How Hughes Got What It Wanted on China
By John Mintz
Washington Post Staff Writer
Thursday, June 25, 1998; Page A01
C. Michael Armstrong could hardly have been more blunt with President Clinton in a letter in October 1993. "You asked me to support your economic package; I did," wrote the then-chief executive of Hughes Electronics Corp. Then he ticked off other policy areas where he had helped the president. Now Armstrong wanted Clinton to exempt Hughes from trade sanctions against China so the firm could launch satellites there.
"It's a tragic situation that potentially thousands of California people could lose their jobs" if the sales ban remained, Armstrong wrote. Then he delivered a warning: "This will be public and political shortly. Thank you." Within weeks, Armstrong, whose company employed 30,000 people in vote-rich California, met with Clinton. Eventually, he would receive most of what he wanted.
It was a classic episode in the politics of space. Hughes, the world's largest satellite builder and a favorite of U.S. trade officials, has gotten almost all it has sought from the Clinton administration on China deals, through in-your-face lobbying tactics and a revolving-door hiring policy for officials departing key agencies, government and industry officials said.
In coming weeks congressional committees investigating Clinton's satellite export policies are scheduled to turn the spotlight on Hughes, and especially on what critics call its convivial relationship with the Commerce Department. Hughes led most of the industry's successful initiatives to loosen controls on exports to China in recent years.
Investigators are particularly examining the firm's activities in Washington under Armstrong, a rider of vintage Harley-Davidsons whose crystal-blue stare possesses a persuasive intensity. Brash and self-confident, Armstrong led Hughes from 1994 to 1997, when he left to become chief executive of AT&T Corp. He proved his slashing style again yesterday by announcing AT&T's purchase of cable giant Tele-Communications Inc.
"When we say we're questioning the Clinton administration's policy on satellite sales to China, we should say it's the Clinton-Hughes-Armstrong policy," said a congressional investigator. "Hughes is the Commerce Department."
In the current controversy about space deals with China, the public has heard more about Bernard Schwartz, CEO of Loral Space & Communications Ltd., whose engineers may have broken U.S. export rules in 1996 by faxing the Chinese a technical report about rocketry after the failed launch of a Loral spacecraft. The Justice Department is investigating that incident, and Clinton's later approval of a Loral launch in China this year, in light of the fact that Schwartz is a big Democratic donor.
But while Schwartz did little lobbying in Washington on Chinese launches, Armstrong made loosening controls on Chinese satellite deals a key mission of his Hughes tenure, industry officials said. A Republican, he supported President George Bush's reelection effort in 1992, and in 1993
and 1994 gave $25,000 to GOP groups. Hughes has split its donations between the two parties.
Hughes has an easy story to sell in Washington. Founded in the 1930s in a rented hangar in Burbank, Calif., by aviation pioneer Howard Hughes, the firm went on in the 1960s to become the global leader in developing commercial satellites. Its spacecraft, designed to withstand the extremely violent vibrations of takeoff as well as the extremes of hot and cold in deep space, beam television programs, phone calls, faxes and e-mail messages around the world.
Hughes's lobbying on China began in 1992, around the time Bush moved authority for licensing some U.S.-China satellite deals from the relatively strict State Department to the Commerce Department, which promotes U.S. business abroad. The firm won Commerce's permission to
communicate more freely with Chinese space officials on technical data in many launches. Moreover, the firm got Commerce to loosen requirements that Pentagon officials monitor all technical discussions between U.S. and Chinese space engineers.
Hughes said it simply sought to avoid paying for monitors. But a congressional staffer said, "Hughes wanted to please its customers, the Chinese, and didn't want anyone between them and their customers."
These Commerce decisions led to years of confusion about which agency regulated which phases of U.S. launches in China. While other U.S. firms, such as Loral and Lockheed Martin Corp., had Pentagon monitors present for discussions with the Chinese, Hughes did not, and three of its launches had no Defense Department monitors in 1995-97, government officials said.
"Hughes followed all the correct procedures," a Hughes official said. "We just didn't want somebody from DOD looking over our shoulder."
Now the Justice Department is investigating Hughes's transmission of a technical report to China about a failed launch in 1995 that destroyed a Hughes satellite. Administration officials say all U.S. satellite launches in China now require monitors.
"Hughes was aggressive in pushing to not allow bureaucrats to stand in its way in capturing the Chinese market," a senior administration official said. The firm "exploited inconsistencies in the way the regulations were applied. But national security wasn't compromised."
Hughes stepped up its lobbying in 1993, when Clinton imposed trade sanctions after concluding China had sold M-11 missile parts to Pakistan. That meant Hughes couldn't sell satellites in China; Armstrong simmered as European firms snagged Chinese deals worth $1 billion.
Armstrong led the lobbying to exempt U.S. satellite firms from the sanctions. He bitterly denounced the Clinton sanctions for hurting the U.S. economy and doing little to induce China to stop selling missiles. Hughes hired Hill & Knowlton, the public relations firm, which worked Congress, the White House and the Democratic National Committee.
In late 1993, weeks after sending his letter to Clinton and then meeting with him, Armstrong won a partial victory when the White House decided satellites regulated by Commerce could be launched in China.
But State still regulated phases of Hughes's China launches, and Armstrong became infuriated by what he saw as its pettifoggery. "There is a tension between Hughes and State, bad blood," an administration official said. "Armstrong felt decisions got lost for months on end at State."
Angry at State, "Armstrong said, 'Yo, Washington office, fix this,' " an industry executive said. Soon he got Clinton to name him chairman of the President's Export Council, a presidential advisory group. It was an odd choice, given Armstrong's GOP affiliations and his past blunt talks with Clinton, industry officials said. But then again, Armstrong did represent a huge firm beloved by administration technology wonks in a key electoral state, they said.
From that perch, Armstrong lobbied Secretary of State Warren Christopher and many members of the administration and Congress for his key objective: moving licensing authority for all Chinese satellite deals from State to Commerce.
In 1995 Armstrong hired Loretta Dunn, then a top aide to Commerce Secretary Ronald H. Brown, as Hughes's vice president for trade. She lobbied numerous former colleagues in the administration and is credited with helping arrange Clinton's March 1996 decision shifting regulatory authority over Chinese satellite deals to her former agency.
"This was a bipartisan decision made in consultation with Capitol Hill," said Hughes general counsel Marcy Tiffany. "It was not a case of the administration pandering to industry." She added: "Hughes feels we contribute to the national security by having American satellites up there."
c Copyright 1998 The Washington Post Company
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