Probe of Loral's Aid to Chinese
Raises Questions About Exports
The Wall Street Journal Interactive Edition -- May 29, 1998
By BRIAN DUFFY and THOMAS E. RICKS
Staff Reporters of THE WALL STREET JOURNAL
WASHINGTON -- On April 11, 1996, a group of outside security advisers filed into a
conference room at Space Systems/Loral in Palo Alto, Calif., to watch a videotape of the crash
of a Chinese Long March 3B rocket.
"When you see what happened with the rocket, it's pretty impressive," Stephen Bryen, one of
the advisers, said. "It lifts off, turns, goes over the fence. And then there's a huge fireball, an
inferno."
Dramatic as it was, when Loral executives asked the panel
whether the company could help the Chinese review the
cause of the crash at the Xichang Satellite Launch Center in
China, the security specialists all advised no. Without the
State Department issuing a special license, any such
assistance would violate U.S. laws intended to safeguard
classified data, they agreed.
"I said, 'No, you can't do that,'ÿ" Mr. Bryen recalled.
"ÿ'That's a transfer of technical data.'ÿ"
But 11 days later, a top Loral official convened a two-day
meeting of rocket specialists. The purpose: to assist the
Chinese in a review of the Long March crash -- without the State Department license. Loral
executives relied on their interpretation of an executive order that President Clinton signed just
months before that changed procedures for licensing some satellite exports.
Loral Space & Communications Ltd.'s chairman, Bernard Schwartz, said, "If anything occurred
here, it was an honest, low-level mistake." The Chinese, he said, weren't given any information
that violated export regulations or damaged national security.
Today, Loral's decision is the focus of Justice Department and congressional investigations, and
is at the eye of the political storm swirling around President Clinton and his coming trip to
China.
The investigations are raising new questions about Mr. Clinton's efforts to encourage exports of
U.S. high-technology products:
This week, prosecutors took the unusual step of sending a subpoena to the Pentagon, a signal
that the Loral investigation is expanding. David Tarbell, director of the Defense Technology
Security Administration, who received the document, declined to be interviewed, but said in a
statement that "we are cooperating with all Justice Department and congressional inquiries."
Investigators are trying to determine whether Pentagon subordinates' concerns about exports by
Loral or other companies were ignored.
Unwavering Support
A history of bipartisan support for commercial-satellite waivers:
PRESIDENT REAGAN: On Sept. 9, 1988, approved a plan to allow the export of
U.S.-made communications satellites to China for launching on Chinese rockets. State
Department spokesman Charles Redman noted that the plan would "protect legitimate
U.S. national-security interests ... ."
PRESIDENT BUSH: On three separate occasions over four years, granted waivers
to allow the export of a total of nine commercial satellites for launch on Chinese rockets.
On each of those occasions the president reported to Congress that the waivers were "in
the national interest."
PRESIDENT CLINTON: Over six years, has granted waivers to allow the export of
11 commercial satellites for launch on Chinese rockets. Each and every time, the
president has notified Congress that the waivers were "in the national interest."
Investigators are focusing on the two-day meeting Loral hosted in Palo Alto and a second one in
Beijing the following week. They are studying minutes of both meetings, visual aids and other
presentation materials and a report summarizing the two sessions to determine whether classified
information was illegally transferred to the Chinese and used in any military application.
The Loral report on the crash -- cosigned by Hughes Space & Communications Co., a unit of
General Motors Corp. -- was sent to the State Department only after Chinese officials were given
a copy, which could be a technical violation of U.S. law.
An Air Force intelligence review of the Loral report concluded that classified technical
information had indeed been transferred. In May 1997, that conclusion was forwarded to the
Justice Department, which began a preliminary investigation. Its first subpoena was issued to
Loral in February.
The executive order signed by Mr. Clinton on Dec. 5, 1995, allowed the Commerce Department
to license some satellite exports if it heard no response from other reviewing agencies after 30
days. Commerce Department officials said the order was designed to improve the license-review
process, but officials at the Pentagon and the Central Intelligence Agency said it created more
confusion and led some aerospace executives to believe they could transmit some types of
sensitive data to foreign governments without obtaining a license.
There is a broader issue behind the current controversy.
In its efforts to promote the interests of U.S. businesses, the Clinton administration has taken
significant steps to ease Cold War-era export restrictions on some sensitive technologies.
Companies have welcomed the moves, saying the old safeguards are no longer necessary. But
critics -- including some Republican lawmakers who just a few years ago had urged loosening
export policy -- said Mr. Clinton has moved too far, too fast.
Harsh Words From Bush Official
Henry Sokolski, a senior Pentagon official for nonproliferation policy in the Bush
administration, complained that Mr. Clinton has loosened the export-monitoring regime far
beyond what Mr. Bush considered prudent. "It's the difference between someone who sins and
goes to church to confess, and someone who burns down the church and dances on the ashes,"
Mr. Sokolski said.
Mr. Clinton's aides have decried such criticism as groundless and overwrought. But it has
suddenly assumed added potency. Pakistan's decision Wednesday to respond to rival India's
earlier round of nuclear tests with five of its own has thrust the issue of weapons proliferation to
the fore. Some Republicans now charge that Mr. Clinton and his aides not only lack a coherent
policy to counter such proliferation, but also that their emphasis on commercial interests may
have encouraged the spread of dangerous weapons.
The Clinton administration is fond of noting that it is simply continuing the Bush
administration's policy of approving waivers on China sanctions; this administration has granted
10 such waivers for Chinese rockets to launch 11 U.S. satellites, while President Bush approved
waivers for nine satellites.
But critics said the Clinton administration has taken a far more freewheeling approach to
monitoring the transfer of technology. In March 1996, Mr. Clinton transferred some
satellite-licensing authority from the State Department, which traditionally emphasized
foreign-policy and national-security concerns, to the Commerce Department, which urged wider
exports of a range of U.S. high-technology equipment. Then-Secretary of State Warren
Christopher had objected to the shift of authority, but Mr. Clinton approved it anyway, siding
with then-Secretary of Commerce Ron Brown.
Changes After Executive Order
On top of that, the executive order Mr. Clinton signed in December 1995 introduced additional
changes. Some aerospace executives had complained that the export-licensing system Mr.
Clinton inherited was "like a black box." An application to ship a satellite abroad would go into
the bureaucracy and come out months or years later, with a host of "provisos" or technical
requirements attached.
William Reinsch, undersecretary of commerce, said Mr. Clinton's order put an end to that by
establishing a rigid 90-day limit on the license-review process. "It put an end to the black box,"
he said. "It gave closure."
But others said the order introduced new ambiguity about requirements for obtaining licenses for
transfering technical data-information about how satellites are built and operated. Hughes Space,
for example, said in a letter to the Commerce Department that its review of technical data to be
transferred abroad in connection with a satellite launch led it to conclude that the information was
"exportable under Commerce Licensing Exception NLR." NLR means "no license required."
Some government regulators said the executive order's provision allowing the Commerce
Department to construe the lack of a response from a reviewing agency as approval for an export
license has effectively eased the process for companies seeking export licenses. But Mr. Reinsch
said the chance of a reviewing agency not responding before its review deadline is "between 1%
and 0%."
A senior nonproliferation official in the Pentagon, however, said he hadn't been informed of
several sensitive export-license applications. While a senior State Department official generally
applauded the review procedures specified in Mr. Clinton's order, he said he "could not
guarantee" that "a few" applications had not been vetted by all the agencies that should have
reviewed them.
Mr. Reinsch rejected such criticisms. "I think there are a lot of people out there who don't like
the Commerce Department, who want to say we screwed up," he said. "But I think the rules are
clear."
Mr. Bryen, who watched the video of the Chinese rocket failure, served as the head of the
Pentagon's Defense Technology Security Administration under President Reagan, and is known
as a hard-liner on the export of sensitive technologies. He said the rules may be clear, but the
Loral matter shows how differently they are being enforced. In his day, Mr. Bryen said, such an
episode would have caused him to drag the company president into his office "in a nanosecond."
-- Frederic M. Biddle in Los Angeles contributed to this article.
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