Prepared Statement by Assistant Secretary of State for Intelligence and Research Phyllis Oakley Before the Senate Intelligence Committee Hearing: World Threat Assessment

January 28, 1998

Weapon Program: 

  • Nuclear
  • Missile
  • Chemical
  • Biological

Related Country: 

  • China
  • Iran
  • Iraq
  • North Korea
  • Russia
  • Syria

Chairman Shelby, Senator Kerrey, Members of the Committee. I appreciate this opportunity to present the views of the State Department's Bureau of Intelligence and Research (INR) on current and projected threats to our national interests. Happily--and thanks to the effectiveness of American diplomacy, military readiness, and intelligence capabilities--the danger of nuclear attack, large-scale conventional military attack, and other threats to our national existence is low. Most of our citizens are quite safe, most of the time, and in most places around the globe. Compared with threats in our own recent past and with those currently facing many nations, the threats we face today are less direct and more diffuse.

Our world has become safer, but it is not yet safe enough. Individual Americans are vulnerable to terrorism, international crime and criminal acts in other countries, the perils associated with narcotics and other illicit drugs, and to diseases transmitted over long distances by tourists, migrants, and business travelers. On any given day, millions of our fellow citizens are living or traveling outside the United States; many of them are in regions subject to ethnic or religious tensions, political instability, and environmental risks. We cannot protect all Americans from all dangers, but we must remain vigilant and aggressive in our efforts to identify and eliminate threats to our safety as well as our security. This work involves more than just gathering intelligence on potential adversaries and buttressing our defensive and deterrent capabilities; it requires vigorous effort to anticipate and ameliorate threats to all of the national interests and goals articulated in the administration's Strategic Plan for International Affairs.

I recognize that the primary purpose of this hearing is to define and prioritize direct threats to the national security of our country, but before doing so I want to note the contribution that intelligence can and must make to the attainment of our national objectives. Failure to attain these objectives may be caused as much by what we do to ourselves--by failing to act or overlooking opportunities--as by foreign efforts to thwart or threaten us. History tells us that a vacuum of power invites aggression or mischief. Intelligence must identify not just the threats we face, but the hidden opportunities, the weaknesses of allies, and the strengthening or crumbling of foreign powers. Thus, threats and opportunities, critically linked to each other, must be considered in the context of our international objectives.

The International Affairs Strategic Plan published by the Department of State last September lists the following foreign policy goals:

- Secure peace; deter aggression; prevent, defuse, and manage crises; halt the proliferation of weapons of mass destruction; and advance arms control and disarmament; - Expand exports, open markets, assist American business, foster economic growth, and promote sustainable development;

- Protect American citizens abroad and safeguard the borders of the United States; - Combat international terrorism, crime, and narcotics trafficking;

- Support the establishment and consolidation of democracies, and uphold human rights;

- Provide humanitarian assistance to victims of crisis and disaster; and - Improve the global environment, stabilize world population growth, and protect human health.

The first, third, and fourth of these goals address traditional threats to the security of our country and our citizens and will be discussed further in the pages that follow, but there is an important sense in which failure to advance any and all of these objectives entails dangers for the United States. To achieve these goals, decisionmakers, diplomats, the military services, and the law enforcement community must have timely, accurate, and correctly interpreted intelligence. That is why the Department has made Support for Diplomatic Operations a priority.

We must ensure that our diplomats have access to intelligence when they need it and where they need it. Diplomacy is moving increasingly fast and is increasingly mobile--intelligence must keep pace. The Department of State has been working with the Intelligence Community to identify innovative ways to harness technology to provide intelligence support to our Chiefs of Mission, diplomats, and negotiators, both on the road and at fixed locations. Intelligence is often called a "force multiplier" with respect to the military; the same is true for diplomats. Timely, tailored, all-source intelligence can increase our diplomatic readiness and allow our diplomats to face challenges, seize advantages, and identify opportunities in our complex global environment.

The Committee's call for an annual review and ranking of the threats to our national security serves, as I'm sure you intend, as a useful prod to reconsider how best to deploy our intelligence resources. This year's fresh look at the array of threats, challenges, and opportunities we ace produced the following observations. First, although we could and did rank the traditional (and some nontraditional) threats in priority order, we continue to believe that all those noted below--from the proliferation of Weapons of Mass Destruction to international terrorism, and from the behavior and intentions of specific countries to environmental degradation and eco- migration--are sufficiently important to warrant attention from both the intelligence and the policy communities.

Second, we concluded that progress in certain areas (e.g., the start of Four Party Talks on the Korean Peninsula and the decline in the number of terrorist incidents directed at Americans) made it appropriate to rank threats differently than we had in 1997. Accordingly, the danger of proliferation of weapons of mass destruction joins terrorism at the top of our list, Iraq has moved up in the ranking of problem states, and North Korea has been accorded a lower-but still dangerous--ranking.

Third, INR's position on the frontline of Support to Diplomatic Operations and the Secretary of State's mandate to deal simultaneously with challenges and opportunities in every corner of the globe continue to require that we deploy our resources to ensure both global coverage and attention to the entire array of international affairs strategic goals. The net result is that, although we have assigned relatively more people--albeit still very small numbers--to coverage of the highest priority threats, our small size--I have only 170 analysts to cover all countries and issues-- means that in INR the difference between the number of people covering high- and low-priority topics is small.

With that as prologue, I will now turn to the discussion of threats to US national security.

PROLIFERATION CONCERNS

The spread of weapons of mass destruction (WMD) continues to pose a serious threat to US national interests at home and abroad. We have seen some encouraging signs over the past year, but Iraq's obstruction of UN Special Commission (UNSCOM) inspectors underscores the need for continued vigilance. Effective diplomatic intervention, informed by targeted and timely intelligence, is the key to limiting the transfer of critical technologies and equipment.

To halt the spread of WMD, the United States and its partners must both alleviate underlying regional tensions and instabilities and address the motives and mechanisms of potential suppliers. Political incentives and opportunities for WMD proliferation are greatest in the Persian Gulf and South Asia. Entities in North Korea, China, and Russia are the principal targets of acquisition efforts by countries seeking WMD capabilities. Entities in these three countries are also the most active purveyors of WMD- related equipment and technology.

Iraq

Saddam Hussein continues to defy United Nations Security Council (UNSC) resolutions and to test the resolve of the international community in general and the United States in particular. As UNSCOM and the International Atomic Energy Agency (IAEA) indicated in their respective October 1997 reports, substantial gaps remain in Iraq's WMD declarations. We do not yet have a complete understanding of Iraq's past WMD programs and remaining capabilities.

There should be no doubt that Saddam will try to rebuild his WMD programs at the earliest possible opportunity. There should also be no doubt that Saddam will attempt to capitalize on perceived differences of opinion among our allies on this issue. His recent efforts to exploit French and Russian diplomatic initiatives to loosen the sanctions regime are only the latest examples of such behavior.

Russia

Half a decade into the post-Cold War era, Russia continues to pose special challenges to US nationalsecurity interests.

The good news is that the dramatic political transformation of the former Soviet Union and the development of a cooperative relationship between the US and Russia have made it extremely unlikely that the Russian government would attack the United States or our allies; detargeting has reduced the danger of accidental launch, and existing command and control safeguards make unauthorized launches both difficult and unlikely. Budgetary problems and the difficulties inherent in reforming the Russian military establishment also have reduced Russia's capability to endanger US interests. Bilateral strategic arms control agreements are gradually reducing the numbers of nuclear weapons in both our countries' arsenals.

Nevertheless, we should not underestimate Russia's continuing capabilities. Russia maintains significant nuclear strike capability. Largely owing to the same budgetary problems that have reduced the overall Russian threat to US interests, Russia has abandoned its policy of "no-first-use" and is relying more than ever before on nuclear deterrence to compensate for its diminished conventional capabilities. START II remains unratified, and though Russia ratified the Chemical Weapons Convention (CWC) last year, its CW stockpiles are enormous and their destruction poses staggering ecological and economic challenges.

Moreover, very real concerns persist about the porosity of Russia's military-industrial infrastructure and the prospect for unauthorized transfers of materials, equipment, know-how, and technologies. The leakage of missile technology and expertise from Russia's industries to Iran has underscored this serious proliferation concern. Events over the past year have demonstrated the ability of would-be proliferators, notably Iran, to exploit Russia's missile development infrastructure. If allowed to continue, access to Russian technology and expertise will enable the Iranians to develop and field intermediate range ballistic missiles faster than if they were left to their own devices.

The President last summer appointed Ambassador Frank Wisner as his special envoy for this issue. Ambassador Wisner has met with Russian counterparts several times since then, most recently on January 12-13. The Russian government has taken initial steps--and made commitments to take substantial additional steps--to crack down on Russian entities supplying missile technology to Iran.

Fissile Material in the Former Soviet Union

Although we are heartened by reports of enhanced security at several Russian nuclear installations, and by the decline since 1994 in known smuggling incidents, we are by no means at a point where we can speak of the inherent dangers in the past tense. We continue to regard the possible acquisition of fissile materials and technology by aspiring proliferators as a very real threat with potentially catastrophic consequences.

Russia's nuclear weapons control system remains equal to the task. We have no evidence that any Russian nuclear weapon is unaccounted for. Russia's security system for fissile material suffers from a lack of funds, modern equipment, and trained personnel. Joint US/Russian efforts to strengthen Russia's nuclear material security and accountability system, such as those being pursued under DOE and DOD assistance programs, continue to play an important part in efforts to rectify the most serious shortcomings, and significant progress has been made. Initiative and persistence will be essential to ensuring Russia and the other NIS live up to their commitments to illicit trafficking before it starts.

Chemical and Biological Weapons Technology in the Former Soviet Union

Russia's remaining chemical and biological warfare capabilities pose an additional set of concerns. With losses in government funding on the civilian side of the programs, many of the institutes which developed and produced the Soviet Union's chemical and biological weapons have faced serious problems and shortages of paying contracts. As in the aerospace industry, some face temptations offered by would-be proliferators. Even seemingly innocuous ties between Russian chemical and biological institutes and their counterparts in other countries could hold the potential for conveying expertise in weapons of mass destruction. This is particularly true in the biological sciences, where medical and other scientific research can easily--and without detection--veer off into research on biological warfare agents. The US has a number of programs designed to help these institutes and their employees convert these skills to production in civilian work. These programs have had a positive impact on the Russian scientific community.

China

As a major producer of nuclear, chemical, and missile-related equipment and technology, China has a responsibility to subscribe to internationally accepted nonproliferation standards. Successive administrations have worked to bring China's behavior into line with international norms. We have made significant progress with China in the nuclear area over the past few years. China took steps in 1997 to develop more effective administrative oversight of its nuclear industry by promulgating nuclear export control legislation. China joined the Nuclear Non- Proliferation Treaty (NPT) exporter committee. China also started the process for adoption of comprehensive dual-use export controls.

China appears to be living up to its commitment-publicly offered in May 1996--not to provide assistance to any unsafeguarded nuclear facilities. This commitment is especially important because of China's past assistance to Pakistan's nuclear weapons program. China also has significantly curtailed its nuclear cooperation with Iran. While this cooperation was fully consistent with China's Nuclear Non- Proliferation Treaty (NPT) undertakings and subject to international safeguards, we nevertheless have found the cooperation troubling because of its ability to support a nuclear infrastructure and contribute indirectly to Iran's effort to acquire nuclear weapons.

Unfortunately, China has not made equivalent progress in other areas. At least until mid-1997 Chinese entities have been the main source of supply for Iran's CW program. In May 1997, the United States imposed trade sanctions on seven Chinese entities for knowingly and materially contributing to Iran's CW program. Over the past year, China has made some progress in addressing the gaps in its export- control policies, but some key loopholes remain. Specifically, we have urged China to control the 20 Australia Group (AG) precursors not on the CWC schedules, and AG-controlled chemical production equipment, regardless of its end-use, and to adopt catch-all controls.

China has agreed to abide by the "guidelines and parameters" of the Missile Technology Control Regime (MTCR) and has committed not to transfer ground-to-ground MTCRclass missiles. But China does not appear to interpret its responsibilities under the MTCR guidelines as strictly as the US and other MTCR members. By all indications China has taken itself out of the business of exporting complete ballistic missiles. This is an important step--one that has slowed the process of military destabilization in South Asia and the Middle East. But it is not enough. We would like to see China upgrade its commitments to current MTCR levels and implement effective export controls.

Last year, Beijing created within the Ministry of Foreign Affairs a separate division to address all arms control and proliferation issues. We hope this development marks a turning point by introducing an arms control and global security perspective into the export oversight process. The Chinese have agreed to conduct regular dialogues at the senior level on arms control, global security, and nonproliferation. This dialogue will provide continuing opportunities to press our case, to review Chinese commitments, and to address specific problems as they arise.Transfers of modern Chinese anti-ship missiles to Iran are particularly troubling. China last fall agreed to end sales of anti-ship missiles to Iran and reiterated this commitment during Secretary Cohen's recent visit. The administration is reviewing, but has not yet decided, whether the number and type of transfers to date trigger sanctions under the Iran- Iraq Non-Proliferation Act.

North Korea

The North Korean nuclear program remains frozen under continuous IAEA monitoring in accordance with the 1994 US-DPRK Agreed Framework. However, we continue to have concerns about the North's missile program. North Korea has been a leading supplier of missile technology since the mid-1980s and is developing longer-range missiles. Of greatest immediate concern is the North's 1,300 kilometer-range No Dong missile. Though not capable of reaching the US, this system permits the North to target Japan and the entire southern half of the Korean Peninsula from deep within North Korean territory. But we must not be complacent about the current low threat posed directly to the continental United States; North Korean engineers are developing other, more capable systems. The Intelligence Community will continue to monitor the potential North Korean ballistic missile threat to the US and report on any significant changes.

Unlike Russia and China, both of which have agreed to abide by MTCR guidelines and parameters, North Korea has yet to accept any constraints on its willingness and proven ability to sell missiles and missile technology. US diplomats met with the North Koreans in 1996 and 1997 to discuss our concerns about their missile program and exports, and we hope to meet with them again soon. Unless and until Pyongyang agrees to restrict sales, it must be regarded as a dangerous proliferator, not least because missile sales generate badly needed foreign exchange and constitute one of the few significant bargaining chips available to a regime determined to do whatever it takes to survive in a world it perceives as hostile. Iran. Iran's efforts to acquire weapons of mass destruction and their delivery systems have continued during the past year. Iran has made some progress in its missile and chemical weapons programs, but it apparently has yet to realize significant and tangible advances in its nuclear program.

Iran's missile development work has captured global attention and raised significant international concerns.Tehran has had Scud-type, short-range missiles since the mid-1980s. Now there are clear indications that Iran is developing a medium-range missile that eventually will permit Tehran to project military power far beyond its borders and to hold targets--including US troops and allies-at risk throughout the Middle East. Iranian attainment of enhanced missile capabilities will introduce a new element of instability into an already troubled region. As noted above, Iran has received assistance from Russian aerospace firms and enterprises.

South Asia

South Asia remains one of the few places in the world where potential adversaries have the capability of using nuclear weapons against each other, although the possibility of war currently is remote. Neither India nor Pakistan is prepared to subscribe to international regimes such as the NPT or the Comprehensive Test Ban Treaty (CTBT), preferring to maintain a deterrent by keeping open the "option" of using nuclear weapons. Both countries have continued increasingly public efforts to develop ballistic missiles.

India is producing the short-range Prithvi and continuing to develop the longer-range Agni. Pakistani officials have vowed to have the capability to respond to such systems; the Pakistani press recently noted efforts to develop and deploy a 1,500-km missile to counter the Agni.

The United States has made control and eventual resolution of the proliferation problem in South Asia one of its highest priorities for the region. Attaining our goals in this regard will not be easy-- strong support exists in both countries, and Indian and Pakistani governments historically have been reluctant to take steps necessary to address US concerns. India and Pakistan's intense rivalry, and Indian suspicions about China, cause both to pursue aggressive indigenous development and foreign acquisition programs.

Threat Posed by Proliferation of Advanced Conventional Weapons

We also are concerned about the spread of Advanced Conventional Weapons (ACW), particularly to the seven state sponsors of terrorism (Iran, Iraq, Syria, Libya, Sudan, North Korea, and Cuba). Although such weapons are unlikely to be used directly against the US, they have the potential to threaten US allies and US forces deployed abroad. For this reason, and because such transfers have the potential to destabilize regional balances, we monitor efforts to sell or acquire ACW, consult regularly with other governments and implement relevant sanctions laws as part of the effort to control exports of advanced weapons and technology.

TERRORISM

We remain deeply concerned over the threat that international terrorism poses to US officials, citizens, and property, both abroad and at home. The most serious anti-US attack last year occurred in November when four US businessmen were gunned down in Karachi by unknown assailants shortly after the guilty verdict was handed down against Mir Kasi for his 1993 attack at CIA headquarters. Even when terrorism is not aimed directly at us, it can have a devastating impact on our broader political objectives, particularly efforts to resolve the Arab-Israeli conflict.

Terrorism originating in the Middle East continues to pose the greatest danger to US citizens and interests. The region remains home to four of the seven officially designated state sponsors of terrorism (Iran, Iraq, Syria, and Libya). It is also the locus of violent opposition groups which regularly employ indiscriminate terrorism as part of their campaigns to overturn policies or regimes. It was a matter of luck that no Americans were killed or injured in the November random massacre of more than 60 tourists at Luxor, Egypt. The apparently growing willingness of extremists to inflict large numbers of casualties reinforces fears that terrorists in the Middle East may be tempted to acquire and use weapons of mass destruction.

Tensions that feed terrorism remain high in the region, especially in the Persian Gulf and over the stalled Middle East peace process. Hamas last year claimed responsibility for three suicide bombings in Jerusalem that killed 24-including two American citizen bystanders--and wounded several hundred. Renegade Saudi terrorism financier Usama bin Ladin has issued more public threats against the United States. He remains in Afghanistan in areas controlled by the Taleban. Terrorism is rampant in Algeria's internal struggle.

Iran remained the most active state sponsor of _ terrorism in 1997. In April, a German judge found an Iranian and three Lebanese guilty of the 1992 murders of Iranian Kurdish dissidents in Berlin's "Mykonos" restaurant, declaring that the killings had been approved at the most senior levels of the Iranian government. Last year Tehran assassinated at least 12 dissidents outside Iran, all in northern Iraq. Despite the recent conciliatory comments of new Iranian President Khatemi, Iran has continued to provide support--money, weapons, and training--for a variety of Middle East terrorist groups, including Lebanese Hizballah,Hamas, and the Palestine Islamic Jihad (PIJ). Tehran has encouraged violent rejection of the Middle East peace process. In September the new government reaffirmed the 1989 "fatwa" against author Salman Rushdie.

American interests also are at risk in regions outside the Middle East. In Colombia, leftist guerrillas are increasingly active; in 1997 they conducted the most attacks ever against oil pipelines, partly owned by US corporations. The guerrillas also facilitate coca and opium cultivation and the production of cocaine and heroin, much of which is subsequently smuggled to the US by traditional traffickers. The risk of terrorist attack remains a prime concern to SFOR elements securing the peace in Bosnia.

THE DRUG TRADE AND INTERNATIONAL ORGANIZED CRIME

The illicit international drug trade and the powerful international crime syndicates that control it and myriad other illegal activities pose serious threats to US security. In addition to having many adverse effects on American society, the drug business corrupts foreign governments at the highest levels, undermines judicial systems, and distorts economies. Greater ease of travel and telecommunications makes it easier for international criminals to expand and conceal their empires.

The key drug threat to the US remains the Latin American cocaine trade. Coca grown in Bolivia, Peru, and Colombia is processed into cocaine largely in Colombian laboratories and reaches the US market via a number of smuggling routes, still principally through Mexico. In addition to cocaine, heroin from Colombia and methamphetamines from Mexico are gaining prominence in the drug threat from Latin America. When traveling abroad, Americans are at risk from violence associated with narcotrafficking. For example, Colombia was plagued by increased violence from guerrilla and rightist paramilitary groups that exploit the drug trade for money, and Mexico has seen a surge of narcotics-related violence by traffickers, particularly in northern states that serve as drug corridors to the United States.

The other major locus of the drug threat is Asia. Opium and heroin production is concentrated in Burma and Afghanistan, where US influence is extremely limited. Regimes in both countries appear to be tolerating the drug business to shore up local political support and to prop up their economies.

The expansion of international organized crime increases the threat of physical violence to US citizens and businesses both at home and abroad. American companies are disadvantaged when companies linked to international organized crime secure contracts, export licenses and customs exemptions, often through payoffs to corrupt officals. Additionally, international organized crime has a destabilizing influence on countries that are important to US national security. It robs emerging democracies of badly-needed revenues, taints their reform process, and undermines popular confidence in government at all levels.

Organized crime is also heavily involved in financial fraud schemes and money laundering, as well as the international trafficking of narcotics, aliens, and weapons, including to the United States. The smuggling of weaponry to regional trouble spots further contributes to instability in these areas. Growing ties among foreign criminal groups further facilitates illegal activities. The underworld contacts, clandestine networks, and extensive finances of international organized crime organizations also raises the possibility that they could obtain and sell nuclear weapons or their components.

THREATS AGAINST OUR ECONOMIC INTERESTS

Dangers Inherent in the Global Economy

The United States benefits greatly from participation in the global economy, but globalism entails risks as well as rewards. The current financial crisis in Asia has highlighted a number of vulnerabilities that, while not on a par with traditional threats to the security of our nation, have a direct or indirect impact on American interests. Increasing dependence on foreign markets makes American firms and workers vulnerable to economic difficulties far beyond our borders. It is too soon to know precisely which crops, products, firms, and regions of the United States will suffer most from greater budgetary discipline in Thailand, Indonesia, South Korea, and other affected economies, but that some will be seriously disadvantaged is certain. American mutual funds (many with a large component of pension funds) invested in Asian markets have already taken a big hit, as have American sales to companies no longer able to obtain the necessary financing. Likely consequences for the United States include slower growth, constraints on the creation of new jobs, and lower wages.

Covertly-obtained intelligence is not a particularly helpful source of information for understanding the psychology of markets. The Intelligence Community has norole in providing assessments and insights to the private sector actors who make most of the key decisions shaping the course of events. Policymakers, like business leaders, want and need analytical judgments and informed predictions on such questions as whether the contagion has been contained, what impact economic difficulties will have on societies and political systems, who else might be vulnerable, and what impact cutbacks in military budgets will have on the military capabilities of allies and regional balances. It would be easy to extend the list of questions, but my point here is simply to note that economic-like environmental-- vulnerabilities and threats are far more numerous, complex, and difficult to anticipate than are traditional threats to our national interests. The threats and their impact are real and obvious. Less apparent is what role, if any, the Intelligence Community should play in addressing such dangers.

Economic Espionage

The overseas operations of US corporations are increasingly vital to this country's prosperity. US proprietary secrets are vulnerable to targeting by domestic corporate spies and overseas intelligence agents, either performing classic private industrial espionage or linked to foreign government attempts to boost national technical knowledge. The increasing value of trade secret information and technology in the global marketplace has increased and motivated foreign firms and some governments to conduct economic espionage and information collection against the United States. During the past year, the US Intelligence Community has identified suspicious collection and acquisition activities of foreign entities associated with at least 23 countries.

Unfair Foreign Competition. Unfair foreign competition is another threat to US interests. The profits involved in large infrastructure, military, and aircraft contracts lead to cut-throat and sometimes unfair competition. In December, the 29 members of the Organization for Economic Cooperation and Development (OECDi and five additional countries signed an anti-bribery convention. If the convention is ratified and enforced, this now-recognized threat to American competitiveness will be alleviated, but we foresee a continuing role for the Intelligence Community in monitoring compliance.

COUNTRIES WITH GLOBAL IMPACT: RUSSIA and CHINA

Russia and China are each undergoing dramatic social transitions that complicate our efforts to assess trends and anticipate their future roles.

We have had successes in building constructive relations with both countries, but many actual and potential problems require continuing attention.

Russia

Russia's evolution remains uncertain. New institutions, personalities, and habits of behavior continue to take hold, even as others looking more to the past remain strong in some areas, such as the Duma and the defense industrial establishment. Early in the year a revitalized Yeltsin brought new impetus to reform by the appointment of young reformers to positions of authority in the government. By the end of the year, however, the Russian political scene became increasingly dominated by infighting among,factions and competition for access to privatized state property. Yeltsin's intermittent absences from the helm because of illness accentuated the sense of policy drift. The coalition of political and financial leaders that worked to bring about President Yeltsin's reelection in 1996 splintered. This falling out was accompanied by a slowing of progress toward social and economic reform.

Among the reform programs identified by the new Russian team in spring 1997--land, tax, legal, and military reforms as well as repayment of back wages and pensions and adjustment of center-regional relations--military reform has progressed the most, with reorganizations of military commands already under way. But military reform continues to face bureaucratic resistance. The tax code, sent to the Duma in the spring of 1997, has been returned for further work; land reform was discussed at a high-level meeting in December but continues to be hobbled by Duma resistance; legal reform has made little progress; the government claims that it paid back wages and pensions in 1997, largely by forcing some big tax debtors to pay their arrears, but continued grumbling suggests that problems remain. Center regional relations continue to be marked by unilateral initiatives by a number of provincial governments. Although negotiation has replaced violence as the principal mechanism for resolving the differences between Moscow and Grozny, differences over Chechnya's status continue to divide the two parties. They have agreed to settle the question of Chechnya's status by 2001.

Economic stabilization brought declining inflation, a stable ruble, and the end to a decade-long decline in economic output. For now, Russia appears to have weathered the potential crisis in confidence that accompanied Asian financial instability, but reserves have fallen and government predictions for 1998 indicate little or no growth. Inconsistent direction on government policy in 1997 meant that Russia spent another year in its slump. Only a revitalized, engaged president can make 1998 a better year than the past six.

President Yeltsin's and Foreign Minister Primakov's year-end interviews indicated the Yeltsin government continues to see Russian interests better served by engagement and cooperation than by isolation or confrontation. The best example of this over the last year was Moscow's decision to sign the Founding Act with NATO. This fall the Russian parliament ratified the Chemical Weapons Convention, and Russia continues to adhere to START I and CFE. The Russians also continue to play an active role in SFOR in Bosnia.

However, Primakov has highlighted Russia's support for the notion of a multi-polar world, which is intended to counter what many Russians profess to see as US unilateralism. START II, CTBT, and Open Skies still await ratification by the Russian parliament. While the Yeltsin government continues to support the sanctions regime against Iraq and the need for UNSCOM inspections, it has argued the need to show Baghdad "a light at the end of the tunnel." On the nonproliferation front, we are actively engaged in discussions to prevent any export of materials or know-how associated with WMD and ballistic missiles. Though Russia is now far less able to project power beyond its borders and to challenge Western interests, economic realities are such that Russia perceives the need to export arms in order to maintain its arms industry, and Moscow continues to try to expand sales to old and new customers alike. If done indiscriminately, such sales have the potential of fueling regional tensions or exacerbating regional arms races.

We remain both concerned and encouraged with the state of Russia's strategic nuclear forces. Moscow continues to maintain a significant strategic nuclear force. But it has become increasingly clear that the Russian strategic nuclear force will continue to shrink in size as Moscow finds it cannot afford to maintain the kind of ballistic missile force the Soviet Union once had, and other strategic modernization programs, such as the next-generation submarine-launched ballistic missile, continue to suffer delays owing to wage shortages and R&D test failures.

Further, while the Russian strategic command and control and early warning system is functioning adequately, it is clearly showing its age. Equipment breakdowns in this system could force Moscow to rely on less reliable long-range strategic warning indicators that, without clear and transparent political-military signals from the US, would be likely to increase Moscow's uncertainties during an escalating crisis.

Despite these problems, nuclear forces are playing a larger role in Russian security as military reform muddles along and defense budgets are cut. Statements by senior national security officials seem to confirm that Russia continues to look toward its nuclear weapons as a deterrent against a variety of conventional and nuclear military threats, including formally dropping the Soviet "no first use" declaration in 1993. This emphasized reliance on nuclear weapons to deter even conventional threats is a graphic symbol of the weakness in Russia's conventional military forces. Given the anticipated time required to complete its military reform plans, Moscow probably will continue to rely heavily on its nuclear forces for years to come.

China

Constructive partnership between the US and China is central to the peace and prosperity of the Asia Pacific region. Over the past year, we have revitalized our dialogue with high-level Chinese leaders, highlighted by the visit to the US in late October of President Jiang Zemin. We still have many unresolved issues and continue to hold sharply different views on important matters, including human rights, religious freedom, political expression, and freedom of association. We plan to expand cooperation where possible and to work seriously on areas where we have differences. Among the unresolved issues in our relationship is that of nonproliferation. Through intensive dialogue, we have reached a mutual understanding on a number of nonproliferation issues, but disagreements continue over Chinese sales and technological cooperation on potentially destabilizing weapons systems in sensitive regions.

China continues to have the largest standing army in the world and is steadily modernizing its ground, air, and naval weapons and tactics. We must be attentive to China's growing military capabilities, as demonstrated in the 1996 combined-forces exercises in and around the Taiwan Strait.

China's military modernization continues at a steady pace, and Beijing during the past year strengthened its arms-import relationship with Russia. China is replacing its aging naval fleet with new domestically-produced ships and submarines, and recently took delivery of a third Kilo class submarine and finalized a deal to purchase two Russian naval destroyers that could be armed with modern SS-N-22SUNBURN anti-ship missiles. While this growth in naval capability bears watching, the gradual pace of Chinese modernization is having only a marginal impact on the current naval balance in the region.

Though military and civilian leaders both agree that economic modernization has priority over military development, China is embarked on a ballistic missile modernization program. Although China's ICBM force will remain considerably smaller and less capable than those of Russia and the United States, Beijing views this modernization effort as essential to maintaining a credible deterrent force.

China is expected to remain primarily a land-based ballistic missile power, but continues to look at sea-based platforms and land- attack cruise missiles as additional means of delivery. In the next 20 years, the number of Chinese ballistic missiles capable of reaching the continental United States will increase marginally. The greatest growth, both in numbers and capabilities, is expected to be in China's short-range SRBM force--the M-9 and M-ii.

We anticipate that the many transformations under way in China for the past two decades will continue into the next century. The cumulative effect of economic, political, societal, technological, and military change will produce a China that is more powerful and, if we are successful, more tightly integrated into global systems. We are likely to see positive results from the impact of participation in the global economy, exposure to information and ideas from around the world, and the proliferation of shared interests which is intrinsic to modernization everywhere.

MIDDLE EAST STATES: Iraq, Iran, Libya, Syria

Several Middle Eastern states threaten us by maintaining programs for weapons of mass destruction, sponsoring terrorism often targeted specifically at Americans, and by their hostility toward and active opposition to our political and social systems and those of our friends and allies. Assurance of energy security is critical to the political, economic, and strategic interests of the US and its allies.

Iran

As dramatically seen over the past several months, with Saddam Hussein in power, Iraq continues to threaten regional stability and pursue aims contrary to our national security interests. Iraq's refusal fully to disclose its WMD capabilities, retention of a potent conventional military, and support for terrorism against dissidents threaten countries and peoples in the region and jeopardize a wide array of US objectives. The 1994 movement of troops toward Kuwait and the 1996 offensive in Irbil, violations of no-fly zones in September- November 1997, the ongoing confrontation with UNSCOM, and blatant threats to the UNSCOM U-2 all attest to Saddam Hussein's continued disregard for the will of the international community.

Baghdad threatens US interests not only with its military forces and blatant defiance of UN Security Council resolutions, but also through its attempts to manipulate broader Arab opinion against the US in a variety of ways. This could greatly complicate and jeopardize the attainment of US objectives in the region. It is no accident that much of his propaganda during his recent challenge against UNSCOM has been directed against the United States. In northern Iraq, Saddam wishes to exclude the international community's involvement, and at the UN he has sought to undermine every effort to ensure UN enforcement of, and Iraqi compliance with, various aspects of UNSCR 687.

Iran

We are encouraged by the election of President Khatami, who promises a more relaxed atmosphere at home and espouses the implementation of international law and cooperation abroad, but we remain concerned about several aspects of Iran's behavior that pose threats to US interests.

Moreover, we are not yet able to determine how much Khatami is able or willing to address priority US concerns, foremost of which is Iran's support for terrorist groups opposed to the Middle East peace process. These include Hizballah in southern Lebanon, and Hamas and the PIJ, whose terrorist attacks in Israel have taken many lives, including those of some Americans. We also are concerned about Iranian support for Islamic extremists in other parts of the Muslim world, and activities such as Iranian surveillance of US entities abroad. Finally, Iran has considerable WMD capabilities, particularly extended-range missiles and chemical weapons, and is continuing its efforts to enhance those capabilities, which already pose a substantial threat to neighboring states and to US installations in the region.

Libya

Despite repeated disclaimers and deceptions, the Qadhafi regime continues to support terrorist groups including support for the PIJ and the Abu Nidal Organization (ANO) . It continues to develop WMD, particularly CW and missiles. Libya opposes the Middle East peace process.Libya also seeks to exploit differences between Washington and allied capitals on how to bring to trial those implicated in the destruction of Pan Am 103.

Syria

Syria has been engaged in the Arab-Israeli peace process since the 1991 Madrid conference and has not been directly involved in planning or executing international terrorist attacks since 1986. Nevertheless, Syria continues to support international terrorism by allowing terrorist groups to maintain a presence in Damascus and operate from Syria-controlled areas of Lebanon. Some of these groups include fundamentalist and secular Palestinian organizations, such as Hamas, the PIJ, and the Popular Front for the Liberation of Palestine- General Command (PFLP-GC), as well as non-Palestinian groups, such as the Kurdistan Workers' Party (PKK). Syria acquired from the former Soviet Union standard SCUD-B missiles, with a range of 300 kilometers, and a smaller number of 500 kilometer SCUD-Cs from North Korea; it has had a CW program since the mid-1980s. While there is no indication Syria is planning to initiate a conflict with Israel, there is always a danger that Syrian-Israeli tensions could lead to hostilities through miscalculation by either side, particularly over the fighting in southern Lebanon.

HOT SPOTS and UNCERTAINTIES: BOSNIA/BALKANS; AFRICA; NORTH KOREA; SOUTH ASIA; THE AEGEAN; CUBA

Bosnia/Balkans. NATO and SFOR have proven their value in carrying out the successful international military intervention ending the military conflict in Bosnia and enabling implementation of the Dayton Peace Agreement. The main threat to peace now stems not primarily from a resumption of conflict among the three formerly warring armies, but from the obstruction by Bosnia's leaders of certain aspects of civilian implementation of the peace agreement, especially the return of displaced persons and refugees to minority areas, apprehension of fugitive war criminal suspects, economic rehabilitation, and establishment of fully functional, truly democratic institutions. Bringing intelligence to bear on these issues has been difficult, but novel structures and processes to ensure its proper application have been devised, and the need for it remains critical if the US and its partners are to establish a stable, enduring peace in Bosnia.

The situation in Serbia (especially in Kosovo and increasingly in Montenegro) remains volatile. The potential for conflict between ethnic Serbs and Albanians in Kosovo is considerable; oppressed Kosovars increasingly resort to violent resistance to Serbian abuses of human and civil rights. A Kosovo eruption could still ignite international conflict, spilling potential refugees into The F.Y.R.O.M. and/or Albania--which has pulled back only slightly from the edge of the precipice of economic and social disintegration. Democracy remains to be realized in Serbia, Croatia, and Bosnia, and is still in transition in Bulgaria and Romania. In the former three, political pluralism, peaceful and effective transfer of power, and more responsive political leaderships remain to be established.

Africa. Patterns of behavior stemming from the regional and civil conflicts which dominated important parts of Africa in 1997 make the continent a dangerous and unpredictable arena in 1998. Cross- border interventions, touted by many Africans as legitimate defensive behavior, seemingly have superseded the OAU principle of nonintervention and increased the prospect of additional interstate conflict.

African leaders are now both more willing and more able to project force across national borders in pursuit of national interests. A coalition of African states supported Kabila's ouster of Mobutu. Kabila's government in Congo (Kinshasa) has not yet demonstrated that it can draw together the many disparate elements of the country which borders on nine others, some of which are competing for dominant influence. The stability of Nigeria, Africa's most populous state, is increasingly shaky as its military leader maneuvers to transform himself into an elected civilian president by next October. In Liberia, the election last July of Charles Taylor as president has not stilled concerns about the former warlord's inclinations toward repression at home and adventurism in neighboring states.

Tensions also are increasing in southern Africa, particularly Angola, which is finding it difficult to tie down the loose ends of a peace accord ending the long struggle with UNITA. To undercut regional support to UNITA, Luanda has intervened in Congo (Brazzaville) to return Sassou to power, and is pressing democratically elected officials in shaky Zambia to cut off aid to Savimbi.

The civil war in Sudan is now in its 14th year having taken the lives of 1.5 million people and forced 2 million more from their homes. The regime in Khartoum continues to provide haven and support to terrorists while sponsoring insurgent groups intent on destabilizing neighboring regimes.

Ethnic and civil wars have caused millions of people to flee for refuge and helped to further erode the sanctity of national borders. Interconnected insurgencies in Rwanda and Burundi and related unrest in eastern Congo (Kinshasa) define a large area in the center of Africa where regimes seem powerless to stem the bloodshed or are inclined to engage in unacceptable behavior toward certain groups. As a consequence, there is a continuing likelihood of resurgent genocide.

North Korea. North Korea's military continues to be a threat to US and South Korean forces, although the steady deterioration of the North Korean economy and crumbling infrastructure, as well as another year of critical food shortages, have further undercut Pyongyang's ability to wage a sustained conflict. Despite reports of executions of some ranking officials, the political situation appears stable, with Kim Jong Il fully in charge. Late last year, Kim assumed the title of general secretary of the Korean Workers' Party. Diplomatically, the situation has improved marginally. The North Koreans have entered four-party talks with South Korea, China, and the US; are moving to improve relations with Japan; and appear prepared to re-engage Seoul under the new administration of Kim Dae Jung.

South Asia. South Asia is an area of multiple and growing US interests. Tension between India and Pakistan, centered on their dispute over Kashmir, contributes to concerns over regional instability. The proximity of two populous, mutually suspicious states, each seemingly convinced that nuclear weapons are an essential attribute of major power status, makes this one of the world's more troubling regions. The original motive for India's acquisition of a nuclear weapons capacity--a perceived threat from China--remains salient to Delhi. Pakistan continues its own nuclear program because of its security fears of a larger India.

India continues to charge that Pakistan supports Kashmiri Muslim secessionists, while Islamabad contends it provides only moral support. Though the Kashmir dispute remains a possible flashpoint for regional war with the potential to escalate into a nuclear exchange, tensions in the region have eased somewhat in recent years.

Fighting continues in Afghanistan, a country riven by ethnic, tribal, ideological, and regional differences. International mediation efforts have not yet resulted in a political settlement; the United States continues to support the ongoing UN-led effort to help the Afghans establish a broadly representative government. Afghanistan remains a focus for meddling by neighbor states, a narcotics trafficking center, a source for international terrorist training and equipment, and hence a major source of regional instability.

The Aegean. Tensions between Greece and Turkey have almost led to open conflict in the recent past and could easily do so again, whether over the installation of air defense missiles on Cyprus by the Greek Cypriots, competing claims involving tiny islets, or accidental clashes and hair-trigger military exercises. Failure to find a real, long-term solution on Cyprus and in the Aegean could raise tensions, undermine both NATO and EU expansion (because of Turkish and Greek vetoes), and cause serious problems in the Middle East peace process and in US relations with Russia, which is becoming a major arms supplier to Cyprus.

Cuba. The threat that Cuba poses to US interests stems primarily from the potential consequences of its own political and economic rigidities rather than its past promotion of subversion or its faded attraction as a model for other states and movements. An aging--and possibly ailing--Fidel Castro refuses to make any concessions toward a more open political system, and Cuba's overall human rights record remains the worst in the hemisphere. Cuba's economy continues to founder, with a dismal performance in the vital sugar sector largely nullifying gains in tourism and nickel exports, and there is no sign of significant reform in the domestic economic structure. With no real provision for succession (beyond much of the same, only with Raul Castro at the helm), the departure of Fidel could usher in a period of serious instability under an inevitably less charismatic leader, possibly leading to further mass migration and internal violence.

THREATS TO DEMOCRACY AND HUMAN RIGHTS

The United States seeks to increase governments'adherence to democratic practices and respect for human rights, not only because we seek to promote these values, but also because they contribute to regional stability. Bosnia is a current example of where democracy promotion, human rights protection, and prospects for regional stability are closely linked. While the Dayton Peace Agreement goals of a reintegrated and viable Bosnian state have yet to be realized, 1997 did see a modest decline in short-term instability and the staging of peaceful elections. Although the main instigators of the Bosnian genocide remain at large and continue to pose a long-term stability concern, their political power base has been eroded.

Moreover, the War Crimes Tribunal has increased the number of Balkan war criminals it has under detention and has several trials under way--a clear sign of international interest in implementing justice against those responsible for mass killings and regional instability.

HUMANITARIAN ASSISTANCE AND FORCED MIGRATION

Ethnic tensions, social inequity, lack of access to farmland and water, poverty, and political disfranchisement often lead to violent civil unrest, if not warfare. As cities in poor countries increase in population and poverty, social instability could intensify. US efforts to promote sustainable development are based on recognition of the link between poverty and political instability, and the responsibility of international lending and development agencies to reduce this threat.

Effective humanitarian assistance in response to complex emergencies may help to stem forced migrations within and across international boundaries--itself a destabilizing force as witnessed over the last several years in the border region of Rwanda and eastern Congo (Kinshasa). Early warning and preventive measures could minimize the deployment of peacekeeping troops, including US forces, to manage the consequences of a war-induced humanitarian crisis.

THREATS TO THE ENVIRONMENT, STABILIZED WORLD POPULATION GROWTH, HUMAN HEALTH

Environment. A key goal of US foreign policy is to protect the United States and its citizens from environmental degradation. Under the UN Framework Convention on Climate Change agreed to in December 1997 in Kyoto, Japan, developed countries committed themselves to legally binding action to lower the threat of global warming through proposed cuts in greenhouse gases, as measured against 1990 levels. In contrast, most developing countries did not commit to any targets. There is broad scientific agreement that, left unchecked, global warming over the next century would have such adverse impacts on the United States as coastal flooding from sea level rise, volatile weather fluctuations with both costly droughts and flash floods, and loss of sensitive habitats, particularly the Everglades.

World Population Growth. From a mid-1997 population of about 5.8 billion, the world total is expected to rise to about 8 billion by 2020--an increase of over 2 billion that takes into account already declining birth rates. Almost all of this increase will be found in developing countries, where about 85% of the world's population will live. Many of these countries currently fail to meet even minimum needs of their populations, requiring annual food donations and other international assistance merely to subsist. In addition to producing the tragedy of growing numbers without adequate health care and education and with poor job prospects, rapid population growth is likely to lead to substantial increases in the number of frustrated young people able to move across boundaries. Many born in rural areas will move to cities; many living in poor countries will attempt to move to wealthier countries, including the United States. With few opportunities, many could well contribute to ethnic tensions, civil unrest, crime, and violence.

Reducing Disease Worldwide. The plight of Hong Kong's chickens at the end of December provides a lesson in the problems of managing the ever-present threat of infectious diseases that can affect all parts of the globe. Hong Kong's "bird flu" may have been imported along with poultry from China, just as the United States imports many of its foodstuffs from countries where food-borne disease monitoring is woefully inadequate. Hong Kong's dense population provides a congenial urban environment for disease transmission-as do most cities in the world. Finally, Hong Kong is a "global city" with international transportation connections--including direct connections to many US cities--that ensure rapid worldwide diffusion of any disease. Bacterial and viral diseases are both durable and mutative, ensuring they will never be completely eradicated. Improved monitoring and rapid response is essential to curb this threat to the health of Americans.