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Weapons of Mass Destruction (WMD)

China: Possible Missile Technology Transfers from U.S. Satellite Export Policy - Background and Chronology

98-485 F    China: Possible Missile Technology Transfers
            CONGRESSIONAL RESEARCH SERVICE
                 LIBRARY OF CONGRESS
NUMBER:     98-485 F
TITLE:      China: Possible Missile Technology Transfers from 
            U.S. Satellite Export Policy - Background and Chronology
AUTHOR:     Shirley A. Kan
DIVISION:   Foreign Affairs and National Defense Division
DATE:       Updated June 12, 1998
CONTENTS:
Introduction
Background
   China Great Wall Industry Corporation
   Missile Technology or Expertise
   Sanctions
   Waivers
Congressional Action
China: Possible Missile Technology Transfers From U.S.
              Satellite Export Policy  
              Background and Chronology
TEXT:
Summary
   Members of Congress are concerned about whether U.S. firms 
have provided expertise to China for use in its ballistic missile program 
and whether a series of decisions by the Clinton Administration on 
satellite exports have facilitated legal or illegal transfers of missile-related 
technology to China.  The New York Times reported in April 1998 
that the Justice Department is conducting an ongoing criminal 
investigation into whether Loral Space and Communications and 
Hughes Electronics  violated export control laws.  The firms are 
alleged to have shared their findings with China on the cause of a 
Chinese rocket's explosion while launching a U.S.-origin satellite in 
February 1996.  In sharing their conclusions, the companies are said 
to have provided expertise that China could use to improve the 
accuracy and reliability of its ballistic missiles, including their guidance 
systems.  The news report cited a classified report in the Pentagon 
that concluded in May 1997 that as a result of the transfer of 
expertise to China's missile program, "United States national 
security has been harmed."  In addition, the press reports alleged 
that President Clinton in February 1998 issued a waiver for sanctions 
that undermined the investigation by allowing the issuance of licenses 
for the export of assistance similar to that in question.  Moreover, 
the Times article alleged that political considerations may have 
influenced the Administration's decision, since Loral's chairman 
was the largest personal donor to the Democratic National Committee 
for the 1996 election.
   Loral issued a statement on May 18, 1998, denying allegations 
that it provided missile guidance technology to China.  Loral denied 
that it and Hughes conducted an independent investigation to determine 
the cause of that launch failure.  However, the company acknowledged 
that it formed a committee of several satellite companies, including 
Hughes, to review the Chinese investigation and that, contrary to 
its policies, "the committee provided a report to the Chinese before 
consulting with State Department export licensing authorities."  The 
Administration argues that export controls and strict security measures
 prevent inappropriate technology transfers to China's ballistic 
missile program.  Administration officials say that export licensing 
procedures and strict security measures (including escorts of satellites 
by U.S. military officers prior to launch) preclude any assistance 
to the design, development, operation, maintenance, modification, 
or repair of any launch facility or rocket in China. Moreover, effective 
export controls on dual-use technology (with military and civilian 
applications) allow U.S. exporters to compete while protecting U.S. 
security interests.  Officials have publicly disputed that there were 
objections within the executive branch to allowing recent satellite 
exports to China.
   This CRS report provides detailed background information 
and a comprehensive chronology.  The events summarized below, 
based on various open sources and interviews, pertain to various 
aspects of U.S. foreign and security policy, including missile 
nonproliferation, export controls on technology useful for missiles 
and/or satellites, and Presidential waivers of sanctions imposed 
on China after the Tiananmen crackdown.    
                      Introduction
   Members of Congress are concerned about allegations that U.S.
firms provided expertise to China that could be used in its
ballistic missile program and that a series of decisions by the
Clinton Administration on satellite exports have facilitated legal
or illegal transfers of missile-related technology to China.  The
New York Times reported in April 1998 that the Justice Department is
conducting an ongoing criminal investigation into whether Loral
Space and Communications (of New York), and Hughes Electronics (of
Los Angeles) violated export control laws. (See Endnote 1.)  The
firms are alleged to have shared their findings with China, without
approval from the U.S. government, on the cause of a Chinese
rocket's explosion while launching a U.S.-origin satellite in
February 1996.  In sharing their conclusions, the companies are said
to have provided expertise that China could use to improve the
accuracy and reliability of its ballistic missiles, including their
guidance systems.  A classified report at the Department of
Defense's Defense Technology Security Administration (DTSA)
reportedly concluded in May 1997 that Loral and Hughes transferred
expertise to China that significantly enhanced the reliability of
its nuclear ballistic missiles and "United States national security
has been harmed."  
   In addition, the media reports allege that President Clinton in
February 1998 issued a waiver of sanctions that undermined the
investigation by allowing the issuance of licenses for the export of
technology or expertise similar to that in question   despite
"strong opposition" from Justice.  Moreover, political 
considerations are alleged to have influenced the Administration's
decision, since Loral's chairman was the largest personal donor to
the Democratic Party in 1996.
   This CRS report provides detailed background information and a
comprehensive chronology.  The events summarized below, based on
various open sources and interviews, pertain to various aspects of
U.S. foreign and security policy:
    Presidential waivers for exports of satellites,
    including the latest waiver for Chinasat-8 (built by
    Loral) during an ongoing criminal investigation into
    alleged assistance by Loral and Hughes to China's
    missile program; waivers are for sanctions imposed
    after China's Tiananmen Square crackdown;
    sanctions imposed for missile proliferation by
    China's space launch company, China Great Wall
    Industry Corporation;
    quotas on Chinese launches of satellites;
    controls on exports of U.S.-origin satellites and/or
    satellite technology;
    export controls to prevent technology transfers that
    could contribute to China's ballistic missile force
    and/or military satellites.
          Background
China Great Wall Industry Corporation
   China Great Wall Industry Corporation (CGWIC) has been China's
space launch company since 1986.  It is a state-owned corporation in
China's defense-related aerospace industry.  CGWIC belongs to the
China Aerospace Corporation (CASC), which oversees China's space and
missile research and development establishment.  It develops
strategic and tactical ballistic missiles, space launch vehicles,
surface-to-air missiles, cruise missiles, and military
(reconnaissance, communications, or other) and civilian satellites. 
CGWIC uses the Long March series of rockets to launch satellites. 
The Long March boosters are also produced as China's DF-4 and DF-5A
intercontinental ballistic missiles (ICBM) deployed in the Second
Artillery, the strategic missile force of the People's Liberation
Army (PLA), China's military. (See Endnote 2.)   China's launch
facilities, such as the Xichang Satellite Launching Center in 
southwestern Sichuan province, are at PLA bases.
   China reportedly launched its first satellite, Dongfanghong
("East is Red") on April 24, 1970.  By the end of 1997, China
reportedly had launched 40 domestic satellites: 17 retrievable
reconnaissance satellites, 3 meteorological satellites, 8
communications and broadcasting satellites, and 12 "experimental"
(possibly military) satellites.  China is using the satellites and
space technology to enhance its national defense, economy, and
international prestige. (See Endnote 3.)  On April 7, 1990, the
China Great Wall Industry Corporation launched a foreign satellite,
Asiasat, for the first time. (See Endnote 4.) Since then, the
company has expanded its foreign business, especially with U.S.
firms such as Hughes Electronics, Lockheed Martin, and Loral Space
and Communications.  China probably seeks foreign capital and
technology to apply to its domestic satellite research and
development efforts, in part to lessen reliance on purchasing
foreign satellites.  For example, the president of the Chinese
Academy of Space Technology said that the Chinese Dongfanghong (East
is Red) satellites match the capacities of advanced satellites built
by Hughes, but are backward in satellite navigation and
stabilization technologies.  The Academy hopes to sell its
satellites at world standards by 2000. (See Endnote 5.)
   China has experienced a number of embarrassing and costly failed
satellite launches.  In 1992, a Chinese rocket stalled while
attempting to launch the Optus-B1 satellite and another rocket
exploded and destroyed the Optus-B2 satellite (both built by
Hughes).  In 1995, A Long March rocket exploded and destroyed the
Apstar-2 satellite (built by Hughes).  In 1996, another Chinese
rocket exploded and destroyed the Intelsat satellite (built by
Loral).  Aside from the dramatic explosions, other problems have
prevented the Chinese rockets from successfully launching satellites
into the correct orbits.
   China's aerospace industry has shifted from denying all
responsibility in failed launches of foreign satellites to
expressing willingness to work with foreign companies in determining
the causes of explosions and other failures.  This practice may have
been a strategy to learn from foreign companies methods to improve
China's rockets, satellites, and other related space technology. 
China may also have been requested by insurance companies and
satellite manufacturers to share information about problems in
Chinese rockets to show that the problems were being solved.
Missile Technology or Expertise
   Critics say that allowing China to launch U.S.-origin satellites
indirectly subsidizes and assists Chinese military aerospace
research and development efforts, because the technology used in
launching satellites can be used in ballistic missiles.  Henry
Sokolski (Executive Director of the Nonproliferation Policy
Education Center and a Defense official in the Bush Administration)
writes that "intangible technology" is critical to the timely,
reliable, and accurate placement of satellites into space as well as
launches of warheads against targets by ballistic missiles. 
Intangible technologies include: coupling load analysis, guidance
data packages, upper-stage solid rocket propellant certification,
upper-stage control design validation, lower-stage design
validation, and general quality assurance.  Also, multi-satellite
dispensers, or smart dispensers, can be used as multiple-warhead
dispensers, thus assisting China's reported efforts to develop a
capability in multiple independently targeted reentry vehicles
(MIRVs) for its ICBMs. (See Endnote 6.)  China has used such
dispensers to launch multiple satellites for Iridium.  In the case
of Loral's alleged assistance to China in 1996, the company may have
concurred with or identified problems with the Long March rockets in
reviewing the cause of the February 1996 explosion.
   Acting Undersecretary of State John Holum confirmed on April 9,
1998, that after the accident in February 1996, the Department of
State "became aware that there may have been a violation."  The case
was referred to the Department of Justice for investigation.  He
said that there are "strong legal remedies" for violations of export
control laws, including a denial of future licenses.
   Loral issued a statement on May 18, 1998, saying that
allegations that it provided missile guidance technology to China
are false.  Loral also says that it did not advise China "on how to
fix any problems with the Long March rocket."  The company states
that "the Chinese alone conducted an independent investigation of
the launch failure [in February 1996] and they determined that the
problem was a defective solder joint in the wiring   a `low-tech'
matter."  Loral denied that it and Hughes conducted an independent
investigation to determine the cause of that launch failure. 
However, at the insistence of insurance companies, which required
non-Chinese confirmation of resolutions of problems with Long March
rockets, Loral formed a committee of several satellite companies,
including Hughes, to review the Chinese investigation.  According to
Loral, the review committee obtained information from the Chinese
and was not formed to help them solve their problems.  The review
agreed with the Chinese conclusion (that a defective solder joint
was responsible), without performing tests or providing any test
data to the Chinese.  The committee did note that further tests by
China would be required to establish certainty.  Loral says that,
during the review, it discussed the committee's work with U.S.
officials.  As far as Loral's engineer's can determine, the
statement says, "no sensitive information   no significant
technology   was conveyed to the Chinese." 
   Nevertheless, 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 soon as its executives found out in May 1996, the company
notified the Departments of State and Defense.  In June 1996, Loral
provided to the U.S. government a detailed, written report
concerning all communications with China.  Loral adds that it is in
full cooperation with the Justice Department in its investigation
and with Congressional committees.  Loral concludes that based upon
its own review, it "does not believe that any of its employees
dealing with China acted illegally or damaged U.S. national
security."  In addition, the statement says that Loral's chairman,
Bernard Schwartz, was not personally involved in 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 denies any connection between the launch failure in February
1996 and the Presidential waiver for another Loral-built satellite
in February 1998.  The export license for the latest launch (for
Chinasat-8) "applied the strictest prohibitions on technology
transfer and specified that any new launch failure investigation
would require a separate license."  Loral stresses that it complies
strictly with export control laws and regulations.
   Administration officials say that export licensing procedures
and strict security measures (including escorts of satellites by
U.S. military officers prior to launch) preclude any assistance to
the design, development, operation, maintenance, modification, or
repair of any launch facility or rocket in China.  Moreover,
Undersecretary of Commerce William Reinsch testified to Congress on
April 28, 1998, that effective export controls on dual-use
technology (with military and civilian applications) allow U.S.
exporters to compete while protecting U.S. security interests.  He
disputed that there were objections within the executive branch to
allowing recent satellite exports to China, saying that since
November 1996 (when the licensing jurisdiction was transferred from
the Department of State to Commerce), the Commerce Department has
issued three export licenses for satellites to be launched from
China   with the concurrence of all agencies.  
   However, it is unclear whether the Justice Department was among
those agencies that concurred in issuing the export licenses.  The
New York Times alleges that the Justice Department strongly opposed
the President's approval and waiver, in February 1998, for the
export of a Loral-built satellite.  Finally, there is little public
information on the export licenses issued by the State Department
for technical assistance agreements (TAAs) concerning the transfer
of data needed to mate satellites to launch vehicles, and other
technical assistance.
Sanctions
   CGWIC has been affected by two categories of sanctions imposed
on China: those imposed after the Tiananmen crackdown and those
imposed for missile proliferation.  In 1990, the United States
imposed post-Tiananmen sanctions as required in the Foreign
Relations Authorization Act for FY1990 and FY1991 (P.L. 101-246). 
Sec. 902(a)  requires suspensions in programs related to: (1)
Overseas Private Investment Corporation, (2) Trade and Development
Agency, (3) exports of Munitions List items, (4) exports of crime
control equipment, (5) export of satellites for launch by China, (6)
nuclear cooperation, and (7) liberalization of export controls. 
Suspensions (3) and (5) affected export of satellites to China. 
Sec. 902(b) allows Presidential waivers of those suspensions by
reporting that "it is in the national interest" to terminate a
suspension.  
   As for sanctions related to missile proliferation, on April 30,
1991, the Bush Administration denied licenses for the export of U.S.
parts for a Chinese satellite, the Dongfanghong-3, citing "serious
proliferation concerns."  On May 27, 1991, President Bush declared
sanctions on China for transferring to Pakistan technology related
to the M-11 short-range ballistic missile.  These sanctions, 
required by Sec. 73(a) of the Arms Export 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 Missile Technology Control Regime
(MTCR).  These sanctions, which took effect on June 16 and 25, 1991,
denied export licenses and waivers of sanctions 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 Chinese aerospace corporations: CGWIC
and China Precision Machinery Import Export Corporation.  President
Bush waived these sanctions on March 23, 1992, after China agreed to
abide by the MTCR guidelines.  
   The Clinton Administration had to impose similar sanctions on
August 24, 1993, after China was again determined to have
transferred M-11 related equipment to Pakistan.  A total of 11
Chinese defense industrial companies were sanctioned, including
CGWIC again.  Beginning in 1993, the U.S. aerospace industry and
aerospace company executives lobbied against sanctions and for
expansion of satellite exports to China.  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 November 1, 1994, the Clinton Administration waived those
sanctions. (See Endnote 7.)
Waivers (See Endnote 8.)
   Since sanctions were imposed after the Tiananmen crackdown in
1989, Presidents Bush and Clinton have issued at least 13 waivers
for 20 satellite projects (each project may involve more than one
satellite), on a case-by-case basis, to allow the export to China of
U.S.-origin satellites or components (for foreign satellites)
subject to export controls.  (See the Table below.)  Since they were
first granted, Presidential waivers have been increasingly issued
for satellites used by China   not just launched from China.  Some
waivers under P.L. 101-246 have specified whether sections 902(a)(3)
and 902(a)(5), on Munitions List items and satellites, applied;
other waivers simply referred to section 902 or 902(a).  The
Administration has considered supporting China as a partner in the
MTCR, issuing a blanket waiver of sanctions on satellites, and
increasing the quota on the numbers of satellites China is allowed
to launch    in return for further cooperation in missile
nonproliferation, according to a secret March 12, 1998, National
Security Council memo. (See Endnote 9.) 
                  Congressional Action
   Since the early 1990s, Congress has been concerned about the
implications for U.S. national security stemming from satellite
exports.  After the press reports in April 1998, several
Congressional committees    led by House Speaker Newt Gingrich and
Senate Majority Leader Trent Lott   began to look into the latest
allegations concerning Loral and Hughes and associated actions by
the Clinton Administration.  These committees include: the Senate
Governmental Affairs Subcommittee on International Security,
Proliferation, and Federal Services; Senate Foreign Relations
Committee; the Joint Economic Committee; and House Committees on
Intelligence, International Relations, and National Security.  The
chairmen of the House International Relations and National Security
Committees have requested relevant documents (including the
Pentagon's report), but have reportedly faced resistance from the
Administration   in part because of concerns about compromising the
Justice Department's ongoing criminal investigation. (See Endnote
10.)  White House spokesperson, Mike McCurry, said on May 11, 1998,
that "we're willing to make available whatever information they need
to satisfy themselves that these decisions have been made on sound
national security grounds."  In addition, Speaker Gingrich announced
on May 19, 1998, that he wants to create a select committee, headed
by Congressman Christopher Cox, to investigate the various
allegations concerning this case.  A vote by the House would be
needed, perhaps to be scheduled for early June.  
   The Joint Economic Committee held a hearing on April 28, 1998,
on dual-use exports to China.  The Senate Governmental Affairs
Subcommittee on International Security, Proliferation, and Federal
Services scheduled a hearing for May 21, 1998, to look into the
applications of technology or expertise in commercial space launch
for foreign satellite and ICBM programs.  
   The House Defense Authorization Act (H.R. 3616) includes
amendments that expresses the sense of Congress that the United
States should not enter into new agreements with China involving
space or missile-related technology, prohibits U.S. participation in
investigations of Chinese launch failures, prohibits transfers of
missile technology to China, and prohibits the export or re-export
of U.S. satellites to China (respectively, by Representatives
Spence/Gilman, Bereuter, Hefley, and Hunter on May 19, 1998).  The
Senate Defense Authorization Act (S. 2057) contains several
amendments expressing concern over relations with China, technology
transfer, and U.S. national security interests.  Of relevance to
satellite export policy, one of Senator Hutchison's amendments seeks
to clarify expectations for presidential waivers regarding Chinese
programs.
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                          ENDNOTES
1.   Gerth, Jeff.  "Companies are Investigated for Aid to China on
Rockets," and "Aerospace Firms' Ties with China Raise Questions," New
York Times, April 4 and 13, 1998.
2.  See CRS Report 97-391, China: Ballistic and Cruise Missiles, by
Shirley Kan and Robert Shuey.
3.  Chou Kuan-wu, "China's Reconnaissance Satellites," Kuang Chiao
Ching (in Hong Kong), March 16, 1998; translated in FBIS.
4.  For commercial space launches in general, see CRS Issue Brief
93062, Space Launch Vehicles: Government Requirements and Commercial
Competition, updated regularly, by David P. Radzanowski and Marcia
S. Smith.
5.  Parker, Jeffrey.  "China to Expand Rocket Production," Reuters,
August 25, 1993.
6.  Sokolski, Henry.  "US Satellites to China: Unseen Proliferation
Concerns," International Defense Review, April 1994; "Space
Technology Transfers and Missile Proliferation," April 10, 1998.
7.  See CRS Report 96-767, Chinese Proliferation of Weapons of Mass
Destruction: Background and Analysis, 1996, by Shirley A. Kan.
8.  For sanctions on China in general, see CRS Report 96-272, China:
U.S. Economic Sanctions, by Dianne E. Rennack.
9.  See CRS Issue Brief 92056, Chinese Proliferation of Weapons of
Mass Destruction: Current Policy Issues, updated regularly, by
Shirley A. Kan.
10.   Gerth, Jeff, "Congress Probes Sales of Satellite Technology to
China," New York Times, April 16, 1998; Juliet Eilperin, "GOP Says
U.S. Gave China Nuclear Edge" and "GOP Leaders Demand Satellite
Export Data," Washington Post, May 6, 1998 and May 12, 1998; Juliet
Eilperin, "Gingrich to Create Special Panel to Probe China
Technology Deal," Washington Post, May 20, 1998.
                        END OF FILE



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