Chapter 7 - Proliferation and Chinese Relations with Terrorist-Sponsored States

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JULY 2002 - REPORT TO CONGRESS OF THE U.S. - CHINA SECURITY REVIEW COMMISSION - THE NATIONAL SECURITY IMPLICATIONS OF THE ECONOMIC RELATIONSHIP BETWEEN THE UNITED STATES AND CHINA

Chapter 7 - Proliferation and Chinese Relations with Terrorist-Sponsoring States

Key Findings

China provides technology and components for weapons of mass destruction and their delivery systems to terrorist-sponsoring states such as North Korea, Iran, Iraq, Syria, Libya and Sudan. This arms trafficking to these regimes presents an increasing threat to U.S. security interests, in the Middle East and Asia in particular.

China’s cooperation with terrorist-sponsoring states is helping to create a new tier of nations with the capability to produce weapons of mass destruction and ballistic missiles.

The Chinese Government has made numerous multilateral and bilateral promises to stop proliferation originating in China, but despite repeated promises has not kept its word. This situation was a major item at the summit meeting between Presidents Bush and Jiang in February 2002, but no progress has been made since that meeting.

Since September 11^th, Beijing has expressed support for and implemented a working relationship with the United States on some htmects of anti-terrorist efforts. But Chinese proliferation and cooperation with terrorist-sponsoring states have continued unabated. These relationships enhance Beijing’s political and military influence and help ensure a diversified source of energy to meet its growing energy needs.

The current U.S. sanctions policies to deter and reform Chinese proliferation practices have failed and need immediate review and overhaul.

Introduction

China is one of the world’s leading sources for missile-related technologies and nuclear materials for terrorist-sponsoring nations such as Iran, Iraq, Syria, Libya, Sudan, and North Korea.¹ (Figure 7.2) The proliferation of weapons of mass destruction and their delivery systems to these regimes present an increasing threat to U.S. security interests, in the Middle East and Asia in particular.

Had weapons of mass destruction been accessible to the September 11^th terrorists, the outcome could have been far more devastating. CIA Director George Tenet recently testified that we now face a "convergence of threats" -- the connection between terrorists and weapons of mass destruction. "The proliferation of ICBM and cruise missile designs and technology has raised the threat to the United States from WMD delivery systems to a critical threshold…the U.S. most likely will face ICBM threats from North Korea and Iran, and possibly from Iraq."² These countries are all recipients of Chinese assistance. In addition, within ten years land attack cruise missiles may "pose a serious threat to not only our deployed forces, but possibly even the U.S. mainland."³

In July, 1999, the Commission to Assess the Organization of the Federal Government to Combat the Proliferation of Weapons of Mass Destruction (The Deutch Commission) warned that,

Every American should understand that weapons of mass destruction (WMD)–nuclear, biological, and chemical weapons and their means of delivery–pose a grave threat to the United States and to our military forces and our vital interests abroad.⁴

Why China Proliferates

Beijing’s relationships with terrorist-sponsoring regimes provide China with leverage against the U.S., enhance China’s political and military influence, and provide the PRC with foreign exchange and access to energy resources. China has particularly cultivated relationships with oil-rich terrorist-sponsoring states in order to provide Beijing with long-term economic and strategic benefits and extend China’s reach. In the words of a former U.S. Army attaché in Beijing, "China’s proliferation …takes these rogue nations and gives them influence, while increasing China’s prestige."⁵

The United States has worked hard to convince China to sign various arms control and non-proliferation agreements, but Beijing’s compliance record is poor. The PRC has made non-proliferation commitments under the Missile Technology Control Regime (MTCR), the Nuclear Non-Proliferation Treaty (NPT), and the Chemical Weapons Convention (CWC), as well as under various bilateral agreements with the U.S., such as the agreement of November 2000 to implement an effective missile-related export control system. At a meeting of the International Conference on Disarmament in April 2002, Chinese Foreign Minister Tang Jiaxuan urged a multilateral approach to strengthen existing efforts to stem the proliferation of weapons of mass destruction, citing the threat of terrorist organizations and other non-state actors.⁶

Some experts suggest that some of China’s exports may not reflect official intentions. China’s export control policy is weak and poorly enforced and companies and individuals may be able to export WMD-related materials without direct government authorization. In November 2000, Beijing made an explicit bilateral commitment to the United States to develop and implement an export control regime, but this has yet to materialize. Beijing asserts that it is often ignorant of the activities of individual companies. Other experts argue that "all important arms sales must have the approval of the top leadership," although it is possible that dual-use products may be exported without government approval.⁷ Whatever the explanation, the result is the same: ongoing exports of lethal technology to terrorist-sponsoring states that oppose American national interests and their supporters who target Americans.

All branches of the U.S. Government agree that China’s proliferation is dangerous and is unlikely to subside quickly. The CIA remains "concerned that [China] may try to circumvent the CW-related export controls that Beijing has promulgated since acceding to the CWC and the Nuclear Nonproliferation Treaty."⁸ The Department of Defense, in its annual report on proliferation, states that for strategic and economic reasons, China most likely will "continue to take advantage of ambiguities in its proliferation pledges."⁹

Proliferation is not unique to China; the United States itself is sometimes guilty of this practice. Although the United States tries to restrict the export of critical technologies, it is nearly impossible to stem such technology flows. At best, the United States can slow the process. Consequently, "The U.S. has been and is today a major, albeit unintentional, contributor to the proliferation of ballistic missiles and associated weapons of mass destruction."¹⁰ This is partially the result of " foreign student training in the U.S., by wide dissemination of technical information, by the illegal acquisition of U.S. designs and equipment and by the relaxation of U.S. export control policies."¹¹ During the 1990’s, for example, the United States liberalized commercial export controls to include high performance computers, in effect allowing the PRC, and other countries, to legally obtain computers that could help them increase their military capabilities.

However, there is a difference between American and Chinese policies: the United States strains to limit the export of technologies to make WMD proliferation, especially to terrorist states, while China does not do the same.

Cooperation Among Terrorist-Sponsoring States

In addition to the direct linkages between China and the states to which it proliferates, there are also indirect relationships, so that technology exports destined for one country may circulate through several terrorist-sponsoring states.

In 1998, the Rumsfeld Commission examined the relationships between countries such as Iraq, Iran, and North Korea and the degree to which they were cooperating with one another in developing their weapons programs. The Commission found that, given their access to advanced technology from China, Russia, the United States and other sources in the West, these countries can provide each other with the capabilities to develop long-range ballistic missiles.

This cooperation between terrorist states and other countries increases a country’s offensive capability in various ways. "For example, if Iran were to deploy missiles in Libya, it could reduce the range required to threaten the U.S. as well as Europe."¹² Furthermore, "long-range ballistic missile systems could be transferred from one nation to another, just as China transferred operational CSS-2s to Saudi Arabia in 1988. Such missiles could be equipped with weapons of mass destruction."¹³

There are many examples of the spread of lethal technologies from one terrorist-sponsoring state to another. "Iran has established solid and liquid propellant capabilities and already is beginning to proliferate missile production technologies to Syria,"¹⁴ according to the Director of the Defense Intelligence Agency (DIA). The Pentagon reported that North Korea supplied Syria with 10 intermediate-range ballistic missiles. According to an unclassified CIA report, North Korea is sourcing material and components for its ballistic missile programs through North Korean firms based in China. The report further states that North Korea has the capability to launch chemical and possibly biological agents.¹⁵

In January 2002, Chinese entities were sanctioned under U.S. law for transfers to Iran of what is believed to be dual-use equipment for chemical and biological weapons.¹⁶ As mentioned earlier, in response to U.S. pressure, including sanctions on satellite exports to China, Beijing has promised to tighten up its export control regime. Chinese proliferation behavior may have improved somewhat with respect to its 1997 pledge to end any kind of "new nuclear cooperation" with Iran although this did not come without a quid pro quo for China: an agreement to allow American companies to engage in China’s nuclear energy industry.¹⁷ In this case, the CIA has expressed some reservations about Beijing’s compliance with its promise.¹⁸

During President Bush's February 21, 2002 summit with President Jiang, the President urged the Chinese to implement the terms of the November 2000 agreement on proliferation in which Beijing pledged not to assist countries seeking to develop nuclear-capable ballistic missiles. The President pressed China to develop a comprehensive missile-related export control regime and to agree that prior contracts will not be grandfathered. He also expressed great concern over Iranian aggressive overtures to revitalize nuclear cooperation with China, and asked China to rebuff them. The Chinese Government has yet to implement these prudent suggestions.

Dual-Use Technology

Some legal U.S. exports of dual—use technology may also present a serious security problem for the United States. The extent to which foreign technology may be finding its way into Chinese military exports is worrisome. This is largely the result of the relaxation of Western export controls, the growing number of dual-use technologies, and the illegal re-transfer of these technologies.

CIA Director Tenet has observed that proliferating countries are "taking advantage of both foreign assistance and the dual-use nature of WMD and missile-related technologies" to establish advanced production capabilities and "to conduct WMD and missile-related research under the guise of legitimate commercial or scientific activity."¹⁹

Chinese firms have provided dual-use missile-related items, raw materials, and/or assistance to Iran, North Korea, and Libya. China has provided Iran with dual-use chemicals that can be used to produce chemical weapons and the technology to manufacture chemical weapons.²⁰

Since dual-use technologies have both civilian and military uses, it is often difficult to determine when restrictions are appropriate; nonetheless, the West has been exceedingly permissive in its sales to China. The Commission heard testimony that United States and European companies have exported substantial amounts of fiber-optic cable, repeaters, systems and switches that China has used to upgrade its military communications. Digital fiber optic cables are of concern to the intelligence community because it is nearly impossible to monitor the cables through conventional surveillance systems.²¹

While it is generally recognized that Beijing ignores its non-proliferation commitments, many experts and policy makers believe that China takes its U.N. commitments more seriously. However, as recently as January 2001, it was reported that a Chinese front company, Shandong Arts and Crafts Co., was involved in selling "’missile related guidance and test equipment’" to Iraq,²² violating United Nations sanctions. China reportedly agreed to comply with the sanctions after U.S. protests.²³

In March 2001, CNN reported that the Pentagon privately accused China of improving communications for Baghdad’s aircraft target capability in violation of U.N. sanctions against Iraq.²⁴ A Chinese firm, Huawei Technologies, assisted Iraq with fiber optics to improve its air defense system, enhancing Iraq’s ability to shoot down U.S. military aircraft patrolling the no-fly zones. China reportedly acknowledged that it had violated the U.N. sanctions, though it denied the work was linked to Iraq’s air defenses.²⁵ In February 2001 the United States bombed an Iraqi air defense site supplied by Huawei Technologies. Huawei was founded by a former PLA officer and is a major competitor of Cisco and Lucent.

Energy Security

A key driver in China’s relations with terrorist-sponsoring governments is its dependence on foreign oil to fuel its economic development. This dependency is expected to increase over the coming decade.

China is expected to double its need for foreign oil between now and 2010. After being a net oil exporter during the 1970’s and 80’s, China became a net oil importer in 1993.

Chinese oil imports reached $20.6 billion in 2000. As a result of lower world-wide oil prices, 2001 imports decreased in value, but actually increased in volume 5.9 percent. China is increasingly dependent on foreign oil for stable economic growth with continuing budget deficits reflecting the rising level of its oil imports.²⁶

Figure 7.1

PRC Oil Consumption and Projections thru 2020

Graph Showing PRC oil consumption from just under 5 million barrels in 1999 to between 10 and 15 million barrels by 2020.

Data Source: International Energy Outlook, Energy Information Administration, U.S. Dept. of Energy moderate economic growth projections were prepared using the EIA's World Energy Projection System model.

Chinese leaders believe that the United States seeks to contain China and is therefore a major threat to China’s energy security. "China considers the United States the key obstacle to entering the free oil market. They suspect that the United States seeks to dominate the [Gulf] region in order to exercise control over the Gulf’s energy resources."²⁷ Consequently, China believes it is essential to diversify its energy sources.

Between 1994-1996, China’s state-owned oil companies were elevated to the ministerial level and given a mandate to pursue oil opportunities overseas. "At a relatively rapid pace they purchased small to medium oilfields in Canada and Peru and bid on projects in India, Indonesia, Papua New Guinea, Russia and Venezuela. … CNPC [China National Petroleum Company] entered a joint venture with an American partner and bought 98 old oil wells in Texas…China announced that it was arranging large-scale oilfield development deals with Kazakhstan, Venezuela and Iraq totaling $5.6 billion."²⁸ China also signed on for projects with Japan.

China’s strategy to secure adequate energy resources overseas is part of its overall policy to counter U.S. power and minimize U.S influence.²⁹ Fundamental to this strategy are China’s relations with the Middle East, particularly Iran, Iraq, and Sudan. "Arms sales provide a wedge for China into the Gulf, a region of global geopolitical importance and of growing significance to China itself where the United States is the preeminent power."³⁰

Chinese companies have entered into oil deals with Iraq, Sudan, and Iran, countries that are off limits to U.S. companies. A prime example involves the case of the China National Petroleum Company (CNPC) and the Sudanese government. CNPC has invested heavily in developing Sudan’s oil industry, reportedly "at virtually no profit, in exchange for the drilling rights to more than 40,000 square kilometers in Southern Sudan".³¹ Sudan is on the U.S. State Department’s list of terrorist-sponsoring states and was sanctioned by the Clinton Administration. The U.S. State Department reports that last year,

a number of international terrorist groups including al-Qaeda, the Egyptian Islamic Jihad, Egyptian al-Gama’a al-Islamiyya, the Palestine Islamic Jihad and HAMAS continued to use Sudan as a safehaven, primarily for conducting logistics and other support activities.³²

China’s partnership with Sudan has earned millions of dollars for Khartoum, which, in addition to harboring terrorist organizations, also engages in a consistent policy of genocide and slavery against its own people.³³

Of the weapons sold by China to the Gulf countries, ballistic missiles are among its highest money earners. These weapons–especially if equipped with biological, chemical or nuclear warheads–have the greatest potential to destabilize the region.³⁴

Of particular concern are China’s sales to Iran of C-801 and C-802 anti-ship cruise missiles, which pose a threat to oil tanker traffic and American naval vessels in the Persian Gulf. Some Western analysts have speculated that despite China’s September 1997 and January 1998 commitments to the United States to halt the export of antiship cruise missiles to Iran, arms-for-oil barter arrangements could still appeal to the Chinese government.³⁵

In order to ensure that its future energy needs will be met, China uses various diplomatic instruments in its "interaction with its ‘energy-related’ partners. These instruments include general political and diplomatic support of countries such as Iraq and Iran… China uses its position and influence in international organizations to lobby for the interests of such states."³⁶

"China, with its U.N. seat and desire to reduce U.S. hegemony, was one of the few major powers willing to maintain strong and cordial relations with Tehran during the more radical days of the revolutionary regime."³⁷ During the Iranian hostage crisis of 1979-1980, "China abstained in the United Nations Security Council vote to sanction Iran for the hostage-taking."³⁸ During the Gulf War, China supported U.N. resolutions sanctioning Iraq, but did not vote for the use of force against Iraq. "Beijing’s role in the United Nations Security Council and also its position in the U.N. bodies dealing with sanctions, were of exceptional importance to progress in its energy deals with Iraq."³⁹

China holds development rights to an Iraqi oil field which it cannot develop until U.N. sanctions against Iraq are lifted. "China will most probably continue to use its membership in the U.N. Security Council, as well as its position in other U.N. bodies and subcommittees, to counter U.S. policy on Iraq."⁴⁰

Various forms of cooperation with Iran and Iraq may help ensure a continuous energy supply in both peacetime and during crises. Sino-Iranian civil cooperation, for example, is important to the development of a rail link passing through Iran, Turkmenistan and western China, in effect a revival of the "Silk Road."⁴¹ Recently, China announced that it is ready to strengthen its ties with Iran through a Memorandum of Understanding, which includes cooperation in subway, port and airport construction⁴², all of which potentially enhance Iran’s defensive and offensive capabilities. Reportedly intelligence sources have concluded that the China National Electronics Import and Export Corporation has been assisting Iran in the development of an integrated tracking and missile-interceptor system.⁴³ "Having only limited options in terms of power projection to the area, Beijing views its arms sales to Iran as a critical element of its regional policy. These arms sales, including elements of sophisticated nuclear and other ‘dual-use’ technology, give China an opportunity to gain a foothold in the region and build up a long-term strategic link to secure its growing energy interests."⁴⁴

We do not know precisely the extent to which proliferation relates to China’s need for energy; but if its record is a valid indicator, China is likely to continue to meet requests for proliferation-related goods and services in exchange for access to energy in oil-producing countries. Although China is banking on oil development projects with Kazakhstan to meet a significant amount of its future oil needs, Beijing most likely will continue to nurture its relations with oil-producing states, especially Iran and Iraq, as an insurance policy.⁴⁵

Sanctions

U.S. sanctions imposed on the PRC following the 1989 Tiananmen Square crackdown are still in effect. One result of the sanctions was the suspension of satellite export licenses for Chinese launches. Sanctions also exist under the 1990 Missile Technology Control Act that relate to M-11 missile technology and equipment transfers to Pakistan; under the Iran Nonproliferation Act of 2000, which pertains to Chinese assistance to Iran’s chemical and biological weapons programs; and under the Chemical and Biological Weapons Control and Warfare Act of 1991.

Several Chinese companies now are under sanction for violations of U.S. law. In 2001 the U.S imposed sanctions on a Chinese company for aiding Iran’s chemical weapons program.⁴⁶ In the same year the China Metallurgical Equipment Corporation (CMEC) was sanctioned for providing missile technology to Pakistan.⁴⁷ In January 2002, two Chinese companies and one individual were sanctioned for the transfer to Iran of equipment and technology for production of chemical and biological weapons. In May 2002, sanctions were imposed on seven companies (two of which were already under the January 2002 sanction) for aiding Iran’s WMD program. Also sanctioned for the third time is an individual, Q.C. Chen, long involved in these transfers.

These sanctions provide that for two years, U.S. Government agencies are prohibited from procuring or entering into contracts for the procurement of goods, technology, or services from a Chinese enterprise associated with proliferation activities. No department or agency of the U.S. Government may provide any assistance to the sanctioned entities, and they shall not be eligible to participate in any assistance program of the U.S. Government. Prohibited are items on the U.S. Munitions list and sales of any defense articles, defense services or design and construction services controlled under the Arms Export Control Act. New licenses are denied, and existing licenses suspended for the transfer to these entities of items controlled under the Export Administration Act.

As the sanctioned companies are not engaged in activities with the U.S. Government, sanctions can have little or no deterrent effect on them. Furthermore the President can waive any sanctions if he deems it to be in the national interest. Throughout the 1990’s this waiver authority was often exercised to permit China to launch U.S. satellites. Presidential waivers continued to be issued, even as the PRC transferred M-11 missile technology to Pakistan.

Although the President has a variety of sanctions available to respond to China’s proliferation activities, these sanctions are case-specific and relate to designated activities with a narrow set of options available on a case-by-case basis.

For example, the Iran Nonproliferation Act (PL 106-178) prohibits U.S. Government procurement of goods and services from the sanctioned entity and denies export licenses for the transfer of controlled items to the sanctioned entity. None of these laws provides for economic sanctions (trade, investment, and capital flows) against the offending country or government. Missile technology sanctions (PL 101-510) provide for the denial of U.S. Government contracts relating to missile equipment or technology and denial of export licenses for missile equipment or technology. The President can also deny licenses for the transfer of munitions list items and prohibit the importation into the United States of products produced by the foreign entity or entities. Once again, the law does not provide for economic sanctions against the offending country or government. Similarly, chemical and biological weapons sanctions (PL 102-182) provide the President the authority to deny U.S. Government contracts and to deny importation into the United States of products produced by the sanctioned entity, but the law does not provide for economic sanctions against the offending country or government.

The President have sufficient authority to select from the full range of economic and security related sanctions under the International Economic Emergency Powers Act (IEEPA). But its implementation is an unlikely remedy, since the IEEPA is to be invoked only in the event of a national economic emergency.

Finally, so many waivers have been granted during the last decade that U.S. sanctions and threats of sanctions appear to be more of an irritant to China than a credible obstacle. Moreover, their utility must be weighed against their impact on our own economic interests, including American jobs, and often pose a dilemma for U.S. trade officials.

In most cases, U.S. business interests have successfully argued that sanctions harm U.S. industry and the U.S. economy, particularly when the same or similar goods are available from other countries.

For example, Huawei Technologies, which helped Iraq improve its air defense capability in violation of U.N. sanctions, is an important player for many U.S. firms who want to access the Chinese telecom and data communications market, which is growing at a rate second only to that of the United States.⁴⁸

The issue of U.S. satellite launches from China has dominated the sanctions debate for the past decade. Many have argued against lifting restrictions on U.S. satellite exports to China based on national security concerns, i.e., if you improve satellite-launching missiles, you automatically improve missiles that can deliver more dangerous things. Others argue that in addition to the near term impact on U.S. industry of denying satellite exports, over the long term, U.S. industry’s ability to remain internationally competitive could suffer. Because European satellites contain components subject to U.S. restrictions, they, too, are in effect prohibited from launching on Chinese vehicles. These restrictions, some here argued, may encourage European manufacturers to develop indigenous capabilities in order to eliminate any dependency on the United States.

The various issues that surround sanctions policy reflect the broader factors involving globalization and the interdependence between U.S. economic and security issues.

One prime example is the U.S. military’s increasing reliance on private sector innovation to remain on the cutting edge. The extent to which private sector companies remain competitive has overriding importance for U.S. national interests and the ability to assure technical superiority in weapons systems.

Anti-Terrorism

China promised to cooperate with the United States in the war on terrorism, largely through intelligence sharing. Pan-Islamic fundamentalism threatens China’s control over its majority Muslim western province, Xinjiang, which is rich in natural resources. China’s cooperation, however, has been minimal. Just after September 11^th, Chinese President Jiang Zemin reportedly expressed reservations to the British Prime Minister over the U.S. war on terrorism and U.S. military action.⁴⁹ Prior to his retirement in May 2002, the U.S. Commander in Chief of the Pacific Command Admiral Dennis C. Blair complained that China’s intelligence sharing efforts were lacking in detailed information needed in the war on terrorism.⁵⁰

According to CIA Director Tenet, "September 11^th changed the context of China’s approach to us, but it did not change the fundamentals. China is developing an increasingly competitive economy and building a modern military force with the ultimate objective of asserting itself as a great power in East Asia."⁵¹

Although the warming of U.S.-Pakistan relations and the U.S. military presence in central Asia present strategic concerns for Beijing, the U.S. war on terrorism benefits Beijing. U.S. military actions and intelligence sharing help deter threats along China’s borders. Intelligence sharing also enhances the regime’s international prestige, demonstrating that China can be a partner with the United States.

Although China has publicly stated its support for international efforts to stem terrorism and approved the establishment of an FBI Legal Attaché in Beijing, Chinese counterterrorism efforts appear to be aimed at maintaining domestic security. Thus its pronouncements on cooperation with the U.S. war on terrorism may be motivated by China’s desire to lend legitimacy to its actions against its own population.

Beijing’s definition of terrorism includes any group or individual it perceives to be a threat to the regime. This includes Muslim separatists, Tibetans, Falun Gong, and political and religious dissenters. According to the State Department’s 2001 report on Global Terrorism, as part of its efforts "to improve its counterterrorism posture and domestic security" the Chinese government is "increasing its vigilance in Xinjiang, western China…and is increasing the readiness levels of its military and police units in the region."⁵²

Moreover, China’s working relations with state sponsors of terrorism have continued without change. As the United States wages war on terrorism, China continues to proliferate to those states that harbor the terrorist networks. Beijing’s foreign policy is consistent with its overall objectives. Some have argued that China’s cooperation with Iran, Iraq, Syria, Sudan and Libya are based, in part, on promises from these countries that outside Muslim extremist elements will be restrained from fomenting rebellion within China’s borders. Presumably, the SA-7 missiles it allegedly supplied the Taliban in Afghanistan just a week after September 11^th,⁵³ were meant to help secure China’s borders against dissidents in the western provinces.

Economic Reforms and WTO Accession

The World Trade Organization (WTO) provides no mechanism through which China may be forced to limit exports of WMD and related assistance.

Under certain circumstances, the economic reforms and decentralization that China’s accession to WTO is expected to generate may lead to increased proliferation activity. As Chinese entities are forced to compete internationally under WTO implementation, economic dislocation could motivate companies to export illegally in order to survive the impacts of market opening. In testimony before the Commission, several witnesses stated they did not expect China’s proliferation activity to cease despite WTO accession, in part because continued economic reform and decentralization would make dual-use technologies even harder to control. Decentralization could encourage a company to skirt official export policy and allow the government to turn a blind eye.⁵⁴

National Security Implications

Because the United States is limited in its ability to prevent China from proliferating WMD to terrorist-supporting states, the United States "must prepare for the possibility of future conflict with regional adversaries, such as Iran, who are armed with longer-range ballistic missiles and perhaps even nuclear or chemical weapons."⁵⁵ A scenario in which Iran, Iraq and Syria armed with any combination of nuclear, biological, or chemical weapons enter into a future Middle East conflict would be very threatening to the United States.

China remains one of the world’s key suppliers of missile technology.⁵⁶ The wide array of transfers during the last twenty years has serious implications for U.S. national security. While patterns of activity may have shifted with respect to composition, i.e. nuclear vs. non-nuclear, dual-use, or qualitative as opposed to quantitative transfers, China has proven to be an active proliferator.

As a result of extensive and continuing proliferation of WMD and related materiel, the United States must now be prepared to allocate significant resources to counter newly emerging and unpredictable nuclear, biological and chemical threats.

Recommendations

The President should have a full range of economic sanctions as tools to be used against foreign nations for violating proliferation commitments or agreements, and to deter further acts of proliferation.

The Commission recommends that Congress should create new authorization to broaden and harmonize proliferation sanctions. The new legislation would amend all current statutes that pertain to proliferation⁵⁷ to include a new section authorizing the President to invoke economic sanctions against foreign nations that proliferate WMD and technologies associated with weapons of mass destruction and their delivery systems. This would authorize the President to invoke and implement economic sanctions including import and export limitations, restrictions on access of foreign entities to American capital markets, restrictions on direct foreign investments into an offending country, restrictions on transfers by the U.S. Government of economic resources, and restrictions on science and technology cooperation or transfers. The new authority should require the President to report to the Congress the rationale and proposed duration of the sanctions within 72 hours of imposing them. They should remain in place for as long as is necessary to ensure non-proliferation goals are met.

The Commission recommends that Congress maintain the Tiananmen sanctions that restrict U.S. export licenses for satellite launches in China until such time as the PRC effectively implements its commitment under the November 2000 agreement to put into place an appropriate export control system and the publication of a comprehensive missile-related export control list and regulations.

Consistent with the recommendations in Chapter 6, the Congress should consider use of financial sanctions that include denial of access to U.S. capital markets to Chinese and other foreign firms found to be involved in proliferation. Unlike trade sanctions, financial restrictions would minimize "collateral damage" to U.S. exports and U.S. jobs.

The Commission recommends that the United States work through the United Nations Security Council to formulate an effective framework enforced by sanctions to counter the proliferation of weapons of mass destruction and their delivery systems.

Figure 7.2 China’s Nuclear Technology Exports: 1980s And 1990s

COUNTRY	TYPE OF ASSISTANCE
*ALGERIA*	Research Reactor 15 MWt pressurized heavy water research reactor; possible provisions of heavy water for the reactor; construction began around 1988; placed under IAEA safeguards in 1992 Designs for construction of third stage of Algeria's Center for Nuclear Energy Research
*ARGENTINA*	Low Enriched Uranium 20percent enriched, sold in 1980s, no safeguards Heavy Water 50-60 metric tons (1981-1985); no safeguards Uranium Concentrate (U3O8) 1981-1985, no safeguards Uranium Hexafluoride Gas (UF6) Early 1980s, 30 metric tons; no safeguards
*BRAZIL*	Enriched Uranium 3percent, 7percent, 20percent enriched; 200 kg total 1984, no safeguards
*INDIA*	Heavy water 1982-1987; 130-150 metric tons No IAEA safeguards Low-Enriched Uranium 1995, for India's Tarapur reactors Supplied under IAEA safeguards
*IRAN*	Research Reactors 27kW subcritical, neutron source reactor; provided in 1985; currently under IAEA safeguards Zero-power reactor; commercial contract signed in 1991; currently under IAEA safeguards HT-6B Tokamak nuclear fusion reactor, located at Azan University 20 MWt reactor; contract signed in 1992 but the deal was canceled due to U.S. pressure Power Reactors: two 300 MWe reactors Deal suspended in 1995 and canceled in 1997 CIA verified project cancellation Calutrons (electromagnetic isotope separators, EMIS) For Karaj and Isfahan facilities; commercial contract signed in 1989; under safeguards Uranium Hexaflouride (UF6) Production Facility Project canceled in October 1997 CIA verified cancellation of deal China possibly provided blueprints for facility Zirconium Tube Production Facility Assistance continuing Uranium Mining Assistance
*IRAQ*	Ring Magnets Exports of samarium-cobalt magnets for gas centrifuges, 1989-1990
*PAKISTAN*	NUCLEAR WEAPON-RELATED ASSISTANCE Nuclear Weapon Design Basic, Hiroshima sized weapon Nuclear Weapon Testing Possible inclusion of Pakistani observers at China’s Lop Nur test facility (1989) Possible Provision of Tritium Gas 1986, no safeguards Uranium Enrichment Assistance to unsafeguarded Kahuta enrichment facility This assistance was mutually beneficial Ring Magnets About 5,000 to unsafeguarded A.Q. Khan Research Laboratory in Kahuta (1995) Weapons-Grade Uranium for Two Devices Early 1980s, supplied without safeguards Plutonium Production Reactor at KhU.S.hab 50-70 MW heavy water reactor (unsafeguarded) Construction assistance Provided special industrial furnace and high-tech diagnostic equipment (1994-1995) Reprocessing Facility at Chashma Possible assistance constructing unsafeguarded facility CIVILIAN NUCLEAR ASSISTANCE Power Reactor: Chashma-1 (CHASNUPP), 300 MWe Build by CNNC, deal signed in late 1995. Began operating in November 1999 Under IAEA safeguards (INFCIRC/418) Research Reactors Miniature Neutron Source Reactor (MNSR); supplied under IAEA safeguards (INFCIRC/393) in 1991 Helped construct PARR-2 research reactor, safeguarded Heavy water (D2O) Up to 5 MT/year for safeguarded PHWR [Kanupp] research reactor Possibly diverted by Pakistan to the Khushab research reactor against Chinese wishes Fuel Fabrication Services

Figure 7.3 Continued China’s Missile Technology Exports: In The 1980s And 1990s

COUNTRY	TYPE OF ASSISTANCE
*IRAN*	Ballistic Missiles 8610/CSS-8 M-9/DF-15 (China cancelled the sale under U.S. pressure) Cruise Missiles HY-1 100 HY-2 (Silkworm) HY-4/C-201 C-601 YJ-1/C-801 (sales halted in October 1997) YJ-2/C-802 (sales halted in October 1997) Assistance to Iran’s Indigenous Missile Programs Extensive production assistance for the 8610/CSS-8 missile Extensive production infrastructure for HY-2, C-801 and C-802 missiles (production assistance halted in 1997) Possible assistance to the Shahab-3 ballistic missile FL-10 air-launched cruise missile Missile Fuel Various propellant ingredients Ammonium perchlorate Missile Guidance and Control Technology Guidance kits (mid-1990s) Gyroscopes (mid-1990s) Accelerometers (mid-1990s) Test equipment for ballistic missiles (mid-1990s)
*IRAQ*	Cruise Missiles (1980s) HY-2 (Silkworm) C-601 YJ-1/C-801 Missile Engine Testing Facility/Project 3209 Supply of standard parts for liquid propellant engine, late 1980s Missile Fuel 10 tons of UDMH, late 1980s 7 tons of lithium hydride; 1989-1990; exported by the China Wanbao Engineering Company (CWEC) Ammonium perchlorate, 1994
*LIBYA*	Missile Fuel Lithium hydride
*PAKISTAN*	Ballistic Missiles and Launchers 34 M-11/DF-11 missiles; stored at Pakistan’s Sargodha Air Force Base near Lahore; delivered in November 1992 M-11 transporter-erector-launchers (TELs) Possible Assistance to Indigenous Missile Programs Hatf-1, Hatf-2 and Hatf-3 ballistic missiles Missile Fuel Ammonium perchlorate, 10 tons seized in Hong Kong in 1996; Pakistan’s SUPARCO was caught attempting to import the ammonium perchlorate from a company in Xian, China Missile Guidance Gyroscopes Accelerometers On-board computers Assistance to Missile Production Factory Rawalpindi, 40 km west of Islamabad Likely producing Pakistani version of M-11 missile Blueprints and construction equipment, possibly ongoing
*SAUDI ARABIA*	Ballistic Missiles 30+ DF-3 (CSS-2) missiles; deliveries began in 1988; and included construction of launch complex, training, and post-sale systems maintenance In 1997, Saudi Arabia requested from China possible replacements for the aging DF-3 missiles; China did not provide any replacements
*SYRIA*	Ballistic Missiles DF-15/M-9 missiles, Syria provided advance payments Cancelled under U.S. pressure in 1991; Syria possibly received test missile Assistance with Indigenous Programs 30 tons of ammonium perchlorate in 1992 Technical exchanges

Figure 7.4 Current U.S. Sanctions on the PRC

> ACT	> SANCTIONED PARTY(IES)	> SANCTION	> REASON FOR SANCTION	> DATE OF SANCTION	> DATE SANCTION WAIVED
> Foreign Relations Authorization Act of 1990-91 (Tiananmen Sanctions)		> Suspension of: > Export of Satellites for Launch by the People’s Republic of China Nuclear Cooperation with the People’s Republic of China	> Tiananmen Square crackdown	> 1990 >	> 1) Presidential waivers for the export of satellites for launch by the PRC occurred in the following cases: Aussat-1 and —2 and Frija, 1991 Asiasat-2, Apsat, Intelsat-7A, Starsat, and AfriStar, 1992 Iridium and Intelsat-8, 1993 Echostar, 1994 Cosat, Mabuhay and Chinasat-7, 1996 Asia Pacific Mobile Telecommunications (APMT) satellite, 1996 Globalstar, 1996 Satellite parts for PRC Fengyun-1, 1996 Sinosat, 1996 Chinasat-8 (built by Loral), 1998 2) 1998 (Presidential Waiver)
> 1990 Missile Technology Control Act	> China Precision Machinery Import-Export Corp. and China Great Wall Industry Corp. > China’s Ministry of Aerospace Industry China Metallurgical Equipment Corporation	> Prohibition of the export of missile-related computer technology and satellites > Prohibition of the export of Missile Technology Control Regime (MTCR) items and U.S. Government contracts Prohibition of U.S. exports of MTCR Annex items to the sanctioned entity	> PRC transferred missile related technology to Pakistan > PRC shipped M-11 related equipment to Pakistan Proliferation of missile technology to Pakistan	> 1991 > 1993 2001 (Duration of a minimum of 2 years)	> 1992 > (Presidential Waiver) 1994 (Presidential Waiver)
> Iran Nonproliferation Act of 2000	> Liyang Chemical Equipment, China Machinery and Electric Equipment Import and Export Company (aka China National Machinery and Electric Equipment Import and Export Company), and a Chinese individual > Jiangsu Yongli Chemicals and Technology Import and Export Corporation Liyang Chemical Equipment Company, Zibo Chemical Equipment Plant (aka Chemet Global Ltd.), China National Machinery and Electric Equipment Import and Export Company, Wha Cheong Tai Company, China Shipbuilding Trading Company, China Precision Machinery Import/Export Corporation, China National Aero-Technology Import and Export Corporation, and one Chinese individual	> Prohibition of U.S. Government procurement of goods and services from the sanctioned entities. No new individual licenses shall be granted for the transfer to these foreign entities controlled items. > Prohibition of U.S. Government procurement of goods and services from the sanctioned entity. No new individual licenses shall be granted for the transfer to these foreign entities controlled items. Prohibition of U.S. Government procurement of goods and services from the sanctioned entity. No new individual licenses shall be granted for the transfer to these foreign entities controlled items.	> Supplying Iran with materials used in the manufacture of chemical and biological weapons > Reports indicate company was involved in export of dual-use items covered in the Australia Group Aiding Iran’s weapons-of-mass destruction programs	> January 2002 > (Duration of a minimum of 2 years) 2001 (Duration of a minimum of 2 years) May 2002 (Duration of a minimum of 2 years)
> Chemical and Biological Weapons Control and Warfare Act of 1991	> Nanjing Chemical Industries Group (PRC), Jiangsu Yongli Chemical Engineering and Technology Import/Export Co. (aka Jiangsu Yongli Chemicals and Technology Import and Export Corporation) (PRC), Cheong Yee Limited (Hong Kong), and five Chinese individuals	> Prohibition of U.S. Government procurement of goods or services from the sanctioned entities or persons. Prohibition of importation into the United States of products produced by the sanctioned entities.	> Contributed to Iran’s chemical weapons program	> 1997	> In effect

ENDNOTES:

1. The Secretary of State has designated these countries as state sponsors of terrorism. U.S. Department of State, Patterns of Global Terrorism 2001, (Washington, DC: U.S. Department of State 2001)
2. Central Intelligence Agency, Worldwide Threat-Converging Dangers in a Post 9/11 World, Written Testimony of George J. Tenet before the Senate Select Committee on Intelligence (6 February 2002). http://www.fas.org/irp/congress/2002_hr/020602tenet.html (24 June 2002).
3. Ibid.
4. Commission to Assess the Organization of the Federal Government to Combat the Proliferation of Weapons of Mass Destruction, Combating Proliferation of Weapons of Mass Destruction, Executive Summary, 104th Cong., 1999, Committee Print, v..
5. U.S.-China Security Review Commission, Hearing on Strategic Perception, Oral Testimony of Larry Wortzel, 3 August 2001, 229.
6. Tang Jiaxuan, Speech delivered at International Conference on Disarmament, 2 April 2002.
7. Daniel L. Byman and Roger Cliff, "China’s Arms Sales: Motivations and Implications," Rand Corporation (1999): xii, <http://www.rand.org/publications/MR/MR1119/> (24 June 2002).
8. Tenet, Armed Services, 9/11, Written Testimony.
9. U.S. Department of Defense, Proliferation: Threat and Response, Section 1, NBC Proliferation Challenges (Washington, DC: U.S. Department of Defense, 2001), 18, http://www.defenselink.mil (24 June 2002).
10. Commission to Assess The Ballistic Missile Threat to the United States, (Rumsfeld Commission) Report of The Commission to Assess the Ballistic Missile Threat to the United States: Executive Summary, 15 July 1998, <http://www.fas.org/irp/threat/missile/rumsfeld/toc.htm> (24 May 2002).
11. Ibid.
12. Ibid.
13. Ibid.
14. Defense Intelligence Agency, Senate Armed Services Committee. Hearing on Global Threats and Challenges, Statement for the Record of Vice Admiral Thomas R. Wilson, 19 March 2002, 16.
15. Central Intelligence Agency, Director of Central Intelligence. Unclassified Report to Congress on the Acquisition of Technology Relating to Weapons of Mass Destruction and Advanced Conventional Munitions 1 January-30 June 2001, <http://www.cia.gov/cia/publications/bian/bian_feb_2000.html> (24 June 2002).
16. U.S. Department of State, Office of the Spokesman. "China: Sanctions Imposed on Chinese Entities Pursuant to the Iran Nonproliferation Act," Daily Press Briefing, 25 January 2002.
17. Defense Department, Threat and Response, 17.
18. CIA, WMD Report.
19. Senate Armed Services Committee, Hearing on World Wide Threat – Converging Dangers in a Post 9/11 World, Written Testimony of George J. Tenet, 19 March 2002, 12.
20. Defense Department, "Threat & Response," 18.
21. Jennifer Lee, "U.S. Officials Complain That Chinese Companies Supply Rogue Nations," New York Times, 12 November 2001, Sec. C, 2.
22. Bill Gertz, "Beijing Using Front Companies to Grab U.S. Arms Technology," The Washington Times, 26 January 2001, citing a Chinese Foreign Ministry spokesman.
23. John Gershman, "Arms Sales to Taiwan: A Flashpoint Issue," Foreign Policy in Focus: Global Affairs Commentary (2001), http://fpif.org/commentary/0103taiwan_body.html (24 June 2002).
24. Andrea Koppel, "Powell: China Agrees to Stop Helping Iraq" CNN.Com/World (8 March 2001), <http://europe.cnn.com/2001/world/asiapc/east/03/08/us.china.iraq/> (24 June 2002).
25. Gersham, "Arms Sales to Taiwan: A Flashpoint Issue."
26. Allen Lenz, "China’s Role in World Goods Trade," Report prepared for the U.S.-China Security Review Commission (March 2002): 4.
27. Sergei Troush, "China’s Changing Oil Strategy and its Foreign Policy Implications," Center for Northeast Asian Policy Studies Working Paper, (Fall 1999),
<http://www.brookings.edu/dybdocroot/fp/cnaps/papers/1999_troush.htm> (24 June 2002).
28. Ibid.
29. Erica Strecker Downs, China’s Quest for Energy Security. (Washington, D.C.: Rand, 2000), 52.
30. John Calabrese; "China And The Persian Gulf: Energy Security," Middle East Journal 52, no. 3 (Summer 1998): 365.
31. Adam M. Pener, Capital Markets Transparency and Security: The Nexus Between U.S. – China Security Relations and America’s Capital Markets (Washington, D.C.: William J. Casey Institute of the Center for Security Policy, 29 June 2001), 38, citing Ian Johnson, "China Cuts Sudan a Deal on Nile Oil Project," Wall Street Journal, 20 December 1999.
32. U.S. Department of State, "Patterns of Global Terrorism 2001," May 2002, 68.
33. Adam M. Pener, Capital Markets Transparency and Security: The Nexus Between U.S. – China Security Relations and America’s Capital Markets (Washington, D.C.: William J. Casey Institute of the Center for Security Policy, 29 June 2001), 38, 39, quoting Freedom House, Center for Religious Freedom, "Sudan Campaign of Conscious Brochure 2001."
34. Calabrese, "Energy Security," 363.
35. Strecker Downs, China’s Quest for Energy Security. (Washington, D.C.: Rand, 2000), 52, citing email correspondence with oil industry analyst 25 June 1999.
36. Troush, "Oil Strategy."
37. Byman, "China’s Arms Sales," 12.
38. Bates Gill, "Chinese Arms Exports to Iran," Middle East Review of International Affairs 2, no. 2 (May 1998), <http://meria.idc.ac.il/journal/1998/issue2/jv2n2a7.html> (24 June 2002).
39. Troush, "Oil Strategy."
40. Ibid.
41. John Calabrese, "Peaceful or Dangerous Collaborators? China’s Relations with the Gulf Countries," Pacific Affairs 65, Issue 4 (Winter 1992-1993), 480.
42. "Iran: Chinese Minister Notes Trade With Iran Tops $3.3 billion in 2001," Tehran IRNA (FBIS Transcribed Text), 04 April 2002.
43. Bill Gertz, "China Steps Up Air-defense work on Iran’s Border Fears," The Washington Times,
18 October 2001, Part A, Nation, 3.
44. Troush, "Oil Strategy."
45. Ibid.
46. Shirley A. Kan, "China’s Proliferation of Weapons of Mass Destruction and Missiles: Current Policy Issues," CRS Issue Brief, 21 May 2002, 9.
47. Ibid., 5.
48. Gershman, "Arms Sales to Taiwan: A Flashpoint Issue."
49. Shirley Kan and Kerry Dumbaugh, Terrorism Briefing Book (Washington, D.C.: Congressional Research Service, 22 March 2002).
50. Dirk Beveridge, "U.S.: China Could Help War on Terror," Associated Press, 18 April 2002, <http://www.washingtonpost.com> (22 May 2002).
51. Tenet, Armed Services, 9/11, Written Testimony, 19.
52. State Department, Patterns of Global Terrorism, 16.
53. Bill Gertz and Rowan Scarborough, "China-al Qaeda nexus," The Washington Times, 21 December 2001.
54. U.S.-China Security Review Commission, Hearing on Proliferation Issues, Oral Testimony of Kenneth Allen, 12 October 2001, 10-11.
55. Byman and Cliff, "China’s Arms Sales: Motivations and Implications," xii.
56. Defense Department, "Threat and Response," 18.
57. The primary statutes include:
Prohibition on assistance to countries that provide military equipment to terrorist states (PL 104-132) of the Foreign Assistance Act 1961),
Prohibition on assistance to countries that aid terrorist states (PL 104-132),
Chemical Weapons Convention Implementation Act of 1998 (PL 105-277),
Sanctions against the use of CBWs (22 USC 5605, enacted by PL 102-182),
Sanctions against certain foreign persons for CBW proliferation (PL 102-182),
Nuclear Proliferation Prevention Act of 1994 (PL 103-236),
Transfers of missile equipment or technology by Foreign persons (PL101-510 et al),
Iran Nonproliferation Act of 2000 (PL 106-178),
Foreign Relations Authorization Act of 1990-91 (PL 101-246).