Chairman PICKLE. The subcommittee will please come to order. We have several panels today and several witnesses to hear, and I am sure many questions from members, and responses from the panel. I would serve notice to some of the panelists that testimony will be taken under oath. I ask then the cooperation of all the members and the audience to please take a seat.

We are here today to discuss a very grave and serious subject. As the recent war in the Middle East demonstrated, all too clearly, it is very likely that our troops will again be drawn into dispute between Third World nations in some manner. As we will see today, Iraq is not the only Third World country that has been building a formidable military, armed with an array of weapons of mass destruction. Iraq is not the only country that is illegally seeking components for their weapons systems from the United States.

We will also see that the United States' businesses are either wittingly, or unwittingly, assisting Third World countries in their weapons development and production programs. These are serious statements, if not accusations, which we will explore today.

I am also releasing the April 1991 U.S. General Accounting Office report to the subcommittee on the U.S. controls on trade with Middle Eastern countries. That report will be available upon request or at the table. Among other things, the GAO reports that in 1990, the United States exported over $10 billion to Egypt, Iran, Iraq, Israel, Jordan, Kuwait, Yemen, Saudi Arabia, and Syria. Needless to say, the United States is still one of the best sources of high-technology products and know-how throughout the world.

That's good for the United States and good for United States businesses. Historically we have limited the sale of some high-tech know-how products to the Soviet Union and other Eastern bloc countries for national security and policy reasons. Today, because of welcome changes in our relationship with the Eastern bloc countries, we are decontrolling many of these products. Meanwhile, our concerns are shifting to proliferation of weapons of mass destruction and the related delivery system for those weapons to Third World countries.

The administration has recently promulgated new regulations aimed at controlling proliferation to Third World countries. The theory embodied in the new regulation is that we will control only key components and materials that are absolutely necessary in order to successfully develop weapons of mass destruction and delivery systems. The idea is to build high walls around a short list of

controlled items.

Today, we are going to examine just how high those walls are, and I am not at all convinced that we have any walls at all, let alone high walls. The four cases that we have scheduled for today will illustrate how the game is played, who the players are, the role of Customs and other Federal agencies, and the method of diversion schemes used to circumvent our export laws. For the first time, this committee will attempt to trace cases from beginning to end. Frankly the scenarios that we will be examining will turn out to be relatively unsophisticated, yet, they appear to be difficult to detect given our current enforcement efforts. The commodities exported are dangerous and deadly, yet, they were caught as a result

of a lucky tip to the U.S. Government received from a business or foreign source.

As far as I can determine, we have no independent focus or meaningful, systematic enforcement program of our own, in the first place, and that is why a U.S. citizen was able to illegally procure and then illegally smuggle sophisticated missile technology and components to Egypt for use by Egypt and Iraq in developing the Condor II missile and upgrading their SCUD-B missiles.

In the second case, one low-level company official at a Baltimorebased chemical manufacturer was able to arrange singlehandedly for the illegal shipment of hundreds of tons of mustard gas ingredients to Iraq and Iran.

The third case illustrates how a foreign arms manufacturer can both legally and illegally tap U.S. technology and products to develop and produce cluster bombs and attack helicopters for Iraq and other Third World countries.

The last case that we plan to look at today, demonstrates how unfriendly foreign governments can use one of our closest trading partners, Canada, to facilitate diversion of sensitive technology.

The question I think each of us will ask at the conclusion of today's hearing is, how much of our vital technology is being smuggled across our borders every day without our knowledge? I don't think anyone in the Federal Government knows or is set up to stop it. I think you would also find that U.S. businesses and individuals are players in export violations, either knowingly, or not.

While I am one of the strongest supporters of increasing our level of international export trade, I also believe that U.S. businesses should not participate in activities or policies contrary to our national security. The United States is known for its great salesmen, business salesmen. We need to make sure that the goods we sell are not later used against us by adversaries.

Frankly, I think you will find that the Department of Commerce's and the Department of State's systems of issuing licenses as well as both Customs' and Commerce's enforcement efforts are lacking.

I think that a little more investigation or probing into the licensing process would provide suspicious results. Customs and Commerce have little means of detecting illegal export activities unless it jumps out and smacks them in the face. As sure as I am sitting here, there will be more Iraq's in the future, because the export control system we now have in place cannot properly regulate the export of sensitive and dangerous commodities.

I think it is clear that if we are going to prevent the use of U.S. resources in development and production of Third World weapons then we are going to have to take a serious look at the enforcement of U.S. export controls. This subcommittee intends to do just that, starting today.

Six different Federal agencies-the U.S. Customs Service, the Departments of Commerce, Defense, Treasury, Energy, and State-all have critical responsibilities for developing and enforcing our export programs. They need to answer some very hard questions. We will continue with these hearings again on May 1, 1991. This is then the first of two of the hearings, and the next one will be on May 1. Now, that completes the Chair's opening statement.

Mr. Schulze, would you care to make a statement?

Mr. SCHULZE. Thank you, Mr. Chairman.

I am pleased to join you in opening our hearing on export controls. One side effect of the Persian Gulf war is to focus the attention of the American public and press on the role of the United States in supplying weapons technology to other countries. Unfortunately, this is not a new story. About 50 years ago, the_young people of my generation went off to serve their country in Europe and the Pacific and many of us remember photographs on the front page of the paper, at that time, where huge boatloads of scrap metal were being sold to the Japanese, and at the time, a very prominent comment was that we sold the Japanese the scrap metal from which they made the weapons to attack us at Pearl Harbor. Today, our young men and women are returning after serving their country in the Persian Gulf war. The added tragedy is that we may have sold to Iraq some of the weapons parts and technology which killed or injured our own soldiers. For example, U.S. troops have been injured after the cease fire by live cluster bombs in the field. These may have been Iraqi cluster bombs fused with U.S. detonators. Also, 13 members of the National Guard from Greensburg, Pa., were killed by the direct hit of a SCUD missile on their barracks. U.S. technology and parts may have been used to upgrade the SCUD missile used to attack Saudi Arabia and Israel. Mr. Chairman, we never seem to learn from history-Pearl Harbor, the Persian Gulf-who knows where the next location will be where U.S. soldiers may be on the receiving end of U.S.-made weapons?

My objective today is to learn how our export control program is supposed to identify and control the export of weapons, parts and technology. Case histories, which we will examine, demonstrate both the success and the failings of the program. The success stories show that sometimes it may work fairly well, but quite frankly, that's not good enough. The challenge is to plug the loopholes in the current program without going overboard. That is, we must prevent unstable and irresponsible countries from acquiring weapons of mass destruction without putting our businesses in a commercial straitjacket.

There are two competing goals. How can we preserve the dynamic spirit of our open commercial system, but also strictly control the export of certain parts and technology? It may not be easy, but we must try and we must succeed. If we do not, then the next generation of American troops may pay the real price on the battlefield in some God forsaken corner of the world.

Mr. Chairman, we can learn how to improve the effectiveness of our export control program by studying the real life cases before us today, and I look forward to hearing the testimony of our witnesses. I might also add that perhaps, as Members of Congress, we should be a little introspective and think of the role that we have played in sending the message to the bureaucracy time after time that we want you to weaken those controls and not make them stronger.

When I say this, I think of the Toshiba case, when members of this committee fought to weaken the sanctions against Toshiba

after it was proven that they transferred technology to enemy nations.

I think of the vote last year on the Hyde amendment, which would have stringently toughened the Export Control Act and where the majority of the Members, even some here today, voted against that effort to toughen that law. So, as we look, I would hope that we would look for information and perhaps be a little introspective and not just point the finger of blame, but see how we can cure the situation so that we do not have a repeat in the future.

I thank you, Mr. Chairman.

Chairman PICKLE. Thank you, Mr. Schulze.

Our first witness will be Henry Sokolski, the Deputy for NonProliferation, Office of the Assistant Secretary of Defense for International Security Affairs. I understand that you are accompanied by Peter Sullivan, the Deputy Director, Defense Technology Security Administration.

Do you gentlemen have a single statement or are you going to make the statement, Mr. Sokolski?

Mr. SOKOLSKI. Yes.

Chairman PICKLE. You may proceed, sir.

STATEMENT OF HENRY D. SOKOLSKI, DEPUTY FOR NON-PROLIFERATION POLICY, OFFICE OF THE ASSISTANT SECRETARY FOR INTERNATIONAL SECURITY AFFAIRS, U.S. DEPARTMENT OF DEFENSE, ACCOMPANIED BY PETER M. SULLIVAN, ASSISTANT DIRECTOR, DEFENSE TECHNOLOGY SECURITY ADMINISTRATION; AND RICHARD SPEIER, OFFICE OF NON-PROLIFERATION POLICY

Mr. SOKOLSKI. Thank you, Mr. Chairman.

First, I want to thank the committee for holding this hearing and taking an interest in a topic which is complex and usually not very glamorous, and that is, enforcement and administration of our export controls.

Effective administration and enforcement of our export controls admittedly, for the most part, is not very flashy. Most of the time it's not passing laws, or creating new multilateral regimes, but without it none of these efforts can bear fruit.

Again, I commend this committee for taking the time and the effort to focus so persistently on this issue. Before I begin addressing the specific issues posed in your letter of invitation, I first would like to give you just a brief statement on the Department's role in export administration, and export administration process.

I would first like to emphasize that DOD is not a licensing agency. That responsibility lies with the Department of State for munitions items, and with the Department of Commerce for dualuse items. Of course, we, at DOD believe we are uniquely qualified to gauge the military proliferation significance of a proposed transfer. And, as I have stated numerous times before, we are happy to review and become even happier when we review more from either State or Commerce.

Defense, as part of its responsibilities under U.S. export controls, provides assistance to intelligence and law enforcement agencies.

This ranges from providing expert analyses on identifying suspect Government and technology to bringing their attention to possible acquisition of control items.

The message I would like to get across today is that we can and do have the tools to make our export controls, laws and agreements effective. In fact, with increased concern about proliferation, in particular, additional laws and regulations have recently come into force, not only here, but I might add, also abroad. And control priorities have begun to shift towards the security problems posed by exports to destinations outside of the Soviet bloc.

În your invitation you posed a number of specific questions. I would like to try and address them briefly by giving an overview of the security threats posed by proliferation of advanced technologies with a special focus on what the committee is concerned about, which is dual-use technology.

To get a better grasp of these points, I will also be discussing some of the specifics surrounding a particular development, the Condor Missile. The focus on dual-use technology, highlighted recently by news stories of Iraqi military schemes to procure computers for their missile development efforts, and other procurement schemes to get other equipment is no accident.

Whereas, 30 or 40 years ago, our Nation's most advanced technologies such as nuclear energy, missile and satellite technology, computers, communication and navigation technologies-were principally developed and advanced by our military and governmental sectors, today, nearly the reverse is the case. The best computers, some of the most innovative space launch systems, biochemical technologies, nuclear reactors, communication and navigational and satellite systems now come from the private sector and are sold primarily as commercial goods.

Although our Government and military buy these goods, they are by no means the largest or the most significant customers any longer. Indeed, technologies once developed for military use are now being made available for a vast variety of commercial applications.

As we trade in these technologies and broaden their beneficial peaceful applications, there are unavoidable downside effects. These technologies were originally devised, after all, to secure our military super-power status and can be used by others for similar purposes. Clearly, those who would wish us or a friend harm may use these technologies against us if they acquire them. Given dualuse developments, the vast oil wealth of many Middle East nations, and the multitude of suppliers and transit points for military useful technology-dual-use or otherwise-your committee has rightly asked the question, can we cope?

In specific, can counterexport controls keep up? Are they relevant?

The short answer that I want to give today, I believe, yes. If we know what to focus on, dedicate sufficient assets on these objectives and persist, specific security benefits clearly can be realized by export controls and proper administration of such.

As you know, a number of militarily useful technologies_and pieces of equipment made their way into Iraqi hands. Some have used this fact to argue that export controls do not work or that our