March 17, 2000

March 17, 2000 | Lecture on Trade, Economic Freedom

Balancing Trade and National Security in the 21st Century

I want to talk to you for a few minutes about the convergence and the upcoming clash between two areas of vital concern to the United States: trade and national security.

With regard to national security, the central fact is this: because of the proliferation of weapons of mass destruction, the world is a more dangerous place in many respects than ever before. I remember a couple of years ago tuning into C-SPAN late one Saturday evening. Former Senator Sam Nunn was speaking at the University of Houston. He spoke of what he considered to be the most dangerous threats to our country. First on his list was the proliferation of weapons of mass destruction.

Several evenings later, I tuned into the Charlie Rose show. His guest was former Secretary of State Warren Christopher. He listed his threats to the future security of the United States. Number one on his list was the proliferation of weapons of mass destruction. They had seen the problem from the inside. Since then, there has been a steady drumbeat of warnings.

Congress received the Rumsfeld Report, published in July 1998, which stated:

Ballistic missiles armed with WMD [weapons of mass destruction] payloads pose a strategic threat to the United States. This is not a distant threat.... A new strategic environment now gives emerging ballistic missile powers the capacity, through a combination of domestic development and foreign assistance, to acquire the means to strike the U.S. within about five years of a decision to acquire such a capability.

Since it is almost certain that rogue states made such a decision years ago, the conclusion is that states like Iran and North Korea may be able to strike United States territory in under five years, if they cannot already do so. Certainly they, along with Iraq, Syria, Libya, and others today can strike our allies and our troops stationed abroad.

Shortly after that, North Korea surprised our intelligence agencies by successfully launching a three-stage rocket over Japan, essentially confirming the Rumsfeld conclusions.

In July 1999, the Deutch Commission concluded that "weapons of mass destruction pose a grave threat to U.S. citizens and military forces, to our allies and to our vital interest in many regions of the world."

Last September, the Intelligence Community released a new national intelligence estimate of the ballistic missile threat. This report asserted that "during the next 15 years, the United States most likely will face ICBM threats from Russia, China and North Korea, probably from Iran and possibly from Iraq." The report concluded that North Korea could deliver a light payload--sufficient for a biological or chemical weapon--to the United States now. It also said that some rogue states may have ICBMs much sooner than previously thought and those missiles will be more sophisticated and dangerous than previously estimated. The September 1999 estimate also concluded that there is now a greater risk of WMD attack upon the United States or U.S. forces or interests than "during most of the Cold War." The classified briefings are even more disconcerting.

So we have been told in numerous ways on numerous days of this threat facing our country. And, although it has amazingly received little attention in the media and has been met with little action by our nation's leadership, this direct and growing threat to our national security has to be at the very top of our priority list. The writers of the Constitution understood that protecting national security is our first priority.

THE PRC AND WMD PROLIFERATION

The second point I would like to make is that this threat to our national security is being fueled in no small measure by the People's Republic of China (PRC).

The Director of the CIA has stated that China is perhaps the most significant supplier of weapons of mass destruction and missile technology to the world. Countries around the world, from Asia to Africa to the Middle East, are rapidly building up their nuclear and missile capabilities and are being supplied all or in part by China.

The Rumsfeld Commission reported that:

China also poses a threat to the U.S. as a significant proliferator of ballistic missiles, weapons of mass destruction and enabling technologies. It has carried out extensive transfers to Iran's solid-fueled ballistic missile program. It has supplied Pakistan with a design for a nuclear weapon and additional nuclear weapons assistance.

The CIA report provided to Congress in late January said that as late as June of last year, "firms in China provided missile-related items, raw materials and/or assistance to several countries of proliferation concern" including Iran, North Korea, and Pakistan. And that's just the stuff we know about.

Because of China's help, some of these rogue nations are now developing their own manufacturing facilities and have started to trade among themselves.

THE CLINTON ADMINISTRATION'S RESPONSE 

What has been the Administration's response to this unbroken pattern of reckless activity producing a real and imminent danger to the United States? They have responded with an incredible amount of negligence and naivete. With an attitude of engagement at all cost, they have rarely missed an opportunity to excuse or overlook China's behavior.

They refuse to sanction the PRC even though the law requires it and our intelligence community produces clear and unambiguous evidence of their proliferation activities. When the Chinese break a promise, the Administration's remedy is to get a new promise.

We catch the PRC selling M-11 ballistic missiles to Pakistan, but we are told that we only have proof that they transferred missile transport canisters. We couldn't prove, the Administration said, that there were actually missiles inside the canisters.

When sales of missiles or nuclear-related equipment or technology have been discovered, the Administration has raised the standard of proof required by our intelligence community to almost unreachable heights.

As the President himself has said, in order to achieve the Administration's policy goals they have to "fudge" the facts sometimes so that a conclusion of no violation can be the result.

The Chinese sell ring magnets to a Pakistani nuclear facility in violation of the Nuclear Non-Proliferation Treaty but the Administration says we can't prove that China's senior-most leaders approved the sale. The list goes on and on.

There has been, in short, a complete disconnect between U.S. policy, China's behavior, and our response.

Not content to turn a blind eye toward China's proliferation activities, the Administration has actively contributed to the problem by weakening export controls.

First, the Administration helped dissolve COCOM in 1994--and fashion a feckless substitute--so that there was no longer any international regime with any real teeth to control the sale of dual-use technologies.

Then they proceeded to weaken our system for the benefit of Ron Brown, the Commerce Department, and political contributors. In the six years since the Export Administration Act expired in 1994, the Administration:

  • Approved export licenses over the objections of the Departments of State or Defense;

  • Gave the Secretary of Commerce greater authority and discretion to manage the export licensing program;

  • Reduced the amount of time available for agencies to conduct application reviews by 25 percent;

  • Oversaw a Post Shipment Verification process that has dismally low inspection rates. For example, out of the 191 high-performance computers shipped to China in 1998, only one post shipment verification occurred;

  • According to testimony before our Governmental Affairs Committee, Clinton Administration officials--even within the Pentagon--have ignored, hassled, and pressured technical experts who had the temerity to raise questions about proposed export licenses. The Defense Technology Security Agency, or DTSA, was even marginalized physically, its office having been literally moved out of the Pentagon.

Lest we forget, this is the same Administration that transferred all commercial satellites from the U.S. Munitions List to the Commerce Control List so that if the Administration were ever forced to impose missile proliferation sanctions on China, at least we would still be free to do satellite deals with them.

And, of course, we know at least some in the Pentagon believe that satellite technology transfers have already damaged our national security, since the same technology necessary to place a satellite in orbit also place ICBMs into space.

THE EFFECT OF THE ADMINISTRATION'S POLICY 

It must amuse and baffle the Chinese that we are so casual with regard to our sensitive military-related technology in dealing with them, at the same time they are supplying terrorist nations with the ability to reach the United States with weapons of mass destruction.

In August 1998, after many of the Administration's various export control problems had come to light, I wrote to the Inspectors General at six federal agencies: Commerce, Defense, State, Treasury, Energy, and the CIA. I asked them to undertake a comprehensive review of U.S. export control practices, and then report their findings back to the Governmental Affairs Committee, which I chair.

Their reports and testimony revealed a system full of holes--one clearly favoring trade over national security. For example:

  • Although the law requires it, not one of the six agencies has a formal program for training licensing officers;

  • Commerce does not properly check to see if the conditions imposed upon export licenses are complied with, so they don't know if product diversion is taking place;

  • Pre-license checks and post shipment verifications are often canceled by Commerce without notice to other agencies;

  • There are no effective procedures in place to control or monitor sensitive dual-use technology information shared with foreign nationals who visit the U.S., despite the fact that export licenses are required for these information transfers; and

  • Finally, even though the law requires it, our government has no overall system for analyzing the cumulative effect of our exports to other countries.

The net effect of all these changes, poor administration, and general lack of concern for security has been the loosening of important export control restrictions, and the markedly increased availability of important technologies.

This has damaged America's national security by allowing potential adversaries to advance their WMD and missile programs, as well as close the technological gap when it comes to military hardware, precision munitions, advanced communications, overhead surveillance, and so on.

Therefore, we have the following situation:

  1. We clearly face a dangerous and increasing threat to our national security;

  2. China is making significant contributions to that threat; and

  3. The United States is acting as if the threat doesn't exist.

By turning a blind eye to China's proliferation, dismantling the international export control regime, and emasculating our own export controls, we are jeopardizing our national security in many ways--most importantly, our plans for a national missile defense system.

I recently returned with a congressional delegation from Munich, where we met with our European allies. The question of whether there is really a rogue nation threat to the U.S. was clearly an important issue to them in determining if they were going to support our national missile defense plans.

The Administration's actions, however, would indicate that we have very little concern about WMD threats. This mismatch between rhetoric and action regarding the threat and export controls sends a mixed message to our allies, and frustrates our attempts to build support for our strategic goals.

WTO MEMBERSHIP FOR CHINA 

This is the background from which we will soon be dealing with the matter of the World Trade Organization (WTO) and the Senate consideration of permanent normal trade relations with China. I believe that this debate must bring these national security issues into play. In light of what we have just recounted, how can we consider this as simply a trade issue? If, in fact, China is contributing to a threat to this country's national security, and if, in fact, up until now we have misguidedly sent signals to them and the rest of the world that we do not take the matter seriously, then we must take steps to:

  1. avail ourselves of any opportunity to encourage a change of attitude by PRC, and

  2. demonstrate emphatically to China, our allies, and the rest of the world, that, this Administration's actions notwithstanding, the United States takes the matter of proliferation very seriously.

I believe that the WTO debate gives us that opportunity. It can raise these national security issues to the level of public attention and congressional consideration which they have long deserved.

We should not complicate an opportunity to expand trade, however, without good reason. Trade liberalization has been of great benefit to the United States. Generally speaking, I believe we should do everything that we can to help open up markets. Expanding trade makes for market economies, which the world is now enjoying in record numbers. Market economies lead to greater economic freedom, which may lead to political reform.

PERMANENT NORMAL TRADE RELATIONS (PNTR)

But arguments for free trade alone don't resolve the tensions between trade and security. It is time that the Administration and other supporters consider the fact that permanent NTR may not pass unless, in conjunction with its passage, certain other things happen that will help change the PRC's behavior regarding proliferation.

Of course, we could just vote down PNTR to China. This would certainly make a statement to the world that we are serious. It would undoubtedly shock the Chinese, who must think they have a locked deal since they show no hesitancy in threatening to invade Taiwan, embarrassing our high-level diplomatic delegation, and reminding us of their ability to lob an ICBM onto one of our cities--all practically on the eve of PNTR consideration. We would still have trade with China, since it would be to their benefit as well as ours, though not under the more preferable conditions agreed to in the bilateral agreement.

But would denial of PNTR benefit U.S. national security? There is little doubt in my mind that after an initial cooling-off period, China would have a powerful incentive to alter its behavior in order to obtain PNTR. However, denial of PNTR would probably be a one-time lever. We could probably make gains with a denial, but if we then granted it later, as we probably would, all of our leverage would be gone. What we really are seeking instead is a sustained ability to influence Chinese behavior.

Other downsides are obvious--both to our commercial interest and the risk of seriously unraveling a relationship between the two countries that is not doing too well as it is. Chinese reformers have put their reputations and credibility on the line.

So should we then grant PNTR straight out? There is little question that the bilateral agreement that has been negotiated is favorable to us in many respects. As I've suggested, there are many potential benefits from expanded trade. However, I am convinced that continuing to ignore China's consistent pattern of conduct which is inimical to our national security would be a mistake in the long run. It is often said that the Chinese think in much longer time frames than we do. It would be folly to be so concerned with economic benefits and our immediate relationship with the current leaders of China that we do nothing to minimize the long-term dangers we face.

A POSSIBLE SOLUTION 

A third option would be to pass PNTR with amendments that would enhance our anti-
proliferation efforts. We can't amend the bilateral treaty with China, but we can amend the permanent NTR legislation in ways that have nothing to do with trade. I think there may be many good ways to do this.

  • First, we can begin by establishing an annual review mechanism that assesses China's behavior.

  • Next, we need strong, principled leadership from the President and Congress on these national security matters. We can start by passing an Export Administration Act that balances trade with national security--as opposed to the current proposed legislation that would further loosen export controls.

  • Third, the United States should work with the other industrialized countries, beginning with our allies, to establish a new multilateral export control regime. This will not come easily or quickly, but given time, effort, and the right initiatives, I am confident that we can achieve this end.

  • Fourth, we should look at adding or incorporating parts of the Taiwan Security Enhancement Act into such an amendment, perhaps conditioning or triggering parts of that act on China's behavior.

  • Finally, another intriguing idea was implicit in some of the findings of the Cox Committee and the Deutch Commission. The Cox Committee reported that "the (PRC) is using capital markets as a source of central government funding for military and commercial development." Let me expand on this.

According to recent estimates, the PRC is currently involved in U.S. bond markets to the tune of approximately $14.5 billion. I believe that this may be an economic lever that could be used. We already know that we are financing some bad actors, including a notorious PRC arms dealer. In fact, the PRC itself is the largest Chinese borrower of dollars in the United States--some $3.2 billion in sovereign bond offerings. We have no idea what these funds were used for.

That is why we should also pass legislation which brings greater transparency to all foreign companies that use our markets. The SEC provides little information on these companies now, many of whom, in the case of China, are front companies. We need to require more detailed information in prospectuses regarding the specific identity and activities of foreign government-related firms applying for entry into our capital markets.

This would give pension fund managers something to look at in order for them to develop their own national security criteria for investments. This would also give Congress, as part of an annual review, a mechanism whereby companies, or even countries, who engage in proliferation activities are denied access to our debt and equity markets.

This is leverage--perhaps enough to cause China to reconsider some of those missile sales.

The threat of denying MFN each year was empty and the Chinese knew it. However, these statutory provisions, perhaps along with others, would be a card we could actively play without damaging ourselves.

CONCLUSION 

It goes without saying that we do not want a shaky relationship with a country as important as China to degenerate further for any appreciable period of time. It is equally obvious that a policy of all carrots and no sticks has not improved our relationship with China; we must demonstrate strength as well as restraint to them and the rest of the world. I believe that involves engaging and trading and hoping for the best while at the same time establishing a framework in which the Chinese can be penalized for bad behavior. I do not believe we should take the one approach without the other. Not when our national security is involved.

The Honorable Fred Thompson, a Republican, represents Tennessee in the United States Senate, where he serves as chairman of the Governmental Affairs committee.