And that effort is ongoing, and I think there were some real
successes in that area, particularly with allies, and you saw that in
the Estonia case in terms of the kinds of coordination infrastructure
that had been built between like-minded countries to be able to
participate in these things together, yes.
COMMISSIONER MULLOY: Thank you very much.
HEARING COCHAIR BROOKES: Thank you. I think we're going to start
a second round of questioning if we could.
I have a couple of quick questions, and I open this up to the
panel. Can we expect any indications and warning, strategic
indications and warning of a cyber attack? Or is it basically a bolt
from the blue without any warning? Is there anything that, in terms of
conventional warfare-- we often have indications of warning of a
potential attack or imminence-- would have in terms of cyberspace?
COLONEL McALUM: It's hard to draw the parallel to the kinetic
world. You know in the nuclear business you see the missile being
moved to the launch pad, it's being fueled, it just left the pad, it's
15 minutes out, here's where we think it's going to impact, etc., etc.
You know that's a serial process in the kinetic world.
In the cyber world, you don't necessarily get the notification,
well, the zero day exploit has just been loaded on a computer, he's
about to hit the send button, here it comes, here is where it's going,
etc., etc.
The time variable is the biggest thing that probably discounts
that in many ways. Again, we would expect that many different
forms of intelligence would be supporting the indications of warning
in a pre-crisis or a build-up to an event, but zero warning, start to
finish, in the millisecond world that we live in on the Internet, that
could be very difficult to attain, but we'd like to believe that we'd
have a good sense of something bad happening and be able to at least
focus the right assets toward that.
HEARING COCHAIR BROOKES: So it's issues outside of cyberspace? In
other words, you're saying an issue such as political tensions would
be an indication, but that we may have none in cyberspace?
COLONEL McALUM: I'm not going to say we don't have these. I'm
just saying it might be a challenge.
HEARING COCHAIR BROOKES: Okay. Would anybody else like to weigh
in on that?
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DR. MULVENON: I would just say that one of the interesting
insights from the Chinese literature where I think in many ways they
may be ahead of us about this is when they often argue that a compute
network attack will by necessity be a bolt from the blue, particularl
against a high tech enemy, because that's the only place that you can
get an advantage, and that you have to do very meticulous computer
that.
People can disagree about whether you would have a confidence
level in carrying out that kind of attack simply with passive network
reconnaissance or whether you actually need to reach out and touch
things.
But what the Chinese military argues in its internal writings is
that that's all you're going to get, is the bolt from the blue,
because unlike in our system where we potentially see it as a force
multiplier at every stage of Netcentric warfare, because of the fact
that all of that network reconnaissance will then go out the window,
because the adversary will either then patch the target set, take the
target set offline and unplug it if you can if it's not mission
critical.
But whatever is going to happen, you have a much lower level of
confidence you can communicate to your leadership that in real time
against an adversary that has full shields up, 24-hour alert, that
you're then going to be able to find new fresh zero day
vulnerabilities against that network with which to exploit, or that
you're even going to be able to use the potential malware that you
have imbedded in the system because of the nature of the network.
And so they argue the bolt from the blue is really to kneecap the
high-tech adversary at first, but not necessarily be able to conduct
those attacks throughout the whole course of the conflict.
HEARING COCHAIR BROOKES: Mr. Thomas.
MR. THOMAS: Taking a little different approach on this, if you
were looking at what they're saying internally, they're also saying we
don't even want the other side to know that a bolt from the blue
happened, that there would be no indication and warning. The example
that they give quite often is, "how do you make a cat eat a hot
pepper?"
And they relate that "you can jam the pepper down the cat's
throat, you can wrap it in cheese, or you can crush it, spread it on
its back and let the cat lick itself." This self-accommodating idea is
strategy, that you got the cat to do what you wanted it to do without
the cat realizing what had happened.
So this whole self-accommodating idea fits very well within that
bolt from the blue. The Chinese do talk about the fact that
reconnaissance offers you the ability to take the initiative, and more
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the ability, like Jim was saying, to know where those holes are and
the vulnerabilities. But that's just a little bit different take on
what they had to say.
HEARING COCHAIR BROOKES: Are we going to see reconnaissance? How
does a cyber attack evolve? Would we see reconnaissance first? Is
there something or is that not necessary?
COLONEL McALUM: I would say sure, you might see some scanning
take place. I would tell you that's going on all the time. It's high
volume every single day, not just against DoD but throughout U.S.
government.
I would also tell you there's a lot of things you can discover
without ever penetrating another person's network. Those
vulnerabilities, you could do a lot of research on your own open
source to discover vulnerabilities that could be exploited at another
time.
As previously mentioned, I would reiterate there's an underground
market for zero day vulnerabilities that can be sold and then
stockpiled for later use. So reconnaissance could be one form of some
sort of indications and warning. You probably wouldn't see it in the
noise level that we're dealing with today, but you might, so I would
just say there's multiple ways to gain insight that something is about
to happen.
HEARING COCHAIR BROOKES: Anything else?
MR. THOMAS: A direct quote from the former Director of the Third
Department, the Information Warfare Department: "Computer network
reconnaissance is the prerequisite for seizing victory in warfare. It
helps to choose opportune moments, places and measures for attack."
And he talks about it quite openly.
HEARING COCHAIR BROOKES: Okay. Commissioner Fiedler.
COMMISSIONER FIEDLER: A couple of things. I'm going to return for
a moment to the critical infrastructure question, and since most of
you are DoD oriented, let me ask it this way. Is every defense
contractor required to report intrusions within a short time period?
DR. MULVENON: Well, sir, as someone who recently in the last
three years built 20,000 square foot of defense security service
certified space, I can tell you yes. If those defense contractors have
in particular contracts with the Department, in particular if they
have a security clearance through the Department, they are absolutely
obligated under their AIS plan to report any and all of those
intrusions.
COMMISSIONER FIEDLER: Within how long?
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DR. MULVENON: I couldn't tell you how long it is, but the longer
you wait, the more suspicious it looks.
COMMISSIONER FIEDLER: I do know that. Do you know, Colonel?
COLONEL McALUM: No, sir, I can't tell you exactly. I do know that
there's an effort underway that's hosted over at the OSD level working
with defense industrial base companies to improve the reporting
processes that are out there today and hopefully to speed up that
process. I can't tell you exactly what the requirement is.
COMMISSIONER FIEDLER: Okay. Then I suspect the answer to my
question about whether or not power companies are required to report
intrusions to the Department of Homeland Security is probably
nonexistent; is that correct? Anybody know?
COLONEL McALUM: Sir, I don't know. I would refer back to
Presidential Decision Directive 63. It talks about critical
infrastructure protection. There's a series of information sharing and
analysis centers across critical infrastructures. I suspect reporting
of that type, if it's taking place, would probably come through that
channel, which is not necessarily official reporting.
COMMISSIONER FIEDLER: And let me try to put the recon issue into
perspective. Everything you've talked about operating at the speed of
light here or faster with computers seems to me to make people's
reconnaissance somewhat obsolete rapidly, therefore necessitating
constant reconnaissance.
Am I missing something here? On vulnerabilities of networks?
DR. MULVENON: Well, no, but there's a real tension there. In
different communities within the system, you'll hear people say please
don't let your computer network attack operations screw up my computer
network exploit operation in the sense that the more computer network
reconnaissance you do, the more danger you arouse of the adversary
potentially detecting that reconnaissance and patching the very
vulnerabilities you were planning on exploiting.
So there's a real cost curve there that you have to deal with,
and you don't want to obviate the value of all that computer network
reconnaissance that you had just done.
So now, it may, in fact, if you are a smaller power, a less
capable power, it may in fact not necessarily be against your
interests for the adversary to know you're engaged in that kind of
probing because, as Tim said, it may in fact be part of your
information deterrence campaign.
It may be designed to keep you guessing about just exactly where
people might be in your network and reduce your confidence level in
the performance of those networks.
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But at the same time if you really want to use it in a
warfighting context, that's why these types of activities, if they go
on within our system, are very highly classified and compartmented.
COMMISSIONER FIEDLER: Thank you.
HEARING COCHAIR BROOKES: We have just a few moments left so maybe
if we could get both Commissioners Wessel and Blumenthal to give their
questions and then let them answer, that might be the most
expeditious.
COMMISSIONER WESSEL: That's fine. I wanted to follow up briefly
on the line of questioning that Commissioner Mulloy, who is gone now
for a moment, had raised about possible liability and other issues
because there seemed to be some view that imposing the burden on ISPs
to look at outbound traffic might be an appropriate way of ensuring
greater security on the network.
I think we've seen a problem with that in China where national
security has been so broadly defined that the Chinese want ISPs and
routing companies to limit the words "Tiananmen," "freedom," and other
issues, which has raised concerns here in the U.S.
I'm not necessarily looking at an ISP looking at all of the
traffic going into my network or my home computer to review whether
there are pixelated viruses or whether whatever standard there is. I
think it's actually intended on the user. That's where the liability
But there seemed to be some receptivity, I just wanted to raise a
question as to whether there are broader issues here we should be
looking at in depth?
COMMISSIONER BLUMENTHAL: I also wanted to follow up on some of
the legal issues that this new type of conflict might raise, more in
terms of operational law and recommendations we can make to the
Congress.
It seems like on the spectrum of conflict, reconnaissance and
espionage that's going on everyday, as we've heard, there's probably
not--you can correct me--I'm making kind of propositions and
assumptions that may not be correct--but there's probably not too much
military or operational law that covers those types of activities
in terms of the types of responses we can take.
But if you move down the spectrum from denial of service,
imaginable hypotheticals, the disruption of electricity in the United
States or in allied territory that actually ends up killing or harming
people because of the denial of service, that can somehow be
attributable to the Chinese, have we developed our operational laws in
ways that we would have a framework for response and a way that we can
go to the Chinese and say if such and such happens under the laws of
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armed conflict, we can take a kinetic response in certain
circumstances?
And if not, where do we need to develop those areas of law and
particularly suggestions we can make to the Congress to pursue those
areas of law in this new area of conflict?
DR. MULVENON: I would say that on the ISP burden issue, in many
ways, the irony is that the Chinese, we talked about 50,000 Internet
police. That's not the secret of Chinese Internet censorship. The
secret to Chinese Internet censorship in addition to the very
technically capable firewall, which came later, was initially very
successful because they wrote an ISP law that said an ISP was simply
responsible for the activities of all of its subscribers.
And so what the ISPs did was they hired people to sit in chat
rooms and bulletin boards, which is a fate worse than death as far as
I could tell, but to just sit there and kick people off who engaged in
political content and everything else, and so they pushed the burden
down to the ISP level, now, admittedly, used for evil purposes, but a
market-based solution nonetheless because what they said they would do
is they would put the ISP out of business if it violated that
particular rule.
I can imagine one governed by perhaps a bit more of an
enlightened principle such as the defense of the United States that
might work a little bit better.
On the legal side, Commissioner Blumenthal, there's been a
tremendous amount of work done on this over the last ten or 15 years
in the Department, but I would still say that there is also still
tremendous ambiguity and lack of assurity that the legal frameworks
are in place in many cases for this to move forward, but those
discussions about where those lines are and what the criteria are and
everything else I think are being addressed by the current
presidential initiative and are certainly very sensitive.
COMMISSIONER BLUMENTHAL: Anyone else on that?
COLONEL McALUM: Going back to the item on the ISPs, I think it
would be a question of degree. I think the general public perception
is if ISPs get involved and are liable, I'm going to give up
privacy, and I think it's a question of degree, who's reading my
e-mail?
There's certain types of malicious software and packets and
attachments that nobody has to open up to figure out they're bad.
There are tools that will allow you to scan it and determine it's bad.
Why would you ever allow a buffer overflow attack come into the
network? You can stop that upstream, not a problem.
Again, I think it's really a question of degree. I think ISPs can
be held liable to a certain degree for a certain type or level of bad
traffic, and then beyond that, I think we would have to progress and
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evolve on how much exactly we would want them to be liable for. I
think it would have to be well defined up front, and I have nothing to
add on the operational law.
COMMISSIONER WESSEL: No. My comment was this is simply a more in-
depth conversation we need to have that there is no easy answer, and
Dr. Mulvenon, I guess the question of enlightened implementation,
there's been some questions of the enlightened implementation of the
Patriot Act that some have had. So there are standards that have to be
looked at very carefully.
DR. MULVENON: Commissioner, all I would tell you is that as a
civil libertarian, I'm a robust user of personal encryption.
HEARING COCHAIR BROOKES: We'll end the panel on that note. Thank
you very much for your testimony on this very important issue.
We'll adjourn for five minutes before we start the next panel.
[Whereupon, a short recess was taken.]
PANEL IV: ADMINISTRATION PERSPECTIVES
HEARING COCHAIR REINSCH: In our never-ending battle to keep on
schedule, we're going to reconvene.
The next panel is not a panel; it's an individual. We are happy
to welcome Ms. Patricia McNerney, who serves as Principal Deputy
Assistant Secretary of State for International Security and
Nonproliferation.
Her key responsibilities involve diplomatic efforts to address
the proliferation challenges including Iran and North Korea;
counterproliferation efforts to address the proliferation activities
of states of proliferation concern and terrorists; implementation of
multilateral treaties and initiatives and assistance programs; and
support for civil nuclear programs consistent with nonproliferation
principles.
Previously, she served as the Senior Advisor to the Under
Secretary of State for Arms Control and International Security
Affairs,
and served as the Republican Staff Director to the Senate Select
Committee on Intelligence, and the Chief Counsel to the Senate
Committee on Foreign Relations.
Thank you for being with us today. As per our rules, your full
statement will be placed in the record, and we'd ask you to limit your
oral remarks to seven minutes so that we have plenty of time for
questions.
Thank you very much.
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STATEMENT OF MS. PATRICIA McNERNEY, PRINCIPAL DEPUTY ASSISTANT
SECRETARY OF STATE FOR INTERNATIONAL SECURITY AND NONPROLIFERATION
WASHINGTON, D.C.
MS. McNERNEY: Thank you, Mr. Chairman, and thank you for the
opportunity to appear before you today to discuss China's
nonproliferation practices.
In my opening remarks, I'd like to point out a few areas where
the U.S. and China have successfully cooperated on matters of
nonproliferation, areas of some continuing concern, as well as some
promising areas for new cooperation.
Let me say at the outset that the United States remains committed
to working toward a relationship with China that enhances America's
security, addresses China's legitimate concerns, and supports the
security interests of our friends and allies.
We continue to engage China on nonproliferation matters in a
constructive and forthright manner, building upon shared interests
when possible, and raising concerns when necessary.
For its part, Beijing now recognizes that it has fundamental
security interests in preventing the spread of weapons of mass
destruction. It's now a party to the Nuclear Nonproliferation Treaty,
the Biological and Toxin Weapons Convention, the Chemical Weapons
Convention, is a member of the Nuclear Suppliers Group and the Zangger
Committee.
China has been cooperative on efforts relating to North Korea and
Iran. In the case of North Korea, China has made it clear that it does
not condone Pyongyang's nuclear aspirations. They have joined the
Security Council in unanimous votes to adopt sanctions resolutions,
particularly 1718, following the North Korean nuclear tests, and
they've continued to serve as the host of the Six Party Talks.
With regard to Iran, China shares our goal of preventing Tehran's
acquisition of a nuclear weapons capability. Though differences of
opinion remain on how best to achieve this end, China has joined with
the other members of the Security Council in adopting Security
Council Resolutions 1713, 1747, and just recently 1803. As a
member of the so-called P5+1, China has reiterated that should Iran
continue to refuse to verification and compliance, additional
sanctions will be necessary to augment those that are already in
place.
Beyond this multilateral cooperation, China has expressed an
interest and, in fact, taken actions with regard to export control
cooperation including technical exchanges and training. To the extent
that it's permissible within the law, we have endeavored to provide
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such assistance. For example, we have worked through our Export
Control and Related Border Security Program to provide training to
Chinese licensing and enforcement officials in areas such as practical
inspection, targeting and investigation techniques.
Chinese nonproliferation policies have improved. However, a
number of Chinese entities continue to supply to regimes of concern
items and technologies useful in the weapons of mass destruction,
their means of delivery and advanced conventional weapons. China
continues to have important deficiencies in its export control system,
particularly with regard to thorough implementation, transparent
enforcement, and possibly willingness.
We still observe Chinese firms and individuals transferring a wide
variety of weapons-related material and technologies to customers
around the world including Burma, Cuba, Iran, Sudan and Syria. We're
particularly concerned that Chinese firms have continued to supply
Iran with a range of conventional military goods and services in
contravention of the restrictions of the Security Council resolutions.
Evidence indicates that Iran has transferred weapons to Shia militants
in Iraq as well as terrorists groups such as Hezbollah and the
Taliban. For example, an Iranian version of the Chinese MANPADS system
was used in Iraq in 2004. In addition, a Chinese QW-1, that we believe
was provided by Iran, was recovered in Basra just this past April. We
sanctioned a number of Chinese entities under the Iran and Syria
Nonproliferation Act and pursuant to Executive Order 13382 for the
sale of items on multilateral control lists or items with the
potential to make a material contribution to ballistic or cruise
missile programs or WMD programs.
China must devote additional resources to increased enforcement,
rigorous implementation of catch-all provisions, and more
investigations and prosecutions of violators of their laws. Moreover,
China should share timely and substantive information on actions the
government has taken in response to U.S. requests. We will continue as
warranted to impose sanctions against Chinese entities engaged in
proliferation and will continue to highlight our ongoing concerns
about China's proliferation record with the government.
Sanctions, of course, always remain an option to deter
proliferation behavior. We also need to develop effective inducements
that make clear it is in the best interests of China to enact and
enforce rigorous nonproliferation policies. I'd like to discuss one
particular initiative that my bureau has pursued.
There are a number of Chinese entities that after being
sanctioned by the United States for proliferation related activity
have seen their international reputations damaged and their exports
dramatically reduced. Several sanctioned firms have expressed an
interest in taking actions that would result in the relief from these
sanctions.
This desire to come out from under sanctions gives us great
leverage. As part of a broader nonproliferation strategy, we've held
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discussions with two major Chinese companies: the China North
Industries Corporation, or NORINCO, and the China Great Wall
Industries Company, both of whom have been sanctioned in the past for
their proliferation-related activities. We've made absolutely clear to
these entities that any trade in technologies useful in WMD programs
or delivery systems would constitute proliferation-related behavior
and would subject them to possible future sanctions. But we've also
indicated that their decision to cease such proliferation activity
would be recognized by the United States. A commitment to end
proliferation-related activity would increase prospects that Western
companies and international financial institutions would consider them
to be legitimate corporate entities.
The response thus far has been very encouraging. The effort is,
of course, only in its early stages. We need to ensure that these
entities actually perform as they have pledged. However, the possible
impact of success would be dramatic. To have NORINCO, a firm that has
been sanctioned seven times since 2001, get out of the proliferation
business would be a very positive development and one that could serve
as an example to other Chinese companies.
In conclusion, the United States will continue to press China to
implement effectively its export control regulations, eliminate
loopholes in its laws, and reign in the proliferation activities of
certain companies, and we'll continue to work with Chinese entities
that have a serious desire to become corporate citizens of the
international business community.
Continued proliferation by Chinese entities to countries of
concern is neither in the U.S. interests nor in China's. Working
together, however, we believe we can build upon a shared commitment to
ensure an end to such proliferation activity.
Thank you.
[The statement follows:]
Prepared Statement of Ms. Patricia McNerney, Principal Deputy
- 91 -
Assistant Secretary of State For International Security and
Nonproliferation, Washington, D.C.
Chairman Reinschmmissioner Brookes, Commissioners of the U.S.-
China Economic and Security Review Commission, I'd like to express my
appreciation for the opportunity to appear before you today and
discuss China's nonproliferation practices. In my opening remarks I'd
like to point out areas where the United States and China have
successfully cooperated on matters of nonproliferation, areas of
continuing concern, and some promising areas for new cooperation.
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Let me say at the outset that the United States remains committed
to working toward a relationship with China that enhances America's
security, addresses China's legitimate concerns, and supports the
security interests of our friends and allies. To that end, we continue
to engage China on nonproliferation matters in a constructive and
forthright manner - building upon shared interests when possible and
raising concerns when necessary. We remain committed to expanding our
areas of common interest with China, and improving our existing
cooperation on nonproliferation. At the same time, we have serious
concerns about the proliferation activities of certain Chinese
entities and we continue, when necessary, to take action in response
to those activities. We work constructively with China on a number of
important proliferation issues, yet we also have made it clear that
China must do more to halt the spread of WMD, missiles, and
conventional weapons and related technologies.
Areas of Chinese Cooperation
The Government of China has come to recognize that it has a
fundamental security interest in preventing the spread of weapons of
mass destruction. In many ways, it has demonstrated its interest in
becoming a responsible nonproliferation partner. It is now a party to
many international nonproliferation instruments, including the Nuclear
Nonproliferation Treaty (NPT), the Biological and Toxin Weapons
Convention (BWC), the Chemical Weapons Convention (CWC), and is also a
member of the Nuclear Suppliers Group (NSG) and the Zangger Committee.
China has adopted export controls similar to the Australia Group
control lists on chemical and biological related items, and has
enacted missile-related export controls. And, the Government of China
has approved a series of new laws and regulations designed to
establish comprehensive national export control regulations.
China has cooperated in efforts to put pressure on Iran and North
Korea via their role in the Six Party Talks. In the case of North
Korea, China has made it clear that it does not condone Pyongyang's
nuclear aspirations but admittedly has not actively cooperated to
ensure closure of North Korean front companies inside China that
facilitate proliferation or the Chinese companies that supply them.
Following North Korea's missile launches of July 2006, and its October
2006 nuclear test, China joined in the Security Council's unanimous
vote to adopt strong measures under UNSCR 1695 and UNSCR 1718, the
latter of which imposed Chapter VII sanctions including a prohibition
on transfers to North Korea of a broad range of conventional weapons,
WMD-related items and luxury goods. China continues to serve as host
to the Six-Party Talks, and has played a constructive role in
formulating and implementing both the February 13, 2007 Initial
Actions and the October 3, 2007 Second-Phase Actions agreements. With
Chinese cooperation, the Six-Party process has brought us to the point
where North Korea has agreed and begun to disable the three core
facilities at Yongbyon -- the 5MW(e) Experimental Reactor, the
Reprocessing Plant (Radiochemical Laboratory), and the Nuclear Fuel
Rod Fabrication Facility. As we work to ensure that North Korea honors
its commitments, continued Chinese support is pivotal in maintaining a
united front.
With regard to Iran, China shares our goal of preventing Tehran's
acquisition of a nuclear weapons capability.
Though differences of opinion remain on how to best achieve this end,
China has supported sanctions as a mechanism to increase pressure on
Iran. China joined the other members of the Security Council in
adopting UN Security Council Resolutions 1737 and 1747, and, just this
March, UNSCR 1803.
These Security Council resolutions impose a series of Chapter VII
sanctions on Iran. Among other things, these resolutions require
Member States to prevent the supply to Iran of certain items,
technology, training or financial assistance that could contribute to
its proliferation-sensitive nuclear activities or its development of a
nuclear weapon delivery system. The resolutions also require Member
States to freeze the assets of entities and individuals who are
identified in the UNSCR Annexes as having a significant role in Iran's
nuclear and missile programs, and those acting on their behalf, or
owned or controlled by them. Moreover, these resolutions prohibit Iran
from exporting arms, urge Member States to restrict heavy arms
transfers to Iran, and call for vigilance in the activities of
financial institutions in their territories with all banks domiciled
in Iran and their branches and subsidiaries abroad. Resolution 1803
calls on states to inspect certain cargo to and from Iran to prevent
trafficking in the items prohibited under the relevant resolutions,
and also targets those who have assisted designated entities and
individuals in evading or violating UNSC sanctions. As a member of the
P5+1, China has reiterated that, should Iran continue to refuse
verification and compliance negotiations, additional sanctions will be
necessary to augment those already in place.
These Chapter VII sanctions imposed on Iran and the DPRK send a
clear and compelling signal that the international community will not
tolerate the proliferation of weapons of mass destruction. And it is
up to the entire international community to remain unified and
consistent in its message to North Korea and Iran that international
concerns regarding their nuclear and missile ambitions must be
resolved.
Beyond our cooperation in multi-lateral venues that address
proliferation, there are a number of instances where the Chinese have
expressed an interest in export control cooperation, including
technical exchanges and training. To the extent that it is permissible
within the law, we have endeavored to provide such assistance.
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One such example is the State Department's Export Control and
Related Border Security (EXBS) Program, which has supported training
for Chinese licensing and enforcement officials. Since 2006, the EXBS
program has coordinated two training events to help Chinese Customs
officers identify controlled commodities. These events were sponsored
by the Department of Energy's International Nonproliferation Export
Control Program (INECP) and took place in Shanghai and Dalian,
focusing on training Chinese frontline Customs enforcement officials
and technical experts responsible for interdicting illicit shipments
of WMD-related, "dual-use," strategic commodities. EXBS also plans to
offer Chinese Customs seaport interdiction training at the working
seaport in Charleston, South Carolina.
Other interdiction-related activities include China's
participation in the Department of Homeland Security's Container
Security Initiative and the Department of Energy's Megaports
Initiative. Both initiatives are aimed at improving detection of
radiological and nuclear items at seaports.
In the area of industry-related export control-related training,
EXBS sponsored a successful "Industry-Government Forum" for Chinese
inter-ministry participation in mid-January, and plans to work with
China on its development of an industry "Internal Control Program."
Additionally, in coordination with the EXBS program, the INECP program
is collaborating with the China Atomic Energy Authority (CAEA) within
the CAEA-DOE Peaceful Uses of Nuclear Technology (PUNT) framework on
the development of technical guides on nuclear and nuclear dual-use
materials, equipment and technology. It is expected that these guides
will enhance the capacity of Chinese licensing and industry specialist
to evaluate export license applications and train Chinese industry and
enforcement officials.
For the future, we expect China will agree to further exchanges
on a wide variety of legal regulatory, industry outreach and
enforcement issues, including practical inspection, targeting, and
investigation techniques.
In addition to bilateral training initiatives, we also hope that
China will join the Proliferation Security Initiative (PSI), which was
created by President Bush to facilitate cooperation in the
interdiction of nuclear, chemical and biological weapons, their
delivery systems, and related technologies. The hallmark of the PSI is
the close, innovative interaction between diplomatic, military,
intelligence, law enforcement, and economic tools to combat
proliferation. The PSI has become an important tool to interdict
shipments, disrupt networks, and hold companies accountable for their
activities. Beijing has thus far been reluctant to join with the
almost 90 nations participating in the PSI, citing legal concerns. It
also is quite possible that Beijing feels it must take regional
concerns into account regarding its participation in the PSI, even
though we have repeatedly clarified that PSI is not directed at any
particular country. China's commitment and participation in the PSI
effort would be in keeping with China's stated commitment to
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nonproliferation and would be a valuable contribution to international
security. We will continue to address Beijing's concerns and emphasize
that all PSI actions are taken in accordance with states' domestic
authorities and international law.
Real Concerns Remain
The proliferation policies of the Government of China have
improved. However, a number of Chinese entities continue to supply
items and technologies useful in weapons of mass destruction, their
means of delivery, and advanced conventional weapons to regimes of
concern. We continue to find that China has important deficiencies in
translating its declared nonproliferation objectives into its export
control system, particularly with regard to thorough implementation,
transparent enforcement and possibly, willingness.
We continue to engage the Chinese government in an effort to halt
commercial transactions that violate UNSC Chapter VII sanctions,
nonproliferation norms, and Chinese law, but our efforts are met with
mixed results. We still observe Chinese firms and individuals
transferring a wide variety of weapons-related materials and
technologies to customers around the world that we judge would use or
retransfer the weapons in a manner that threatens regional stability
and international security - including to Burma, Cuba, Iran, Sudan and
Syria.
In addition, we have raised with the Chinese government our
concerns that Chinese seaport facilities and international airports
are transit and transshipment points for governments and entities that
wish to ship sensitive materials to programs of proliferation concern.
Certainly we would hope that China wishes to avoid a global reputation
as a safe transit and transshipment point for foreign proliferators.
Judging the extent to which the Chinese government or Chinese
officials are witting of the proliferation activity of Chinese
entities is difficult given the lack of transparency noted earlier.
One factor enabling proliferation activities is the decentralization
that has become a key feature of China's economic reform. We simply do
not know enough about China's export control regime, and cannot assess
the level of control or awareness that Chinese officials have over
increasingly free-wheeling companies that trade in dual-use materials
applicable to WMD and their delivery systems. These transfers remain a
serious concern, and we will continue to press Chinese officials to be
vigilant and act vigorously to investigate and enforce their export
control regulations.
We are particularly concerned that Chinese firms have continued
to supply Iran with a range of conventional military goods and
services in contravention of the restrictions within these UN Securit
Council Resolutions. Inevitably, some of this weaponry has found its
way to insurgents and militants operating in Iraq, as well as
Hizballah terrorists in the Levant. The United States has sanctioned
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number of Chinese entities under the Iran and Syria Nonproliferation
Act and Executive Order 13382 for the sale of items on multilateral
control lists or items with the potential to make a material
contribution to ballistic or cruise missile programs or WMD programs.
With specific reference to conventional weapons, China, like man
other countries, views its trade in conventional weapons as helping
nations to meet their perceived defense needs and asserts that these
transfers are in accordance with international norms. Despite this
assertion, evidence indicates that Iran has transferred Chinese
weapons to Shia militants in Iraq as well as terrorist groups such as
Hizballah.
For example, the Misagh-1 (the Iranian version of a Chinese MANPADS
with Chinese components) was used in Iraq in 2004. In 2006, a Chinese
C-802 anti-ship cruise missile, which has been supplied only to Iran
in the region, was used by Hizballah to attack an Israeli naval
vessel. China appears to accept at face value the end-use assurances
and pledges against retransfers it receives from its customers,
despite the fact that some of its customers have links to terrorists
and have records as unreliable end-users, such as Iran. Nevertheless,
China has demonstrated sensitivity to growing international concerns
about recipients of some of its arms sales, notably Sudan. We continue
to seek greater Chinese cooperation in curtailing transfers to state
sponsors of terrorism and in stricter and more uniform application of
its export control safeguards.
We have discussed with China the importance of addressing its
weak export control enforcement and detection capabilities in order to
rein in the proliferation activities of certain Chinese companies. If
China is to have in place a rigorous export control system, it must
devote additional resources, increased enforcement, rigorous
implementation of catch-all provisions, and more investigations and
prosecutions of violators of its export control laws. Moreover, we
have encouraged China to share timely and substantive information on
actions the government has taken in response to U.S. demarches. A
level of transparency in China's nonproliferation activity is
absolutely essential; heretofore this has been notably lacking. We
will continue, as warranted, to impose sanctions against Chinese
entities engaged in proliferation and will continue to highlight our
ongoing concerns about China's proliferation record with the Chinese
government.
An area of potential concern is possible additional Chinese
support for Pakistan's civil nuclear program. As a member of both the
NPT and the NSG, China has shown its commitment to enforcing
international nonproliferation and export control norms. When China
joined the NSG in 2004, it made a statement regarding the safeguarde
nuclear facilities in Pakistan it would continue to support as
"grandfathered." These are: the Karachi nuclear power plant; Chasma
nuclear power plants 1 and 2; and Parr research reactors 1 and 2.
Recently, Pakistan has expressed interest in increasing domestic
nuclear power generation and has made overtures to China for support
This is something we continue to watch closely to ensure both that
China abides by its commitments to the NSG and to ensure that ongoin
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Chinese cooperation with Pakistan does not support Pakistan's un-
safeguarded nuclear weapons program.
Areas of Promising New Cooperation
Sanctions, of course, always remain an option to deter
proliferating behavior. We have made an effort to use these sanctions
in a targeted and constructive way. Avoiding those sanctions is a
strong inducement for legitimate Chinese corporations to enact and
enforce rigorous nonproliferation policies. As an alternative to
sanctions, we have worked to encourage China to become a willing
partner in addressing a common nonproliferation agenda.
Mr. Chairman, to this end, I would like to discuss one particular
initiative that my bureau has pursued. As I have already noted, there
are a number of Chinese entities who, after being sanctioned by the
U.S. for proliferation related activity, have seen their international
reputations damaged and their exports dramatically reduced. Several
Chinese firms sanctioned under U.S. law or Executive Order have
expressed an interest in taking actions that would result in relief
from the sanctions. We can leverage this desire by Chinese firms to
come out from under sanctions and advertise the tangible benefits that
can accrue to companies that wish to abandon proliferation.
As part of a broader nonproliferation strategy that we devised
last year, we held discussions with two major Chinese companies - the
China North Industries Corporation (NORINCO) and the China Great Wall
Industries Company (CGWIC) - both of whom have been sanctioned
repeatedly in the past for proliferation-related activities. We have
made absolutely clear to these entities that any trade in technologies
useful in WMD programs or delivery systems would constitute
proliferation-related behavior, and would subject them to possible
future sanctions. We also continue to make it clear to them that any
conventional arms transfers to countries such as North Korea and Iran
are equally unacceptable. But, we have indicated that their decision
to cease such proliferation activity would be recognized by the United
States. A commitment to end their proliferation-related activity and
concrete, positive action towards this end would likewise increase
prospects that Western companies and international financial
institutions would have no concerns in developing broad economic and
trade ties with these Chinese companies.
The response of NORINCO and CGWIC has been very encouraging. Both
companies have adopted comprehensive internal compliance programs and
are implementing policies to ensure that inadvertent transactions do
not occur. NORINCO, for example, has committed to refrain from selling
armaments to North Korea or Iran and claims to have turned down over
$100 million in potential contracts with sanctioned regimes. And there
are indications that the positive results are not limited only to
these two companies. I fully anticipate that if tangible benefits of a
solid nonproliferation record begin to accrue, additional Chinese
companies will seek to emulate the nonproliferation policies of
NORINCO and CGWIC.
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This effort is, of course, only in its early stages. We need to
ensure that these entities actually perform as they have pledged. We
need to make sure they do not simply spin-off their proliferation-
related activity to subsidiaries or sister companies so that the
problem remains under another guise. And, these companies need to
demonstrate that they are committed to the path of good corporate
citizenship over the long haul. However, the possible impact of
success would be dramatic. To have a commitment from a company such as
NORINCO, a firm that has been sanctioned seven times since 2001, to
get out of the proliferation business is a very positive development
and one that could serve as an example to other Chinese companies. I
am guardedly optimistic that our efforts can bring about meaningful
results.
Conclusion
The United States will continue to press China to implement
effectively its export control regulations, eliminate loopholes, and
reign in the proliferation activities of certain companies. And we
will continue to work with Chinese entities that have a serious desire
to become good corporate citizens of the international business
community. Continued proliferation by Chinese entities to countries of
concern is neither in U.S. interests, nor China's. Working together,
we can build upon our shared commitment to ensure an end to such
proliferation activity.
Panel IV: Discussion, Questions and Answers
HEARING COCHAIR REINSCH: Thank you.
Commissioner Videnieks.
COMMISSIONER VIDENIEKS: What is the scope or how do we define
proliferation now? I just heard you mention advanced conventional
weapons as being included. It used to be just WMD and CBR maybe. So
that's the question basically. What is the scope and when did advanced
conventional weapons-- and what are they--get added, and how about the
AK-47s?
MS. McNERNEY: Yes. Obviously, we've always obviously been
concerned about chemical, biological and nuclear ballistic
missile systems, but the Iran, Syria, Nonproliferation Act, now the
Iran, North Korea, Syria Nonproliferation Act added conventional
weapons as an area that we have to review for sanctions activity. As a
result of that act of Congress, Chinese companies that are supplying
conventional weapons to Iran are subject to sanctions under U.S. law.
COMMISSIONER VIDENIEKS: How about the foreign military sales? How does
that fit into--I mean a sale is a method of proliferation. It's a
tool.
MS. McNERNEY: Sure. Yes.
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COMMISSIONER VIDENIEKS: I guess the recipient is the one that
determines whether it's negative or positive; right?
MS. McNERNEY: Yes. For example, take NORINCO. They have long-
standing contracts with Iran for conventional weapons. That has been
an area that we have tried to encourage China to get out of the
business of selling weapons, even conventional weapons, to Iran, to
Syria, to North Korea, because of the destabilizing influence of those
weapons. And even when NORINCO does sell the weapons, they are
consistent with what they perceive as their laws and responsibilities.
successes in that area, particularly with allies, and you saw that in
the Estonia case in terms of the kinds of coordination infrastructure
that had been built between like-minded countries to be able to
participate in these things together, yes.
COMMISSIONER MULLOY: Thank you very much.
HEARING COCHAIR BROOKES: Thank you. I think we're going to start
a second round of questioning if we could.
I have a couple of quick questions, and I open this up to the
panel. Can we expect any indications and warning, strategic
indications and warning of a cyber attack? Or is it basically a bolt
from the blue without any warning? Is there anything that, in terms of
conventional warfare-- we often have indications of warning of a
potential attack or imminence-- would have in terms of cyberspace?
COLONEL McALUM: It's hard to draw the parallel to the kinetic
world. You know in the nuclear business you see the missile being
moved to the launch pad, it's being fueled, it just left the pad, it's
15 minutes out, here's where we think it's going to impact, etc., etc.
You know that's a serial process in the kinetic world.
In the cyber world, you don't necessarily get the notification,
well, the zero day exploit has just been loaded on a computer, he's
about to hit the send button, here it comes, here is where it's going,
etc., etc.
The time variable is the biggest thing that probably discounts
that in many ways. Again, we would expect that many different
forms of intelligence would be supporting the indications of warning
in a pre-crisis or a build-up to an event, but zero warning, start to
finish, in the millisecond world that we live in on the Internet, that
could be very difficult to attain, but we'd like to believe that we'd
have a good sense of something bad happening and be able to at least
focus the right assets toward that.
HEARING COCHAIR BROOKES: So it's issues outside of cyberspace? In
other words, you're saying an issue such as political tensions would
be an indication, but that we may have none in cyberspace?
COLONEL McALUM: I'm not going to say we don't have these. I'm
just saying it might be a challenge.
HEARING COCHAIR BROOKES: Okay. Would anybody else like to weigh
in on that?
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DR. MULVENON: I would just say that one of the interesting
insights from the Chinese literature where I think in many ways they
may be ahead of us about this is when they often argue that a compute
network attack will by necessity be a bolt from the blue, particularl
against a high tech enemy, because that's the only place that you can
get an advantage, and that you have to do very meticulous computer
that.
People can disagree about whether you would have a confidence
level in carrying out that kind of attack simply with passive network
reconnaissance or whether you actually need to reach out and touch
things.
But what the Chinese military argues in its internal writings is
that that's all you're going to get, is the bolt from the blue,
because unlike in our system where we potentially see it as a force
multiplier at every stage of Netcentric warfare, because of the fact
that all of that network reconnaissance will then go out the window,
because the adversary will either then patch the target set, take the
target set offline and unplug it if you can if it's not mission
critical.
But whatever is going to happen, you have a much lower level of
confidence you can communicate to your leadership that in real time
against an adversary that has full shields up, 24-hour alert, that
you're then going to be able to find new fresh zero day
vulnerabilities against that network with which to exploit, or that
you're even going to be able to use the potential malware that you
have imbedded in the system because of the nature of the network.
And so they argue the bolt from the blue is really to kneecap the
high-tech adversary at first, but not necessarily be able to conduct
those attacks throughout the whole course of the conflict.
HEARING COCHAIR BROOKES: Mr. Thomas.
MR. THOMAS: Taking a little different approach on this, if you
were looking at what they're saying internally, they're also saying we
don't even want the other side to know that a bolt from the blue
happened, that there would be no indication and warning. The example
that they give quite often is, "how do you make a cat eat a hot
pepper?"
And they relate that "you can jam the pepper down the cat's
throat, you can wrap it in cheese, or you can crush it, spread it on
its back and let the cat lick itself." This self-accommodating idea is
strategy, that you got the cat to do what you wanted it to do without
the cat realizing what had happened.
So this whole self-accommodating idea fits very well within that
bolt from the blue. The Chinese do talk about the fact that
reconnaissance offers you the ability to take the initiative, and more
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the ability, like Jim was saying, to know where those holes are and
the vulnerabilities. But that's just a little bit different take on
what they had to say.
HEARING COCHAIR BROOKES: Are we going to see reconnaissance? How
does a cyber attack evolve? Would we see reconnaissance first? Is
there something or is that not necessary?
COLONEL McALUM: I would say sure, you might see some scanning
take place. I would tell you that's going on all the time. It's high
volume every single day, not just against DoD but throughout U.S.
government.
I would also tell you there's a lot of things you can discover
without ever penetrating another person's network. Those
vulnerabilities, you could do a lot of research on your own open
source to discover vulnerabilities that could be exploited at another
time.
As previously mentioned, I would reiterate there's an underground
market for zero day vulnerabilities that can be sold and then
stockpiled for later use. So reconnaissance could be one form of some
sort of indications and warning. You probably wouldn't see it in the
noise level that we're dealing with today, but you might, so I would
just say there's multiple ways to gain insight that something is about
to happen.
HEARING COCHAIR BROOKES: Anything else?
MR. THOMAS: A direct quote from the former Director of the Third
Department, the Information Warfare Department: "Computer network
reconnaissance is the prerequisite for seizing victory in warfare. It
helps to choose opportune moments, places and measures for attack."
And he talks about it quite openly.
HEARING COCHAIR BROOKES: Okay. Commissioner Fiedler.
COMMISSIONER FIEDLER: A couple of things. I'm going to return for
a moment to the critical infrastructure question, and since most of
you are DoD oriented, let me ask it this way. Is every defense
contractor required to report intrusions within a short time period?
DR. MULVENON: Well, sir, as someone who recently in the last
three years built 20,000 square foot of defense security service
certified space, I can tell you yes. If those defense contractors have
in particular contracts with the Department, in particular if they
have a security clearance through the Department, they are absolutely
obligated under their AIS plan to report any and all of those
intrusions.
COMMISSIONER FIEDLER: Within how long?
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DR. MULVENON: I couldn't tell you how long it is, but the longer
you wait, the more suspicious it looks.
COMMISSIONER FIEDLER: I do know that. Do you know, Colonel?
COLONEL McALUM: No, sir, I can't tell you exactly. I do know that
there's an effort underway that's hosted over at the OSD level working
with defense industrial base companies to improve the reporting
processes that are out there today and hopefully to speed up that
process. I can't tell you exactly what the requirement is.
COMMISSIONER FIEDLER: Okay. Then I suspect the answer to my
question about whether or not power companies are required to report
intrusions to the Department of Homeland Security is probably
nonexistent; is that correct? Anybody know?
COLONEL McALUM: Sir, I don't know. I would refer back to
Presidential Decision Directive 63. It talks about critical
infrastructure protection. There's a series of information sharing and
analysis centers across critical infrastructures. I suspect reporting
of that type, if it's taking place, would probably come through that
channel, which is not necessarily official reporting.
COMMISSIONER FIEDLER: And let me try to put the recon issue into
perspective. Everything you've talked about operating at the speed of
light here or faster with computers seems to me to make people's
reconnaissance somewhat obsolete rapidly, therefore necessitating
constant reconnaissance.
Am I missing something here? On vulnerabilities of networks?
DR. MULVENON: Well, no, but there's a real tension there. In
different communities within the system, you'll hear people say please
don't let your computer network attack operations screw up my computer
network exploit operation in the sense that the more computer network
reconnaissance you do, the more danger you arouse of the adversary
potentially detecting that reconnaissance and patching the very
vulnerabilities you were planning on exploiting.
So there's a real cost curve there that you have to deal with,
and you don't want to obviate the value of all that computer network
reconnaissance that you had just done.
So now, it may, in fact, if you are a smaller power, a less
capable power, it may in fact not necessarily be against your
interests for the adversary to know you're engaged in that kind of
probing because, as Tim said, it may in fact be part of your
information deterrence campaign.
It may be designed to keep you guessing about just exactly where
people might be in your network and reduce your confidence level in
the performance of those networks.
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But at the same time if you really want to use it in a
warfighting context, that's why these types of activities, if they go
on within our system, are very highly classified and compartmented.
COMMISSIONER FIEDLER: Thank you.
HEARING COCHAIR BROOKES: We have just a few moments left so maybe
if we could get both Commissioners Wessel and Blumenthal to give their
questions and then let them answer, that might be the most
expeditious.
COMMISSIONER WESSEL: That's fine. I wanted to follow up briefly
on the line of questioning that Commissioner Mulloy, who is gone now
for a moment, had raised about possible liability and other issues
because there seemed to be some view that imposing the burden on ISPs
to look at outbound traffic might be an appropriate way of ensuring
greater security on the network.
I think we've seen a problem with that in China where national
security has been so broadly defined that the Chinese want ISPs and
routing companies to limit the words "Tiananmen," "freedom," and other
issues, which has raised concerns here in the U.S.
I'm not necessarily looking at an ISP looking at all of the
traffic going into my network or my home computer to review whether
there are pixelated viruses or whether whatever standard there is. I
think it's actually intended on the user. That's where the liability
But there seemed to be some receptivity, I just wanted to raise a
question as to whether there are broader issues here we should be
looking at in depth?
COMMISSIONER BLUMENTHAL: I also wanted to follow up on some of
the legal issues that this new type of conflict might raise, more in
terms of operational law and recommendations we can make to the
Congress.
It seems like on the spectrum of conflict, reconnaissance and
espionage that's going on everyday, as we've heard, there's probably
not--you can correct me--I'm making kind of propositions and
assumptions that may not be correct--but there's probably not too much
military or operational law that covers those types of activities
in terms of the types of responses we can take.
But if you move down the spectrum from denial of service,
imaginable hypotheticals, the disruption of electricity in the United
States or in allied territory that actually ends up killing or harming
people because of the denial of service, that can somehow be
attributable to the Chinese, have we developed our operational laws in
ways that we would have a framework for response and a way that we can
go to the Chinese and say if such and such happens under the laws of
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armed conflict, we can take a kinetic response in certain
circumstances?
And if not, where do we need to develop those areas of law and
particularly suggestions we can make to the Congress to pursue those
areas of law in this new area of conflict?
DR. MULVENON: I would say that on the ISP burden issue, in many
ways, the irony is that the Chinese, we talked about 50,000 Internet
police. That's not the secret of Chinese Internet censorship. The
secret to Chinese Internet censorship in addition to the very
technically capable firewall, which came later, was initially very
successful because they wrote an ISP law that said an ISP was simply
responsible for the activities of all of its subscribers.
And so what the ISPs did was they hired people to sit in chat
rooms and bulletin boards, which is a fate worse than death as far as
I could tell, but to just sit there and kick people off who engaged in
political content and everything else, and so they pushed the burden
down to the ISP level, now, admittedly, used for evil purposes, but a
market-based solution nonetheless because what they said they would do
is they would put the ISP out of business if it violated that
particular rule.
I can imagine one governed by perhaps a bit more of an
enlightened principle such as the defense of the United States that
might work a little bit better.
On the legal side, Commissioner Blumenthal, there's been a
tremendous amount of work done on this over the last ten or 15 years
in the Department, but I would still say that there is also still
tremendous ambiguity and lack of assurity that the legal frameworks
are in place in many cases for this to move forward, but those
discussions about where those lines are and what the criteria are and
everything else I think are being addressed by the current
presidential initiative and are certainly very sensitive.
COMMISSIONER BLUMENTHAL: Anyone else on that?
COLONEL McALUM: Going back to the item on the ISPs, I think it
would be a question of degree. I think the general public perception
is if ISPs get involved and are liable, I'm going to give up
privacy, and I think it's a question of degree, who's reading my
e-mail?
There's certain types of malicious software and packets and
attachments that nobody has to open up to figure out they're bad.
There are tools that will allow you to scan it and determine it's bad.
Why would you ever allow a buffer overflow attack come into the
network? You can stop that upstream, not a problem.
Again, I think it's really a question of degree. I think ISPs can
be held liable to a certain degree for a certain type or level of bad
traffic, and then beyond that, I think we would have to progress and
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evolve on how much exactly we would want them to be liable for. I
think it would have to be well defined up front, and I have nothing to
add on the operational law.
COMMISSIONER WESSEL: No. My comment was this is simply a more in-
depth conversation we need to have that there is no easy answer, and
Dr. Mulvenon, I guess the question of enlightened implementation,
there's been some questions of the enlightened implementation of the
Patriot Act that some have had. So there are standards that have to be
looked at very carefully.
DR. MULVENON: Commissioner, all I would tell you is that as a
civil libertarian, I'm a robust user of personal encryption.
HEARING COCHAIR BROOKES: We'll end the panel on that note. Thank
you very much for your testimony on this very important issue.
We'll adjourn for five minutes before we start the next panel.
[Whereupon, a short recess was taken.]
PANEL IV: ADMINISTRATION PERSPECTIVES
HEARING COCHAIR REINSCH: In our never-ending battle to keep on
schedule, we're going to reconvene.
The next panel is not a panel; it's an individual. We are happy
to welcome Ms. Patricia McNerney, who serves as Principal Deputy
Assistant Secretary of State for International Security and
Nonproliferation.
Her key responsibilities involve diplomatic efforts to address
the proliferation challenges including Iran and North Korea;
counterproliferation efforts to address the proliferation activities
of states of proliferation concern and terrorists; implementation of
multilateral treaties and initiatives and assistance programs; and
support for civil nuclear programs consistent with nonproliferation
principles.
Previously, she served as the Senior Advisor to the Under
Secretary of State for Arms Control and International Security
Affairs,
and served as the Republican Staff Director to the Senate Select
Committee on Intelligence, and the Chief Counsel to the Senate
Committee on Foreign Relations.
Thank you for being with us today. As per our rules, your full
statement will be placed in the record, and we'd ask you to limit your
oral remarks to seven minutes so that we have plenty of time for
questions.
Thank you very much.
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STATEMENT OF MS. PATRICIA McNERNEY, PRINCIPAL DEPUTY ASSISTANT
SECRETARY OF STATE FOR INTERNATIONAL SECURITY AND NONPROLIFERATION
WASHINGTON, D.C.
MS. McNERNEY: Thank you, Mr. Chairman, and thank you for the
opportunity to appear before you today to discuss China's
nonproliferation practices.
In my opening remarks, I'd like to point out a few areas where
the U.S. and China have successfully cooperated on matters of
nonproliferation, areas of some continuing concern, as well as some
promising areas for new cooperation.
Let me say at the outset that the United States remains committed
to working toward a relationship with China that enhances America's
security, addresses China's legitimate concerns, and supports the
security interests of our friends and allies.
We continue to engage China on nonproliferation matters in a
constructive and forthright manner, building upon shared interests
when possible, and raising concerns when necessary.
For its part, Beijing now recognizes that it has fundamental
security interests in preventing the spread of weapons of mass
destruction. It's now a party to the Nuclear Nonproliferation Treaty,
the Biological and Toxin Weapons Convention, the Chemical Weapons
Convention, is a member of the Nuclear Suppliers Group and the Zangger
Committee.
China has been cooperative on efforts relating to North Korea and
Iran. In the case of North Korea, China has made it clear that it does
not condone Pyongyang's nuclear aspirations. They have joined the
Security Council in unanimous votes to adopt sanctions resolutions,
particularly 1718, following the North Korean nuclear tests, and
they've continued to serve as the host of the Six Party Talks.
With regard to Iran, China shares our goal of preventing Tehran's
acquisition of a nuclear weapons capability. Though differences of
opinion remain on how best to achieve this end, China has joined with
the other members of the Security Council in adopting Security
Council Resolutions 1713, 1747, and just recently 1803. As a
member of the so-called P5+1, China has reiterated that should Iran
continue to refuse to verification and compliance, additional
sanctions will be necessary to augment those that are already in
place.
Beyond this multilateral cooperation, China has expressed an
interest and, in fact, taken actions with regard to export control
cooperation including technical exchanges and training. To the extent
that it's permissible within the law, we have endeavored to provide
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such assistance. For example, we have worked through our Export
Control and Related Border Security Program to provide training to
Chinese licensing and enforcement officials in areas such as practical
inspection, targeting and investigation techniques.
Chinese nonproliferation policies have improved. However, a
number of Chinese entities continue to supply to regimes of concern
items and technologies useful in the weapons of mass destruction,
their means of delivery and advanced conventional weapons. China
continues to have important deficiencies in its export control system,
particularly with regard to thorough implementation, transparent
enforcement, and possibly willingness.
We still observe Chinese firms and individuals transferring a wide
variety of weapons-related material and technologies to customers
around the world including Burma, Cuba, Iran, Sudan and Syria. We're
particularly concerned that Chinese firms have continued to supply
Iran with a range of conventional military goods and services in
contravention of the restrictions of the Security Council resolutions.
Evidence indicates that Iran has transferred weapons to Shia militants
in Iraq as well as terrorists groups such as Hezbollah and the
Taliban. For example, an Iranian version of the Chinese MANPADS system
was used in Iraq in 2004. In addition, a Chinese QW-1, that we believe
was provided by Iran, was recovered in Basra just this past April. We
sanctioned a number of Chinese entities under the Iran and Syria
Nonproliferation Act and pursuant to Executive Order 13382 for the
sale of items on multilateral control lists or items with the
potential to make a material contribution to ballistic or cruise
missile programs or WMD programs.
China must devote additional resources to increased enforcement,
rigorous implementation of catch-all provisions, and more
investigations and prosecutions of violators of their laws. Moreover,
China should share timely and substantive information on actions the
government has taken in response to U.S. requests. We will continue as
warranted to impose sanctions against Chinese entities engaged in
proliferation and will continue to highlight our ongoing concerns
about China's proliferation record with the government.
Sanctions, of course, always remain an option to deter
proliferation behavior. We also need to develop effective inducements
that make clear it is in the best interests of China to enact and
enforce rigorous nonproliferation policies. I'd like to discuss one
particular initiative that my bureau has pursued.
There are a number of Chinese entities that after being
sanctioned by the United States for proliferation related activity
have seen their international reputations damaged and their exports
dramatically reduced. Several sanctioned firms have expressed an
interest in taking actions that would result in the relief from these
sanctions.
This desire to come out from under sanctions gives us great
leverage. As part of a broader nonproliferation strategy, we've held
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discussions with two major Chinese companies: the China North
Industries Corporation, or NORINCO, and the China Great Wall
Industries Company, both of whom have been sanctioned in the past for
their proliferation-related activities. We've made absolutely clear to
these entities that any trade in technologies useful in WMD programs
or delivery systems would constitute proliferation-related behavior
and would subject them to possible future sanctions. But we've also
indicated that their decision to cease such proliferation activity
would be recognized by the United States. A commitment to end
proliferation-related activity would increase prospects that Western
companies and international financial institutions would consider them
to be legitimate corporate entities.
The response thus far has been very encouraging. The effort is,
of course, only in its early stages. We need to ensure that these
entities actually perform as they have pledged. However, the possible
impact of success would be dramatic. To have NORINCO, a firm that has
been sanctioned seven times since 2001, get out of the proliferation
business would be a very positive development and one that could serve
as an example to other Chinese companies.
In conclusion, the United States will continue to press China to
implement effectively its export control regulations, eliminate
loopholes in its laws, and reign in the proliferation activities of
certain companies, and we'll continue to work with Chinese entities
that have a serious desire to become corporate citizens of the
international business community.
Continued proliferation by Chinese entities to countries of
concern is neither in the U.S. interests nor in China's. Working
together, however, we believe we can build upon a shared commitment to
ensure an end to such proliferation activity.
Thank you.
[The statement follows:]
Prepared Statement of Ms. Patricia McNerney, Principal Deputy
- 91 -
Assistant Secretary of State For International Security and
Nonproliferation, Washington, D.C.
Chairman Reinschmmissioner Brookes, Commissioners of the U.S.-
China Economic and Security Review Commission, I'd like to express my
appreciation for the opportunity to appear before you today and
discuss China's nonproliferation practices. In my opening remarks I'd
like to point out areas where the United States and China have
successfully cooperated on matters of nonproliferation, areas of
continuing concern, and some promising areas for new cooperation.
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Let me say at the outset that the United States remains committed
to working toward a relationship with China that enhances America's
security, addresses China's legitimate concerns, and supports the
security interests of our friends and allies. To that end, we continue
to engage China on nonproliferation matters in a constructive and
forthright manner - building upon shared interests when possible and
raising concerns when necessary. We remain committed to expanding our
areas of common interest with China, and improving our existing
cooperation on nonproliferation. At the same time, we have serious
concerns about the proliferation activities of certain Chinese
entities and we continue, when necessary, to take action in response
to those activities. We work constructively with China on a number of
important proliferation issues, yet we also have made it clear that
China must do more to halt the spread of WMD, missiles, and
conventional weapons and related technologies.
Areas of Chinese Cooperation
The Government of China has come to recognize that it has a
fundamental security interest in preventing the spread of weapons of
mass destruction. In many ways, it has demonstrated its interest in
becoming a responsible nonproliferation partner. It is now a party to
many international nonproliferation instruments, including the Nuclear
Nonproliferation Treaty (NPT), the Biological and Toxin Weapons
Convention (BWC), the Chemical Weapons Convention (CWC), and is also a
member of the Nuclear Suppliers Group (NSG) and the Zangger Committee.
China has adopted export controls similar to the Australia Group
control lists on chemical and biological related items, and has
enacted missile-related export controls. And, the Government of China
has approved a series of new laws and regulations designed to
establish comprehensive national export control regulations.
China has cooperated in efforts to put pressure on Iran and North
Korea via their role in the Six Party Talks. In the case of North
Korea, China has made it clear that it does not condone Pyongyang's
nuclear aspirations but admittedly has not actively cooperated to
ensure closure of North Korean front companies inside China that
facilitate proliferation or the Chinese companies that supply them.
Following North Korea's missile launches of July 2006, and its October
2006 nuclear test, China joined in the Security Council's unanimous
vote to adopt strong measures under UNSCR 1695 and UNSCR 1718, the
latter of which imposed Chapter VII sanctions including a prohibition
on transfers to North Korea of a broad range of conventional weapons,
WMD-related items and luxury goods. China continues to serve as host
to the Six-Party Talks, and has played a constructive role in
formulating and implementing both the February 13, 2007 Initial
Actions and the October 3, 2007 Second-Phase Actions agreements. With
Chinese cooperation, the Six-Party process has brought us to the point
where North Korea has agreed and begun to disable the three core
facilities at Yongbyon -- the 5MW(e) Experimental Reactor, the
Reprocessing Plant (Radiochemical Laboratory), and the Nuclear Fuel
Rod Fabrication Facility. As we work to ensure that North Korea honors
its commitments, continued Chinese support is pivotal in maintaining a
united front.
With regard to Iran, China shares our goal of preventing Tehran's
acquisition of a nuclear weapons capability.
Though differences of opinion remain on how to best achieve this end,
China has supported sanctions as a mechanism to increase pressure on
Iran. China joined the other members of the Security Council in
adopting UN Security Council Resolutions 1737 and 1747, and, just this
March, UNSCR 1803.
These Security Council resolutions impose a series of Chapter VII
sanctions on Iran. Among other things, these resolutions require
Member States to prevent the supply to Iran of certain items,
technology, training or financial assistance that could contribute to
its proliferation-sensitive nuclear activities or its development of a
nuclear weapon delivery system. The resolutions also require Member
States to freeze the assets of entities and individuals who are
identified in the UNSCR Annexes as having a significant role in Iran's
nuclear and missile programs, and those acting on their behalf, or
owned or controlled by them. Moreover, these resolutions prohibit Iran
from exporting arms, urge Member States to restrict heavy arms
transfers to Iran, and call for vigilance in the activities of
financial institutions in their territories with all banks domiciled
in Iran and their branches and subsidiaries abroad. Resolution 1803
calls on states to inspect certain cargo to and from Iran to prevent
trafficking in the items prohibited under the relevant resolutions,
and also targets those who have assisted designated entities and
individuals in evading or violating UNSC sanctions. As a member of the
P5+1, China has reiterated that, should Iran continue to refuse
verification and compliance negotiations, additional sanctions will be
necessary to augment those already in place.
These Chapter VII sanctions imposed on Iran and the DPRK send a
clear and compelling signal that the international community will not
tolerate the proliferation of weapons of mass destruction. And it is
up to the entire international community to remain unified and
consistent in its message to North Korea and Iran that international
concerns regarding their nuclear and missile ambitions must be
resolved.
Beyond our cooperation in multi-lateral venues that address
proliferation, there are a number of instances where the Chinese have
expressed an interest in export control cooperation, including
technical exchanges and training. To the extent that it is permissible
within the law, we have endeavored to provide such assistance.
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One such example is the State Department's Export Control and
Related Border Security (EXBS) Program, which has supported training
for Chinese licensing and enforcement officials. Since 2006, the EXBS
program has coordinated two training events to help Chinese Customs
officers identify controlled commodities. These events were sponsored
by the Department of Energy's International Nonproliferation Export
Control Program (INECP) and took place in Shanghai and Dalian,
focusing on training Chinese frontline Customs enforcement officials
and technical experts responsible for interdicting illicit shipments
of WMD-related, "dual-use," strategic commodities. EXBS also plans to
offer Chinese Customs seaport interdiction training at the working
seaport in Charleston, South Carolina.
Other interdiction-related activities include China's
participation in the Department of Homeland Security's Container
Security Initiative and the Department of Energy's Megaports
Initiative. Both initiatives are aimed at improving detection of
radiological and nuclear items at seaports.
In the area of industry-related export control-related training,
EXBS sponsored a successful "Industry-Government Forum" for Chinese
inter-ministry participation in mid-January, and plans to work with
China on its development of an industry "Internal Control Program."
Additionally, in coordination with the EXBS program, the INECP program
is collaborating with the China Atomic Energy Authority (CAEA) within
the CAEA-DOE Peaceful Uses of Nuclear Technology (PUNT) framework on
the development of technical guides on nuclear and nuclear dual-use
materials, equipment and technology. It is expected that these guides
will enhance the capacity of Chinese licensing and industry specialist
to evaluate export license applications and train Chinese industry and
enforcement officials.
For the future, we expect China will agree to further exchanges
on a wide variety of legal regulatory, industry outreach and
enforcement issues, including practical inspection, targeting, and
investigation techniques.
In addition to bilateral training initiatives, we also hope that
China will join the Proliferation Security Initiative (PSI), which was
created by President Bush to facilitate cooperation in the
interdiction of nuclear, chemical and biological weapons, their
delivery systems, and related technologies. The hallmark of the PSI is
the close, innovative interaction between diplomatic, military,
intelligence, law enforcement, and economic tools to combat
proliferation. The PSI has become an important tool to interdict
shipments, disrupt networks, and hold companies accountable for their
activities. Beijing has thus far been reluctant to join with the
almost 90 nations participating in the PSI, citing legal concerns. It
also is quite possible that Beijing feels it must take regional
concerns into account regarding its participation in the PSI, even
though we have repeatedly clarified that PSI is not directed at any
particular country. China's commitment and participation in the PSI
effort would be in keeping with China's stated commitment to
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nonproliferation and would be a valuable contribution to international
security. We will continue to address Beijing's concerns and emphasize
that all PSI actions are taken in accordance with states' domestic
authorities and international law.
Real Concerns Remain
The proliferation policies of the Government of China have
improved. However, a number of Chinese entities continue to supply
items and technologies useful in weapons of mass destruction, their
means of delivery, and advanced conventional weapons to regimes of
concern. We continue to find that China has important deficiencies in
translating its declared nonproliferation objectives into its export
control system, particularly with regard to thorough implementation,
transparent enforcement and possibly, willingness.
We continue to engage the Chinese government in an effort to halt
commercial transactions that violate UNSC Chapter VII sanctions,
nonproliferation norms, and Chinese law, but our efforts are met with
mixed results. We still observe Chinese firms and individuals
transferring a wide variety of weapons-related materials and
technologies to customers around the world that we judge would use or
retransfer the weapons in a manner that threatens regional stability
and international security - including to Burma, Cuba, Iran, Sudan and
Syria.
In addition, we have raised with the Chinese government our
concerns that Chinese seaport facilities and international airports
are transit and transshipment points for governments and entities that
wish to ship sensitive materials to programs of proliferation concern.
Certainly we would hope that China wishes to avoid a global reputation
as a safe transit and transshipment point for foreign proliferators.
Judging the extent to which the Chinese government or Chinese
officials are witting of the proliferation activity of Chinese
entities is difficult given the lack of transparency noted earlier.
One factor enabling proliferation activities is the decentralization
that has become a key feature of China's economic reform. We simply do
not know enough about China's export control regime, and cannot assess
the level of control or awareness that Chinese officials have over
increasingly free-wheeling companies that trade in dual-use materials
applicable to WMD and their delivery systems. These transfers remain a
serious concern, and we will continue to press Chinese officials to be
vigilant and act vigorously to investigate and enforce their export
control regulations.
We are particularly concerned that Chinese firms have continued
to supply Iran with a range of conventional military goods and
services in contravention of the restrictions within these UN Securit
Council Resolutions. Inevitably, some of this weaponry has found its
way to insurgents and militants operating in Iraq, as well as
Hizballah terrorists in the Levant. The United States has sanctioned
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number of Chinese entities under the Iran and Syria Nonproliferation
Act and Executive Order 13382 for the sale of items on multilateral
control lists or items with the potential to make a material
contribution to ballistic or cruise missile programs or WMD programs.
With specific reference to conventional weapons, China, like man
other countries, views its trade in conventional weapons as helping
nations to meet their perceived defense needs and asserts that these
transfers are in accordance with international norms. Despite this
assertion, evidence indicates that Iran has transferred Chinese
weapons to Shia militants in Iraq as well as terrorist groups such as
Hizballah.
For example, the Misagh-1 (the Iranian version of a Chinese MANPADS
with Chinese components) was used in Iraq in 2004. In 2006, a Chinese
C-802 anti-ship cruise missile, which has been supplied only to Iran
in the region, was used by Hizballah to attack an Israeli naval
vessel. China appears to accept at face value the end-use assurances
and pledges against retransfers it receives from its customers,
despite the fact that some of its customers have links to terrorists
and have records as unreliable end-users, such as Iran. Nevertheless,
China has demonstrated sensitivity to growing international concerns
about recipients of some of its arms sales, notably Sudan. We continue
to seek greater Chinese cooperation in curtailing transfers to state
sponsors of terrorism and in stricter and more uniform application of
its export control safeguards.
We have discussed with China the importance of addressing its
weak export control enforcement and detection capabilities in order to
rein in the proliferation activities of certain Chinese companies. If
China is to have in place a rigorous export control system, it must
devote additional resources, increased enforcement, rigorous
implementation of catch-all provisions, and more investigations and
prosecutions of violators of its export control laws. Moreover, we
have encouraged China to share timely and substantive information on
actions the government has taken in response to U.S. demarches. A
level of transparency in China's nonproliferation activity is
absolutely essential; heretofore this has been notably lacking. We
will continue, as warranted, to impose sanctions against Chinese
entities engaged in proliferation and will continue to highlight our
ongoing concerns about China's proliferation record with the Chinese
government.
An area of potential concern is possible additional Chinese
support for Pakistan's civil nuclear program. As a member of both the
NPT and the NSG, China has shown its commitment to enforcing
international nonproliferation and export control norms. When China
joined the NSG in 2004, it made a statement regarding the safeguarde
nuclear facilities in Pakistan it would continue to support as
"grandfathered." These are: the Karachi nuclear power plant; Chasma
nuclear power plants 1 and 2; and Parr research reactors 1 and 2.
Recently, Pakistan has expressed interest in increasing domestic
nuclear power generation and has made overtures to China for support
This is something we continue to watch closely to ensure both that
China abides by its commitments to the NSG and to ensure that ongoin
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Chinese cooperation with Pakistan does not support Pakistan's un-
safeguarded nuclear weapons program.
Areas of Promising New Cooperation
Sanctions, of course, always remain an option to deter
proliferating behavior. We have made an effort to use these sanctions
in a targeted and constructive way. Avoiding those sanctions is a
strong inducement for legitimate Chinese corporations to enact and
enforce rigorous nonproliferation policies. As an alternative to
sanctions, we have worked to encourage China to become a willing
partner in addressing a common nonproliferation agenda.
Mr. Chairman, to this end, I would like to discuss one particular
initiative that my bureau has pursued. As I have already noted, there
are a number of Chinese entities who, after being sanctioned by the
U.S. for proliferation related activity, have seen their international
reputations damaged and their exports dramatically reduced. Several
Chinese firms sanctioned under U.S. law or Executive Order have
expressed an interest in taking actions that would result in relief
from the sanctions. We can leverage this desire by Chinese firms to
come out from under sanctions and advertise the tangible benefits that
can accrue to companies that wish to abandon proliferation.
As part of a broader nonproliferation strategy that we devised
last year, we held discussions with two major Chinese companies - the
China North Industries Corporation (NORINCO) and the China Great Wall
Industries Company (CGWIC) - both of whom have been sanctioned
repeatedly in the past for proliferation-related activities. We have
made absolutely clear to these entities that any trade in technologies
useful in WMD programs or delivery systems would constitute
proliferation-related behavior, and would subject them to possible
future sanctions. We also continue to make it clear to them that any
conventional arms transfers to countries such as North Korea and Iran
are equally unacceptable. But, we have indicated that their decision
to cease such proliferation activity would be recognized by the United
States. A commitment to end their proliferation-related activity and
concrete, positive action towards this end would likewise increase
prospects that Western companies and international financial
institutions would have no concerns in developing broad economic and
trade ties with these Chinese companies.
The response of NORINCO and CGWIC has been very encouraging. Both
companies have adopted comprehensive internal compliance programs and
are implementing policies to ensure that inadvertent transactions do
not occur. NORINCO, for example, has committed to refrain from selling
armaments to North Korea or Iran and claims to have turned down over
$100 million in potential contracts with sanctioned regimes. And there
are indications that the positive results are not limited only to
these two companies. I fully anticipate that if tangible benefits of a
solid nonproliferation record begin to accrue, additional Chinese
companies will seek to emulate the nonproliferation policies of
NORINCO and CGWIC.
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This effort is, of course, only in its early stages. We need to
ensure that these entities actually perform as they have pledged. We
need to make sure they do not simply spin-off their proliferation-
related activity to subsidiaries or sister companies so that the
problem remains under another guise. And, these companies need to
demonstrate that they are committed to the path of good corporate
citizenship over the long haul. However, the possible impact of
success would be dramatic. To have a commitment from a company such as
NORINCO, a firm that has been sanctioned seven times since 2001, to
get out of the proliferation business is a very positive development
and one that could serve as an example to other Chinese companies. I
am guardedly optimistic that our efforts can bring about meaningful
results.
Conclusion
The United States will continue to press China to implement
effectively its export control regulations, eliminate loopholes, and
reign in the proliferation activities of certain companies. And we
will continue to work with Chinese entities that have a serious desire
to become good corporate citizens of the international business
community. Continued proliferation by Chinese entities to countries of
concern is neither in U.S. interests, nor China's. Working together,
we can build upon our shared commitment to ensure an end to such
proliferation activity.
Panel IV: Discussion, Questions and Answers
HEARING COCHAIR REINSCH: Thank you.
Commissioner Videnieks.
COMMISSIONER VIDENIEKS: What is the scope or how do we define
proliferation now? I just heard you mention advanced conventional
weapons as being included. It used to be just WMD and CBR maybe. So
that's the question basically. What is the scope and when did advanced
conventional weapons-- and what are they--get added, and how about the
AK-47s?
MS. McNERNEY: Yes. Obviously, we've always obviously been
concerned about chemical, biological and nuclear ballistic
missile systems, but the Iran, Syria, Nonproliferation Act, now the
Iran, North Korea, Syria Nonproliferation Act added conventional
weapons as an area that we have to review for sanctions activity. As a
result of that act of Congress, Chinese companies that are supplying
conventional weapons to Iran are subject to sanctions under U.S. law.
COMMISSIONER VIDENIEKS: How about the foreign military sales? How does
that fit into--I mean a sale is a method of proliferation. It's a
tool.
MS. McNERNEY: Sure. Yes.
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COMMISSIONER VIDENIEKS: I guess the recipient is the one that
determines whether it's negative or positive; right?
MS. McNERNEY: Yes. For example, take NORINCO. They have long-
standing contracts with Iran for conventional weapons. That has been
an area that we have tried to encourage China to get out of the
business of selling weapons, even conventional weapons, to Iran, to
Syria, to North Korea, because of the destabilizing influence of those
weapons. And even when NORINCO does sell the weapons, they are
consistent with what they perceive as their laws and responsibilities.
But we do appreciate your work. Perhaps this thread should be pinned as a sticky for permanent future reference?