Testimony: US Satellite Exports and China

Testimony of Gary Milhollin

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

Before the Senate Committee on Foreign Relations

June 11, 1998

I am pleased to appear today before this distinguished Committee. I will direct my remarks to U.S. foreign policy toward China, particularly as it concerns transfers of missile technology by China to countries that are trying to make weapons of mass destruction. I will discuss the failure of the United States to sanction China under U.S. law for these exports, and the link between this failure and the current U.S. policy on satellite exports.

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 the 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 very surprising and very 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 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 American technology. 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. Under Section 73 of the Arms Export Control Act, sanctions apply to a Chinese company that sells components to a country like Iran or Pakistan for use in a program to make nuclear-capable missiles. The sanctions prevent the guilty company from importing U.S. missile-related items for a period of two years if the company’s sale was of something less than a complete rocket system or subsystem. Most sales fall into this category. An example would be a rocket motor casing or a piece of guidance equipment. These are known as “Category II” items on the Annex of the Missile Technology Control Regime, an agreement among countries that are trying to curb missile proliferation by controlling their exports.

So sanctions bar the guilty company from buying missile-related items from the United States. But what is a “missile-related item”? 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 even 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 moved 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 everything associated with launching them has been transferred to the 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

In October of last year, I testified before this Committee on China’s export behavior. I will not repeat that testimony here, except to summarize some points that are especially important to keep in mind.

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 the sales continued and in August 1993, the Clinton administration applied sanctions again 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 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.

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.

In 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 ever happened. 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. 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.

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.

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 satellite launches can continue.


Our government’s export policy on satellites has enabled Chinese companies to sell missile components to 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 policy has caused U.S. missile technology to go to China, it has certainly 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. Uncle Sam asked the Indians to show restraint in nuclear testing, but Uncle Sam was unwilling to put restraints on his own satellite companies by sanctioning China for missile proliferation. 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