launch and, if necessary, completion of a launch failure analysis. In addition, the Department of Defense shall adopt measures to make service as a monitor an attractive career opportunity.
- (U) Department of Defense monitors shall maintain logs of all information authorized for transmission to the PRC, including copies of any documents authorized for transmittal, and reports on launch-related activities. Such information shall be transmitted an a current basis to the Departments of Defense, State, and Commerce, and to the Central intelligence Agency. Such documents shall be retained for at least the
period of the statute of limitations for violations of the International Traffic in Arms Regulations (ITAR). In addition, the Department of Defense shall adopt clear written guidelines providing that monitors have the responsibility and the ability to report serious security violations, problem, and issues at the overseas launch site directly to the headquarters office of the responsible Defense Department agency.
Response:
(U) The Administration supports this recommendation. In response to requirements of the Strom Thurmond National Defense Authorization Act for FY 1999, the Department of Defense has established a new organization called the Space Launch
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Monitoring Division within the Technology Security Directorate of the Defense Threat Reduction Agency (DTRA). This new division will fulfill the congressional requirement to recruit, train, and maintain a staff dedicated to all aspects of monitoring the export of space launch and satellite technology from the United States.
(U) The mission of the division is to provide end-to-end monitoring of controlled space launch and satellite technologies. The division is being organized on a team concept. A minimum of six teams will be created to c1osely follow individual satellite programs from the first export license application through to launch - and failure analysts if necessary. This includes reviewing and approving all technology
transfer control plans and all controlled technical data proposed for export. Monitors will also participate in all technical interchange meetings and discussions involving
controlled technical information. Three to four members of a team will deploy to launch sites as a cohesive monitoring group with expertise in space launch security operations, and satellite and launch vehicle technologies.
(U) Plans are underway to ensure that there are also resources available to augment the full-time, monitors should that be necessary to meet temporary surges in requirements for monitoring of meetings or other activities. The augmentation will be staffed by individuals who are also trained and possess the relevant expertise. We expect the staffing will come primarily from within DTRA and from the Air Force Space and
Missile Center, and Air Force Space Command. To assist the end-to-end monitoring function, State and DoD are moving toward a system with industry by which the two departments will have intrusive, on-line access to all controlled, technical data.
This is intended to ensure a complete and readily accessible archive of all controlled technical data exported as part of satellite launch campaign.
(U) In addition, space launch monitor training is being enhanced through a program of initial and recurring training and evaluation. The training will be managed as a formal program through DTRA's training facilities at Kirtland Air Force base in New Mexico. The program will encompass the complete monitoring activities required by law. The training program will cover, among other things, the launch systems and locations to which monitors will be exposed, Commerce and State Department regulations, licensing, and enforcement; intelligence community
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technology transfer assessments; and mock-up/simulations of real-world space launch technology transfer interchanges.
(U) Finally, DOD will study the recommendation regarding contracting for security personnel to provide physical security at foreign launch sites. DoD looks forward to a dialogue with the appropriate congressional oversight committees once that review is complete.
9. (U) The Select Committee recommends that relevant Executive departments and agencies ensure that the laws and regulations establishing and implementing export controls are applied in full to communications among satellite manufacturers, purchasers, and the insurance industry,, including to communications after launch failures.
Response:
(U) The Administration supports this recommendation. The Departments of State and Defense are carefully examining this issue with the objective of ensuring that the principles of the Arms Export Control Act and the specific controls available in
the International Traffic in Arms Regulations are applied in full to communications involving controlled information among satellite manufacturers, purchasers, and the insurance industry, including communications after launch failures.
10. (U) In light of the impact of U.S. national security of insufficient domestic, commercial space-launch capacity and competition, the Select Committee recommends that appropriate congressional committees report legislation to encourage and stimulate further the expansion of such capacity and competition.
Response:
(U) The Administration has taken numerous steps to strengthen the U.S. satellite manufacturing industry and the commercial launch industry. U.S. companies dominate global markets by selling satellites and related components to customers around the world who rely on both U.S. and foreign launchers for a variety of reasons. We note, however, that price and availability of U.S. commercial launch vehicles have not been
the only factors that have led to U.S. commercial satellite
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launches on foreign vehicles. In some cases, foreign satellite customers who purchase and operate U.S.-built satellites select foreign launch providers. Also, customers with a series of satellites to launch commonly contract with multiple international launch providers for schedule flexibility, to sustain competitors for future procurements, to deploy their satellite constellations more quickly, and to reduce the risks associated with launch failures and lengthy recovery periods.
(U) The Administration has fostered the international competitiveness of the U.S. commercial space launch industry by pursuing policies aimed at developing new, lower cost U.S. space launch capabilities to meet both government and commercial needs. The 1994 National Space Transportation Policy assigned the Department of Defense responsibility to evolve and improve the current fleet of expendable launch vehicles (ELVs). This led to the Evolved Expendable Launch Vehicle (EELY) program, with a goal of reducing life cycle launch costs for government and, in turn, commercial payloads. In October 1998, DoD and the Air Force announced a total of $3.03 billion worth of~contracts to develop two competing families of vehicles and launch 27 DoD payloads between 2002 and 2006. Boeing and Lockheed Martin each received $500 million contracts for development, and each company is expected to match the DoD investment with
approximately $1 billion in private investment to complete development work and build facilities on both coasts. The first commercial EELV launches are planned in 2001. For the longer term, the 1994 National Space Transportation Policy assigned NASA responsibility to work with industry to develop and demonstrate technology for next generation reusable launch vehicles (RLVs). NASA's goal is to reduce launch costs by a
factor of 10 within 10 years. The U.S. Government has committed nearly $1 billion to implement RLV technology programs toward this goal, and the X-33 program includes substantial private investments. In addition to these investments, the private
sector has invested more than $1.5 billion in entrepreneurial and international ventures to improve commercial launch capabilities and lower costs through private programs. In addition, the Department of Transportation's Federal Aviation
Administration, which is responsible for identifying and promoting innovative arrangements between the U.S. government and the commercial sector, is implementing recent legislation that supports commercial reusable vehicle development.
(U) Today, the U.S. commercial space launch industry leads the world in a rapidly expanding market as a result of actions over the past several years to increase its capacity and
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competitiveness. In 1998, the U.S. captured 47% of the world market for internationally competed commercial space launches, more than any other nation, and up from 40% in 1997. In 1998, 22 FAA licensed commercial launches took place in the United States, which represented a record high. The U.S. commercial launch rate has doubled since 1996, and more than quadrupled since 1994. Additional growth is projected for 1999, with the U.S. commercial launch rate expected to reach 25 -- five times the
number of U.S. commercial space launches in 1994. FAA sources show that revenues from U.S. commercial space launch activities have also grown rapidly from $635 million in 1996, to $940 million in 1997, and topping $1 billion for the first time in
1998. Revenues from U.S. commercial launches are expected to reach $1.3 billion in 1999 because of the U.S. companies' strong position in this market. To enable this growth since 1994, two of the major U.S. commercial launch providers have taken actions
to expand their capacity by hiring additional crews, using additional launch pads for commercial launches, and decreasing the time required for on-pad launch preparations by 40%.
(U) The Administration recognizes the importance of the U.S. commercial space industry to our national security and our national economy, and we recognize that the federal government can play a role in stimulating private development of commercial space capabilities. NASA has evaluated a range of possible incentives the government could offer to help reduce financial risks inherent in the development of new launch systems. NASA is also working with industry to develop "roadmap" options to define the way ahead to lower their launch costs in the next century. DoD and DOT/FAA have efforts underway to address the future management and operation of the U.S. space launch bases
and ranges. These studies will generate information we will need to evaluate various possible incentives and other possible proposed changes to current policy and/or laws and we will be pleased to share the results of these studies with the appropriate Congressional committees.
COMPUTERS
11. (U) The Select Committee recommends that appropriate congressional committees report legislation directing the Department of Energy, in consultation with the Department of Defense, to conduct a comprehensive review of the national security implications of exporting high-performance computers (HPCs) to the PRC. This review should include empirical testing
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of the extent to which national security related operations can be performed using clustered, massively, parallel processing, or other combinations of computers. In addition, the Select Committee recommends that appropriate congressional committees
report legislation directing the Intelligence Community to conduct an annual comprehensive threat assessment of the national security implications of exporting to the PRC, HPCs and other computers that can be clustered or combined through massively parallel processing.
Response:
(C) We welcome the Select Committee's interest in this important
area. The Departments of Defense and Commerce in 1995 and in 1998 conducted studies of high performance computer capabilities and the economic and national security implications of HPC exports. The conclusions of these studies are consistent with
those of earlier studies
The Administration has shared these studies and other information with all interested
government agencies, including the Department of Energy and the Central Intelligence Agency.
(U) We share the Committee's particular concern regarding clustering of low performance computers for massively parallel proce3sing. Building on earlier efforts, the NSC will direct an additional review by the appropriate agencies, including the Intelligence Community, and the Departments of Defense, Energy, Commerce and State to examine the extent to which operations directly relevant to national security issues can be performed on various configurations of computers. Part of our review also will examine the military utility of various levels of computing power, the extent to which such computer systems can be controlled through export restrictions, the availability of HPCs from other supplier nations, and the economic, security and foreign policy related consequences to the U.S. industrial base of imposing export controls. The target date for completing this additional review is May, 1999. We would like to work
closely with the appropriate Congressional committees in explaining our findings to date and in exploring the issue further.
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12. (U) The Select Committee supports the sale of computers to the PRC for commercial but not military purposes. The Select Committee recommends that the appropriate congressional committees report legislation that requires the following:
- (U) A. Establishment by the PRC of the open and transparent system by September 30, 1999, which provides for effective and-use verification for HPCs sold or to be sold to the PRC and, at a minimum, provides for on-site inspection of the end-use and end--user of such HPCs, without notice, by U.S. nationals designated by the U.S. Government. Failure to establish such a system by that date should result in the U.S. Government's lowering the performance level of HPCs that may be exported to the PRC, the denial of export licenses for computers destined to the PRC, or other appropriate measures.
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- (U) C. Efforts by the Executive branch to encourage other computer-manufacturing countries, especially those countries that manufacture HPCs, to adopt similar policies toward HPC exports to the PRC.
Response:
(U) The Administration agrees with the Committee"s support of the sale of computers to the PRC for commercial but not military purposes. This reflects the Administration's approach on the sale of HPCs to China. We have supported license applications
for the export of HPCs for civilian uses and have denied proposed exports going to military or proliferation purposes. We believe that peaceful, commercial sales support a U.S. industry critical to our own national security and encourage legitimate economic development and market reform in China.
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(U) A. At last June's summit, the Administration successfully concluded a framework arrangement with China whereby U.S. Government Officials verity through on-site inspections the end-use of U.S HPCs (and other items) exported to China. Under the arrangement, USG officials can conduct post-shipment verification visits in China and determine the location and use of HPCs. Five visits have been conducted to date, of which 3 were for HPCs. The arrangement is being implemented and the Administration will conduct as many checks as possible.
(U) Requiring any foreign country to accept visits without notice would be viewed as an infringement of its sovereignty and would therefore be extraordinarily difficult to implement. Every country in the world,, including the United States, requires prior notification for these types of visits. Indeed, in the recent CWC implementing legislation, Congress insisted on giving the President the authority to block unannounced visits to U.S. chemical facilities undertaken pursuant to the United
States' international treaty obligations. That said, the Administration supports an open and transparent system for end-use visits and believes we have already achieved that through the present process, which we are working to improve.
(U) Rather than setting an arbitrary deadline (in this instance, September 30, 1999) for cutting off computer exports to China (by lowering performance levels or denying licenses) if certain conditions are not met, we believe that a more productive course of action to pursue would be to continue working with China to implement, and improve through experience; the existing end-use verification procedures. Under existing
procedures, if China does not permit end-use visits, the Administration will continue to implement appropriate measures, including the denial of licenses on a case-by-case basis (e.g., when China recently refused a pre-license check request from the
U.S. Government, the Commerce Department denied the export license application.)
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Export Legislation and Other Technology Controls
13. (U) The Select Committee believes that it is in the national interest to encourage commercial exports to the PRC and to protect against the export of militarily sensitive technologies. To this end:
- (U) A. The Select Committee recommends that the appropriate congressional committees report legislation to reenact the Export Administration Act, with particular attention to reestablishing the higher penalties for violation of the Act that have been allowed to lapse since 1994.
- (U) B. In addition, relevant Executive departments and should establish a mechanism to identify, on a
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continuing basis, those controlled technologies and items that are of greatest national security concern. With respect to such technologies and items, current licensing procedures should be modified:
(U) a. to provide longer review periods when deemed necessary by any reviewing Executive department or agency on national security grounds; and
(U) b. to require a consensus by all reviewing Executive departments and agencies for license approval, subject to appeal procedures.
(U) C. With respect to controlled technologies and items that are not of greatest national security concern, current licensing procedures should be modified to streamline the process and provide greater transparency, predictability and
certainty.
Response:
(U) A. The Administration welcomes and fully supports the recommendation that Congress should report legislation to enact a new Export Administration Act, with particular attention to establishing higher penalties for violations of the Act, which
lapsed in 1994. We have been urging such action since 1993. The Administration stands ready to work with Congress on this issue.
(U) B. We agree with the Committee on the need to identify on a continuing basis, those technologies and items that are of greatest national security concern. We are pleased to note that we have an effective mechanism in place for identifying and categorizing technologies on the basis of their national security importance, both unilaterally and in the context of U.S. multilateral obligations. All of the multilateral export
control regimes identify the items they control based on the degree of security or proliferation threat, and these lists are regularly reviewed and revised. The U.S. rigorously adheres to stringent controls for the most sensitive categories, and in
many cases, imposes controls that are even stricter than those required by the multilateral regimes.
(U) We also agree with the need to provide adequate time for careful review of dual-use export license applications. We believe that existing timeframes allowed for license review in statute, Executive Order, and regulation permit full and
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careful review of license applications. In fact, agencies on average consistently conduct their reviews in less time than they are permitted by current Executive order. Existing procedures also allow for time extensions when requested (e.g-, a request by any agency for additional information about a license application "stops the clock"), and Agencies also have found that they can obtain additional time for review by
escalating cases. However, we believe that allowing an agency to "stop the clock" indefinitely would return the dual-use licensing system to the days of unjustified delays that the Executive Branch and the Congress worked hard for over a decade
to reform.
(U) Likewise, requiring interagency consensus (unanimity) for dual-use export license approval would hinder the deliberative process. This would constitute a return to the days when any participating agency could veto any proposed export, but agencies disagreeing with that veto had inadequate recourse to overriding it. Again, this was a situation that both the Executive Branch and Congress worked together to overcome. Such
a process would reduce the quality of license assessments and decisions, and result in the escalation of a large number of individual licenses to senior political levels. We note that current practice allows any agency to escalate decisions with which it does not agree to a series of political levels, including the President. This system has been working well, and no agency has expressed difficulty in having cases escalated in
a timely fashion.
(U) C. The Administration agrees with the Committee on the need for a streamlined licensing process for those many controlled items that are hot of great national security concern. To this end, the Administration has streamlined the licensing process for commodities and technologies that pose either a minimal security threat or are by their nature uncontrollable. For destinations and foreign end-users posing the least national security risk, we have provided for the use of licensing exceptions and other measures.
(U) As in the past, the relevant dual-use control agencies will continue to further streamline current licensing procedures. We believe that we must target our controls as
effectively as possible given our limited licensing and enforcement resources. We strive to maintain controls such that they maximize the benefit to our national security and foreign policy concerns, and minimize, where possible, the cost to the
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competitiveness of our industries, which is a key factor in U.S. national security.
14. (U) The Select Committee recommends that appropriate congressional committees report legislation requiring appropriate Executive, departments and agencies to conduct an initial study, followed by periodic reviews, of the sufficiency of customs arrangements maintained by Hong Kong with respect to the PRC and the appropriateness of continuing to treat the Hong Kong S.A.R. differently from the PRC for U.S. export control purposes. Such study should consider, among other things, the implications of unmonitored border crossings by vehicles of the People's Liberation Army.
Response:
(U) The Administration supports the substance of the Committee's recommendation. We note that these issues are already largely covered under the Hong Kong Policy Act of 1992, and we do not believe that new legislation is needed at this time. The Act established the status of Hong Kong as separate from the PRC, ensuring that Hong Kong's status would not be altered by virtue of its transition to Chinese sovereignty. The
Act provides authority to alter Hong Kong's status when facts demonstrate that Hong Kong is not "sufficiently autonomous to justify treatment" different from that accorded the PRC. The State Department, in consultation with other agencies, conducts studies and prepares an annual report (including an export control section) as required under the Act. The Administration agrees with the Committee's recommendation to study the
implications of border crossings by vehicles of the People's Liberation Army. We are doing so, and have consulted with Hong Kong officials on this issue.
(U) We look forward to continuing to work with Congress on this important issue. The Administration monitors, through an interagency group, all aspects of Hong Kong's export control system, including the legal, regulatory, licensing and enforcement systems and government -to- government information exchanges. The U.S. Secretary of ComMerce and the H.K. Secretary for Trade and Industry, in an Agreed Minute,
reaffirmed this monitoring arrangement in October 1997. In support of this arrangement, a semi-annual exchange of interagency export control experts takes place to review the
effectiveness of Hong Kong's export control and customs systems.
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15. (U) The Select Committee recommends that appropriate congressional committees report legislation amending the Defense Production Act of 1950 to require notice to the Committee on Foreign Investment in the United States (CF1US) by all U.S. companies that conduct national security-related business of any planned mergers acquisition or takeover of the company by a foreign entity or by a U.S. entity controlled by a foreign
entity. The amendment also should require Executive departments and agencies to notify CFIUS of their knowledge of any such merger, acquisition, or takeover.
Response:
(U) Our concern with mandatory notification is that it could chill legitimate foreign investment that is strongly in our nation's interest, while not making a meaningful contribution to enhanced national security. We are proposing to undertake comprehensive consultations with the relevant Congressional committees to discuss details of our current CF1US process, how that process responds to the concerns in the report, how the
CFIUS procedures protect the national security and whether any changes are required.
(U) In brief, CFIUS already has substantial authority to meet security needs in this area. While Exon-Florio notices are voluntary, any of the 11 CFIUS agencies can notify and thus review any transaction that they believe should be reviewed. CFIUS agencies are involved in government contracting, industry analysis, and export licensing. Many maintain industry contacts through cooperative government- industry export promotion and/or research and development channels. These are all avenues for
CFIUS to discover foreign acquisitions in the national security area that should be notified. In addition, foreign acquisitions that are not reviewed by CFIUS remain potentially subject to adverse Presidential action for an indefinite period.
(U) In implementing the Exon-Florio provision, CFIUS seeks to protect the national security in the context of the U.S. open investment policy. The U.S. has an open investment policy that welcomes foreign direct investment (FDI) because it benefits the
U.S. economy. In addition to new capital for investment, it brings new technologies, new management techniques, helps to offset the trade deficit, and can increase employment in the United States. A voluntary notification system means that Exon-
Florio is not used as a screening mechanism, a process that can discourage FDI.
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(U) In a December 1995 report on the implementation of Exon-Florio, the General Accounting Office concluded that the CFIUS review process serves both to protect the national security and to minimize any potential adverse effect of Exon-Florio on FDI
in the United States.
Other Intelligence/ Counterintelligence Issues
16. (S) Supplementing its recommendations with respect to security at the National Laboratories, the Select Committee further recommends that Executive departments and agencies with counterintelligence expertise undertake a comprehensive
counterintelligence threat assessment of PRC espionage | ABOUT FIFTEEN LINES DELETED |
Response:
(S/NF) The Administration supports this recommendation. The
FBI, as the lead for counterintelligence matters in the United States, will work closely with the IC to produce such an assessment.
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17. (U) The Select Committee recommends that appropriate congressional committees report legislation to authorize and direct the Department of Justice promptly to share national security information, on a classified basis, with appropriate
Executive departments, agencies, and entities. To achieve this
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objective, the Select Committee recommends the creation of an appropriate interagency mechanism.
Response:
(U) The Administration has long recognized the importance of promptly sharing national security information with all appropriate entities in the Executive Branch. The Department of Justice (DOJ) routinely shares such information to the full extent that it can do so, consistent with the applicable federal statute and rules and with protecting the integrity of ongoing criminal investigations and prosecutions. In addition, in most cases in which the DOJ conducts criminal investigations that
raise national security concerns, it does so with the assistance of agents or investigators who work for agencies that are directly affected by the alleged criminal activity. Therefore, DOJ believes that it is unnecessary to enact legislation to
authorize or direct it to share national security information within the Executive Branch.
(U) In fact, there are a number of existing interagency mechanisms that facilitate DOJ's sharing of national security information. The DOJ and its FBI component routinely share national security information through their integral roles in several existing interagency organizations that are involved in addressing sensitive issues in (1) counterintelligence -- through the National Counterintelligence Center (NACIC), (2)
counterterrorism -- through the Counterterrorism Center (CTC), and (3) counterproliferation -- through the Community Nonproliferation Center (CNPC). In addition, DOJ/FBI pursue vigorous, cooperative agency-to-agency or bilateral national
security information sharing. For example, the FBI bas a close, longtime working relationship with the State Department's Bureau of Intelligence and Research (INR) on counterintelligence matters, as it does with the Customs Service. The FBI already
enjoys a strong relationship with the Department of Energy's newly created Office of Counterintelligence (OCI).
(U) In addition to the above organizations that focus on particular types of national security issues, there is also an existing interagency organization designed to foster the sharing of national security information. In 1994, the Attorney General and the Director of Central Intelligence created the Joint Task Force on Intelligence and Law Enforcement in order to strengthen and enhance law enforcement and intelligence community cooperation and the sharing of national security information. The Task Force led to the creation of the Joint Intelligence
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Community Law Enforcement Working Group (JICLE), an interagency body charged with developing interagency Policies and the procedures and to address issues in intelligence community (IC) and law enforcement agency (LEA) cooperation. JICLE has been addressing the specific question, raised by Recommendation No. 17, of how to ensure that the law enforcement agencies will promptly share information with the intelligence community, to the extent consistent with law and the need to protect the
integrity of ongoing law enforcement activities.
(U) More generally, in order to lay a solid foundation for enhanced IC-LEA cooperation, JICLE has become the established forum for an active and ongoing interagency dialogue between the two communities on national security issues and operations. For example, the implementation of JICLE recommendations has led to (1) a marked acceleration in the interagency exchange and sharing of personnel as detailees or liaisons, (2) the creation of "focal points" or offices within the IC and LEA to serve as an interface with other community members, and (3) increased interagency development and use of community classified information databases. In addition, a joint standing committee
within JICLE, the Training Subgroup (TSG), was established for internal and cross-community training and education that created such successful programs as Computer-Based Training, Country-Team Training, and Training in Law Enforcement. Moreover, JICLE
has served as an important facilitator of informal IC-LEA agreements on bridging and communication. For example, JICLE produced a working definition of "actionable intelligence" and agreements on the use of "ORCON" and other dissemination restrictions in order to better protect undercover LEA operations.
18. (U) The Select Committee recommends that appropriate congressional committees require the Secretaries of State, Defense, Commerce, and the Treasury and the Director of Central Intelligence to direct their respective Inspectors General to
investigate the adequacy of current export controls and counterintelligence measures to protect against the acquisition of militarily sensitive U.S. technology by the PRC, and to report to Congress by July 1, 1999, regarding their findings and measures being undertaken to address deficiencies in these areas.
Response:
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(U) The Administration supports the intent of this recommendation and notes that the inspectors General of the Departments of State, Defense, Energy, Commerce, Treasury and
the Central intelligence Agency are already reviewing the adequacy of U.S. export controls and plan to report to the congressional requestor before July 1, 1999. The ongoing review is not focused specifically on the PRC, however, and we believe
that it would be impractical to change its scope and methodology at this point. Each of the agencies will request their respective IGs to examine the adequacy of the implementation of their respective CI procedures to protect against the
acquisition of militarily sensitive U.S. technology bY the PRC and to report their findings to Congress.
19. (S) The Select Committee recommends that appropriate congressional committees report legislation directing the intelligence Community to undertake and maintain a current, all-source analysis of PRC aims, goals, and objectives with respect
to the acquisition of foreign and particularly U.S. technologies,
Such legislation should include a requirement to report on the adequacy of resources, encouragement, and priority-status accorded all-source intelligence collection and analysis concerning the PRC and PRC counterintelligenca by relevant Executive departments and agencies.
Response:
(S/NF) We support better understanding the PRC's aims, goals
and objectives with regard to the acquisition of U.S. technologie6, and we have undertaken increased efforts in this regard. We again note the currently required annual reports
(S/NF) In addition, we are currently undertaking a variety of
efforts to monitor Beijing's objectives and methods for the acquisition of sensitive foreign -- particularly US -- technologies.
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