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August 19, 1998

The China-Technology Transfer Handbook

Did the President put a higher priority on commerce with China than on American security?

Beginning in April, the New York Times ran a series of articles that investigated the complex relationship between the U.S. aerospace industry, the Clinton White House, and the People’s Republic of China. The reporting detailed how the Clinton administration re-prioritized technology transfer policies to the benefit of U.S. aerospace companies—and possibly the benefit of Communist China’s nuclear missile and space program.

Since then, many in Congress, the media, and the foreign policy community have leveled serious questions about the role the Clinton administration played in the transfer of sensitive technology to China and whether these transfers affected national security.

The questions about national security and missile proliferation are so sensitive, so far ranging, and so important that at least six congressional committees have held hearings on the subject. These include the Science, National Security, International Relations, and Select Intelligence committees in the House; and the Senate Government Affairs and Senate Select Intelligence committees.

Many stories have been written and many questions have been raised. The scope of the situation seems to broaden in its complexity with almost weekly revelations. The questions, which remain largely unanswered, have sparked the creation of a select investigative committee in the House, chaired by Rep. Christopher Cox.

This handbook is a compilation of the many resources Congressional leaders are using as they try to determine if America’s national security has been harmed. Its purpose is to make sense of an ever-widening and complex scandal.

Index

Section 1

Information on the Select Committee on U.S. National Security and Military/Commercial Concerns with the People's Republic of China. 
Section 2 Summary of reports by the New York Times
Section 3. Science Committee Backgrounder
Section 4 Chronology of Events: Prepared by Congressional Research Service page
Section 5 Glossary of Terms
Section 6 Decision to give technology export controls to Commerce Department:  New York Times, May 17, 1998
Section 7 Clinton technology transfer policies - a departure from previous administrations:  Articles by Tina Silverman and Henry Sokolski
Section 8 China targets intercontinental ballistic missiles at United States:  Reports by Bill Gertz of the Washington Times

1.

Select Committee on U.S. National Security and Military/Commercial Concerns with the People’s Republic of China

On June 18, 1998, by a vote of 409 to 10, the House of Representatives created a select committee to investigate Clinton administration-approved technology transfers that may have resulted in the improvement of China’s ability to deliver nuclear missiles. The committee is also charged with exploring whether or not Clinton administration policy was influenced by "political contributions, commercial arrangements, or bribery, influence-peddling, or other illegal activities" by the Peoples Republic of China.

Members of the Select Committee were announced on June 19 by Speaker Gingrich and include the following nine Members of Congress:

The composition and break-down of the committee were agreed to after consultation between both House Republican and Democrat leaders.

The bipartisan mission of the committee is defined in the legislation authorizing its creation, House Resolution 463. Below are excerpts of the section defining the jurisdiction of the Select Committee:

"SEC. 2. JURISDICTION. (a) IN GENERAL - The Select Committee shall conduct a full and complete inquiry regarding the following matters and report such findings and recommendations, including those concerning the amendment of existing law or the enactment of new law, to the House as it considers appropriate:

    1. "The transfer of technology, information, advice, goods, or services that may have contributed to the enhancement of the accuracy, reliability, or capability of nuclear-armed intercontinental ballistic missiles or other weapons of the People's Republic of China"
    2. "The transfer of technology . . . that may have contributed to the manufacture of weapons of mass destruction, missiles, or other weapons" by Communist China.
    3. "The effect of any transfer or enhancement referred to in paragraphs (1) or (2) on regional security and the national security of the United States."
    4. "The conduct of the executive branch of the United States Government with respect to the transfers or enhancements referred to in paragraphs (1) or (2), and the effect of that conduct on regional security and the national security of the United States."
    5. "The conduct of defense contractors, weapons manufacturers, satellite manufacturers, and other private or government-owned commercial firms with respect to the transfers or enhancements referred to in paragraphs (1) or (2)."
    6. "The enforcement of United States law . . . with respect to the transfers or enhancements referred to in paragraphs (1) or (2)."
    7. "Any effort by the Government of . . . China or any other person or entity to influence any of the foregoing matters through political contributions, commercial arrangements, or bribery, influence-peddling, or other illegal activities."
    8. "Decision-making within the executive branch"
    9. "Any effort to conceal or withhold information or documents relevant to any of the foregoing matters or to obstruct justice"

[The rest of H. Res 463 can be found in the Congressional Record, June 18, 1998.]

 

2.

The New York Times Series

In April of this year, New York Times reporters Jeff Gerth, Raymond Bonner, John M. Broder, Eric Schmitt, and David Sanger began a series of investigative articles that detailed the curious relationship between the U.S. aerospace industry, the Clinton administration and the Peoples Republic of China—and how this relationship may have jeopardized American national security interests. Below is a brief description of their reporting:

3.

Science Committee backgrounder on dual-use space technology.
Also contains information on:

  • Sanctions and Transfer Waivers
  • The Loral/Hughes Report
  • The Pentagon Report
  • Ballistic Missiles
  • Chinese and US Aerospace Industries

U.S. House of Representatives

COMMITTEE ON SCIENCE
2320 Rayburn House Office Building
Washington, DC 20515

June 22, 1998

China: Dual-Use Space Technology
2318 Rayburn House Office Building
Thursday, June 25, 1998
9:30am

Scheduled Witnesses

Mr. Gary Milhollin
Director
Wisconsin Project on Nuclear Arms Control
Mr. Leon McKinney
President
McKinney Associates
Mr. Oren Phillips
Vice President Business Development
Thiokol Propulsion
Mr. Paul Ross
Group Vice President
Space and Strategic Systems
Alliant Techsystems
Mr. John Pike
Director of Space Policy
Federation of American Scientists

Purpose of Hearing

The purpose of the hearing is to (1) discuss the significance of information that may have been transferred by Loral and Hughes to the People’s Republic of China; (2) examine the implications of an improved Long March on U.S. national security, U.S. launch industry competitiveness, and the U.S. industrial base; and (3) review components of space-related agreements that the Administration has been negotiating with the People’s Republic of China.

 

Background

Actions by Loral and Hughes are the catalyst for the current controversy surrounding potential missile technology transfer to China. The 1996 participation of Loral and Hughes in a launch failure investigation resulted in the May 1997 Pentagon Report and the current investigation by the Justice Department. Given the ongoing Justice Department investigation, the February 1998 waiver by President Clinton for export of a Loral-built satellite to be launched in China is also part of the controversy. Other congressional hearings on this issue have focused on the export control process, including the differences between the Bush Administration and the Clinton Administration. The primary purpose of the Science Committee hearing is to examine this issue from the standpoint of the U.S. launch industry. [See Attachment A for a chronology of events (1989-1998) prepared by Shirley Kan, Analyst in Foreign Affairs, Foreign Affairs and National Defense Division of the Congressional Research Service.]

 

Sanctions -- People’s Republic of China

 

Launches of U.S.-built satellite on Chinese rockets have been affected by two categories of sanctions imposed on the People’s Republic of China: (1) Tiananmen Square sanctions; and (2) missile proliferation sanctions.

 

Tiananmen Sanctions

In 1990, the United States imposed post-Tiananmen sanctions as required by the Foreign Relations Authorization Act for FY1990-1991 (P.L. 101-246). Section 902 (a) requires suspensions in programs related to: (1) Overseas Private Investment Corporation, (2) Trade and Development Agency, (3) exports of Munitions List items, (4) exports of crime control equipment, (5) export of satellites for launch by China, (6) nuclear cooperation, and (7) liberalization of export controls. Suspensions (3) and (5) affect export of satellites to China. Section 902 (b) allows Presidential waivers of the suspensions by reporting that "it is in the national interest" to terminate a suspension.

Missile Proliferation Sanctions

Congress enacted explicit guidelines for trade sanctions related to missile proliferation in 1990. A requirement for the President to impose sanctions against U.S. persons or foreign persons engaging in trade of items or technology listed in the Missile Technology Control Regime (MTCR) Annex was added to the Arms Export Control Act (Section 73(a)) and to the Export Administration Act of 1979 (Section 11B(b)(1)).

The Missile Technology Control Regime was formed on April 16, 1987 when the governments of Canada, France, Italy, Japan, the United Kingdom, the United States and West Germany agreed to restrict the export of missiles and associated technologies that Third World countries could use to develop unmanned, nuclear weapons delivery systems. The Missile Technology Control Regime (MTCR) established a set of ground rules for controlling sensitive missile-relevant transfers, with reference to a detailed list of restricted items the exporting of which was either to be licensed or prohibited altogether.

Section 73(a) of the Arms Export Control Act requires sanctions against any U.S. citizen or any foreign person whom the President determines to be engaged in exporting, transferring, conspiring to export or transfer, or facilitating an export or transfer of, any equipment or technology identified by the Missile Technology Control Regime that contributes to the acquisition, design, development, or production of missiles in a country that is not an MTCR adherent. Sanctions vary according to the degree of sensitivity of the equipment or technology exported.

Category I violations involve the transfer of a complete missile. Sanctions imposed as a result of a violation would preclude the export of commercial communications satellites for launch from the violating country. Category II violations involve the transfer of missile-related equipment and technology. Category II sanctions do not affect commercial communications satellites controlled by Commerce because even though the satellites may contain missile-related components, Commerce deems the components inaccessible.

Section 11B of the Export Administration Act authorizes sanctions against U.S. persons and foreign persons who engage in commercial transactions that violate missile proliferation controls. Sanctions are required against any U.S. citizen who the President determines to be engaged in exporting, transferring, conspiring to export or transfer, or facilitating an export or transfer of, any equipment or technology identified by the MTCR Annex.

 

Waivers

Since the imposition of Tiananmen sanctions in 1990, President Bush and President Clinton have issued waivers for the export of U.S.-origin satellites to be launched in China. Presidents Bush and Clinton have issued at least 13 waivers for 20 satellite projects (on a case-by-case basis) since the Tiananmen sanctions were imposed. [see Attachment B] The Clinton Administration has considered issuing a blanket waiver of Tiananmen sanctions on satellites in return for cooperation from China in missile nonproliferation.

 

Loral and Hughes

After the February 15, 1996 launch failure of a Long March 3B rocket carrying a Loral-built satellite, Loral and Hughes participated in a review of the Chinese accident investigation findings. Hughes participated because a Hughes-built satellite, APSTAR 1A, was the next satellite scheduled for launch on a Chinese Long March rocket. On April 10, 1996, the Chinese presented their preliminary determination that the crash was caused by an open electrical circuit in the rocket’s "inertial measurement unit" (which is the core of the guidance system). According to the Chinese, the open circuit occurred because a particular solder joint failed. When the circuit opened just after takeoff, the guidance system provided the propulsion system with wrong information as to the position of the rocket, causing the propulsion system to pitch the rocket sharply toward the ground.

Given the history of Long March failures, the insurance companies were unwilling to insure the next Long March launch until a Western review of the accident investigation findings was conducted and the review verified the Chinese findings. An Independent Review Committee was formed with the following members:

 

Chairman of the Committee

Dr. Wah Lim
Senior Vice President and General Manager for Engineering and Manufacturing
Space Systems/Loral.

Members of the Committee

Mr. John Holt
Former Managing Director
British Aerospace Space & Communications Ltd

Dr. John Smay
Chief Technologist
Space Attitude Control System
Hughes Space and Communications Company

Mr. Karl Kachigan
Former Director Launch Vehicle Engineering
General Dynamics-Convair

Mr. Fred Omsby
Former Manager of Satellite and Launch Vehicle Program Office

INTELSAT
Mr. Reinhard Hildebrandt
Expert Responsible for the Ariane Launch Operations
Daimler-Benz Aerospace

Mr. Robert Steinhauer
Chief Scientist
Hughes Space and Communications Company

The following experts from Loral supported the committee:

Dr. Fred Chan
Senior Expert of Attitude Control and Platform

Dr. Jack Rodden
Principal Engineer Systems Analysis

Mr. Nabeeh Totah
Director of Spacecraft Engineering Department

Mr. Nick Yen
Senior Secretary of the Independent Review Committee.

Independent Review Committee

The President of Space Systems/Loral met with Loral’s government security committee on April 11, 1996. A member of the committee, Dr. Bryen (former head of the Defense Technology Security Administration in DoD) suggested that Space Systems/Loral work with the Department of State and have the department sign off on Loral’s response to the People’s Republic of China prior to delivery of comments.

Two formal meetings of the Independent Review Committee with the Chinese were held: (1) April 22-24, 1996 in Palo Alto, California and (2) April 30-May 1, 1996 in Beijing. Minutes from both meetings, the draft preliminary report, and final preliminary report were sent to China Great Wall Industry Corporation (China’s launch company) without prior submittal of the materials for review by the State Department.

Loral failed to notify the Defense Department of the two meetings, thus no DoD monitors were present. DoD may have failed in its responsibility to ask Loral, since the Loral/Hughes investigation had been publicly announced. Further, Loral has stated that it discussed the Independent Review Committee’s work with a number of U.S. officials interested in China’s space program, while the review was being conducted.

Written questions were given to China Great Wall Industry Corporation (China Great Wall) at the first meeting. The questions were prepared by Independent Review Committee (IRC) members and staff based on previously received reports from China. IRC members and staff asked numerous oral questions at the meetings to understand better the China Great Wall analysis and conclusions.

Minutes of the first meeting were prepared by Mr. Nick Yen of Loral and faxed to China Great Wall on April 25, 1996. Minutes of the second meeting were prepared by Mr. Yen and faxed to China Great Wall on May 6, 1996. After the second meeting, IRC members began putting together the Preliminary Report.

Mr.Yen faxed a copy of the draft Preliminary Report to China Great Wall on May 7, 1996. On May 9, 1996, Dr. Wah Lim sought review from Space System/Loral’s General Counsel before formal release of the final Preliminary Report.

On May 10, 1996, Space System/Loral’s General Counsel attempted to halt distribution of the report not realizing the draft had been faxed to China Great Wall on May 7, 1996. An hour previous to this attempt to halt distribution on May 10, 1996, Mr. Yen faxed the final version of the Preliminary Report, less attachments, to China Great Wall.

On May 13, 1996, Mr.Yen faxed a copy of the final Preliminary Report to Mr. Paul O’Conner of Johnson and Higgins (insurance brokerage firm) in Beijing (Mr. Yen thought it was permissible to send the report to U.S. insurers). The report was sent over a fax to a Beijing hotel. This action is considered an "export" under the International Traffic in Arms Regulations (ITAR) even though the recipient was a U.S. person.

On June 15, 1998, staff from the House National Security Committee, International Relations Committee, and Science Committee were briefed on the export control process by officials from the State Department, Commerce Department, Defense Technology Security Administration, Arms Control and Disarmament Agency, and National Security Council. When asked whether Loral was required to obtain a license to participate in the 1996 launch failure investigation, David Tarbell, the Director of the Defense Technology Security Administration (DTSA) stated that DTSA always has viewed a launch failure analysis to be the conduct of a defense service which requires a license.

On April 4, 1998, Jeff Gerth of The New York Times reported on an inquiry into criminal activity by Loral and Hughes. It was reported that Loral and Hughes assisted the Chinese in improving the guidance systems of the Long March rocket in connection with the investigation of the Long March 3B failure which occurred in February 1996. The Times article also reported that a February 1998 decision by President Clinton to sign a waiver allowing Loral to launch another satellite on a Chinese rocket was opposed by Justice Department officials because it would be more difficult to prosecute the companies.

On April 13, 1998, Jeff Gerth of The New York Times reported on a May 1997 Pentagon report which concluded that scientists from Hughes and Loral had turned over expertise that improved the reliability of China’s nuclear missiles. "One year later [May 1997] the Pentagon completed its damage assessment of the incident. It concluded, officials said, that ‘United States national security has been harmed.’"

Loral prepared a "fact sheet" that was sent to the Science Committee on May 18, 1998. The document stated, "Allegations that Space Systems/Loral provided missile guidance technology to the Chinese are false." [See Attachment C] Loral has acknowledged that it was a "serious mistake" not to have sought State Department approval prior to its IRC activities. Loral further maintains that it is not clear that any violation occurred with respect to technical data.

Pentagon Report

There have been numerous press accounts about a May 1997 Pentagon report which concluded that expertise passed from Loral and Hughes to the Chinese during the 1996 launch failure investigation harmed U.S. national security.

The so-called "Pentagon Report" was produced by a DoD agency, the Defense Technology Security Administration (DTSA). Another report was prepared by an Air Force agency, the National Air Intelligence Center (NAIC). There also have been press accounts of a CIA report on the issue. State referred the Loral/Hughes technology transfer issue to the Justice Department. The Justice Department then initiated a criminal investigation into possible export control law violations by Loral and Hughes.

The one-page analysis prepared by the CIA (March 19, 1997) reportedly conflicts with the DTSA and Air Force reports. This analysis reportedly stated that the IRC report did not raise "proliferation concerns" that could harm U.S. security.

1998 Waiver

President Clinton, in February 1998, approved a waiver for the Loral-built Chinasat 8 satellite to be exported for launch in China. To approve a waiver of Tiananmen sanctions, the President must determine that it is "in the national interest." Samuel Berger, President Clinton’s national security adviser, sent a memorandum to the President on the proposed waiver on February 12, 1998. Mr. Berger recommended approval of the waiver by the President. Mr. Berger, in the memorandum, acknowledged the concern of the Justice Department’s Criminal Division that this waiver could have a significant adverse impact on any prosecution that might take place, based on a pending investigation of export violations by Loral.

 

Similarities between space launch vehicles and ballistic missiles

Dr. William Graham, former Deputy Administrator of NASA and Science Advisor to Presidents Reagan and Bush, stated at a recent congressional hearing, "There is a misperception that ICBMs [Intercontinental Ballistic Missiles] are more sophisticated and complex than space launch vehicles (SLVs). In reality, the opposite is true. The preponderance of SLVs are ICBMs with additional elements....The essential elements of an SLV are its propulsion, structure, staging, guidance and control, ground support and launch equipment and procedures, overall system integration, payload (the satellite), and payload development. The essential elements of an ICBM are the same with the exception of the payload, which for an ICBM is a reentry vehicle containing some type of warhead, rather than a satellite."

Defense and State Department officials have expressed their concerns about technologies "to integrate the satellite to the launch vehicle because this technology can also be applied to launch ballistic missiles to improve their performance and reliability. Accelerometers, kick motors, separation mechanisms, and attitude control systems are examples of equipment used in both satellites and ballistic missiles.... They also expressed concern about the operational capability that specific characteristics, in particular antijam capability, crosslinks, and baseband processing, could give a potential adversary."

Former CIA Director James Woolsey testified in 1993 before the Senate Governmental Affairs Committee, "... space launch vehicle technology is very similar to and it is clearly applicable toward developing ballistic missiles... the technologies for ICBM’s (sic) and space launch vehicles are very close and in some cases virtually identical."

It was under Commerce controls that Motorola and Lockheed Martin worked with the Chinese to launch a series of small communications satellites known as Iridium. Several issues involving the satellite dispenser (a dispenser is needed when launching multiple satellites so that they can each be released individually) were resolved, including proper mounting and release of the satellites, coupling load analysis (explosive bolt usage to allow payload release without harm to sensitive electronics), and attitude control.

This dispenser technology has direct application to multiple independently targetable reentry vehicles (MIRVs). China first decided to develop MIRVs for deployment in 1970. Development was stalled in part, however, by a lack of capability to miniaturize warheads. The priority for the project on MIRVs was lowered in March 1980, but research and development on MIRVs resumed on November 10, 1983, as part of the DF-5 modification program. Some are concerned that China’s use of multi-satellite dispensers, or smart dispensers, to launch more than one satellite on a Long March rocket has contributed to its development of MIRV capability.

 

Due to the aforementioned similarities between ballistic missiles and space launch vehicles, experience in one area readily translates into the other. Thus, the more that China learns about space launch vehicles, the more knowledge it will be able to apply to its strategic nuclear forces. Anne Gilks, a British expert on the Chinese space program, observed, "The relationship between China’s space and ballistic missile programs (sic) has been close and often symbiotic." Gilks further notes that experience with the Long March 2 space launch vehicle helped the Chinese improve the guidance of their DF-4 (CSS-4) ballistic missile.

China is in the midst of a significant modernization of its strategic nuclear forces and ballistic missile capabilities. In 1994, Lieutenant General James Clapper, then Director of the Defense Intelligence Agency, testified before the Senate that Chinese modernization of its military was aimed at the United States. According to Clapper, "China is modernizing both its conventional and strategic forces to enable the PLA [People’s Liberation Army] to better support Beijing’s political initiatives and China’s ability to compete with such countries as Japan, Russia, and the U.S. both regionally and globally." A November 1997 report by the Department of Defense concluded, "China has embarked on a ballistic missile modernization program. While adding more missiles and launchers to its inventory, China is also concentrating on replacing liquid-propellant missiles with mobile solid-propellant missiles, reflecting concerns for survivability, maintenance, and reliability." More recently, George Tenet, Director of Central Intelligence, testified before the Senate Select Committee on Intelligence in January 1998 that, "Chinese military modernization remains a key leadership goal. China is increasing the size and survivability of its retaliatory nuclear missile force." Air Force General Eugene Habiger, Commander of the U.S. Strategic Command, stated on March 31, 1998 that China is engaged in a major nuclear modernization that includes development of multiple-warhead missiles capable of hitting all parts of the U.S. except southern Florida.

Until the 1980s, China’s policy was to be self-sufficient in research and development capabilities to support this modernization. However, by the mid-1980s the Chinese government determined that it could accelerate its military modernization and reduce the cost of modernization to China by gaining access to Western technology. Lieutenant General Patrick Hughes, Director of the Defense Intelligence Agency, testified before the Senate Select Committee on Intelligence in January that "China will continue to actively seek advanced technology, including a much-improved knowledge base from ‘overseas’ students, and from cooperative nations and commercial partners, and will proliferate some technical capabilities as it sells selected weapons systems to other countries." Chinese officials themselves confirm that they are seeking to support modernization through access to foreign technology. Zhu Yilin and Xu Fuxiang of the Chinese Academy of Space Technology in Beijing listed one of China’s goals in space as "Cooperating in international space technological exchanges in various fields through multiple administrative levels and channels to catch up and harmonize with the world’s advanced space technology." (emphasis added)

Given the nature of space technology, which can be used for both civilian and military purposes, the Chinese will be able to modernize their military capabilities by acquiring ostensibly "civilian" space technology. The Deputy Director of China’s Central Military Commission, which is the body in the Chinese Communist Party responsible for setting national military priorities, reportedly said that civilian technologies would serve as the "foundation for developing science and technology industries for national defence," and that China, "should pay attention to turning advanced technology for civilian use into technology for military use."

Additionally, the Chinese government decided that it would help finance its strategic modernization by selling dual-use space goods and services. China’s entry into the global launch market was calculated to help raise funds to modernize its space launch vehicle/ballistic missile technologies and capabilities. China’s launching of U.S.-built satellites – worth up to a half-billion dollars in revenue to date – has helped finance China’s own missile-modernization efforts and missile exports to nations like Pakistan and Iran. Gilks notes, "China lacks both the money and the technology to develop its space programme as quickly as it would wish and has been keen to acquire foreign technology—but is still constrained by a tight budget. However, the prospect of commercial gain has allowed funding for limited joint ventures." Consequently, Chinese military industries are engaging in commercial activity to generate revenues that cover the overhead for military research and development. For example, Gilks notes that in 1987, the Ministry of the Aerospace Industry, at the time responsible for civil and military aviation and space technology development in China, financed 66% of its overhead costs through commercial activity.

The Ministry later was split into other organizations. The Commission on Science Technology and Industry for National Defense, (COSTIND) oversees space activities in China, with several organizations reporting to it. Among them are the China National Space Administration and the China Aerospace Corporation. China Great Wall Industry Corporation, part of China Aerospace Corporation, markets commercial space launch services. The China Great Wall Industry Corporation and its research and development counterpart, the Chinese Academy of Launch Technology, may continue to provide military services since no military institutions dedicated to those functions were created when the Ministry of Aerospace was split. Finally, China seeks to acquire the administrative and management skills needed to conduct high-technology research and development and translate the results into usable military power. Frankenstein and Gill note, "As part of the reform process, efforts are underway to introduce concepts of systems engineering, systems analysis, life-cycle management and more ‘scientific decision-making’ into the [military] procurement process." Yilin and Fuxiang, of the Chinese Academy of Space Technology, confirm that China seeks to improve its management skills and "learn the foreign advanced management mode," in order to improve its space capabilities. While such issues do not receive the same attention as explicit technology transfers, such as the sale of technology or the relation of design information, teaching Chinese managers Western management techniques also is likely to help China improve its space launch vehicle/ballistic missile capabilities.

 

The Chinese and United States Launch Industry

China’s Launch Industry

China Great Wall Industry Corporation (China Great Wall) has been China’s space launch company since 1986. It is a state-owned corporation and belongs to China Aerospace Corporation which oversees China’s space and missile research and development establishment. China Aerospace Corporation develops strategic and tactical ballistic missiles, space launch vehicles, surface-to-air missiles, cruise missiles, and military and civilian satellites.

China Great Wall uses the Long March series of rockets to launch satellites. Long March boosters also are produced as China’s DF-4 and DF-5A ICBMs deployed in the Second Artillery, the strategic missile force of the People’s Liberation Army (PLA). China has three launch sites: Shuang Cheng-Tzu, Taiyuan, and Xichang. Xichang, in southeastern China, is used for satellites destined for geostaionary orbit above the equator.

China reportedly launched its first satellite on April 24, 1970. By May 31, 1998, China had conducted 60 launches, of which eight were complete failures and four placed satellites into incorrect orbits. This number includes five launch failures between 1973 and 1979 that have not been officially acknowledged by China, but are counted by Western analysts. On April 7, 1990, Great Wall launched its first commercial foreign satellite, Asiasat 1. [See Attachment D for a history of Chinese space launches, prepared by Marcia S. Smith, Specialist in Aerospace and Telecommunications Policy of the Science, Technology, and Medicine Division of the Congressional Research Service]

 

United States’ Launch Industry

The rise of a competitive, global market for commercial launch services in the past decade has cost U.S. launch service providers their previous monopoly on launching commercial satellites. During the 1970s, NASA was designing and building the Space Shuttle. It was decided that once the Shuttle was operational, the U.S. expendable launch vehicles would be phased out. In the early 1980s, production lines for the U.S.-built Delta and Atlas rockets began to close down. In 1979, the European Space Agency successfully launched its first Ariane 1 rocket and began to compete for commercial payloads.

The Challenger tragedy in 1986 ended Shuttle flights for 32 months. The U.S. share of the world commercial space transportation market plummeted during this time and did not begin to recover until 1990. After Challenger, U.S. policy changed to support a "mixed fleet" approach using both the Shuttle and expendable launch vehicles. There was a tremendous push to re-open production lines and get U.S. expendable launch vehicles up and running in order to support the backlog of U.S. government and commercial payloads.

The entry of China, Russia and Ukraine into the commercial launch market has confronted U.S. launch providers with non-market economy competitors who are able to undercut U.S. launch bids significantly even under the terms of existing launch service trade agreements.

In September 1988, the Reagan Administration approved export of three satellites to be launched by China Great Wall on the condition that China sign three international treaties related to liability for satellite launches and other subjects; agree to price its launch service "on a par" with Western companies; and establish a government-to-government level regime for protecting technology from possible misuse or diversion. China met the conditions and the two countries signed a 6-year agreement in January 1989.

On June 5, 1989 after the Tiananmen Square massacre, President Bush suspended all military exports to China. In 1989, exports of communications satellites still were still governed by the State Department’s Munitions List. The three satellite licenses, therefore, were suspended as the satellites were deemed military exports. In December 1989, the licenses were reinstated.

Launch Trade Agreement

The United States currently has launch trade agreements with China, Russia, and Ukraine. The purpose of the agreements is to manage the international market for launch services and reduce the impact of low prices charged by non-market economies on U.S. launch providers. Two of the conditions included in the 1989 agreement were that China would seek to launch no more than nine international satellites between 1989 and 1994, and that it would charge prices "on a par" with other launch service providers. The six-year agreement signed in 1989 expired at the end of 1994.

A new seven-year agreement was signed on March 13, 1995 allowing China up to 11 new launches for international customers to geostationary orbit. Existing contracts for four launches under the 1989 agreement were incorporated into the agreement, thus a total of 15 launches are allowable in the 1995-2001 timeframe. Neither reflights of failed missions, nor launches of commercial payloads intended strictly for internal Chinese use count against this quota. The 1995 agreement stipulated that China was to charge no less than 15% below what Western companies charge or a U.S. review of the price would be triggered (for example, if the lowest Western bid is $100 million, the Chinese are not supposed to bid less than $85 million). Under the 1995 agreement, China has conducted 6 launches which count against the agreement, with 9 remaining through 2001.

One of the provisions of the agreement allows for additional launches depending on the global launch rate. If the total number of commercial launches to geostationary orbit in the world averages 20 launches per year for the first three years of the agreement, China is permitted an additional two launches. If the number of commercial launches averages 20 per year for the first four years of the agreement, China is permitted an additional three launches. From 1995-1997, 61 commercial launches to geostationary orbit occurred around the world. Because the 20/per year average has been met over this three-year period, China has qualified for the additional two launches under the agreement. [See Attachment E for a table of U.S.-origin satellites launched by the People’s Republic of China, prepared by Marcia S. Smith, Specialist in Aerospace and Telecommunications Policy of the Science, Technology and Medicine Division of the Congressional Research Service]

For low Earth orbit (LEO) launches, it was agreed that China will be deemed in compliance of the agreement if China and Russia combined do not win launch contracts to more than 50% of any particular LEO satellite constellation (for example, Motorola’s Iridium system). On October 27, 1997, the U.S. and China agreed to pricing provisions for LEO launches. China agreed to price its LEO launches on a par with U.S. and European launch companies.

 

United States/China space cooperation

The U.S. and China signed an agreement on Cooperation in Science and Technology in 1979. This agreement called for the establishment of the U.S./People’s Republic of China Science & Technology Joint Commission, to be co-chaired by the President’s Science Advisor and his Chinese counterpart, the Chairman of the State Science and Technology Commission. Biannual Joint Commission meetings were held through 1987. The meeting planned for 1989 was canceled due to the Tiananmen Square massacre. On May 22, 1991, the U.S. and People’s Republic of China (PRC) governments renewed the overall Science & Technology Agreement, with an intellectual property rights annex attached. The first U.S./PRC Science and Technology Joint Commission Meeting since 1987 was held April 12, 1994.

In October 1996, a number of NASA officials attended a conference in Beijing. The possibility of expanding cooperation in Earth science was raised. Discussions held in 1996 and 1997 led to a draft "umbrella" MOU which was submitted for interagency review. Several concerns were expressed by various agencies about potential technology transfer to the Chinese. In December 1997, NASA stated it would pursue project-specific agreements. In February 1998, the National Security Council staff inquired about space cooperation with the Chinese. The draft MOU was modified to state clearly that no technology transfer would occur. NSC incorporated the technology transfer wording changes to the "umbrella" MOU and linked it to a larger non-proliferation package. It was decided later that Chinese compliance with MTCR would be a prerequisite of pursuing the umbrella MOU or else NASA could only pursue project-specific agreements. On March 22-23, 1998, talking points about the revised MOU and MTCR requirements were cleared by the interagency process and used by the State Department-led nonproliferation delegation that visited China. The umbrella MOU is still a part of the bigger non-proliferation package but there has been no movement on China’s part to agree to comply with MTCR. The possibility of project-specific agreements also still exists. Areas that have been discussed for potential cooperation are: atmospheric science; land-cover and land-use change; natural hazards; solid Earth science and geodynamics; calibration and validation of new Earth science sensors and data sets; and topographic mapping.

 

4.

Chronology

This chronology tracks the events relating to technology transfers to China, commercial satellite launches, the actions of both American and Chinese aerospace companies, and the policies of the Bush and Clinton administrations. It is current through August of 1998 and was compiled by the Congressional Research Service. It is featured in CRS Report 98-485 F.

1989

 

1990

 

1991

 

1992

 

1993

 

1994

 

1995

 

1996

 

1997

 

 

1998

 

Other events since June 1998:

 

5.

Glossary of Terms

Major Organizations – U.S. Government

Defense Technology Security Agency: The DTSA is charged with guarding the nation’s military and technological secrets and had a prominent role in the approval of technology transfers during the Reagan and Bush administrations. Observers have noted that the influence and importance of the agency has diminished during the Clinton administration, especially when authority over export waiver was shifted to the Commerce Department. The function of the DTSA is to be combined with three other defense agencies starting October 1998. According to Defense Week: "The Defense Threat Reduction Agency (DTRA) would consolidate the functions of three existing agencies: the On-Site Inspection Agency, the Defense Special Weapons Agency, and the Defense Technology Security Agency, according to a draft Pentagon directive establishing the agency." Some view this as an attempt to dismantle the agency.

 

Export Controls–Departments of Defense, Commerce, and State: In November of 1996 President Clinton transferred authority over technology export licensing from the State Department to the Commerce Department. Former Bush advisor Tina Silverman noted that the "transfer of this function shifted the balance of interests away from the protection of sensitive technologies in favor of commercial interests."

Before this transfer of authority to Commerce, the Defense Department had a "veto" power over waiver and license decisions—their main concern, of course, being national security. After the change, the Commerce Department assumed responsibility for licensing the export of all commercial communications satellites. According to press reports at the time, the State Department, with support from the Department of Defense, initially opposed the shift in licensing jurisdiction because of the existence of certain militarily-sensitive technologies embedded within the satellites. Former Secretary of State Warren Christopher has noted that he argued to retain State’s licensing role.

As it stands now, DOD is only one of many agencies responsible for technology licensing decisions. Any national security objections they raise must be supported by a majority of the agencies involved in the interagency review process. The GAO has testified that under the current Commerce-headed system, "Defense’s power to influence the decision making process has diminished . . ."

[Note on Export Controls: Recent hearings jointly held by the House International Relations and National Security Committees found that several U.S. satellite launches by China took place in 1995 and 1996 without Department of Defense monitors—even before the jurisdiction shift on export controls.]

 

Arms Control and Disarmament Agency: The ACDA is part of the interagency review process that determines export waivers for technology transfers. Its mission is to "strengthen the national security of the United States by formulating, advocating, negotiating, implementing and verifying effective arms control, nonproliferation, and disarmament policies, strategies, and agreements. In so doing, ACDA ensures that arms control is fully integrated into the development and conduct of United States national security policy."

 

Office of Defense Trade Controls: DTC is part of the State Department. According to the Journal of Commerce, the DTC "serves as a gatekeeper for U.S. technology and a guardian against the spread of weapons of mass destruction. It is also an export licensing agency." The Journal also reports that aerospace industry sources "say DTC officials have stubbornly resisted the president's March 1996 decision to transfer the licensing of satellites for foreign launches to the Commerce Department, fearing that China will obtain missile technology through eased controls."

 

Interagency Review: A general term applied to the process by which different cabinet agencies arrive at administration policy. In the case of technology exports to China, when the Clinton administration transferred authority over exports from the State Dept. to the Commerce Dept., the administration also re-arranged the interagency review process concerning technology transfers. Instead of the Defense Dept. having a "veto" over other agencies in the technology transfer process, all national security objections had to be supported by a majority of agencies involved in the interagency review—effectively striping Defense of its veto power.

 

Munitions List: Maintained by the State Department and the Department of Defense, the "munitions list" is an inventory of America’s "most sensitive military and intelligence-gathering technology." Officially, the Munitions List is Section 38 of the Arms Export Control Act.

 

Commerce Control List: Satellites were placed on the Commerce Control List when the Clinton administration transferred authority over satellite exports from the State Department to the Commerce Department.

 

Major Organizations – American Aerospace and Satellite Companies

Hughes Electronics, headquarters in El Segundo, California. See pages 14-35, 49.

 

Lockheed Martin, headquarters in Bethesda, Maryland. See pages 21-26, 34.

 

Space Systems/Loral, headquarters in Palo Alto, California. See pages 13, 20-35, 43, 51.

(a subsidiary of Loral Space and Communications of New York)

 

Motorola, headquarters in Schaumburg, Illinois. See pages 25, 24, and 39.

Major Organizations – Chinese Space/Missile/Rocket Development

China Aerospace Corporation (CASC): CASC oversees China’s space and missile research and development.

 

Chinese Academy of Space Technology: This organization is the equivalent of America’s NASA. According to several published reports, the academy has announced plans to launch a manned spacecraft and a small lunar probe within the next few years.

 

China Great Wall Industry Corporation: China’s company that market’s space launch services. Owned by China Aerospace Corporation, it develops strategic and tactical ballistic missiles, space launch vehicles, surface-to-air missiles, cruise missiles, and satellites. Great Wall was sanctioned by the U.S. in 1991 and 1993 for exporting M-11 missile parts to Pakistan.

 

China International Trade and Investment Corporation (CITIC): Chinese state-run venture and primary overseas trading company with a stake in American satellite business. Its chairman, Wang Jun, attended Democrat fundraising "coffees" at the Clinton White House in 1997. It is reported that on the very day of his visit to the White House, President Clinton "signed waivers allowing the Chinese to launch four American satellites—though unrelated to the business interests of China International Trade." (see "Wang Jun")

Major Players – Campaign Contributions

Bernard Schwartz: Chairman of Loral Space and Communications and top contributor to the Democrat National Committee in 1997.

C. Michael Armstrong: Former Chairman and CEO of Hughes Aircraft Company; member of the President’s Export Council. In 1993, he lobbied the Clinton administration to exempt commercial communication satellites from the sanctions imposed on China for transferring M-11 missile parts to Pakistan.

Johnny Chung: Democrat fundraiser and frequent visitor to the White House. Chung pleaded guilty to siphoning $20,000 in illegal contributions to the Clinton-Gore reelection campaign.

Liu Chaoying: Executive of China Aerospace and daughter of retired General Liu Huaqing, a senior Chinese official and member of the Communist Politburo. She holds the honorary rank of lieutenant colonel in the People's Liberation Army.

Wang Jun: Chairman of China International Trade and Investment Corporation. "Attended a White House coffee with President Bill Clinton at the same time his company was suspected of smuggling guns into the United States; Clinton later said it was ‘clearly inappropriate’ for Wang to be there and ordered tighter screening of White House guests."

Nuclear Terminology

Nonproliferation: The goal of preventing additional nations developing nuclear weapons than already have it; the intellectual framework upon which several international arms control and arms monitoring agreements are based.

 

Missile Technology Control Regime (MTCR): The MTCR is an informal export control arrangement among 29 of the world’s most advanced suppliers of ballistic missiles and missile-related materials and equipment. The regime is designed to stem the spread of ballistic and cruise missiles capable of delivering a 500-kilogram payload 300 kilometers or more, by establishing a common export control policy (the Guidelines) and a shared list of controlled items (the Annex) that each country implements with its own national legislation. China has promised to adhere to the MTCR, but is not a member.

 

Rockets and Missiles

ICBM: Inter-continental ballistic missile. Used to deliver nuclear or other explosive payloads at long ranges; similar to, but not to be confused with rockets (such as China’s Long March) used to put payloads into space.

 

M-11 Missile: Chinese short range ballistic missile with a range of 186 miles. The U.S. has twice sanctioned China this decade for exporting M-11 missile parts to Pakistan.

 

Long March Rockets: Chinese rockets used to launch commercial satellites into orbit. Until recently, Long March missiles were considered unreliable. Long March rockets exploded after take-off in 1992, 1995 and 1996, destroying satellites built by Hughes and Loral.

 

CSS-4 Missiles: Long range strategic missiles with the capacity to deliver nuclear warheads. They are estimated to have a range of 8,078 miles. The Central Intelligence Agency reports that 13 out of China’s 18 CSS-4 missiles are aimed at U.S. targets.

 

MIRVs: Multiple independently targeted reentry vehicles. A crucial technology that allows multiple nuclear weapons to be released from a single missile. MIRV technology dramatically increases the potency and accuracy of a missile after it is launched and is also used to assist in the deployment of satellites.

6.

Technology transfer authority given to Commerce Department

This New York Times article explains the decision making process behind the Clinton administration’s transfer of control over sensitive technology exports from the State Department to the Commerce Department. Many have observed this decision contributed to a weakening of national security priorities.

HOW CHINESE WON RIGHTS TO LAUNCH SATELLITES FOR U.S.

Tie To Donations Denied

Easing of Rules in 1996 Was a Shift of Balance Between Security and Commerce

The New York Times

May 17, 1998, Sunday, Section 1; Page 1; Column 1

BYLINE: By Jeff Gerth and David E. Sanger

DATELINE: WASHINGTON, May 16: On Oct. 9, 1995, Secretary of State Warren Christopher ended a lengthy debate within the Clinton Administration by initialing a classified order that preserved the State Department's sharp limits on China's ability to launch American-made satellites aboard Chinese rockets.

Both American industry and state-owned Chinese companies had been lobbying for years to get the satellites off what is known as the "munitions list," the inventory of America's most sensitive military and intelligence-gathering technology. But Mr. Christopher sided with the Defense Department, the intelligence agencies and some of his own advisers, who noted that commercial satellites held technological secrets that could jeopardize "significant military and intelligence interests."

There was one more reason not to ease the controls, they wrote in a classified memorandum. Doing so would "raise suspicions that we are trying to evade China sanctions" imposed when the country was caught shipping weapons technology abroad—which is what happened in 1991 and 1993 for missile sales to Pakistan.

The Secretary of State’s decision to keep satellites on the munitions list, making it harder for them to be exported, did not stand for long. Five months later, President Clinton took the unusual step of reversing it.

Control of export licensing for communications satellites was shifted to the Commerce Department, then run by Ronald H. Brown, who was deeply interested in promoting American businesses overseas and had been one of the Democratic Party's key fund-raising strategists. Several licenses have since been approved.

A reconstruction of Mr. Clinton’s decision to change the export control rules, based on interviews and documents, shows that it followed a turf war between the State and Commerce Departments, and a broader debate over how to balance America's security concerns and commercial competition in the hottest of all the emerging markets.

It also illustrates the intersection of the interests of both large American donors and surreptitious foreign donors to the 1996 campaign.

Both American satellite makers and the Chinese were delighted with the decision because the Commerce Department has dual responsibilities: licensing sensitive exports and promoting sales of American goods around the world.

One of the beneficiaries of that decision, it now turns out, was China Aerospace because its rockets could launch American satellites. An executive of the state-owned Chinese company, Liu Chaoying, is said to have provided tens of thousands of dollars from Chinese military intelligence to the Democratic Party in the summer of 1996.

Ms. Liu's involvement was described to Federal investigators recently by Johnny Chung, a Democratic fund-raiser who says he took $300,000 from Ms. Liu – who is also a lieutenant colonel in the Chinese military -- and donated almost $100,000 of it to Democratic causes, apparently keeping the rest for his businesses.

President Clinton's decision was announced in March 1996, several months before the donations were made. But the actual change was delayed until the fall.

The White House said it did not know the source of Mr. Chung's donations and denies that the decision was influenced by campaign donations, domestic or foreign.

"This was motivated by competitiveness and streamlining bureaucracy concerns, and nothing else," Samuel R. Berger, Mr. Clinton's national security adviser, said in an interview two weeks ago.

On Friday, Mr. Berger's spokesman, Eric Rubin, said the decision was also part of the Administration’s China policy, and specifically its effort to encourage China to clamp down on military exports.

"On many occasions, this was discussed with the Chinese Government because we believe that policy on satellite licenses is one of the tools we have to strengthen our nonproliferation policy," Mr. Rubin said.

Mr. Clinton's decision took place after months of tension with Beijing.

In January reports of China's export of nuclear technology to Pakistan and missiles to Iran caused considerable concern in Congress and the Pentagon. In early May, two months after Mr. Clinton reversed the Secretary of State, the Administration said China had agreed to curb its missile and nuclear exports. But that announcement was greeted with considerable skepticism by Republican critics, including Bob Dole, who was well on the way to getting the nomination for President.

During the campaign, the Republicans attacked Mr. Clinton for failing to curb China's sales of nuclear and missile technology to other countries.

The satellite decision in March was one element of the Administration's "carrot-and-stick-approach to working with China," said James Lilley, a former United States Ambassador to Beijing.

But in the way business and diplomacy mix in Washington’s dealings with China, the decision also resonated in boardrooms on both sides of the Pacific. It satisfied the commercial interests of the American aerospace industry, which had long sought access to China’s low-cost ability to launch satellites into space, aboard rockets called the Long March.

And it bolstered China’s own commercial interests. Ms. Liu’s parent company, China Aerospace, owns a large piece of a Hong Kong satellite operator. It also owns the China Great Wall Industry Corporation, the rocket company that launches both private satellites and tests and provides equipment for the missiles in China’s nuclear arsenal. It was Great Wall that the State Department sanctioned in 1991 and 1993 for selling missiles to Pakistan.

Other powerful Chinese state enterprises also had multibillion-dollar stakes in getting access to American satellites. Among them was the China International Trade and Investment Corporation, whose chairman, Wang Jun, gained unwanted attention in the United States last year when it was revealed that he attended one of Mr. Clinton’s campaign coffee meetings in the White House. The day of Mr. Wang’s visit, Mr. Clinton, in what Mr. Rubin said was a coincidence, signed waivers allowing the Chinese to launch four American satellites—though they were unrelated to the business interests of China International Trade.

"Any suggestions that these decisions were influenced by Wang Jun's presence in the U.S. is completely unfounded," Mr. Rubin said.

It is not known what motivated Ms. Liu or the Chinese military to make the donations. Ms. Liu’s father, Gen. Liu Huaqing, was not only China’s highest military officer but a member of the leadership of the Communist Party.

The White House and the Democratic National Committee deny any knowledge of the source of Mr. Chung’s $366,000 in donations, most predating his connection with Ms. Liu, and all of which was returned.

But there is no doubt that American companies—partners and suppliers of China International Trade and China Aerospace—put enormous pressure on the White House. They were also important campaign contributors. For example, the chief executive of Loral Space and Communications gave $275,000 between November 1995 and June 1996 to the Democrats.

 

The Precursor

A Lobbying Effort To Persuade Bush

China’s drive to obtain a steady stream of satellite technology from the United States preceded the Clinton Administration’s arrival in Washington.

In 1990, just a year after the killings at Tiananmen Square, officials from China Aerospace and the Chinese Government approached Mr. Lilley, the American Ambassador, pressing for President Bush to waive restrictions enacted in the aftermath of Tiananmen that barred China from launching American satellites.

"They hit me very hard," Mr. Lilley recalled recently. "It was a prestige national program. It was putting China on the map as the big space country of the 21st century."

Mr. Bush, who became America’s first permanent representative in Communist China in 1974, granted a waiver that allowed a launching on one of China's Long March rockets. In 1992, a number of Senators—including Al Gore, then still a Senator from Tennessee—wrote to the Bush Administration warning that China was using the launchings to "gain foreign aerospace technology that would be otherwise unavailable to it."

In the last days of the 1992 Presidential campaign, Mr. Gore made the waivers an issue, contending that President Bush "has permitted five additional American-built satellites to be launched by the Chinese."

"President Bush really is an incurable patsy for those dictators he sets out to coddle," Mr. Gore said in a speech at the Goddard Space Flight Center in Greenbelt, Md.

 

The Argument

Business Leaders Pressure Clinton

Almost as soon as Mr. Clinton took office, business leaders began their campaign to drastically change his views about China.

Both Chinese and American companies were working to get satellites off the State Department’s munitions list. The rules for exporting goods that are on the list are particularly tough. Congress must be notified 30 days in advance. Moreover, the State Department considers only nonproliferation issues and defers to the Pentagon’s judgments.

In contrast, the Commerce Department’s export-control administration solicits a host of views and must weigh the effects of its decisions on America’s competitive position.

Mr. Christopher’s aides also noted in their 1995 classified memorandum that "U.S. firms remain concerned there could be additional sanctions imposed on China precluding future munitions licenses," exactly the kind of sanctions that had been only recently lifted for China Aerospace’s subsidiaries.

And there was a lot at stake: an estimated 14 commercial communications satellite launchings a year worldwide, costing several hundred million dollars apiece.

"The business community regarded the inclusion of civilian satellites on the munitions list as an insult," said William A. Reinsch, the Under Secretary of Commerce for export control, who fought Mr. Christopher’s decision. "We're the only country that treats them that way."

The Chinese also understood that they had a huge stake in the outcome of the decision. Zuoyi Huang, president of the California subsidiary of China Great Wall, a part of the China Aerospace empire, said in an interview that his company was eager for any changes that would insure easier access to American technology.

"The license takes time," he said. "You have to get a waiver from the President. The customers can't wait. It's just pure commercial use. It's not a military threat to the United States."

 

 The Review

A Decision Against And a Quick Appeal

The arguments came to a head in 1995. C. Michael Armstrong, then the chief executive of Hughes Electronics and newly chosen as the head of President Clinton’s export council, asked to meet Mr. Christopher. He urged that satellites, which his company produces, no longer be treated as military goods.

The Secretary of State promised that he would conduct a detailed review in consultation with the Department of Defense, the C.I.A. and the National Security Agency and the Department of Commerce.

But the majority of the interagency group quickly found itself at odds with the aerospace industry. A major issue was how to protect encryption equipment, which is built into a satellite and interprets instructions from ground controllers who manipulate the satellite once it is in orbit. Similar devices are used to communicate with American spy satellites, and the Pentagon and intelligence agencies worried that anyone who could crack the code could take control of the satellites themselves.

On Aug. 17, 1995, a memorandum prepared for the interagency group noted that the chief executive of a satellite company told Mr. Christopher that "once it is embedded in the satellite, the encryption device has no military significance." Thus, the industry argued, there was little risk that the Chinese would get their hands on the encryption devices—especially because American military officials are supposed to watch the satellites with care when they are in Chinese hands.

But, the memorandum went on, "the national security position" is that "the nature of the device itself," not its location, "should be used to determine whether it must be controlled as a military item."

The encryption issue was one of the main reasons the interagency group—over the objections of the Commerce Department—recommended that satellites remain on the munitions list. Mr. Christopher concurred. Soon after Mr. Christopher put his initials on the decision memorandum, Commerce Secretary Ronald H. Brown appealed the decision to the President.

 

The Turnaround

The Commerce Dept. Wins a Turf Battle

The debate surrounding the appeal did not heat up for four months. The nature of the arguments that went to the White House is still unclear: many of the documents remain classified. But those that have been reviewed by The New York Times show that the White House and the Commerce Department began communicating again about the issue on Feb. 8, 1996, two days after President Clinton broke a backlog of applications for launchings by China, by approving four of them that day.

Mr. Clinton signed those waivers the same day that Wang Jun, the man who was often referred to during the campaign finance investigations as a "Chinese arms dealer," visited Washington. His company, the China International Trade and Investment Corporation, has a multibillion-dollar stake in one of Hong Kong’s largest satellite companies.

That same day, Mr. Wang met with Mr. Brown, at his expansive office in the Commerce Department. And that evening, Mr. Wang attended a coffee at the White House, an event Mr. Clinton later called "clearly inappropriate." Others at the coffee said Mr. Wang never spoke during the session.

By mid-February, for reasons that are still murky, there seemed to be some urgency at the White House to decide whether to reverse Mr. Christopher’s decision, shifting satellite export licensing to the Commerce Department.

A Feb. 15 State Department memorandum talks about speeding up the process because "the Administration wanted to wrap this up."

In the end, the State Department relented. Participants in the final debate said that the President concluded that the technology could be protected through the Commerce Department, just as the department protects supercomputers and other sensitive technologies.

The President's decision was announced on March 14. Commerce officials, who had just won one of Washington’s nastiest turf wars, were jubilant.

"Good news," officials were told by E-mail. The electronic message went on to recommend a "low key" spin on the news that would "not draw attention to the decision."

Internal Commerce Department documents show that officials were anticipating questions from reporters and Congress about whether the decision represented an effort to ease technology transfers to China and remove items from sanctions—some of the same concerns that figured in Mr. Christopher’s decision.

In the days preceding the announcement, China had raised tensions with its Asian neighbors and the United States to new heights, firing M-9 ballistic missiles, which carried dummy warheads, into target zones 30 miles off the shore of Taiwan.

The March 14 announcement said that regulations putting into effect the President’s decision would be issued within 30 days. But the bureaucratic infighting continued.

Finally, the State Department issued the regulations shifting most satellite licensing to the Commerce Department.

They were published on Nov. 5, 1996, the day President Clinton was re-elected.

 

7.

Clinton technology transfer policies: a departure from previous Republican administrations

Many defenders of the administration’s liberalized technology transfer policies claim they were merely acting consistent with policies established during the Reagan and Bush eras. While it is true that those previous administrations established export control policies, the two columns that follow—both written by veteran defense policy experts—show that the Clinton administration’s decision to shift these controls from the State Department to the Commerce Department represented a dramatic shift in U.S. policy.

 

TECHNOLOGY TRANFERS UNLIMITED?

Washington Times

June 15, 1998

Section: Part A; Commentary Op-ed; Pg. A21

BYLINE: Tina S. Silverman

BODY: Sen. Richard Shelby, chairman of the Senate Intelligence Committee, has announced that he intends to invite officials from the Reagan and Bush administrations to testify in the matter of Chinese launches of U.S. satellites. This is a welcome decision in light of the Clinton administration's insistence that its decision to grant an export license to the Loral Corp. for a Chinese satellite launch is consistent with prior authorizations granted by Presidents Reagan and Bush.

Mr. Shelby's witnesses are sure to show that this was not just business as usual.

During the latter part of the Bush administration, I was responsible for coordinating the U.S. government's position for the launch of American commercial satellites on Chinese missiles. This was in accordance with an agreement that had been reached in 1989 between the United States and China. Implementation of the agreement was contingent upon the Chinese fulfilling clearly defined obligations with respect to trade and technology transfer. Today, as the Clinton administration implements the agreement negotiated by its Republican predecessors, serious allegations are being raised about a potential breach of national security and exercise of political influence that undermine the integrity of our government's policy-making process.

Yes, the agreement to allow exports of U.S. commercial satellites for launch by the Chinese was initiated by the Republicans. The objectives were to promote reform in China by opening international communications and trade, and to assist our own industry to remain competitive. But the parameters with respect to balancing American commercial interests and national security were well defined. National security was foremost in the policy calculations. Never was there any question, as is the case today, as to whether campaign contributions by U.S. or foreign entities would affect our internal decision-making process. And, as is the case today, there was no Justice Department investigation underway involving the potential illegal transfer of ballistic missile technology by a U.S. company to China overshadowing the deliberations.

Therefore, while the policy framework followed from Mr. Reagan to Mr. Bush to Mr. Clinton, the circumstances under which Mr. Clinton agreed to grant the Loral Corp. an export license are unlike anything that had occurred previously. Any comparison should be viewed as a transparent and cynical attempt to minimize the potential harm to national security and the damage to the nonpolitical interagency review process used to approve such transactions.

At that time the export of commercial satellite technology was controlled by the State Department and was considered a "Munitions List Item," meaning that its export was deemed critical to national security because of the potential military use of the technology. But in 1996, Mr. Clinton, at the urging of U.S. industry, and over the objections of Secretary of State Warren Christopher, transferred jurisdiction over export approval of this technology to the Commerce Department. The allegation that this was done in response to campaign donations by the chief executive officer of the Loral Corp., who during the 1990s has been the single largest donor to the Democratic Party, is a concern. But of even greater concern is the allegation of campaign contributions to the president's reelection by agents to the People's Republic of China. The fact is that the transfer of this function shifted the balance of interests within the federal bureaucracy away from the protection of sensitive technologies in favor of commercial interests.

This was highly significant in that it sent a clear signal to the Chinese government, U.S. industry and our own bureaucracy that a major shift in U.S. policy had occurred. Commercial interests would take precedence over U.S. security concerns in technology transfer decisions.

To those unfamiliar with the internal workings of the U.S. policy process, government decisions may appear to be monolithic. In fact, each Cabinet department functions as a special-interest group fighting for its particular constituency. Commercial interests may be at odds with specific diplomatic considerations, or labor constituencies or national security.

While everyone is working in the best interests of the nation, nevertheless it is from a particular vantage point. The outcome is usually a compromise that will satisfy the various constituencies and be in the national interest. This interagency review process is integral to U.S. policy process and involves career civil servants, military personnel and policy appointees. During the Reagan and Bush years, it was this process that determined how we implemented the launch agreement, not the reported influence on our commander in chief of external political and foreign donors.

The Interagency Working Group dealt with Chinese compliance with those terms of the agreement related to how China priced its launches and to China's compliance with missile technology controls. After recommendations from this review group, the president would make a determination as to what was in the national interest.

Anyone in the Clinton administration involved in this interagency decision process would certainly have received the message that the transfer of authority for satellite technology to the Commerce Department over the objections of the secretary of state signaled a major shift in policy direction. Moreover, the administration has greatly diminished the effectiveness of the Defense Department's Technology Security Agency during its tenure, an office that was a watchdog for technology transfer under Mr. Reagan and Mr. Bush.

While I have not been privy to the interagency debates that have taken place in the Clinton administration, having been involved in the process myself, I find it hard to imagine that the individual staffers responsible for making policy recommendations would not have foreseen the direction in which their deliberations would invariably have led them, based on their own personal job security considerations. Last Sunday night's "60 Minutes" interview on this very issue did in fact present two federal employees who believe they were hampered in their attempts to perform their respective duties in the Defense and Commerce departments.

The Chinese government closely monitors the U.S., our elections and the political process. The extent to which the Chinese leadership has any real comprehension about how our democracy functions is unclear. If the allegations of wrongdoing prove true, then the Chinese government believed that U.S. policy was for sale. The congressional committees looking into this matter will have to determine the extent of any wrongdoing in this matter, but as an outsider now looking in, I have to wonder whether the government's interagency review process has not, at least in this matter, become nothing more than a rubber stamp for the administration's need to please big political contributors.

Tina S. Silverman was principal advisor on defense trade in the office of the United States Trade Representative (USTR) from 1991-1993.

 

 SELLING CHINA THE ROPE

Clinton Didn't Start It, But He Sure Made It Worse

By Henry Sokolski

Weekly Standard

June 1, 1998

Presidential spokesman Mike McCurry last week justified the Clinton administration policy that allowed the transfer of satellite technology to the Chinese military with the hoary "they started it" defense. "This administration," said McCurry, "has pursued the exact same policy pursued by the Bush administration."

This is not really a defense of the policy, of course, but is it true? Republican officials, as we shall see, were not without sin. But you might say that they worried enough to go to confession: They tried to control against the leaking of sensitive technology in their dealings with China by at least monitoring and limiting the transactions. Not so the Clinton administration, which from 1993 on not only showed contempt for enforcing existing satellite controls but loosened them so as to make it all but impossible to know whether they were being violated. You might say they not only skipped confession, but burned the church down.

Today's controversy surrounds what the Chinese have managed to learn through launching satellites made by two American companies, Loral Space and Communications and Hughes Electronics. Details of a federal grand-jury investigation have been leaked to New York Times reporter Jeff Gerth and others that make this much clear: In February 1996 a Chinese Long March rocket carrying a Loral-made satellite blew up shortly after liftoff. In an effort to clarify to insurers who was to blame for this accident, analysis done by Loral and Hughes was presented to the Chinese, which the U.S. Defense Department later determined could help China perfect more reliable, accurate, long-range ballistic missiles. (According to a CIA report leaked this spring, 13 Long March missiles with nuclear warheads are aimed at American cities.) The federal grand jury is now trying to determine what, if any, U.S. export-control laws may have been broken.

This story has exploded because of the tandem revelations that the Chinese military may have made illegal campaign donations to aid Clinton’s reelection and that Loral’s CEO is a top donor to the Democratic party. Despite Justice Department warnings that he might undermine the grand-jury investigation of Loral, the president went ahead earlier this year and allowed the company to transfer an additional satellite to China. Eager to connect the dots of the scandal, the House last week voted 364 to 54 to suspend all transfers of U.S. satellites to China.

Focusing on the money is exciting, but probably misses the point when it comes to assessing the potential damage done to national security. In fact, not just Loral and Hughes, but Lockheed Martin, Motorola, and Martin Marietta have all worked closely with the Chinese launch industry—work which began not in 1996, but nearly a decade ago in 1989. And all of this history (not just the 1996 Loral-Hughes case) bears investigating. There is no way to judge the administration's performance in the Loral-Hughes matter without knowing what was attempted by prior administrations.

It was Ronald Reagan, after all, who first allowed the launch of U.S.-made satellites on Chinese rockets, after the Challenger space shuttle crash in 1986 deprived the satellite industry of launch alternatives. And it was George Bush who waived Tiananmen Square sanctions to allow the

Chinese launch of up to five U.S.-made satellites, three of which—all made by Hughes—were launched before he left office.

If this larger record is examined, three points emerge. First, all of our satellite transfers have helped China perfect its military rocketry. China’s launching of U.S.-made satellites—worth up to a half-billion dollars in revenue to date—has helped finance China's own missile-modernization efforts and missile exports to nations like Pakistan and Iran. It also has given the Chinese access to U.S. rocket know-how. U.S. contractors have a natural inclination to tutor the Chinese on what they should do to make their crude rockets precise and reliable (they don't want to lose their satellites, which are worth up to 10 times the value of the launcher). Anticipating this, State and Defense officials drew up strict rules in the late 1980s covering precisely what information companies could share with the Chinese. These rules required monitoring of all contractor-Chinese exchanges (including discussions) by a U.S. government rocket-engineer enforcement agent.

Did this prevent militarily useful information from being conveyed to the Chinese? No. But because all exchanges were monitored, there was a clear record of what was conveyed and a concerted effort to keep such transfers to a minimum. Were there infractions? Yes, but when they were reported, senior officials in the Defense and State departments reprimanded the contractors and got them to stop. Yet despite these enforcement measures, a number of key technologies were transferred before 1993. Clean-rooms were constructed in China to assure Hughes's sensitive communications satellites wouldn’t be ruined by dust, humidity, or major temperature changes before they were launched. And clean-room technology, as it happens, is also crucial in preparing any advanced system for launch, including reconnaissance satellites and complex warhead packages.

In an attempt to clear up liability for two launch failures in 1992, U.S. contractors also discussed how to improve Chinese payload farings (the nose cone at the rocket's top that shields the satellite) and attitude and engine controls, which fire the rocket's stages and keep them and the payload (either military or civilian) at the precise angles required for proper functioning. Finally, each launch of a Chinese Long March vehicle helped improve the reliability of China's intercontinental ballistic missile fleet, since the rockets are the same.

Republican officials, then, had a spotty record, with the advantage that they worried about it and tried to enforce the law. By the end of the Bush administration, proposals were made to loosen controls over satellite transfers. Whether they would have succeeded no one can know, because the 1992 elections intervened.

The industry, however, correctly sensed that with Clinton's election the time for pushing for decontrol was ripe. Their first step came in late 1993 when they asked the Commerce Department to persuade the White House to drop government monitoring of contractors’ discussions with the Chinese. They wanted to share, unimpeded by monitors, a key technology known as "coupling load analysis." The crude Chinese rockets were originally designed to be so rigid that vibration from the rocket's separating stages and engines risked shattering delicate satellites of the sort the U.S. companies would want to launch (and the Chinese would want to develop later on their own). Using coupling load analysis, the Chinese could "soften" their launchers, allowing them to carry more sensitive payloads—be it satellites or the latest in highly accurate, multiple-warhead systems.

The space industry was so eager to share this technology, it lobbied Congress and the executive branch throughout 1993 to be given a free hand to do so. Meanwhile, government monitors continued to file compliance reports on a host of issues. Now, however, their concerns were handled differently: Where before senior State and Defense officials took action, now little or nothing happened. Word got out: Increasingly, industry officials disobeyed government guidance, shared their know-how with the Chinese, and discovered that contempt for the law paid off.

By 1995, the satellites being launched by the Chinese were more sophisticated. One of these, AsiaSat 2, a communications satellite made by Martin Marietta, was to be placed in its orbit with a Chinese solid-rocket kick motor—a final rocket stage strapped to the satellite itself. This kick motor’s propellant had to be configured with extreme precision to ensure that it would propel the satellite to an exact point in space and no further and that it would do so without shattering the satellite through vibration or jolts of acceleration.

Martin Marietta and its Hong Kong customers were concerned that the Chinese kick motor might not be capable of such precision. They asked State if they could witness a Chinese test-firing of the motor. Their wish was granted. What’s unknown is what, if anything, was then said to the Chinese engineers by the company's foreign staff, who are not bound by U.S. restrictions. Were they briefed by the contractor? Did they speak with the Chinese or otherwise convey U.S. solid-rocket propulsion know-how? We don't know. Why might it matter? Perfecting kick motors can also help in China’s development of a warhead-delivery system known among experts as a "post-boost vehicle"—which is designed to penetrate missile defenses. Boosting a satellite up into a precise position in space with a kick motor is little different from blasting warheads off their predictable course down through space and the atmosphere.

The good news in this case is we may have a clue whether this technology was leaked: Industry’s campaign to do away with monitoring didn't fully bear fruit until 1996. In 1995, U.S. law still required government monitoring agents, and compliance reports were still being filed. This paper trail

and government monitoring work didn’t grind to a halt until 1996. That’s when President Clinton quietly removed virtually all commercial satellites and related technology from State Department munitions controls (which required official monitors). The responsibility was transferred to the Commerce Department, which (no surprise) trusts industry to monitor itself.

In his defense of the Clinton policy last week, Mike McCurry cited this transfer to Commerce as the one change that distinguished the Clinton administration’s policy from Bush administration practices. But the transfer to Commerce was no simple "change." It was tantamount to a complete overthrow of the old export-control regime.

It was under Commerce "controls" that Motorola and Lockheed worked with the Chinese to launch a series of small communications satellites known as Iridium. Two of these satellites at a time were successfully launched on a Long March rocket with a multiple-satellite dispenser of Chinese design. A host of issues about the satellite dispenser were somehow addressed—from proper mounting and release of the satellites to coupling load analysis and attitude control. And all were resolved. The result? China now has mastered a technology virtually interchangeable with that of multiple independently targetable warhead vehicles (MIRV), a delivery system used on America's most advanced intercontinental ballistic missiles. Indeed, the MIRV system that our military uses today was borrowed from dispensers that the commercial-satellite industry first developed.

One could go into greater detail on the potential military significance of our satellite transfers to China. But this much is already abundantly clear: Our national security demands that Congress learn all the facts. This will require going beyond the narrow legal question of whether Loral and Hughes broke the law in 1996. Indeed, allegations of influence peddling by the Chinese and the contractors should not divert attention from the crucial questions raised by a decade of U.S. satellite commerce with China.

Among them are these: Have we already given the Chinese everything of value (in which case, continued satellite commerce could hardly do much harm)? Or is there more that they need or want that we should control and protect? What, if anything, should be done to improve enforcement of

controls and assure effective executive-branch backing? Finally, is the spread of missile technology so tied up in the transfer of satellites that we delude ourselves in trying to control their transfer? Would it make more sense to accept this connection and expand such trade, or in the case of China, cut it off entirely?

To get at these questions, Congress will have to hold its own hearings—but it will need the time and depth and expertise that can only come with the creation of an independent commission. The commission and Congress, moreover, are unlikely to get anywhere if U.S. contractors are unwilling to speak freely. Only they know what has actually been transferred to the Chinese since 1996. To encourage them to be forthcoming, Congress and the executive branch should grant contractors immunity from prosecution. Meantime, a moratorium should be placed on further transfers of satellites to China until the commission and Congress get the answers they need. This will hurt industry only to the extent that it drags its heels in providing information about past transfers.

Certainly, given the seriousness of these matters, it would be shortsighted of Congress to focus exclusively on the political and legal issues surrounding the 1996 Loral case. There is, after all, a broader set of concerns at stake. The president is duty bound to provide for the common

defense. Not until we know the truth about the U.S. role in China's missile program can we know whether the Clinton administration has met this most basic obligation.

 Henry Sokolski, executive director of the Nonproliferation Policy Education Center, was the top official for nonproliferation issues in the Bush Defense Department.

 

8.

China targets intercontinental ballistic missiles at United States

Despite President Clinton’s October 1996 claim that there is "not a single, solitary nuclear missile pointed at an American child," the articles below reveal that not only have the Chinese aimed 13 long-range strategic missiles at the United States, they have dramatically increased the stock of these missiles since the beginning of this year.

 

The Washington Times

May 1, 1998

SECTION: Part A; Pg. A1

HEADLINE: China targets nukes at U.S.; CIA missile report contradicts Clinton

BYLINE: Bill Gertz; THE WASHINGTON TIMES

BODY: A new CIA report says that 13 of China's 18 long-range strategic missiles have single nuclear warheads aimed at U.S. cities.

According to an intelligence document sent to top policy-makers in advance of Secretary of State Madeleine K. Albright's current visit to Beijing, the 13 CSS-4 missiles aimed at the United States - with a range of more than 8,000 miles - indicate that China views the United States as its major strategic adversary.

That is contrary to the views of some senior Clinton administration officials, who are seeking to build a partnership with Beijing's rulers.

The remaining five CSS-4s, along with scores of other shorter-range nuclear missiles, are targeted on countries closer to China, including Russia, the officials said.

China has an array of strategic missiles that U.S. military and intelligence officials say are targeted on the United States or U.S. military forces deployed in Asia.

It could not be learned how the CIA found out about the missile targeting on U.S. cities, but details about the matter were contained in a top-secret report that was sent to senior U.S. policy-makers two weeks ago.

China also has some 25 CSS-3 missiles with ranges of more than 3,400 miles, and it is developing two new ICBMs: the 4,500-mile range DF-31 and an advanced ICBM that will be able to hit targets up to 7,000 miles away.

Other Chinese nuclear missiles include the 1,750-mile-range CSS-2 and the road-mobile CSS-5, which has a range of 1,100 miles.

The Clinton administration has tried twice unsuccessfully since 1996 to win Chinese approval of a mutual "de-targeting" agreement. A similar pact was established with Russia in 1994. Critics say it is largely symbolic because the missile guidance computers can be retargeted in minutes.

Instead of joining the "confidence-building" de-targeting measure, the Chinese government pressed the United States to adopt its policy of vowing not to be the first to use nuclear weapons in a conflict.

The CIA report also undercuts President Clinton’s often-used phrase that there are no nuclear missiles targeted at the United States. In boasting of his administration's security record, he said in one speech in October 1996: "There is not a single, solitary nuclear missile pointed at an American child tonight. Not one. Not one. Not a single one."

"I guess this blows away Clinton's famous speech," Rep. Curt Weldon, Pennsylvania Republican and senior member of the House National Security Committee, said in an interview yesterday.

"He can no longer say what we knew all along, and his credibility is undermined by his own intelligence agency."

Mr. Weldon said the president "has used the bully pulpit to lull the American people into complacency about strategic threats in a way that has not been seen for decades."

A Defense Intelligence Agency report stated in 1996 that China was improving its CSS-4s and other long-range missiles with upgraded guidance systems and increased accuracy, propulsion and warheads, including the use of multiple warheads.

Richard Fisher, a defense analyst with the Heritage Foundation, said it is not surprising that Chinese nuclear missiles are targeted at the United States. "The Chinese have been targeting the United States for many years," Mr. Fisher said, noting that the People's Liberation Army and the communist leadership view the systems as "deterrence against the United States."

The United States is believed to have some of its nuclear force targeted against Chinese missile silos.

Mr. Fisher said the newer Chinese medium- and short-range nuclear missiles also are a threat and are believed to be "targeted on very important American and allied facilities in Asia."

"These constitute strategic systems for the PLA," he said. "And they are investing a great deal of effort in modernizing them."

China also is developing a new class of long-range cruise missiles and is working to make its shorter-range missiles more accurate, he said.

"As the administration is seeking to enter into wider and deeper cooperation in space and missiles with China, let’s not forget that China has consistently refused to join regimes of civilized behavior in the strategic nuclear arena," Mr. Fisher said.

China is refusing to join the 29-nation Missile Technology Control Regime and also rebuffed U.S. proposals to de-target, he said.

James Hackett, a former U.S. government arms control official, said China's long-range missiles have the capability of reaching most of the United States "with the possible exception of Disney World" in Florida.

"They have produced great big nuclear warheads for those missiles," he said. "And the only feasible use is to destroy a big city. What they have built are city-busters that are targeted on major American cities."

Mrs. Albright told reporters in Beijing that the United States is reviewing whether to lift sanctions imposed on China for its 1989 military crackdown on protesters in Tiananmen Square. But she also played down differences and emphasized building a "strategic partnership," the Associated Press reported.

A Chinese general suggested to a former Pentagon official two years ago that the United States would not intervene in Beijing's dispute with Taiwan because Washington cares more about Los Angeles than Taipei, Taiwan's capital.

The remark was interpreted by the former official as a threat to use a nuclear missile attack against California, and he reported it to the president's national security adviser in 1996.

 

 The Washington Times

July 21, 1998

SECTION: Part A; Pg. A1

HEADLINE: China adds 6 ICBMs to arsenal: Plans 2 more before moving its only plant

BYLINE: Bill Gertz; THE WASHINGTON TIMES

[in part]

BODY: China produced six new CSS-4 intercontinental ballistic missiles in the first four months of this year, a one-third increase in its ICBM arsenal largely targeting the United States, according to Pentagon intelligence officials.

Two more such missiles will be built this year before China shuts down - and relocates - its sole ICBM production plant as part of a major defense industry restructuring, the officials told The Washington Times.

The CIA reported earlier this year that 13 of China's 18 long-range nuclear missiles were targeted at U.S. cities. At the summit last month, China promised to "de-target" the systems away from the United States, although the change cannot be verified.

The production of eight new ICBMs represents a dramatic increase in the number of long-range missiles in China's arsenal. "This is missile production far beyond anything we have seen from the Chinese in recent years," said one official.

The surge in production at the Wanyuan underground ICBM production plant, located in a remote part of central China, occurred between January and April.

The plant’s final two CSS-4 Mod 2 missiles will be delivered in the next several months to the People’s

Liberation Army nuclear forces, the officials said.

According to the Pentagon officials, the Defense Intelligence Agency circulated a report earlier this month stating that China’s only ICBM production facility at Wanyuan will shut down operations by the end of the year as part of a defense relocation project expected to last several years.