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China: U.S. Law Controls Missile-related Exports

U.S. aerospace trade with China is growing, with annual sales now exceeding $2 billion. But exporters must pay close attention to the end-uses of their products to determine whether a license is needed.

Last year, the Commerce Department announced a new license, the GLX, that decontrolled many exports to China, including high-speed computers, telecommunications equipment and electronics. The GLX cannot be used for exports to military buyers, however, or to help build nuclear-capable missiles or space rockets.

China appears on the Commerce watch list known as “Supplement 6” (Part 778 of the Export Administration Regulations). The list names countries and projects of concern for missile proliferation. If a company knows its products “will be used in the design, development, production or use of missiles” in China, it must apply for a license. The law defines “missiles” as all rocket systems, ballistic missiles, space launch vehicles, sounding rockets, cruise missiles and drones capable of delivering at least 500 kilograms payload to a range of at least 300 kilometers.

The payload and range limit is set by the Missile Technology Control Regime (MTCR), an effort by 25 countries to curb missile sales to countries of proliferation concern. China has not joined the Regime, so most space rocket or missile-related exports to China require a license.

Chinese companies sanctioned in 1993-94 for missile sales to Pakistan:
– Chinese Ministry of Aerospace Industry
– China Precision Machinery Import/Export Corp.
– China National Space Administration
– China Aerospace Corporation
– China Great Wall Industry Corporation
– Chinese Academy of Space Technology
– Beijing Wan Yuan Industry Corporation
– China Haiying Company
– Shanghai Astronautics Industry Bureau
– China Chang Feng Group

Chinese Missiles: Threat and Capability

China may be the only country in the world that targets U.S. cities with nuclear missiles. And it is the only country still conducting nuclear tests, in part to develop lighter missile warheads.

China’s missiles were conceived to target U.S. forces and allies but were later aimed at Soviet targets during the Cold War. “One has to regard China as a potential threat,” says a senior U.S. official. “We have no knowledge that they have detargeted us.” Former U.S. Ambassador to China James Lilley concurs: “My sense is that we target them, and they target us.”

In 1956, Chairman Mao Zedong urged Chinese industry to start building atomic bombs and long-range missiles because, he said, “If we don’t want to be bullied, we must have these things.” The same year, China’s Ministry of Defense created its Fifth Academy to develop ballistic missiles. Within ten years, China had exploded its first atomic bomb and tested a nuclear-capable missile. Today, China is believed to have roughly 450 nuclear weapons, a modest arsenal compared to that of the United States and Russia, but larger than that of Great Britain.

Russia was China’s main missile tutor. According to the Natural Resources Defense Council’s Nuclear Weapon Databook, Moscow sent scores of specialists in 1957 to help China build its main missile test center at Shuangchengzi. With them came Russian missiles, blueprints and know-how that enabled China to test its first nuclear missile, the Dong Feng-2, in 1964. China would build a series of DF missiles, each with a different target in mind.

The DF-2 was initially aimed at U.S. military bases in Japan, according to the Databook. A copy of the Soviet R-5 missile, it was turned against the Soviet Union when Sino-Soviet relations soured in the late 1960s.

The DF-3, tested in 1966 and destined to become China’s mainstay, more than doubled the DF-2’s range to 3,000 kilometers. The DF-3 engines are used in the DF-4 missile and to power China’s Long March-1 space launcher. It also earned China nearly $3 billion from sales to Saudi Arabia in 1988.

The DF-4 was designed to target U.S. forces in Guam, but it could strike Moscow and the Middle East. Its successor, the DF-5, brought China its first intercontinental-range missile in 1981, with the capability of carrying a nuclear warhead to any city in the United States, Europe or the former Soviet Union. China also has a submarine-launched ballistic missile that could reach targets in North America, and is working on a new one.

China is now “trying to make its capability world class,” says a U.S. official. It is building a new solid-fuel ICBM, the DF-41, and trying to reduce the weight of its nuclear warhead to extend the missile’s range. It is also trying to earn money with its space launch program. Because China uses the same rockets to power both its missiles and space launchers, the U.S. Commerce Department controls U.S. exports to both programs. To reach its goal, China is shopping for better technology, especially American goods. A Pentagon study ranking countries’ military potential says China has “limited capability” in several areas, including navigation and guidance, electronics, and composite materials.

A larger question is how China will use its growing capability. China already has massive conventional strength that intimidates its neighbors. But its generals view China’s “sovereignty” as extending to Taiwan and disputed territories such as the Spratly Islands, which China seized in February. “The Chinese are pursuing a policy of calculated ambiguity,” says one State Department official. “On the one hand they will assert themselves forcibly, but not in a decisive way, just to keep the pressure on.”

Defense planners say America will keep its defenses in East Asia, but it probably won’t be enough to outweigh China’s ambitions. If China’s military-owned companies continue to sell missile and chemical weapon technology to the Middle East, China will destabilize the region and undermine the international effort to stop proliferation. Such exports, combined with China’s budding missile capabilities, lead at least one senior U.S. official to conclude that “China is a country that we will have to reckon with in the long run.”

China: List of Top U.S.-Controlled Exports to China in 1995

China imported a total of $486 million worth of Commerce-controlled dual-use products from the United States in 1995. Computers were the biggest single dollar item, followed by chemical precursors. The most strategically sensitive exports are listed in the table below. (Source: U.S. Department of Commerce, Bureau of Export Administration [BXA], “Export Administration Annual Report, 1995”)

A. Equipment Controlled for Nuclear Non-proliferation Reasons:

Digital computers/assemblies and related equipment
CCL number: 4A03

Value: $34,543,856 *

Numerical control units/motion control boards

CCL number: 2B01

Value: $19,438,064

Cathode ray oscilloscopes and components

CCL number: 3A52

Value: $4,301,109

Fibrous/filamentary materials used in matrix structures

CCL number: 1C10

Value: $3,327,152

Vibrational test equipment using digital control technology

CCL number: 9B26

Value: $3,222,828 *

Dimensional inspection/measuring systems or equipment

CCL number: 2B06

Value: $3,197,784

Items on the International Atomic Energy Agency [IAEA] list

CCL number: 1C19

Value: $1,500,000

Spin/flow forming machines used with computer control

CCL number: 2B50

Value: $1,187,500 *

Optical equipment–lasers

CCL number: 6A05

Value: $1,170,903

Cameras

CCL number: 6A03

Value: $982,460

Cylindrical tubing/solid cylindrical forms in aluminum or titanium

CCL number: 1A46

Value: $861,393

Isostatic presses

CCL number: 2B44

Value: $802,500

Mass spectrometers

CCL number: 3A51

Value: $785,000

Vacuum/controlled environment furnaces

CCL number: 1B50

Value: $783,600

Specially designed pressure measuring instruments

CCL number: 1B51

Value: $710,164

High purity bismuth with low silver content

CCL number: 1C51

Value: $620,740

Electronic devices/components

CCL number: 3A01

Value: $378,676 *

Commodities on the International Atomic Energy List

CCL number: 2A19

Value: $233,750

Helium isotopically enriched in the Helium-3 isotope

CCL number: 1C55

Value: $178,925

Cameras/components/photographic media not controlled

CCL number: 6A43

Value: $173,735

Filament winding machines

CCL number: 1B41

Value: $103,800

Piping/fittings/valves made with named alloy

CCL number: 2A51

Value: $20,093

Total: 22 applications

Value: $78,524,032

B. Equipment Controlled For Missile Technology Reasons:

Digital computers/assemblies and related equipment

CCL number: 4A03

Value: $34,543,856 *

Inertial or other equipment using accelerometers

CCL number: 7A23

Value: $6,586,090

Vibrational test equipment using digital control technology

CCL number: 9B26

Value: $3,222,828 *

Spin/flow forming machines used with computer control

CCL number: 2B50

Value: $1,187,500 *

Electronic devices/components

CCL number: 3A01

Value: $378,676 *

Total: 5 applications

Value: $45,918,950

C. Equipment Controlled for Chemical and Biological Weapon Reasons:

Precursors/intermediate chemicals for chemical warfare

CCL number: 1C60

Value: $54,488,060

Equipment for production of chemical weapon precursors

CCL number: 1B70

Value: $5,720,964

Total: 2 applications

Value: $60,209,024

* Controlled for both nuclear and missile proliferation reasons.

Total applications on this list: 29

Total value on this list: $184,652,006

Total applications in 1995: 447

Total value: $486,176,414

China Aims to Project its Power, Says Ambassador James R. Lilley

By Ambassador James R. Lilley

James R. Lilley, currently director of Asian Studies at the American Enterprise Institute, served as Ambassador to the People’s Republic of China from 1989 to 1991, and Ambassador to the Republic of Korea from 1986 to 1989. Most recently, Mr. Lilley served as Assistant Secretary of Defense for International Security Affairs from 1991 to 1993. He spoke to the Risk Report about Sino-American relations, China’s military buildup, and Chinese nuclear and missile exports to the Islamic world.

Risk Report: How would you characterize Sino-U.S. relations during your tenure as ambassador from 1989 to 1991?

Lilley: After Tiananmen, relations hit rock bottom. But, the Chinese were anxious to improve them. There were three major priorities established by Secretary of State James Baker in 1990: action on human rights, trade inequities and proliferation of weapons of mass destruction. Baker’s objective was to get the Chinese to sign on to the Nuclear Nonproliferation Treaty (NPT) and to adhere to the Missile Technology Control Regime (MTCR). By the fall of 1991, we got agreements on proliferation. The real test was when we detected China sending Pakistan missiles and imposed sanctions that held up delivery of satellites and supercomputers.

Risk Report: China was sanctioned again in 1993 for selling missiles to Pakistan. Have missile sanctions against China been effective?

Lilley: The first sanctions we put on their satellites in 1991 really shook them up. Space cooperation was a huge national prestige item. China had nowhere else to turn, so it was a success then. We also had pretty strict safeguards on satellites. That’s when we made a breakthrough. The United States got them to adhere to the MTCR and to agree to join the NPT. This was important to establish. Then at least you have something to work with to get them to adhere to international rules. But sanctions imposed by the United States alone is not the best technique. You need support from other countries.Risk Report: How would you assess the threat to the U.S. posed by China’s military buildup?

Lilley: China is not so much a threat as a challenge. In terms of threatening basic U.S. interests in East Asia, they haven’t got the military force, but they are working on it. China’s announced figures on military spending cannot be believed; they don’t include R&D costs, or military income from sales, or all weapons purchases.

What we know is that China’s spending is increasing substantially and it is aimed at projecting power. They are developing an elite military that is isolated basically from the large, commercial, so-called “corrupt” military.

The Chinese think years and years ahead. They foresee a gradual expansion of Chinese influence to reach what they call their extended sovereignty, which includes the entire South China Sea.

The real question is can they put together a modern military force: command, control and communications? There are strong forces inside China that don’t want to do this because they fear it will antagonize China’s neighbors and could affect commercial interests.

Risk Report: What’s the current U.S. policy? Does the Pentagon want defense cooperation?

Lilley: The Defense Department has just come out with a very forward-looking study whose major thrust is that the United States will not cut its forces in Asia. It says all the right things. One problem is that few believe it. They say, “Look at the way you’re gutting your military budget.” The United States has a credibility problem.

Risk Report: Why does China continue to test nuclear weapons despite negotiations to complete a comprehensive test ban treaty?

Lilley: They consider a nuclear weapon program important because the United States has never fought a war with a nuclear power. If you can cancel out the nuclear option by having capability on both sides, you drop down to conventional capabilities. Then if you project ahead ten years, the Americans are drawing down their forces, the Chinese are building theirs up, so the balance of power will have shifted and that’s in China’s interest.

Risk Report: How do China’s neighbors respond to China’s military buildup?

Lilley: In one word: ambivalently. These countries find it very difficult to confront China unless the United States is there. China deals with each country bilaterally and will not discuss issues such as [February’s seizure of] the Spratly Islands multilaterally.

Risk Report: China says it does not engage in nuclear proliferation and promises to curb its missile sales. Yet Chinese exports continue. What do you make of China’s promises?

Lilley: It’s the same in trade. It’s the same in human rights. To them, an agreement is just the framework in which you slug it out. They don’t see the MTCR as a legally binding document.

Risk Report: What do you think of China’s relations with the Islamic world, particularly Pakistan, Iran, Syria and Libya?

Lilley: Clearly China is building up its relations with the Muslim world. The cooperation of the poor against the rich powers has been part of the Chinese mantra for 40 years.

What has changed is China’s budding relationship with Israel. Israel is one of the best arms technology suppliers in the world, and the Chinese love their stuff. They’ve been getting it for years and they are still getting it.

Risk Report: The Clinton administration has protested Russia’s sale of cruise missile rocket motors to China, as well as other transfers, but Russia is going forward with the sales.

Lilley: The stuff the Chinese can’t get from us, they get from the Russians. It was the Russians who trained the top Chinese leadership. What the Chinese have always wanted is not the hardware, but the people and the technology to build their industrial base.

Risk Report: How much does China rely on U.S. technology?

Lilley: The Chinese know we are the best in the world. Desert Storm really had an impact on the Chinese leadership. They want all the modern technology. They can get cruise missiles from Russia, but they can’t get the kinds of things they’re really missing: the military technology of the 80s and 90s. Establishing good relations with the United States is important in trying to get that.

But, some Chinese think that they can have it both ways. Cheat on Pakistan, sell reactors to Iran, and acquire advanced military technology and hardware from Russia. This is perceived as in their interest. They think, “The Americans will complain, the Americans will catch you, the Americans will try to pressure you,” but they deal with this in the context of an overall relationship, a range of issues where China is essential. Is America going to jeopardize this framework for some two-bit deal in Pakistan?

Risk Report: It seems that if China wants U.S. cooperation, China should be willing to moderate its export behavior.

Lilley: And I think they have. But it’s always a question of degrees. What the Chinese are able to do is lower the threshold of proliferation to where it doesn’t really threaten their other interests. If they are only shipping missile components to Pakistan, or if their nuclear weapons cooperation is confined to technical exchange, are they then slightly below the threshold of U.S. sanctions and intervention?

Risk Report: Where will we be with China in five years?

Lilley: Over the long haul, you’ll see China become a more balanced partner in the world, but there will be a rocky patch in the short term. It’s important not to have any delusions about what they are up to. It is disturbing when people in our government try to downplay China’s military capabilities. There are people sprinkled throughout our government who are trying to prove that China has neither the intention nor the ability to become a military threat, but they are misguided.

China Caught Selling Poison Gas Ingredients to Iran

U.S. officials have detected a series of clandestine shipments of poison gas ingredients from China to Iran, sources say. And while a dozen front companies and individuals involved in the transactions have been sanctioned, the United States has failed to take effective action against China for fear of hurting trade relations.

“We haven’t really been tough on them,” one senior U.S. official told the Risk Report. “They pay lip service to the rules, but they still violate them sometimes blatantly knowing we won’t protest at a high level. The primary reason we are looking the other way is market potential.”

In the most recent incident, the State Department announced in March that three companies, Asian Ways Limited, WorldCo Limited and Mainway International, had been sanctioned for chemical weapon proliferation. The announcement barred the companies from selling goods in the United States or to the U.S. government but did not reveal where the companies were based or what they had done to merit punishment.

Officials in three federal agencies told the Risk Report that the companies had offices in Hong Kong and were sending poison gas ingredients from China to Iran. The companies, which were fronts for the chemical deals, have been barred from trading in Hong Kong, which cooperated with the investigation. The officials also said the companies operated in several countries, and the goods did not actually go through Hong Kong.

Because the front companies exist only on paper and have no trade with the United States, the sanctions’ trade ban with U.S. companies and the government is not a deterrent. “The most you can hope for is the attention you bring to the country where they are operating,” says one official. But in China’s case, the flow of chemicals is unlikely to stop unless the United States takes action against China itself. “People get very touchy when it comes to China,” the official adds.

The three companies sanctioned this year were only the latest in a series of sanctions since 1991, when Congress gave the State Department authority to impose sanctions. In a related case in 1994, an Austrian, a German, and an Australian were sanctioned for supplying Chinese chemicals to Iran. In July 1994, an Israeli used front companies in Britain and Poland to supply what U.S. officials strongly suspect were Chinese chemicals to Iran.

Most of the shipments were “precursor chemicals” used to produce mustard gas or nerve gas, officials said. All the chemicals are on export control lists maintained by the Australia Group, a consortium of countries that are trying to control the spread of chemical and biological weapons. China is not a member of the group.

The United States knows some of the Chinese middlemen involved in these cases, but it has not yet identified the chemical manufacturer. U.S. officials are unsure where the chemicals are going in Iran because they lose track of them when they reach port. “They go into Bandar Abbas and disappear,” one official said. Iran’s chemical weapon program has been of increasing interest to the United States, with Defense Secretary William Perry in March accusing Iran of installing chemical weapons at the mouth of the Persian Gulf.

However, the United States may be shy about confronting China without conclusive evidence. In 1993, the U.S. government publicly alleged that a Chinese ship called the “Milky Way” was carrying precursor elements for chemical weapons to the Middle East. But after extensive coverage in the media, the ship was searched and no chemicals were found, either because they were dumped overboard or were never aboard. “We took it right to the top and fell right into their trap,” said former U.S. Ambassador to China James Lilley. “We looked like a bunch of Keystone Kops.”

These individuals and their front companies have been sanctioned for supplying Chinese chemical precursors to Iran and chemical equipment to Libya:
– Luciano Moscatelli (Australian national)
– Manfred Felber (Austrian national)
– Gerhard Merz (German national)
– Loop SA (Switzerland)
– CDM Engineering SA (Switzerland)
– Alberto Di Salle (Italian national)
– Mana International Investments (Poland)
– Europol Holding, Ltd. (United Kingdom)
– Nahum Manbar (Israeli national, owner of both Mana & Europol)
– Asian Ways Limited (Hong Kong)
– WorldCo Limited (Hong Kong)
– Mainway International (Hong Kong)

China’s Missile Sales to Islamabad Worry Washington

Pakistan could deploy a nuclear missile within a few years if China continues to supply missile components and know-how. A U.S. decision whether to punish China for helping Pakistan is being debated among federal agencies, U.S. officials tell the Risk Report.

At issue is the Chinese M-11 missile, which can carry a nuclear warhead about 300 kilometers. “There is a continuous stream of compelling evidence to warrant the conclusion that M-11 missiles have been transferred to Pakistan,” a senior U.S. official tells the Risk Report. During the past year, the official says, satellites and human intelligence have watched Chinese and Pakistani missile technicians travel back and forth between Beijing and Islamabad and have revealed ongoing transfers of missile-related equipment. “You haven’t got a confession, but you have so much evidence that reasonable people can judge that the missiles have been transferred.”

Neither Beijing nor Islamabad will acknowledge the sale of M-11s. Beijing only admits sending “short-range, tactical ballistic missiles that do not violate any commitments.” And Pakistan’s Ambassador to Washington, Maleeha Lohdi, only admits that “Pakistan acquired short-range missiles from China that did not violate the MTCR [Missile Technology Control Regime].” However, U.S. officials say they know of no such short-range missiles in the Chinese inventory and continue to believe the missiles are some version of the M-11. Pakistan is said to be working on a new missile it calls the “Hatf-3,” but a U.S. official who tracks missile proliferation says the “Hatf-3 is just Pakistan’s name for the Chinese M-11 missile they’re the same thing.”

U.S. law provides ample room for President Clinton to penalize China for the sales. He can impose two-year trade sanctions on any foreign party that “conspires or attempts to engage in” the export of M-11-size missiles or the transfer of equipment or technology that “contributes to the design, development or production of missiles” in a country such as Pakistan. It doesn’t matter whether entire missiles have been shipped. If China has conspired to ship them and many officials acknowledge that it has Washington can take steps to penalize the exporters.

Officials from the U.S. intelligence services and other U.S. agencies are convinced there is enough evidence to impose penalties, but the White House and State Department are resisting. Former U.S. Ambassador to China James Lilley believes the real reason is that Washington is afraid of offending Beijing: “Since the administration’s first priority is to repair its relationship with China, it is asking for more evidence, demanding to prove the impossible.” A senior official involved in the debate agrees: “The State Department wants to see an actual photo showing a Chinese rocket marked M-11.”

Evidence of Chinese missile sales has been accumulating for nearly five years. Chinese companies were first caught secretly selling Pakistan M-11 missile components in 1991. U.S. intelligence spotted what appeared to be M-11 launch vehicles in Pakistan. One report said that China had already supplied the launchers, along with dummy missile frames for practice purposes, and Pakistani air force technicians were already training in China. The findings triggered U.S. penalties in June 1991 against two Chinese suppliers: China Great Wall Industry Corporation and China Precision Machinery Import-Export Corporation. The Bush administration banned U.S. missile-tech exports to the two offending entities and to Pakistan’s space agency SUPARCO (Space and Upper Atmosphere Research Commission). The punishment was imposed for at least two years, but the penalties against China were waived less than a year later in March 1992, after China promised it would abide by the guidelines of the Missile Technology Control Regime.

The Regime, which dates from 1987, obliges supplier countries to control the export of large missiles and related technology “that could make a contribution to nuclear weapons delivery.” That means missiles capable of carrying a 500-kilogram payload 300 kilometers or more. In 1993, members clarified the definition of what was controlled to “take into account the ability to trade off range and payload,” and to cover missiles or rockets that could deliver chemical or biological, as well as nuclear payloads, regardless of the payload weight. “Specially designed production facilities” for such missiles are also covered.

In March 1992, China pledged to abide by the original 1987 version of the Regime. Chinese officials could argue that the M-11 missile was not covered because it did not fly 300 kilometers with the warhead with which it was sold. A sales brochure from one of the manufacturers reportedly says the M-11 carries a 800-kilogram warhead just under 300 kilometers. This means that with a lighter, 500-kilogram payload, the two-stage, solid-fuel M-11 missile could easily fly more than 300 kilometers. Thus, the M-11 would clearly be covered by the 1993 definition.

According to intelligence information, China’s missile shipments to Pakistan appear to have resumed in late 1992. U.S. officials believe that China may have been retaliating for President Bush’s September 1992 decision to sell U.S. F-16 fighter aircraft to Taiwan. Beijing interpreted the U.S. action as a betrayal of a 1982 U.S.-China communique, in which Washington promised it would “gradually reduce its sale of arms to Taiwan.” After the deal was announced, Beijing angrily declared that it would “reconsider” its commitment to the MTCR. For two years, U.S. officials were unsure whether Beijing had suspended its promise to halt its missile sales.

By December 1992, the press was reporting that China had just shipped roughly two dozen M-11 missiles to Pakistan. Though some U.S. analysts seemed uncertain whether the missiles shipped were M-11s or whether China had modified the missiles to avoid violating the MTCR, the Far Eastern Economic Review reported in January 1993 that Chinese sources in Beijing had confirmed the sale of M-11s to Pakistan. Indian officials also believed Pakistan received the missiles and was working to modify the design for longer ranges.

The debate over what Pakistan got in late 1992 went on until August 1993, when the Clinton administration determined that China had shipped M-11 equipment and technology, but not necessarily complete missiles. The Administration banned the sale of U.S. missile-related technology to Pakistan’s Ministry of Defense and to ten Chinese firms.

The sanctions were to remain in force for two years. But in October 1994, China pledged once again to stop its missile sales. And for the first time China agreed that the MTCR covered missiles with an “inherent capability” to deliver 500 kilograms 300 kilometers. In exchange for these pledges, the United States lifted its sanctions against the ten Chinese companies.

Despite its repeated promises, China’s transfer of missile equipment has never stopped, according to well-informed U.S. officials. In July 1995, the Washington Post reported that U.S. intelligence believes the storage crates at Pakistan’s Sargodha Air Force Base west of Lahore may contain more than 30 M-11 missiles. Intelligence officials believe Chinese M-11s probably have been in Pakistan since November 1992, when China was “reconsidering” its stance on missile exports after the F-16 sale. Since then, Pakistan has been constructing maintenance facilities, launchers and storage sheds for the missiles, as well as housing for their crews, all with Chinese help. China denies these reports.

Washington would clearly prefer for Islamabad to keep its Chinese imports boxed up for the time being. Any change in Pakistan’s missile status could upset the Clinton administration’s efforts to ease some of the prohibitions against U.S. aid to Pakistan (see Pressler story, page 10). Pakistan is said to understand this very well. Unveiling the M-11s could also provoke New Delhi into deploying its new “Prithvi” surface-to-surface missile, which could threaten Pakistan’s cities with nuclear warheads.

The question for the future is whether the State Department will punish China again for its continuing exports. Despite evidence that many U.S. officials regard as clear, the State Department says the case still isn’t strong enough. Ambassador Lilley warns that this attitude could create the impression that Washington doesn’t mean business. “That’s the problem of placating Beijing by not addressing its behavior; the Chinese look at Washington and say: You’re a paper tiger.'” A senior official defends Foggy Bottom’s inaction by arguing that there is “nothing new” in recent intelligence reports: “We have been concerned for some time about the M-11s, but it has not been confirmed that the actual M-11 missiles have been transferred.” But he adds, “Don’t get me wrong any day new intelligence could come in revealing transfers we didn’t know about before.”

China’s Cynical Calculation

By Gary Milhollin and Meg Dennison

 The New York Times
April 24, 1995, p. A17

Secretary of State Warren Christopher could hardly have been surprised when China announced that it would sell Iran a nuclear reactor over his protests.

After all, the United States has sniffed out a series of secret shipments of Chinese poison-gas ingredients to Iran over the last three years but has declined to impose sanctions on Beijing. In addition, China’s missile exports to Pakistan have continued.

“We haven’t really been tough on the Chinese,” one senior official told us. “They pay lip service to the rules, but they still violate them — sometimes blatantly. The reason we are looking the other way is market potential.”

In March, the State Department announced that three companies, Asian Ways Ltd., WorldCo Ltd. and Mainway International, are barred from selling goods in the U.S. or to our Government for at least a year. U.S. officials told us that the three companies, with offices in Hong Kong, have sent poison-gas ingredients from China to Iran.

Hong Kong cooperated with the investigation and stopped the companies from trading there. But since the companies exist only on paper and do no business with America, the U.S. trade ban amounts to no punishment at all. Because the poisonous materials are made in China, the flow of chemicals will stop only if Washington forces Beijing to stop exporting them.

The three companies sanctioned this year were only the latest in a series of penalties. In a related case, the U.S. imposed personal sanctions on an Austrian, a German and an Australian in November for shipping Chinese chemicals to Iran. And in July 1994 the U.S. sanctioned an Israeli for using front companies in Britain and Poland to supply what U.S. officials strongly suspect were Chinese chemicals to Iran. Most of the shipments involved chemicals that are used to produce mustard or nerve gas.

China has evidently made a cynical calculation. It presumably thinks that the Clinton Administration is so committed to American high-tech jobs that it will never jeopardize high-tech exports, even to slow the spread of weapons of mass destruction. If this is the case, China has been right.

In 1993, President Clinton decided not to link U.S. trade restrictions to China’s export policies. This removed the main barrier to Beijing’s missile exports to Pakistan and Syria and its nuclear help to Pakistan and Iran. And last year, Mr. Clinton refused to punish China for human rights abuses, removing a crucial barrier to prison labor.

Only when China started pirating intellectual properties like software made by Microsoft (owned by Bill Gates, well-known Friend of Bill) and blockbuster movies (made in Hollywood, home to many more Friends) did the President take a stand.

The U.S. Trade Representative, Mickey Kantor, threatened to impose 100 percent tariffs on more than a billion dollars’ worth of Chinese imports, and Beijing quickly backed down.

Putting a higher priority on Hollywood videos than on sales of Chinese poison gas and missiles has a price. Last month, Secretary of Defense William Perry warned that Iran was installing chemical weapon batteries near the mouth of the Persian Gulf, a sea lane that the U.S. Navy must defend. And unless Mr. Christopher does something more than complain belatedly about China’s nuclear reactor deal with Iran, U.S. forces in the gulf could soon be faced with the threat of an Iranian nuclear bomb.

China is unbending on human rights because it sees dissidents as a political threat. But we could more easily coerce it on exports, which are only about money. China’s $30 billion surplus in U.S. trade far exceeds the money it gets from secret chemical and missile deals. President Clinton’s victory on intellectual property shows that if China is forced to choose between arms proliferation and U.S. trade, it will probably choose trade.

The U.S. Could Learn from Germany’s New Export Controls

By Gerard White

The Wall Street Journal Europe
April 12, 1995, p. 6

Germany is preparing to do what most governments consider the unthinkable – reveal the names of Third World companies linked to the spread of weapons of mass destruction. If Germany goes through with its plans, it will be the first country to publish a list of dangerous customers to which exports must be controlled. Germany will also move ahead of the United States in an export-control strategy to stop the spread of the bomb.

The German government is taking this step to put teeth into its export laws. Both German and American firms are forbidden to export any product they know will help make a nuclear weapon, chemical weapon or long-range missile. These types of rules are applied by both governments and are known as “catch-all” clauses. (By July all members of the EU will adopt this rule.) But there’s a problem: Most governments don’t tell exporters which Third World buyers are doing the bomb-building.

All major exporting countries keep lists of such buyers, but they are secret. The U.S. Commerce Department won’t release its list for fear of revealing intelligence sources and incurring diplomatic protests from the countries that would be named. Commerce Department officials prefer confidential letters, denials of permission to export, or discrete phone calls to warn that a deal might be dangerous. But only a few exporters get these messages. Most are left to trade in the dark. They must not sell to risky buyers, but they don’t know who those buyers are.

“U.S. exporters have a heck of a time trying to get information out of the Department of Commerce,” says a Washington-based trade lawyer who advises industry on export control. Another business consultant complains, “When you call Commerce to ask about a sale, they ask you how it would look on the front page of The Wall Street Journal. What sort of help is that?”

Officials at the Ministries of Economics and Foreign Affairs in Bonn have drafted a list of “about 50 to 60 companies world-wide” to which all exports will require a license, says a German official. Others say the number of names is undecided. The list won’t include all the companies Germany suspects are involved in nuclear, chemical or missile projects because of the concern over diplomatic protests. It will name only the main entities in select countries and will require approval from both the Economics and Foreign Ministries, officials say.

But this is still more than the U.S. Commerce Department is doing. Last year the department even tried to narrow the U.S. catch-all clause by dropping controls on a list of items useful for making nuclear weapons. Oscilloscopes, electron beam welders, high-speed computers and machine tools – all imported by Saddam Hussein in his quest for the Iraqi bomb – would have been free to go to known bomb-builders had other federal agencies not vetoed the Commerce Department’s decontrol drive. The department was also prepared to let U.S. companies sell such things as uranium processing equipment and the infrastructure items needed to equip a large missile or nuclear-weapons complex – all without having to get a license.

German officials say they hope other countries will follow their lead and publish their own lists of suspect buyers. ”We must make use of global information with regard to the catch-all clause . . . or it could become an empty box,” says a senior Economics Ministry official.

Indeed, export control is most effective when all exporting countries apply the same controls to the same destinations. This helps level the playing field for sensitive trade. It also avoids the risk that a country with weak intelligence will unwittingly approve shipments to bomb factories that a country with more detailed information would prohibit.

After being humiliated by its exports to Iraq and Libya in the 1980s, Germany is trying to clean up its act. The irony is that the pro-export Clinton administration is now going the other way. It is grasping every chance to weaken U.S. export-control laws, mainly in the hope of increasing aerospace jobs in California.

There is really no good excuse for not naming dangerous buyers. Most of the information is public and can be culled from reliable and often official sources. If export-dependent Germany can risk offending potential customers by publishing their names, why can’t the United States?

Iraq: Monitoring its Future

Iraq’s drive to lift the U.N. oil embargo is raising the specter that Iraq may soon get the petrodollars it needs to rebuild its mass destruction war machine the factories and laboratories that the United Nations Special Commission (UNSCOM) has worked to dismantle since the Gulf War.

When that day comes, UNSCOM plans to have a new export control system that will deny Saddam Hussein access to sensitive imported goods.

“We need to be ready,” says Charles Duelfer, deputy chairman of UNSCOM. He adds that the system will not be needed until sanctions are lifted, but “if you ask the question of when that might happen, you could get an answer of six months to 60 years.”

UNSCOM’s monitoring plan, which is being circulated among U.N. members, would require the world’s exporters to consult a list of items known as “Annex 3” before making sales to Iraq. Annex 3 lists items banned for sale to Iraq plus items that could only be exported with notification to UNSCOM. The task is complicated because some items on Annex 3 are not specifically controlled for export by other international agreements, like the Nuclear Suppliers Group (NSG), and may not appear on national control lists.

The Commission’s proposal for overseeing Iraqi imports focuses heavily on an item’s declared end-use, with UNSCOM inspectors prepared to escort dual-use items across Iraq to their approved destination and seize or destroy the item if it isn’t used for an approved purpose.

Once sanctions are lifted, UNSCOM cannot restrict trade, so a company could tell UNSCOM of a sale, collect its money and then let Iraq worry about keeping the product from being destroyed. For Iraq to cheat, it would have to defeat U.S. and European export control regimes and the world intelligence gathering effort now aimed at Iraq.

Fear of Iraqi cheating is one of the reasons the United States opposes lifting the embargo. However, Russia, France and China, three permanent members of the U.N. Security Council, have been lobbying in favor of at least lifting the oil embargo.

Before the oil embargo or trade sanctions can be lifted, UNSCOM must have eliminated all mass destruction weapon sites, a task that still may not be complete. After visiting Baghdad in late February, Rolf Ekeus, the U.N. official in charge of dismantling Iraq’s banned weapons, said Iraq had failed to account for material that could be used to produce two to three tons of bacteria for biological weapons, a finding that could delay lifting the oil embargo.

UNSCOM expects to have the required monitoring program in place by April to ensure that plants with weapon of mass destruction capabilities are used only for approved purposes, said Tim Trevan, special advisor to UNSCOM. But the Commission may not know about all the weapon sites. “There’s a potential clandestine capability,” Trevan said.

Trevan believes the U.N. system will work, but that Iraq may challenge it. “It’s a hell of a lot of risk they are going to take,” Trevan says, but “we have to plan for them cheating.”

Brazil Needs Foreign Technology to Improve Its Rockets

Brazil will have to rely on imports to advance its space launch program. The VLS (Veiculo Lancador de Satelite) its planned space launcher has been delayed several years because Brazil needs help in vehicle guidance, propulsion, sensors, special materials, electronics and computers. Though Brazil has successfully tested its series of Sonda sounding rockets, it is counting on foreign supplies to overcome technology problems in the VLS.

Brazil “has limited capabilities in inertial navigation and vehicle control systems,” and “no capability in radio navigation,” according to a 1992 Pentagon study that ranks countries’ military capability. To advance, Brazil will need equipment like gyroscopes, accelerometers, radio navigation and direction finding systems.

Brazil also has “limited capability in liquid and solid propulsion systems,” according to the study. To advance in propulsion, Brazil would need electron beam and laser welding equipment, electro-deposition and electro-discharge equipment, and systems to control combustion burn rate and modulate thrust. Brazil is especially deficient in liquid rocket propulsion, and would need to import high-pressure turbo pumps, thrust chambers and nozzles.

In the area of sensors, the Pentagon report says Brazil has “no capability” in cameras or magnetometer technology. And it has only limited capability in radar. Brazil will need to import equipment such as integrated circuits able to operate over a wide temperature range, solid state microwave devices, frequency synthesizers, signal analyzers, waveform digitizers and network analyzers.

Brazil also needs to work on the special materials needed for advanced rocketry, such as dense alloys, ceramic composites and radiation absorbers. Relevant supplies would include: composites and laminates specially designed for rocket systems, carbon carbon billets, filament winding machines, and related production and testing equipment.

High-speed computers have become critical to modern rocket development. But according to the Pentagon study, Brazil has “no capability” in hybrid or advanced computing. Brazil will need computers and software for flight control, flight dynamics and communication networks as well as specially designed software for modeling, simulation or design integration of rocket systems.

From 1988 to 1992, according to a report by the U.S. General Accounting Office (GAO), sensitive nuclear end-users in Brazil tried to buy more than $110 million dollars’ worth of U.S. computer equipment. They were unable to fill all their orders, but recent computer decontrols worldwide may have helped Brazil get some of what it needs.

Helpful products:
gyroscopes
accelerometers
electron beam welding equipment
thrust chambers
magnetometers
frequency synthesizers
composites and laminates
filament winding machines
high-speed computers