Senate Foreign Relations Committee Hearing: The Arming of Iran

Wisconsin Project Testimony before the Senate Foreign Relations Committee Subcommittee on Near Eastern and South Asian Affairs
May 6, 1997

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Chairman of the Near Eastern and South Asian Affairs Subcommittee
of the Senate Foreign Relations Committee

BROWNBACK: We'll go ahead and proceed with the hearing. Thank you all for joining us this morning.

On April 17, this subcommittee held a hearing on the problem of Iran and proliferation. As a result of the testimony heard at that hearing, I concluded that the United States is not -- is not doing enough about the problem of proliferation to Iran.

Our approach to the problem, I believe, must be twofold. First, we must seek to deny the Iranians the foreign exchange it needs to promote terrorism abroad and continue with its massive military build- up.

The United States has done its part towards that with an embargo on trade with Iran. And I commend Senator D'Amato for forcing the administration to take that step.

We've also tried to create disincentives for other nations to invest in Iran's oil sector. But the truth is that in a world thirsty for oil, we will never succeed in stopping all trade with Iran.

Any doubts about the limits of this policy should have been put to rest by the recent criminal verdict in Germany. A German court has told the people of the world that the highest leadership of Iran was behind the assassination, on foreign soil, of regime opponents.

But the European Union, despite exhortations from the United States to take a hardline, decided to do nothing more than end the so- called critical dialogue and suspend high-level diplomatic contacts. In other words, no economic sanctions, just a frown and a diplomatic slap on the wrist.

Which explains why it is essential that we have a second prong in our strategy for dealing with Iran. In addition to denying Iran hard currency, we must also deny Iran the possibility of purchasing arms and weapons of mass destruction.

The Europeans have an arms embargo in place. But the Chinese and the Russians do not. And the Clinton administration has done too little to impress upon China and Russia that our relationship cannot remain the same if those nations continue to arm Iran.

It is little wonder the Europeans pay the United States no heed on what to do about Iran. They see us pushing our own companies around but continuing to coddle the nations that persist in directly arming the Iranians.

The message we are sending could not be clearer. Cutting off Iran's access to arms and weapons and mass destruction is less important to us than maintaining good relations with Russia and China.

Consider that the United States is aware that Russia is selling a nuclear reactor to Iran; that Russia is contemplating a major new arms deal; that Russia has discussed the delivery of ballistic missiles to Iran; and more and more.

Yet the president, who is required by law to cut off the hundreds of millions in assistance the United States provides Russia every year without a waiver, has granted that waiver. Consider, in addition, that China has negotiated the delivery of nuclear reactors to Iran; provides Iran with chemical weapon precursors; has delivered missile guidance equipment; and more.

We cannot pretend that we have a policy aimed at isolating Iran if we continue to aid and abet Iran's suppliers. Before us today, we have three experts on proliferation. I have asked them here because I want to hear about the Russian, Chinese and North Korean companies that are arming Iran and the governments that are doing nothing to stop them.

As in our first hearing, we will work only from unclassified information. You may also notice that there are no representatives from the administration here today.

Let me assure you they were invited and requested to come, but decided not to attend and to testify. I hope they are here monitoring the hearing, to hear what the testimony of these three witnesses have to say.

Finally, I'll ask our witnesses and others to think about these names: China Precision Engineering Institute; China Precision Machinery Import/Export Corporation; Minatom; Ruzbor Ozanya (ph); Avia (ph) Export; Leo Gangsun (ph) Import Corporation; Changwan Singnon (ph) Corporation. Between them, these companies have helped Iran move closer to a successful confrontation with the United States or with our allies.

Now think about this. In at least one instance I'm aware of, the United States government licensing sales to a company we knew was engaged in proliferation of nuclear technology.

Now how can we pretend to have a serious nonproliferation policy? I do not believe these companies should do business with the United States. I do not believe their executives should be allowed into the United States. I do not believe these companies should benefit from U.S. subsidies. And I don't think there's a man or a woman in this Congress who would disagree with me.

Either way, I intend to test that premise. Because in the coming weeks, I intend to offer legislation that will affect some of the steps I believe must be taken to address this problem.

We have a panel of experts joining us today to testify about the issue of proliferation and who is supplying the Iranians with these weapons, both conventional and those of mass destruction. I'm delighted to have this panel with us today.

They are Dr. Gary Bertsch, the director of the Center For International Trade and Security, professor of political science, University of Georgia; Dr. Gary Milhollin, director of the Wisconsin Project on Nuclear Arms Control; and Mr. W. Seth Carus, visiting fellow with the National Defense University.

By prior discussion and arrangement, Dr. Milhollin will be the first to testify, and then Dr. Bertsch and Mr. Carus will be the last. What we would like to do, gentlemen, is invite your testimony either written or you can summarize, if you'd like. And will take the full written testimony into the record. And I would like to have an exchange regarding questions.

And particularly, at the end of it, once we cite who is doing the supplying of these arms, what then should the response of the United States government be to this situation? So I am thankful for all of you joining us. Very much appreciated.

Dr. Milhollin, you are first up and the microphone is yours. Welcome to the committee.


Professor, University of Wisconsin Law School and
Director, Wisconsin Project on Nuclear Arms Control


MILHOLLIN: Thank you very much, Senator. I'm honored to be here. I hope I can shed some light on this very important but difficult question.

I'd like to start by saying that I don't think there's any doubt that Iran is aggressively trying to develop weapons of mass destruction and the missiles to deliver them. I think there's a general consensus on that subject, at least in this country.

Second, Iran's progress in this domain -- Iran's progress has depended on outside help, and will continue to depend on it in the future, just as Iraq's did. So this is the kind of the classic case of export control. Can you isolate a country technologically and keep its program from developing?

So far, we've made some progress. But it's not nearly good enough. In my testimony, I have listed several specific cases and I have attached them as an appendix to the testimony. I'll go through them briefly here.

Who's supplying Iran? Well, first, the question of anti-ship missiles has come up. I think you, Senator, have alluded to this previously. We know that China Precision Machinery Import/Export Corporation is supplying, or has supplied the anti-ship missiles to Iran.

What we don't know -- or at least I haven't seen anywhere yet -- is the fact that the United States actually approved a series of dual- use exports to that very company during the time when the missiles were being developed.

I have listed those in my testimony in the appendix. One of them is a computer workstation for the simulation of wind effects. That would be quite useful in designing an anti-ship missile.

These exports are a sensitive technology, controlled for export purposes by the Commerce Department and approved to Iran and to this particular company. My project publishes a database called the "Risk Report," which gives details on foreign companies that contribute to the building of weapons of mass destruction.

And I have included a printout in the appendix which describes China Precision Machinery Import/Export Corporation. It's case number one. And also, I've listed there the exports by the United States to that company.

So if the question is, who's helping Iran build anti-ship missiles that threaten our sailors, the answer may will be the U.S. Commerce Department, because it approved those exports.

MILHOLLIN: The second case I'd like to describe is a case of air surveillance radar. Iran recently imported a powerful surveillance radar from the China National Electronics Import-Export Corporation.

It can detect targets 300 miles away -- I'm sorry, 300 kilometers away -- and if the United States ever comes to blows with Iran, American pilots will have to contend with that radar.

When that radar was being developed -- that is, from 1989 to 1993 -- United States government approved the export of $9.7 million worth of sensitive equipment to China National Electronics. There were -- the approvals included equipment for microwave research, a large scale system for testing integrated circuits and $4.3 million worth of computer gear.

All of this equipment seems to me quite useful for developing radar. But it was all licensed to this Chinese company, which then turned around and supplied a surveillance radar to Iran.

So again, it seems that our own Commerce Department may be one of the culprits in this drama in which Iran is getting important outside supplies. And I'd like to point out that in these two cases, the exports were all approved under the Bush administration.

I urge the subcommittee, and I have urged the full committee for some time, to obtain the exports approved -- records of the exports approved under the Clinton administration. Since the Clinton administration has become more pro-export than the Bush administration was, I suspect that if the committee looks at the record, it will see that many Chinese companies are receiving U.S. products and then turning around and marketing things to Iran and Pakistan.

One of the reasons why Iraq was able to import so much dual-use equipment before the Gulf War was the absence of congressional oversight of the export licensing process. I urge the committee not to let this happen again. And to exercise its very important role of oversight on the export licensing process.

The committee should get their records. It should look at them and evaluate them and see whether the Chinese companies that are supplying Iran are getting U.S. products. I'm very strongly suspicious that they are.

The third case in my testimony is a fusion reactor. It was supplied to the Iranians by the Chinese Academy of Sciences. The fusion reactor is used for nuclear training. But as we know, the Iranians are using their nuclear knowledge to build nuclear weapons.

The Academy of Sciences also helped develop the DF-5 intercontinental ballistic missile, which is the only Chinese missile that can reach the United States. Despite these activities and despite its supply of Iran, the Chinese academy managed to import an American supercomputer just last year. That super computer is now in a network at the disposition of any Chinese scientist or engineer who is designing a long range missile or a nuclear weapon.

Case number four, uranium exploration. Now I've attached to my testimony some pictures from our database, the risk report, which shows the Beijing Research Institute of Uranium Geology prospecting for uranium in Iran. Any uranium that this Chinese institute finds will go into Iran's nuclear weapon program.

This institute -- there's also another picture with some individuals which is fairly interesting. It shows the head of the Iranian nuclear program standing next to the deputy chief of the China National Nuclear Corporation.

The China National Nuclear Corporation is the same company that just sold the ring magnets to Pakistan that got so much press attention. And it will be the key player in any nuclear cooperation between the United States and China.

Right now, the administration and Westinghouse are trying very hard to get the agreement for cooperation, which is laying dormant since '84, revived, so that the United States can begin supplying nuclear technology to this company. This company that has just supplied the ring magnets to Pakistan and that is prospecting for uranium in Iran now.

So I think some of the -- so if we look at this pattern, we see that the United States itself could do a lot more just in controlling our own exports and in controlling our own cooperation to control the success of Chinese companies that we know are helping Iran. Or, I guess, to restrict the growth and success of Chinese companies we know are helping Iran.

Also, I'd like to just mention, if I could, patterns of supply. It is now been admitted by the State Department that China is continuing to supply poison gas ingredients, equipment and so forth to Iran. And I know that this has been going on for at least five years.

It would be nice to think that this -- that we're doing something about this, but we're not. The policy of constructive engagement we've been following toward China is basically out of gas.

There are a number of studies the State Department has done which analyze the facts and the law necessary to impose sanctions on China for its exports to Iran. Those studies have laid dormant for at least six months. The State Department does not want to finish the administrative process because if it did, it would have to apply sanctions which would disrupt and perhaps end its engagement policy.

I urge the committee to get copies of these studies and to query the State Department. Ask them why it is that these studies have simply been ignored, are not being implemented and why it is that the administrative process is not being completed.

In the nuclear domain, I think we are looking at blackmail. It's a gentle sort of constructive engagement type of blackmail, but there it is, nevertheless.

The Chinese have threatened, in effect, to supply the Iranians with a plan to produce uranium hexafluoride and with a research reactor. Those two deals are now suspended or on hold pending the outcome of their talks with us about a nuclear cooperation agreement.

I think the message is fairly clear. If the agreement doesn't happen, that is, if we don't start selling China American nuclear technology, then China will go through with the deals for the uranium hexafluoride plant and the research reactor.

Russia is playing the same game. It agreed to give the Iranians a plant for, actually, enriching uranium and also a research reactor. Those two deals as well, did not go through, but they could. In effect, we're being told if you don't like what's going on now, it could be worse.

And the final point I'd like to make is that our export controls are not realistic. The administration has taken the position that you can -- you can open the doors to exports of sensitive technology to everybody in the world except a few countries that you designate as rogues, and that that kind of a system will work.

Well, it doesn't work. The rogues can get things through re- transfers. And if you're not going to be credible with respect to China, then other countries are going to use that lack of credibility to justify their own behavior with respect to Iran.

For us, Iran is a rogue. For Germany, Iran is a top customer. We are following an engagement policy toward China which amounts to holding your nose in exporting.

The Germans look at us and say, well, why can't we follow the same policy toward Iran? We will hold our nose in export to Iran. We're following the same policy, in my opinion, now toward Iran that we followed -- I'm sorry -- toward China -- excuse me.

MILHOLLIN: We're following the same policy towards China now that we, the United States, followed towards Iraq before the Gulf War. It was basically constructive engagement then. The idea was we could bring Saddam into the mainstream of nations if we just didn't isolate him. And if we isolated him and cut off exports, then the Europeans would just get the business. That policy failed.

But we are still using that policy with respect to China today. And I think it is also failing with respect to China. Thank you.

BROWNBACK: Thank you very much, Dr. Milhollin. And I appreciate your specificity on your testimony. We will engage in some discussion about that a little bit later.

Dr. Bertsch, delighted to have you here at the committee as well. And like I stated earlier, if you'd like to submit your full statement for the record, you can and discuss, or summarize. Or, if you'd like to present it by reading it, that would be fine, as well. It's up to you and your choice. Welcome to the committee.


Director and University Professor of Political Science
Center for International Trade and Security
University of Georgia

BERTSCH: Thank you, Senator. I wish to thank you for the invitation to appear today.

My colleagues and I at the University of Georgia are involved in studies of issues being addressed by the subcommittee. Former Secretary of State Dean Rusk, Ambassador Martin Hillenbrand and I put together a program at the University of Georgia looking in depth at American and international export control policy.

We are pleased to share our work with you and members of the Congress today. In addition to my formal statement, the associate directors of our center, Dr. Richard Cupid (ph) and Dr. Igor Kriepanopf (ph) have prepared statements on the Chinese-Iranian and Russian-Iranian issues respectively. I ask that these reports also be entered into the record.

BROWNBACK: Without objection.

BERTSCH: Finally, I'm releasing two new University of Georgia center reports. The first is entitled, "Restraining The Spread Of The Soviet Arsenal." The second is a special issue of our quarterly report, "The Monitor," on terrorism and weapons of mass destruction. Both reports contain considerable research and reporting of relevance to your hearings today. I'm happy to make copies of both of these new reports available to you and your staff.

BROWNBACK: Thank you. We would accept those and appreciate that.

BERTSCH: Last week, Secretary of Defense William Cohen, Senator Richard Lugar, Sam Nunn, Jim Woolsey and others joined us at the University of Georgia to address the issues of terrorism, weapons of mass destruction and U.S. security. All agreed that we are dealing with a major threat, that Iran is a critical problem and that China and Russia are parts of the problem -- and I might add, can be important parts of the solution.

I commend you and your colleagues for keeping attention on these issues, for promoting a fuller understanding of the problem and for reassessing what the United States can do and should do to address these problems.

I read with interest the transcript of your April 17 hearing. The issues addressed there and at today's hearing are critical and require ongoing long term attention. I appreciate Gary Milhollin and Seth Carus providing some of the details on these issues, and I would like to address two questions briefly. What is happening? What is and what can the United States do about it?

First, the Chinese, Russian and Iranian connections. In order to assess what is happening, we have to understand how Russia and China view Iran and what they are doing or not doing to control strategic exports into the region.

First, Russia and Iran. You know and I know, but it is still important to remember to Russia views Iran differently than does the United States. Although some informed Russian officials are aware of and concerned about the security threats emanating from Iran, most Russian officials view Iran as a neighbor with common economic, political and security interest.

For example, many Russian officials consider Iran a valuable asset in resisting the northward influence of the Taliban religious forces in Afghanistan and as an ally in other regional security issues. Most see Russia as having a large stake in economic relations with Iran, including billions of dollars in oil and gas deals, military contracts and nuclear energy projects.

While the United States sees much of this as the arming of Iran, Russia sees it as energy and economic cooperation with a close neighbor. Although Russia is less sensitive to the security threat from Iran than is the United States, it is not oblivious to its national and international nonproliferation responsibilities and interests.

On the nuclear issue, it intends to verify the peaceful uses of equipment supplied to Iran. It is attempting to further develop its nonproliferation export control system. For example, in 1996 it approved two new sets of procedures that are intended to reduce proliferation risks. Government edicts numbers 574 and 575 were intended to enhance Russian controls on the export and import of nuclear materials, dual-use equipment and related technologies.

Furthermore, just last month Russia and Iran signed a memorandum of understanding on export controls. As I am suggesting -- and as my colleague, Dr. Kriepenhopf (ph), hails in his statement submitted for the record, Russia wants to maintain close economic, political and security relations with a neighbor. This does and will continue to raise legitimate security and proliferation concerns in the United States and West. We should be concerned and we should do everything possible to lessen the risks.

Keeping attention on these issues is critical. And continuing to engage Russian officials at all levels about nonproliferation in the region is very, very important.

Now, I believe it should be noted that the U.S. government has done much to heighten proliferation concerns and bolster export control responsibilities in Russia and the other new states of the former Soviet Union.

A committee of the National Research Council, part of the U.S. Academy of Sciences, on which I serve, released two weeks ago this report entitled, "Proliferation Concerns." This report -- I might note -- gives high marks to U.S. governmental programs and efforts to promote nonproliferation export controls and policies in Russia and the other post-Soviet states.

Although much remains to be done, progress is being made. The United States is promoting I think it's fair to say more responsible nonproliferation behavior in Russia and the other former Soviet states through its national security policy of engagement and enlargement.

Now a few words about China and Iran. China is clearly not adequately concerned about the proliferation threat in Iran. It is interested in expanding its economic and political relations with Iran. It is seeking political favor, hard currency and oil. It views its relations with Iran as, and I quote, "normal cooperation in peaceful areas".

This is troubling for a number of reasons, including the following. There are numerous strategic exports from China to Iran, some of which Gary Milhollin referred to and of which members of this subcommittee are fully aware, that are reasons for proliferation concern. These exports raise doubts about Beijing's commitment to nonproliferation norms and their capacity to control the export of sensitive items from Chinese territory.

The U.S. Congress, executive agencies and intelligence communities have responsibilities to follow these developments closely. U.S. government officials should continue to express their concern to Chinese authorities.

Secondly, as my colleague Dr. Cupid (ph) indicates in his statement for the record, China has much to do to develop more effective export controls. Our research at the University of Georgia shows the PRC --that PRC export controls remain far from being complimentary in practice to western standards. And two, the systems of neighbors in its region, including Russia.

Russia has a far stronger export control system than China. At the same time, it is fair to report some positive developments in Chinese control, export controls.

BERTSCH: These include an improved legal framework, development of control lists, administrative regulations and governmental structures to review and approve licenses. And three, use of administrative sanctions to punish Chinese individuals and enterprises that have violated export control procedures.

Yet many problems in Chinese nonproliferation export controls exist. These include an overwhelming lack of export control knowledge and transparency.

Two. Suspicion that the United States, Japan and others are pushing export control measures on China to undermine Chinese sovereignty and commercial interests. And three, waning Chinese governmental control over industries and enterprises. And this is placing immense pressures on their underdeveloped export control system.

Chinese strategic transfers to Iran and elsewhere are matters of significant U.S. concern. Washington should continue to engage Chinese leaders and officials at all levels on these issues, and do all that they can to encourage and support the development of more effective export controls in China.

Finally, what about U.S. responses? There is much that the United States can do and is doing to address the arming of Iran. It has been vigilant, and it has regularly raised its concerns with high level Russian and Chinese authorities. Its bilateral and multilateral nonproliferation efforts are important, and their impact should not be underestimated.

For example, through U.S. influence, Ukraine pulled out of the Bushehr nuclear power project in Iran. And while Russia remains unwilling to forgo much of its nuclear cooperation with Iran, it has agreed to limit its scope and to be more vigilant. The same can be true for China. Multilaterally, U.S. leadership has brought about a broad international consensus on the need to limit Iran's programs to develop weapons of mass destruction. It has helped put multilateral nonproliferation export control regimes in place that have imposed serious obstacles for Iran.

The Iranians are finding it increasingly difficult to acquire the WMD-related equipment and technology that they want. The Chemical Weapons Convention outlaws any assistance to Iran's chemical weapons program. The Nuclear Suppliers Group and IAEA have created real impediments to Iran's nuclear weapons aspirations. The Missile Technology Control Regime and the Wassenaar arrangement are doing the same in missile and conventional weapons areas.

Regrettably, some Chinese and Russian items that raise proliferation concern are still flowing to Iran. We should do all that we can to persuade the Chinese and Russians to refrain from this, But I do not believe that sanctions on Russia and China now are the best instrument. Considerable scientific research shows sanctions to be ineffective in most cases such as these. Sanctions are unlikely to change Chinese and Russian behavior in the specific Iranian case and there are more effective ways to bring about their cooperation.

I believe the United States can convince the Chinese and Russians that the costs of arming Iran with nuclear or chemical weapons or increasing Iranian missile capabilities exceed the economic return resulting from the export of such items. I am confident that the United States can make persuasive arguments that will demonstrate to the Chinese and Russians, as we have done with the Ukrainians, that their futures are brighter if they are part of an international consensus resisting the development of weapons of mass destruction in Iran.

In this environment, the United States can engage the Russians and Chinese further in improving their nonproliferation export control systems and in complying with the international export control regimes.

Much has been accomplished with Russia in recent years. More remains to be done. Much more needs to be done with China. In a policy of engagement enlargement, U.S. pressure and encouragement will do more to tighten Chinese and Russian nonproliferation export controls than any sanctions are likely to do at this point.

In conclusion, I believe the United States should continue to lead and build an international consensus restraining WMD transfers to Iran. It should encourage Chinese and Russian participation in this consensus, and responsibility in their behavior.

Finally, it should work with China, Russia and other potential proliferants to build effective national export control systems and multi-lateral regimes that will ensure that proliferation-related transfers do not take place.

Thank you very much.

BROWNBACK: Thank you very much, Dr. Bertsch. I appreciate your testimony and I look forward to some engaging questions as we look at this.

Dr. Carus, thank you very much for joining us and being with us in the committee. We can take your written statement if you'd like, and you can summarize, or you can present your written statement. The choice is yours. We welcome you to the committee.


Visiting Fellow of the National Defense University


CARUS: Thank you very much. It's an honor to testify before this subcommittee. I think there are very few issues of greater national security interest to the United States than Iran's efforts to acquire nuclear, biological and chemical weapons. And for that reason, I'm grateful for this opportunity to present my views to the subcommittee.

Before continuing, let me note that my testimony does not necessarily reflect the views of the National Defense University where I'm a visiting Fellow, or the Center for Naval Analyses, which is my home organization, or the Department of Defense.

In addition, the comments I am going to make today summarize a presentation I prepared earlier this year for the Nixon Center for Peace and Freedom. And with your permission, I'll submit a copy of that paper for the record and just focus on some key issues here.

BROWNBACK: Without objection, that will be put in the record.

CARUS: Specifically, I want to focus on four main issues to provide a somewhat broader framework for our national security concerns about what's going on with Iran.

The first thing is, I think we have to continue to assign a high priority to countering Iranian efforts to acquire NBC armaments and the means to deliver them. The available evidence convincingly suggests that Iran wants to acquire such weapons. Moreover, it appears they are attempting to expand both the size and sophistication of their activities. As a result, I would agree with what the previous speakers have said, that we have to accord a very high priority to our efforts to constrain Iranian efforts.

In general, the United States has taken an appropriately hardline against Iran's activities, despite the general weakening of export control policies by the United States in this administration. The imposition of sanctions against, specifically against Iran, ensures that we maintain tighter controls on Iran than for other proliferation countries of concern.

Fortunately, there is little controversy about the need to take such steps. This policy has bipartisan support in this country that dates back to the early 1980s, when we first saw evidence of Iranian interest in resuming efforts to develop NBC capabilities. Our allies, who generally do not support U.S. policies towards Iran, actually do agree in principle on the need to constrain Iran's weapons of mass destruction programs.

Even Russia, which has been willing to supply sensitive technology to Iran, appears to accept in principle that we don't want Iran to acquire such capabilities. The only real exceptions to the international consensus on constraining Iran are North Korea and China, which I think is a significant point.

Second, the most serious problem we face in constraining Iran's weapons programs is the support they receive from foreign individuals, organizations and governments. Without such support, Iran will be limited in the size and sophistication of its programs. With such support, they could potentially develop highly capable NBC weapons and pose a serious threat to the interests of the United States and its friends and allies in the region.

As a result, we must be willing to devote considerable political capital in our efforts to persuade other countries to limit their support for Iranian NBC activities.

The importance of external assistance to the success of the NBC and missile programs in Iran reflects the difficulties that Iran appears to face in developing indigenous weapons capabilities. Many of the most talented Iranian scientists and engineers left Iran at the time of the revolution.

CARUS: And efforts to convince people to return to Iran have had limited success. Those remaining in Iran appeared to lack the range of skills needed to support large scale efforts to develop NBC weapons and missile delivery systems.

In addition, the Iranians have shown limited ability to manage large weapons development programs. In this regard, I believe that it is significant that Iran has had to turn to North Korea for missile production technology.

The Scud-type missiles that Iran is producing are relatively unsophisticated, and one would think that Iran would be able to produce them on its own.

The fact that the Iranians had to turn to a country as technologically backward as North Korea is a significant signal of the management problems that the Islamic Republic appears to face.

An additional problem with covert assistance is that it might make it difficult to ascertain the true capabilities of Iran's weapons program. This is especially troubling with regard to Iran's nuclear weapons program.

Since if Iran acquires fissile material through covert purchases from existing stocks in a third country, Iran could hide its weapons capabilities, since it will not present -- the fissile material will not necessarily present the kind of obvious signature of say a production facility.

As a result, we might have to treat Iran as a nuclear capable state if we had -- if we discover that it has covertly acquired even a small quantity of fissile material, since we may not be able to ascertain the true quantity involved. It is for these reasons that we should worry about foreign assistance to Iran's NBC programs and their missile programs.

Unfortunately, Iran has been able to receive extensive assistance in these areas from several suppliers, including Russia. Especially in the nuclear -- area of nuclear technology, but not limited to that, China and North Korea.

BROWNBACK: Are any of the three of you familiar with any other nations or companies within those nations?

BERTSCH: I think you can't disregard the export of dual-use equipment, which is not specifically intended to be used for military purposes, but which can be if diverted.

Iraq is the example. Iraq built up its mass destruction capabilities with dual-use equipment. Most of it from Germany, but a lot from Switzerland. A lot from England and it bought its electronics from us.

U.S. computers went into almost every known weapon of mass destruction site in Iraq. So to answer that question thoroughly, you'd have to look at dual-use exports of sensitive equipment, control commodities from Iran's main suppliers.

And Iran's main supplier is Germany. So if you really wanted an answer to your question, you'd have to look at German exports to Iran. I think that they -- I know that a few years ago, controlled commodities going to Iran from Germany were worth about $1 billion a year.

Now $1 billion a year of controlled commodities is a lot of controlled commodities. You have to build a lot of big buildings to hold that many machine tools. I don't know what the numbers are recently, but I can't believe that they're a lot lower than that.

BROWNBACK: Dr. Milhollin, after the recent German court ruling, do you know has there been any communication you've received or are aware of a shift in that sort of policy of supplying from Germany?

MILHOLLIN: I'm not aware of any. One can only hope that it might have had an effect. And I don't want to label the Germans unfairly here. But the numbers are there. And the policy is clear, the Germans do have a policy of constructive engagement toward Iran.

So if it were possible to look at the record of German exports, I think it would be a very interesting thing to do.

BROWNBACK: And indeed, even you suggest we should be looking at our own exports and what's taken place there.

MILHOLLIN: I suggest that we look at our own exports. You know, if you're building a nuclear weapon, or you're building a long-range missile, 90 percent of what you need to do that is dual-use equipment. Very few things that only have one purpose, machine tools being an example.

BROWNBACK: Let me ask -- unless there's another comment from the -- Dr. Carus. Yes. please.

CARUS: May I make a comment to that. I think there's a lot of reason to be concerned about this dual-use category. We know the Iranians have an extremely large acquisition network in Western Europe. And I don't think we really know a great deal about what they do.

But we know during the Iran-Iraq war that they were able to buy very sensitive military components globally. They were quite good at that.

As a result, one has to worry about what it is that we don't know that this network is doing. There have been some other examples that have come to light over the few years where other countries have been involved in things that we would worry about here.

For example, a few years ago, a facility in Switzerland was struck by an arson by somebody who apparently did not like the idea that a Swiss company was supplying what appeared to be a turnkey biological warfare facility to the Iranians.

Similarly, there have been concerns about exports by the Indians of chemical precursors that people worried would go into the chemical weapons program. So while the countries that we, I think, focus on as being the most egregious actors are clearly Russia, China and North Korea.

The Iranians are capable of operating globally, and that compounds our problem. I'm sorry. The Iranians are capable of operating globally, and that means we can't just afford to focus on the worst actors.

BROWNBACK: Let me ask you, though, on those three countries, because we do want to focus there because we have tied direct weaponry shipments from China, Russia and North Korea to the Iranians.

And I think we should be looking at this dual-use technology. I appreciate you raising that. But of those three nations, how much is government control of supplier companies, how extensive is that?

I'm hearing mixed statements from some of you. Some saying its extensive. Dr. Bertsch, you seem to suggest the Chinese are a little too loose on that.

So that maybe, if I'm interpreting your statement correctly, the Chinese aren't actually agreement to supply this equipment to the Iranians. It just sort of happens as a process of commercial business transaction, and that they're not a bad actor here, they're just -- loose system.

BERTSCH: Well, I think there is evidence both of state complicity -- that is, where the Chinese or Russian governments have permitted exports that we will disagree with in this country.

In addition to that, because of the chaotic economic and political environment, particularly in Russia, but also with emerging freedom to export in the changing Chinese economy, it's difficult for these state control bodies to make sure that nothing gets from individuals of enterprises on Russian and Chinese territory into Iran.

I mean, there is a terrible problem with corruption and smuggling in both of these countries. And the most important thing that could be done help cut down on the possibility for smuggling is for healthy economies and stable governments.

And that's why it's so important that Russia stabilize its economic-political situation and why China not allow things to grow out of control.

But this is complicated. It requires a lot of good intelligence, both from governmental and non-governmental researchers to try to piece this together.

I would say the United States ought to keep the pressure on both state decisions and where states do not have control over their private entrepreneurs that exist both in China and Russia. And private in the sense of the new entrepreneurs who are out there, who want to make money.

BROWNBACK: Thank you. Senator Feinstein. Thank you for joining us.

FEINSTEIN: Thank you very much. Thank you, Mr. Chairman. It was very interesting and I very much appreciate the comments of the three gentlemen.

I'd like to talk for a moment about our export controls. Dr. Milhollin, as you pointed out, many of the things on your list attached to your comments are off-the-shelf, dual-use computer-related technologies.

I come from a state, California, a big producer of a lot of these technologies, with a lot of pressure to ease our export controls. I particularly ran into this in the MTCR discussion, and Hughes had three major communications satellites involving encryption and for commercial purposes in China that got caught up in this.

And of course, the Germans were right there ready to sell these same satellites to the Chinese. The question I have of all of you, is what should we do to toughen our export controls and at the same time to really develop a situation where one of our allies just simply isn't going to move in and replace these sales? Which to me seems to be the case today.

BERTSCH: I feel very strongly about this issue. And if I can jump in first, I think it's a very good question. And we've been studying U.S. export control policies for 20 years at the University of Georgia. And I think if there's one thing that we've learned -- and that is to respond to your very important question, what can we do to be tough but not allow Germans or Japanese or others to go in and get these deals?

And I think we have to continue to work multilaterally with these countries, to say to Germany and Japan and others, listen, we're following your export policy very carefully, and we will just not tolerate when we deny an export to a country for proliferation reasons, when you go in and pick.

BERTSCH: A lot of that has gone on in the Cold War and even into the post-Cold War. But I would give the United States high marks, the Bush administration, the Clinton administration, on really pressing this case to make sure that not only Germany and Japan are on board, and I think they are.

I think that by and large, we have a very effective multilateral consensus on this. But the new challenge in the post-Cold War period is to bring Russia and China and then we won't be dealing with this kind of issue today. And I think we've made tremendous progress in the last three or four years to get Russia on board with the United States, Germany, Japan and now, we have to keep them on board.

The Ukrainians are a little more on board, and that's why they pulled out of this nuclear project, Bushehr in Iran, and now, bring China in. And we're only just beginning.

We have begun in our program discussions with the Defense Department here in Washington, the State Department and Commerce Department, about how we can do more to bring about the cooperation that we need from China.

And I'm optimistic that while it won't happen overnight, it can be done.


MILHOLLIN: You'll get a somewhat difference response from me and less optimistic, probably.

First of all, I think you need to look at export controls with the perspective of how important they are and why we have them. The amount of goods controlled now is about $10 billion a year. If you do the arithmetic, you'll see that that is a fraction of one percent of our economy, a fraction of one percent of our economy.

The total amount denied -- I'm sorry. Of the amount controlled, 98 percent of that is approved. That is, if you control this really economically minuscule amount of technology for exports, you make people get licenses, ninety-eight percent of the licenses applied for are granted, or two percent are turned down.

FEINSTEIN: So are you saying the controls are tough enough, it's just the administration of the controls?

MILHOLLIN: I'm saying that the idea that we hurting our economy or cutting jobs in order to have export controls is wrong. There is no way you can measure the insignificant impact on our economy of export controls.

But the impact of the controls on our security is very high, because an instrument that may not cost very much can really enable somebody else to move a program forward rapidly. And so that's why it makes sense to control exports.

So the first point is, it's not really a jobs issue. There's no measurement sensitive enough to measure the job's impact of our export controls. If it's -- I think it's about 1.4 -- it's about 14 percent of one percent of our economy that's even controlled.

The total amount denied the last time I looked at it was about half the cost of a single B-2 bomber. That's what we're talking in terms of denied technology, the worth of it. It's insignificant.

The second point is that it makes sense to have unilateral controls for a number of reasons. First, it's just an ethical reason. The United States is the only country, I think, that controls the export of torture equipment, thumbscrews, that sort of thing. We don't let our companies -- if you want to sell torture equipment, you have to get a license in the United States.

Now, it's true, theoretically, that other countries could rush in and sell these torture devices that we're not selling. It's also true that we don't sell missiles, for example, to Iran or to Syria. Other people do. They get the missiles anyway. Our guys, our people, lose out on the sales of these missiles. We make better missiles than the North Koreans. We could supply the Iranian market.

We make better chemical weapon plants than anybody. We could put those in Libya, but we don't. The Germans got the business. I don't hear anybody complaining that our industry missed out on the two chemical weapon plants that Libya is building.

The third reason it's important to have unilateral controls is leadership. The way it really works internationally is, somebody has to step out and do it first, and be the leader and have international controls and other people join. That's what we did in Iraq. If we had waited until everybody -- all of our allies had agreed what to do about Iraq, we would still be talking.

So you have to have unilateral controls. To make export controls stronger, we need to stop cutting them. The Clinton administration's export controls are a tenth of what we controlled under Bush. I think we've got it down to the bone, and we're going in to the bone, and we need to stop.

BROWNBACK: Thank you.

Let me look now at China and Russia. Dr. Bertsch, you're saying we should continue and increase pressure there to try to bring them in to a kind of league of nations in dealing with the Iranians.

Dr. Milhollin, I'm certain you would agree with that statement as well. We need to focus a lot there. Dr. Carus, is that correct as
well? Russian and Chinese exports are our clearest present danger on arming further the Iranians, conventional and mass destruction, the present issue?

CARUS: Yes, I think there are several reasons to focus on those two countries. One is, they have the largest capacity to supply the kinds of things that Iran wants of all the potential supplier countries out there.

For the kinds of reasons that Gary Milhollin just mentioned, people will not sell Iran a complete chemical weapons factory. Unfortunately, there are people in China who are willing to supply them with a lot of the things that they need to do that.

BROWNBACK: And then the directions on how to put them together?

CARUS: That's correct. I -- well, I have a little bit of optimism that national interest concerns will lead the Russians to be somewhat constrained. I'm less optimistic about the Chinese. The history is just not very comforting in this regard.

Again, dredging up a little bit of ancient history, if you recall, back in 1987, 1988, the United States was busy fighting a little mini war with Iran in the Persian Gulf. And remarkably, the Chinese, who apparently considered themselves a friend of the United States, were busy selling the Iranians anti-ship cruise missiles at that time.

So they were perfectly willing to supply weapons that they knew had the objective of sinking American ships at a very critical point in time, and while we clearly we demarched the Chinese over this, it didn't matter to them. I'm not sure things have changed that much in the intervening decade.

BROWNBACK: Well, I'm not sure that they've changed that much, either. In particular, I can direct your focus on the charts and the boards that we have up here, what we know has gone to Iran and from which countries, and no sanctions have been involved towards those suppliers. I mean, this is known, unclassified information.

Dr. Milhollin, you cited specific examples, and yet we've not stepped up to do anything further. Now what is it that we should be doing? What further should we do, particularly towards the Chinese and the Russians to cause them to stop this arming of the Iranians?

Please, Dr. Milhollin.

MILHOLLIN: Well, I think the first thing we could do is just implement our own law. We do have laws on the books that call...

BROWNBACK: And your contention is those have not been implemented?

MILHOLLIN: Yes. I think it's clear that they're not being implemented today. The State Department is basically admitting that the Chinese are continuing to supply Iran with chemical weapon technology and they somehow have convinced themselves that the evidence isn't sufficient. Well, it is sufficient. The studies are done. They're adequate.

What we have is just a policy at the top of continuing to pursue trade at the expense of national security. And until the White House changes its view on that, I think we won't get any progress in implementing the laws that exist.

BROWNBACK: Now if the White House will not implement these laws, should we tighten them further to not allow loopholes and to simply state if this occurs, this sanction will happen?

MILHOLLIN: I think the Congress ought to consider that very seriously. Also, I think the Congress ought to look at the whole group of sanctions laws. There have been so many sanctions laws passed sort of ad hoc that if you try to make a big chart of all the sanctions laws, it's a redoubtable task.

Chemical sanctions, for example, aren't very strong. That is, even if we sanction the Chinese for chemical weapon proliferation, what are the penalties? The companies can't sell things to the United States government? How much does the United States government buy from Chinese chemical companies? Nothing.

They can't import into the United States or export to the United States from China? That's not a serious penalty. I think we have to look at making the penalties more severe and changing the triggering mechanism so that it's more automatic. But that's going to take dissecting the present labyrinth of sanctions laws and putting them back together in a more rational form.

BROWNBACK: Mr. Carus, would you agree with that statement, that they need to be tightened and made more specific and workable, if they're not currently?

CARUS: No, unfortunately, I think the ultimate problem is the intent of whatever administration is in government at the time. And I think that this comes -- is demonstrated most starkly if you look at what happened in the case of Pakistan with the M-9 missiles.

If the U.S. government had said officially that Pakistan had received M-9 missiles from China, we would have had to impose sanctions. What happens in those cases is everybody knew the M-9 missiles went to Pakistan. But because of the implications of that decision, the intelligence process was corrupted.

And as you followed in the press, somehow there was never a determination that those missiles had ever gone there. And my suspicion is that, you know, effectively there never will be, even if you're able to walk up to one, open it up and see that it's a missile, simply because if the executive branch decides that they do not want to impose sanctions, they will start corrupting the intelligence process to make sure there is never a determination that some egregious event has happened.

BROWNBACK: Do you have to some how design the law such that the determination isn't built or can't be corrupted by corrupting the intelligence system?

CARUS: If there's a way to do it, it certainly would be essential in the process.

BROWNBACK: Mr. Bertsch, I want to make sure to get you in on this, because I'm getting from your testimony you're suggesting this is not the way to go, that we need to get Russia and China in, but the current route is the route you would prefer to continue. Although -- I want to challenge you on that.

This current route has produced substantial weaponry going to the Iranians from those two nations.

BERTSCH: It has, Senator, and you're right, and I think we should all be concerned with that. However, in the absence of the present U.S. policy, which I give high marks to, I think problem would be much worse. I think we're fortunate that we have not seen more transfers. And I say the reason why is a relatively effective U.S. policy.

I think we shouldn't underestimate how effective the U.S. government, with U.S. congressional leadership, in putting together a set of policies -- and you've listed many of them on the board.

I also think that when we think about new and tougher sanctions -- and we should do that -- but we have to recognize that many of our close allies, not to mention Russia and China, look at their relations with other countries differently because they're neighbors and because they feel that economic and technological cooperation is in their national interest.

And they would also say that, you know, they think more of this is peaceful cooperation. I think we have to, you know, continue to question and do our intelligence work so we know exactly what is peaceful and what isn't peaceful.

But I think that our most effective policy involves sanctions, but in a multilateral way, where we're not the only ones imposing them. If we need to have the Germans, the Japanese, and ideally, the Russians and the Chinese on board -- and I think we're doing -- we're making some progress on that.

And just let me conclude to say that sometimes during the Cold War years, we lost the cooperation of some of our allies, and things went too easily from countries like Germany to Iran, or even to the Soviet Union at that time.

Where we have been more effective is when we can go to a country like Iran, and say, there is a broad international consensus that your efforts to develop weapons of mass destruction are going to be very costly to you, and we want you to recognize it. This is just not the United States unilaterally imposing very tough sanctions that make us feel good, but may not be as effective in terms of the final goal of stopping WMD programs in Iran.

BROWNBACK: Senator Feinstein. Well, Dr. Milhollin.

MILHOLLIN: Could I respond to that? I think history teaches the opposite. If you talk to Japanese export control officials, they say that export control in Japan is divided into two epics -- before Toshiba and after Toshiba.

The sight of U.S. members of Congress destroying radios on the Capitol steps deeply shocked the Japanese, and they changed their export laws. I've talked to the Japanese regularly, and believe me, they haven't forgotten that incident.

If you talk to the Germans about export controls -- and I talk to them, too -- they say that the universe is divided into two epics -- before Rabta and after Rabta -- because their company Emhousen (ph) was nailed publicly on television in Germany and in the U.S. media as supplying willfully a chemical weapon plant to Libya despite U.S. objections.

That only changed -- that is, the big disaster only befell the Germans when it all got in the newspapers, and it was in Der Spiegel every week, and it was all over German television. And finally, the Germans were humiliated publicly, and they caved, and they changed their export laws.

That's what it took in those two cases. The English are now going through the same experience. It's called Matrix Churchill. The German's say -- the British say, well, there's before Matrix Churchill and after Matrix Churchill. Matrix Churchill was a large machine tools scandal that has just been the subject of a investigation and a long report in England.

And the folks who regulated export controls are still under the immediate shock of that experience. So from my perspective -- and I've been following this very closely, and I'm working hard on convincing other countries to do better -- it takes a lot to get people to change their practices, but it can be done.

But you don't do it by -- well, I should say, it needs confrontation very often in order to overcome the really very strong and consistent motive for a profit.

BROWNBACK: Senator Feinstein.

FEINSTEIN: Just following along, Mr. Chairman -- not only confrontation, I think it takes transparency.

And I wanted to ask first two things -- one, the United Nations, and second, China.

I thought one of the best things that President Bush did was begin that effort for increased transparency in the sale of arms in the United Nations. And as you gentlemen know, he had great success, I think the vote was 150-zip in the general assembly. And then of course, the F-16s were sold to Taiwan, and China vetoed this in the Security Council. So it ended up going nowhere.

I've asked both Secretary Christopher, Secretary Albright -- I think this is really worthy of an effort to pursue in the United Nations to get that kind of multilateral alliance that you gentlemen were speaking about.

With respect to China, when China originally denied that it had sent the three dozen or so M-11s to Pakistan, I happened to believe they were sent. But none the less there was to be a second load, which has never gone, to the best of my knowledge.

And I think that when China knew that we knew, it triggered some action on the part of Beijing. Then we got into the ring magnet situation -- $75,000 worth of ring magnets, which are not complicated things. But apparently -- and I tend to believe this -- that some of the ministries in China really operate in a much more uncontrolled and unsupervised way than the world would like to believe they do, and that a lot of these transfers can take place really without Beijing's full knowledge.

Do you find any substance in that? And could you inform us what is the extent of governmental controls over supplier companies in Russia, China and North Korea? I'm talking about individual sales now. And at which level of the national government are these controls exercised?

BERTSCH: I will begin, if you would like, Senator. I think you're absolutely right that transparency is a very important element to effective export controls and non-proliferation, and that we should insist on it, because if countries can be too secretive, it will be very costly in terms of our nonproliferation goals.

Let me remark first on Russia, which I know the best. And we have had our researchers on the ground there for some years.

BERTSCH: And we have a lot of exchange with Russian export control officials, both trying to understand better what's going on there and also trying to assist them in cooperation with the U.S. government in developing their export controls.

One of the bits of good news is that we in the U.S. government have launched an industrial outreach program into Russian military industrial enterprises to bring about more export control compliance.

With the export imperatives in Russia today, there is the possibility that these enterprises will export things and try to ignore what Moscow and the government wants them to do. And we feel it's very important that like American firms who are well-informed, as in California, about U.S. export control laws, Russian firms must be so equally well-informed.

And I think the Russians, and America, Russia and other countries are working to make sure that Russian industry follows international and national law. However, in a country as large as Russia, with the military industrial complex with the size that they have, this will be an ongoing challenge. We have found even in America that on occasion some of our firms will export something that is counter to U.S. law and restrictions, and they get in trouble. We want to see more of these firms in Russia getting in trouble.

We know much less about China. But my colleague Richard Cupitt, who's prepared a separate statement that we've entered into the record, has been in China, talking with government officials, talking with industry and non-governmental groups to get to the bottom of this. And we think there's a lot that we ought to know more about in the U.S government and the Chinese government, first and foremost, can be concerned with.

And our feeling is that we could probably bring about greater Chinese compliance if we could say to the government, we know that you government officials in China are concerned about some of the things that your enterprises are doing.

They sometimes feel in Beijing that they're loosing control over the provinces and the economic zones. And we can say to them: Look, we've been dealing with the same problem in the privatized American economy for decades. And why don't we share our expertise as we're going with the Russians so that we can work together? We learn from one another. We learn more about what they're doing and not doing when we engage them in these ways.

North Korea is the worst case, of course, because we have no real knowledge of what's going on there. And fortunately, they do not have the export capabilities and the military-industrial equipment and weapons systems that will have as big a impact as Russia and China.

MILHOLLIN: I would say that control over people and things is not really been thought of as a big problem in China yet. If I could make a -- maybe we should start a rumor that dissidence have infiltrated China's export corporations. Then, there would be total control overnight.

So I think the problem in China is not lack of control; it's a problem of corruption at high levels. People are making money out of these exports, who control these corporations from the top. The companies -- the Chinese companies that are in our database and that we've talked about are state-controlled companies.

FEINSTEIN: Can I stop you right there?


FEINSTEIN: Now, let me ask you something. Let's take Pakistan. I happen to believe that the Chinese have helped them develop an indigenous nuclear capability by enriching uranium above the 5 percent level.

MILHOLLIN: Without a doubt.

FEINSTEIN: Having said that, it would just seem to me that China at some point has to realize that having two competing nuclear -- indigenous nuclear powers, India and Pakistan, right over their boarder is not to their national interests.

MILHOLLIN: I don't think the Chinese see it that way. For many years, China has used Pakistan as its window on the world, and that costs a certain amount. The -- and also, China has received the reactor order from Pakistan. It's building a couple of power reactors, which are quite valuable.

I think -- you know, you mentioned the ring magnets. The ring magnets follow a pattern. They're what's called sweeteners. They're little things that you wouldn't export by themselves because they're very sensitive and they get you into a lot of trouble, but what you do is you throw them into a larger deal. And that happens all the time.

If you look at the Russian deal with Iran -- the enrichment plant, the natural uranium, the little research reactor -- these are all things that are not very valuable on their own. But when you're bargaining for a couple of big power reactors, you want the sweeteners. And it's very hard not to provide the sweeteners.

So to come back to your question, control -- I think that explains the ring magnets. They don't make sense by themselves. But as part of this relationship and as part of a big transfer of power reactor technology, they make sense.

So China still uses Pakistan as a window on the world, and that costs a certain amount. And China's willing to pay that. I don't think China's concerned about India's program. India can't threaten China now, and it never has been able to threaten China. And India's not doing the things it would -- that would be necessary to really threaten China in the future. It doesn't have an active testing program; it's not pushing its intermediate range missile. India's not a threat to China.

FEINSTEIN: No, I didn't mean to imply that. But the India- Pakistan situation; the non-deployment of the PRC missile, for example; our sale of some of the missiles that could be carried on the plane, which is part of the surplus sales -- you know, to arm Pakistan, I mean, I think that's a potentially very dangerous situation between the two of them.

MILHOLLIN: It is, but the Pakistanis are in a reaction position with respect to India, because India's much stronger conventionally. India has a stronger economy. The Pakistanis -- the Pakistanis are always a step behind, and they're always trying to catch up, and they're always trying to maintain some kind of a balance with India. And the first place they go when they get in trouble is to the Chinese. And up to now, the pattern has been that the Chinese have helped them, and I don't see this changing.

BROWNBACK: If I could, there are a number of people in Congress who would say we have bad actors in China, clearly, in the government and the private sector. Let's just terminate MFN, because it's too difficult to get at the specific company or the specific group that's providing weaponry into the Iranians.

I happen to really question that nature to go at it. But answer me -- I'm not sure who would be appropriate for this. Can we target the specific company in China or the extension of the government, if it's that case, that is providing weaponry to the Iranians? Can we get in with that narrow specific? You've given several examples, Dr. Milhollin. Will we be able to do that, or will they shift it just to another shell company before exporting it?

MILHOLLIN: No, I think you could target specific companies. China National Nuclear Corporation isn't going away. It's going to be the source of nuclear technology for a long time in China. It's going to be the entity that cooperates with us. I think if you're convinced that they're continuing to help Pakistan, you could easily sanction that company.

And many of the other companies that we've mentioned here are big, established companies. They have sales networks. They -- it would be hard for them to just to suddenly become something else.

If you imagine McDonnell Douglas suddenly becoming some other company overnight, it would -- it's possible, but it would be a cost. And so by sanctioning those companies, we could impose a significant cost on them.

BROWNBACK: And you think that would be an appropriate step to take?

MILHOLLIN: I think it would. If the company is willing to defy the world and supply a country we consider as a threat to us and as a rogue, then I think we should basically black -- blacklist them and just not deal with them -- not export to them, not import from them, and do everything we can to discourage their behavior.

BROWNBACK: Dr. Milhollin, you've provided a list of a number of those companies in your specific examples. Is that an all-inclusive list, or are there others that you believe we should black ball in our dealing with them?

MILHOLLIN: No, I think this is just to -- to invent a metaphor, the tip of the iceberg here. There are lots of other companies, which I could provide to the committee.

BROWNBACK: I would -- I wish you would so that what -- because what I would like to see us do is to target in specifically on the bad actors in those nations. And particularly as we're approaching again the China MFN debate, let's focus in and narrow in on that specific company that's providing this sort of weaponry or technology to the Iranians.

So if you could provide that to us really as soon as possible, that would be most appreciated. I don't know if either of the other gentlemen would care to comment on this issue of narrowing in on the specific company and bad actor.

BERTSCH: I think there is value in that, and I think that sanctions should be focused and targeted on those most responsible. I caution sanctions imposed on Russia and China of the MFN character, because we have to remember that we have much larger security and strategic interest with these countries.

We are working with Russia right now on getting through this difficult NATO negotiation. And if we were to impose sanctions of a broad sort or withdraw MFN from them in a way that would jeopardize our larger strategic interest, it would be very, very costly. I think that there are better ways of working on these proliferation leaks and transfers, both in Russia and in China, than imposing broad-scale economic sanctions on either of these countries.

BROWNBACK: And you believe it to be doable as well, that we could target in on that company? And you would support such a policy that did target in? And if I could use the term here, essentially black ball a company?

BERTSCH: I think so. I think in some cases, that's justified.


CARUS: Let me make two comments. In general, I'm very suspicious of imposed targeted sanctions that Congress imposes on the executive branch, simply because either you get a corruption of the process -- as I described, you know, in the case of the Pakistan missiles -- where you never admit that the truth has ever happened.

However, having said that, unfortunately sometimes the only instruments you have available in terms of the dialogue with an administration are very blunt instruments. And I think the history on export controls has been that administrations have only reacted when Congress has raised enough of a fuss that they've been forced to take seriously things that they would rather ignore.

BROWNBACK: That's what we're trying to do here...

CARUS: So having said that I am not particular fond of sanctions, under some circumstances -- and I think we're in that kind of situation today -- sometimes its the only option available and should be pursued. And I think from that point of view, making it as targeted as possible is the right way to go.

Hopefully, the result of that would be a dialogue with the executive branch that would lead to perhaps some modification in policy, which in fact, we've seen before. If you recall, in the days of the Bush administration early on that administration was very willingly to let Iraq buy just about anything. By the end of its term, they had a much different view on things.

And in part it was because of -- it didn't just happen overnight; it happened over time because of pressure on it.

BROWNBACK: Senator Feinstein.

FEINSTEIN: It seemed to me that if we were to follow this course, then we would also have to apply the same standards to Germany or the same standards to Russia, and really do it across the board to make it meaningful -- not select one country and impose a pinpointed sanction, but really, all of those businesses and corporations that do sell this kind of stuff with impunity. Would you not agree?

MILHOLLIN: I would certainly agree. It's always more awkward, of course, to impose a sanction on a close ally. But if the case is clear, as it was in the Emhousen (ph) case for Rabta, then the world is better off if you take a strong position. I think that case shows that to be true.

FEINSTEIN: Let me ask this question. Iran is a member of the Nuclear Nonproliferation Treaty and IAEA inspections have shown that it was not -- well, they've never turned up any prohibited activity. Nonetheless, everyone is certain that Iran is pursuing nuclear weapons. Iran has also signed -- although not yet ratified -- the Chemical Weapons Convention. And we believe Iran has chemical weapons.

What should we do in this situation of a state like Iran that is a member of arms control treaties, passes inspections, but whom we believe is cheating? If we can't prove it, how do we get other nations to join us in combating it?

CARUS: Senator, if I may respond to that.

I think we're actually relatively fortunate in that, in the broad outlines, I think most of our friends agree with us on this. I mean, if you look at the nuclear issue, it is true that nobody has ever found a violation of the -- the of IAEA safeguards in Iran. Yet, we have now essentially a 15-year track record of convincing other governments that it would be a bad idea to support Iranian nuclear development programs.

So that, for example, back in the early '80s when the revolutionary government wanted to resume building the Bushehr reactors, we convinced the Germans not to do it. And over the years, we've approached many governments and convinced them that it would be a bad idea.

So in fact, I think in this particular case, we're quite fortunate that most governments accept our arguments, and in fact, are concerned about what Iran might do. And this gives us a real leg up in the case of Iran. Unfortunately, there are a few major exceptions, and we've been focusing on them today.

FEINSTEIN: May I ask that you gentlemen also provide the committee with any lists of the sales, the specificity as to the companies or corporations in both Germany and Russia as well?

BROWNBACK: Anywhere around the world actually, if you wouldn't mind.

FEINSTEIN: That would be just fine.

BROWNBACK: Let's find -- if you know of bad actors in this, let's get at it.

Anything further, Senator Feinstein?

FEINSTEIN: Let me just ask you a status question. Last year, we all had concern that China was going to proceed with the nuclear enrichment facility in Iran. To my knowledge, that has not taken place. Do you have any information about this proposed sale? Do you have any information why it hasn't gone forward? Is Iran's inability to pay the wrong reason, or has China really decided it would be a better idea not to go ahead?

And what is the status of the proposed sale of the two nuclear reactors to Iran?

MILHOLLIN: Speaking of the Chinese reactors?


MILHOLLIN: If I could start -- my impression is that the Chinese arrangements with Iran are in a state of suspension at this time pending the outcome of Iran's hope that it will be able -- I'm sorry, let me start over.

It's China's sale of the hexaflouride plant, and China's sale of research reactors and so forth to Iran seems to be in a state of suspension pending the outcome of our talks with China about a nuclear cooperation agreement with the United States.

I think the Chinese recognize that if tomorrow they announce that the hexaflouride plant was going forward, there would be no hope of an agreement with us. So as I said in my testimony, I think it's sort of a gentle form of blackmail.

The Chinese supply pipeline is in a state of remission at the moment, awaiting the outcome of our discussions with them. That's my impression of what the status is today of the nuclear cooperation between China and Iran.

FEINSTEIN: Anyone have any other comments on that?

BERTSCH: I don't think I really have anything to add beyond that and what was discussed at the April 17 hearing. But it can be viewed as a policy of blackmail, although it can also be viewed as a policy of U.S. influence on China that if this opportunity for expanded cooperation with the United States on the nuclear front, China-U.S., keeps this deal in a state of suspense, then we're serving our non- proliferation objectives.

FEINSTEIN: Two other questions. Last year, Congress passed and the president signed the Iran- Libya oil sanctions act. It required sanctions against foreign companies that invest more than $40 million in Iran's oil and gas industry.

FEINSTEIN: How effective has this law been in depriving Iran of funds generated by these oil and gas development contracts? How much hard currency would you estimate Iran has lost so far, and are there companies who have invested in Iran's oil and gas sector, despite the threat of U.S. sanctions? Have we imposed any sanctions against any of them, and how effective a tool do you believe this law is in preventing proliferation in Iran?

Sorry, there are so many questions in one.

CARUS: Well, Senator, I don't consider myself an expert on these issues, but I have followed them, and my sense is that -- in fact, the law and the U.S. pressure has been quite effective in the sense that it took what a -- what would appear to be most companies to be an already very unpromising market and just convince them that there was very little reason for doing business there.

If you look at the cases that have taken place, such as Total (ph) in the -- the -- I guess it's the Syrian oil field -- the impression outsiders have is that because of the fact that the gas produced cannot be sold into the UAE, that it's a money losing proposition for Total (ph), which essentially accomplishes what we want to accomplish.

There are some other companies that are looking to get into Iran, such as -- I believe there's a Malaysian company. But these are small actors that can't bring Iran the technology and the resources they need.

And as a result, given that the Iranians need to spend an enormous amount of money in their energy sector in order to just meet domestic demand, if you consider that act as one of several negative factors that are facing them, I think it's had an important contribution. And clearly, to the extent that the Iranians don't get alternative sources of resources to pay for infrastructure, it means that it's money that they don't have for their NBC acquisition program.

MILHOLLIN: I just have one comment on that. It seems to me that one of the most -- I guess -- the United States has two big important strategic assets. One of them is our market. Everybody wants access to it. I think we should withhold it from folks who don't merit access. And if you force them to choose between access to the U.S. market and access to the market of selling a few missiles and chemical weapon plants here and there, the choice will always be the U.S. market.

Second, we have high technology, which everybody wants. I think we should also restrict that to companies and countries that we can rely on that share our values.

FEINSTEIN: I think that's a very good -- two good points. I agree. Doctor, do you have any comment on that?

Let me, if I may -- I'm sorry. My red light is on.

BROWNBACK: I was going to wrap up the hearing, though, so if you have another...

FEINSTEIN: I just have one more question about Europe.

BROWNBACK: Please, go ahead.

FEINSTEIN: The EU has insisted on conducting a dialogue, which they've called a critical dialogue with Iran, despite United States efforts to get EU nations to isolate Iran.

In the wake of last month's German court decision, which held that senior Iranian officials were responsible for the Mykonos bombing that killed three Iranian dissidents in Berlin in 1992, the EU has suspended its critical dialogue.

What do you think the significance of this decision is, and how much has this dialogue hindered our efforts to isolate Iran? How much of a difference can the new EU policy make, and can we expect more vigorous European efforts to isolate Iran or combat its use of terrorism and its weapons of mass destruction?

BERTSCH: I wouldn't expect too big a change in European policy. I suspect that they are committed to their basic policy of dialogue, and that this will go on, and that its temporary developments are rather temporary.

FEINSTEIN: The thing -- I don't mean to interrupt you -- but the problem I have is, this is deeply troubling to me. If our European allies, you know, for whom we maintain NATO, for whom we have this close relationship, won't support these policies, that -- the effect of that is to subvert them.

And I think that's a major problem. I happen to agree with what Dr. Milhollin said. But if Europe won't provide the kind of support we need and will just simply move in behind and sell some of these products, then our efforts are somewhat wasted.

BERTSCH: Well, I agree, Senator. We've had a good bit of problem with our European allies for some decades. But by and large, they listen to the United States, and they will work with us.

And I think that over a period of time, they are going to make their own judgments about the terrorist threats emanating from Iran. And I think it brought -- this recent case in Germany, I think, helped better inform the German public and German officials, and I think, will make it easier to work with our German and European allies.

At the same time, they look at economic cooperation and political relations with countries such as Iran somewhat differently than we do, and we have to deal with that. We don't always like it, but I think we can't underestimate the value of trying to bring a cooperative front with our European allies in bringing other countries as well into it.

MILHOLLIN: Senator, I would say that this court decision has just produced a very strong shot of what you said was good and necessary, which is transparency. The public all know now that the Iranians are perfectly capable of doing what the courts said they did.

I think that to influence the Europeans over time on the subject of supplying Iran we have to start using the policy we used with respect to Libya and the Emhausen (ph) case, which I mentioned before.

Our intelligence agencies know which German companies are selling what to Iran. We, I think -- I hate to say this, but I think that until we start putting that out in the media, as we did in the case of the Libyan poison gas plant, we aren't going to create the kind of public pressure that's necessary in order to change the behavior of the European companies.

But I promise you that if our intelligence agencies did put out what they know about what's going into Iran, that it would change behavior. It's just that for, I guess, the powers that be have decided that the diplomatic cost is not worth it, so we don't see this information coming out.

FEINSTEIN: If you send it to us, we can put it out.



BROWNBACK: Thank you all very much. I appreciate the panel and those who participated -- Senator Feinstein for her excellent questions and participation in the hearing. I appreciate that a great deal.

It strikes me that we may have a moment here where we can step up the focus and the pressure on those who are supplying the Iranians, whom many have identified as our erstwhile present danger that we have in the world, and that we can do something of a targeted, specific, and efficient and effective measure.

The German court ruling, I think, is a part of that, the desires here on Capitol Hill, our relationships with Russia and China, the upcoming China MFN debate. We may have a moment that we can step forward, and hopefully, do something good and constructive on this.

Thank you all for your attendance.

We are adjourned.