Testimony: China’s Proliferation Record – 1998

Testimony of Gary Milhollin

Professor, University of Wisconsin Law School and
Director, Wisconsin Project on Nuclear Arms Control

Before the House Committees on International Relations and National Security

June 17, 1998

I am pleased to appear today before these distinguished Committees. I have been asked to discuss U.S. policy on satellite exports to China. I will direct my remarks to the effect of that policy on Chinese transfers of missile technology to countries that are trying to make weapons of mass destruction.

We have heard a lot about satellites lately, especially American-made satellites going to China. We have also heard about campaign contributions, about waivers of export prohibitions, and about the transfer of control over satellites from one government agency to another.

What we have not heard, and what I will talk about today, are decisions by our government that have given Chinese companies a green light to sell missile technology to countries like Iran and Pakistan. The Administration has made three crucial decisions in this regard.

First, it has decided to transfer control over satellite exports from the State Department to the Commerce Department, an action that effectively pulls the teeth from any future U.S. sanctions against Chinese companies guilty of missile proliferation.

Second, it has decided to suspend, without any legal basis, the implementation of U.S. statutes that require sanctions to be imposed against Chinese companies for past sales of missile technology to Iran and Pakistan.

Third, it has decided to invite China to join the Missile Technology Control Regime, an invitation that, if accepted, would immunize Chinese firms from any future application of U.S. sanctions laws for missile proliferation.

When we look at the cumulative effect of these decisions, we see something both surprising and alarming. Our government has enabled Chinese companies to proliferate missile technology with little fear of punishment. More specifically, Chinese companies have been able to sell Iran and Pakistan components for nuclear capable missiles without worrying about losing U.S. satellite launch contracts.


Our sanctions laws, as written by Congress, are based on a simple idea. A foreign company cannot import American missile technology with one hand and proliferate missile technology with the other. If a Chinese company decides to sell Pakistan or Iran a nuclear-capable missile or the means to make one, that company has to forget about importing any missile-related technology from the United States. U.S.-made satellites were originally part of this equation, because they contain missile-related American components.

That simple idea has now been abandoned by the executive branch. When, for example, the Administration transferred licensing authority over satellites from the State Department to the Commerce Department, satellites were effectively removed from the list of U.S. exports subject to missile sanctions.

Let me explain why this is so. If a Chinese company sells whole missiles to a country like Iran or Pakistan, the company would be guilty of what is known as a “Category One” violation. This is because whole missiles are listed on Category One of the Annex to the Missile Technology Control Regime, an agreement among countries that are trying to curb missile proliferation by controlling their exports. For selling a Category One item, the sanctions bar the guilty company for at least two years from importing any item controlled by the Export Administration Act. Category One sanctions would thus bar satellites even if controlled by the Commerce Department, which administers that Act.

China did export whole missiles to Pakistan in the fall of 1992. Since then, however, China has changed its tactics. It now exports missiles piecemeal, as components. An example would be a piece of guidance equipment. These items are on Category Two of the MTCR Annex. A “Category Two” violation bars only the export of U.S. “missile equipment or technology ” under the Export Administration Act and under Section 73 of the Arms Export Control Act.

But what is “missile equipment or technology”? According to the licensing practice of the State Department, a missile-related item retains its identity as a missile item even if it is embedded in a commercial satellite. Thus, if a Chinese company were sanctioned, the export of satellites would be blocked by the State Department because satellites have missile-related items embedded in them. In the view of the Commerce Department, however, a missile-related item loses its identity as a missile item if it is incorporated into a commercial satellite. Thus, the export of satellites would not be blocked by the Commerce Department even though the satellites contained items that would be considered missile-related if not embedded. These embedded items are such things as radiation-hardened computer chips, gyroscopes, and accelerometers.

The Administration first transferred export controls on satellites from State to Commerce in 1996, and in its implementing regulations, it also moved a number of missile-related items associated with satellites. Then in 1998, the Administration moved the rest of the missile-related items associated with satellite launches, even though the items are not embedded in satellites. These items included ground support equipment, test equipment, replacement parts, and non-embedded kick motors.

The result is that now, satellites are insulated from missile sanctions because control over virtually everything associated with launching them has been transferred to the pro-export Commerce Department, where sanctions will not be applied.

It is important to realize that the same Chinese companies that launch U.S. satellites also sell missiles to places like Pakistan. Who are these companies? China Great Wall Industries, China Aerospace International Holdings Ltd. (CASIL, of Hong Kong) and their parent, China Aerospace Industry Corporation. These companies launch satellites on China’s Long March rockets. The United States has sanctioned both China Great Wall and China Aerospace Corporation in the past for supplying missile technology to Pakistan.

It is also important to realize that a satellite launch contract is one of the most lucrative things a Chinese aerospace company can get from the United States. Thus, by removing satellites from the threat of sanctions, the Administration has surrendered one of the most important levers America has to stop Chinese missile proliferation. Chinese companies are free to sell missile technology to Iran or Pakistan without risking their most lucrative source of revenue.

Failure to apply sanctions laws

China’s exports remain the most serious proliferation threat in the world. Since 1980, China has supplied billions of dollars worth of nuclear weapon, chemical weapon and missile technology to South Asia, South Africa, South America and the Middle East. It has done so despite U.S. protests, and despite repeated promises to stop. The exports are still going on, and while they do, they make it impossible for the United States and its allies to halt the spread of weapons of mass destruction.

I have attached tables to my testimony that list China’s exports of nuclear, chemical and missile technology since 1980. The tables reveal that China has consistently undermined U.S. nonproliferation efforts for nearly two decades and is still doing so today.

In the early 1990s, Chinese companies were caught selling Pakistan M-11 missile components. The M-11 is an accurate, solid-fuel missile that can carry a nuclear warhead about 300 kilometers. In June 1991, the Bush administration sanctioned the two offending Chinese sellers. The sanctions were supposed to last for at least two years, but they were waived less than a year later, in March 1992, when China promised to abide by the guidelines of the Missile Technology Control Regime.

But by December 1992, in violation of its promise, China had shipped 34 M-11 missiles to Pakistan. Waiving the sanctions was a mistake.

In August 1993, the Clinton administration applied sanctions for two years, after determining that China had violated the U.S. missile sanctions law a second time. Then in October 1994, the United States lifted the sanctions early again, when China pledged once more to stop its missile sales and comply with the MTCR.

Since late 1994, the stream of missile exports has continued. U.S. officials say that China’s missile exports have continued up until the present moment, unabated. These exports include the sale of missile-related guidance and control equipment to Iran as well as Pakistan.

In fact, our officials have learned that they were duped in 1992 and 1994. China was not promising what we thought it was. Our officials now realize that China interprets its promises in 1992 and 1994 so narrowly as to make them practically meaningless. It is clear that China has not complied with the MTCR in the past, that it is not complying now, and that it probably never will comply unless something happens to change China’s attitude on this question.

In its latest venture, China is helping to build a plant to produce M-11 missiles in Pakistan. U.S. officials say that activity at the plant is “very high.” If the Chinese continue to help at their present rate, the plant could be ready for missile production within a year.

By the autumn of 1996, the intelligence community had completed an air-tight finding of fact on China’s missile transfers to Pakistan. There was clear proof that the transfers had happened. All the factual analysis necessary to apply sanctions had been finished. A similar finding on China’s missile exports to Iran had also been made.

And roughly one year earlier, an important legal analysis had been completed. The legal analysis established that sanctions could be applied where a foreign person “conspires to or attempts to engage in” the export of any MTCR equipment or technology. Thus, sanctions could be applied without a finding that hardware or technology had actually been exported. A conspiracy or even an attempt to transfer such items would be enough. One did not need a photograph of a missile with “made in China” written on the side.

The findings of fact and the legal analysis showed clearly that China should be sanctioned. Both the findings and the analysis had been circulated to the relevant agencies by the autumn of 1996. Both Pakistan and Iran were covered. The process, however, was short-circuited at that point.

The next step would have been for the National Security Council to call a meeting at which each agency could submit for the record its views on whether sanctions should be imposed. The NSC would then forward these views to the Department of State, which would prepare a decision memorandum for the Under Secretary, who has the legal authority to impose sanctions.

But none of these steps were ever taken. The State Department simply chose not to complete the administrative process. Thus, the sanctions law is not being implemented as Congress intended and, in fact, is being circumvented. It is obvious that the law can never take effect unless the administrative process is completed, so the failure to complete it is manifestly illegal.

Last week, in testimony before the Senate Committee on Foreign Relations, Mr. Gordon Oehler, who headed the CIA’s non-proliferation center when the findings were made, confirmed that the evidence of the missile transfers was clear. Mr. Oehler said that there was no doubt in his mind that the transfers happened, and that the rest of the intelligence agencies agreed.

The State Department has now admitted this fact by implication. The State Department is no longer saying that there is “not enough evidence” to apply sanctions to China. It is now saying that it has “not yet made a determination” to apply sanctions, which is quite different. In effect, the State Department is saying that it has not applied sanctions because it has not chosen to complete the administrative process. I recommend that Congress take steps to see that the law is enforced.

Now that Pakistan has demonstrated its nuclear weapon capability, and announced that it will mount nuclear warheads on missiles, this matter has become urgent. The Chinese-supplied M-11s will actually carry nuclear weapons. President Clinton has said that the world should try to prevent India and Pakistan from putting warheads on missiles, but his Administration refuses to apply a U.S. law designed to prevent Pakistan from acquiring missiles in the first place.

I would also like to mention the Iran-Iraq Nonproliferation Act of 1992. Under that Act, a foreign company is sanctioned if it exports “destabilizing numbers and types of advanced conventional weapons” to either Iran or Iraq. The sanctions bar any American product that needs an export license, including satellites.

In 1995, the China Precision Machinery Import Export Corporation sold Iran advanced C-802 anti-ship cruise missiles. Estimates of the number sold range from 60 to 100. The State Department admitted that the shipment occurred but concluded in 1997 that it was not of “a destabilizing number and type.” Thus, it declined to apply sanctions, despite the fact that Admiral John Redd, our naval commander in the Gulf, took the unusual step of complaining publicly about the sale. The missiles threaten our ships and sailors in Gulf and also commercial shipping.

If sanctions had been applied, the export of U.S. satellites would have been cut off. Under the Iran-Iraq Nonproliferation Act, the sanctions reach the parent organization of the guilty party. The parent of China Precision Machinery is the China Aerospace Corporation, which launches U.S.-origin satellites. This raises the question whether the State Department, when ruling that the missiles were not destabilizing, was simply trying to protect U.S. satellite makers.

China in the MTCR?

This past March, the Administration invited China to join the Missile Technology Control Regime. In a memorandum dated March 12, White House staff member Gary Samore stated the reasons for making the offer. Sanctions figured prominently among them. If China joined, the memo stated, China could expect “substantial protection from future U.S. missile sanctions.”

Mr. Samore could have said “complete protection.” Under Section 73 of the Arms Export Control Act, sanctions would not apply to a Chinese company if China joined the MTCR even if the company transferred complete missiles to Iran or Pakistan. Sanctions would be avoided if the sale were legal under Chinese law, or if China took action against the company, or if China found the company to be innocent. In effect, the Administration offered China a complete shield against U.S. sanctions law.

The Administration was also offering China a second benefit. As things stand now, if a U.S. exporter gets an order from a known missile maker in China, the exporter cannot make the sale without notifying the government and getting an export license. This is required by Section 6 of the Export Administration Act. If China were to join the MTCR, however, no license would be required for such a sale. U.S. firms could deliberately outfit Chinese missile manufacturing sites without telling anyone.

It is difficult to see how such an offer is prudent. China has repeatedly failed to comply with MTCR guidelines since promising to do so in 1992 and 1994. There is no real evidence that China has changed its ways. Thus, the offer seems to be yet another effort to insulate Chinese aerospace companies from U.S. sanctions laws so that satellite launches can continue.


When we look at the history of U.S. sanctions policy, we see a willingness to sanction China for missile proliferation in both the Bush Administration, which applied sanctions in 1991, and in the Clinton Administration, which applied sanctions in 1993. But in 1995, the Clinton Administration policy changes. China supplied the C-802s to Iran in 1995; China supplied other missile components to Iran and Pakistan in 1995 and has continued to supply up to the present time. And in 1996, the Administration refused to act on explicit findings by the intelligence community that the transfers occurred. Also in 1996, the Administration started transferring control over satellites exports from the State to the Commerce Department, insulating them from the application of missile sanction laws in the future. For some reason, the Administration decided in either 1995 or 1996 that missile sanctions would no longer be part of U.S. policy in dealing with China.

Why did U.S. policy change? I don’t know the answer to that question, but I urge the Committees to look into it.

We do know the result of the policy change. It gave China a green light to proliferate. Our government’s policy on sanctions has enabled Chinese satellite launch companies to sell missiles and missile components to Iran and Pakistan without fear of punishment. Thus, it may be that we are asking the wrong question about how our satellite export policy affects missile proliferation.

Whether or not our satellite exports caused U.S. missile technology to go to China, they have made it easier for Chinese missile technology to go to Pakistan.

India, of course, has watched this happen. India watched China help Pakistan make not only missiles but the nuclear warheads to go on them. India also watched the United States invent every excuse possible not to do anything about it. America asked the Indians to show restraint in nuclear testing, but America was unwilling to put restraints on its own satellite companies by sanctioning China. The Indians no doubt concluded that Uncle Sam was against the spread of the bomb unless it might cost him something. It should not surprise us if our non-proliferation policy lacks credibility.

 Dangerous Exports Table