[Senate Hearing 106-177]
[From the U.S. Government Publishing Office]
S. Hrg. 106-177
HAS THE RUSSIAN SPACE LAUNCH QUOTA ACHIEVED ITS PURPOSE?
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HEARING
before the
INTERNATIONAL SECURITY, PROLIFERATION, AND FEDERAL SERVICES
SUBCOMMITTEE
of the
COMMITTEE ON
GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
ONE HUNDRED SIXTH CONGRESS
FIRST SESSION
__________
JULY 21, 1999
__________
Printed for the use of the Committee on Governmental Affairs
U.S. GOVERNMENT PRINTING OFFICE
59-455 cc WASHINGTON : 1999
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For sale by the Superintendent of Documents, Congressional Sales Office,
U.S. Government Printing Office, Washington, DC 20402
COMMITTEE ON GOVERNMENTAL AFFAIRS
FRED THOMPSON, Tennessee, Chairman
WILLIAM V. ROTH, Jr., Delaware JOSEPH I. LIEBERMAN, Connecticut
TED STEVENS, Alaska CARL LEVIN, Michigan
SUSAN M. COLLINS, Maine DANIEL K. AKAKA, Hawaii
GEORGE V. VOINOVICH, Ohio RICHARD J. DURBIN, Illinois
PETE V. DOMENICI, New Mexico ROBERT G. TORRICELLI, New Jersey
THAD COCHRAN, Mississippi MAX CLELAND, Georgia
ARLEN SPECTER, Pennsylvania JOHN EDWARDS, North Carolina
JUDD GREGG, New Hampshire
Hannah S. Sistare, Staff Director and Counsel
Joyce A. Rechtschaffen, Minority Staff Director and Counsel
Darla D. Cassell, Administrive Clerk
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INTERNATIONAL SECURITY, PROLIFERATION, AND FEDERAL SERVICES
SUBCOMMITTEE
THAD COCHRAN, Mississippi, Chairman
TED STEVENS, Alaska DANIEL K. AKAKA, Hawaii
SUSAN M. COLLINS, Maine CARL LEVIN, Michigan
PETE V. DOMENICI, New Mexico ROBERT G. TORRICELLI, New Jersey
ARLEN SPECTER, Pennsylvania MAX CLELAND, Georgia
JUDD GREGG, New Hampshire JOHN EDWARDS, North Carolina
Mitchel B. Kugler, Staff Director
Richard J. Kessler, Minority Staff Director
Julie A. Sander, Chief Clerk
C O N T E N T S
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Opening statements:
Page
Senator Cochran.............................................. 1
Senator Akaka................................................ 10
Senator Cleland.............................................. 26
WITNESSES
Wednesday, July 21, 1999
Wilbur C. Trafton, President, Lockheed Martin International
Launch Services................................................ 2
Catherine Novelli, Assistant U.S. Trade Representative for Europe
and the Mediterranean.......................................... 13
Hon. Walter B. Slocombe, Under Secretary for Policy, Department
of Defense..................................................... 15
John D. Holum, Senior Advisor for Arms Control and International
Security, Department of State.................................. 17
Alphabetical List of Witnesses
Holum, John D.:
Testimony.................................................... 17
Prepared statement........................................... 78
Novelli, Catherine:
Testimony.................................................... 13
Slocombe, Hon. Walter B.:
Testimony.................................................... 15
Prepared statement with an attachment........................ 41
Trafton, Wilbur C.:
Testimony.................................................... 2
Prepared statement........................................... 31
APPENDIX
Letter from Wilbur C. Trafton, dated August 2, 1999, to Senator
Cochran........................................................ 39
HAS THE RUSSIAN SPACE LAUNCH QUOTA ACHIEVED ITS PURPOSE?
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WEDNESDAY, JULY 21, 1999
U.S. Senate,
Committee on Governmental Affairs,
Subcommittee on International Security,
Proliferation, and Federal Services,
Washington, DC.
The Subcommittee met, pursuant to notice, at 2 p.m. in room
342, Senate Dirksen Building, Hon. Thad Cochran, Chairman of
the Subcommittee, presiding.
Present: Senators Cochran, Akaka, and Cleland.
OPENING STATEMENT OF SENATOR COCHRAN
Senator Cochran. The Subcommittee will please come to
order.
Today our Subcommittee on International Security,
Proliferation, and Federal Services convenes a hearing to
review and assess the effect on weapons proliferation of the
1993 Space Launch Quota Agreement between the United States and
Russia. Specifically, we hope to be able to answer the
question: Has the Russian space launch quota achieved its
purpose?
This Subcommittee has spent considerable time in the last
2\1/2\ years examining the serious problem of weapons of mass
destruction and ballistic missile proliferation. Along with
others, we have advocated a comprehensive approach, from
diplomacy to improved export controls to ballistic missile
defense, to protect our country from the effects of weapons
proliferation. The threat posed by this proliferation is
accurately described by Executive Order 12938, which declares
the proliferation of weapons of mass destruction and their
means of delivery to be an unusual and extraordinary threat to
the national security, foreign policy, and economy of the
United States.
In Senate testimony this year, Director of Central
Intelligence George Tenet underscored the seriousness of this
threat, particularly as it relates to the continuing commerce
between Russia and Iran, stating: ``Politically, Russia is
increasingly unpredictable, and the worsening economic
situation affects all aspects of the Russian scene. As the
desperate search for revenue streams is exacerbating a number
of serious problems, it has magnified the proliferation threat
across the board as growing financial pressures raise
incentives to transfer sensitive technologies, especially to
Iran.''
Thus, our government must insist that the Russian
Government exert its full authority to halt missile and missile
technology transfers from Russia to Iran and others. Our
government must also take those steps necessary to persuade the
Russian Government to act quickly and effectively on this
problem. This does not mean, though, that any action by our
government is appropriate just because it is done in the name
of stopping the flow of Russian technology to Iran. Our
government should recognize and avoid taking actions that not
only do little to stem Russian proliferation, but put the
national security of the United States, and its allies, at
greater risk.
Our witnesses today, we hope, will help us sort through
these issues surrounding our country's commercial satellite
launch policy with Russia. Will Trafton, president of Lockheed
Martin International Launch Services, will be our first
witness. Mr. Trafton will be followed by a panel including
Catherine Novelli, Assistant U.S. Trade Representative for
Europe and the Mediterranean; Walt Slocombe, Under Secretary of
Defense for Policy; and John Holum, State Department Senior
Advisor for Arms Control and International Security.
We first welcome Will Trafton, president of International
Launch Services, as our first witness. We have a copy of your
prepared statement, which we appreciate, and we will have it
printed in the record in full. We encourage you to make any
summary comments or remarks that you think would be helpful to
the Subcommittee.
Welcome, and you may proceed.
STATEMENT OF WILBUR C. TRAFTON,\1\ PRESIDENT, LOCKHEED MARTIN
INTERNATIONAL LAUNCH SERVICES
Mr. Trafton. Thank you, Mr. Chairman. I really appreciate
the opportunity to testify before you today on the use of a
quota-based trade agreement as an instrument of commercial
space launch trade policy between the United States and Russia.
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\1\ The prepared statement of Mr. Trafton appears in the Appendix
on page 33.
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Let me begin by expressing our deep appreciation for your
leadership, Mr. Chairman, and support in addressing this
important issue, culminating today with this hearing. The
progress we have made thus far is due in no small measure to
your efforts to advance U.S. policy objectives for cooperative
threat reduction and economic competitiveness.
In my remarks, I would like to talk about International
Launch Services (ILS) and, in particular, the arm of ILS, the
Lockheed-Khrunichev-Energia International (LKEI) joint venture,
that supplies commercial Proton launches to international
satellite operators and service providers. I will also tell you
what I believe will happen to LKEI if it continues to be
restricted by quota-based trade agreements or held hostage to
proliferation concerns. I will also address the potential
adverse impact on another very important U.S.-Russian joint
venture that will co-produce in the United States the world's
best rocket engine--the Russian RD-180. Last, I would like to
offer our recommendations for addressing these issues.
International Launch Services was established in 1995, upon
the merger of Lockheed and Martin Marietta companies, to market
Atlas and Proton commercial launch services in the world wide
satellite telecommunications marketplace. Lockheed and Martin
Marietta, prior to the merger, were each individually competing
in the commercial launch service market with their Proton and
Atlas launch vehicles respectively. Lockheed entered the launch
market in 1993 with the establishment of Lockheed-Khrunichev-
Energia International, the joint venture to exclusively market
the Russian Proton launch vehicle. Similarly, Martin Marietta
had entered the commercial launch market with the purchase of
the General Dynamics Space Systems Division and establishment
of its Commercial Launch Services subsidiary (now LMCLS,
Lockheed Martin Commercial Launch Services) which marketed the
Atlas launch vehicle. Both LKEI and LMCLS are within the ILS
structure, and serve as the contracting entities for executing
Proton and Atlas launch service contracts.
ILS, headquartered in San Diego, California, is a
commercial company, servicing a broad range of both domestic
and global satellite operators and manufacturers, as well as
the U.S. Government. Today, ILS has a backlog of $3.5 billion
representing launch contracts for 23 Atlas vehicles and 19
Proton vehicles.
Mr. Chairman, the success of the LKEI joint venture has
generated important benefits for U.S. national security and
commercial space competitiveness. But the quota on Proton
launches jeopardizes continued growth of this venture, indeed,
its viability in the commercial launch market.
Mr. Chairman, as you know, President Clinton recently
approved an increase in the quota from 16 launches to 20. This
is a good first step towards the elimination of the quota. It
demonstrates to us that the administration recognizes the
importance of this venture, and that its near-term viability is
dependent on the continued availability of Proton launch
services.
While this action is commendable, the quota should be
lifted entirely. This small increase may assist in meeting
near-term business objectives, but there will continue to be
uncertainty as to the long-term viability of this joint venture
as long as a quota exists. Therefore, it will be necessary to
increase the number of allowed launches again before the
expiration of the Launch Trade Agreement at the end of 2000.
The trade criteria stipulated in the Launch Trade Agreement
have been met. Khrunichev and Energia have not only complied
with pricing regulations, but also have implemented stringent
internal export control safeguards and are not engaged in
proliferation.
U.S. leadership in the international launch market is
essential to economic growth in the 21st Century. If LKEI is
unable to provide a guarantee to customers of the availability
of launch services, the United States stands to lose to foreign
competitors the industry's market share we worked so hard to
gain over the past 13 years.
The Lockheed-Khrunichev-Energia joint venture continues to
be the most successful U.S.-Russian commercial endeavor,
promoting economic stability within Russia by providing hard
currency to the Russian economy. Furthermore, it is U.S. policy
to engage in activities with Russia's aerospace industry that
will meet cooperative threat reduction objectives by providing
a commercial avenue for scientific and technical expertise in
Russia. This venture provides such an avenue, and a strong
record of compliance with export regulations proves that this
venture provides a positive incentive for nonproliferation.
The launch market is robust and the quota should be allowed
to expire. Current demand for launch services far exceeds
market projections. If the Proton business is not allowed to
operate in a free and open trade environment, not only will
this be ignoring directives set forth in our country's National
Space Policy, but our space industrial base could be threatened
along with Russia's economic stability. Should this occur, the
principal beneficiary would be the French Ariane program,
currently the only launch system capable of taking heavier
payloads to Geostationary Transfer Orbit (GTO). The United
States would lose in this highly competitive international
launch market. The positive nonproliferation incentives the
LKEI joint venture provides to more than 100,000 Russian
engineers, scientists, and technicians also would be lost. And
the critically important RD-180 engine program would be
adversely affected.
This Russian engine, the best rocket engine in the world,
is currently available to Lockheed Martin in the United States
through a United Technologies, Pratt and Whitney, and NPO
Energomash joint venture, RD-AMROSS, that was established in
1997. This U.S. joint venture has two key components: The RD-
180 engines built in Russia that will power our new commercial
Atlas vehicles, the Lockheed Martin Atlas 3 and the Atlas 5;
and the RD-180 engine built in the United States that will
power the next generation launch system for U.S. Government
payloads. The reliability and consistency of the United States
as a partner in these two joint ventures is critical to their
success.
In summary, Mr. Chairman, we have a great deal at stake in
our joint ventures with our Russian partners. America's
national security, economic competitiveness, and assured access
to space in the next century will be affected by the way the
Proton quota issue is addressed. I am ready for your questions.
Thank you, Mr. Chairman.
Senator Cochran. Thank you. Let me first ask you the
purpose for the joint venture to start with. Why did Lockheed
Martin decide to enter a joint venture with the Russian firms
Khrunichev and Energia?
Mr. Trafton. In 1992, Lockheed was looking for a way to
enter into the space launch business. At about that same time,
with the end of the Cold War, there was a conscious policy
decision by the U.S. Government to encourage joint ventures
with Russia. Lockheed approached Khrunichev and Energia and in
1993 signed an agreement that gave Lockheed Martin--Lockheed at
the time--worldwide marketing rights for the Proton vehicle.
Senator Cochran. When you entered into this joint venture,
or before you did, or as you were considering it, did you
consider the possibility that these Russian firms might be
engaged in missile proliferation activities?
Mr. Trafton. Yes, sir, we did. I will say that Lockheed was
very sensitive to proliferation concerns. We were also very
sensitive to and compliant with U.S. Government guidelines on
this issue. We consulted very closely with the U.S. Government.
We implemented a very rigorous export control compliance
program and, in fact, we put it into the by-laws of the joint
venture that our Russian partners would comply with
nonproliferation regimes.
Senator Cochran. Do you think that this joint venture in
particular is useful in any way as a nonproliferation tool or
to encourage nonproliferation?
Mr. Trafton. Absolutely, Mr. Chairman, I do. As I have
stated in my opening statement, 100,000 very skilled Russian
engineers, technicians, and scientists get a regular paycheck
thanks to this joint venture. We have transferred since the
inception of the joint venture about $1.5 billion to Russia. I
think the fact that these 100,000 Russians would like to keep
their jobs, the fact that the Russian Government, Khrunichev,
and Energia would like to see that this payment stream
continues, we think is pretty important motivation for them to
be very, very careful about proliferation.
Senator Cochran. The U.S. Administration negotiated a
launch quota agreement with Russia. And as I understand it from
your statement, it was important to have this agreement because
of concerns over predatory pricing possibilities. Could you
tell us what that means? Why was that a concern, and was that a
sufficient reason to negotiate a trade agreement?
Mr. Trafton. It was a viable concern and I think it was
sufficient reason to negotiate a trade agreement. We, in this
country, in the space launch business did not want to see the
Russians or other foreign entities coming into the marketplace
with predatory pricing and, in fact, adversely affecting our
position in the global market.
Senator Cochran. How could that have happened and how would
that have worked?
Mr. Trafton. They could have come in with prices that far
undercut the then-current competitive market pricing that we
were seeing at the time.
Senator Cochran. Wouldn't that have been helpful to you?
Mr. Trafton. Absolutely not. This is a tough marketplace
and the people looking for commercial launch services are in
many cases going to go to the lowest bidder.
Senator Cochran. Well, you said they would undercut the
pricing.
Mr. Trafton. The trade agreement, as it was written, uses a
15 percent rule, that the Russians--and, by the way, the
Chinese and the Ukrainians are involved in this as well, in the
quotas--that they could not come in 15 percent below the lowest
competitive market price. How that was established is perhaps a
little bit fuzzy. But it was a real threat and everybody in
this country understood at the time that a trade agreement was
a good idea. I will state that it worked; that predatory
pricing did not occur. You will find Proton has been, and is
today, very competitively priced in the marketplace.
Senator Cochran. So that leads me to the next question
then. Has the purpose of the agreement in your judgement been
satisfied?
Mr. Trafton. Absolutely. Yes, sir.
Senator Cochran. What is the purpose of continuing the
trade agreement then?
Mr. Trafton. We see no purpose. We think, as I have stated,
that the quota should be lifted in its entirety.
Senator Cochran. Under the terms of the agreement, how do
you get out from under such an agreement? Do you just terminate
it by mutual agreement between you and the Russian joint
venturers?
Mr. Trafton. The trade agreement is due to expire December
31, 2000. It had built into it that if certain conditions were
met the quota would be automatically increased. So from 1996 to
1998, if an average of 24 satellites per year were launched to
GTO, that the quota would be increased from 16 to 18; and then
from 1996 to 1999, if an average of 24 satellites per year were
launched to GTO, it would be increased from 18 to 20. These
were to be automatic increases. The U.S. Government has chosen
not to implement these automatic increases. But what has
happened is that the Launch Trade Agreement has become an
instrument in addressing the issue of nonproliferation. We at
ILS are being held hostage; the trade agreement is being used
for a purpose other than the one for which it was implemented.
Senator Cochran. Have the joint venturers violated any
terms of the agreement?
Mr. Trafton. Absolutely not.
Senator Cochran. Have you violated any terms of the
agreement?
Mr. Trafton. No, sir.
Senator Cochran. It creates a cloud of uncertainty then,
doesn't it, for our own government to come in and actually
interfere with the automatic escalation of launch quota? Is
that correct?
Mr. Trafton. That is correct. And what is happening is,
even though the President increased the quota by 4, from 16 to
20, again which we very much appreciate, it is still impacting
our business. Our customers cannot stand the uncertainty of
whether they can get their satellites up when they need to. In
fact, when we signed a contract in October 1997 for the last
competitive Proton that we have sold, the customer demanded
off-ramps because of the quota issue. We had never seen that
before.
Senator Cochran. Demanded what?
Mr. Trafton. Off-ramps. These are contractual provisions.
That if the quota impacted the customer's ability to get his
satellite up, then he had the choice of going to another launch
service.
Senator Cochran. That he could get out of the agreement
without penalty?
Mr. Trafton. That's correct. And there is only one other
launch service provider that can compete with Proton today, and
that is the French Ariane.
Senator Cochran. OK. Then the central issue is in spite of
the compliance by your joint venture partners in Russia with
all the terms of the agreement and your compliance with the
agreement--and the added thing I guess is has there been any
proliferation conduct by the joint venturers that would justify
this action by our government?
Mr. Trafton. Mr. Chairman, there has not been. Our partners
are clean. And each time that the State Department issues a new
list of companies that are going to be sanctioned, we go
immediately to our partners, we check to see if they are
currently dealing with them, or if they have ever dealt with
them in the past. In every case, the answer has been, no, they
have not.
Senator Cochran. You mentioned that last week the President
increased the quota from 16 to 20. Has that had any effect on
the joint venture relationship? Has it improved it? Does it
give you hope? Or is it a continuing problem even though he has
lifted it from 16 to 20?
Mr. Trafton. Well, we have four more customers that are
breathing a bit easier today. But it has not solved the
problem. We still have two Protons under contract which fall
outside of the quota, and we still have this issue of
uncertainty. Additionally this sends a very inconsistent
message to Russians across the board when we use a launch trade
agreement for purposes for which it was not intended.
Senator Cochran. I understand the agreement is going to
expire at the end of the year 2000.
Mr. Trafton. That is correct.
Senator Cochran. That seems like a fairly short period of
time away, 17 months. Why can't you book launches after the
expiration of this agreement?
Mr. Trafton. Again, we are aggressively pursuing customers;
we have been, and continue to do so. But, again, the quota
issue is generating uncertainty for customers that are
wondering whether this quota business will continue beyond
December 31, 2000. There is absolutely no assurance at this
point that the State Department won't choose to continue to use
this as leverage in the nonproliferation area.
Senator Cochran. Have you been able to book any launches at
all since the quota became an issue?
Mr. Trafton. No, we have not. The last Proton that we sold
competitively in the marketplace was in October 1997, and that
is about the time when this quota issue bubbled up to the
surface.
Senator Cochran. And do you attribute the failure to book
launches as being attributable to the uncertainty over the
quota issue? Is that your testimony?
Mr. Trafton. Yes, I do.
Senator Cochran. You said in your testimony also that
Russian assistance to the Iranian ballistic missile program is
a serious problem that our government must address. If the
government doesn't use the leverage given them by this quota
arrangement, what other leverage would you suggest it consider
using that would encourage Russia to deal with proliferation
problems more effectively?
Mr. Trafton. I would only ask that the U.S. Government
follow a two-track policy--encourage and support the companies,
the joint ventures that comply with nonproliferation, and
punish the companies and joint ventures that do not comply.
What is happening today is we are all being lumped together and
we are all being shot together. We would only ask that the
government go to a two-track policy.
Senator Cochran. There seem to be two issues here that you
have identified. You mentioned the RD-180 engine issue. It is
my understanding that Lockheed Martin is one of two companies
in the United States participating in the Defense Department's
so-called Evolved Expendable Launch Vehicle (or EELV) program.
Tell us about that program and why it is important to our
Nation's defense and to the U.S. commercial space launch
industry.
Mr. Trafton. We at Lockheed Martin believe that EELV is the
future of the U.S. space launch industry. The Air Force has put
in a half billion dollars and Lockheed Martin has put in one
billion dollars to develop the new family of EELV vehicles,
which we call Atlas 5. The RD-180 engine is the engine of
choice for this vehicle, and you have heard me briefly describe
that engine. It is a superior rocket propulsion system,
reliable and cost-effective, and it contains technology that we
in this country don't have and haven't developed. It is a very
powerful engine and, again, it is our future.
Senator Cochran. Is it your judgment that you are better
off purchasing this technology and this engine rather than
developing your own heavy engine?
Mr. Trafton. Yes, Mr. Chairman, it is. We in this country
haven't done well in rocket engine development. In contrast,
over many years, the Russians have developed what we think is
about 45 different rocket engines. In the last 25-30 years, the
United States has developed just one rocket engine, the Space
Shuttle main engine. The Russians are very far ahead of us in
rocket engine technology, as demonstrated by the RD-180. This
is not a paper engine. We have had it on a test stand at the
Marshall Space Flight Center, and have almost 15,000 seconds of
testing completed. The first RD-180 is in our first Atlas III-A
rocket on a launch pad at the Cape in Florida, ready for launch
as we speak.
The RD-180 is a wonderful engine. To illustrate: Today's
Atlas 2 launch vehicle has nine engine staging events to get a
satellite to Geo Transfer Orbit. The RD-180 takes us there with
two staging events. We can install this engine in 6 hours, and
test and check out the rocket in 12 days, a process that today
can take us up to 80 days.
Senator Cochran. So what you are saying is that this would
put us far ahead of where we are if we could buy this
technology, buy this engine and use it in our launching
capacity commercially and for----
Mr. Trafton. And for the U.S. Government.
Senator Cochran. For the U.S. Government. This is an Air
Force program, is that right, that you would be participating
in with this engine?
Mr. Trafton. Yes, that is correct.
Senator Cochran. Do you feel that you could compete in this
program without acquiring this engine?
Mr. Trafton. No, I don't. I think--I will tie the two
together. If the quota issue brings down the LKEI joint
venture, it is my position that the RD-180 joint venture will
fail as well. That will have a devastating impact on the EELV
program and the future of the space launch business in this
country.
Senator Cochran. Why are they tied together in your mind?
Why is there a relationship between the quota issue and the
ability of Lockheed Martin to participate competitively in the
EELV program?
Mr. Trafton. It is an issue of whether we can be seen as a
reliable partner. The Russians are very confused over the quota
issue. They see the U.S. Government acting in a very
inconsistent manner. I feel that if they see the U.S.
Government let the LKEI joint venture come unravelled and fail,
they will then have to ask themselves, why should we risk going
down the same road with an RD-180 joint venture.
Senator Cochran. You have also had a payment to your
contracting partner in Russia held up by the government, have
you not?
Mr. Trafton. That is correct.
Senator Cochran. On a license application procedure. Tell
us about that.
Mr. Trafton. The issue is a brokering license. Again, we
don't understand the requirement for it but we certainly have
complied. We wanted to make a $25 million advance to NPO
Energomash on a $1 billion contract for 101 RD-180 engines. The
purpose of the advance is to enable them to retool and
modernize their plant by buying off-the-shelf machine gear,
tools, etc., from Russian and European vendors. We want them to
be able to produce 19 engines a year; currently, they can only
produce 9.
Acting as a ``middleman'' between a customer and a
provider, that is our definition of brokering. We don't see
advancing $25 million on a $1 billion contract to help
Energomash retool as a brokering activity. But the State
Department said it is brokering and they wanted to see a
license application. We immediately complied, by submitting in
July 1998 a license application for a brokering license. We are
not advancing the $25 million to NPO Energomash until we get
the license. Today, 1 year later, we are still awaiting
approval of this license.
Senator Cochran. And you entered into the arrangement to
buy the engine, the RD-180 engine back when, 1996, was that the
date?
Mr. Trafton. In 1996, yes, sir.
Senator Cochran. Well, let me ask you this, and I think you
have fully explained what the relationship is in the RD-180
engine transaction. But let me just ask you what you expect to
happen if this joint venture collapses under the weight of the
quota issue. Would you be able to continue in the launch
business, or will the Khrunichev and Energia be able to
continue in the launch business with somebody else if the
relationship with your company falls through? What do you
expect to happen?
Mr. Trafton. I would expect Khrunichev and Energia to find
another partner. The French have been aggressively pursuing
Russian space entities looking for partnerships. I would expect
that shortly after this joint venture failed you would see a
joint venture between probably a French company and Khrunichev
to market Proton worldwide.
Senator Cochran. That would not have any effect one way or
the other on proliferation, would it?
Mr. Trafton. Well, I think it would. I think it would have
a very negative effect.
Senator Cochran. But it wouldn't have a positive effect,
though?
Mr. Trafton. It certainly wouldn't.
Senator Cochran. It wouldn't keep Russia from proliferating
missile technology to Iran, for example.?
Mr. Trafton. We think that not all governments in the
Western world are as concerned as we are about proliferation. I
think that in a new joint venture with perhaps a European
company you wouldn't see the Russians as concerned about
proliferation as they are today. I think the fact they are in
partnership with us is making them tow the line very carefully.
Senator Cochran. And then what would the impact of the loss
of the relationship on the RD-180 transaction be, both to the
Defense Department and to the commercial launch industry here
in the United States?
Mr. Trafton. Well, we would have to drop out of the EELV
program and we would not then be in a position to compete with
Boeing for future U.S. Government launches. I think it would
have a tremendous negative impact on the space launch business
in this country. It would affect jobs, too. There are a lot of
American jobs that aren't discussed when we talk about these
joint ventures. A lot of folks are involved in these two
programs.
Senator Cochran. Would it be accurate to say that the only
beneficiaries of this result would be some foreign country
getting the new engine that you are trying to buy, like France,
and possibly the Iranian ballistic missile program standing to
gain because of the lack of influence of the U.S. Government on
these companies?
Mr. Trafton. That is a correct assessment, Mr. Chairman.
Senator Cochran. Mr. Trafton, I appreciate your testimony
and your comments in answering our questions very much.
I am pleased to welcome my friend and colleague from
Hawaii. I have no further questions of the witness, Senator,
and I would turn to you if you have any questions of Mr.
Trafton at this time. Or if you have any opening statement or
comments you would like to make, you certainly are recognized
for that purpose.
OPENING STATEMENT OF SENATOR AKAKA
Senator Akaka. Thank you very much, Mr. Chairman. I regret
that I am late in getting here.
Senator Cochran. There was a lot going on.
Senator Akaka. Yes. I have a statement I would like to
place in the record.
Senator Cochran. Please.
[The prepared statement of Senator Akaka follows:]
PREPARED OPENING STATEMENT OF SENATOR AKAKA
I join with the Chairman in welcoming the witnesses today to
testify on commercial space launch quotas and Russia.
There are two important issues here. The first concerns commerce
and the second concerns proliferation of weapons of mass destruction.
In terms of commerce, the United States has been eager to promote
its commercial satellite industry while not jeopardizing the
development of an American commercial satellite launch service. We
turned to Russia because demand was greater than launch supply. The
Russian capability to launch payloads has benefited our satellite
industry.
This should be a model for Russian-American commercial cooperation:
Building a future in which both sides benefit from each other's
expertise.
At the same time, there has been a dark side to Russian-American
cooperation.
Fears that Russian companies involved in the Russian space program
have also been involved in assisting Iran develop a ballistic missile
program have led to American economic sanctions being imposed on
certain Russian companies.
In fairness, the two Russian companies involved with Lockheed-
Martin in forming International Launch Services (ILS) have not been
sanctioned for this type of activity. But the administration has
hesitated to lift the quota on Russian satellite launches in an effort
to persuade the Russians to take more seriously the issue of
controlling dual use exports and other assistance to the Iranian
missile program.
An unspoken goal of our trade agreement with Russia was to promote
cooperative programs providing commercial opportunities for Russia's
military-industrial complex. Russia would thus see its self-interest
served better by working with the United States rather than cooperating
with rogue states developing weapons of mass destruction. Our policy
has been based on the view that carrots work better than sticks.
But there are limits to the use of carrots as we have seen
elsewhere in the world. The most recent issue of The Economist
editorializes that the lesson North Korea's leader seems to have
learned ``is that the worse he behaves, the more desperately outsiders
will try to buy him off.''
This is not a pattern we want to see repeated with Russia.
Unfortunately, there continues to be disturbing reports that
Russian companies aid the Iranian missile program. Our efforts to
convince the Russians to pursue alternative policies have only been
partially successful.
At times it seems the only way to get the Russian bear's attention
is to hit it hard over the head with the large stick of sanctions.
I hope this hearing will help clarify in which direction American
policy should go in regard to continued cooperation with the Russian on
commercial satellite launches. Our current trade agreement with Russia
on launches ends next year. If we are to extend it, it should be in the
context of benefiting our larger foreign policy goals.
Thank you Mr. Chairman and I welcome the witnesses.
Senator Akaka. I have some questions here and I hope they
were not asked earlier. If so, please inform me about it.
Mr. Trafton. Yes, sir.
Senator Akaka. My first question is whether the commercial
space launch quota has achieved its purpose. U.S. policy for
the termination of the trade agreement quota system is based
upon the premise that Russia would develop a market economy and
thus compete fairly with American satellite launch providers.
In Mr. Corcoran's, president and chief operating officer of
Lockheed Martin Space and Strategic Missile Sector, written
testimony of June 24, 1999, he stated: ``The terms of the
launch trade agreement have been fully complied with and the
trade criteria for lifting the quota have been met.'' With
regard to the trade agreement expiring on December 31, 2000,
what is the administration's position toward extending or
renegotiating a new trade agreement?
Mr. Trafton. Senator, I can't speak for the administration.
We are hopeful that the trade agreement is permitted to expire
without extension on December 31, 2000.
Senator Akaka. To combat the loss of critical technology
that occurred during the launches of U.S. satellites by Chinese
launch providers the Cox Committee recommended establishment of
a more robust domestic commercial satellite launch service
industry. Congress has enacted legislation and is working
actively on new legislation to aid U.S. industry in the
development of domestic commercial satellite launch services.
It is evident that Lockheed Martin, as part of a joint venture
with a Russian launch provider, would benefit financially by
raising the quotas. The question is, how do you see continuing
cooperation with Russia as benefiting the development of our
market and helping guard our national security interests in
regard to satellite launch technology?
Mr. Trafton. We have proven, I think, since 1993 that
Proton is a robust, reliable vehicle. It is well thought of in
the industry and it is key to meeting current demands for
putting satellites into Geo Transfer Orbit. It has been a very
successful joint venture. We at Lockheed Martin have absolutely
no evidence that our partners have done anything wrong with
regard to proliferation. We think as we approach the next
century in the space launch business that these two joint
ventures with the Russians, the Proton and the RD-180, are key
to bringing Russia into the $1 trillion global
telecommunications industry. That is good for us, and it is
good for the Russians. It keeps their engineers and scientists
occupied doing good things for the industry and not
proliferating. Frankly, it brings a source of revenue into this
country as well. A lot of Americans benefit from the LKEI joint
venture.
Senator Akaka. It appears Lockheed Martin is heavily
reliant on RD-180 as its booster rocket for the next generation
of Atlas rockets. I understand that the RD-180 is a high
performance booster and offers an increased capability for
Lockheed Martin's space launch services. The question is, has
the Russian Government or any Russian entities involved in
business relationships with Lockheed Martin discussed the topic
of tying continued cooperation with Lockheed Martin and use of
the RD-180 to the United States lifting or removing the launch
quota?
Mr. Trafton. Well, the Russians are watching the quota
issue very closely. As I have stated earlier, they are confused
by the inconsistency they see in U.S. Government policy with
regard to applying a trade agreement to another issue called
nonproliferation. We are relying very heavily on the RD-180.
Frankly, we anticipate success with the quota issue and we are
very hopeful that it will be resolved, and that on December 31,
2000, the trade agreement will be allowed to expire without
extension. That is key to the continued success of the Proton
side.
On the RD-180, again, now we are talking about transfer of
technology into this country of significant, valuable
technology that we don't have. The Russians don't have to do
that. They are wondering why it is taking over a year for us to
obtain a brokering license to advance them $25 million in order
to make some very basic improvements to their factories.
Senator Akaka. So what you are saying is this affects both
Lockheed Martin and ILS if the launch quota agreement remains
in place, that is, reviewed and renegotiated on a routine basis
as was done in the past?
Mr. Trafton. I think it will eventually cause a failure of
the joint venture. This continuous uncertainty will create risk
in the marketplace that satellite end-users cannot and will not
tolerate. They will go to other launch service providers. I
have heard the words, and they are very appropriate, that
``continuing the trade quota will eventually squeeze the life
out of this joint venture.'' This joint venture will not
survive.
Senator Akaka. I thank you very much for your responses.
Thank you very much, Mr. Chairman.
Senator Cochran. Thank you, Senator.
Thank you, Mr. Trafton, for your cooperation with the
Subcommittee and for your testimony.
Senator Cochran. We will now hear from our second panel of
witnesses. Our second panel includes Catherine Novelli,
Assistant U.S. Trade Representative for Europe and the
Mediterranean; Walt Slocombe, Under Secretary for Policy of the
Department of Defense; and John D. Holum, Senior Advisor for
Arms Control and International Security at the Department of
State.
We appreciate very sincerely the cooperation and attendance
at the hearing of our witnesses in this panel. We have asked
Ms. Novelli to lead off because the U.S. Trade Representative
undertook the negotiation of this trade agreement which was
described by our first witness.
So we ask Ms. Novelli to proceed. You may proceed in any
way you think would be helpful to the Subcommittee. Thank you.
STATEMENT OF CATHERINE NOVELLI, ASSISTANT U.S. TRADE
REPRESENTATIVE FOR EUROPE AND THE MEDITERRANEAN
Ms. Novelli. Thank you very much, Mr. Chairman, Senator
Akaka. I will just give brief oral remarks and then take your
questions however you would like to do that.
The first thing that I would like to say is that
international commercial space launch market and the
development of U.S.-Russia cooperation on commercial trade is a
very important issue for the administration. We have pursued
policies that are aimed at developing new, lower cost U.S.
space launch capabilities and leveling the playing field in
commercial space launch trade simultaneously.
Over the past decade, in particular, increasing commercial
demand for launch services, added on top of the already
existing government demand, has led to a marked increased in
the number of launch vehicles needed to supply the space launch
market. In that situation, U.S. launch vehicles have performed
very well in recent years in terms of market share. Our
vehicles accounted for 40 percent of the market for
internationally competed commercial launches in 1997, and 44
percent of the market in 1998, which is the largest percentage
of any one country. Launches, of course, are a means to an end
of supporting a high technology, high value global satellite
industry which U.S. firms traditionally have dominated.
Satellite firms take in billions of dollars of revenue annually
and employ tens of thousands of people in some of America's
highest paid, most skilled jobs.
The end of the Cold War brought new opportunities for
commercial partnerships between U.S. firms and economy in
transition countries, like Russia and the Ukraine. One of the
first of these opportunities was in the space launch area,
where Lockheed Martin sought to form a joint venture with
Russian rocket firms Khrunichev and Energia and created the
venture now known as LKE. LKE's plan was to offer the highly
reliable heavy lift Russian Proton vehicle for commercial
launches. Simultaneously with that, the United States responded
to the changing nature of the demand for space launch services
where there was more demand now for commercial launches, and to
the new opportunities that were created by these kinds of joint
ventures by beginning negotiations on bilateral commercial
space launch trade agreements with China, Russia, and then
finally Ukraine.
In order to prevent the disruption that these economies in
transition providers could produce in the commercial space
launch market, the agreements were built around core provisions
of a quota on the number of launches to Geosynchronous Earth
Orbit, or GEO, and price baselines of 15 percent below Western
price levels. So that if the price of an economy in transition
launch fell below the 15 percent price benchmark, the United
States had the right to hold immediate consultations with the
government that was involved. All these agreements now offer
economy in transition providers a potential or actual total of
20 launches to GEO. Launches to Low Earth Orbit, or LEO, are
treated less specifically because of the still evolving nature
of the demand for such launches.
We think that the agreement with Russia has in many ways
operated satisfactorily with respect to GEO. I think there is
no question that the LKE joint venture has prospered and moved
its pricing levels rapidly up to Western market levels, and we
don't foresee that there will be any disruption due to the LKE
joint venture in the GEO market.
With respect to the LEO launches, however, the situation is
not quite as clear. We have had some complaints from U.S. firms
that have alleged that the Russian ex-ICBMs could represent a
competitive threat to some U.S. small launch companies. There
is scant evidence of market disruption because there is an
uncertain situation in the LEO market right now. But we have
told the Russians that we want to continue talking about these
pricing issues, and they have agreed to do that.
Though the administration encourages innovative use of
space for commercial purposes, we remain deeply committed to
preventing the proliferation of technology which could help
spread the use of weapons of mass destruction. I know that my
colleagues from the State Department and the Defense Department
are prepared to address the nexus between nonproliferation and
our commercial space launch policy objectives.
One of the critical questions demanding attention as we
contemplate the future of the commercial space launch agreement
with Russia is the extent to which the continuance of our
existing policies, and in particular the quotas, will impact
the business prospects of U.S. space companies. USTR has been
conducting active consultation with U.S. space firms. Most of
the firms that we have talked to over the last couple of years
support significant liberalization or elimination of the use of
launch quotas as a tool for regulating the economy in
transition market behavior. There are many firms who are
concerned that maintaining a tight quota on Russian launches
will jeopardize a number of the LKE's existing contracts,
pushing those customers towards European or perhaps even
Chinese rockets as the only available avenue to Geosynchronous
Earth Orbit in the immediate future. In the longer term, U.S.
satellite firms fear that unavailability of Proton rockets for
U.S.-built satellites could give a competitive advantage to
European satellite makers.
Just this month, as you know, the administration decided to
modify the space launch agreement with Russia to allow four
more opportunities to launch commercial payloads to GEO,
bringing the GEO quota for Russia up to a total of 20 launches
through the end of 2000. This decision was made in part in
response to the positive Russian moves in the proliferation
area. Beyond this, the administration is actively examining all
issues relating to the question of what U.S. policy should be
once the commercial space launch agreement with Russia expires
at the end of next year. As always, the impact of our
commercial space policy on our proliferation objectives will be
one of our key concerns.
For its part, USTR plans to continue its consultations with
the private sector, with you in the Congress, and throughout
the administration interagency in the coming months as it
prepares recommendations on what the appropriate options should
be. We look forward to working with you and the other Members
of this Subcommittee, and we hope that we will be able to find
the appropriate balance that ensures the future health and
growth of the American space industry--launch providers,
satellite producers, and providers of satellite base services--
and also meets our overall national security, foreign policy,
and economic interests. Thank you.
Senator Cochran. Thank you, Ms. Novelli.
I think we will go ahead and hear from the other members of
the panel and then we will have an opportunity to ask questions
of you as a group.
Secretary Slocombe, you may proceed.
STATEMENT OF HON. WALTER B. SLOCOMBE,\1\ UNDER SECRETARY FOR
POLICY, DEPARTMENT OF DEFENSE
Mr. Slocombe. Thank you, Mr. Chairman. As always, it is an
honor to appear before this committee, in this case to address
the national security implications of the space launch policy
issues that are the subject of the hearing this afternoon. You
have my full statement and, with your permission, I will
summarize it.
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\1\ The prepared statement of Mr. Slocombe with an attachment
appears in the Appendix on page 43.
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It is a pleasure to be here with representatives from the
Department of State and USTR. As the Defense Department
representatives, I will obviously focus on the national
security aspects of these issues. But I think it is fair to say
that, although all the Executive Branch agencies involved in
formulating space launch policy approach the subject from
somewhat different institutional viewpoints, we do agree that
ultimately national security considerations have to take
priority.
In order to protect the U.S. space launch industry
initially from predatory pricing, the quota arrangements were
negotiated to establish price discipline on launch providers in
non-market economies. Those apply to Russia, China, and
Ukraine. As I understand it, the Ukraine quota doesn't have
much impact in the real world because of limits on capacity,
and the issues having to do with Chinese satellite launches
are, perhaps mercifully, not before us this afternoon. And so
the issue is the Russian quota.
I have read prior testimony from Lockheed and other
business representatives and listened carefully to Mr.
Trafton's statement. I think we understand fully the position
of Lockheed Martin, which I take to be broadly representative
of the industry view, that the concern about predatory pricing
that was the initial reason for the quotas and the limitations
on the number of launches no longer apply. That said, it is
also clear that the arrangements have made possible a good
cooperation and partnership between American industry and
Russian firms and entities, and have made possible the entry in
an orderly way of the Russian launches into the international
market and have promoted responsible market conduct.
But the quota arrangements and, in general, the restriction
on dealings in satellite launch technology also have a foreign
policy dimension which goes beyond their economic purpose. The
quota system continues to be an element in our nonproliferation
goals. I want to emphasize it is far from being the only
element. First of all, we have a comprehensive licensing system
which would apply to all these transactions with or without a
quota arrangement.
Second, there is a complex of Executive Orders and statutes
which require that sanctions be imposed on Russian entities
that are involved in improper transfers of technology to Iran
or, indeed, to certain other countries of concern and we have
invoked those provisions as appropriate. We have also made the
issue of proliferation a major focus of all of our contacts
with the Russian Government. It remains at the top of the U.S.-
Russian agenda.
In December 1998, the administration affirmed that the
United States would not increase the then current launch quota
for Russia without improved efforts on the part of the Russian
Government to halt missile proliferation, particularly to Iran.
In pursuance of this policy, we imposed tough trade penalties
against ten Russian entities with respect to which we had
specific and credible information that they were transferring
missile technology to Iran.
We continue to be concerned about the problem of transfers
of missile technology from Russian entities to Iran. Our
approach has yielded some success and has produced
modifications in our policy. The steps the Russian Government
have taken are represented by the new Stepashin government
putting in place tough new nonproliferation policy, creating
institutional foundations to implement that policy, and passing
Russian domestic laws that punish wrong-doers. Those steps are
specified in the full statement.
Given these developments, the President decided earlier
this month to increase incrementally the quota to allow the
launch of four additional U.S. satellites on Russian launchers
through the LKEI arrangements beyond the 16 previously
authorized. We are not, however, prepared at this point to
dispense with the quota arrangements altogether. We are
conscious of the need to balance our nonproliferation interest
against the potential impact on U.S. space launches. We believe
we have struck an appropriate balance by, in effect, keeping
the launch quota well ahead of current contracts. However, I
understand and respect the point that Lockheed Martin has made
about the long term impact on their ability to negotiate future
contracts, and we will bear that very much in mind as we
consider both the specific policy with respect to quotas and
the broader question of what to do as we look toward the
expiration of the current agreement.
Now, turning to the RD-180, there is no question that the
RD-180 engine is an important element of our domestic space
launch policy. From the point of view of the Department of
Defense, it is extremely important to have a strong domestic
space launch industry. That industry cannot continue to rely
entirely on government launches. It is also for very standard
competition reasons in our interest to have two potential U.S.
suppliers engaged in the business. And two are engaged--Boeing,
which has a developmental engine, and Lockheed Martin, which
has the RD-180 arrangement. It is also a matter of very
strongly held policy that U.S. Government launches should not
be dependent on the continued willingness of any foreign
supplier to supply the launch technology. Therefore, there is
an important link between our domestic space launch industry
and the RD-180 deal.
I have to say that I think the link between our current
constraints on the number of launches, the quotas essentially,
and the RD-180 deal is not a direct one. We don't dispute the
concerns that Mr. Trafton raises, but the RD-180 deal and the
space launch arrangements in Russia are quite separate
arrangements, both as a business and as an economic
proposition. Obviously, the quotas don't restrict the RD-180
purchase.
There is this brokerage license issue which is directly
related to the transfer of the technology to allow the RD-180
to be manufactured in the United States. That license is
currently under review at the Department of State and approval
will depend on assessment of relevant nonproliferation
considerations.
In sum, there is a complex relationship between our
commercial space launch policy, the defense-industrial base,
and the related issue of the domestic launch industry and U.S.-
Russian engagement to try to deal with the proliferation
problem. We believe that we have struck the right balance at
this point between the legitimate needs of our domestic
industries and our insistence on providing effective safeguards
and using appropriate leverage to attempt to restrict the
proliferation of sophisticated launch technology, particularly
to Iran.
With that background, I look forward to answering the
Subcommittee's questions.
Senator Cochran. Thank you very much, Secretary Slocombe.
Mr. Holum, you may proceed.
STATEMENT OF JOHN D. HOLUM,\1\ SENIOR ADVISOR FOR ARMS CONTROL
AND INTERNATIONAL SECURITY, DEPARTMENT OF STATE
Mr. Holum. Thank you, Mr. Chairman. It is a pleasure to be
back before the Subcommittee. The quota for launches of
satellites to geosynchronous orbit on Russian boosters raises
complex issues that touch on our nonproliferation objectives,
our space launch and satellite industries, and on the
integration of Russia's space sector into the international
economy. I welcome the opportunity to address these issues with
you today.
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\1\ The prepared statement of Mr. Holum appears in the Appendix on
page 80.
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The space launch quota was part of the solution to a
nonproliferation problem we faced in the early 1990's. At that
time, a Russian company had a contract to sell production
technology for cryogenic rocket engines to India for a space
launch vehicle. Transferring missile technology to India was a
sensitive nonproliferation issue then, as it remains today.
Following intense, high level negotiations, an agreement
was reached in which Russia agreed to cancel the contract to
transfer rocket engine production technology to India and to
abide by the Missile Technology Control Regime guidelines, and
the United States agreed to permit Russia to launch U.S.
satellites to geosynchronous orbit, subject to a quota. That
quota is now 16 through the year 2000, and the administration
has decided, as you have heard, to increase the quota to 20.
At the time of the 1993 agreement, the purposes of the
quota were to protect the U.S. space launch industry from
unfair competition from a non-market economy as we worked to
allow the U.S. satellite industry the benefits of access to
Russian launches, and to give Russia access to the space launch
market in return for important nonproliferation commitments. It
also made sense from a nonproliferation point of view to engage
thousands of high-tech scientists and engineers in legitimate
commercial activity in one of the few areas in which Russia has
world class technology. We made clear to the Russians at the
time that the continuation of the space launch agreement was
contingent on Russian missile nonproliferation behavior.
Today the market for space launch has grown substantially
beyond what it was in 1994 and the commercial rationale for
quotas is much less than it was then. But the nonproliferation
problem is very much still with us, in particular, Russian
transfers of missile technology to Iran, and I know I don't
have to underscore the seriousness of that problem with you,
Mr. Chairman, or Senator Akaka. We have devoted a great deal of
effort over several years to halt cooperation between Russia's
aerospace industry and the Iranian missile program. First,
Frank Wisner, and now Bob Gallucci have led teams that have
engaged in intensive exchanges with the director general of the
Russian Space Agency, Mr. Koptev.
This issue remains at the top of the U.S.-Russian agenda,
and our concerns have been addressed numerous times by
President Clinton and President Yeltsin, most recently at the
G-8 summit in Cologne last month. Vice President Gore has made
this a major issue with a series of Russian prime ministers,
including Mr. Stepashin, and plans to address the issue in
their meetings next week. As part of the administration's
effort on nonproliferation, Secretary Albright, National
Security Advisor Berger, and other senior officials actively
engage their Russian counterparts on the Iran missile program
at every opportunity.
This intensive effort has achieved some important results,
the most important of which is the passage of new export
control legislation by the Duma and the Federation Council in
the last few weeks. The new law provides a strong legal basis
to stop transfers and punish violators. The Russian Government
has also committed itself to implementation of a plan of
action, drawn up by Gallucci and Koptev, designed to bring
about an end to cooperation between Russian entities and the
Iranian missile program.
A key element of our nonproliferation strategy was our
decision in early 1998 to tie an increase in the space launch
quota to Russian performance on curtailing missile cooperation
with Iran, just as we tied the original quota to Russian
performance on missile cooperation with India. Our strategy
includes other elements, including the trade penalties we have
imposed on ten Russian entities for missile and nuclear
cooperation with Iran.
We believe it is both logical and in our security interest
to control Russian access to the U.S. space launch market as
long as Russian aerospace companies are cooperating with the
Iranian missile program, and to encourage commercial space
ventures consistent with our nonproliferation objectives. By
providing both incentives and penalty, our policy is intended
to encourage the Russian Government to police the Russian
aerospace industry. So here's the crux of the matter: We do not
want to wind up with a situation in which some Russian
companies are responsible and work with the United States and
others remain free to contribute to Iran's missile effort.
Again, our policy is aimed at the organization that can resolve
this across the board, and that is the Russian Government.
Our decision to increase the space launch quota was taken
not because the Russia-Iran missile problem has been solved,
but because the Russian Government has taken steps in recent
weeks to support a strong nonproliferation policy and direct
government agencies to implement it, to create institutional
structures to enforce compliance and strengthen export
controls, and to pass laws needed to punish wrong-doers. But we
need to sustain the pressure, to use these new tools to curtail
technology transfers to Iran. That is why our increase is
incremental, to give the Stepashin government time, perhaps
another 6 months, to follow through on the commitments it has
made to us.
We remain hopeful that our strategy will in the end give us
both the nonproliferation benefits of a cutoff in assistance
from Russian entities to the Iranian missile program and the
commercial and nonproliferation benefits of a strong commercial
partnership between the United States and Russian commercial
space industries. There are, of course, risks. But we continue
to pursue an outcome that achieves both of these benefits for
the United States. Thank you, Mr. Chairman.
Senator Cochran. Thank you, Mr. Holum.
Ms. Novelli, the principal objective of the trade
agreement, as I understand your testimony, was to ensure that
Russian launches of payloads into GEO orbit were priced at the
prevailing market rate, or within 15 percent of that rate. Has
the launch agreement achieved that purpose?
Ms. Novelli. With respect to Russia, Mr. Chairman, we
believe that the launch agreement is operating to achieve that
purpose, and that LKE, because they are in a joint venture, has
greatly helped that situation by having U.S. pricing methods
laid on top of what the Russians would normally do. So, we do
believe that that purpose is being achieved, which was one of
the purposes of the agreement.
Senator Cochran. What were any of the other purposes that
we don't know about? I thought that the purpose of the
agreement was to guard against predatory pricing.
Ms. Novelli. Yes. Of just the NIRO agreement per se, yes.
That was how we were trying to balance our own defense
industry's launch capability with the needs of our satellite
community from a strictly commercial purpose. But the link with
nonproliferation is part of the whole commercial space launch
policy. But the provisions of the agreement per se were aimed
at ensuring that there was not predatory pricing or detriment
to our own domestic industry which was trying to launch
satellites.
Senator Cochran. That was the principal objective, isn't
that correct, of the agreement?
Ms. Novelli. Yes.
Senator Cochran. Mr. Holum, given that the principal
objective of the agreement, as we have established, has been
met, specifically that Russia has complied with the pricing
condition in the agreement, what is the justification for
continuing to impose quota restrictions on this commercial
launch venture?
Mr. Holum. Well, as I said in my statement, we tied this
agreement and our entire space launch policy in Russia to
nonproliferation as well as to the commercial aspects. We made
that clear at the time. And as Under Secretary Slocombe has
noted, we have, irrespective of the quotas, a licensing
requirement for commercial satellite launches in Iran that is
obliged to take into account----
Senator Cochran. Not Iran, we don't do that.
Mr. Holum. I mean in Russia, a licensing requirement that
is obliged to take into account nonproliferation concerns. The
reason we have employed this in particular is that we need the
incentives to flow to the right people in Russia to control
exports of missile technology to Iran. The Russian Space Agency
needs to be a believer. We have made de marches at all levels
to the Space Agency and to other parts of the government and
find that the effect of words, even at the highest levels, are
insufficient. Costs to enterprises in the space sector in
Russia get the attention of the Russian Space Agency, and
therefore we have, as we have seen in recent weeks, begun to
see some progress. I think there is a connection.
Senator Cochran. Is there a connection between a commitment
by the new Russian prime minister to the lifting of the quota,
was that the action that you are talking about, a verbal
commitment that he would work more effectively to control
proliferation to Iran?
Mr. Holum. Well, there are a series of tangible steps. One
of the reasons why we have made this incremental is it is
largely verbal at this stage and we want to make sure that it
works. The tangible step that has been taken is the adoption,
with strong support from the government, of the new export
control law which includes criminal penalties for entities that
make these transfers, including individual penalties.
Senator Cochran. Isn't it also true that neither one of
these entities who are involved in the joint venture have been
involved in any proliferation activity with respect to Iran's
missile or weapons program?
Mr. Holum. That is, so far as we know, correct. We have
made no suggestion that they have been involved. But my concern
is that we don't want to set up a situation where some
companies are free to trade with Iran and others aren't because
the government is only regulating the ones that are dealing
with the United States.
Senator Cochran. But neither Khrunichev nor Energia, as I
understand it, is involved in proliferation. Therefore, why is
the administration singling out these companies to impose
quotas on in their transaction with Lockheed Martin?
Mr. Holum. Because we want the government to take action.
And the way to provide an incentive for the government to act
across the board against all of the aerospace companies in
Russia is to deny or limit the benefits of commercial space
launches.
Senator Cochran. Does this not operate in your view as a
disincentive for good behavior if you penalize companies that
are not engaged in proliferation?
Mr. Holum. No, I don't think it does. First of all, we are
doing this in a calibrated way. As of now, no agreed contracted
space launch has been refused. But we do need to keep the
leverage in place to encourage the government to adopt and
implement the appropriate policies.
Senator Cochran. Aren't there actions that could be taken
other than this? Is there no other leverage available to our
government that would motivate Russia to do a better job of
controlling proliferation?
Mr. Holum. Well, as I said in my statement, we are taking
other actions. We have targeted the companies that are
specifically involved that we have identified and have strong
evidence with regard to with trade and administrative actions.
We have, under the terms of last year's appropriation act,
refused to certify Russia as being compliant with requirements
on missile and nuclear proliferation and therefore have
withheld or have had the effect of redirecting 50 percent of
Freedom Support Act funds to Russia, redirecting those funds to
other countries. So there are other areas where we are applying
leverage.
But I continue to maintain that the most effective single
element we have, our greatest ability to influence the
Government of Russia to apply strict controls across the board
on the aerospace industry, is the space launch quota.
Senator Cochran. Secretary Slocombe, do you view
continuation of the Russian launch quota as the best
nonproliferation tool available?
Mr. Slocombe. I don't think it is the best but I do think
it is, under present circumstances, a legitimate part of a
range of instruments that we have to try to influence the
actions of the Russian Government.
Senator Cochran. Mr. Trafton testified that the ability of
Lockheed Martin to acquire the Russian RD-180 engine would
become highly questionable if the LKEI joint venture collapses
from the weight of the quota issue. He also said that Lockheed
Martin couldn't compete in the Defense Department's Evolved
Expendable Launch Vehicle program without this RD-180 engine.
How important is this program to the Defense Department?
Mr. Slocombe. It is very important to the Defense
Department.
Senator Cochran. Is the RD-180 engine more capable and more
advanced than any heavy lift engine produced in the United
States?
Mr. Slocombe. My understanding is that that is true as of
now. Presumably the Boeing competitor would seek to meet that
requirement as well. But certainly, as of now, that is the
case, as I understand it.
Senator Cochran. What would be the impact to the Defense
Department of losing Lockheed Martin participation in the EELV
program?
Mr. Slocombe. As I said in the statement, we believe it is
advantageous from the point of view of the Department of
Defense and the taxpayer that there be two competitive U.S.
companies participating in the program. So, therefore, we would
not want to see Lockheed Martin drop out of the EELV program.
Another company might decide to come in, but we certainly would
not like to see Lockheed Martin drop out.
Senator Cochran. Ms. Novelli, you heard the comment I think
Mr. Trafton made in his statement or in answer to a question
that I asked about one of the likely outcomes of the
continuation of the quota system to be the gain of market share
from U.S. industry by the French company Ariane space. How else
would you expect the U.S. commercial space launch industry to
be affected by the continued use of the quota as a
nonproliferation tool?
Ms. Novelli. Mr. Chairman, I hope that we will be able to
strike a balance so that we are not in a situation where there
is any adverse effects on our commercial space launch
capabilities or industries. I think that when we did these
agreements and looked at the number of launches, and also with
the EELV coming on line, we feel that we should be in a pretty
good situation for meeting demands of our satellite industry
and of U.S. launchers being able to launch satellites for the
future. At this moment, in terms of demand, while it is true
that there has been an increased demand for launches, there is
not a situation right now where even the automatic triggers of
the agreement are triggered for raising quotas. They are based
on the number of commercial launches that are done worldwide,
an average of those being 24, and we are not close to that
average; we are only at an average of 21 right now.
Senator Cochran. What do you expect will happen when the
agreement expires December 31, 2000? What do you expect will
happen regarding Russian launches of U.S.-built satellites? Is
there any authority to prohibit them, for example?
Ms. Novelli. In terms of what we think will happen, we
recognize that we need to come up with a plan of how we are
going to deal with this at the end of the year 2000, and that
is why we have begun consulting with our industry and
interagency to discuss what should be the next steps. So it is
hard for me to say exactly what those will be since we haven't
reached any decision yet.
Senator Cochran. Are you surprised to learn as a result of
this hearing that this cloud of uncertainty that has been
created by the quota imposition and the future of the quotas
has so adversely affected the ability of this company to get
any future business even beyond the expiration date of the
agreement?
Ms. Novelli. I was aware that they were having trouble
selling more launches because of the uncertainty regarding
quotas. So it was not surprising.
Senator Cochran. Is it the policy of the U.S. Trade
Representative of the United States to take actions or
participate in the development of policy that makes it harder
to do business by American companies with legitimate foreign
businesses that are not engaged in any kind of illegal conduct?
How do you justify that as an agency of the U.S. Government?
Ms. Novelli. Obviously, it is not our policy to try to make
it harder for companies to do business. We are one element in
decision-making in the administration and there are, as my
colleagues have said, many interests that the U.S. Government
has, including nonproliferation interests, and those interests
all have to be brought to bear in making any kind of decision
on commercial space policy.
Senator Cochran. Secretary Slocombe, does working with
Russian companies like Khrunichev and Energia make it less
likely that they will engage in missile proliferation with Iran
or other rogue states?
Mr. Slocombe. I think it does, for two reasons. One is
negative. That is, if they have a substantial commercial
relationship with the United States, then the sanctions which
would be imposed if they did engage in missile proliferation
with Iran would have real bite to those companies as such. And
second, there is an obvious affirmative advantage in providing
legitimate work for Russian companies with technological
expertise to allow them to work on these projects, rather than
something illegitimate.
Senator Cochran. We have spent about $2 billion in U.S.
taxpayer dollars for the Cooperative Threat Reduction program,
the Nunn-Lugar program, or now, since Senator Nunn is no longer
here, it is the Lugar-Nunn program.
Mr. Slocombe. I thought that happened in 1994.
Senator Cochran. Well, it did. But some of this money is
used to do exactly what we are seeing done by Lockheed in this
joint venture, and that is to engage space and defense workers
in Russia in legitimate economic activities that don't threaten
the security interests of the United States. It seems to me
that this sort of activity ought to be rewarded and not
punished or penalized or made more difficult. Doesn't working
with companies like this on this cooperative launch venture
accomplish the same kinds of goals, and not at government
expense, without the use of tax dollars?
Mr. Slocombe. It does, there is no question about that. But
that does not entirely answer the question of whether
maintaining the quota system as one of our sources of
incentives or disincentives is appropriate. But I agree, this
is a creative program. It is the reason that we agreed to the
agreement in 1993 when we did.
Senator Cochran. It is my understanding that many national
security related problems have resulted from launching U.S.-
built satellites in foreign countries such as China. Does the
Defense Department regard the EELV program as one way to
decrease reliance on foreign launch and thus more easily
safeguard U.S. technology and control that technology to serve
our security interests?
Mr. Slocombe. First of all, from the point of view of the
Department of Defense, we absolutely do not want to be in the
position where the launch of military or other government
payloads would depend on the continuing availability either of
foreign launch services, in the sense that the launch took
place in a foreign country, or of a foreign product, as will be
the case for the initial RD-180 launches, imports from Russia
or anywhere else. So it is extremely important from a Defense
Department and the broader government point of view that there
be a domestic industry that is not dependent on foreign sources
that can launch government payloads.
We also believe that given the changes in the market, that
industry is not going to be viable if it is dependent entirely
on U.S. Government launches. It needs to be able to compete and
operate in the commercial market as well.
Senator Cochran. Mr. Holum, the Arms Export Control Act was
amended in 1996 to add a munitions list licensing requirement
for brokering activities. We heard Mr. Trafton talk about the
fact that State Department interpreted this transaction between
Lockheed Martin and Energomash as a brokering arrangement. He
says it was like part of a transaction to buy the technology
and buy the engine. That this $25 million payment is going to
permit the company to upgrade and retool so that it can carry
out the transaction. It is not a relationship between Lockheed
Martin and some third party. How did the State Department come
up with this interpretation that requires a separate license
for that payment to be cleared? Isn't that a stretch?
Mr. Holum. I don't believe it is a stretch. But I will have
to provide for the record a detailed description of the legal
rationale.
[The information to be provided follows:]
Brokering Activities
Question: It is my understanding that this amendment was not
intended to cover activities in the normal course of ventures already
authorized by a Munitions List license, such as transferring funds
between or among joint venture partners. Is that your understanding as
well?
Answer: Yes. Payments made pursuant to the terms of contracts that
have been fully disclosed in a munitions license application would
rarely, if ever, require a separate brokering license. In formulating
the regulations to implement the brokering amendment to the Arms Export
Control Act (Public Law 104-164), the Department took great care to
limit the impact on routine business operations. As an example, the
requirement for prior approval (licenses) for brokering activities is
satisfied under the ITAR by ``a license or other written approval . . .
for the permanent or temporary export or temporary import of the
particular defense article, defense service, or technical data subject
to prior approval under this section, provided the names of all brokers
have been identified. . . .'' (22 C.F.R. Sec. 129.7(b)(1)).
Question: Can you explain, then, why the State Department has
required Lockheed Martin to obtain a ``brokering license'' to pay the
$25 million to Energomash, even though Energomash is Lockheed Martin's
joint venture partner in the acquisition of the RD-180 engine, and that
acquisition is properly licensed in and of itself?
Answer: Lockheed Martin is seeking authority to transfer $25
million in order to finance tooling and equipment (e.g., machine tools)
purchases abroad for the modernization of Energomash's rocket engine
production line in Khimki, Russia. This was not disclosed in Lockheed
Martin's April 1996 munitions license application for the cooperative
activities it is currently authorized to execute with Energomash.
Therefore, this activity was never licensed in and of itself. In fact,
the specific terms of Lockheed Martin's 1996 munitions license
expressly prohibit ``. . . any production process improvements;
including any production line management process/techniques that result
in production line efficiency improvements (i.e., greater throughput,
higher yields, lower cost per unit, etc.).'' The matter of a separate
contractual commitment by Lockheed Martin to finance the modernization
of the Khimki plant was not made know to the Department until 1998. It
has only been in recent months that the Department has received from
Lockheed Martin the names of the Russian and other foreign equipment
providers from whom the tooling and equipment are to be purchased in
order to modernize the Energomash plant. The Department believes that
financing of improvements to foreign military infrastructure, such as
rocket engine plants in Russia, is properly regulated through a
requirement for a brokering license in accordance with section 38 of
the Arms Export Control Act.
Among other things, section 38 of the AECA ensures that U.S.
defense firms do not, unintentionally, provide financial support to
foreign persons whose behavior may present proliferation concerns. As
an example, in this case, Lockheed Martin has already been informed
that one of its proposed equipment suppliers (Moscow Aviation
Institute) may not be involved in this activity.
Senator Cochran. Well the purpose, as I understand it, just
for the record, would be to help regulate activities that were
not captured by the prohibition on importing or exporting
defense articles and services without a license. My
understanding is the amendment sought to ensure that the
activities of international arms dealers acting as an
intermediary between two parties would be covered by U.S.
munitions list licensing requirements. I guess, to be on the
safe side, that my understanding of the industry's statement is
they asked the State Department if a license were required just
to check, and the State Department says, well, as a matter of
fact, yes, a license is required. They didn't think it was but
they asked. And so they are complying with the interpretation
by sitting and waiting, and they wait, and they continue to
wait.
It is my understanding that this amendment was not intended
to cover activities in the normal course of ventures already
authorized. This transaction was already authorized by a
munitions list license. That's the point. They applied for a
license to engage in the transaction. That was granted. Now
they make a payment under the agreement, they stop and say we
better check and be sure this doesn't require a separate
license, and they get back, oh, yes, it does. It is an almost
Kafkaesque experience. That is my reaction to it anyway. I may
be totally wrong.
But you are going to supply an answer and an explanation
for that for the record.
Mr. Holum. Yes. I will supply a more detailed answer.
Senator Cochran. How many brokering licenses, while you're
at it, have been applied for, and how long did it take to grant
them?
Mr. Holum. I can provide that. I don't know the answer.
[The information to be provided follows:]
Brokering Activities
Question: How many brokering licenses have been applied for and how
long did it take to grant them?
Answer: Since enactment of the brokering amendment to the Arms
Export Control Act (Public Law 104-164), there have been 329 requests
for brokering licenses or for advisory opinions as to whether a
brokering license would be required. The time required for approval has
ranged from a few days to 180 days for more complex proposals.
Senator Cochran. And what criteria are being used by the
State Department to determine whether a brokering license is
required or not in the payment for services or in payment under
an agreement which has already been licensed?
Mr. Holum. I will supply that.
[The information to be provided follows:]
Brokering Activities
Question: What criteria are being used to determine whether a
brokering license is required or not?
Answer: The criteria for when a brokering license is required are
set forth in considerable detail in the International Traffic in Arms
Regulations at Sec. 129. generally, only brokering activities
pertaining to certain defense articles involving countries other than
members of the North Atlantic Treaty Organization, Japan, Australia and
New Zealand, require a separate license. That is because the Department
specifically sought to avoid unnecessary regulation of routine business
transactions involving U.S. friends and allies when the underlying
transactions were already properly disclosed and approved. Accordingly,
the regulations provide a variety of ways by which the requirements of
the law may be satisfied without need for a separate brokering license.
Senator Cochran. Senator Akaka.
Senator Akaka. Thank you very much, Mr. Chairman. I want at
this time to thank you for holding this hearing on the Russian
space launch quota, which has implications for commerce in our
country and proliferation of weapons of mass destruction. I
will be very brief.
Mr. Slocombe, did the threat in December 1998 to increase
the launch quota have a major effect on having the Russians
take their recent actions in export controls?
Mr. Slocombe. Senator Akaka, I would associate myself with
what Secretary-designate Holum said, which is that I believe
the quota is a way, in effect, of getting the attention of the
authorities in Russia who are responsible for the overall
Russian space effort directed to this problem that we are so
concerned with. So I think it did have a favorable effect.
Senator Akaka. Mr. Holum, on January 28, 1998, the United
States sanctioned seven of the Russian entities believed to
have assisted Iran's missile program. About a year later, on
January 12, 1999, the Clinton Administration announced economic
sanctions against three more Russian entities for sharing
nuclear missile technology with Iran. Has the Russian
Government taken any action against these entities? And if so,
what actions have they taken?
Mr. Holum. They have taken action to the extent of
commencing their own investigation with reference to these
various entities. Eight of them were engaged, by our
information, in missile cooperation, and two in nuclear. But
the Russian Government has been investigating those cases and
made a public announcement to that effect.
Senator Akaka. Mr. Chairman, those are my brief questions.
Thank you very much. Thank you for the responses.
Senator Cochran. Thank you very much, Senator.
Senator Cleland, one of the very important Members of this
Subcommittee, we welcome you and recognize you for any comments
or questions you might have.
OPENING STATEMENT OF SENATOR CLELAND
Senator Cleland. Thank you very much, Mr. Chairman. Thank
you for our distinguished panelists today.
I tell you, it has been fascinating the last 2\1/2\ years
to sit here in this Subcommittee that deals with proliferation
issues and also the Postal Service. I came in here 1 day not
knowing whether I was dealing with nuclear proliferation and
found that the Postal Service was here, and I told them that
when they tried to shut down the post office in my home town,
then that was nuclear proliferation. [Laughter.]
Senator Cleland. But it does seem to me that in terms of
space launch or satellite launch capacity, when we tried to
broadside, particularly through the Hughes experience, and I
guess it was Loral, too, that we had some problems with the
Chinese, that this seems a little bit different here. It does
seem that Lockheed has got a good argument here. I kind of feel
like I echo the sentiments of Mr. Trafton that this is not only
of critical importance to Lockheed and international economic
viability, but their ability to provide the space launch
services to the commercial satellite market. I think U.S.
national security interests are at stake, too. But I think they
are, quite frankly, enhanced by the Lockheed venture with its
Russian partners.
I just have a couple of questions.
Mr. Slocombe, it seems to me that it is in the best
interest of the Pentagon and our national security to have a
U.S.-based company such as Lockheed in a partnership with the
Russian launch industry as opposed to maybe a French company in
such a partnership. Is that your feeling?
Mr. Slocombe. It is. And it is the reason that the
Department of Defense supported the 1993 arrangement and
continues to support it.
Senator Cleland. Is the Pentagon gaining any insight into
the Russian aerospace industry through these joint ventures,
especially with what I am told is the RD-180 engine joint
venture in which technology flows from Russia into the United
States? Are we gaining in this arrangement?
Mr. Slocombe. This is an interesting example of a reverse
technology transfer. For the reasons that Mr. Trafton
explained, which I think correspond to the analysis of our
experts, the RD-180 engine is a unique capability in terms of
what is presently available in the world, and the access to
that capacity is important to the domestic launch industry for
supporting both military and other government and commercial
launches in the United States.
Senator Cleland. Yes, sir, I think so and I agree with that
point of view.
Another point I would like to just mention, I guess it is
sensitive too, since I sit in Senator Nunn's former seat, I am
not sure I am up to that task, but it did seem like it was in
the national security interest for the Lugar-Nunn legislation
to go through. I think it has been very successful. It is
interesting, I understand Lockheed Martin's joint venture in
Russia actually employs about 100,000 Russian scientists,
technicians, and engineers. What do you believe would be the
consequences for these workers should the United States not end
the quota? Would there be a risk that some of those people
would not be employed and might be courted by rogue nations
such as Iran, Iraq, and North Korea, and actually enhance the
chances for proliferation of nuclear technology?
Mr. Slocombe. We certainly see advantages to having the
Russian scientists, engineers, and technical people employed on
legitimate activities. They are now employed under the quota
system and I wouldn't necessarily agree with the proposition
that simply continuing the quota system would mean that they
would go off and do other work. But one of the reasons why we
have supported these arrangements is exactly the point you
make, that it is very much in our interest that the Russian
space industry work on legitimate activities, preferably in
partnership with Western, and particularly American,
organizations, rather than go do things that would cause us
very serious proliferation problems.
Senator Cleland. If these positives that we just talked
about are there, what is the rationale for the quota system? I
am not sure I am clear on that. Ms. Novelli, would you like to
try to take a stab at that? What is the rationale, the
justification for quotas being established? Why not lift the
quotas and magnify some of the pluses we discussed here?
Ms. Novelli. Well, the agreements, when they were first
negotiated, were negotiated in a very different commercial
environment, Senator, and they were negotiated in an
environment where we had many more providers of commercial
launch services and where the commercial space launch portion
of the industry hadn't really taken off. So there was less
demand and more supply and there were these new suppliers who
wanted to come into the market. So there was a fear that
because they were coming in as non-market economies at the time
that they would be able to not only price very low because they
didn't have to meet normal pricing, but also that they would
create a glut of supply on the market and depress prices as
well. So that is why the quotas were establish, to provide an
ability for these countries to actually play in the market but
not kill off our own domestic launchers. When they were
established we were just in a different situation.
The situation has changed. The agreements are due to
expire, the Russian one at the end of 2000, Ukraine and China
at the end of 2001. That is why we are examining right now what
should our next steps be in light of all of our concerns,
including the fact that the market has changed dramatically.
Senator Cleland. Yes. It does seem to me that every
American now wants to go into their own internet company and
have their own satellite. My understanding is that there is
much more demand out there now for commercial satellites.
Ms. Novelli. Yes.
Senator Cleland. I sit on the Telecommunications
Subcommittee of the Commerce Committee and the whole
telecommunications world is exploding. It seems to me it would
be in our interest as a Nation to have some capability here,
especially with an American company like Lockheed partnering
with the Russians, and it would be in our interest to take a
new look at this when this expires. Do you see that, with
seeing the market change and that now there is more demand than
I think supply, that it would be in our interest to maybe think
of a new arrangement where there might not be a quota with the
Russians in this particular arrangement?
Ms. Novelli. Mr. Senator, our national space policy
contemplated the fact that we were going to have to basically
rethink what we were going to do when these agreements expired
and set forth the fact that we were going to have to have some
sort of transition policy so that we would be able to deal with
the fact that the market is changing. That is why we are
currently beginning discussions of how we are going to deal
with this change and balance all of our other priorities that
we have.
Senator Cleland. Mr. Holum, any comment on some of the
things we've been talking about here--changing markets,
shifting from the original agreement? Does that bring forth to
your mind a need to look at some of these arrangements anew?
Mr. Holum. Well, we'll certainly look at it again, we will
be obliged to when the agreement expires. But let me underscore
that we have two goals here. One which we all support, the
administration strongly supports, is this space launch
cooperation with Russia and with these particular companies. We
have supported it, we think it is good, we think it should
continue. At the same time, we have got a deep concern about
the spread from Russia of missile technology to Iran, not by
these companies but by other companies in Russia.
We need to figure out a way to have leverage over the
Russian Government to induce it, to give it incentives to
strengthen export controls, to lay down the law, to police the
entire industry, all of the companies that have this technology
to transfer. Sanctions generally are a blunt instrument; they
are difficult to deal with, they are inherently hard to
calibrate. You either have blow-back on our interests, if they
are effective, because they are usually involving trade with
the United States, or they don't have any effect on the target
because there is no meaningful trade there. But sanctions are
an indispensable part of our nonproliferation strategy
internationally. They are not the only tool we use. We use a
whole range of things, including positive incentives. But
sanctions are a crucial part of what we need to do.
In this case, I think the sanctions are appropriately
directed to get the attention of the people who administer, who
have responsibility over the entire Russian space industry.
What we are trying to do is reward positive progress on
proliferation behavior, and there has been some lately, by
increasing the quota, by allowing it to go up, but to not throw
away the leverage because we want to make sure that those
promised steps are fully implemented, the export control plans
in the companies, the implementation action plan that they have
agreed to but haven't yet implemented. So we have got a 6-month
breathing space now by raising the quota to see if those
commitments are in fact carried out. And if they are, then we
will have a more positive environment. So it is a balancing act
that we are trying to maintain, with full support, with a
strong belief in what Lockheed and their partners are engaged
in here, but also with a strong commitment to have an impact on
our nonproliferation objective.
Senator Cleland. So this is caught up in the sanctions, the
whole relationship with Russia and the proliferation policy
over the technology leaking out to other rogue nations. Did I
hear you say that there was a 6 month----
Mr. Holum. Well, we have raised the quota from 16 to 20,
and our anticipation is that that will take launches through
roughly a 6-month time period. There won't be any inhibition or
prevention of launches during that period and that will be some
time for the Russian commitments recently made and the new
export control law recently enacted to be fully implemented.
Senator Cleland. So there might be some hope if we get some
positive response from the Russians that we might be able to do
better with the quota after 6 months?
Mr. Holum. I certainly hope so. It is not my objective to
infer with this business, but it is my objective, it is our
objective as an administration to do all we reasonably can to
cut off this deadly cooperation in missile technology between
Russian entities and Iran. And we don't have a lot of
opportunities to apply leverage.
Senator Cleland. And this is somewhat the carrot I guess.
Mr. Holum. Precisely.
Senator Cleland. I think this is a fascinating subject, Mr.
Chairman, and I appreciate your holding this hearing and I
appreciate our panelists being here and engaging this quite
impressive conversation. I think it is in our Nation's interest
to make sure that we do all we can with our Russian partners
along these lines. Thank you very much.
Senator Cochran. Thank you, Senator, for your contribution
to the hearing. We appreciate it.
We thank the witnesses for testifying today. There are very
few issues our government must contend with that are more
important than how our government can effectively act to halt
missile and missile technology transfers from Russia to Iran. I
am convinced that among all who are involved, Congress, the
administration, and U.S. industry, we can all agree that the
U.S. Government must try its best to persuade the Russian
Government to do a far better job of stopping the assistance
that continues to flow from Russia to Iran's ballistic missile
program.
But I think today's hearing makes clear there is a major
disagreement within our government over how we can best
persuade the Russian Government to act. If there is sufficient
evidence to impose sanctions on Lockheed Martin's joint venture
partners, sanctions should be imposed. What the administration
is doing, however, is imposing sanctions through the use of the
commercial space launch quota contrary to the trade agreement's
principal objective.
The administration may mean well, but here are the real
effects of the administration's approach:
First, Russian companies not engaged in proliferation are
being punished for proliferation while other entities we know
are involved in proliferation are not punished.
Second, a legitimate, mutually beneficial U.S.-Russian
joint venture could be driven out of business. If it collapses
under the weight of these quotas, an American company will end
up penalized and the Russian companies will obtain other
partners, most likely from France. The leverage the
administration says it needs to pressure Russia will disappear.
And third, the United States likely will lose the
opportunity to acquire the world's best heavy rocket engine,
the RD-180, along with related technology only the Russians
have. Loss of the RD-180 will harm the Defense Department's
Evolved Expendable Launch Vehicle program and America's
commercial space launch industry. The RD-180 will be sold
probably to some other foreign customer, and only the United
States will lose in that event.
I urge the administration to reconsider its policy.
The hearing is adjourned.
[Whereupon, at 3:45 p.m., the Subcommittee was adjourned,
to reconvene at the call of the Chair.]
A P P E N D I X
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