PREPARED STATEMENT WILLIAM SCHNEIDER, JR., FELLOW, HUDSON INSTITUTE PROLIFERATION AND U.S. EXPORT CONTROLS HEARING before the SUBCOMMITTEE ON INTERNATIONAL SECURITY, PROLIFERATION, AND FEDERAL SERVICES of the COMMITTEE ON GOVERNMENTAL AFFAIRS UNITED STATES SENATE JUNE 11, 1997 Mr. Chairman and Members of the Committee: Thank you for offering me the privilege of testifying before this Committee today. I am William Schneider, Jr. I formerly served as Under Secretary of State (1982-86) in the U.S. Department of State where I had responsibility for the management of the Department's export control functions as well as interagency coordination of export control policy as Chairman of the Senior Interagency Group on Strategic Trade Controls. I subsequently served as Chairman of the General Advisory Committee on Arms Control and Disarmament (1987-93), a statutory advisory committee. My testimony will address the subject of the role export controls can play as a dimension of national policy to limit the risk posed to U.S. interests by the proliferation of weapons of mass destruction (WMD) and their means of delivery as well as a advanced conventional weapons. The threat posed to U.S. interest by proliferation The nature of the Cold War limited the potential for the proliferation of technologies associated with weapons of mass destruction and their means of delivery as well as advanced conventional weapons. The dynamics of U.S. and former Soviet Union's leadership role of competing ideological blocs established conditions which limited the degree to which the military application of advanced technologies was proliferated to non-allied states. The implementation of a successful multilateral export control regime (The Coordinating Committee on Strategic Trade--COCOM) limited the flow of advanced dual- use as well as munitions-list technology between the blocs, and in parallel, constrained access to this technology to many non-COCOM members as well. The limited counter-proliferation enforcement arrangements supporting the Nuclear Non-Proliferation Treaty of 1968 was supplemented by a U.S.-led Nuclear Suppliers Group which considerably improved the formal enforcement apparatus of the NPT. Somewhat similar arrangements were established under the Missile Technology Control Regime (for military missiles) and the Australia Group (chemical weapons). The collapse of the former Soviet Union in 1991 materially changed the environment associated with the proliferation problem, both increasing incentives for proliferation and diminishing the role of the export control apparatus as the first line of defense against proliferation. The COCOM organization was disbanded in 1994, and replaced by a much less effective and far more narrowly focused entity known as the Wassenaar Arrangement. In parallel with the dismantling of the multilateral structure of export control coordination was the sharp decline in national controls. During the period of my service in the Department of State in the mid-1980s, nearly 150,000 validated export licenses for dual-use products were issued annually. Successive waves of decontrol have reduced the number of such licenses to less than 8,000 despite a much larger volume of trade. The virtual abandonment of dual-use export controls as an instrument of public policy has been matched or exceed by U.S. allies. As a result, the international structure of export controls for dual-use technologies has been largely disbanded as well. At the same time, the number of munitions licenses has declined only about twenty percent during the same period (to about 45,000 today) despite a 50% decline in the size of international arms market and total U.S. munitions list exports. This trend reflect an increase in regulatory activity in the United States concerning munitions list (i.e. defense products and services) exports. An unanticipated consequence of the collapse of the former Soviet Union was the centrifugal forces in international affairs unleashed by the end of the Cold War. Regions of the World which were once primary sources of Cold War confrontation such as the Middle East became secondary security considerations for nations outside of the region. The loss of activism within the U.S. national security apparatus in the details of local security arrangements and the alliances such interests produced a result which has been reflected in the Post Cold War increase in the scale of the proliferation. Affected nations attended to their own security aims knowing that the end of the Cold War diminished the interest of extra-regional players in local or regional security. Indigenous arms development programs supplemented offshore procurements of defense products and services. Weaker nations sometimes turned to WMD and their means of delivery to achieve their regional security objectives. These developments in turn destabilized several areas of the world. The best known events occurred in the Middle East. Both Iran and Iraq sought to develop their own military ballistic and cruise missiles as well as weapons of mass destruction. In conjunction with offshore procurements of conventional defense products, they produced formidable military establishments posing an overwhelming threat to U.S. allies. Iraq's invasion of Kuwait in 1990 required a vast multinational effort to reverse, but not before it had terrorized the region's population with ballistic missile attack and the prospective threat of weapons of mass destruction. According to the testimony of the head of the UN's Special Commission on Iraq (UNSCOM), despite an unprecedented UN mandate, and more than five years of UN inspections in Iraq, the international community has been unable to prevent Iraq from continuing its development of ballistic missiles and weapons of mass destruction. While UN sanctions imposed on Iraq continue, the threat posed to the region in the short term, and to the U.S. in the medium/long-term by Iraq's WMD/missile program endures. The loosening of the fabric of diplomatic obstacles and political incentives to proliferate WMD/ missiles and advanced conventional weapons has produced an troublesome post-Cold War irony--the proliferation threat to the United States and its allies has become more serious following the Cold War than was the case during the Cold War. Changes in the application of advanced technology for military purposes Throughout much of the Cold War period, the imperatives of the military competition between the U.S. and Soviet blocs caused the military establishment to be at the leading edge of the development and application of advanced technology. Many developments such as high performance computers, advanced aircraft and propulsion systems, microelectronics, materials, signal processing, optics, space, and others found their most sophisticated and demanding applications in the defense sector. The underlying scientific and industrial technology supporting the defense industrial base was also at the cutting edge of advanced technology whose performance characteristics exceeded the needs of the civil sector. Under these circumstances, the civil sector was the beneficiary of advanced technology developed for military purposes. Advanced aerodynamic and hot section metallurgy for example, developed for military aircraft and propulsion systems was a crucial factor in advances in civil aviation that propelled the United States to world leadership in the industry. The military requirements for the use of space for large communications, weather, and surveillance satellites created a space-launch services capability that was exploited by the private sector albeit slowly, during the 1970s and more rapidly during the 1980s. The military requirements in these and other fields of advanced technology skewed the availability of these capabilities, however. Military space launch demands limited the commercial sector to relatively large costly satellites in space. This pattern of military requirements produced a demand for advanced technology that was subsequently exploited by the private sector for civil applications. This situation began to change in the 1970s, and accelerated rapidly since the 1980s. The driving force producing advanced military capabilities are the civil sector's demand for advanced technologies which are frequented exploited prior to the use of the technology in defense applications. The requirements for advanced civil applications of modern technology now regularly exceed--often far exceed--military requirements. As a consequence the defense sector is now the recipient of ``trickle down'' technology from the civil sector. The change in the path of the development and application of advanced technology for military purposes has been recognized by the Department of Defense. A series of initiatives undertaken by former Secretary of Defense William Perry has put the Department on track to incorporate these trends into defense planning. Commercial technologies and practices will increasingly supplement, and perhaps eventually supplant the technologically isolated industrial apparatus surrounding DOD-unique military specifications. This has been reinforced by the results of the Quadrennial Defense Review whose report was published last month. The QDR envisions a future defense posture for the United States that will emphasize information-driven military capabilities largely derived from advanced technologies in the civil sector. The new path to proliferation The threat posed to American interests by the proliferation of WMD/ missiles, and to a lesser extent advanced conventional capabilities has become widely understood. What is not so well understood is the changing process of applying advanced technologies for military purposes. In the past WMD technologies, especially nuclear weapons design, development, manufacturing, and test information was protected by the secrecy afforded by a unique security classification process established by statute (The Atomic Energy Act) for the military applications of atomic energy. Missile technology was more difficult to protect. Public policy embedded in the statute creating the National Aeronautics and Space Administration (NASA) made dissemination of space technologies an affirmative object of public policy. This produced a co-mingling of military and civil applications of space which has limited the success of the MTCR. Chemical weapons and the underlying technologies were already well known due to their employment on an industrial scale in World War I. Control efforts are largely focused on containing the transfer of precursor chemicals on an industrial scale to potential proliferators. The leakage of nuclear weapons design technology over time has become a flood in recent years. A telling recent example has been a decision by the Department of Energy to release to the public most of the computer codes associated with nuclear weapon design (apart from weapon dynamics). These data can be purchased commercially on a single CD-ROM and will enable potential proliferators to overcome design problems in nuclear weapons when placed in the hands of experienced physicists. One experienced physicist was able to add a few hundred lines of computer code to the data released by the U.S. Government to replicate the information needed to produced advanced fission and thermonuclear weapons Thus, the problems facing potential proliferators has evolved from a problem of basic scientific design to one of industrial processes today. Access to advanced modeling and simulation and industrial production capabilities are now the pacing obstacles to proliferation. The crucial difference from the situation which obtained during much of the Cold War period is that the enabling technologies for proliferation are almost entirely found in the civil sector, not the defense sector. We have two recent examples which underscore the manner in which the path to proliferation has changed as a result of the shift in the focus of advanced technology requirements from the military to the civil sector. Iraq The troublesome role of Iraq in Middle East security was widely understood during the 1970s and 1980s. Its support for international terrorism, its implacable hostility to Israel, and its Cold War affiliation with many of the aims of the former Soviet Union in the region made U.S. relations with Iraq an adversarial one. As a result, the U.S. Government declined to sell munitions list technology to Iraq, even during a brief period when U.S. and Iraqi foreign policy interests overlapped in the mid-1980s (preventing Iran's military domination of the Northern Gulf region). Although the former Soviet Union was a major supplier of conventional military equipment, with but a few exceptions, most U.S. allies agreed to abstain from providing Iraq with advanced conventional weapons technology. However, no effort was made to prevent the sale of advanced commercial and industrial technology to Iraq; to the contrary, such sales were promoted. Indeed, the sale of such products was seen as offering an affirmative benefit to U.S. foreign policy in the late 1980s. Promoting Iraq's industrial and commercial development would produce a set of interests in Iraq some argued, that would ultimately undermine the military domination of Iraq's political culture. Providing commercial and industrial opportunities for Iraq's aspiring and politically moderate middle class would serve long-term U.S. interests. Iraq was flooded with American, European, and Asian advanced commercial technology. This technology was diverted into a clandestine network within Iraq's defense industrial establishment. Advanced western commercial technology enabled Iraq to extend the range of its SCUD ballistic missiles to enable it to become a weapon of terror throughout the region from the Eastern Mediterranean to Iran. Reassuring ``estimates'' of Iraq's potential for deploying nuclear weapons of a decade or more were based on a belief in the success of NPT-derived export controls aimed at frustrating Iraq's ability to produce fissile material. MTCR controls were seen as effective because no state producing long-range (>500 km.) theater ballistic missiles had transferred such systems or components of systems to Iraq. Subsequent events affirmed the proposition that presumption is the mother of error. Iraq's access to advanced industrial, not military technology from the West permitted it to become a major security threat to the United States interests in the Middle East. Rather than being a threat only to its contiguous neighbors, it was able to extend the reach of its threatening aspirations throughout the Middle East region. The decontrol of advanced civil sector ("dual use") technology among the industrialized nations of the world was the enabling policy change which contributed to Iraq's indigenous capability for WMD and military missiles. China Since mid-1989, the U.S. has declined to provide China with munitions list technologies. A parallel understanding with most U.S. allies (apart from Israel) has caused them to limit their own transfers of munitions list technology and equipment. China's acquisition of advanced military equipment and technology has been limited to two sources; Russia and Israel. Russia is the only nation providing China with integrated military end-items (e.g. Kilo-class submarines, Su-27 strike aircraft, etc.). Israel's cooperation according to press reports, is limited to providing advanced military subsystem technology which is subsequently integrated into end products by China defense- industrial establishment. Illustrations of this collaboration includes the avionics for China's F-10 aircraft now under development and Russia-Israeli cooperative program to produce an airborne early warning aircraft (a counterpart to the U.S. AWACS). Despite the aim of U.S. policy to deny China advanced military capabilities through ban on the transfer of munitions list technology to China, U.S. exports of advanced civil sector (i.e. dual-use) technology to China have become the enabling feature of China's ability to modernize its armed forces. The U.S. is providing no military technology, but is providing China with the manufacturing capabilities to produce advanced military equipment based on military technology obtained from other nations. An irony of these circumstances is that because the U.S. is providing advanced civil sector rather than military technology, China's military modernization is proceeding more rapidly than would be the case had China been dependent on imports of U.S. munitions list technologies. China's ability to do so is facilitated by the manner in which existing export controls are managed. End user verification--a routine feature of advanced technology exports to China in the 1980s--have been abandoned. This has permitted advanced technology imports to be routinely diverted from nominal civil application to defense product manufacturing processes. Moreover, the monitoring activities of the U.S. Government have abstained from a focus on the transfer of advanced civil sector technology to China's defense industry. The monitoring has focused instead on the production of military systems which often do not emerge until several years after the enabling manufacturing technology has reached its defense industrial establishment. The recent case of the transfer of modern machine tools to China for the manufacture of aircraft to China underscores problems of policy, intelligence, and enforcement of the export control function. Advanced machine tools developed in the U.S. for the manufacture of military aircraft, but excess to the needs of U.S. industry were sold to China for civil aviation manufacturing purposes. China has refused to permit end-use verification making it infeasible for U.S. authorities to ascertain the use of this equipment. Subsequent evidence revealed that the machine tools and related equipment was transferred to a military aircraft production facility. This facility will produce advanced military aircraft derived from military technologies China has obtained from other suppliers. In the end, allied nations in Asia will face China's armed forces able to field advanced military capabilities in significant numbers because of manufacturing technology provided from the U.S. civil sector. These two examples illustrate the path most likely to be adopted by potential proliferators; to acquire advanced civil sector (i.e. dual use) rather than military technology to permit the development, production, test, and support of advanced military capabilities. This approach is abetted by the process of decontrolling the export of a large fraction of modern technology pertinent to the production of advanced military capabilities. This result is an unintended consequence of current export control policy and regulation. Recommendations for modernization of U.S. export controls U.S. munitions list export controls under the Arms Export Control Act are effective in supporting the aim of public policy; assuring the congruence between U.S. foreign policy objectives and arms transfer policy. President Clinton's Conventional Arms Transfer policy promulgated in February, 1995 published general arms transfer policy criteria that has contributed to the effective management of arms transfer policy. The more problematic area for public policy are export controls for dual use technologies, equipment, and services. Both the Clinton and Bush administrations have liberalized export controls on dual use technology, equipment, and services that has had the unintended consequence of facilitating the process of proliferating WMD and their means of delivery as well as advanced conventional weapons. Export control policy and regulation needs to be modernized to allow it to be brought into alignment with public policy relating to the management of problem of proliferation. Export control policy Current policy understates the relevance of dual-use technology to the problem of proliferation. This in turn has led to very extensive process of decontrol that has facilitated rather than limited the proliferation of WMD, ballistic/cruise missiles, and advanced conventional weapons technology. Export controls need to recapture dual use technologies, products, and services relevant to the development, manufacture, test, and support of WMD, ballistic/cruise missiles, and advanced conventional weapons. The aim of such a policy is to limit access of proliferation-prone end-users to dual use technologies, equipment, and services which abet proliferation. Intelligence collection and processing Effective intelligence collection and processing is crucial to successful constraints on the dispersion of advanced dual-use technologies pertinent to proliferation. Diplomatic coordination with nations allied with the U.S. in the counter-proliferation struggle depend on timely and precise U.S. intelligence information concerning- efforts by proliferators to obtain controlled dual-use technology, equipment, and services. Systematic collection and processing of pertinent information by the intelligence community for use by U.S. diplomats and law enforcement personnel can have a significant impact on the effectiveness of U.S.--counter-proliferation policy. Export control regulatory practice The international market for advanced dual-use technology is important to sustaining American industrial competitiveness. The management of export controls should not become an instrument for inadvertently frustrating legitimate exports because of poorly implemented regulations. Maintenance of a data-base on end-users, diversion channels, and the requirements of proliferation-prone end users can significantly facilitate the effective management of export controls without preventing legitimate commerce in advanced technology. Restoration of end-user checks for transactions involving a significant proliferation risk is an illustration of an important deterrent to diversion. This should be a practical measure to achieve since funding and numbers of Full Time Equivalent (FTE) personnel in the Bureau of Export Administration (BXA) in the Department of Commerce remains high despite low levels of export licensing activity compared to circumstances a decade ago. BXA has over 300 FTE to support the management of approximately 8,000 validated export licenses. The Department of State's Office of Defense Trade Controls issues approximately 45,000 licenses per year with fewer than 50 FTEs. Diplomatic support for export control management The disestablishment of the COCOM organization in 1994 eliminated the primary international organization to coordinate dual-use export controls on a multilateral basis with like-minded nations. The focus of the Wassenaar Arrangement on constraining (or in its presently limited role, monitoring) conventional arms transfers to sensitive destinations (primarily the ``pariah'' states such as Iran and Libya) makes it unlikely that this institution will be an appropriate venue for the coordination of multinational transfers of sophisticated dual-use technologies to proliferation-prone end-users. In the interim, a series of bilateral measures are the most likely to achieve success. If intelligence support for U.S. diplomacy is effective, direct bilateral diplomacy can be effective. An ability to provide timely and accurate information on impending dual-use transfers can contain covert procurements of controlled technology. The expansion of dual use technologies controlled for counter- proliferation purposes should be included in national control lists managed by allied nations. In many cases, U.S. allies abandon most of their national export control apparatus when the U.S. decontrolled most advanced technology exports. Diplomatic efforts carried out on a bilateral basis can help rebuild a ``virtual'' multilateral export control structure despite the absence of formal institutions designed for the purpose. This aim is facilitated by the widespread consensus among most allied nations on the need to contain proliferation. Enforcement and international sanctions Sanctions against export control violations has proven to be an effective instrument to facilitate compliance in the case of munitions list controls. As it can be argued that the diversion of sophisticated dual-use technology, equipment, and services to proliferation prone end-users poses no less a long-term danger to American interests, sanctions for noncompliance with dual-use should be no less severe than for munitions list violations. International sanctions for violations of export control violations are honored more in the breach than the observance. This has significantly diminished the credibility of sanctions. China's sale of cruise missiles to Iran in 1996 in explicit violation of the Gore- McCain sanctions legislation approved in the aftermath of the Gulf War, for example, have not been imposed due to the conflict of sanctions with other U.S. policy objectives. The widespread practice of ignoring statutory sanctions requirements for munitions list cases makes it difficult for the U.S. to encourage allied states to establish effective enforcement of national export control regulations. Interagency coordination Post Cold War optimism about the impact of the collapse of the former Soviet Union on U.S. security interests abroad has led to a separation of U.S. advanced technology trade from security interests. Interagency coordination that would permit policy management of U.S. advanced technology trade pertinent to the proliferation problem has declined substantially from Cold War period practice. An appropriate interagency apparatus led at the Under Secretary level would provide a desirable balance between regular policy oversight and flexible and integrated management of the export control system to include all pertinent agencies including the Departments of State, Defense, Commerce, the NSC, the intelligence community, and other agencies as appropriate. * * * * * Export controls are an important instrument of foreign policy in coping with one of the most enduring problems of national security--the ability of potentially hostile states to use international commerce to facilitate the creation of a security threat to the U.S. and its allies. I look forward to an opportunity to respond to your questions.