Bureau of Export Administration

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1 U. S. Department of Commerce Bureau of Export Administration Statement of R. Roger Majak Assistant Secretary for Export Administration U.S. Department of Commerce Before the Subcommittee on International Trade and Finance Senate Banking, Housing, and Urban Affairs Committee on Nonproliferation Regines March 16, 1999 Mr. Chairman, members of the Committee, thank you for this opportunity to discuss the multilateral nonproliferation and export control regimes which form the basis of America's export controls. A full understanding of the role and strengths of these regimes is necessary as the Committee works on creating a renewed Export Administration Act to meet the needs of the next century. I would like to provide the Committee with a brief description of the four multilateral regimes: the Missile Technology Control Regime (MTCR), the Nuclear Suppliers Group (NSG), the Australia Group (AG) for biological and chemical weapons, and the newest regime, the Wassenaar Arrangement for conventional arms and related dual use technologies. In reviewing the four regimes, I will set forth their common elements and provide an assessment of (1 of 13) [10/18/ :00:37]

2 their effectiveness in countering the proliferation of weapons of mass destruction and the spread of advanced conventional arms. While addressing all the multilateral regimes, I would like to focus on the newest one--the Wassenaar Arrangement, as there has recently been much discussion about its effectiveness and the role it plays in furthering U.S. interests. Your interest in the activities of the multilateral control regimes is timely. The spread of technology around the world, a phenomena sometimes called globalization, means that the United States is constrained in ways that it never was before when it comes to the effectiveness of unilateral embargoes, export controls or licensing policies. As technology is increasingly available to other nations and the production base for high tech items spreads to other areas of the globe, cooperation with our regime partners not only sets the limits for effective export controls but becomes the essential ingredient to an effective nonproliferation policy. In addition, a well coordinated, focused export control program ensures that U.S. companies will be able to engage in legitimate trade and to compete effectively in the international market place. This in itself is an important national security issue. Today, our military relies on a strong high tech sector to continue to develop and manufacture new and better products. Yet it does not buy enough by itself to keep them healthy. Instead, in a globalized economy, exports have become the key to growth and strength for the industries critical to our defense forces. As our military continues its transition to Commercial Off the Shelf items (COTS), due to the inability of military procurement of specially designed items to keep up with fast changing commercial technologies (particularly electronics), the civilian sector will increasingly drive advanced weapons development. Our future military strength is directly tied to the health of the civilian companies that produce the products it buys. The equation is simple: exports = healthy high-tech companies = strong defense. (2 of 13) [10/18/ :00:37]

3 Cripple our companies by denying them the right to sell through ill-advised export control policies, and our own military development is handicapped. The Interagency Process Four U.S. agencies have key roles in determining U.S. objectives and positions for the multilateral regimes. These are the Departments of State, Defense, Commerce and, for the Nuclear Suppliers Group, the Department of Energy. Each agency brings a unique expertise to the international negotiations. Agencies cooperate in the development of U.S. positions on what should be controlled by each regime, the licensing policies and practices that should be followed, the types of information that should be shared among member countries, and the procedures for cooperating on investigative matters. U.S. positions are usually arrived at by consensus among agencies. However, if disputes arise, their resolution and overall coordination are the responsibility of the National Security Council. With its team of industrial experts, Commerce provides key technical advice on the state-of-the-art of various industries as well as the economic and trade consequences of changes to dual-use control thresholds. These are essential ingredients to the development of meaningful U.S. negotiating positions, as trade and economic competitiveness issues often figure highly in other regime members negotiating positions. After negotiations are completed and international control levels and procedures agreed, Commerce is responsible for promulgating the implementing regulations, managing the interagency licensing process, and providing the business community with information through publication and seminars on its rights and obligations under the new rules. Commerce also provides many of the experts for technical and outreach activities of the multilateral regimes. This process has been in place for many years and works well. The Regimes (3 of 13) [10/18/ :00:37]

4 Let me now turn to a brief overview of the multilateral export control regimes. Building multilateral institutions to allow like-minded nations to cooperate in addressing international issues has been a central element of U.S. foreign policy in this century. The best examples of this include the United Nations, NATO, and the World Trade Organization. For arms control, the United States participates in four groups of like-minded countries. Each of the four regimes are the result of diplomatic efforts to develop common approaches among partners to commonly perceived security threats--chiefly the spread of weapons of mass destruction. In the beginning, the membership of these regimes was primarily among our Western allies. One of the successes of this Administration has been, in light of the end of the Cold War, to broaden membership and to include our former opponents from the Warsaw Pact nations. This has significantly strengthened the regimes by including more supplier nations. The four regimes are: The Nuclear Suppliers Group (NSG). Following the 1974 explosion of a nuclear device by India, the United States proposed the formation of an informal group of nations concerned with the proliferation of nuclear weapons. While initially the NSG focussed only on nuclear materials, under U.S. leadership in the early 1990s, the NSG expanded its control list to include dual-use items needed for the production of nuclear weapons. Controls are focused on two categories of goods: nuclear material, equipment and technology unique to the nuclear industry, and so-called nuclear dual use items that have both nuclear and non-nuclear commercial applications. In 1992, the NSG published Guidelines and an Annex setting forth how members should proceed in imposing restrictions on affected exports and listing the items that each member nation should make subject to export controls. The Missile Technology Control Regime (MTCR). The United States and six other countries created the Missile Technology Control Regime in 1987 to limit (4 of 13) [10/18/ :00:37]

5 the proliferation of missiles capable of delivering weapons of mass destruction. Its membership has expanded markedly since then. The MTCR, like the NSG, is not a treaty-based regime, but a group of countries that have agreed to coordinate their national export controls to prevent missile proliferation. The MTCR has been strengthened in recent years by the willingness of a number of nonwestern countries to either join the MTCR or to adhere to its guidelines and controls. The Australia Group (AG). The Australia Group was formed in reaction to the Iran-Iraq war when it became evident that Iraq and Iran had used chemical weapons in violation of the 1925 Geneva Protocol. In 1985, Australia called for a meeting of like-minded supplier countries to consider harmonizing export controls on precursor chemicals for chemical weapons. This group subsequently extended its scope of concern to include controls on chemical production equipment and technologies that could be used for chemical weapons. In 1990, the scope of the AG was further extended to include measures to prevent the proliferation of biological weapons. Today, Australia Group countries cooperate in curbing the proliferation of chemical and biological weapons through the coordination of export controls and an exchange of information. The Wassenaar Arrangement. With the end of the Cold War, COCOM, the venerable cold war institution which blocked the transfer of high tech items to the Soviet Union, was seen by many NATO Allies as no longer necessary. Russia's new government also asked for an end to cold-war era trade restrictions. However, the Clinton Administration was concerned that the elimination of COCOM would leave a serious gap in multilateral export controls, permitting the uncontrolled sale of advanced conventional arms and related dual-use production equipment to countries of concern, namely Iran, Iraq, Libya, and North Korea. Former COCOM members were joined by the Russian Federation, the Czech Republic, Hungary, Poland, the Slovak Republic, Argentina, the Republic of Korea, and Romania in the new multilateral regime. The objective of the Wassenaar Arrangement is to ensure (5 of 13) [10/18/ :00:37]

6 that member states' national export policies do not contribute to the development or enhancement of destabilizing conventional military capabilities, primarily by promoting transparency in the transfer of both arms and dual-use goods and technology. Common Elements Each of the regimes has a different task. However, if we look at them, a number of common elements emerge. I am not suggesting that there should be one common regime - one size does not fit all when it comes to proliferation problems. But international diplomatic practice has evolved a set of parameters within which the nonproliferation regimes operate. Let me describe these parameters, given the central role that multilateral controls must play in any new Export Administration Act. First, it is important to note that the four regimes are not based on treaty obligations, unlike NATO or the U.N., for example. They are based instead on agreements and informal arrangements reached among like-minded nations. While this means that none of the regimes are binding under international law, each of the members treats its regime obligations as a binding international commitment. Each regime also operates on the basis of consensus in developing or amending guidelines, procdures, and lists. All members must agree to any change before a new item can be controlled or a new objective adopted by the regime. Second, each of the regimes has agreed procedures and control lists. While the procedures differ widely from regime to regime, they guide both regime activities and member states' national policies in controlling the export of agreed lists of goods and technologies. However, in implementing the procedures and lists, each regime operates under the principle of "national discretion." This means that each member can decide how it will carry out regime obligations. None of the four regimes has a COCOM-style veto over exports. In COCOM, proposed exports were vetted among the members. If one objected, the export was denied. Member nations (6 of 13) [10/18/ :00:37]

7 were willing to cede this element of their sovereign power in 1949, when COCOM was created, because of the grave and immediate risk posed by Stalin to the West. Since that time, no other regime, whether founded in the 1970s, the 1980s or the 1990s, has had the veto. "National discretion" is guided, of course, by consultation and information exchange among regime members and each member must be able to defend its implementation as consistent with its regime obligations. At the end of the day specific export control decisions are the prerogative of each individual member. Third, in the absence of a veto, increased cooperation and information sharing among regime members becomes essential. Regular meetings are held in each regime to coordinate the activities of the members. A key part of these meetings is the exchange of information, often sensitive, on projects of proliferation concern, acquisition programs by proliferator states and other useful information. In addition, several of the regimes have formal procedures for the exchange of information on export licenses. The most common is notification of denials. When one partner has formally denied an export because of a concern that it might be contrary to the purposes of the regime, it will notify the other members so that they can deny a similar request. In the MTCR, NSG, and AG, this denial notification is buttressed by a "no undercut" rule. Wassenaar members also has a "no undercut" provision, but it needs to be strengthened. In Wassenaar, there is a post-facto exchange of exports of "sensitive" dual use technologies and a more limited exchange of information on arms transfers. Finally, all members maintain their own national export control systems to carry out their commitments to the regimes. While in the U.S. there can be disagreements among agencies over how best to implement the regimes in our national practices, and while the U.S. frequently does more than other regime partners, we are careful to ensure that our export policies and regulations are not contrary to (7 of 13) [10/18/ :00:37]

8 our regime commitments. Effectiveness Effectiveness is in the eye of the beholder, but most beholders would agree that each of these regimes, within the limits of what they were designed to do, have made important contributions to nonproliferation and national security. In particular, the regimes have acted to reinforce and strengthen the norms of international behavior, wherein responsible states do not attempt to acquire weapons of mass destruction or destabilizing accumulations of conventional arms. The export control regimes have built on the experience of many nations to develop stronger, focussed export controls. The regimes are also effective in ensuring a degree of commonality in national export controls which would not exist in their absence. They also provide, through information exchange, regular meetings and informal consultations among members, a means for coordinating an international response to particular proliferation problems. The regular meetings provide a basis for information exchange, diplomatic actions and the furtherance of U.S. policy objectives. The U.S. has used the regimes to argue strongly for the adoption of "catch-all controls" by other regime members, and many, but not all, have adopted similar controls. Catch-all controls allow the U.S. to stop the export of uncontrolled items if destined for a proliferator. The U.S. broadened its "catch-all controls" in 1991 as part of the Enhanced Proliferation Control Initiative (EPCI), and continues to encourage the implementation of such controls as an adjunct to multilateral non-proliferation efforts. The regimes offer an opportunity to establish shared parameters for control and provide a vehicle for the continued efforts of the U.S. to encourage our partners to follow similar licensing requirements and policies. They provide consultative mechanisms for experts to discuss the technical reasons for controlling particular items. In this way, the lists of items controlled can be updated and refined to reflect (8 of 13) [10/18/ :00:37]

9 technical developments and international trade. Regime members recognize that they are not the only sources for controlled items. Consequently, the regimes pursue bilateral and multilateral outreach and transparency initiatives to encourage non-members to strengthen their export controls. In this regard, the work of some of the regimes, such as MTCR, to establish outreach programs, whereby the member states meet with nonmembers to train them in more effective export controls and to discuss issues such as the transhipment of goods, have proved particularly useful. The U.S. does face some problems in our cooperation with other regime members. Since regime members implement the controls on the basis of national discretion, there can be an uneven application of controls because member governments can apply differing procedures, policies or targeted countries for licensing decisions. On occasion, economic interests can carry more weight and, in instances where consensus is weak, some of our partners place economic interests foremost. There are real differences of opinion among regime members as to whether there can be any legitimate trade with proliferator nations. While the U.S. may view all trade with countries like Iran or Libya as potential contributions to WMD programs, our partners do not share this perspective and see opportunities in these countries for legitimate trade. When the U.S. can convincingly demonstrate that a proposed export will contribute to a program of concern, our regime partners will generally support our denials. When our concerns are more diffuse or our arguments tenuous, our partners are unlikely to defer to our views. "No undercut" provisions can lessen this problem, but it is not a perfect system. In the NSG, with the exception of Russian nuclear supply to Iran, there has been excellent cooperation among members in the application of strict limits on trade with proliferant nations. The diffusion of technology around the world means that many controlled products are widely available (9 of 13) [10/18/ :00:37]

10 from sources both inside and outside of the regimes. In addition, many of the countries that raise proliferation concerns already possess an indigenous capability to produce critical materials and equipment. Consequently, the export restrictions of the regime members alone will not prevent the diversion of controlled items to prohibited weapons activities when proliferators are intent on doing so. While export controls are important they, are but one tool in countering proliferation. It is clear that by themselves, the regimes cannot prevent a determined proliferator from pursuing WMD programs. We have the examples of India or North Korea or Iraq to demonstrate this. Economic globalization is inevitably weakening controls based only on limiting the supply of technology. In addition to effective export controls, an effective nonproliferation policy requires a combination of active diplomacy, regional negotiations, and other means to reduce the demand for WMD. This is why the U.S. pursues all of these measures in a coordinated effort to fight proliferation. This Administration has made significant strides in reinforcing existing regimes and in building new ones in a security climate much less disposed to cooperation than was the case ten years ago. We have been criticized by some in the nonproliferation community for not doing enough. I believe that this criticism is based on an unwillingness to accept that consensus and persuasion determine the bounds for what can be done with export controls. Where consensus is high and our arguments persuasive, the regimes have had good effect. This is especially true for those regimes concerned with the proliferation of WMD. One of the best ways to strengthen export controls is to continue the work to expand the area of consensus in the regimes. However, in areas where our partners do not share our security concerns, cooperation has been less forthcoming. The Wassenaar Arrangement Of all these regimes, the Wassenaar Arrangement (which controls conventional weapons and related technologies such as computers, satellites, and (10 of 13) [10/18/ :00:37]

11 machine tools) has achieved the least multilateral consensus on what needs to be controlled and to whom it needs to be denied. This lack of consensus limits coordination among regime members and has serious implications for our national export control policies and regulations. In large part, this reflects the challenge the U.S. and its allies face in replacing outmoded cold war policies and procedures with viable security strategies attuned to today's international environment. Wassenaar is sometimes compared unfavorably to COCOM. When critics point out that Wassenaar is weaker than COCOM (in its prime), they neglect to mention that in many aspects Wassenaar does not differ greatly from the other nonproliferation regimes. Where it suffers in comparison to MTCR, NSG or the Australia Group is in the differing views among Wassenaar members over what constitutes legitimate trade in the items Wassenaar controls. In the other regimes, there is general agreement that there should be no trade in WMD and no support for WMD programs. The same is not true for Wassenaar, which is focused on conventional arms and related dual use production equipment. Here, there is no international "norm" accepted by responsible states which prohibits trade in conventional arms, as there is for WMD. Wassenaar has the most extensive control lists of all the regimes. Most of the industrial equipment it controls is traded widely and legitimately in commercial markets. As for conventional arms and related technologies, there is general agreement that, unlike WMD, it is legitimate to sell arms when the sale strengthens the recipient's capacity for self defense and is in concert with the seller's security interests. The stated objective of Wassenaar is to prevent destabilizing buildups of conventional arms and related dual use technologies. There is a common understanding in the regime that four countries -- Iran, Iraq, Libya and North Korea-- require particular scrutiny, and there is a commitment among Wassenaar members to deny sensitive exports to military programs in these countries. Wassenaar has (11 of 13) [10/18/ :00:37]

12 had some success in this area, particularly in denying advanced conventional arms to Iran. However, denying arms or industrial equipment to other areas of the world, such as China, has never been one of Wassenaar's stated goals. And, those who would judge the success of Wassenaar by such a measure have set up a straw man that dooms Wassenaar to failure. Even if the U.S. were to propose to deny sales to China as a goal, our partners in Wassenaar have repeatedly said that China is not a target of the regime. We have numerous examples of our partners selling to China a Wassenaar-controlled item which we have denied. Indeed, given the global diffusion of technology, it is not clear that any regime could prevent China from obtaining the advanced technologies controlled by Wassenaar. Wassenaar members have agreed that one of the tasks for the Arrangement in 1999 is to review the effectiveness of the regime. The U.S., as part of this review, is looking for ways that Wassenaar could be strengthened. We will seek to increase transparency, especially in regard to arms transfers, and strengthen the no-undercut provisions. What we will not do, given the consensus rule that governs the regime and the oft-expressed views of our allies, is seek to establish a veto procedure or to treat China like Iraq or Iran. Our experience in this regime and others suggests that these proposals would have no chance of success and would damage our credibility on other important nonproliferation issues. Any reauthorization of the Export Administration Act will need to take these real world limitations into account. Conclusion The ability of the four nonproliferation and export control regimes to enhance global security will be influenced by the energy and resources that the U.S. is willing to devote to this task. There is no secret formula that will totally prevent the export of dual-use items that could be used for strategic or proliferation purposes. What we can do is raise the cost of WMD by winning agreement among industrial nations to exercise tight controls on critical items. Our own national implementation of these multilateral controls (12 of 13) [10/18/ :00:37]

13 is and will continue to be a model for others. When the Export Administration Act was last authorized, the U.S. faced a much greater threat to its national security than it does now. The past threat posed by the Warsaw Pact gave a certainty and a coherence to our export controls -- both national and multilateral. However, by consensus among our regime partners, the multilateral basis of our national export controls is no longer a single, cohesive, overarching organization of allies. Instead, it is a set of regimes whose goals are to reduce the proliferation of weapons of mass destruction rather than to preserve Western (or U.S.) military superiority over a rival bloc through technology denial. This Administration has had considerable success, building in part on the work of its predecessors, in creating a set of international norms whereby responsible nations restrict exports to programs related to weapons of mass destruction or to destabilizing military buildups. Even so, it is more and more difficult to restrict access by a determined nation to the technologies needed for very capable weapons. I commend this Committee for taking up the challenge of designing a new Export Administration Act to reflect that changes that have taken place in the world since 1988, when the last EAA was enacted. This concludes my prepared remarks. I would be pleased to answer any questions that the Committee may have. (13 of 13) [10/18/ :00:37]

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