oversight

Export Controls: Better Interagency Coordination Needed on Satellite Exports

Published by the Government Accountability Office on 1999-09-17.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                   United States General Accounting Office

GAO                Report to the Chairman, Subcommittee
                   on International Security, Proliferation,
                   and Federal Services, Committee on
                   Governmental Affairs, U.S. Senate

September 1999
                   EXPORT CONTROLS

                   Better Interagency
                   Coordination Needed
                   on Satellite Exports




GAO/NSIAD-99-182
United States General Accounting Office                                                  National Security and
Washington, D.C. 20548                                                            International Affairs Division



                                    B-283228                                                                  Letter

                                    September 17, 1999

                                    The Honorable Thad Cochran
                                    Chairman, Subcommittee on International Security,
                                     Proliferation, and Federal Services
                                    Committee on Governmental Affairs
                                    United States Senate

                                    Dear Mr. Chairman:

                                    Since 1992, the Departments of State and Commerce have largely shared
                                    licensing responsibility for the export of commercial communications
                                    satellites. The Department of Defense (DOD) plays a role in these exports
                                    by reviewing export applications for the licensing agencies and by
                                    monitoring sensitive launch activities. Reports that U.S. satellite companies
                                    had provided China with sensitive technology useful for improving China’s
                                    ballistic missiles focused congressional attention on the issue of satellite
                                    exports and led the House of Representatives to form the Select Committee
                                    on U.S. National Security and Military/Commercial Concerns With the
                                    People’s Republic of China. Troubled by these reported transfers and
                                    concerned that the 1996 shift of most aspects of licensing responsibility for
                                    satellite-related exports from State to Commerce had weakened controls
                                    over these exports led Congress to pass legislation in 1998 returning
                                    control to State.

                                    Although recent congressional actions have focused attention on launches
                                    in China, U.S. satellite manufacturers also use Russian and Ukrainian
                                    launchers. To help protect sensitive technologies during a satellite launch,
                                    the United States has entered into formal agreements with China, Russia,
                                    Kazakhstan, and Ukraine that give the United States the right to take steps
                                    to safeguard U.S. technology. These agreements articulate U.S. policy that
                                    no technology may be released that could improve a foreign country’s
                                    launch vehicles because this technology could also be used to improve a
                                    country’s ballistic missiles. To implement this policy and safeguard
                                    sensitive technology, Commerce and State attach conditions to export
                                    licenses.

                                    Concerned that the problems with the exports of satellites were not limited
                                    to China, you asked that we identify the license conditions applied during
                                    the export control process to protect sensitive technology when using



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                      Chinese, Russian, and Ukrainian launch vehicles and determine whether
                      unauthorized technology transfers and violations of export regulations
                      have been identified with these launches. You also asked for our
                      observations on whether recent legislative changes would reduce the risks
                      of unauthorized exports of sensitive U.S. technology.

                      To address these issues, we obtained and reviewed State, Commerce, and
                      DOD export licensing records for satellite exports for launch on Chinese,
                      Russian, and Ukrainian launch vehicles. We interviewed officials from
                      these agencies and also reviewed information provided by U.S. satellite
                      companies. (See app. IV for a detailed description of our scope and
                      methodology.)



Results in Brief      The Departments of Commerce and of State used licensing conditions to
                      support U.S. policy outlined in government-to-government agreements with
                      each country meant to help ensure that technology is safeguarded. The
                      Departments of Commerce and of State included conditions meant to
                      protect sensitive technology on 43 licensed commercial communications
                      satellite launch campaigns by China, Russia, and Ukraine between 1989 and
                      February 1999. Licenses for 35 launch campaigns included 5 conditions,
                      while licenses for 8 launch campaigns issued by Commerce between 1994
                      and 1997 omitted 3 of these 5 conditions.1 For these eight launch
                      campaigns, Commerce did not require (1) DOD monitors, (2) preparation
                      of technology control plans, or (3) strict compliance with the government’s
                      safeguards agreements.2 At the time Commerce approved these export
                      licenses, it did not consider these three license conditions necessary.
                      Although DOD and State were involved in the interagency review of these
                      export licenses, neither agency objected to the omission of these license
                      conditions.3 Since 1997, Commerce and State have included all five
                      conditions in every licensed launch campaign.




                      1
                       The two conditions included on all launch campaigns were (1) outlining the limits of authorized
                      technical data and (2) requiring exporters to restrict foreign personnel’s physical access to U.S.
                      technology.
                      2
                       Though not required, DOD monitors did attend the launches, but not all technical meetings, for three of
                      the eight launch campaigns. A fourth campaign from this eight was cancelled before launch.
                      3
                       While State’s Office of Defense Trade Controls issues export licenses for satellites and other Munitions
                      List items, another part of State reviews and provides comments on Commerce export licenses.




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DOD and State documents show that monitoring problems, unauthorized
transfers of technology and other violations of export control regulations
possibly occurred in 14 launch campaigns in China, Russia, and Ukraine,
including some of the campaigns where license safeguard conditions were
omitted. These documents also show that sensitive technology was
transferred in at least three cases and that two of these transfers raised
national security concerns. Specifically, as a result of launch failure
investigations conducted with the help of U.S. companies, China obtained
information that could improve its launch vehicles and ballistic missiles.
Many of the problems identified in the 14 launch campaigns arose because
of confusion created by the shared licensing jurisdiction and a lack of
clarity concerning the roles and responsibilities of each agency in licensing
and monitoring these exports. Some problems occurred because the
exporting companies did not have effective controls and procedures to
ensure compliance with U.S. export regulations.

The October 1998 legislation that returned licensing authority for all
commercial communications satellite exports from Commerce to State and
led DOD to establish a monitoring organization should reduce confusion in
the controls over these exports caused by the shared jurisdiction.4
However, some confusion may remain because license applications
received before the March 15, 1999, transfer of jurisdiction will still be
processed by Commerce, and approved licenses will be valid for up to
2 years. Consequently, there will still be a need for the agencies to
coordinate their policies and monitoring activities of foreign launches.
Although this need exists, State, DOD, and Commerce have not agreed on
or established clear procedures for each agency to follow in implementing
the safeguards outlined in the government-to-government technology
safeguards agreements. In implementing the legislative changes, DOD may
have difficulty hiring and retaining qualified monitors experienced with the
sensitive technologies at risk. Additionally, license processing times for
satellite exports may also increase. State has not authorized the hiring of all
the staff requested by its Office of Defense Trade Controls nor increased
the pay structure of its licensing officers as recommended in a report by
State’s Office of Inspector General.

In this report, we are making a recommendation to improve State,
Commerce, and DOD implementation of U.S. policy on protecting sensitive


4
 Changes regarding satellite exports were made by the National Defense Authorization Act for Fiscal
Year 1999 (P.L. 105-261, 112 Stat. 2173).




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             satellite-related technology and to ensure compliance by U.S. exporters
             with U.S. satellite export regulations.



Background   U.S. export controls over commercial communications satellites are
             complicated, involve numerous agencies, and have changed frequently
             since 1988 when the United States first agreed to permit the use of Chinese
             launch vehicles. The U.S. export control system for dual-use items and
             items with military applications is divided into two regimes. Commerce
             licenses most dual-use items, which have both commercial and military
             applications, while State licenses munitions items, which are designed,
             developed, configured, adapted, or modified solely for military
             applications. By design, Commerce gives greater weight to economic and
             commercial concerns, implicitly accepting greater security risks, whereas
             State gives primacy to national security and foreign policy concerns,
             lessening—but not eliminating—the risk of damage to U.S. national
             security interests. 5 State’s and Commerce’s regulations define what items
             are controlled and what items require export licenses. These licenses
             define the item or technical assistance or data that is authorized for export
             and may include conditions that the exporter must follow in carrying out
             the export.

             Prior to 1992, State was the sole export licensing authority for commercial
             communications satellites, but in 1992, State and Commerce began to share
             export-licensing jurisdiction. As a result of an interagency review
             completed in 1992 to identify dual-use items on the State Munitions List
             that could be transferred to Commerce while still protecting national
             security interests, Commerce was given authority to license commercial
             communications satellites that did not include certain militarily sensitive
             capabilities. Supporters of this move argued that such satellites were
             civilian in nature and that the United States was the only country to treat
             commercial communications satellites as a military export. State retained
             control over more advanced satellites as well as more advanced
             launch-related technical data.6 As a result of the regulatory changes,


             5
              The following two GAO products discuss issues relating to the transfer of license authority to
             Commerce: Export Controls: Issues Related to the Export of Communications Satellites
             (GAO/T-NSIAD-98-208, June 10, 1998) and Export Controls: Change in Export Licensing Jurisdiction for
             Two Sensitive Dual-Use Items (GAO/NSIAD-97-24, Jan. 14, 1997).
             6
              Commerce maintained jurisdiction over basic technical data needed to attach the satellite to the
             launch vehicle, commonly described as “form, fit, and function” data.




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Commerce and State shared satellite jurisdiction and, depending on the
satellite’s capabilities, either agency could issue an export license for the
export of the satellite. If the export was licensed by Commerce but also
involved the transfer of technical data beyond what was within
Commerce’s jurisdiction to control, then the exporter would also need to
obtain a technical assistance license from State.

In 1996, the executive branch modified this shared arrangement and
transferred licensing control for all commercial communications satellites,
including those with sensitive military capabilities, to Commerce. As part
of this change, Commerce placed additional regulatory controls on these
satellites so as to provide the same level of control as found under State
regulations.7 After the 1996 change, State did not issue export licenses for
satellites but was still responsible for issuing assistance licenses for
technical data for those launch campaigns when the foreign launch
required technical data beyond Commerce’s jurisdiction to control. Based
partly on concerns that the 1996 transfer of jurisdiction to Commerce had
weakened controls over satellite exports, Congress returned
satellite-licensing authority to State, effective March 15, 1999, in a provision
in the National Defense Authorization Act for fiscal year 1999.

U.S. satellite manufacturers often use Chinese, Russian, and Ukrainian
rockets to launch commercial communications satellites. Both Russia and
Ukraine employ launch facilities in Kazakhstan, a former Soviet republic,
and a new U.S.–Ukrainian, Russian, and Norwegian joint venture will use a
sea-based platform for its launch operations. In 1988, the United States first
agreed to permit the launch of U.S.-built commercial communications
satellites on a non-allied country’s launch vehicle with an agreement
permitting China to launch U.S.-made satellites.8 At that time, just 2 years
after the space shuttle Challenger disaster, the U.S. launch industry was
struggling to meet the launch needs of the satellite industry. The first
launch in China of a U.S.-built satellite occurred in 1990. In 1993 and 1996,
the United States reached agreement with Russia and Ukraine to permit the
use of their launch vehicles to place U.S.-made communication satellites
into orbit.


7
 Changes included the establishment of the “significant item” control category for satellites to control
their export to all destinations and new approval procedures that required that licensing decisions for
these satellites be made by majority vote of the reviewing agencies.
8
 The United States first used Japanese launch vehicles in 1977 and French/European launch vehicles in
1983.




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The reason export licenses are necessary and U.S. policy is not to transfer
technology that could improve a foreign country’s launch vehicles is that
the technology used in launch vehicles to place a satellite into orbit can
also be used in developing ballistic missiles. As shown in figure 1, the
similarities in technology include (1) reentry vehicle technology;
(2) payload separation technology; (3) inertial guidance and control
systems; (4) staging mechanisms; (5) propellants; (6) airframes, motor
casings, and insulation; (7) engines; (8) thrust vector control systems; and
(9) exhaust nozzles. The sensitivity of the U.S. technology at risk is
different for each foreign launch depending on the capabilities of the
country providing the launch service.




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Figure 1: Applicability of Space Launch Vehicle Technology to Ballistic Missiles

                                                                            Warhead
                                                                         Appllies only to
                                                                         ballistic missiles


                                                                       Reentry Vehicle
                                                                      Similar to SLV return
                                                                      capsule technology

                                                                     Payload Separation
                                                                      Procedures similar for
                                                                      single RV or a satellite

                                                                      Inertial Guidance
                                                                     & Control Systems
                                                                        Similar hardware
                                                                      with tailored software

                                                                    Staging Mechanisms
                                                                              Same


                                                                          Propellants
                                                                      Same manufacturing
                                                                         techniques

                                                                      Strap-on Boosters
                                                                       Technology may be
                                                                       employed to create
                                                                         missile stages


                                                                       Air Frame, Motor
                                                                       Cases, Liners &
                                                                           Insulation
                                                                              Same

                                                                      Engine or Motors
                                                                       Same for first stage


                                                                        Thrust Vector
                                                                       Control Systems
                                                                              Same

                                                                       Exhaust Nozzels
                                                                       Similar and Usually
                                                                             identical
                                   Space Launch                                                  Ballistic Missile
                                   Vehicle Design                                                     Design
                                    (Solid Propellant                                            (Liquid Propellant
                                     System Shown)                                                System Shown)


        Technology and equipment generally unique
        to ballistic missiles
        SLV Technology and equipment might be
        adequate - must be examined on case-by-case basis
        Technology and equipment generally
        adequate for either SLV or ICBM

                                                        Source: Central Intelligence Agency.




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U.S. policy has consistently specified that an exported commercial
communications satellite for launch by China, Russia, or Ukraine may not
include technology that could improve the design, development, or
production of the foreign country’s launch vehicle. To ensure that sensitive
technology is protected while using Chinese, Russian, and Ukrainian
launch vehicles, the United States negotiated detailed,
government-to-government technology safeguards agreements with each
country. The agreements apply to all phases of the launch and establish the
rights of the United States to safeguard satellite exports in the foreign
country. The agreements limit the technical data that can be provided and
prohibit the transfer of technical data not authorized for release. The
agreements also require that physical access to the satellite and related
equipment be restricted 24 hours a day. The agreements require the United
States to oversee and monitor implementation of technology transfer
control plans and establish the right of the United States to monitor
meetings and launch operations.9

Many of the safeguard mechanisms discussed in the technology safeguards
agreements, including having monitors and using technology transfer
control plans, are implemented through the attachment of conditions on
export licenses for the satellite. These licensing conditions are typically
imposed after an interagency review of the export application and a
discussion of the technologies involved and the safeguards that are
appropriate. DOD plays a supporting role in exports of commercial
communications satellites by reviewing and making recommendations on
both Commerce and State export license applications and providing
monitors at technical meetings and at launches to ensure compliance with
export licenses. Prior to the 1999 transfer of jurisdiction, State also
reviewed Commerce satellite export applications and made
recommendations concerning whether the applications should be
approved and what conditions should be attached to the licenses to
safeguard the exports.




9
 A technology transfer control plan is a plan developed by the U.S. exporter and approved by the U.S.
government that outlines security measures to be followed during the launch campaign. The
agreements also note that, in cases where there is a disagreement, the provisions of the technology
safeguards agreements take precedence over the technology control plans.




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Safeguard License             Thirty-five of the 43 launch campaigns licensed to use Chinese, Russian,
                              and Ukrainian launch vehicles since 1989 included five license conditions
Conditions Applied,           to protect sensitive U.S. technology. However, Commerce approved eight
With Some Exceptions          launch campaigns before 1997 that omitted license conditions requiring
                              (1) DOD monitors, (2) preparation of a technology control plan, or
                              (3) explicit compliance with the government-to-government technology
                              safeguards agreements. Commerce’s policy before 1997 was to not
                              explicitly require these license conditions and, during the interagency
                              review of these eight export licenses, neither State nor DOD requested that
                              Commerce include these conditions. Since 1997, Commerce has applied
                              these license conditions to all launch campaigns.


Safeguards Used on            Between 1989 and February 1999, the Departments of Commerce and State
Licensed Launches in China,   issued licenses for 43 overseas launches of U.S.-manufactured commercial
                              communications satellites in China, Russia, and Ukraine.10 Commerce
Russia, and Ukraine
                              licensed the satellite export for about three-quarters of the launch
                              campaigns, and State licensed the remaining one-quarter (see table 1).
                              Because State regulations require a separate license application for the
                              actual satellite, technical data needed to conduct the launch, and other
                              activities, multiple licenses were often issued for a single launch campaign.
                              We identified over 100 licenses associated with these launches.



                              Table 1: Launch Campaigns by Licensing Agency, 1989 – February 1999

                                                             Country of launch service provider
                              Lead licensing
                              agency                              China               Russia               Ukraine                Total
                              Commerce                                13                    19                     0                 32
                              State                                     7                     3                    1                 11
                              Total                                   20                    22                     1                 43
                              Note: State or Commerce is cited as the licensing agency if it issued an export license for the satellite.
                              Source: Our analysis based on Commerce and State licensing records.




                              10
                                In the 43 launch campaigns, 82 satellites were launched. The number of satellites launched exceeded
                              the number of launches because rockets often launched more than one satellite. In our study, we
                              included several licenses that, although issued, were eventually not used.




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                            We reviewed each of the export licenses issued by State and Commerce for
                            these 43 launch campaigns and identified five general categories of
                            licensing conditions the agencies used to protect against the transfer of
                            sensitive technology and implement the government-to-government
                            technology safeguards agreements. These agreements discuss U.S. rights in
                            each of these general categories and describe in detail issues such as the
                            limitations on the exchange of technical data and the physical security
                            procedures that must be followed. State, DOD, and Commerce officials
                            noted that these safeguards are now routinely implemented through
                            conditions on export licenses.

                            The five categories of conditions used by State and Commerce to protect
                            sensitive technology and implement the technology safeguards agreements
                            include

                            • outlining the limits of authorized sensitive technical data exchange
                              between the satellite exporter and the foreign launch service provider;
                            • restricting physical access of foreign personnel to U.S. technology;
                            • requiring exporter compliance with the negotiated
                              government-to-government technology safeguards agreements;
                            • requiring the exporter to develop a DOD-approved technology transfer
                              control plan outlining the exporter’s internal control procedures for
                              preventing disclosure of technology; and
                            • requiring DOD monitors at technical meetings related to launches and at
                              the launches as well as reimbursement to the U.S. government for the
                              monitors.


Licensing Safeguards Were   Commerce and State required all five safeguard conditions to protect
Generally Applied           sensitive U.S. technology on 35 of the 43 satellite launch campaigns. As
                            table 2 shows, export licenses in all of the launch campaigns since 1989
                            contained language clearly limiting the scope of the technical data that the
                            satellite manufacturers could supply to the foreign launch service
                            providers. Table 2 also shows that export licenses for all of the launch
                            campaigns contained explicit descriptions of measures intended to limit
                            physical access to the satellite and any technical data not covered by the
                            license. Export licenses for a large majority of the launch campaigns also
                            included requirements for DOD monitors at technical meetings and the
                            launch, the preparation of a DOD-approved technology transfer control
                            plan, and strict compliance with the technology safeguards agreements
                            between the United States and China, Russia, or Ukraine.




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                           Table 2: Frequency of License Safeguards Required by the Lead Licensing Agency,
                           1989 – February 1999

                                                                           Launch campaign                      Total all
                                                                         lead licensing agency                 campaigns
                                                                          Commerce             State
                           License safeguard                               (percent)       (percent)          Percent Number
                           Limit technical data transfer                            100           100              100           43
                           Restrict physical access to satellite                    100           100              100           43
                           Require U.S. company compliance
                           with government technology
                           safeguards agreement                                      75           100                81          35
                           Require U.S. company to prepare a
                           technology control plan                                   75           100                81          35
                           Require DOD monitors at meetings
                           and the launch and reimbursement for
                           DOD monitoring expenses                                   75           100                81          35
                           Source: Our analysis based on Commerce and State licensing records.




Commerce Did Not Require   Commerce licensed eight launch campaigns without license conditions that
Some Safeguards on All     require (1) technology control plans, (2) DOD monitors, and
                           (3) compliance with the technology safeguards agreement between the
Launch Campaigns           United States and the relevant government (see table 3). At the time
                           Commerce approved these export licenses, it did not consider these three
                           license conditions necessary. Though they were not required in the
                           licenses, DOD monitors did observe the launch, but not all of the technical
                           meetings, for three of these campaigns, and another campaign was
                           canceled prior to launch. Neither State nor DOD insisted as part of the
                           interagency review of these licenses that these conditions be included on
                           the licenses. In all of these eight campaigns, the exporters believed they
                           could perform the foreign launch solely under the authority granted by the
                           Commerce license, and none obtained a State license to perform technical
                           assistance related to conducting the launch campaign.11 All eight of these
                           campaigns were licensed by Commerce before 1997. In 1997, under
                           pressure from DOD and State, Commerce began to regularly include these
                           safeguards.



                           11
                             The shared jurisdiction over technical data needed to integrate a satellite to a launch vehicle led to
                           some confusion over the boundaries of what was controlled by Commerce as “form, fit, and function”
                           data and whether a separate State license for technical assistance was needed.




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Table 3: Launch Campaigns Licensed Without Three Safeguards, 1989 – February 1999

                                                                   License conditions
                                                                             Technology
Licensed       Agency that Country of License      Comply with Monitors and  control
launch         licensed    launch     final action security    reimbursement plan
campaign       satellite   provider   date         agreement   required      required   Comments
Apstar 2       Commerce      China      Feb. 1994     No              No                 No            Launch and meetings not
                                                                                                       monitored.
Faisat 1       Commerce      Russia     Mar. 1994     No              No                No             Air Force personnel did
                                                                                                       attend launch activities.
                                                                                                       DOD monitoring officials
                                                                                                       said, however, that the Air
                                                                                                       Force personnel were not
                                                                                                       from and did not report to
                                                                                                       DOD’s monitoring program.
Optus B3       Commerce      China      May 1994      No              No                 No            Though not required by the
                                                                                                       export license, DOD
                                                                                                       monitored the launch and
                                                                                                       many, if not all, technical
                                                                                                       meetings using DOD funds.
Echostar 1     Commerce      China      Aug. 1994     No              No                 No            Though not included as a
                                                                                                       license requirement, the
                                                                                                       exporter did prepare a
                                                                                                       technology control plan for
                                                                                                       the launch campaign and
                                                                                                       paid for DOD monitors at
                                                                                                       the launch. According to the
                                                                                                       exporter, DOD also
                                                                                                       monitored some technical
                                                                                                       meetings.
Echostar 2     Commerce      China      Aug. 1994     No              No                 No            Launch canceled.
Apstar 1A      Commerce      China      June 1995     No              No                 No            Launch and meetings not
                                                                                                       monitored.
Chinasat 7     Commerce      China      Feb. 1996     No              No                 No            Launch and meetings not
                                                                                                       monitored.
Chinastar      Commerce      China      Feb. 1996     No              No                 No            Though not included as a
                                                                                                       license requirement, DOD
                                                                                                       monitored the launch (but
                                                                                                       not earlier technical
                                                                                                       meetings) because the
                                                                                                       exporter offered to pay the
                                                                                                       monitors’ expenses.
                                        Source: GAO analysis based on Commerce and State licensing records.


                                        Commerce also omitted these safeguard conditions for five additional
                                        launch campaigns before 1997, but exporters in these five campaigns also
                                        obtained a State license, which did include the safeguard conditions (see



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                                          table 4). Commerce officials said that these license conditions were not
                                          omitted because of the corresponding State license requirements. In fact,
                                          they said they are often unaware of related State licenses when processing
                                          an application. While not all launch campaigns require a State technical
                                          assistance license, in each of these cases, the exporter did obtain a State
                                          license to conduct the launch campaign. State, acting independently from
                                          Commerce, granted licenses that included the safeguards as license
                                          conditions and required them to be in place for these launch campaigns.12



Table 4: Launch Campaigns That Included Safeguards Only in State Department Licenses

                                                                                                     License conditions
                      Country of                                                Comply with          Monitors and           Technology
Licensed launch       launch                                                    security             reimbursement          control plan
campaign              provider     Date               Licensing agency          agreement            required               required
Astra 1F              Russia       Sept. 1994         Commerce                  No                   No                     No
                                   Sept. 1993         State                     Yes                  Yes                    Yes
Apstar 2R             China        Dec. 1995          Commerce                  No                   No                     No
                                   Jan. 1996          State                     Yes                  Yes                    Yes
Mabuhay               China        Feb. 1996          Commerce                  No                   No                     No
                                   Feb. 1996          State                     Yes                  Yes                    Yes
Asiasat 3             Russia       Sept. 1996         Commerce                  No                   No                     No
                                   Sept. 1993         State                     Yes                  Yes                    Yes
Astra 1G              Russia       Oct. 1996          Commerce                  No                   No                     No
                                   Sept. 1993         State                     Yes                  Yes                    Yes
                                          Source: GAO analysis based on Commerce and State licensing records.




Reasons for Not Requiring                 Shortly after Commerce assumed licensing responsibility for some
the License Safeguards                    commercial communications satellites in 1992, it implemented policies on
                                          license requirements that did not require DOD monitors at technical
                                          meetings or development of technology control plans.13 Commerce officials
                                          said that up until sometime in 1996, the Department held to this policy


                                          12
                                            As in the cases cited in table 3, State and DOD did not require that these three safeguards be made part
                                          of these licenses during the interagency review of these licenses.
                                          13
                                            In the first launch campaign licensed by Commerce in 1994, Asiasat 2, the agency imposed the same
                                          safeguards as State required in its licenses. After this campaign, however, it implemented its own
                                          policies.




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because it believed that exporters should not be required to reimburse the
U.S. government for the cost of monitoring launch campaigns. These
officials said that such charges were considered to be the same as export
fees, and Commerce, under the Export Administration Act, is prohibited
from charging a fee in connection with submitting or processing an export
application. Commerce did include as part of its licensing conditions the
U.S. government’s right to monitor the launch and the technical meetings
but did not require the government to monitor the launch or require
exporters to reimburse the government for the costs of monitoring. DOD
did not have staff and funding resources dedicated to monitoring and,
consequently, DOD did not monitor launch campaigns where
reimbursement was not a requirement.14

Commerce also did not always include license conditions requiring
technology transfer control plans. Commerce believed that the basic
technical data needed to integrate a satellite with a launch vehicle did not
require an export license.15 Because Commerce did not require a license for
the export of the basic technical data, it believed that an exporter did not
need to develop a technology control plan to protect data that did not
require a license.16 Commerce’s approach in these cases did not address the
need to ensure that exporters did not transfer technical data beyond what
was allowed for export under Commerce’s jurisdiction. While Commerce
did not explicitly require compliance with the technology safeguards
agreements, it did include license conditions that described the limits of
technical data exchange and the required physical security procedures.

DOD and State officials stated that during the interagency review of
Commerce export licenses, they did not consistently recommend that
Commerce include all the license conditions that State had used because
they assumed that these requirements would be added to State-issued
licenses authorizing the export of technical data for these launch
campaigns. Nevertheless, the satellite exporters in the eight cases where
conditions were omitted did not obtain separate State technical assistance


14
  Problems with DOD’s support and funding of the monitoring program are discussed in the Senate
Select Committee on Intelligence’s report, Report on Impacts to U.S. National Security of Advanced
Satellite Technology Export to the People’s Republic of China (Washington, D.C.: Government Printing
Office, May 1999).
15
  Commerce advised exporters that the basic technical data used to integrate a satellite to a launch
vehicle-- “form, fit, and function” data—could be exported without an export license.
16
  State routinely required exporters to obtain a license for the export of technical data needed to carry
out the launch campaign.




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                        B-283228




                        licenses. The export licenses issued by Commerce enabled the exporter to
                        conduct those launch campaigns without obtaining a State license. In about
                        1995, DOD recognized that safeguards had not been included on some
                        Commerce licenses and in 1997 reached an agreement with Commerce on a
                        standard set of conditions that included requirements for DOD monitors,
                        technology control plans, and adherence to the technology safeguards
                        agreements.


Impact of Omitted       Though it was not required, DOD did monitor the launch activities for three
Safeguards Unclear      of the eight launch campaigns licensed by Commerce that did not contain
                        all of the safeguards. As noted in table 3, the exporter voluntarily paid for
                        DOD’s expenses to monitor two launches, and DOD paid the cost on a
                        third.17 However, pre-launch technical meetings were not monitored in
                        every case, and these technical meetings can involve discussions of
                        sensitive technology.18 DOD officials stated that they did not know whether
                        unauthorized transfers of controlled technology occurred at these and
                        other unmonitored meetings and launches because they were not present.
                        A report on satellite exports to China by the Senate Select Committee on
                        Intelligence noted that unmonitored launch campaigns and meetings
                        provided China with opportunities to collect technical information and that
                        China likely took advantage of these opportunities. It also noted that it is
                        extremely unlikely that the U.S. government would be aware of any
                        technology transfer unless it was fortunate enough to detect evidence
                        through other channels.



Possible Unauthorized   Monitoring problems and unauthorized transfers of technology and
                        violations of export control regulations may have occurred on
Technology Transfers    14 campaigns to launch U.S. commercial communication satellites using
and Export Violations   Chinese, Russian, and Ukrainian launch vehicles. Two of the cases raised
                        U.S. national security concerns. These problems were partly caused by
Reported                confusion created by the lack of clarity about the roles and responsibilities
                        of each agency in licensing and monitoring these exports and partly by


                        17
                         As noted in table 3, the Echostar 2 satellite licensed for launch in China was subsequently canceled.
                        18
                          According to Lockheed-Martin, some technical interface meetings on Echostar 1 were apparently
                        monitored because the company agreed to schedule these meetings in conjunction with Asiasat 2
                        meetings that were required to be monitored. According to the exporter, DOD did monitor all technical
                        meetings on the Optus B3 campaign. DOD monitors, however, stated that they do not believe that all
                        technical meetings were monitored.




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                             B-283228




                             companies’ apparent failure to establish effective controls and procedures
                             to ensure compliance with U.S. export regulations.


Possible Violations of       Monitoring problems, possible violations of export control regulations, and
Export Control Regulations   unauthorized transfers of technology have been found or are under
                             investigation by State, Customs, and the Department of Justice on 14
Raise National Security      launch campaigns involving China, Russia, and Ukraine. These problems
Concerns                     range from concern about unmonitored meetings to the transfer of
                             technology that DOD and State determined raise U.S. national security
                             concerns and highlight the importance of both requiring licensing
                             safeguards and a coordinated approach to their effective implementation.
                             Appendix I summarizes the launch campaigns where compliance issues
                             have been identified or are under investigation.

                             In two launch campaigns, DOD and State concluded that the unauthorized
                             release of technical information by U.S. satellite companies raised national
                             security concerns. During the Apstar 2 and Intelsat 708 failure
                             investigations in 1995 and 1996, Hughes Space and Communications
                             Company and Space Systems Loral allegedly provided information to China
                             that could be used to improve the design and increase the reliability of its
                             launch vehicles and ballistic missiles. In a third launch campaign, Asiasat 2,
                             Martin Marietta Aerospace provided assistance to China on its newly
                             developed satellite kick motor. This transfer, according to State officials,
                             did not significantly harm national security but could allow China to focus
                             its research efforts and apply U.S. technology to its ballistic missile
                             programs. State is continuing its investigation of this case.

                             State, Customs, and Justice are now reviewing or investigating other
                             launch campaigns, and it is unclear whether unauthorized technology was
                             transferred. Among the incidents involving launch campaigns using
                             Chinese, Russian, and Ukrainian launch vehicles are the following:

                             • A U.S. company reportedly assisted China by providing consulting
                               services, including analyzing satellite test results, without a valid export
                               license and without DOD oversight. State is currently investigating this
                               case and has also referred the matter to Customs for investigation.
                             • The U.S. company COMSAT may have provided technical assistance
                               controlled on State’s Munitions List to an Asian satellite operator
                               without authorization. State has referred this matter to Customs for
                               criminal investigation.




                             Page 16                               GAO/NSIAD-99-182 Satellite Export Safeguards
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                        • Boeing’s Sea Launch company, a joint venture business using Ukrainian
                          launch vehicles, was charged by State with 207 violations of export
                          control regulations for exporting technical data without authorization.
                          In September 1998, State and Boeing signed a consent agreement that
                          included $10 million in penalties.
                        • Lockheed Martin obtained an export license to perform a failure review
                          after the failure of a Russian launch vehicle to properly place a satellite
                          into orbit. A European satellite company, however, participated in the
                          review and analysis without authorization from State. State is
                          continuing to investigate this case.


Poor Agency             Effective implementation of the policy limiting technology transfer on
Implementation Causes   foreign launches outlined in the government-to-government technology
                        safeguards agreements requires a coordinated and consistent approach by
Problems                the export licensing agencies and DOD in monitoring the implementation
                        of the policy. As we noted previously, the agencies involved in licensing and
                        monitoring launch campaigns have, at times, implemented different
                        policies related to satellite exports and have not effectively coordinated
                        their work.19 As a result, U.S. government controls over sensitive technical
                        data differed, support for effectively implementing the
                        government-to-government technology safeguards agreements was
                        inconsistent, and Commerce and DOD may have acted outside their
                        authorities.

                        • Commerce and State shared export-licensing jurisdiction for the
                          technical data needed to launch a satellite but did not establish clear
                          jurisdictional boundaries over this data. Commerce’s policy for
                          controlling technical data differed from DOD and State policies.
                          Commerce did not require a license for technical data transfers in cases
                          where State would have required a license. The different approaches on
                          controlling technical data made the U.S. government policy on
                          controlling this data unclear and made it difficult for DOD monitors to
                          know what technical data could be released.
                        • Commerce, State, and DOD policies and decisions were not consistent
                          in supporting license conditions needed to implement the technology
                          safeguards agreements.



                        19
                          State’s and Commerce’s split jurisdiction over stealth-related exports has also created concerns. See
                        Export Controls: Concerns Over Stealth–Related Exports (GAO/NSIAD-95-140, May 10, 1995).




                        Page 17                                           GAO/NSIAD-99-182 Satellite Export Safeguards
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  • Until 1997, Commerce did not consistently support the requirement
     for DOD monitors at launches and technical meetings. Commerce did
     include license conditions granting DOD the right to monitor
     technical meetings and overseas launches but did not require
     companies to reimburse DOD for the cost of monitoring. Commerce
     also did not consistently require exporters to prepare and use
     technology transfer control plans. The U.S. authority to oversee and
     monitor implementation of the plans and to monitor launch
     operations is granted in the government-to-government technology
     safeguards agreements.
  • State was inconsistent in supporting the provisions of the technology
     safeguards agreements. While State’s Office of Defense Trade
     Controls consistently required that license conditions include
     provisions for DOD monitors and technology control plans on all
     satellite licenses, the State office that reviewed Commerce export
     licenses did not require Commerce to include similar conditions on
     all its licenses. This approach to Commerce’s licenses also conflicted
     with the safeguards outlined in the State-negotiated,
     government-to-government technology safeguards agreements.
  • DOD reviewed Commerce export license applications but did not
     consistently recommend that license conditions be added that would
     require DOD monitors or technology control plans for all satellite
     export licenses.
• DOD’s launch monitoring activities were not effectively coordinated
  with the export licensing agencies.
  • DOD monitors did not routinely report on their work to State and
     Commerce or keep records of their monitoring activities. Commerce
     and State officials said they were unaware of many of the problems
     that DOD monitors identified because they were not routinely
     informed of the results. The Senate Select Committee on Intelligence
     reported that incomplete record-keeping prevented the Committee
     from understanding which technical meetings were or were not
     monitored.
  • Neither Commerce nor State reviewed DOD’s monitoring activities.
     State officials said they had not actively monitored or overseen
     DOD’s work because DOD was responsible for monitoring overseas
     launch campaigns, and Commerce officials said that Commerce does
     not perform on-site monitoring for any of its exports. Consequently, it
     was not until after the investigation of the 1996 Intelsat failure review
     that State and Commerce learned of the problems in DOD’s
     monitoring program and the numerous problems in other launch




Page 18                               GAO/NSIAD-99-182 Satellite Export Safeguards
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     campaigns, including foreign insurance companies being provided
     sensitive technical data during overseas launches.
• DOD monitors may have provided exporters with advice on whether
  certain activities required an export license without informing
  Commerce and State. While monitors are expected to ensure that
  technical discussions and other activities are consistent with the terms
  of an existing license, only State and Commerce had the legal authority
  to make decisions on whether activities not previously authorized
  require a license or can be performed without a license. DOD monitors
  may have provided licensing advice to companies that contributed to
  the problems being reviewed in three launch campaigns (Optus B2,
  Asiasat 2, and Asiasat 3).
• Commerce did not inform State or DOD of a key export approval
  decision relevant to these agencies and to national security. In 1995,
  Commerce told Hughes Space and Communications Company that it
  could release its Apstar 2 launch-failure report to China without an
  export license. Commerce took this action without informing DOD or
  State, even though this data involved the Chinese launch vehicle and
  was clearly under State’s jurisdiction.

Despite these past and ongoing problems, State, Commerce, and DOD
officials said they have not developed an interagency agreement on how to
address these issues to ensure that U.S. policy on safeguarding sensitive
technologies used in foreign launches is consistently implemented.20 State
officials agreed that guidelines defining the roles and missions of each
agency in implementing this policy would help prevent problems in the
future. Commerce and DOD officials noted that while they have
coordinated on developing a standard set of license conditions and other
issues (for example, the agencies routinely meet to discuss export
applications), this coordination was limited and has not effectively
prevented the problems we noted.21




20
 Commerce will remain involved in future launch campaigns because, while licensing jurisdiction
officially shifted to State in March 1999, satellite export applications that Commerce received before
the change and subsequently approved remain valid for up to 2 years.
21
  A Commerce official said that coordination with State has been hampered at times because many
different parts of State are involved in the process. State’s Bureau of Political Military Affairs oversees
the Office of Defense Trade Controls and export licensing for munitions-related items while the Bureau
of Nonproliferation coordinates with Commerce on dual-use export licenses.




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                            B-283228




Company Actions and Lax     Some of the problems being investigated by State and Customs are
Controls                    attributable to company actions and lax company controls and procedures
                            to prevent unauthorized exports. In 1992 and 1995, Hughes participated in
                            accident investigations of the Optus B2 and Apstar 2 launch failures in
                            China and provided China with technical assistance on how to correct the
                            identified problems. In 1996, Loral and Hughes participated in an accident
                            review of the failed launch of an Intelsat satellite on a Chinese launch
                            vehicle and provided technical advice on the cause of the launch vehicle
                            failure. In none of these three cases did the companies request or obtain
                            the required State export license authorizing such work. In other cases
                            being investigated, the companies’ organization and procedures may have
                            been ineffective in ensuring that the companies followed export
                            regulations. State attempted to address these lax controls in its Boeing Sea
                            Launch settlement by requiring the company to make organizational
                            changes in its internal oversight of exports and allowing Boeing to pay
                            $2.5 million of the $10 million in penalties on internal control
                            improvements at the company. In another case, Lockheed Martin agreed to
                            restructure its internal export compliance procedures as part of a voluntary
                            disclosure to State of problems in one of its launch campaigns.



Recent Legislative          Legislative changes to satellite export controls were passed in 1998 to
                            ensure that the licensing process more consistently addresses national
Changes Address Some        security considerations. While these changes address some causes of past
Export Licensing            export licensing problems, they do not fully resolve the implementation
                            problems by State, Commerce, and DOD of licensing and oversight policies
Problems                    to safeguard satellite exports. Also, State, DOD, and industry officials have
                            identified potential difficulties regarding the establishment of a monitoring
                            division at DOD. License processing times for satellite exports may also
                            increase.


Satellite Export Controls   On October 17, 1998, Congress passed legislation that changed export
Changed Due to the          controls over commercial communications satellites. The legislation’s key
                            provisions, as implemented by State and Commerce in regulations, include:
Transfer of Controlled
Technology                  • transferring commercial communications satellite export licensing
                              authority from Commerce to State beginning March 15, 1999;
                            • consolidating control of technical data at State;
                            • requiring a DOD-approved technology transfer control plan for all
                              satellite export licenses;



                            Page 20                              GAO/NSIAD-99-182 Satellite Export Safeguards
                              B-283228




                              • creating the Space Launch Monitoring Division at DOD with 42 staff
                                dedicated to supporting the monitoring of foreign launches of U.S.
                                satellites;
                              • requiring DOD monitoring of a broader range of activities, including
                                technical discussions and satellite processing and launch activities and
                                requiring the license holder to reimburse DOD’s entire monitoring costs;
                                and
                              • requiring licenses for investigations of crashes of U.S. satellites
                                launched in foreign countries.

                              Congress made these changes partly in response to concerns about the
                              1996 transfer of licensing authority for exports of commercial
                              communications satellites from State to Commerce. Congress was
                              concerned that the transfer had resulted in weakened U.S. government
                              procedures and controls on the flow of militarily sensitive technology to
                              countries of proliferation and national security concerns, such as China.


Legislative Changes Address   The recent legislative changes will address some of the apparent causes of
Some Licensing Problems       the export licensing problems on overseas launches of commercial
                              communications satellites. For example, transferring satellite-licensing
                              authority to State from Commerce for license applications received after
                              March 15, 1999, will address any confusion created by shared jurisdiction
                              over these exports and help ensure that satellite-related exports are
                              reviewed and treated as sensitive Munitions List items. Consolidating
                              export control responsibility at State should remove ambiguity over the
                              control of technical data, since State has consistently required a license for
                              technical data and assistance related to each satellite export. State has also
                              consistently applied safeguards, including requiring DOD monitors at the
                              launch, to export licenses. Furthermore, according to a senior State
                              official, under the new regulations implementing the legislative changes, all
                              Commerce satellite license applications received before the change in
                              jurisdiction on March 15, 1999, will be subject to State’s stricter controls on
                              technical data.22

                              The impact of legislating the monitoring of crash investigations is less
                              clear, since this is not a new requirement. State and DOD officials noted


                              22
                                A State official also said State is reviewing and will revoke past jurisdiction determinations State has
                              made that gave Commerce licensing jurisdiction over some space-related commodities to reflect the
                              recent legislative changes.




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                               B-283228




                               that investigations of satellite launch crashes are considered defense
                               services under State regulations and have always required a State
                               Department license.


Legislative Changes Will Not   The recent legislative changes do not fully address the implementation
Fully Address Other            problems in approving and monitoring commercial communications
                               satellite exports. While the changes have consolidated export authority at
Problems                       State, additional interagency coordination is still necessary for the
                               implementation of the safeguards on previously licensed Commerce
                               exports and State licensed exports. In implementing the legislative
                               changes, the agencies have not reached an agreement on what role each
                               agency will play in monitoring overseas launches, which agency will
                               provide licensing guidance to exporters, or how the agencies will
                               coordinate their oversight of any future launch failures. Further, State and
                               DOD have not established a formal mechanism for distributing monitors’
                               reports to licensing officials or clearly identified and defined the roles of
                               U.S. embassy staff in China, Russia, Ukraine, and Kazakhstan that will
                               support the exercise of U.S. rights under the technology safeguards
                               agreements. Additionally, coordination within State concerning the
                               treatment of export licenses issued by State for Munitions List items with
                               the comments State provides on Commerce licenses has not been
                               addressed and may remain a problem. Dual-use export licenses are
                               reviewed by State’s Bureau of Nonproliferation while Munitions List
                               licenses are managed by State’s Bureau of Political Military Affairs.


Establishment of New DOD       The establishment of an organization at DOD with permanent staff to
Monitoring Organization        monitor launch campaigns should improve the U.S. government’s
                               monitoring and oversight of these exports.23 While establishment of the
May Face Difficulties          monitoring group is a positive step, DOD, State, and industry officials have
                               identified the following potential difficulties in the effective
                               implementation of the changes in monitoring.

                               • The monitoring organization is still being created. DOD’s initial plans
                                 called for two-thirds of the monitors to be active duty military
                                 personnel. Current plans are to have all civilian monitors. DOD and
                                 State officials are concerned that DOD may be unable to recruit and


                               23
                                 According to DOD officials, monitors in the new organization will be clearly instructed not to provide
                               licensing advice to exporters as monitors have done in the past.




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                           B-283228




                             retain qualified civilian staff with the knowledge and expertise
                             necessary to conduct technical monitoring.24 Active duty military
                             personnel may also be more familiar with the technologies that DOD
                             would like to protect.
                           • The number of monitors available may be insufficient. The legislative
                             changes, as implemented, have expanded the DOD monitors’
                             responsibilities to all phases of the launch campaign. Monitoring
                             requirements may now apply to all the various stages of the launch
                             campaign, including interactions between the satellite manufacturer,
                             component supplier, launch provider, and satellite user. Industry
                             officials have expressed concern that the number of monitors may not
                             be adequate to cover the broadened scope of activities that now require
                             the presence of DOD monitors.25


License Processing Times   The March 15, 1999, change in licensing jurisdiction from Commerce to
Likely to Increase         State will likely lengthen processing times for satellite licenses. Longer
                           processing times at State are likely due to additional controls in State’s
                           licensing system. For example, satellite-related export items under State’s
                           licensing jurisdiction are subject to trade sanctions imposed against
                           nations that spread missile technology.26 In addition, unlike Commerce,
                           State must notify Congress of any proposed export of defense articles and
                           defense services valued at $50 million or more, including satellites.
                           Congress has 30 days in which to review license applications and raise any
                           objections. However, this process may take longer than 30 days because
                           State routinely briefs congressional staff on proposed exports before
                           sending a formal notification to Congress. These briefings and the
                           notification may be further delayed due to the congressional schedule and
                           other political considerations.




                           24
                             DOD officials cited issues such as heavy travel schedules and lengthy stays in unfavorable locations as
                           reasons for potentially high turnover rates among DOD monitors.
                           25
                            Industry officials have also raised concerns about the requirement to reimburse DOD for monitoring.
                           Citing the increased number of activities requiring monitoring and the likely number of monitors
                           necessary to perform these duties, industry officials are concerned that reimbursement costs might
                           become prohibitive and expressed reservations about paying some overhead costs such as training.
                           26
                             In 1991 and 1993, the United States imposed Missile Technology Control Regime-related sanctions on
                           China for selling missile equipment to Pakistan. While in force, these sanctions prohibited the export of
                           State-licensed satellites to China.




                           Page 23                                            GAO/NSIAD-99-182 Satellite Export Safeguards
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Our analysis of 29 satellite export license applications submitted between
1993 and 1998 shows that processing times averaged 144 days at Commerce
and 244 days at State.27 Some of the difference in processing times appears
attributable to the congressional notification requirement for State export
licenses. For the one State export license where data was available for
review, 84 days were attributable to the congressional notification
requirement. While less than State’s, Commerce’s average processing times
for satellite export licenses did not meet the 90-day time requirement for
ruling on license applications set by a 1995 executive order on the
administration of export controls.28

Additional delays in license processing times for satellites may be expected
because State has not provided its Office of Defense Trade Controls with
adequate resources to perform its expanded mission. In a June 1999 report,
State’s Office of Inspector General found that inadequate resources have
made it increasingly difficult for State’s Office of Defense Trade Controls to
manage the Munitions List licensing process. The report notes that the
office is understaffed and export licensing officers are paid less and
expected to do more than comparable staff at DOD and Commerce.
According to the report, since 1993 license processing times have more
than doubled, and these increased times have hurt U.S. businesses, which
are forced to wait for licenses. The Inspector General’s report
recommended that State provide the Office of Defense Trade Controls with
resources to hire additional staff to address increased workloads and make
the pay structure for licensing officers comparable to other agencies. State
officials indicated that as of July 1999, it planned to provide funds for hiring
about 17 additional staff--6 fewer positions than requested by the Office of
Defense Trade Controls. Moreover, the hiring of additional staff could take
6 months or longer, and State does not plan to increase the pay structure of
its licensing officers. After an internal study of the issue, State concluded
that its licensing officers are appropriately compensated.




27
  We calculated processing times for 26 Commerce and 3 State satellite export licenses involving
launches by China and Russia. Processing time data was not available for all 43 launch campaigns
examined in this report. In reviewing the China export licenses, we included only satellite export
licenses for which each agency was responsible for obtaining a waiver to the Tiananmen Square
sanctions on satellite exports to China. Satellite licenses issued by Commerce for which Tiananmen
waivers were obtained through State were not included in our analysis.
28
 Executive Order 12981, December 5, 1995.




Page 24                                          GAO/NSIAD-99-182 Satellite Export Safeguards
                      B-283228




Conclusion            Given the scope, complexity, and shared responsibility in implementing
                      export controls on the use of foreign launch vehicles, the agencies’
                      differing policies and, at times, the ineffective implementation of these
                      policies were critical flaws that contributed to many of the problems now
                      being investigated. While the recent legislative changes will improve
                      controls over such exports, effective interagency implementation is still
                      needed to help ensure that safeguards are in place and sensitive technology
                      is not improperly released in the future.



Recommendation        We recommend that the Secretary of State consult with DOD and
                      Commerce for the purpose of establishing clear roles and responsibilities
                      for all agencies and overseas posts in implementing the
                      government-to-government technical safeguards agreements and ensuring
                      compliance by U.S. exporters with U.S. satellite export regulations.



Agency Comments and   The Departments of State and Commerce provided written comments on a
                      draft of this report (see apps. II and III, respectively). DOD reviewed a draft
Our Evaluation        of this report but did not take an overall position on its content. DOD,
                      State, and Commerce provided technical comments, which we
                      incorporated where appropriate.

                      State concurred with our report and the recommendation to improve
                      interagency coordination on managing satellite exports. Commerce,
                      however, said that the 1996 change in licensing jurisdiction resolved the
                      interagency problems we identified and noted that the congressional
                      decision to return export licensing jurisdiction for satellites to State in 1999
                      has adversely affected U.S. industry. We do not agree that the 1996 transfer
                      of jurisdiction resolved the problems we identified. The agencies’ differing
                      policies and, at times, poor coordination and implementation of U.S.
                      government policy were critical flaws in the process that contributed to
                      many of the problems now under investigation. Further, the shared
                      jurisdiction over technical data that continued after the 1996 transfer of
                      jurisdiction for satellites to Commerce contributed to the confusion by
                      some satellite exporters over which agency controlled technical data and
                      what U.S. government policy was on these exports.




                      Page 25                                GAO/NSIAD-99-182 Satellite Export Safeguards
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Our report notes that the return of jurisdiction to State may lengthen
licensing processing times for exporters. This is due to congressional
notification requirements and the fact that State has not allocated sufficient
resources to its Office of Defense Trade Controls to process export licenses
in a timely manner. Commerce cited several reports that exporters have
already experienced negative financial consequences from the return of
licensing jurisdiction to State. Although we have not verified these reports,
recent data on licensing process times provided by State raise questions
about the extent of any problems caused by the change in jurisdiction.29 To
the extent these reports are accurate, they reinforce our observation that
implementation is critical to effective satellite export control policies and
that adequate staff resources are essential for State to manage the
additional workload associated with the transfer in jurisdiction for satellite
exports.


As agreed with you, we plan no further distribution of this report until
30 days from the date of its issuance, unless you publicly announce its
contents earlier. At that time, we will send copies of this report to other
congressional committees; the Honorable William S. Cohen, Secretary of
Defense; the Honorable Madeleine K. Albright, Secretary of State; the
Honorable William M. Daley, Secretary of Commerce; and the Honorable
Jacob Lew, Director, Office of Management and Budget. Copies will also be
made available to others upon request.




29
  According to State, the only two satellite export licenses that were submitted and processed between
March 15, 1999, and August 20, 1999 (the first 6 months after the transfer) and that required notification
were processed and formally notified to Congress in 49 and 131 days. As our report notes, processing
times at Commerce for satellites averaged 144 days. These two satellite cases may, however, understate
the actual average processing time since the data does not reflect cases that were still under review as
of August 20, 1999.




Page 26                                            GAO/NSIAD-99-182 Satellite Export Safeguards
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If you or your staff have any questions concerning this report, please call
me at (202) 512-4128. Key contacts and staff acknowledgments are listed in
appendix V.

Sincerely yours,




Harold J. Johnson
Associate Director
International Relations and Trade Issues




Page 27                             GAO/NSIAD-99-182 Satellite Export Safeguards
Contents



Letter                                                                       1


Appendix I                                                                  30
Possible Export
Control Violations
Under Review and
Related Monitoring
Issues

Appendix II                                                                 35
Comments From the
Department of State

Appendix III                                                                36
Comments From the
Department of
Commerce

Appendix IV                                                                 48
Objectives, Scope, and
Methodology

Appendix V                                                                  50
GAO Contact and Staff
Acknowledgments

Related GAO Products                                                        51




                         Page 28   GAO/NSIAD-99-182 Satellite Export Safeguards
Tables    Table 1: Launch Campaigns by Licensing Agency, 1989 – February
            1999                                                                       9
          Table 2: Frequency of License Safeguards Required by the Lead
            Licensing Agency, 1989 – February 1999                                    11
          Table 3: Launch Campaigns Licensed Without Three Safeguards,
            1989 – February 1999                                                      12
          Table 4: Launch Campaigns That Included Safeguards Only in State
            Department Licenses                                                       13
          Table I.1: Launch Campaigns With Possible Technology Transfer,
            Licensing, or Monitoring Issues, 1989- February 1999                      32


Figures   Figure 1: Applicability of Space Launch Vehicle Technology to
            Ballistic Missiles                                                         7




          Abbreviations

          DOD        Department of Defense




          Page 29                            GAO/NSIAD-99-182 Satellite Export Safeguards
Appendix I

Possible Export Control Violations Under
Review and Related Monitoring Issues                                                                                                   Appenx
                                                                                                                                            Idi




                                           Department of State and Defense (DOD) documents show that possible
                                           violations of export control regulations may have occurred and related
                                           monitoring concerns have been raised on 14 launch campaigns involving
                                           Chinese, Russian, and Ukrainian launch vehicles licensed between 1989
                                           and February 1999. These problems and issues included unauthorized
                                           transfers of technical information to China that could improve its launch
                                           vehicles and missiles as well as unmonitored technical meetings between
                                           U.S. satellite companies and foreign launch providers. In addition,
                                           insurance companies may have been provided with controlled technical
                                           data on an unknown number of launch campaigns. State and Customs are
                                           investigating several of these cases to determine exactly what information
                                           may have been released. Table I.1 lists these cases.



Table I.1: Launch Campaigns With Possible Technology Transfer, Licensing, or Monitoring Issues, 1989- February 1999

Satellite    Launch      Technology transfer/export licensing issue            Comments
program      provider
APMT         China       Hughes Electronics Corporation (Hughes)               State officials said that no sensitive technology was
                         requested and received approval for a dual citizen    released. In 1999, Commerce notified Hughes that it
                         of Canada and the People’s Republic of China to       would deny its license application request to export
                         work on the Asia Pacific Mobile                       satellites to the APMT project.
                         Telecommunications satellite project in California.
                         Not reported by Hughes in its application or
                         detected by State in its review of the license
                         application was that this person was also
                         reportedly the son of a senior Chinese military
                         official responsible for China’s military satellite
                         programs and was directly involved in the APMT
                         project. After learning of this connection to the
                         Chinese military, State suspended the export
                         license.
Apstar 1A    China       DOD did not monitor technical interface meetings      DOD officials cannot make assurances that no
                         or the launch. The satellite export license issued by unauthorized transfers occurred because DOD
                         Commerce did not require DOD monitors at either monitors were not present.
                         the launch or during technical interface meetings.




                                           Page 30                                      GAO/NSIAD-99-182 Satellite Export Safeguards
                                          Appendix I
                                          Possible Export Control Violations Under
                                          Review and Related Monitoring Issues




Satellite   Launch     Technology transfer/export licensing issue                Comments
program     provider
Apstar 2    China      Hughes Space and Communications Company                   Defense and State both reviewed the technical
                       (Hughes) conducted a failure review with China of         assistance provided by Hughes to China during its
                       the 1995 failed launch of the Apstar 2 satellite.         failure review work and concluded that the transfer
                       Hughes informed Commerce of its actions but did           raised U.S. national security concerns. Both agencies
                       not obtain a State license to conduct a failure           agreed that the activities undertaken by Hughes were a
                       review nor did Hughes advise State or DOD of its          “defense service” regulated by State. Commerce
                       actions. Hughes’ launch-failure review activities         officials admitted that approving the release of the
                       were conducted without DOD monitors. Hughes               technical information was a mistake since such exports
                       requested and received Commerce approval to               are under State’s authority. State concluded that the
                       release at least some of its analyses of the launch       information provided during the accident review to
                       failure (analyses that demonstrated problems with         China was more detailed than that provided during the
                       the launch vehicle’s fairing) to China.                   Intelsat 708 review and served as a tutorial for the
                                                                                 Chinese in areas where their spacelift program was
                                                                                 weak. State and the Department of Justice are
                                                                                 currently investigating this case.

                       DOD did not monitor technical interface meetings          DOD officials cannot make assurances that no
                       or the launch. The Chinese launch vehicle                 unauthorized transfers occurred during the pre-launch
                       exploded after launch, destroying the rocket and          technical meetings or at the launch since they were not
                       the satellite.                                            present.
Asiasat 2   China      Martin Marietta Aerospace assessed a Chinese              According to State officials, State reviewed the impact
                       company’s testing of a kick motor to be used to           of this technology transfer and found that it represented
                       place the satellite into orbit. Martin Marietta did not   a loss of technology but did not significantly harm
                       obtain an export license to carry out work on the         national security. The transfer reportedly would allow
                       kick motor and faxed and mailed 10 copies of the          China to focus its research efforts, and this information
                       unedited analysis of the Chinese kick motor to its        may have applications to its ballistic missile programs.
                       Chinese satellite customer prior to DOD review.           State officials indicated that an export license was
                       DOD monitors may have advised Martin Marietta             required for this work, and it is continuing the
                       that some of this work with China on its kick motor       investigation.
                       was permitted, and DOD monitors attended a
                       meeting on the kick motor in China. Company
                       officials also said that this work was permitted
                       under a Commerce export license.
Asiasat 3   Russia     After the failure of the launch vehicle to properly       State officials believe that the European company
                       place the satellite into orbit, the Russians              needed an export license to participate in the failure
                       performed a launch-failure review. Lockheed Martin        review. They are, however, continuing their
                       requested and received an export license from             investigation into this case to determine where
                       State to participate, on a limited basis, in the          technical discussions were held and exactly what types
                       review. However, a European satellite company             of technical discussions the company participated in.
                       participated in the Lockheed Martin failure review
                       analysis of the launch failure and did not have an
                       export license to do so. DOD monitors may have
                       advised the European company that it could
                       participate in this failure review, largely reviewing
                       and assessing the Russian findings, under certain
                       restrictions without a State license.




                                          Page 31                                          GAO/NSIAD-99-182 Satellite Export Safeguards
                                          Appendix I
                                          Possible Export Control Violations Under
                                          Review and Related Monitoring Issues




Satellite    Launch     Technology transfer/export licensing issue            Comments
program      provider
                        The U.S. satellite operator COMSAT may have           State has referred this matter to the U.S. Customs
                        provided technical assistance to an Asian satellite   Service for criminal investigation and possible
                        operator without authorization. The company may       prosecution by the Department of Justice.
                        have also passed technical information from the
                        Asiasat 3 failure review to Asiasat, a Hong
                        Kong-based company partially owned by the
                        Chinese government.
Astra        Russia     Lockheed Martin voluntary disclosed to State the     Lockheed Martin realigned its internal control
                        release of controlled information and the holding of procedures and practices to ensure future compliance
                        technical meetings before a signed agreement was with export control regulations.
                        returned to State. These violations were largely
                        technical in nature.
Chinasat 7   China      DOD did not monitor the launch or technical        DOD officials cannot make assurances that no
                        interface meetings. The satellite export license   unauthorized transfers occurred since they were not
                        issued by Commerce did not require DOD monitors present.
                        at either the launch or during technical interface
                        meetings.
Chinastar    China      DOD did not monitor technical meetings but did     DOD officials cannot make assurances that no
                        monitor the launch. The satellite export license   unauthorized transfers occurred because DOD
                        issued by Commerce did not require DOD monitors monitors were not present.
                        at either the launch or during technical meetings.
                        Lockheed Martin requested and paid for a DOD
                        monitor to attend the launch.
                        A U.S. company reportedly assisted China by           DOD monitors, while monitoring Lockheed Martin’s
                        providing consulting services, including analyzing    activities at the launch site, first encountered officials
                        satellite test results and performance measures.      from this U.S. company at technical meetings. DOD
                        Though the company had applied to State for a         monitors were forced to stop at least two meetings
                        license, and this request had been tentatively        because the company’s officials allegedly were
                        approved, the license was apparently never            providing information beyond what was allowed in the
                        finalized and made valid because the company          government-to-government safeguards agreement.
                        never completed a technology transfer control plan.   State is currently investigating this case and has
                        DOD officials also indicated that the company         referred the matter to the U.S. Customs Service for
                        never submitted any technical documents for           investigation.
                        clearance for release to China.
Echostar 1   China      The satellite export license issued by Commerce       DOD officials cannot make assurances that no
                        did not require DOD monitors at either the launch     unauthorized transfers occurred during unmonitored
                        or during technical meetings. According to            pre-launch technical meetings because DOD monitors
                        Lockheed Martin, DOD did monitor some                 were not present.
                        prelaunch technical meetings. Lockheed Martin
                        reportedly paid for a DOD monitor to attend the
                        launch.
Faisat 1     Russia     The satellite export license issued by Commerce       DOD monitoring officials stated that while Air Force
                        did not require DOD monitors at either the launch     personnel attended the launch activities, they were not
                        or during technical meetings. U.S. Air Force          from and did not report to DOD’s monitoring program.
                        personnel did attend launch activities.               DOD officials cannot make assurances that no
                                                                              unauthorized transfers occurred because DOD
                                                                              monitors were not present.




                                          Page 32                                       GAO/NSIAD-99-182 Satellite Export Safeguards
                                            Appendix I
                                            Possible Export Control Violations Under
                                            Review and Related Monitoring Issues




Satellite      Launch     Technology transfer/export licensing issue            Comments
program        provider
Intelsat 708   China      Space Systems Loral and Hughes participated in        Both Defense and State concluded that the
                          an independent review of the causes of the 1996       unauthorized transfers of technology had direct
                          catastrophic failure of the Chinese Long March 3B     applicability to China’s military systems, including its
                          launch vehicle. Neither company applied for an        ballistic missile programs and raise U.S. national
                          export license to perform this work. The review       security concerns. Space System Loral and Hughes
                          committee’s charters included making an               are under investigation by the U.S. Customs Service
                          independent assessment of the cause of the failure    and the U.S. Attorney’s Office for the District of
                          and providing recommendations to the Chinese          Columbia.
                          launch provider. Insurance companies pressured
                          China into having an independent western review
                          of the causes of the failure, and China requested
                          Loral and Hughes to participate.
Optus B2       China      Hughes conducted a failure review of the 1992         According to State, because it is unclear what
                          failure of the Long March 2E launch vehicle. DOD      information was provided to China, no assessment of
                          monitors may not have been present at all             national security harm could be performed. State and
                          meetings with Chinese officials and may have          the Department of Justice are currently investigating
                          advised Hughes that it could perform some work        this case.
                          without a new State license. One technical paper
                          pointing to the cause and indicating what could be
                          done to fix the problem may have been released to
                          China without DOD review and approval. According
                          to the exporter, DOD monitors attended all
                          technical meetings and authorized the release of
                          technical information given to the launch provider.
Optus B3       China      The satellite export license issued by Commerce       According to the exporter, DOD monitored all technical
                          did not require DOD monitors at either the launch     meetings. Documentation indicates that DOD did
                          or during technical meetings. Nevertheless, DOD       monitor many of the technical meetings. However,
                          monitored many technical meetings and sent a          DOD monitors stated that they do not believe that all
                          monitor to the launch, exercising its option of       technical discussions were monitored. Some
                          paying for the cost of monitoring.                    pre-launch meetings included discussions of changes
                                                                                being made to the launch vehicle’s fairing. These
                                                                                changes were being made in response to the Optus B2
                                                                                accident review and pressure by Hughes to fix the
                                                                                problem. State is reviewing this case as part of its
                                                                                overall investigation of the Optus B2 and Apstar 2
                                                                                launch campaigns.
Sea Launch     Ukraine    The Boeing Company exported technical data            State officials stated that these violations did not
                          before an export license was requested and            impact national security. The technical data involved
                          approved and without DOD review. State                was generally of foreign origin. In September 1998,
                          documents indicate that technical data was also       State and Boeing signed a consent agreement that
                          exported that was outside the scope of the            assessed Boeing $10 million in penalties and required
                          subsequently approved licenses, and the company       Boeing to establish a more rigorous compliance
                          did not notify DOD of all technical meetings. State   program including assigning export compliance
                          charged the company with 207 violations of the        responsibility to Boeing’s Office of General Counsel
                          export control regulations.                           and Executive Counsel. Of the $10 million in penalties,
                                                                                $2.5 million could be spent on the company’s improved
                                                                                compliance program. The Department of Justice is
                                                                                conducting a criminal investigation into this case.




                                            Page 33                                       GAO/NSIAD-99-182 Satellite Export Safeguards
                                          Appendix I
                                          Possible Export Control Violations Under
                                          Review and Related Monitoring Issues




Satellite   Launch     Technology transfer/export licensing issue               Comments
program     provider
Multiple    Various    As part of many launch campaigns, insurance              State is currently reviewing the business practice of
                       companies have been given controlled technical           providing controlled technical data to insurance
                       data without an export license. The satellite makers     companies and the control of that data by insurance
                       would provide data on the satellite and launch           companies. The insurance industry and the space
                       vehicle in order to obtain insurance for their launch.   launch/satellite industry are also studying the practices
                       The insurance companies are often foreign and            to determine a method in which information can be
                       may be brokers for numerous international                provided. Conclusions of this study will be reviewed by
                       insurance firms. It was pressure from the insurance      State.
                       companies that pushed China into asking Loral and
                       Hughes to participate in the review of the
                       Intelsat VII failure.
                                          Source: Compiled by GAO from State and DOD documents.




                                          Page 34                                         GAO/NSIAD-99-182 Satellite Export Safeguards
Appendix II

Comments From the Department of State                                 Appe
                                                                         nIx
                                                                           Idi




              Page 35      GAO/NSIAD-99-182 Satellite Export Safeguards
Appendix III

Comments From the Department of
Commerce                                                                          AppeInx
                                                                                        Idi




Note: GAO comments
supplementing those in the
report text appear at the
end of this appendix.




See comment 1.




                             Page 36   GAO/NSIAD-99-182 Satellite Export Safeguards
                 Appendix III
                 Comments From the Department of
                 Commerce




See comment 2.



See comment 3.



See comment 4.




See comment 5.




See comment 4.




                 Page 37                           GAO/NSIAD-99-182 Satellite Export Safeguards
                 Appendix III
                 Comments From the Department of
                 Commerce




See comment 6.




See comment 7.




                 Page 38                           GAO/NSIAD-99-182 Satellite Export Safeguards
                  Appendix III
                  Comments From the Department of
                  Commerce




See comment 8.




See comment 9.




See comment 10.




See comment 11.




See comment 12.




                  Page 39                           GAO/NSIAD-99-182 Satellite Export Safeguards
                  Appendix III
                  Comments From the Department of
                  Commerce




See comment 9.




Now on pp. 4-5.
See comment 9.




See comment 13.




Now on p. 8.
See comment 14.



Now on p. 7.
See comment 15.




Now on p. 8.
See comment 16.




Now on p. 8.
See comment 9.

Now on p. 11.
See comment 2.




                  Page 40                           GAO/NSIAD-99-182 Satellite Export Safeguards
                         Appendix III
                         Comments From the Department of
                         Commerce




Now on p. 13.

See comment 5.




See comment 17.




See comment 18.




Now on p. 16.
See comment 1.




Now on pp. 19.
See comment 19.




                  Lte
                    rt   Page 41                           GAO/NSIAD-99-182 Satellite Export Safeguards
                  Appendix III
                  Comments From the Department of
                  Commerce




See comment 20.




See comment 21.


See comment 2.




Now on p. 24.
See comment 16.



See comment 22.




                  Page 42                           GAO/NSIAD-99-182 Satellite Export Safeguards
               Appendix III
               Comments From the Department of
               Commerce




               The following are GAO’s comments on the Department of Commerce’s
               letter dated August 17, 1999.



GAO Comments   1. We do not agree that the 1996 transfer of jurisdiction resolved the
               problems we identified. As noted in our report and reflected in our
               recommendation, the agencies’ shared jurisdiction over satellite exports,
               inconsistent approaches to applying conditions to safeguard technology,
               and, at times, poor coordination and implementation of U.S. government
               policy were critical flaws in the process that contributed to many of the
               problems now being investigated. Further, jurisdiction over these satellite
               exports continued to be shared after 1996, with State responsible for
               licensing exports of technical data that exceeded the limits of form, fit,
               function data under Commerce’s control. This shared jurisdiction over
               technical data contributed to some confusion by satellite exporters over
               which agency controlled technical data and what U.S. government policy
               was on these exports.

               2. The objectives of this review were to assess how the licensing agencies
               applied safeguards to satellite exports, what problems have been reported,
               and whether recent legislative changes address these problems. In this
               report, we did not assess whether the President’s 1996 decision to transfer
               jurisdiction for satellite export licensing to Commerce was a correct
               decision.

               3. Commerce licenses did not consistently include conditions requiring
               adherence to the government-to-government technology safeguards
               agreements. As noted in tables 3 and 4, Commerce licenses for 13 launch
               campaigns between 1993 and 1996 did not include a condition requiring the
               exporter to comply with safeguards agreements. It was not until 1997, after
               DOD repeatedly raised concerns and months of negotiation, that
               Commerce agreed to include this as a standard condition.

               4. As the report states, DOD and State did not consistently recommend that
               Commerce include all the license conditions that State had used because
               they assumed that these requirements would be added to State-issued
               licenses for technical data for these launch campaigns. The satellite
               exporters in the eight cases where conditions were omitted did not obtain
               separate State technical assistance licenses. Commerce licenses after the
               1996 transfer did contain the license condition, but only because DOD and
               State had become aware that unmonitored launch campaigns had occurred
               and insisted that Commerce begin including this condition in every license.



               Page 43                              GAO/NSIAD-99-182 Satellite Export Safeguards
Appendix III
Comments From the Department of
Commerce




The decision to include these conditions was not directly related to the
President’s decision to transfer licensing jurisdiction to Commerce.

5. While Commerce licenses before 1997 authorized the export of only
“form, fit, and function” technical data, Commerce did not include on these
licenses a safeguard or control mechanism to insure that this happened.
Tables 3 and 4 show that Commerce licenses prior to January 1997 did not
include requirements that exporters prepare technology transfer control
plans. Commerce’s position that the plans were not necessary prior to 1997
because the technology under its control was “releasable” overlooks the
role of these plans in preventing the release of technology that is not
“releasable.” The plans provide an internal control mechanism for the U.S.
government and the exporter to insure that technical data beyond what is
authorized for export is not released. It is through procedures established
in these plans that DOD reviews technical data prior to release to the
launch service provider. Further, as noted in the report, DOD and State
officials assumed that the exporter would have to obtain a State technical
assistance license to perform the launch and that this would provide a
vehicle to apply controls over technical assistance and data exchange
during the launch.

6. As we have noted, the problems we identified are much broader than
simply what conditions Commerce or State placed on satellite export
licenses. Commerce and State did not clearly define the limits of technical
data controlled by each agency and, until after 1996, imposed different
safeguards on these exports. In addition, Commerce, State, and DOD have
not developed an interagency understanding clarifying the roles and
responsibilities each will play in implementing U.S. policy on satellite
exports. Our recommendation in this report directly addresses this
situation.

7. The conditions imposed by Commerce after October 1996 mirrored the
controls used by State since the first authorized export in 1989. As
Commerce notes, the imposition of conditions on licenses to safeguard
sensitive technology may not be effective if these safeguards are not
effectively implemented. The problems with the Apstar 2 and Intelsat 7
failure reviews discussed in the Select Committee’s report underscore the
need for coordinated policy and interagency implementation of U.S. export
controls on satellites. This is why our report recommends that State, in
coordination with DOD and Commerce, establish clear roles and
responsibilities for all agencies and overseas posts in implementing U.S.
policy on these exports.



Page 44                             GAO/NSIAD-99-182 Satellite Export Safeguards
Appendix III
Comments From the Department of
Commerce




8. Our report did not find that the 1996 transfer of jurisdiction resolved the
problems we identified. As noted in our report, the agencies’ differing
policies and, at times, poor coordination and implementation of U.S.
government policy were critical flaws in the process that contributed to
many of the problems now being investigated. Further, jurisdiction over
these satellite exports continued to be shared after 1996, with State
responsible for licensing exports of technical data that exceeded the limits
of form, fit, and function data under Commerce’s control. The shared
jurisdiction over technical data created ambiguity and some confusion for
exporters on how the U.S. government controlled this information.

9. The information in our report is accurate as presented.

10. We do not agree that the technology was “low level”. DOD has
concluded that the technology transferred in some of these cases may have
improved China’s ballistic missile programs.

11. We disagree with Commerce’s characterization of the House Select
Committee’s report, U.S. National Security and Military/Commercial
Concerns with the People’s Republic of China. As noted in the report
(Vol. II, p. 171), DOD found that the technology transferred could improve
China’s launch vehicle guidance systems. Specifically, a 1997 DOD analysis,
as quoted in the report, stated that “significant benefits derived by China
from these activities are likely to lead to improvements in the overall
reliability of their launch vehicles [rockets] . . . and in particular their
guidance systems. [emphasis added].” Moreover, a May 1999 report by the
Senate Select Committee on Intelligence notes that while, initially, the
intelligence community agencies differed on the significance of technology
transfer in the Intelsat 708 accident investigation, they subsequently agreed
that the information could help China’s design and test practices and the
reliability of its space launch vehicles. While acknowledging that
differences remain within the intelligence community as to the likelihood
that China has used this information, the Senate report concludes that the
information transferred in the Apstar 2 and Intelsat 708 launch failure
investigations may improve China’s space launch and ballistic missile
programs.

12. Under the Export Administration Act, Commerce is to consider
national security issues in reviewing export applications. However, under
the act, Commerce is charged with weighing U.S. economic and trade
interests with national security and foreign policy interests when deciding
when an item should be controlled. Under the Arms Export Control Act,



Page 45                               GAO/NSIAD-99-182 Satellite Export Safeguards
Appendix III
Comments From the Department of
Commerce




economic interests are not cited as a factor to be considered by State in
establishing the Munitions List or reviewing munitions export applications.

13. The sentence as written is accurate. Commerce’s language suggests
that only State controls items subject to the Wassenaar Arrangement and
the Missile Technology Control Regime. However, many items under
Commerce’s jurisdiction are subject to the controls of the Wassenaar
Arrangement and the Missile Technology Control Regime. As Commerce
and our report note, State, under its regulations, controls technology
related to launch vehicles.

14. The statement in our report is accurate. The 1993
government-to-government technology safeguards agreement with China
states “[t]he Government of the United States of America shall [emphasis
added] oversee and monitor implementation of the Technology Control
Plan, and the Government of the People’s Republic of China shall permit
and facilitate that monitoring”. The agreements with Russia, Ukraine, and
Kazakhstan contain similar language.

15. The graphic prepared by the Central Intelligence Agency shows the
applicability of space launch vehicle technology to ballistic missiles. In a
missile application, the fairing is referred to as a “shroud” and is used on
ballistic missiles with multiple reentry vehicles and multiple independently
targeted reentry vehicles.

16. We have incorporated the suggested changes, as appropriate.

17. Since licensing jurisdiction for certain commercial communications
satellites was first moved to Commerce in 1992, Commerce has been
responsible for issuing guidance on the export of satellites under its
jurisdiction. The government-to-government technology safeguards
agreements, first negotiated with China in 1988, clearly articulated U.S.
interests in ensuring that sensitive technology was not transferred during
these launch campaigns. The absence of “regulatory guidance” was not a
problem for State. As we note in our report, State consistently required
DOD monitors at technical meetings and at the launch and the preparation
of technology transfer control plans.

18. This document was neither classified nor restricted and was made
available to satellite exporters by State. The agreements with China, signed
in 1989 and 1993, were made publicly available and, as noted in our report,




Page 46                              GAO/NSIAD-99-182 Satellite Export Safeguards
Appendix III
Comments From the Department of
Commerce




State consistently required compliance with the agreements from the first
launch licensed in 1989.

19. The discussion in this section shows the lack of coordination by
Commerce when it approved the release of sensitive technical data
applicable to China’s launch vehicles. U.S. policy, as articulated in the
government-to-government technology safeguards agreements, is that no
technology may be released that could improve a foreign country’s launch
vehicle since this technology could also be used to improve a country’s
ballistic missiles. As the Select Committee report notes, China’s
“experience and knowledge of the aerodynamic and other loading
conditions and environments on rocket fairings, and the structural design
process taking these conditions into account, would stand them in good
stead in developing fairings (or shrouds) for ballistic missiles.”

20. Commerce correctly states that a positive contribution of the
legislation is the creation of a new Space Launch Monitoring Division at
DOD to support the monitoring requirements as specified in the export
licenses. As we note in our report, the recent legislative changes will also
address some of the other apparent causes of the export licensing
problems by reducing any confusion caused by shared export licensing
jurisdiction over technical data.

21. The Select Committee’s report did not assess whether the licensing
conditions imposed by Commerce beginning in January 1997 worked well
in protecting national security.

22. We obtained written permission from the companies in August 1999 to
release the information on the launch campaigns in Russia.




Page 47                              GAO/NSIAD-99-182 Satellite Export Safeguards
Appendix IV

Objectives, Scope, and Methodology                                                           Appenx
                                                                                                  di
                                                                                                  IV




              In response to congressional concern regarding the licensing of satellite
              exports, we assessed the safeguards applied to the export of U.S.
              commercial communications satellites for launch by Chinese, Russian, and
              Ukrainian launch vehicles from 1989, when the first launch was approved,
              to February 1999. Specifically, we (1) identified the license conditions
              applied by Commerce and State during the export licensing process to
              protect sensitive technology and (2) determined whether State and DOD
              identified possible unauthorized technology transfers and violations of
              export control regulations with these launches. In addition, we assessed
              whether recent legislative changes will reduce the risks of unauthorized
              exports of sensitive U.S. technology.

              To identify the types of safeguards that have been applied to foreign
              launches, we researched applicable export regulations; reviewed
              government-to-government technology security agreements with China,
              Russia, Ukraine, and Kazakhstan related to satellite technology safeguards;
              and interviewed State, Commerce, and DOD licensing officials. We then
              identified the rights of the United States in those foreign countries under
              the technology security agreements to safeguard technology and compared
              the rights with the actual license conditions imposed on U.S. exporters by
              Commerce and State.

              To determine if Commerce and State included safeguards in export licenses
              for the launches of U.S. commercial communications satellites on Chinese,
              Russian, and Ukrainian launch vehicles, we first identified the universe of
              relevant export licenses approved from the time launches by China were
              first authorized in 1989 until February 1999. We reviewed State and
              Commerce license databases, requested the major satellite manufacturers
              to provide information on these cases, and reviewed license
              documentation and other memoranda maintained by DOD. Because we
              were interested in the licensing actions of State and Commerce, we
              included in our review all licenses issued for the export of commercial
              communications satellites for launch by China, Russia, and Ukraine
              regardless of whether the launch provider was later changed and the
              satellite was launched by another country. We did not include in our
              analysis exports of satellite components.

              We did not perform work to assess the actual implementation of these
              export license requirements. For example, we did not review the adequacy
              of technology transfer control plans or the training of DOD monitors, nor
              did we monitor an overseas launch campaign. At the time of our review,
              both the Senate Select Committee on Intelligence and the House Select



              Page 48                             GAO/NSIAD-99-182 Satellite Export Safeguards
Appendix IV
Objectives, Scope, and Methodology




Committee on U.S. National Security and Military/Commercial Concerns
with the People’s Republic of China were conducting investigations into the
implementation of these conditions.

To determine whether unauthorized technology transfers and violations of
export regulations on launches by China, Russia, and Ukraine have been
identified, we interviewed DOD, State, and Commerce officials. We also
interviewed DOD officials who monitored some of the launches and
reviewed licensing records, DOD monitor trip reports, export violation
settlement documents, and other relevant documentation when available.
This review included examining thousands of documents provided by DOD
and State to Congress in response to the numerous congressional hearings
held on this subject in 1998. In addition, in several cases, we discussed the
various allegations with the satellite companies involved. Investigations of
many of the compliance problems with the launches by China and Russia
cited in our report were still ongoing at the time of our review.

To determine whether sensitive technology was released as a result of
these compliance problems, we interviewed DOD officials and monitors
responsible for monitoring overseas launches and asked State and DOD
officials if any damage assessments had been performed on these cases. We
reviewed the damage assessments performed by State and DOD on the two
cases where such studies had concluded that sensitive technology had
been transferred. In many of the compliance problems we cited, the
investigations were new or ongoing, and damage assessments had not been
performed at the time of our review.

To determine whether recent legislative changes have reduced the risks of
unauthorized transfers of sensitive U.S. technology, we first reviewed the
compliance problems that had been identified with these exports. We
interviewed State, DOD, Commerce, and industry officials on their views of
the causes of these problems. We then compared the changes mandated by
the fiscal year 1999 National Defense Authorization Act and State’s planned
implementation of these changes. We also solicited comments on these
recent changes from satellite manufacturers and operators.

We conducted our review between August 1998 and June 1999 in
accordance with generally accepted government auditing standards.




Page 49                              GAO/NSIAD-99-182 Satellite Export Safeguards
Appendix V

GAO Contact and Staff Acknowledgments                                                           Appe
                                                                                                   nx
                                                                                                    Vdi




GAO Contact       James Shafer (202) 512-6002




Acknowledgments   In addition to the name above, David C. Trimble, Eugene Beye, Jiyearn
                  Chung, and Judith Knepper made key contributions to this report.




                  Page 50                            GAO/NSIAD-99-182 Satellite Export Safeguards
Related GAO Products


               Export Controls: 1998 Legislative Mandate for High Performance
               Computers (GAO/NSIAD-99-208, Sept. 24, 1999).

               Export Controls: Information on the Decision to Revise High Performance
               Computer Controls (GAO/NSIAD-98-196, Sept. 16, 1998).

               Export Controls: National Security Issues and Foreign Availability for High
               Performance Computer Exports (GAO/NSIAD-98-200, Sept. 16, 1998).

               Export Controls: Changes in Controls Applied to the Export of High
               Performance Computers (GAO/T-NSIAD-98-250, Sept. 16, 1998).

               Evolved Expendable Launch Vehicle: DOD Guidance Needed to Protect
               Government’s Interest (GAO/NSIAD-98-151, June 11, 1998).

               Export Controls: Issues Related to the Export of Communications
               Satellites (GAO/T-NSIAD-98-208, June 10, 1998).

               China: U.S. and European Union Arms Sales Since the 1989 Embargoes
               (GAO/T-NSIAD-98-171, Apr. 28, 1998).

               Hong Kong’s Reversion to China: Effective Monitoring Critical to Assess
               U.S. Nonproliferation Risks (GAO/NSIAD-97-149, May 22, 1997).

               Export Controls: Sales of High Performance Computers to Russia’s Nuclear
               Weapons Laboratories (GAO/T-NSIAD-97-128, Apr. 15, 1997).

               Export Controls: Change in Export Licensing Jurisdiction for Two Sensitive
               Dual-Use Items (GAO/NSIAD-97-24, Jan. 14, 1997).

               Export Controls: Sensitive Machine Tool Exports to China
               (GAO/NSIAD-97-4, Nov. 19, 1996).

               Export Controls: Sale of Telecommunications Equipment to China
               (GAO/NSIAD-97-5, Nov. 13, 1996).

               Nuclear Weapons: Russia’s Request for the Export of U.S. Computers for
               Stockpile Maintenance (GAO/T-NSIAD-96-245, Sept. 30, 1996).

               National Security: Impact of China’s Military Modernization in the Pacific
               Region (GAO/NSIAD-95-84, June 6, 1995).




       Leter   Page 51                             GAO/NSIAD-99-182 Satellite Export Safeguards
                   Related GAO Products




                   Export Controls: Issues Concerning Sensitive Stealth-Related Items and
                   Technologies (GAO/T-NSIAD-95-158, May 11, 1995).

                   Export Controls: Concerns Over Stealth-Related Exports
                   (GAO/NSIAD-95-140, May 10, 1995).

                   Export Controls: Some Controls Over Missile-Related Technology Exports
                   to China Are Weak (GAO/NSIAD-95-82, Apr. 17, 1995).

                   Export Controls: License Screening and Compliance Procedures Need
                   Strengthening (GAO/NSIAD-94-178, June 14, 1994).

                   Nuclear Nonproliferation: Export Licensing Procedures for Dual-Use Items
                   Need to Be Strengthened (GAO/NSIAD-94-119, Apr. 26, 1994).

                   Export Controls: Issues in Removing Militarily Sensitive Items From the
                   Munitions List (GAO/NSIAD-93-67, Mar. 31, 1993).

                   Export Controls: Actions Needed to Improve Enforcement
                   (GAO/NSIAD-94-28, Dec. 30, 1993).




(711368)   Leter   Page 52                            GAO/NSIAD-99-182 Satellite Export Safeguards
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