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U.S. Export Policy Toward the PRC

page 6

BLUE LANTERN Checks

The PeopleĖs Republic of China does not allow the conduct of BLUE LANTERN checks, the State DepartmentĖs equivalent of CommerceĖs pre-license checks and post-shipment verification.

Lowell says that the State Department is not concerned for two reasons:

  • First, most items that State has approved for export to the PRC are commercial communications satellites for launch in the PRC
  • Second, State licenses the export of U.S. munitions directly to the military of other countries, and does not have the same requirement as Commerce to check on end users and end uses in order to avoid diversions from civil to military applications152

Lowell says that only a small number of State Department licenses are reviewed for civilian end users, such as private security forces. On the other hand, Lowell says, the State Department does use BLUE LANTERN checks to detect diversions of its approved exports.

The State Department also uses BLUE LANTERN end-use checks to reduce brokering and to check on dealers on its Watch List. To obtain a BLUE LANTERN check, the State Department cables the Embassy to check out the end user, and the Embassy cables back with details on the check.153

Export Control Policy Toward the PRC

Background

From 1949 to 1971, exports from the United States to the PRC were subject to restrictive export controls. The export control policy was liberalized in 1972, when the Coordinating Committee on Multilateral Export Controls (COCOM) agreed to change the licensing status of the PRC to allow it to be treated the same as the Soviet Union. Subsequently, beginning in 1981, the PRC was given access to higher levels of technology than the Soviet Union.154

In December 1985, COCOM adopted what was called a "green line" policy toward the PeopleĖs Republic of China. That policy gave preferential licensing treatment for the export to the PRC of 27 categories of controlled items as compared with other COCOM-proscribed countries. Further liberalizations in the "green line" licensing policy toward the PRC by COCOM continued until early 1989.

In response to the repressive actions taken by the PRC in Tiananmen Square on June 4, 1989, COCOM decided in October 1989 to cancel plans for additional liberalization of export controls toward the PRC. However, COCOM did not make any changes to the PRC "green line" policy that was in effect at the time.

Following Tiananmen Square, the Bush Administration imposed a policy of denial regarding applications for exports to military and police entities in the PRC. In addition, the Bush Administration decided not to support further liberalization of the "green line" policy toward the PRC by COCOM.155

A COCOM meeting in June 1990 eliminated or significantly reduced the differences between items that could be exported to the PRC under the "green line" policy and the items that could be exported to other proscribed destinations. The PRC benefited from the decontrols adopted by COCOM for all proscribed destinations subsequent to that meeting. COCOM did not, however, adopt any additional favorable treatment specifically for the export of items to the PRC.156

Launches of Satellites on PRC Rockets

In September 1988, President Reagan approved a plan to permit the export of U.S. commercial communications satellites to the PRC for launch on PRC rockets. In order for such export licenses to be approved, however, the PRC was required to meet three U.S. conditions:

  • The United States and the PRC must agree on specific technology transfer safeguards
  • The PRC must agree to take steps that would protect the U.S. launch industry from future unfair PRC pricing and trade practices
  • An agreement had to be negotiated establishing PRC responsibility for liability in case a commercial launch caused third-party damage

Regarding the first condition, a Memorandum of Agreement on Satellite Technology Safeguards was signed in December 1988 between the United States and the PRC.157 The purpose of this agreement was to preclude the unauthorized transfer to the PRC of sensitive U.S. satellite technology. The agreement specified the security procedures to be followed for the proposed launch of two Aussat satellites and one Asiasat satellite, all three of which were manufactured by Hughes Aircraft Company. The agreement also addressed the disclosure of authorized technical data, and restrictions on the transfer of unauthorized technical data and assistance.

Regarding the second condition, the December 1988 Memorandum of Agreement provided that the PRC was not to launch more than nine communications satellites for international customers during the six-year period ending on December 31, 1994.158 The agreement required the PRC to support the application of market principles to international competition among providers of commercial launch services, including the avoidance of below-cost pricing, government inducements, and unfair trade practices.

Regarding the third condition, PRC liability for satellite launches,159 the December 1988 agreement provided, subject to conditions, that the PRC was to assume the responsibility for, and was required to compensate the United States for, any and all amounts for which the U.S. Government might become liable under the Convention on International Liability for Damage Caused by Space Objects.

A second Memorandum of Agreement on Satellite Technology Safeguards between the United States and the PRC was signed in February 1993.160 This agreement specified the security procedures to be followed for the launch of "U.S.-manufactured satellites" in the PRC, and was not limited, as was the December 1988 agreement, to specific satellites.

When the 1988 Memorandum of Agreement on PRC commercial launch services expired on December 31, 1994, a third Memorandum of Agreement was signed in January 1995.161 This new agreement indicated that the PRC was not to launch more than 11 principal payloads to geosynchronous earth orbit or geosynchronous transfer orbit for international customers during the seven-year period ending on December 31, 2001. This January 1995 agreement was amended in October 1997 to include an annex regarding the pricing of commercial launch services to low earth orbit.162

Paul Freedenberg, a former Assistant Secretary for Trade Administration and Under Secretary for Export Administration at Commerce in the Reagan Administration, has commented on the 1988 policy decision to use PRC rockets for U.S. commercial communications satellites:

No one in the Reagan administration thought of this new policy as a long term policy, let alone the beginning of a decade-long dependence on Chinese rockets. Unfortunately, thatĖs precisely what itĖs become.163

Satellite Launches in the PRC Following Tiananmen Square

In addition to the policy adopted by the Bush Administration after Tiananmen Square Û to deny export license applications to military and police entities in the PRC, and not to seek further COCOM liberalization in export controls toward the PRC Û Congress passed PRC sanctions legislation in the fall of 1989.

In the Fiscal Year 1990 Appropriations Act for the Departments of Commerce, Justice, and State, the Judiciary, and Related Agencies (P.L. 101-162, November 21, 1989), Congress prohibited the reinstatement or approval of any export license applications for the launch of U.S.-built satellites on PRC-built rockets in the PRC. This prohibition can be waived in either of two cases:

  • If the President makes a favorable report to Congress on the PRC's political and human rights reforms
  • If the President determines that issuance of the license is in the national interest164

Pursuant to this provision, President Bush submitted a "national interest" determination to Congress on December 19, 1989, regarding the Aussat-1, Aussat-2, and Asiasat commercial communications satellites.

In early 1990, Congress passed the Foreign Relations Authorization Act for Fiscal Years 1990 and 1991 that included additional sanctions provisions regarding the Tiananmen Square crackdown.165 Among other things, the Act suspended the issuance of licenses by the Department of Commerce or the Department of State for export to the PRC of:

  • Any defense article on the U.S. Munitions List
  • Any crime control and detection instruments and equipment
  • Any satellite of United States origin that is intended for launch from a rocket owned by the PRC

The Act also provided the President with the authority to terminate the suspension of export licenses for U.S.-origin satellites by making a "national interest" determination and transmitting it to Congress.

The first "national interest" determination under the Foreign Relations Authorization Act was made by President Bush on April 30, 1991. This "national interest" determination, or "waiver," covered the Freja satellite that was to be built for Sweden. It also included a reissuance of the waiver for the Hughes-built Aussat satellites that had been identified in the December 19, 1989 "national interest" determination.

Between 1989, when Congress imposed the requirement for a Presidential "national interest" determination, and the beginning of 1998, 12 "national interest" waivers were granted for launches of commercial communications satellites on PRC rockets. President Bush made three of these "national interest" determinations, on December 19, 1989, April 30, 1991, and September 11, 1992. President Clinton made nine of these "national interest" determinations: July 2, 1993, July 13, 1994, February 6, 1996 (three determinations), June 23, 1996, July 9, 1996, November 19, 1996, and November 23, 1996.166

The most recent "national interest" determination regarding the launch of a U.S.-manufactured commercial communications satellite on a PRC rocket was made by President Clinton on February 18, 1998.167 This waiver applied to the Chinasat-8 satellite manufactured by Space Systems/Loral (Loral).

The Chinasat-8 satellite waiver became controversial after the New York Times reported on April 13, 1998, that President Clinton had approved the "national interest" determination, or waiver, despite an ongoing Department of Justice criminal investigation of LoralĖs alleged earlier unauthorized transfer of missile guidance technology to the PRC.

The Times also reported that the Chairman of Loral Space & Communications Ltd., Bernard L. Schwartz, was the largest individual donor to the Democratic Party in 1997.168

On May 22, 1998, the White House publicly released a number of documents regarding the Chinasat-8 waiver. One of the released documents, a decision memorandum for the President, discussed the pending criminal investigation and concluded:

We believe that the advantages of this project outweigh the risk, and that we can effectively rebut criticism of the waiver. . . .

The project is in the national interest because the development of ChinaĖs civil communications infrastructure will promote access by Chinese citizens in remote areas to people and ideas in democratic societies. . . .

The current project also will help the competitiveness of U.S. satellite exporters in a most important satellite market.169

This decision memorandum for the President was accompanied by a transmittal memorandum, dated February 18, 1998, from Phil Caplan (Executive Clerk, Office of the White House) which stated:

Chuck Ruff, the counsel to the President, notes that there have been extensive discussions with Justice on this matter.

The Department [of Justice] realizes the potential adverse impact on a potential criminal prosecution but has chosen not to oppose the waiver.

Therefore, in balancing national security and criminal justice interests, Chuck agrees that the balance, under these special circumstances, is properly struck by granting the waiver.170

Robert S. Litt, Principal Associate Deputy Attorney General in the Department of Justice, recalls he had two conversations with Charles F. C. Ruff, the Counsel to the President, on this matter. Litt also indicates that there were one or more conversations between Mark M. Richard, Deputy Assistant Attorney General in the Criminal Division, and James E. Baker, the Special Assistant to the President and Legal Adviser to the National Security Council. Litt does not characterize these conversations as "extensive."

Regarding whether the Justice Department had chosen not to oppose the waiver, Litt says:

Certainly the Department was put on notice that there was a waiver application, and in that sense, we had an opportunity to weigh in.

On the other hand, as I said, I didnĖt believe that we were being asked for our views on whether or not the waiver should be granted as a matter of policy.171

The transmittal memorandum from Caplan to the President also stated:

Commerce must issue a second license within 90 days of this waiver; if the Justice DepartmentĖs evidence warrants, Commerce could withhold this license and block the project.172

Litt does not recall whether Justice was contacted by the Commerce Department prior to the approval of the Chinasat-8 license application by Commerce on March 23, 1998.173

A January 1998 draft of a National Security Council memorandum for the President regarding the request for a "national interest" waiver for the Loral Chinasat-8 communications satellite project included a reference to the ongoing review of the PRCĖs transfers to Iran of C-802 anti-ship cruise missiles.174 These transfers by the PRC were included in the list of "Essential Factors for the President to Consider in Deciding Whether to Waive Restrictions on U.S.-Origin Exports to China for the Chinasat-8 Satellite Program" that was attached as Tab A to the State DepartmentĖs memorandum to the NSC regarding the Chinasat-8 waiver.175

The reference to the transfers was deleted from the memorandum that ultimately was sent to the President.176

Back  |  Forward


COX REPORT

Overview
pages 1 | 2 | 3 | 4

PRC Acquisition of U.S. Technology
pages 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9

PRC Theft of U.S. Nuclear Warhead Design Information
pages 1 | 2 | 3 | 4 | 5

High Performance Computers
pages 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10

PRC Missile and Space Forces
pages 1 | 2 | 3 | 4 5 | 6 | 7 | 8 | 9

Satellite Launches in the PRC: Hughes
pages 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9

Satellite Launches in the PRC: Loral
pages 1 | 2 | 3 | 4 | 5 | 6

Launch Site Security in the PRC
pages 1 | 2 | 3 | 4 5 | 6

Commercial Space Insurance
pages 1 | 2 | 3 | 4

U.S. Export Policy Toward the PRC
pages 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9

Manufacturing Processes
pages 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10

Recommendations
pages 1 | 2 | 3

Appendices
pages introduction | A | B | C | D | E | F



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