House International Relations Committee Hearing: U.S. Policy Toward Russia and Russian Proliferation

March 25, 1999

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REP. GILMAN: (Sounds gavel.) The committee will come to order. Under President Clinton's administration the United States has undertaken a broad policy of engagement with Russia. During the first year of his administration the president committed to hold summits with Russia's president twice a year. He also created a special bilateral commission, headed by Vice President Gore and Russia's prime minister, which has also focused on holding parallel summits twice annually.

The policy of providing Russia with billions of dollars worth of direct assistance, loans by the IMF and World Bank, and space station contracts was planned and carried out. Large-scale debt rescheduling for Russia's government was pushed through the Paris Club of official creditors. And large-scale trade and investment with Russia was encouraged. Russia was provided with a quota for the use of Russian rockets to launch American-built satellites. Aid, business and investment was accompanied by a purposeful effort to integrate Russia into international institutions, such as the G-8 group of nations. As NATO moved to admit new members, Russian interests were addressed. As arms control agreements were revised, concessions were granted to Russia.

Today our committee will begin an assessment of the success of these policies over the last six years. We will open that assessment with a review of the patterns of Russian proliferation of advanced conventional weapons and technology related to weapons of mass destruction, and what that means for our nation's interests, and what the administration has done or should do to ensure that such proliferation does not undermine our American interests around the world.

Our committee will follow this hearing with further hearings covering other aspects of Russian foreign policy, including United States policy towards Russia, U.S. assistance to Russia and the other states of the former Soviet Union, and developments within Russia, a country mired in economic crises approaching parliamentary and presidential elections over the next year and a half.

I believe that today's topic -- Russian proliferation -- is a good starting point for our committee's assessment of Russian foreign policy.

A quick review of developments in recent years appears to show that Russia insists on maintaining and expanding its relations with Iran, despite our nation's objections, to include cooperation on dangerous nuclear technology and quite possibly ballistic missile technology. It also demonstrates that Russia is selling advanced weaponry and technology to China as a purposeful policy. It raises questions about Russia's intentions with regard to arms sales to both Iraq and to Syria.

In the last Congress, with the support of 230 co-sponsors, I introduced the Iran Missile Proliferation Sanctions Act, a measure subsequently passed by both the House and Senate. Focused on the missile development program in Iran, the act was a carefully calibrated targeted sanctions approach designed to deter any technical assistance to that program. Regrettably, the president vetoed our bill last year, arguing that his approach of sanctioning a small number of Russian entities instead could address the problem.

Three months into this Congress, there's no evidence that the assistance to Iran has been curtailed. We just cannot rule out the possibility that certain elements within the Russian government are facilitating or permitting this to take place, despite, as we said earlier, clear U.S. objections that have been voiced.

I believe that we may need to take on a more comprehensive legislative effort this year to create disincentives for any foreign entity to assist Iran in any program involving any type of technology related to weapons of mass destruction. We'll make every effort to see that any legislation that we may introduce in this matter is enacted and implemented before Iran can acquire sufficient outside expertise and assistance so that it can put in place operational medium-range and long-range missiles capable of threatening our troops and our allies. If this problem is not properly addressed, such missiles may soon directly threaten our nation as well.

This morning we have before us a great panel of witnesses, with whom we are looking forward to open our review of Russian foreign policy and Russian proliferation. Our witnesses include former director of Central Intelligence James Woolsey, now a partner in the firm of Shea and Gardner (sp); Mr. Henry Sokolski, former deputy for nonproliferation policy of the Office of the Secretary of Defense and now executive director of the Nonproliferation Policy Education Center; Mr Anthony Cordesman, former director of defense intelligence assessment, now the co-director of the Middle East Program at the Center for Strategic and International Studies; and Mr. Sherman Garnett, former deputy assistant secretary of defense for Russia, for the Ukraine and Eurasia, now the director of the Project on Russian- Chinese relations at the Carnegie Endowment for International Peace; and Mr. John McMahon, former deputy director of Central Intelligence, now a board member of the U.S.-Russian Space Launch Joint Venture, Lockheed-Khrunichev Energia Incorporated.



Co-Director, Middle East Program
at the Center for Strategic and International Studies


MR. CORDESMAN: And I will confine myself to a few brief remarks.

Looking at what has happened in terms of Soviet and Russian arms transfers, in some ways I think we see a remarkable trend in our favor. At the end of the Cold War, Russia was transferring over $20 billion worth of arms a year. In 1994, according to the latest declassified U.S. intelligence data, those transfers dropped in value to a historic low of $1.5 billion.

If we look at key target countries, the overall pattern of transfers have also moved in our favor, although not necessarily through any intention of Russia. China has made important transfers of technology, but the volume of those transfers has fluctuated annually between about $300 million and $1.5 billion from all sources. North Korea is down from $900 million in the late Cold War period to under $50 million today. Iran has dropped from a peak of $3.3 billion in arms imports during the Iran-Iraq war to levels of around $330 million to $700 million in recent years. Iraq has gone down from a peak of $8.2 billion to zero, or at least below $50 million. Libya is down from $1.6 billion to $10 million; Syria from $2.6 billion to $100 million.

Now, I think we need to bear these facts in mind for many of the reasons the Jim Woolsey just mentioned. This is an incredibly militaristic economy and it has not succeeded in selling, and it is desperate to sell. At the same time, there are other trends that you have to consider. The new agreements have risen from a low of about $1.7 billion over the last few years to new levels of $3.3 billion to $5.9 billion. The Russians are moving back into the arms area. The nature of arms transfers has changed; the issue is not masses of weapons, it is the nature of the technology, the support of asymmetric warfare, and the transfer of weapons for mass destruction that count.

We have, as we've just demonstrated in Serbia, a preeminent conventional war-fighting capability, but it is limited in funding for readiness, and in many areas of modernization we are far below the levels that the Joint Chiefs have recommended.

As I think you will discover soon, we'll face a serious problem even in sustaining cruise-missile launches over the period of the next few weeks.

We are vulnerable to technology transfers; obviously, to any transfer of long-rang weapons and areas of mass destruction. But if I look at what has happened in China or in Iran, you see some critical systems moving in; modern air-defense systems like the S-300, new airborne warning and air-control systems, the technology for new strike fighters and much more advanced forms of anti-ship missiles. These are areas where we are vulnerable.

And in other parts, in other areas like Iran, Russia has certainly contributed with China and other countries, to changing Russian capabilities. But what I do not see is any sign of any organized pattern in Russian sales that says there is a clear strategic intention behind this. What I see is a group of disparate elements of a country that really does not have a truly effective central government, for the reasons that James Woolsey has already addressed, with many elements that are absolutely desperate to sell, moving into a buyer's market.

Buyers buy the most dangerous, the most destabilizing arms they can find because these are the weapons that threaten us the most and our allies the most. Buyers today want the technology transfer of production, not just weapons and numbers. They want invisible areas like dual-use technology, command and control systems, sensors in commercial areas.

That makes it extraordinarily difficult to come up with policy recommendations. And if I have any, it is this: I think it is very dangerous to look at any given supplier in isolation. I think you need to focus on the buyer. I think you have to go to the intelligence community to get the kind of data that allows you to get a net assessment.

Mention has been made of Iran. I don't think there is any question there have been important transfers of missile technology from Iran and almost certainly of nuclear technology, as well. There are good indications of nuclear transfers to North Korea by Russian scientists, not by Russia. And the list goes very long in other areas. But the Iranian missile program has just as many transfers from China and from North Korea.

The invisible transfers would be the transfers of technology from Western Europe, which are bought by a purchasing network, which in the past had over 21 offices operating under various cover names. I think the point here is you must look at this as a process with many suppliers, going into a desperate market in terms of sellers, and not one single nation solely responsible.

REP. CAMPBELL: Thank you, Mr. Cordesman.

The next witness is Henry D. Sokolski. He is executive director of the Nonproliferation Policy Education Center, which is a Washington-based non-profit organization, I understand, established to promote better understanding of strategic weapons proliferation. He also teaches graduate school at Boston University's Institute of World Politics in Washington, and he serves on the U.S. commission to assess the organization of the federal government to combat the proliferation of weapons of mass destruction. Mr. Sokolski was the deputy for Nonproliferation Policy in the Office of the Secretary of Defense from 1989 to 1993, and also served as senior military legislative aide to Senator Dan Quayle.

Mr. Sokolski, you're most welcome.



Executive Director,
Nonproliferation Policy Education Center


MR. SOKOLSKI: Thank you very much. First of all, let me thank you for holding a hearing -- (referring to microphone) -- is this on?

REP. CAMPBELL: It's on, but bring it a little closer to your --

MR. SOKOLSKI: Okay. There we go. Technology.

First of all, let me thank you for holding this hearing. I think it's important to try to actually think ahead of problems rather than react to them. Sometimes it's hard to know whether we're reacting or not, but I see this as a long series of hearings, so I think we're getting ahead of it.

Let me just comment briefly with regard to Russian proliferation. First, it's not new. In fact, you can argue they've been at it with the countries that we're looking at with regard to nuclear and rocketry for at least 30 years. What is new, and what's pulling mightily at U.S. policy-makers is Mr. Primakov's rise and the rationalizations he and his supporters are now making for Russian arms proliferation. These arguments, which I detail in my testimony, include everything from establishing a triangle alliance with China and India, and trying to revitalize their domestic economy through arms sales.

These rationalizations, I think as the other witnesses have made clear, are fairly bizarre. Yet basing U.S.-Russian nonproliferation policy and reaction to them is unlikely to serve U.S. security interests without far greater consideration of what has been at the root, and that is the continued excessive militarization of the Russian economy. In fact, it is the militarization of this economy that is as much a cause as an effect of Russia's current policy statement. As long as Russia's economy stays as militarized as it is, Russian citizens and officials will promote and rationalize ever- riskier arms sales, space transactions, and nuclear trade merely to keep Russians employed and existing power relationships within Russia intact.

However attractive U.S. sanctioning of dangerous Russian exports and U.S.-Russian threat reduction efforts by us may be, then, neither are likely to be effective unless and until they are made a part of a much larger long-term effort to prompt Russia to restructure its economy. For the sake of brevity, I will skip over a fair amount of my testimony, which explains just how fundamentally distorted the economy in Russia is and how many efforts that we engage in to get capital to them gets used for purposes we would never want.

In any case, focusing on these distortions gives rise to consideration, I think, of four things. First, targeted trade sanctions against Russian proliferators and the future limitations on trying to do targeted trade sanctions. Certainly the U.S. needs to make itself clear not just in words, but in deeds, about Russian weapons-related exports and that they're unacceptable. And I say this as someone who negotiated with the Russians back in 1991 and '92 and more or less set up the idea that if they came our way, we would establish space cooperation as a quid pro quo. That said, things have not gone well in that regard.

By not sanctioning those Russian entities who clearly are involved in helping Iran's missile programs, for example, and who clearly would have something to lose if sanctioned -- for example, the Russian Space Agency -- the U.S. risks encouraging cynicism about its nonproliferation concerns.

That said, U.S. officials also need to recognize that in the future, the opportunity to affect Russian behavior will be increasingly difficult. Because Russian managers, particularly in the space and nuclear sectors, are desperate for U.S. hard currency trade worth up to $500 million per year, they will do whatever is necessary to create cut-out entities that cannot be hurt by U.S. sanctions; that is, firms and entities other than those U.S. industry works with or that receive U.S. assistance. That suggests that in the future, targeted sanctions against Russian entities will probably not be sufficient to leverage Russian behavior.

The second point that I'd like to make is that potentially dangerous Russian financial transactions with U.S. and the West need far more attention. As noted above, hard currency is not only critical to sustaining Russia's military-related industries but to financing their exports to cash-strapped customers, such as Iran.

Perhaps as important as cutting off trade with proliferating entities, then, is making sure that U.S. private capital is not used to support such activity. In November of '96 the Russian government was allowed to sell $1.8 billion in bonds in U.S. and Europe markets. All of this money was given to Russia, up front, in a lump sum, free of conditions, to use as they saw fit. We have no idea of how this money was used.

Meanwhile, Russian officials have publicly announced that they would use a portion of the recent IMF loan of $17 billion to avoid default on these bonds. Perhaps even more important, Russia has tried to use Gazprom, a largely state-owned monopoly that has been headed by former Prime Minister Chernomyrdin, to enhance the energy earnings of weapons customers like Iran, Iraq and Syria. They have, in fact, gone in to develop oil fields and gas fields in Iran, and recently announced in December that they intend to run a pipeline from Iraq to Syria. As of today, they could go into the U.S. debt and equity markets and raise money for these purposes as well as general disbursements to developing Gazprom.

Since -- I've run out of time, in which case I should stop.

REP. CAMPBELL: Thank you. You're very considerate. We'll certainly come back to you during the question period.

MR. SOKOLSKI: Okay. Good enough. Thank you very much.

REP. CAMPBELL: Let's move to Mr. Garnett.

Thank you, Mr. Sokolski.

Sherman Garnett is our next witness. He is the senior associate at the Carnegie Endowment for International Peace. Dr. Garnett specializes in foreign and security policies of Russia, Ukraine and the NIS. He also directs a new Endowment project on Russian-Chinese relations, which is directed towards bringing together specialists from the U.S., Russia and China in an effort to assess the relationship between the states. Before joining the Endowment in May 1994, Dr. Garnett spent 11 years in the United States government, most recently as deputy assistant secretary of defense for Russia, Ukraine and Eurasia.

Dr. Garnett.



Senior Associate,
Carnegie Endowment for International Peace, and,
Director of Endowment Project on Russia-Chinese Relations


MR. GARNETT: Thank you very much, Mr. Chairman. I'd like to thank you and Mr. Gejdenson and others for inviting me to appear before you today. I'd also like to simply summarize my statement and to focus mainly, because the previous witnesses I think have laid out the basic ground work on what I believe are the sources of not only Sino-Russian arms and technology cooperation, but also Russian- Iranian.

Now, senior Chinese officials in Moscow at the embassy basically have called the military relationship with Russia the glue of the overall strategic partnership, especially the arms sales.

And I think some of the factors that make that relationship go have already been alluded to.

The first, I think, is a very complicated and increasingly assertive and anti-American foreign policy, led by still-Prime Minister Yevgeny Primakov. I really do believe that the domestic requirements in Russia right now privilege such a policy; that Mr. Primakov's mid-air turn is a very popular move; his approach to Iraq, other such -- I would say it's almost stunts which really have little to do with Russia's long-term strategic interests, are enormously popular in Russia. But underneath that I think is a more complicated picture, which, again, the previous witnesses have already discussed.

The first, I think, is Russia's economic condition, in part a desperate economic condition. In part, I think as Mr. Sokolski has just said, a piece of the Russian economy still remains motivated and moved by the old military industrial complex and to sustain revenues for that at a time when really the Russian military and the Russian government are not procuring anything. The economic motive is particularly strong among industrious middle men and regulators, and I think Mr. Woolsey really made the right point about how these various, what we would think of as independent groups have come together, often in the same person.

I would like the committee to keep in mind, however, that there are groups in Russia who will be harmed, really, by this continued degradation of Russian economy and behavior in the world arms market. In fact, those who want to do legitimate business probably have not been sufficiently made aware of the harm in the long run that will be done to their activities by a reputation Russia will acquire as essentially a supplier of rogues.

Mr. Sokolski has quite rightly laid out some of the rationale that have been made for these arms sales both to China and Iran. They're used to justify military reform in Russia. Some of them have said they will pay military salaries from the profits. These have been, I think, basically rationalizations, and at the core is a weak Russian government which poorly regulates this mixture of public and private motives, and the process is, frankly, weighted in favor of sales right now. There are still people who are against proliferation. There are still people who think in the long run that China -- or Iran represents a threat to Russia. They are in an extremely weak position bureaucratically in Russia right now. In fact, many of the sales that have taken place I think are presented to what is in effect a weak regulatory system as a fait accompli.

Let me simply move to two points in conclusion, and I hope to return to some of the larger points in questions.

The first, I think, is that -- I think the trajectory in Russia right now is getting worse, not better. It is not that there still aren't proponents of a stronger tie to the West, integration, or people who want a normal economy. I think in the short run, and even the medium run, they are going to become weaker and weaker in this position. Certainly at this point, anyone who takes Yeltsin's place is going to be worse than Mr. Yeltsin. And Mr. Yeltsin's record, as some of the panelists has already suggested, is not great on these issues.

The final point I would make is in regard to China. I think, again, the Chinese -- I agree with Mr. Cordesman. I think you need to look at the buyer. I think the buyer in the case of China, is certainly very interested in acquiring a set of technologies only some of which are from Russia.

And in fact I think that what has not been studied enough is the way that these sales are likely to have a multiplier effect on China's military modernization. There is a tendency, I believe, to regard the past Chinese behavior as, "It's a very slow, patient process of acquiring technology." China is certainly not going gang-busters at this point. But I do see the long-term effects of Russian-Chinese sales, particularly in the targeted areas the Chinese have singled out, as leading potentially to a much quicker pace of Chinese military development.

And with that, I would like to conclude. Thank you very much.

REP. GILMAN: Thank you, Mr. Garnett.

Our next panelist is John McMahon, who served with our Central Intelligence Agency for some 35 years, retired from that position as deputy director of Central Intelligence. We are both getting blond hair together in public service. (Laughter.)



Former Deputy Director of the
Central Intelligence Agency


MR. MCMAHON: It's distinguished, sir. (Laughs.)

REP. GILMAN: In 1986 John served with the Lockheed Missile and Space Corporation, rising to president and CEO of Lockheed Missiles and Space Company, a position from which he retired in 1994. Mr. McMahon now serves on the board of directors of Lockheed and Khrunichev Energia, a joint venture in Russia that does a little work on sending some of the missiles -- satellites into space.

Please proceed. You may summarize your statement and put the full statement in the record, whichever you may deem appropriate.

MR. MCMAHON: Thank you, Mr. Chairman.

I would like to summarize and paraphrase my statement and ask that the complete statement be placed in the record.

REP. GILMAN: Without objection, your complete statement will be made part of the record. Please proceed.

MR. MCMAHON: Thank you, Mr. Chairman. And I do appreciate the opportunity to appear here today and offer my observations on the issue of Russian proliferation to rogue states and terrorist groups.

The end of the Cold War and the breakup of the Soviet Union created new and dangerous risks associated with the proliferation of nuclear, chemical, biological weapons and the missiles that deliver them, as well as related materiels and technologies. Both the Bush and the Clinton administrations, as well as the Congress, fully recognized these threats and adopted a very vigorous policy of opposing dangerous transfers while promoting cooperative programs designed to provide peaceful outlets for Russia's vast military potential so that Moscow would see its self-interest best served by cooperating with the United States rather than the rogue nations.

In the nuclear area, the United States government itself has purchased from Russia highly enriched uranium so that it could be diluted with weapons grade to low-enriched uranium that can be used as commercial fuel for nuclear power stations. We have pursued cooperative threat reduction through the far-sighted congressional efforts launched by the Senators Nunn, Lugar, and later Domenici.

Turning to space, the United States sponsored and has continually supported Russia's integral participation in the International Space Station project. We have also encouraged industry-to-industry partnerships in the U.S.-Russian commercial space business ventures. These partnerships have made the world safer by engaging thousands of highly skilled Russian aerospace engineers and scientists in commercial pursuits, thereby fulfilling cooperative threat reduction objectives. Moreover, because this is being done on a company-to- company basis, there is no expenditure of public funds, and the opportunities to effect real change in the way business is carried out in Russia are significant.

In the case of LKEI, as an example, our partner, Khrunichev, and its subcontractors employ some 100,000 people in the production and launch of the proton system, which in turn generates economic activity supporting some 1.2 million Russians. Indeed, these business ventures are far more effective than relying simply on jawboning or other diplomatic efforts to persuade Russia to steer clear of cooperating with rogue states. Ventures create a vested interest for the Russians to conduct a legitimate business in the international marketplace with us and others instead of engaging in black-marketed proliferation with those who would turn space and missile technology against American interests.

I believe that the two-track strategy that the United States has pursued -- vigorously opposing Russian entities that do proliferate, while promoting commercial engagement with Russian entities to provide incentives for them to refrain from proliferating or doing business with proliferators -- is fundamentally sound. That is why I'm troubled by reports that the two tracks are being tangled up with one another. Specifically, the effective extension of U.S. economic sanctions from Russian entities that are engaged in illicit commerce to those that are not by blocking the latter from conducting legitimate launches of commercial payloads is a serious mistake.

From a nonproliferation perspective, a policy of "shooting the hostages" will either be counterproductive, ineffective, or both. Such a policy will also damage long-term American interests. From a proliferation prospective --

I see I've run out of time, Mr. Chairman.

MR. GILMAN: If you need additional time, please proceed.

MR. MCMAHON: Thank you, sir.

From a nonproliferation perspective, the original premise of U.S. policy that it is in our national interest to provide peaceful, civil and commercial avenues for Russian military capabilities remains valid.

Thank you very much, Mr. Chairman.

MR. GILMAN: Thank you very much, Mr. McMahon, and I thank all of our panelists. I regret that a few of us were called in the anteroom to meet with some parliamentarians. Please, all of our panelists are invited to reply to my questions.

Do you believe that President Clinton's policy of promoting economic integration with the Russian aerospace sector has created leverage for us on Russian proliferation policies? And in your view, has it also regrettably produced a situation in which our aerospace and satellite industries are dependent on continuing business ventures with Russian entities or else face prohibitive costs and project delays, and I'd welcome any of the panelists who may want to respond to that.

Mr. McMahon?

MR. MCMAHON: From my standpoint, Mr. Chairman, it is a very short sample, but our engagement with Khrunichev, with Energia, and the subcontractors to both those organizations have refrained from proliferating, and I think, therefore, it is a solid example of where this dual-track policy of ours pays off. So I would continue the -- I would support the continued use and execution of that policy.

MR. GILMAN: Any of our panelists take issue with that? Mr. Woolsey.



Former Director of the Central Intelligence Agency, and
Partner in the Firm of Shea and Gardner


MR. WOOLSEY: I'll add, Mr. Chairman. As I mentioned, I was in Russia two weeks ago with Congressman Weldon and seven other members of the House who were discussing this issue, among many others, with Russian officials, including with officials of Khrunichev. And I know of no allegations, serious or otherwise, that Khrunichev has been engaged in proliferation to rogue states. I know principally about this issue, as I mentioned earlier, from work I've done with Lockheed Martin myself.

I must say that it seems to me that promoting economic integration come what may is a bad policy, because there are a number of Russian entities with which one would not want to cooperate and should not trust.

But this particular partnership has not only worked well, it has, as Mr. McMahon says, helped sustain a major part of the Russian space and military industrial complex in a partnership with the United States and kept it from being engaged in proliferation.

It seems to me that Mr. McMahon was understating when he said it would be counterproductive and ineffective to penalize those parts of the Russian economy who have been cooperating in peaceful work with the United States and have not been engaged in proliferation.

I've been involved in national security issues off and on for over 30 years in this town now, and I think it's hard to think of a more counterproductive thing to do than to take a part of the Russian system that is cooperating with us peacefully and to penalize it. That says to whatever people are still in Russia willing to work with the United States -- and there are still some, and there is still some hope -- whatever you do, don't depend on the United States of America, don't work cooperatively with American companies, turn to Iran, turn to Iraq because no matter how good you are, no matter how willing you are to work with America, you are going to be penalized.

So in my personal judgment, it is hard to find a worse idea in this whole area of American-Russian relations than penalizing the people who are working cooperatively with it.

Thank you.

REP. GILMAN: Well, let me ask our panelists as you continue to voice opinion how do we effectively put pressure on Russia to do what we're trying to prevent, the proliferation? Mr. Cordesman.

MR. CORDESMAN: Mr. Chairman, I think one has to be very careful about trying to either steer or stop the iceberg with the Titanic. And when you have a society this militarized, I'm not sure that you can prevent elements in it from selling. I don't think any combination of diplomacy or American actions is going to stop a lot of these design bureaus and industrial groups and individuals from transferring technologies to hostile states that are very dangerous.

I think, too, to answer your first questions, this is such a large aerospace sector in Russia that the American role in it is important to given elements and very unimportant to others.

Similarly, I think the idea that the U.S. can ever get enough out of a deal so that any part of our industry can get significant savings through economies of scale is also not the case. Individual groups, perhaps, and individual programs -- that may be true. But your problem is this is going to be a company-by-company problem in Russia and company-by-company relations between Russia and the United States.

REP. GILMAN: Other -- yes, Mr. Sokolski?

MR. SOKOLSKI: I think the space sector or the aerospace sector is a lot of different things, and I can remember receiving letters when I was in the Bush administration, pointing out that the sectors were connected. I believe there was a letter signed by Congressman Berman that said you need to sanction Khrunichev because they made the item that's being sold by Glavkosmos to India.

That, then, gives rise to the complications. You really do have a diplomatic problem. You do not want to be looking like you're in the slave trade to control it, and that's part of the optical difficulty you have when you say to yourself, "This is difficult, we don't want to leverage in this arena." That, then, gives rise to the following comment.

One of the things that needs more attention is to at least do what one can where it's much clearer that there is culpability. I think in many of these firms it would be very hard to find culpability, but that doesn't mean they're not culpable; it's just you may not be able to find it.

We have, fortunately, an example where it is fairly clear, and that is the Russian Space Agency. Not only that, but if you listen to Chairman Sensenbrenner from the Commerce Committee, there are severe problems with the cooperation with that agency, the Russian Space Agency, on the space station. If you listen to him, there are reasons to terminate cooperation with Russia, even if you do not care about nonproliferation.

That suggests to me that some greater attention be focused on that.

Finally, let's not kid ourselves, you can get leverage in many different ways, and yes, the space sector is one of them. Whether you choose to do that, though, has to do with dealing with the blow-back. I would suggest the blow-back will be greater probably from American contractors than it will be from Russia. The Russians will always work for money; they will not refuse money if you come back after a sanction and offer them more.

But it's a balancing act, and I think it's presumptuous for anyone like myself to tell you what to do, so much as to recognize that once you get into that game, you'll be doing a balancing act. I think before you do that, though, I would focus on the Russian Space Agency.

REP. GILMAN: Thank you, Mr. Sokolski.

Mr. Garnett, did you want to comment?

MR. GARNETT: Yes, just briefly. I do think as we move ahead, and the picture of Russia I've presented to you is one, at least in the near term, I think, some of the more problematic elements are going to continue both ideologically at the top and also, I think, the unstructured nature of the regulatory system is going to permit the people to continue selling.

But I am concerned if we eliminate all of the incentives, we'll have a problem because, frankly, there are a whole set of companies not only in the deals that have been described here, but even in the related technology sectors, that have begun to become politically aware of the ability to -- or of their interest regarding their company, but have not yet begun to speak to the larger questions, in effect the Russian government, in a way they should. And I point out, again, in my testimony and elsewhere, that these companies need to be made aware of the consequences to Russian business in general of the view that Russia has become kind of a rogue supplier. There will be financial consequences. This is an issue, in the long run, I think, of us and our allies. But I do think we need a strong set of incentives that there is -- if you stay inside the lines there are real benefits of working with us. And I would not want to especially penalize those companies at this point in Russia who have in fact stayed inside the lines.

REP. GILMAN: Thank you, Mr. Garnett.

Without objection, I'm inserting at the end of the record of this hearing two articles related to this issue; one by the Center for Security Policy entitled, "Russia's GAZPROM Implicated in New Bid to Expand Rogue State Energy Production," dated March 4th, 1999; and an article by Steven Blank (sp) of the Army War College entitled, "Yevgeny Primakov and Russia's Proliferation Strategy: What We Should Expect" from the fall of 1998.

Mr. Gejdenson?

REP. GEJDENSON: Thank you, Mr. Chairman.

It seems to me that the Russian government system is failing on a number of critical accounts.

And putting aside our concerns for proliferation, it seems that they are "uncapable" of collecting taxes, a pretty prime function of government -- their system seems to leave a lot of companies outside their ability to raise revenue -- and they can't pay some of their workers.

So at some point, we have a country that is not functioning. And the danger of their technology seeping out, even if they had good intentions, it is hard to figure out what they can and can't do.

So also looking at the sense of isolation that Russia must now be feeling, almost in some ways as before World War II, when we have excluded them from NATO, we have expanded into areas -- they are feeling more and more left out and much less powerful. And that has got to make them much more dangerous.

And so my question is: Maybe what we should be doing here is not give more launches on satellites, but say: "Okay. Your problem is money. And your" -- one person said they were involved in nuclear proliferation for a long time. My understanding always was that, prior to the dissolution of the Soviet Union, they were very good at controlling nuclear technology because they didn't trust any of their client states. Now, if I am wrong, I would be happy to be informed of that.

MR. : China.

REP. GEJDENSON: With the exception of China?

MR. : A big exception.

REP. GEJDENSON: Okay. But mostly, we did some proliferation along the way, too, to our client states --

MR. : Absolutely.

REP. GEJDENSON: -- and friends. So they were very good at it because they didn't trust any of their client states.

So how do we get them in tough economic times, and they have terrible tough economic times, how do we get them an incentive, as well as all our negative incentives, a positive incentive to say -- to try to shut down some of these illegal actions?

Now, Mr. McMahon, how much do they earn on a launch? How much money do the Russians --

MR. MCMAHON: Mr. Gejdenson, I would happily talk to you privately on that and to members of the committee. But it's --

REP. GEJDENSON: Privately, all right.

MR. MCMAHON: -- competitive information.

REP. GEJDENSON: But it's a significant amount of money?

MR. MCMAHON: Yes. It's a good shot in the arm.


So it seems -- what if we said to the Russians: "Right now, you are capped at 16. We -- will make the other end open-ended, but here are the things you need to accomplish in order to get additional launches"?

You know, if you get better control of your scientists and where they are, if you get better control of materials, if -- "

And I'm shocked. Yesterday Congress voted to reduce the money in our budget to buy up their highly enriched uranium, which I think is insanity in such an unstable situation. "If you help us get rid of your uranium and reduce your missiles faster, then we will allow you in launches and in other commercial areas more access, more activity, and more profits. So you'll have the money." To put the disciplines in place cannot work.

MR. WOOLSEY: Congressman, I think given Mr. Primakov's world view, he might well refuse to make those changes precisely in order to try to get Khrunichev working more with Iran and rogue states rather than the United States. We have to focus on who we're giving incentives to here. The problem is the Russian government and the Russian firms that are working with rogue states, it's not, as far I'm aware, Khrunichev.

REP. GEJDENSON: No, but it -- my question, I guess, is there's no down side to making that offer. I mean, you still try all the other negative pressures. But you put the additional positive pressure on the table. If your answer to us is you are poor, if your answer is that you need money, then here's a way to make money if you play by the right rules.

MR. WOOLSEY: But if that's addressed to Khrunichev, Khrunichev can't change Russian policy. If it's addressed to the Russian government, the Russian government, particularly Mr. Primakov at this point, might well like to undermine those parts of the Russian structure who are willing to work with the United States. He might have an incentive to try to turn Khrunichev away from this. I have -- I think Mr. Primakov has a very different and very hostile world view toward working with us.

REP. GEJDENSON: You don't believe that's just the politics of the moment to stay ahead of other nationalists that he has to contend with?

MR. WOOLSEY: I think it's partly that, but I think it's also a set of views of some long standing going back to his responsibilities in the Mid-East many years ago.

REP. GEJDENSON: Thanks a lot. I'm already out of time. Mr. Garnett, could -- ?

MR. GARNETT: I think part of the problem in your proposal is not its intention, but I think the government, the problem with the Russian government for the last five years is it can't deliver bad or good. And there is a need -- I just think if you offer these incentives, even if Primakov were not there, they're not in a position to deliver such wide-ranging things. I think the need is to build up at a micro level, whether it's in energy, in nonproliferation, in basic business and create a set of incentives that reward the companies and the people and build up the sector, the normal sector in Russian economic life that will exert pressure on the government to behave normally. I have absolutely no faith that the Russian government, especially what I see coming in the next four or five years, will be able to do that.

REP. GEJDENSON: Mr. McMahon, did you --

MR. MCMAHON: My only observation would be, Mr. Gejdenson, that Primakov does have a history of expertise in the Middle East and obviously he's drawn in that direction. When he puts on the mantle of running the government, though, I think he has to take a more global view than that. But it's dealer's choice on how that will play out.

I also think you have to bear in mind that Russia is not a long- standing, sophisticated government. For years we dealt with it, in the Cold War, and our whole purpose was to bring it down. And we did, and Gorbachev led the way on that for us and we're very grateful to him, but he never thought what would happen to the current governmental structure. And when he disarmed the Communist Party, which was the plumbing for government in the Soviet Union, there was no replacement and that's why I think it's rather chaotic and will be for years to come.

REP. GEJDENSON: Thank you. I really think that damaging economic sectors like launching, that isn't involved in technology transfer or sales of armaments, I think it's a dangerous policy because you make them poor, you make them more desperate and they'll just sell more weapons.

MR. MCMAHON: I concur.

MR. GILMAN: The gentleman's time is expired. Thank you, Mr. Gejdenson.

Mr. Hyde?

REP. HENRY HYDE (R-IL): Thank you, Mr. Chairman. One of my fears over the years has been biological warfare. We spend an awful lot of time discussing intercontinental ballistic missiles and getting a ballistic missile defense and indeed, warheads on those missiles could well be biological warfare, but my goodness, you can get some of that stuff in the country in a diplomatic pouch.

And I'm just concerned that -- I don't understand the rationale of even the most rogue state fooling around with this stuff because it's pretty hard to control. I see where Iran is seeking to recruit Russian scientists capable of creating biological warfare toxins. Is this -- have we any -- we don't have any defense, do we, to people who want to get this stuff in the country, never mind a ballistic missile, in a diplomatic pouch, do we?

MR. GARNETT: Mr. Hyde, may I make a point? In the case of Iran, for example, they detected biological imports in 1982. They were coming largely from Western Europe. Since that time there have been repeated in cases of the detection of the use of biotechnology from countries like Germany and Switzerland. That doesn't mean they're the only source; it just means they're responsible enough in many cases to detect the existence of these technologies.

In the case of the most lethal aspects of biotechnology for these weapons, it is the creation of dry, storable microspores and the dissemination of these with more effective warhead technology. Nations like Chile have sold that warhead technology to both Iran and Iraq. The kind of basic technology involved is related to infant formula production, to the production of things like Contact Cold Tablets, and a host of other civil technologies.

Now when it comes down to the importation of type cultures, these come from all over the world, and at this point in time I don't think we have any enemies left who can't find these cultures or already don't have them.

And when it comes down to these weapons being dangerous, let me note most of them are not infectious at all, which means you have something as lethal as a small nuclear weapon, which today any sophisticated proliferator can put together legally from what it can buy in the West.

REP. HYDE: Mr. Woolsey?

MR. WOOLSEY: Congressman Hyde, let me add that bad as that situation is, there are a number of lethal agents which are readily accessible here in the United States. Anthrax, for example, grows in a number of cow pastures. And Dr. Lee Buchanan, the deputy director of the Defense Advanced Research Projects Agency, had an article about a year ago, I think, in the Naval Institute Proceedings, in which he said making anthrax is just about as difficult as running a microbrewery attached to a restaurant. And indeed it requires about the same type of equipment. There are certain difficult aspects -- drying it and so forth -- but if one is talking about terrorist use of something of this sort, disseminated by some sort of sprayer or the like, unfortunately there's not anything that really has to be smuggled. What you need is one or two individuals who know as much about biological weapons as, say, Ramzi Yousef knows about explosives. And you could have a very serious problem without anything being smuggled across any border at all. REP. HYDE: Well, we are wrestling intellectually and politically and militarily with the need for and the size of a ballistic missile defense system, which can cost billions, and we may need or may not. I'm for it, but I don't think it's going to solve our problem.

MR. : No, it won't solve --

REP. HYDE: And this kind of fearful stuff that is right out of Stephen King, we're -- we seem totally vulnerable and helpless about.

If we had the human intelligence where you could penetrate every goofy hate group in the world, you might get a chance to defend against it. But we're pretty vulnerable. And on that happy note -- (chuckles).

MR. WOOLSEY: May I just add one point, Congressman?

REP. HYDE: Sure. Cheer me up, please.

MR. WOOLSEY: I chaired a panel for the CIA and Department of Energy three years ago that looked at precisely this issue. There is a classified report at Lawrence Livermore Laboratories on it. There are things that can be done, particularly a closer partnership between the life sciences industry and the U.S. government in developing antibiotics and vaccines and warning systems and the like. It's not absolutely hopeless, it's just very difficult. And I'd be pleased to --

REP. HYDE: Are we doing any of those things?

MR. WOOLSEY: I believe some of them have begun, but not to the degree they should. And I'd be pleased to go into this with you at any time if you're interested.

REP. HYDE: I am interested, and interested in doing whatever we can do to offset this.

Thank you very much.

REP. GILMAN: The gentleman's time has expired. Thank you, Mr. Hyde.

Mr. Berman?

REP. HOWARD BERMAN (D-CA): Let me just preliminarily ask perhaps the first panelist who chooses to answer, would the widely available access to impenetrable encryption assist our ability to deal with the kinds of horrors that Mr. Hyde just talked about?

MR. SOKOLSKI: When I was in the government from early '93 to early '95, Congressman Berman, I was a strong supporter of the clipper chip and of key escrow precisely because I thought especially domestic law enforcement on terrorist cases, the FBI, needed to have the ability to -- with a warrant -- to read communications, if at all possible, and exactly for this reason. I think the wide availability of very difficult to break encryption leaves open to -- unfortunately to terrorist groups and others the same types of security that it creates positively for American business and those of us who like to keep our e-mail private.

It's a dilemma. It's one of those issues in which freedom and protection clash. And I was sorry to see the key escrow essentially be -- if not go away, virtually go away, and it was exactly for that reason.

REP. BERMAN: Well, I'm wandering off here, and I know that I'm going to get Sam into this and then my time will all be --

REP. GEJDENSON (?): Will the gentleman yield for one second?

REP. BERMAN: I yield.

REP. GEJDENSON (?): Don't the Russians have indigenous software for encryption that is as good as ours at triple-DES?

MR. SOKOLSKI: The Russians are very good at this. And certainly there will be a number of cases in which -- even if you had key escrow -- in which foreign entities would manufacture and permit the manufacture of encryption software that was not escrowed. But there would also be the possibility of cooperating with friendly countries. And I haven't completely given up on Russia's being a friendly country. I think the probabilities are sort of low, but they're not zero.

REP. BERMAN: There's more to say, some of which can't be said in an open session.

I'd like to ask, Dr. Cordesman, just have you changed your mind over the last 10 years, or am I mistaken in thinking that when I first met you when we were trying to deal with the proliferation of missile technology, that at least at that time, we thought there was perhaps even more viability in focusing on the proliferators rather than trying to change the minds of the proliferatees; that we would have a better chance of dealing with Iran's effort to deal with a nuclear weapons program and a long-range missile program by stopping, impeding, delaying, slowing down, doing whatever we could to mess up their ability to acquire the technologies, the components, the systems to make those systems viable than we would persuading Iran that those systems were not in its national interests? And I thought I heard you say earlier that -- almost a sense of "the game is lost" in that area.

MR. CORDESMAN: No, I didn't mean to give that impression at all, Congressman. I think the issue here is, as other people have said, if you push this too far, you don't create disincentives, you create in today's world, particularly with Russia, a climate where it may turn away from any effort to deal with us, and you may see that transfer take place almost because you've introduced the wrong legislation and the wrong controls.

But I think in support of your point, frankly, Iran has had very little direct technology transfer since 1993 from Russia that can't be related at least in some ways, to prior buys. For all of the transfer to China, it isn't beginning to keep up with the obsolescence of China's overall conventional force structure.

"So are these measures perfect? Will they stop proliferation in the long run, if countries are determined?" No. "Do they greatly slow them down and make the world a safer place?" Yes.

REP. BERMAN: Thank you. Thank you.

Let me just -- once last thing, if I -- can I just ask one last question --

REP. GILMAN: Without objection.


REP. GILMAN: Let me intervene a moment. We have a 15-minute vote followed by a five-minute vote. We'll continue as long as we can in a 15-minute vote. Mr. Bereuter has gone over and then come back, and we'll try to continue quickly.

I know Mr. Cordesman has to leave by 11:30, and we'll be pleased to excuse you. We thank you for taking the time to be with us. But we will continue with this panel.

Please, Mr. Berman, proceed.

REP. BERMAN: All right.

This notion of the Russian space program; Russia sanctioning or the U.S. sanctioning -- the U.S. sanctioning companies, which have no dealings with the U.S., is essentially a null act. I mean, it doesn't do anything. To deny imports to an entity that is proliferating that has no ties with us doesn't do anything.

The talk now of looking at the Russian space program isn't to get companies that may be good companies, to somehow harm them even though they are not proliferators. It is to somehow try to get to the Russian government to use leverage on it to get it to do more than it is now doing to stop the proliferation.

And my fear is, if we just back away from looking at the Russian space program, which may be the biggest handle we have in terms of leverage if there is any, in the name that we might accidentally impede some good operators' ability to function, we will have no leverage on the Russian government.

Your reaction?

MR. WOOLSEY: Congressman, I wouldn't say back away from looking at the Russian space program, or particularly any entity in the Russian space program that is doing something with the United States and, therefore, potentially subject to sanction, and also proliferating to a third-world state. What I'm objecting to is picking out an entity inside the Russian space program that is not proliferating to a rogue state, and punishing it.

REP. BERMAN: Well, that would seem --

MR. WOOLSEY: To me, that is fundamentally nuts. It's not just a little bit off, it's fundamentally nuts.

REP. BERMAN: But you talk about the next guy you meet could be a member of the Russian intelligence agency, the Russian mob, the Russian proliferation community. And he might also be in the U.S.- Russian space cooperation program.

MR. WOOLSEY: He may. And you need to talk closely, I think, with the intelligence community and State Department and those who -- State and Defense Department -- who look into these matters to sort of separate the sheep from the goats here. What I am suggesting is that you don't -- the policy of the United States government should not be to take an innocent entity and penalize it just to find somebody to penalize.

REP. GILMAN: The gentleman's time has expired.

Mr. Bereuter is on his way back.

Mr. Cooksey?

REP. JOHN COOKSEY (R-LA): Thank you, Mr. Chairman.

I want to make the panel aware of a built-in bias I have. I have the bias -- and I'm not a career politician -- that I am rather cynical toward these politicians that run through this city, that sanctions are measures that weak leaders with weak ideas use to inflate their status, their position, and oftentimes these sanctions really hurt the very people they're intended to benefit.

Now, that said, do you think -- at times I get the feeling that the potential leaks, problems that we have with the nuclear weapons, biological weapons, from countries like Russia are so profound and numerous that trying to stop this -- the distribution of these nuclear weapons, biological weapons, is like trying to stick your finger in the proverbial dike.

Has anybody ever stepped back and looked at one solution, or maybe two or three solutions that would address the entire problem? Is there a solution -- because I get the feeling that you've got a group of politicians that are just trying to find a little -- small solutions to big problems and they're not really looking for big solutions to big problems.

MR. SOKOLSKI: May I answer?


MR. SOKOLSKI: First of all, some of my best friends are politicians. (Laughter.) We should not be running them down like that! Second of all --

REP. COOKSEY: It's good to hear you have good friends! (Chuckles.)

MR. SOKOLSKI: Yes. Well, and they get better as I get to know them.

Second, I think there are two kinds of problems that this committee may be wrangling with as I listen to the questions; one is short-term, one is long-term.

Short-term we've got a lot of news about the United States having good relations and helping the space sector in Russia, and Russia in turn helping countries like China and Iran. And you've got an optics issue, a political issue, if you will. It doesn't look right or good.

The second problem is long-term, and that has to do with the demilitarization, the restructuring of this economy in Russia so that they can not only go to markets, but become much more of a democracy than they are and they're struggling to try to be, okay? Now, it seems to me you've got a long way to go before you can say, We don't want to overplay our hand.

For the record, we have never -- I repeat, never -- sanctioned Russia for breaking the MTCR rules with regard to China. And they have done it repeatedly since 1992. So you have plenty of latitude --

REP. COOKSEY: But not before 1992.

MR. SOKOLSKI: The law was not in place before '91.

Second, we are agonizing a fair amount generally in sanctions about what we want, which is, we don't want to block a firm from doing business and doing launches. And then we think, because that's what we want, if we give it, maybe we can get from the Russians better behavior on Iran. I think we've got to stop looking through our lens to try to understand what makes sense. What we need to do is recognize that if there are clearly culpable parties with regard to Iran and we clearly continue to do direct government to government assistance with them -- again I say the Russian space agency -- then -- you don't even have to get into this debate.

By the way, just for the record, if I understand Lockheed-Martin correctly, they see as a sanction right now doing nothing. Because unless they get their quotas raised, they feel that it is a sanction. So the first point is is that simply by doing nothing some people will say you're doing a sanction there.

REP. GILMAN: I'm going to have to interrupt, I regret. We have three minutes to get to the floor. Mr. Cooksey, you'll be recognized as soon as we come back. I want to thank Mr. Cordesman for being with us. Mr. Cordesman, thank you very much for being with us. And the panelists, we're in recess, we'll come back shortly.

(Gavels.) The committee stands in recess. (Recess.)

REP. BEREUTER: The subcommittee will come to order, and we'll resume our round of questioning. The chairman has asked me to proceed until he returns from the vote, and I will take this opportunity, since I'm probably next in line -- returning to Mr. Cooksey briefly for a bit more time -- to ask a question or two.

Mr. Cordesman, in your opening statement --

MR. : Congressman Bereuter, he had to leave for a prior commitment.

REP. BEREUTER: All right. I was going to open this to anyone anyway. I want you to comment on his statement, if you will. He said that we should focus on the buyers -- in other words, Iran, North Korea -- who are making lucrative offers to a desperate Russian population. We have done that already, I would like to say, to some extent. Sanctions against potential buyers are very tough. And so my questions for you, gentlemen, would be, where do we get the additional leverage on the seller -- in other words, Russia? With the end of the Wassenaar agreement, effective multilateral controls to limit transfers to rogue regimes have become more difficult. What type of leverage can we exert without the full support from some of our allies that also have high technology kind of export potential?

Who would like to try? Dr. Woolsey?

MR. WOOLSEY: I'll give a try, Mr. Bereuter.

REP. BEREUTER: Good to see you, by the way. Thank you for all you do for the country in your civilian capacity.

MR. WOOLSEY: Thank you, Mr. Chairman. Good to see you again.

I do believe that it is long past time for exercising a great deal of firmness with the Russian government, and that congressional concern about -- and Henry Sokolski spoke to this very well -- about funds that have gone there unconstrained, unlimited, and most of which have ended up in Swiss bank accounts are very well-founded concerns indeed. But it seems to me that in an effort to get this weak -- but in Mr. Primakov's case, not only weak but unwilling -- Russian government to try to begin to do something to limit those firms and institutions that are working together with Iran, let's say, the focus for the withholding from Russia or any part of Russia those things that they want in an attempt to influence them ought to focus on the Russian government.

I would be quite firm with respect to these IMF loans and the like. It seems to me that is the place to concentrate. It doesn't mean that one can't work something out if one sees some changes. But what I was criticizing was focusing on the parts of the Russian system that are cooperating with us and sanctioning them. That's the only part I was really quite opposed to.

REP. BEREUTER: Mr. Sokolski.

MR. SOKOLSKI: Yes. Thank you.

Part of the problem, as you learn more about the Russian economy, is that the distinctions between firms, governments, banks and the like get awfully muddled since so little of what goes on is paid for with hard currency. Everything's barter. Many of the biggest companies are government-controlled. They get all kinds of barter concessions directed by the government. So I think we need to be careful in making too fine a distinction between, oh, well, this is a private firm, and well, you know, they're clean, they're not. I think that's the reason why many people are getting attracted to leveraging big things: because they're getting frustrated in making the distinctions.

REP. BEREUTER: Director Woolsey has a statement in his written statement, a couple sentences which say this suave Russian living on the shores of Lake Geneva may be working for the Russian mafia, he may be working for the Russian government, he may be working for Russian corporations. More interestingly, he may be working for all three at the same time.

MR. SOKOLSKI: I think --

REP. BEREUTER: I read your statement, see? (Laughter.)

MR. SOKOLSKI: And did a very good job reciting it.

That, then, makes me think two things.

First, really, when you do have government involvement -- and I keep coming back to this example, at great risk of being repetitive, in the case of the Russian space agency, which farms out work all over the space sector and coordinated a fair amount of work for Iran -- that when you have the Russian government implicated, when you have a fairly clear case of working with what you're so objecting to -- Iran -- you probably would have to do something just to save face, because otherwise who would listen to you?

In the long run, however, there really have to be a, if you will, a five-year and a ten-year plan on the part of the United States -- and yes, Russia -- to restructure their economy. And that means we've got to leverage how we put hard capital in and how we condition it to make sure it's not being used to do the wrong things.

REP. BEREUTER: Mr. Garnett?

MR. GARNETT: Remember I talked about what do we do in the absence of Wassenaar?


MR. GARNETT: Well, I agr ee with Ambassador Woolsey about the big things, but I do want to spend a little time pointing to the little things in the sense that I also think some of the programs that we have -- they need to be strengthened, too.

Because it really is the case that there are still Russian scientists that don't want to work for North Korea or China. There are, I think, a number -- I mean, if you talk to the Russian military, some of the Russian military, while it's true they're infected in part by this Primakov kind of attitude towards global strategy, they're also worried that in 15 years the Chinese, the Iranians and others are going to have capabilities that could turn back on them.

And so the point is, I think you're in a difficult situation right now in which these little programs are not going to resolve the problem that we've all discussed today, but nonetheless I think they really do matter a lot. And again, I think there is still a rise of some independent business and even some people in the government who don't want to simply go along with this. So I would continue to -- I continue to believe in some incentives and also, you know, clearly some very strong sanctions where we can find the evidence.

The last thing that I would say is your point about the allies and others. If we can't convince people that the world will look very bad in the next 20 years if we don't agree at least on some basic minimums and have complementary policies, this is -- I just think it's not just going to be U.S. military power that'll be affected. In fact, the Russians and then, ultimately, our European allies are going to fall under missile coverage -- and they're already under a lot of it now -- and that's just going to get worse. And that's a battle I think we haven't done enough of and we certainly need to sort of pressure into, again, a reestablishment of some common -- not expecting a lot out of our allies -- but fundamentally some common basis on which to act.

REP. BEREUTER: Thank you. We want to go back to Dr. Cooksey, who only had half of his time. He was talking about sanctions, I believe, quite interestingly. Dr. Cooksey, we'll recognize you for two and a half, three minutes.

REP. COOKSEY: Good, thank you.

I want to go back to my original question. I got your answer. Mr. Woolsey, I think -- was your answer to my -- that you just gave to Mr. Bereuter basically in answer to my question, too, in that you said that we should use money to IMF instead of targeted sanctions. Do you think that would be a more effective means of accomplishing the overall -- trying to address the overall problem instead of pinpointing specific areas?

MR. WOOLSEY: Well, I am perfectly willing -- indeed would encourage the use of sanctions where the sanctioned entity has actually done something wrong. And I think, although the firm sanctioned as a result of the Iranian sales, is not complete and could perhaps be expanded, at least I think that sends the right message, to go after the individual entities that have been doing something, like trading with Iran.

Now if one is trying to affect the Russian government as a whole to do a better job of overseeing and -- indeed really in Mr. Primakov's case, I think, to change his entire world view -- then I think one has to deal with the things which the Russian government as a whole wants, such as the IMF loans. I think that is a tough call. But it does seem to me that there are ways in which we can exert maximum leverage on the Russian state, such as it is, by using those resources which go to the state.

What I was trying to distinguish between was that -- those two cases; entities that actually have done something to proliferate to, say Iran on the one hand, the Russian state, which I also regard as culpable, and to distinguish them from entities that haven't done anything wrong. It seems to me that -- not only the least desirable but really an extremely poor idea is to sanction the entities that are working closely together with us and not proliferating. REP. COOKSEY: Mr. McMahon, I'd like to ask you to answer the same -- address the same question.

You know, I feel like every time I am in one -- and certain of these hearings involved other nations, that I feel that someone out there in the audience is a Russian representative, or maybe two or three. And maybe someone from China is around. And I would really like to ask them to come here to the table. (Laughter.)

But in lieu of that, I would like to ask you, Mr. McMahon, because you are involved in a joint venture. And then maybe we'll get around -- to asking, "Would the representative to the Russian government please stand up?" (Laughter.)

REP. BEREUTER: The gentleman's time has expired, but the gentleman may certainly respond, as --

MR. MCMAHON: Thank you very much, Mr. Chairman.

Mr. Cooksey, there's two points I'd like to make quickly on that score: One, in responding to your question earlier, Mr. Sokolski almost came to say, before you broke for lunch or for the vote, that if there is nothing done to raise the quota, we are in essence sanctioning the space program that we have with Khrunichev.

MR. SOKOLSKI: By the way, I was repeating the arguments of industry, not necessarily --

MR. MCMAHON: Right. Thank you.

MR. SOKOLSKI: -- making the argument. (Laughter.)

MR. MCMAHON: And I am glad we emphasized that, Henry.

And that is indeed the case; we are out of quota. We have sold as many launches as we possible can. And if we don't get the quota raised, then we go out of business, and the joint venture is dead.

The second point -- and that is kind of the principal reason why I am here -- but the second point goes to a greater one, and it's not just altruistic.

I think it's important that the United States government keep open a line of dialogue with the Russian government. We can't force them to go back further than they were during the Cold War. And as bad as it is, as disorganized as it is right now, our relations with Russia are far better than they ever were. And so while we're measuring progress by little footsteps, but it's still progress.

And I think that the United States government has to show a great deal of patience in trying to draw the Russian government further and further into thinking our way about things, and it's going to take time, it's going to take diplomacy. But there also has to be carrots there, and I'm one that will profess that one of those carrots is the Khrunichev joint venture with Lockheed Martin.

REP. COOKSEY: Thank you.

Thank you, Mr. Chairman.

REP. BEREUTER: The gentlelady from California, Ms. Lee, is recognized for her five-minute question period, and to be followed by the gentleman from California.

REP. BARBARA LEE (D-CA): Thank you, Mr. Chairman.

And let me just ask any of you on the panel who can answer this question; in terms of the fact that -- first of all, we all agree that finding ways to really stop the flow of technology between Russia and Iran is really critical in terms of America's national security, our neighbors in the Middle East, especially Israel. Some of these countries are becoming increasingly more vulnerable. But getting Russia to stop the flow of weapons and missile technology is really a question of political will and also a question of capability. We talked a little bit about the financial interests, strategic interests.

But in your view, do you think that Russia really does have the ability to control its own exports, or is in fact things are so out of control that it's basically about the bottom line in terms of the financial interests that we know that they all need?

MR. SOKOLSKI: I think, Congresswoman -- I'll just take a quick stab at this -- I think that this is partially a matter of the will of the Russian government. Things have gotten worse in this regard since Mr. Primakov became prime minister, from sporadic efforts to control to essentially no efforts to control.

I believe that unless he has some -- sees some flash of light on the road to Damascus, Mr. Primakov is going for the rest of his government service to be hostile to the United States and to work on cooperating with rogue states where he can.

So I think part of what we ought to be about here is making clear our fundamental opposition to the way he is working. Russia still has elections, and there is at least some chance that the president and the prime minister that he appoints after the next Russian elections, and even the composition of the Duma, could be in some ways better than it is now. But I think that the main job as long as Mr. Primakov is prime minister is making clear -- when he nods and winks, or worse, at things like proliferation to Iran -- that we are fundamentally opposed to the policies he's implementing for the Russian government.

REP. LEE: Okay. I understand making our statement and exercising our moral authority in this, but is there anything that we can do to actually help, you know, in terms of this effort, unless it's just waiting for the next --

MR. SOKOLSKI: We could not give him the IMF money that he wants, among other things. I think when you try something that has not seriously been attempted, not only negative, but positive, incentives -- we've not really done that in the case of Russia. We tend to do one shortly or the other, but not both. And engaging key sectors of the economy, not just -- you know, the space industry is not the biggest sector, gas is. I haven't heard much discussion about gas. We have an interest in seeing that gas be developed properly, and they are using that gas lever as an instrument of policy to give hard currency to the proliferators to buy their goods. So I think you need to look a little bit beyond what you're currently focused on, which is just space and missile, and you need to have a long-term program to engage all of the sectors.

Also, I have not spent any time saying it, but in my testimony, there are a number of specific positive long-term and short-term things we need to do, and they are listed there.

REP. LEE: Thank you very much.

REP. BEREUTER: Thank you for your questions.

The gentleman from California, Mr. Campbell, is recognized for five minutes. REP. TOM CAMPBELL (R-CA): Thank you, Mr. Chairman.

Mr. McMahon, it's nice to see you again.

MR. MCMAHON: It's good to see you, Mr. Campbell.

REP. CAMPBELL: We were both elected in 1988, Mr. McMahon as president of Lockheed Missiles and Space, and I as congressman. So it's a pleasure seeing you again.

I had one quick question to all members of the panel. It's a very simplistic question stemming from my lack of expertise. Could it be set up that America would be the buyer of whatever is available? How about a "Dear Russians -- Dear Russian Government, Dear Russian Industrialists, Dear Space, Dear Nuclear, Dear Anybody Who's Got Something to Sell: We'll buy it." Could you give me some response?

MR. SOKOLSKI: The short answer is yes, to a much greater extent than we know or allow. Lockheed Martin, for example, I believe has a division that is buying RD-180 first stages.

Am I correct?

MR. MCMAHON: That's correct. The Denver organization.

MR. SOKOLSKI: All right. One of the problems, however, in talking with the executives there that I've learned is they have some difficulty in getting Russians long enough visas to come over here and stay for a long time. I think you want to remedy that, so you get a two-fer: not just the item, but the people.

Second, there was this week the beginning of serious discussions with a private corporation to bring in $6 billion worth of fees for storage temporarily of spent fuel in exchange for getting much, much tighter control over how that money that goes to Minatom would be spent and control over the plutonium so it isn't used, recycled, or made into weapons again.

So the short answer is the more you get U.S. people and industries into Russia and the more you get Russian folks out of Russia working with folks in the U.S., the better you're going to be at restructuring.

REP. CAMPBELL: I was thinking of adding to the commercial purchases the government of the United States, the Defense Department as a purchaser of last resort. Is this totally unworkable, or -- ?

MR. WOOLSEY: Well, congressman, there are a lot of things that can be done in that direction.

I'll tell you, I think the biggest one was the subject of our discussions that Congressman Weldon led in Moscow two weeks ago with Duma members, which is cooperation on ballistic missile research and even deployment. This idea was fostered by President Yeltsin in '92. We spent the year of 1992 in the Ross-Mamedov (sp) talks working on joint changes to the ABM treaty and joint ways in which Russian and American industry could work on this huge and very important sector of aerospace. It went away in '93, but there are now again some Duma members who are willing to talk about it. And certainly, Mr. Yavlinsky, the head of the Yablokov Party, has made a public statement about it. So although I don't know that we could do it absolutely across the board, I very much agree with Henry Sokolski that you could do a great -- the United States government could do a great deal more in this regard than it does now, so much so that it could begin to start to turn this aircraft carrier or oil tanker a few degrees at a time and see some substantial change over time.

REP. CAMPBELL: Well, both of the gentlemen who have spoken have been supportive. Do the other two gentlemen have any difficulties that you would see with that?

MR. MCMAHON: Well, I'd like to just climb on the comment the Mr. Sokolski made, and that's on the RD-180 engine. It's a perfect example of technology transfer from Russia to the United States. Under the joint venture that we have with them, they are turning over the design, the plans and everything on their RD-180 to Pratt & Whitney. Pratt & Whitney is going to build that engine down in West Palm Beach. And we will use that engine for the launches that we have for the Atlases and the EELV in the future with the Department of Defense. And the Department of Defense not only sanctioned this, but is delighted with it because it is a very superior technology.

And that, to me, is a perfect example of where things can work with the United States. But if you reach out into the private sector you'll see Reynolds Aluminum very much into Russia and getting a great deal out of their materiel, the minerals that they have in Russia. So things along what I'll call the typical commercial vein for the normal operation of the service industry in the United States can flourish with Russia, and that should be promoted and facilitated as far as laws and trade is concerned.

REP. CAMPBELL: Thank you.

And finally, I think the distinguished gentleman from Florida, Mr. Hastings, is recognized for five minutes.

REP. ALCEE HASTINGS (D-FL): Thank you, Mr. Chairman. Mr. Chairman, just a point of personal privilege. Last night, I want you to know that after I analyzed our repartee on the floor, I do take your point. But in a private moment, I want to extend our dialogue, if you don't mind.

Gentleman, thank you so very much for staying. I appreciate it very much, and all of us obviously. I told someone yesterday I'm tired of apologizing for working. But -- (laughter) -- the fact is that you all know what we've been up against.

As I listened to the portion of the discussion of all of your testimonies -- and I heard all but the end of Mr. Woolsey's -- I'm left frustrated, just as a citizen of this country and as a policymaker, not by what you had to say, for I find little that I would be in disagreement with. But what frustrates me is when lay people, even policymakers, talk about Russia in 1999, I have difficulty understanding who we really are talking about. Are we talking about Yeltsin or Primakov or the Duma or industrialists, responsible citizens, criminal actors? And it's a whole lot of things. And factoring all of that into the mix with reference to proliferation is exceedingly difficult, and you all do it well because you are professionals and you study this. We do not do it well. We come at it with a political dance, trying to make political hay on either side or either persuasion, and it makes policymaking particularly difficult.

Mr. Sokolski, I fully agree with you that nothing will transpire until such time as we have done something to prompt Russia to restructure its economy. What that is, I heard my colleague Ms. Lee asking. And Mr. Campbell, for whom I have the greatest respect, all of us are trying to undertake to do something.

For example, today, unrelated to that -- but we need to be very careful. Today's hearing is about proliferation to rogue regimes. And immediately what comes to mind, for me, would be Iran, Iraq, Libya, North Korea. But 80 percent of the proliferation from Russia goes to China and India.

MR. : Right.

REP. HASTINGS: And we don't call them "rogue states" or --

MR. : No, not my term -- (laughs) --

REP. HASTINGS: You know, nomenclature might help us here.

MR. : Right.

REP. HASTINGS: Here is my one question or -- after my venting of my frustration, and for that I do apologize. It seems that we're no longer in an era of normalcy. Some of us would even, it seems, wish for the Cold War or -- (laughs) -- we're almost in a perpetual state of flux. And I did not hear, and I do not suggest that it has not been asked -- but I didn't hear anyone talk about the potential negative change in proliferation problems with Russia, in light of ongoing events in Serbia and Kosovo. And my one question would be, obviously, many of you are capable of revamping your theories, based on your long experiences. But what would be the best indicators for us to look for that would demonstrate that something has happened more than, say, I have lifted the embargo on proliferation? What -- do I make myself clear, Jim or Mr. Sokolski?

MR. : Mm-hmm. Henry can handle this.

MR. SOKOLSKI: Yeah. Well, this is going to sound a little fantastic, but I'm going to take a stab at something that may jar the ears. When Gazprom, their largest single company, actually allows foreign investment and management, and gets rid of the featherbedding, that's probably a great sign. That would be a plus for nonproliferation.

When the human capital in Russia, which is incredibly educated -- it's unbelievable how many degrees, on average, the average Russian citizen has. I mean, they are so overeducated. Unbelievable. If we could tap into that human capital -- just like we tap into the human capital in India, where they don't even have to go to an office; they work by computer to do codes -- and get those people so that they're not dependent on government barter or government programs, when hard currency can go into Russia, not only not end up in Cyprus, but not ignite a lot of finance deals for arms exports, then you'll know that you've made progress.

Now that's the long term. In the short run, yeah, you just want to make sure the intelligence take doesn't register "Oh, my God, they did it again!"

But I don't think you can have a useful package if you only focus on the short run. You've got to have both.

REP. HASTINGS: Thank you, sir.

REP. GILMAN: Thank you.

I have just one or two questions, and Mr. Berman has a question, and then we'll try to wind up.

There have been reports that Russia has been seeking to reinvigorate its arms sales to Syria, despite a reported warning by our nation that such arms sales could lead the United States to cut aid provided to the Russian government.

Can you analyze, what are Russia's goals in trying to reinvigorate arms sales to Syria? Yes, Mr. Sokolski?

MR. SOKOLSKI: It's interesting. The reason I asked that the Casey Institute article be included in the record, which I'm glad to hear was included, along with the Blank (sp) article, is that it's a "twofer." They're not only trying to sell them arms; they're trying to build a pipeline from Iraq to Syria to help them pay for the arms. And we may be helping GAZPROM finance, if we're not careful -- we have to be very vigilant in the next few months -- with private capital in the bond market, we may end up paying for the pipeline.

So they have a way of understanding how to get money. They have something to offer. We need to be careful that when we give them money, they don't use it to play out those plans.

REP. GILMAN: Thank you.

Mr. Garnett?

MR. GARNETT: There's an element right now -- and this is the worst part of Russia and doesn't represent the whole of Russia, but essentially, I think there's an alliance between short-term economic interests of especially arms sellers and a policy at the top to remind the world that Russia still matters. And the way that it's easiest to do that, frankly, is to intervene in North Korea. It's to get in the way of our policy towards Iraq. It's the famous case of keeping Warren Christopher waiting in Syria while he chatted with the Russian.

There is a whole -- if you looked at Mr. Yeltsin's speech last year about -- what were the two diplomatic successes he talked about? He talked about Iraq and Latvia. Now, forget Latvia in this context, but Iraq was not a success in the sense that Primakov convinced Hussein to follow an alternative policy that led to an improvement of the conditions; it was a success because it reminded the world that Russia's around and can still get in the way.

And I don't see this in the long-term interest of Russia or anybody else, but it is in the interest of the particular group that is frustrated and wants the world to remember them and Russia to be a great state. And it's in the interest of a whole set of actors, energy and otherwise, to get certain kinds of money.

The way you stop that in the long run, I would argue, is -- I mean, again, I think you've got -- there have to be consequences for normal economic actors if they behave irresponsibly. I mean, if they want a contract in Germany or the United States, there has to be some, you know, impact on their business with Syria. And secondly, I think we have to activate a set of actors within Russia who exist. And Mr. Woolsey talked about the ballistic missile crowd. There are people who actually think Syria, Iran, China's power is a dangerous thing, who realize they need ballistic missile defense. We're off course from that. We're not talking to those people. And Primakov is not one of those people. But you need to remember those folks when you think about shaping U.S policy in the long run.

REP. GILMAN: Mr. Woolsey, do you want to comment on that?

MR. WOOLSEY: I very much agree with the two preceding speakers.

I would just say that I think what really drives the Russia behavior in something like this is hard currency. And in part also it's Mr. Primakov's world view: he either blinks at it or encourages it. And this overall shift in focus that Congressman Campbell was asking about ultimately I think is one part of the solution. It's tough to deal with Russian entities and Russia as a whole these days, but at the same time we're being tough with a Russian government that right now has I think a wholly inimical -- well, not wholly, but very inimical -- world view to the United States. And we're trying to deal with some of these entities that are engaged in proliferation. We need to have carrots and friendly handshakes with the parts of the system we can work with and to expand those as much as we can.

REP. GILMAN: Thank you.

Mr. McMahon?

MR. MCMAHON: I don't have the answer, Mr. Chairman, but I have a suspicion. And I think it's driven by the fact that the Russian government, be it as it may, has looked inward for years and years. And Primakov, driven by his Mideast background and interest, now is beginning to say, Hey, we ought to start re-establishing a foreign policy, and that drives him out in that direction. And, of course, underlying all of that is that there are hard dollars down there to be earned.

REP. GILMAN: Well, I thank our panelists. One more question. We often hear from Russian President Yeltsin and Russian Prime Minister Primakov and other Russian officials that their foreign policy supports the creation of a so-called multipolar world, that they oppose a so-called unipolar world. They support a strategic triangle consisting of Russia, India and China, and that they have a strategic partnership with China. Can you tell us what all of that means, and what are these triangles and multipolar world orders aimed at? (Laughter.)

MR. GARNETT: Let me take a stab at that.

Again, I think that there is a serious resentment of the U.S., so let me start with that. But fundamentally I think that this is, again, a part of a strategy of linking up in ways where Russia can maintain a certain element of influence in the world and to try to create a certain leverage. In my statement which I did not focus on, I think there are serious constraints on this strategy, and I think many in Russia understand it.

There are very good writings recently that the world may become multipolar, these Russian analysis argue, "But we may not be a pole in it." I mean, "We are a very weak country." The Russia-China-India thing is just silly, flat out silly, because of the Chinese-Indian problems.

But again, there is an enormous sense of gesture and I would say, folly, inherent in Primakov's foreign policy, because for short-term gain, for annoyance factor to us, in the long run is Russia better off with a very strong China, a more militarily capable India, a more militarily capable Iran and a weak United States? No. And yet, that's the direction this policy is headed.

MR. GILMAN: Mr. Sokolsky, you're shaking your head about that.

MR. SOKOLSKY: I agree. This is the -- you know, if one was to do a marxist history, perhaps the best candidate for trying to understand the policies of Russia would be to say, Well, it's because of their crazy economy that they say these crazy things. In other words, follow the money and you find these post ad hoc ratios (sp) almost.

Now, I don't want to belittle Mr. Primakov as far as having a world view, but when they actually try to sell arms not only to China but try to get Taiwan to buy arms, you get the distinct impression they're on the make. And they're more concerned about maintaining relationships, power relationships, in Russia and their power base through getting hard currency that they can do anything they want with than almost anything else.

MR. GILMAN: Mr. Woolsey?

MR. WOOLSEY: Mr.Chairman, if you'll indulge me, I'll try to tell you a one-minute version of a very old Russian joke that I think is absolutely applicable here. Poor peasant, hungry children, run-down cottage, never has any money or resources. Has a neighbor, same shape he was a short time ago but has been able a few years ago to save enough to buy a cow. And the cow has made all the difference in the neighbor's life. His children can drink the milk, they're healthy, his wife sells the butter, they have a few chickens, he's patched his fence, patched his roof. He's not a wealthy man, but things are much better than they were.

The poor peasant is walking in the forest. The only thing he ever does is trap a few things in the forest and he never traps anything substantial, but he comes across a pit that he'd dug and had branches on top of it and there in the pit is a giant bear. It's the best thing that has ever happened to him. All he has to do is kill the bear, he has a rug for the floor, meat for the the winter, things change.

But the bear speaks, and the bear says, "I'm not, in fact a bear. I'm the old man of the forest. I'll grant you one wish, anything in the world you want." He thinks and thinks and decides he's going to do it, so he holds his musket on the bear so there are no tricks and he lets the bear get out of the pit. And he looks and sees his own terribly run-down little cottage and his hungry children and in the distance he sees the smoke coming up from the chimney of his more prosperous neighbor's cottage, and he points to his neighbor's cottage and he says, "Kill his cow." (Quiet laughter.)

That's Mr. Primakov.

MR. GILMAN: (Laughing.) A very good analysis.

Mr. McMahon, did you have some comment?

MR. MCMAHON: I can't top that one. (Laughter.)

MR. GILMAN: Thank you very much, gentlemen.

Mr. Berman?

REP. HOWARD BERMAN (D-CA): It could have used a little of the accent, though, when you -- (Laughter.)

This is particularly interesting. This morning, a few members of Congress had breakfast with Ronald Reagan's second ambassador to the Soviet Union, a guy named Jack Matlock.

MR. : Oh, yes.

REP. BERMAN: He talked -- it's a different world. In effect, Primakov is the best thing that's happened to Russia.

He is honest. For all the talk, what he is is pro-Russia. They finally have somebody who is pro-Russia. He doesn't love Saddam Hussein, he's not interested in Milosevic, he's just pro-Russia.

We, the clumsy United States, keep sticking fingers in their eyes, whether it's -- and I think the answer is whether it's NATO expansion, whether it's bombing in Kosovo, whether it's this or this or this -- and are really screwing things up by humiliating, embarrassing them in everything -- just about everything we do. This is Ronald Reagan's ambassador to the Soviet Union.

So it's a little different vision than I'm hearing here today of what's going on there, and it has nothing to do with the topic -- well, it does have something to do with it, but it's not directly germane. And since when I got off on a tangent the last time I had the mike, we spent the last half hour talking about encryption and what to do with it here, so let me throw out my two questions. One is on GAZPROM, and then one is on this limit on launch, which I really hadn't focused on too much, but actually somebody from your company is coming in to meet with me tomorrow to talk about so -- (laughter).

On GAZPROM, we sanctioned GAZPROM. We then waived the sanction because GAZPROM was part of a joint venture with Total and a Malaysian company. And Total had done everything else to divest themselves of any U.S. ties, but so had GAZPROM. So that the sanctions, which we waived, apparently would have no effect. So what -- I mean, I heard a lot of talk about GAZPROM and all this, but whatever they're doing isn't sufficiently linked to the United States that a sanctions which deal with imports, with investment, with these kinds of things would have any impact on GAZPROM. That's question number one.

I'll ask question number two and then -- this issue of the cap on launches, it is suggested by people I respect that in fact the cap on launches and the administration focus over the last 14 months on Russian proliferation to Iran has been useful. They have promised certain things. They haven't done a lot of the things they've promised, but they've done some things. They've stopped some specific kinds of shipments. That if we just wipe out the -- and that they want that cap raised.

I mean, I just read somebody's testimony -- your testimony -- 100,000 jobs, ripple effect on 1.2 million people: this sounds like a substantial deal. I mean, it may not be the biggest sector, but it's a sector worth noting.

Why do we have to answer the question of launches now? Why can't we keep pushing to try and achieve at least a reasonable level of export controls, some specific conduct against the bad offenders, because if 16 results in -- I mean, it sounds to me like a significant increase in the number of launches means a significant boost to the Russian economy, then we should hold out the hope for that, but we should try and use some leverage with that. So those are my two questions.

Thank you, Mr. Chairman.

MR. GARNETT: Henry, why don't you do Gazprom?

MR. SOKOLSKI: On Gazprom, it's a good thing that they're having difficulty in making connection with the United States, because they tried in, I believe it was October of '97, to sell $3 billion worth of bonds as a first tranche on about $18 billion. Goldman & Sachs after one of the hearings held here, I understand, decided maybe they wouldn't put that issue out. I also understand that there are rumors now that Goldman & Sachs would like to put a Gazprom issue again on the U.S. market. So one of the things you want to follow and pay attention to is whether that happens. I don't think that would be a good thing, because what they'll do with that money could ruin our afternoon.

With regard to the launches, it turns out in December of 2000 you have to re-negotiate the quota. And when I talk with industry experts, you get a variety of answers as to where the other two to four launches go if they're not serviced in the next 12 months by raising the quota.

What's that?

REP./MR. : (Off mike.)

MR. SOKOLSKI: Well, actually, the answer is maybe nowhere. And the reason why is for the next 12 months everybody's booked up. Everybody thinks that if you have a satellite, you can go someplace and get someone to shoot it into the sky, right on demand. REP. BERMAN: You mean if you lift the cap today they couldn't take advantage of it because they don't have the launch capability to do more than --

MR. GARNETT (?): I don't think that's correct.

MR. SOKOLSKI: Well, the folks that I have talked with in the industry and at Rand have difficulty finding someone to do those launches in the year 2000. Now, after 2000 you probably can. And my hunch is what they'll do is get the next available ride. But this needs some staff work. We need to drive this to ground, what the opportunity costs are.

We need to drive this to ground, what the opportunity costs are.

REP. BERMAN: I don't -- I think Mr. McMahon has the numbers on this --

MR. MCMAHON: Mr. Berman, in about November 1999 we run out of quota. We haven't sold a system in about seven months because we realized that we can't sell a vehicle we don't have. If the lid was taken off, we could --

REP. BERMAN: I mean, there are companies -- there are companies, countries and satellites available --

MR. MCMAHON: There are satellites standing in line.


MR. MCMAHON: And that's the problem, and the satellite industry has come out time and time again to lobby the administration and the USTR to raise the quota, because they need launches. And when on top of that you add the thinking of Teledesic that wants to put up over 200 satellites, that's -- you know, it just says the market is very robust and we've gone through all projections that the Department of Commerce thought were going to be good for years out, we went through them last year.

There's a need for more launch capability. In essence, we're under a sanction right now because we don't have a quota to satisfy the needs.

REP. BERMAN: Well, what about the leverage?

MR. SOKOLSKI: There's no disagreement between us on that set of facts. The question is, the argument generally turns on, Well, what are the opportunity costs if we have to wait till December of 2000 to resolve what the quota should be? And that's where you have to start thinking through what the --

MR. MCMAHON: The answer is the joint venture goes out of business long before that.

MR. SOKOLSKI (?): No, I understand. I understand, but the question of opportunity costs --

REP. BERMAN: Well, what about the leverage? All this demand, all this potential, sounds like this should have the Russians' attention.

MR. MCMAHON: But you can't a dog with that little tail, you know? The launches are just so small in the realm of U.S.-Russia relationships. It shows that if there were enough ventures like ours, then that would have a lot to accomplish with our relationship. But for the past two years the administration has used Lockheed Martin as a whipsaw on foreign relations just through this joint venture.

And there's not enough leverage in all of that. You know, granted, the Russians like it, and it is good, hard currency, but when you have 250 million people that are in trouble, satisfying 1.2 is not enough. And those 1.2 won't be satisfied if we don't get an increase in the quota.

REP. GILMAN: Thank you, Mr. Berman.

Ms. Lee?

REP. BARBARA LEE (D-CA): Thank you.

Very quickly, let me just ask the panel what your take is on the recent meeting between Prime Minister Netanyahu and Prime Minister Primakov. I believe it was held this past Monday. It was reported that that occurred, and I'm just wondering if you've heard about the meeting and what your thought is about any type of increased cooperation between Israel and Russia to mitigate or to reduce the whole issue of the incentives for the sale of technology to Iran.

MR. GARNETT: (Chuckles.) I don't think the Israelis are necessarily going to lead in restraining the sale of technology, because you could -- I mean, if you look at key Chinese systems that are being built up, the Israelis are -- I mean, the problem of this is -- this is a panel on Russia, but if you look at the problem of long- term Iranian -- which the Israelis aren't involved in, but Iranian, Chinese, or any other capabilities, this is a -- there's a lot of people contributing to it.

And there are strong -- maybe 10 percent of Israel right now has a link to the former Soviet Union because of the Jewish immigration. There's an enormous amount of business energy in that community that wants to use their ties back to the former Soviet Union for good and occasionally for ill. But this is an important relationship. It's also important, by the way -- Israeli-Ukraine. I mean, there are things going on there. So Israel is a much more important player here.

But I'm not sure right now -- and this gets back to a larger point -- I'm not sure we have a strong enough sense among all of the potential actors here about either -- we don't have a strong enough common fear of what this world is going to look like in 2020, and we don't have a strong enough group to sort of negotiate some minimal restraints. I'm not picking on Israel. I'm not picking on France. I'm not picking on us. It's just that there is a -- this problem is going to require, in the long run, people within Russia seeing that the short-term gains from these sales are not as great as the long- term cost to their country. And right now you don't have that set of incentives and structures in place.

REP. LEE: But you don't believe that the increased cooperation down the line could lead to reducing the incentives for Russian sale of technology --

MR. GARNETT: No, I think -- I mean, the Gazprom problem is a good one. I mean, to the extent that you could nest Gazprom in -- or more Russian business doing subcontracting in the West, Gazprom being more of a normal company -- that's all very good. But again, the problem with Gazprom on the Iran deal is that also they had a French company that had essentially put itself in a position of not being vulnerable to our sanctions. I mean, we haven't won the argument on a number of issues with our allies. And so -- I mean, Gazprom has particularly problematic aspects, but so do a number of other companies. The point is, one wants to see in the long run a normalization of the Russian business community.

But there's a lot of -- in the short run you have both political and economic incentives and then a weak state structure that I think makes much of this group behave abnormally. They're not quickly becoming sort of IBMs or, you know, Total or any of those. ere's still some problem with the way Russian industry is emerging, business and industry.

REP. LEE: Thank you.

Thank you very much, Mr. Chairman.

REP. BEREUTER: Thank you very much, Ms. Lee.

Gentlemen, thank you very much for contributing your thoughts and information you provided us in your written and oral testimony on this important subject. The committee sincerely appreciates your effort and thanks you very much.

MR. GARNETT: Thank you.

MR. SOKOLSKI: Thank you.

REP. BEREUTER: (Gavels.)