And there were voices that said no, it does not make sense. I
think Secretary McNerney's testimony stands for the proposition that,
in fact, you can see results as a consequence of U.S. sanctions laws.
One other issue that I address in my testimony is that of
financial sanctions. I would call this a new frontier in U.S.
sanctions policy. It's a frontier that really was opened during the
Bush administration. There was the executive order on WMD financing,
Executive Order 13382, which issued in 2005, as well as a near
simultaneous action under Section 311 of the U.S.A. Patriot Act to
declare Banco Delta Asia a primary money laundering concern because of
its involvement in illicit transactions involving the North Korean
government.
I can tell you as someone who was in the U.S. government at the
time that these two initiatives were undertaken that they really got
the attention of the Chinese government. The Chinese government did
not know what to make of the actions of the U.S. government, but I
think it perceived that they potentially could inflict real economic
pain, perhaps not on the Chinese economy writ large, but on an
additional sector of the Chinese economy that in the past had not felt
any exposure or any risk of exposure because of misconduct in the area
of proliferation, and that was the financial sector of the Chinese
economy.
I describe in my testimony how in the next regularly scheduled
consultation between the U.S. government and the Chinese government
following the adoption of these two measures, for the first time ever,
our Chinese counterparts from the Foreign Ministry arrived in the
company of Chinese banking officials who had lots of questions about
what it was we were up to. What standards were we applying? What was
it that they had to do to avoid finding themselves in the position of
Banco Delta Asia? What criteria would be applied in the freezing of
assets?
With the assistance of officials of the U.S. Department of
Treasury, we very patiently described to them what the U.S.
policy was about, how the executive order worked, how Section 311
worked.
Subsequently, the U.S. Congress amended Section 311 to make it
even more readily available in cases of WMD proliferation. That
occurred during the period of time that I was working for Majority
Leader Frist, and I thought it was a sensible initiative at the time.
I do not believe that that authority has been used by the Bush
administration since it was given to the Bush administration in
September of 2006. But from my first-hand observation of the Chinese
reaction the first time the Section 311 trigger was pulled in
connection with proliferation, I think any suggestion by the Bush
administration that they were thinking of using the expanded authority
now available under Section 311 would certainly get the attention of
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financial institutions, not just in China, but in any country where
proliferation is a problem.
[The statement follows:]
Prepared Statement of the Honorable Stephen G. Rademaker
Senior Counsel, BGR Holding, LLC
Washington, D.C.
Co-Chairmen Reinsch and Brookes, Members of the Commission, I am
honored to appear again before you to discuss China's proliferation
practices. When I last appeared here in 2005 I spoke on behalf of the
Bush Administration; today I will speak on behalf of only myself.
While my remarks today will be less authoritative, I will try to make
them more interesting.
It has been two years since I was regularly reading the current
intelligence on China's proliferation practices, so I must defer to
others on the latest developments and trends in that regard. I think
what I can most usefully present to the Commission is a description of
what it was like as a U.S. diplomat to talk regularly to the Chinese
government about arms control and nonproliferation matters from 2002
to 2006, and some of the principal conclusions I draw from that
experience.
America's Nonproliferation Dialogue with China
As a U.S. diplomat, my engagement with China on these issues was-
with one major exception that I will describe in a moment-with
diplomats from the Chinese foreign ministry. Formal bilateral
consultations on arms control and nonproliferation issues took place
roughly twice a year, more frequently in Beijing than in Washington,
but sometimes here as well. My Chinese counterparts were hard-working,
earnest, and knew how to speak the language of nonproliferation.
In these consultations, the U.S. side would often present the
basic facts of proliferation cases involving specific Chinese
companies, and ask the Chinese side to investigate and stop the
proliferation activity. Our Chinese counterparts would always appear
to take the information seriously and promise to get back to us with
their findings. In a number of cases, when they got back to us they
said that they had confirmed our information and acted against the
company in question. Usually this did not mean that someone had been
prosecuted, but it did appear to mean that the company had been told
to stop proliferating, and so far as I am aware, usually they did.
There was, however, a class of cases-what we came to refer to as
the "serial proliferators"-where no
progress was ever made during my time at the State Department.
Typically with regard to this class of cases, our Chinese counterparts
would report back that they had been unable to confirm our
information, that they were still investigating, and could we help
them by providing more detailed information to substantiate our
allegations? Often in these cases we would impose sanctions pursuant
to the Iran Nonproliferation Act or similar legal authorities, which
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would lead the Chinese to complain that we were acting imperiously and
without regard for Chinese sovereignty or goodwill. There was often
the implicit threat that they might begin to withhold nonproliferation
cooperation in other areas if we continued to act unilaterally against
Chinese companies.
I may be reading something into these discussions that was not
really there, but I often got the sense from body language and other
nonverbal cues that our foreign ministry counterparts were
uncomfortable talking to us about these cases. They conveyed a sense
of pride and accomplishment when they could report to us that they had
made progress on other cases. That same sense was always lacking in
any discussion of the serial proliferators, for obvious reasons.
I never knew for sure what to make of the serial proliferator
problem. I ultimately came to the conclusion that the companies in
question probably enjoyed some sort of "protection" within the Chinese
political system. Either they were owned or controlled by the People's
Liberation Army, were closely connected to the Communist Party, or had
some powerful patron somewhere within the government. Whatever the
reason, it appeared to me that stopping the proliferation activities
of these companies was beyond the bureaucratic power of our
counterparts in the Foreign Ministry. In other words, by the time I
left the State Department I had come to the conclusion that the
problem with the serial proliferators was not that our
nonproliferation counterparts within the Chinese government were
uninterested in reining in these companies, but rather that they were
unable to do so.
While this was frustrating, it nevertheless was, to my mind, a
sign of progress. When I first began following these issues as a
congressional staffer in the 1990s, I would not have said that there
was anyone in the Chinese government who genuinely saw proliferation
as a problem or cared to do anything about it. By the time I left the
State Department I thought this had changed.
I would offer the same general characterization of China's
cooperation with the U.S. Government in other proliferation-related
areas during my time at the State Department. As you know, China has
not been very helpful at the U.N. Security Council in ratcheting up
pressure on Iran to comply with previous Security Council demands that
Iran suspend uranium enrichment. Nevertheless, China has, at various
times, provided unexpected help to the International Atomic Energy
Agency in uncovering the history of Iran's nuclear activities.
With regard to the interdiction of proliferation-related
shipments, China has rejected repeated U.S. requests that it join the
Proliferation Security Initiative. On the other hand, there were times
when, in response, to U.S. requests, China cooperated in particular
interdiction efforts. There were also many times when China declined
to cooperate. But the fact that China cooperated at all-and was
willing to sustain the inevitable damage to its bilateral relations
with the countries against which it was cooperating-was, to my mind, a
promising sign.
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What to Do?
While I believe we have made progress with China on
nonproliferation issues, there obviously remains much room for
improvement. We have no alternative, however, but to continue working
with China in these matters. As we have seen with regard to
proliferation activity by Chinese entities, it is possible to make
progress through firm and patient efforts. With regard to these
entities, I see two ways to make additional progress. One is to figure
out how to empower those within the Chinese government who are
prepared to work with us to stop proliferation. The other is to
directly change the risk/reward calculus of
the Chinese entities in question.
I am not sufficiently expert on the internal dynamics of the
Chinese government to make recommendations on how to strengthen one
bureaucratic faction at the expense of others. As far as changing the
calculus of Chinese entities, however, the record is clear that
vigorous enforcement of U.S. sanctions laws and policies can make a
big difference. U.S. sanctions may not make a big difference to
individuals and to small enterprises that do not worry about their
reputation and their ability to conduct business internationally, but
sanctions can make a big difference to larger Chinese companies. Most
of the serial proliferators from my time at State-companies such as
China North Industries Corp. (NORINCO), Zibo Chemet Equipment Co.,
China National Precision Machinery Import/Export Corp. (CPMIEC), China
Great Wall Industries Corp. (CGWIC), and Xinshidai-fall into the
latter category.
The efficacy of U.S. sanctions is underscored by the State
Department's testimony today that two of these companies-NORINCO and
CGWIC-have in the past year begun a dialogue with the U.S. Government
about how to avoid conduct that could result in their being sanctioned
in the future. This is precisely the kind of result that U.S.
nonproliferation sanctions laws are designed to achieve. The objective
of these laws is not to punish foreign entities for proliferating, but
rather to change the behavior of such entities so they do not
proliferate in the first place. In this sense, the imposition of
sanctions reflects a failure of these laws rather than a success. The
Executive branch should continue to apply U.S. sanctions laws
vigorously so as to encourage additional Chinese companies to follow
the example of these two.
In this connection, I would also note that, in my opinion, we
have only begun to explore the potential for financial sanctions to
affect the behavior of proliferating entities. Two new tools were
introduced during my time at the State Department that immediately got
the attention of the Chinese. These were the issuance of Executive
Order 13382 on proliferation financing on June 29, 2005, and the
designation of Banco Delta Asia as a "primary money laundering
concern" under section 311 of the USA Patriot Act on September 15,
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2005. The Chinese government did not know what to make of these
actions, but it found them alarming.
This was underscored to me in November 2005, when we had another
round of nonproliferation consultations with the Chinese. For the
first time ever, our foreign ministry counterparts were joined in
these meetings by representatives of the China Banking Regulatory
Commission and the People's Bank of China (i.e., the central bank of
China).
These banking officials were clearly eager to learn more about what
we had done, what it meant for the ability of Chinese banks to do
business in the future with entities that have been sanctioned by the
United States for proliferation, and how great the risk was that
Chinese banks themselves might be sanctioned by the United States.
With the assistance of the Department of the Treasury, we
explained to these Chinese banking officials how the new U.S. tools
worked and tried to answer their questions. They were surprised to
learn, for example, that the freezing of assets under Executive Order
13382 extends to all financial transfers by designated entities, not
just transfers that the U.S. Government can demonstrate were related
to proliferation activity. They seemed especially worried about the
broad authority available under section 311 of the USA Patriot Act,
having seen how the application of this authority to Banco Delta Asia
had had devastating consequences for that Macau-based financial
institution.
Congress subsequently amended section 311 to make it more readily
available for use against banks that conduct proliferation-related
transactions. This was done in section 501 of the Iran Freedom Support
Act, which was signed into law in September 2006. To my knowledge,
this expanded authority has never been employed, but the prospect that
it might be used would certainly get the attention of all foreign
banks that service customers involved in proliferation. This in turn
could compromise the ability of proliferating entities to conduct
business through normal banking channels.
China's Diplomatic and Economic Role
In addition to doing more to restrain proliferation by Chinese
entities, the Chinese government needs to do more diplomatically to
help confront the hard cases in proliferation. I have been
particularly disappointed by the level of cooperation China has
provided with respect to North Korea and Iran. I do not share the
Administration's optimistic assessment of Chinese cooperation in these
two cases, and I do not expect us to be able to achieve acceptable
diplomatic resolutions in either case until China agrees to do more.
With regard to North Korea, I will observe only that China has
far more leverage over that country than anyone else, and it has
consistently declined to bring that leverage fully to bear. The
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diplomatic course that we are on today with North Korea has as its
premise-borne of nearly two decades of frustration-that China is
simply unwilling to use all the influence at its disposal to require
more responsible behavior by Pyongyang.
With regard to Iran, ideally the U.N. Security Council would
continue tightening sanctions until the Iranian regime agrees to
comply with the Council's demand that it suspend uranium enrichment
activities. Russia has been the principal obstacle at the Council to
the imposition of tougher sanctions on Iran, but China generally has
backed Russia's position. Perhaps even more damaging, China has
recently become much more aggressive in seeking to advance its
economic interests in Iran. This has provided many U.S. allies in
Europe and elsewhere with a new reason not to join in efforts to apply
multilateral economic pressure on Iran outside of the context of
Security Council-imposed sanctions. Why deny ourselves the benefits of
trade with and investment in Iran, they ask, if the Chinese are going
to simply step in and pick up the contracts that we walk away from?
This concern on the part of our allies is not illogical, and is
proving highly damaging to our efforts to build multilateral pressure
on Iran.
China's aggressive pursuit of economic advantage in Iran is part
of a larger pattern that we are witnessing in Sudan, Zimbabwe, Burma,
and elsewhere. We can all appreciate the resource requirements of
China's growing economy, but we are entitled to expect China to act
more responsibly in all these cases.
Thank you.
HEARING COCHAIR REINSCH: Thank you very much.
Mr. Sokolski.
STATEMENT OF MR. HENRY SOKOLSKI
EXECUTIVE DIRECTOR, THE NONPROLIFERATION POLICY EDUCATION CENTER,
WASHINGTON, D.C.
MR. SOKOLSKI: Maybe it's because I've been out of government for
a longer period of time, I get nervous so I am going to read my
testimony. I find that the longer you're away from government, the
more complicated things get. You read more. I'll try to keep this
simple though.
First of all, I think the work you folks are doing actually is
more important than even most people think. The oversight function in
Congress is I think imploding, and so the importance of things like
this Commission actually are going up.
They don't hold hearings, not routine ones, and certainly not on
this series of topics, as much as I think they need to. So I feel
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honored to be asked to come here.
I guess the message I'm going to try to convey today is
everything you just heard, absolutely correct, but we're going to have
to do a lot more and think bigger about the problem besides looking
for violations of international and U.S. nonproliferation rules by the
Chinese.
I think it would be nice if nuclear proliferators went out of
their way to violate these rules, but I think they're getting smarter,
so China doesn't really offer M-9 missiles to countries like Syria
anymore. Why? Well, that would trigger sanctions.
On the other hand, Chinese front companies recently funneled
North Korean-purchased dual-use nuclear goods to this Syrian reactor
project. It's far harder to track and almost certain to go
unsanctioned.
So should we reduce our efforts to monitor such transactions? I
think as Steve laid out, of course not. But if you want to assure that
we're doing all we can to reduce further Chinese-induced
proliferation, I think you're going to have to track some additional
trends.
Besides increasing covert and indirect strategic technology
transfers to countries like Pakistan and Iran, we will now also need
to worry about how Beijing might divide us from our closest Asian
security allies. I'm talking about Japan, Taiwan, and South Korea --
governments that so far have skipped going nuclear or ballistic.
In addition what choices China makes to expand its domestic
civilian and nuclear export programs will have a major impact on how
much more nuclear weapons capable Pakistan, Iran, Saudi Arabia and
other Middle Eastern states are likely to become.
Finally, whether and how China decides to increase its own
nuclear weapons deployments will directly influence the weapons
ambitions, not only of Beijing's East Asian neighbors, but of India,
Pakistan, Russia, France, the UK, and the U.S.
This is another way of saying China now is a serious nation. It's
not just a cheater; it's a player. So you have to worry about it as if
it was more like Russia in an active sense. This gives rise, I think,
to three suggestions.
By the way I go into great detail in the testimony on what
they're doing in East Asia and the Pacific and other places, not so
much to say oh, well, it's obvious they're going in a bad direction,
but rather to show you what they're worried about and how contingent
things are, and therefore it's worth watching these bigger trends.
In addition, I'm going to give you three big ideas, maybe a
little wooly-headed, but I think important for modifying or adjusting
our policies to deal with these bigger contingencies.
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First, I think we need to encourage China to cap its further
production of nuclear weapons usable fuels. Our current policies are
nearly doing the reverse. On the one hand, our Department of
Energy is actively promoting uneconomical commercial spent fuel
recycling projects and the use of near-nuclear weapons-usable
plutonium-based reactor fuels domestically, as well as in Japan, South
Korea, and with this most recent nuclear cooperative agreement in
Russia.
Our U.S. State Department, meanwhile, is doing little to pressure
China to announce that it will no longer produce fissile materials for
military purposes, even though the other Permanent Members of the U.N.
already have.
The indirect compound effect of these two policies of the U.S. is
to foster the continued growth of a nuclear powder keg of plutonium in
the Far East, one that is sure to have negative knock-on effects on
India and Pakistan's own nuclear weapons aspirations.
It would be preferable for China to announce that it will suspend
any further production of fissionable materials for military purposes.
By the way, most experts say they don't make it anyway. So making the
announcement, you would think, would not be heroic. That would be
preferable. And that it shelve its immediate commercial plans to
produce plutonium-based fuels for its breeder reactor and its light
water reactor programs. It's not necessary.
They can have nuclear power without those dangerous fuels. This,
in turn, could be used to pressure Pakistan and India to swear off
making fissile materials for military purposes, something our
government claims it's dedicated to doing. That's our policy. We want
India and Pakistan to make that announcement too.
To leverage such results, Washington might suggest that Japan
simultaneously suspend its own uneconomical production of plutonium-
based reactor fuels at Rokkasho-mura and defer all U.S. government-
funded efforts to do so domestically.
We have programs that Congress is looking at spending more money
to make plutonium-based civilian reactor fuels which are grossly
uneconomical. To do so jointly with Russia, which is part of this 123
Agreement that's being announced--I think it was announced last week--
and bilaterally we have a program with pyroreprocessing with South
Korea, which has got everybody looking at everybody nervously.
Let me go over the last two and stay within limit. I've got 51
seconds. I think we should encourage China only to push nuclear
projects that are unambiguously profitable. By the way, if we ask them
to do it, we might think about doing that ourselves. We are
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subsidizing the daylights out of our own nuclear programs. Now,
admittedly we're doing this also with non-nuclear programs.
We need to stop piling on these subsidies and we need to get
certain principles that are embodied in international agreements we
2 Click here to read the prepared statement of Mr. Henry Sokolski
claim we back, called the Charter Energy Treaty and the Global
Charter for Sustainable Energy Development, to be the new norm, and
that norm would be state the full price of things, compete them openly
internationally, and that goes for energy projects.
As we move, as apparently all three of the candidates for
president say we're going towards a post-Kyoto Protocol protocol,
we're going to want to do this anyway. We're going to want to have
open market competition and try to figure out how to lower carbon
emissions the most economical way.
Finally, I recommend in here that henceforth the U.S. should
discourage state transfers of nuclear weapons to other state soil in
peacetime. Why? The Pakistanis have approached me privately. They want
to know if there are some things the United States would do if
Pakistan did something different with regard to its nuclear weapons
arsenal?
And the only idea that I could come up with is would they promise
not to transfer nuclear weapons to Saudi Arabia if we promised not to
transfer any more nuclear weapons to Europe and actually reduced our
own tactical deployments. They expressed some interest in that.
I think we need to start thinking about the contingencies of
China and Pakistan moving weapons to other countries' soil like we did
in the '50s because they're talking about it, and that will produce a
real problem.
One final comment and then I'll close out. I did go over the
limit. I apologize. All of these policy adjustments should be taken in
addition to the kinds of things that Steve raised. Certainly if we
fail to take these additional steps I lay out, I think China will keep
pressing its own nuclear policies domestically in East Asia and Middle
East in a way that will come in direct collision with our security
interests.
Fortunately, none of the adjustments I recommend entails much
risk. All of them can be begun and even completed without negotiating
new treaties. Each would save millions or even billions of dollars of
wasteful government spending and I think they all would make us safer.
With that, I conclude. Thank you.
[The statement follows:]2
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Panel V: Discussion, Questions and Answers
HEARING COCHAIR REINSCH: Thank you.
Commissioner Fiedler.
COMMISSIONER FIEDLER: Thank you.
Let me return to something from the previous panel, which is the
question of Chinese government involvement in its companies'
proliferation. I understand the diplomatic or perhaps understand the
diplomatic necessity of avoiding the question directly of whether the
Chinese government is letting this happen or not, in other words,
allowing the fiction of--the persistent fiction of government entities
constantly violating.
NORINCO isn't a little actor. So seven times being sanctioned
indicates the Chinese government didn't crack down on them and allowed
it to continue to happen.
Now, the question becomes is it just somebody else doing it? And
so do we have anything but a short-term solution to the problem via
the sanctions which I endorse? I just don't endorse their effect all
that much; I mean their long-term effect all that much. So let's
discuss government culpability here in reality as opposed to
diplomatically. Iran--you know.
MR. SOKOLSKI: My approach in the testimony is to try to lay out
why the government of China has an interest in helping out with
missiles and nuclear-capable systems. It's pretty clear in each case
what it is. Because of that, I think the odds of the government not
being aware of the activities, even of small front companies, is
probably pretty low--
COMMISSIONER FIEDLER: Yes.
MR. SOKOLSKI: --because it makes sense. It's not errant behavior.
It's consistent with certain dominant interests. I think unless you
can approach the government and make clear to them why it might make
more sense to do something differently or put their thinking in some
other context they hadn't thought about, you may not get much
traction.
COMMISSIONER FIEDLER: Mr. Rademaker. I'll come back to you.
MR. RADEMAKER: Thank you. Let me concede at the outset that I do
not know the answer to your question. I think it's an important
question. I think it's certainly the case in the past that as a matter
of strategic interest, the Chinese government must have condoned
certain types of proliferation. I cannot believe that M-11 missiles
were shipped to Pakistan by some rogue corporate entity that was out
to make a fast buck.
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I can't believe that the nuclear weapons design with Chinese
characters found in Libya slipped out of China. I think there was a
period when certainly the Chinese government was condoning, and
presumably not just authorizing, but actually making these transfers.
I'm not aware that there is a lot of evidence of that kind of
activity today, strategically based proliferation by the Chinese
government. What we have instead are instances in which corporate
entities have been engaging in proliferation, and your question is are
they doing this as an economic matter to make money or is this just a
new form of a government policy that permits them to go forward?
I don't know, but I would make a couple of observations.
First, I think China is a big country and it's a big government, and
even though there is one-party rule, I don't think that means that
it's North Korea. In North Korea, there's one man whose word is the
law, and everything pretty much follows from him. I've never had that
sense in China that there is that degree of centralization where
everything goes back to a single decision-maker.
If that were the case, I'd like to know who he is because we
could go talk to him about proliferation. My sense is that there are
discrete power centers in China, and as I explained in my testimony,
my fundamental take on what's been happening in recent years in the
proliferation area is that there's not full agreement among these
power centers about what to do. Some are more willing to see things
our way than others. In some cases, those who see things our way seem
to get the upper hand and transfers get turned off, and in other
cases, they seem not to get the upper hand, and transfers don't get
turned off.
I suppose you could say that in those cases where transfers don't
get turned off, the government is condoning it. I guess there is no
other way to interpret that, but I think it's a little bit different
than in the past when it would appear there was a clear, affirmative
decision by the the government writ large to engage in proliferation.
I think what may be happening now is that in certain cases, as I
suggest in my testimony, because of the backing of powerful patrons,
certain companies are able to continue to proliferate because nobody
is in a position to say they can't. And what we'd like to do is change
that, and ideally the way we would change that is by getting the ear
of all these power centers in the Chinese government and persuading
all of them that it's in their national interest to stop this kind of
conduct.
As I point out in my testimony, I think we have made progress
over the last ten or 20 years. When I first began covering these kinds
of issues as a congressional staffer--it will soon be 20 years ago--it
was not my view that anybody in China really cared to stop
proliferation. I think that's different today. I think there's been
considerable evolution in China, and today there are certainly people
within the government in key positions who would stop this if they
could.
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So that's considerable progress from where we've been, and what
we would like to do is make sure that progress continues to a logical
conclusion where the entire government is on board with the
importance of this as a national policy.
But we're not there yet, in my judgment, and until we get there,
the best tool I'm aware of is the continued application of our
sanctions laws which in at least some cases seem to be changing the
risk-benefit, risk-reward calculations of economic enterprises.
Unless I'm misreading Secretary McNerney's testimony, NORINCO did
not come to the U.S. government because they were being pressured by
the Chinese government to talk to the U.S. government. My reading of
her testimony is they made an economic judgment that as an enterprise,
they were losing money because of U.S. sanctions and they wanted to do
something to fix that.
So until we get to the point where the Chinese government as a
whole is committed to doing the right thing in every case, sanctions
appear to be the best tool that we have to address the remaining
problems on a case-by-case basis.
COMMISSIONER FIEDLER: Thank you.
HEARING COCHAIR REINSCH: Thank you.
COMMISSIONER FIEDLER: I'll come back on a second.
HEARING COCHAIR REINSCH: If we have one. Commissioner Mulloy.
COMMISSIONER MULLOY: I've read your bios. You both have really
done a lot of great work for the Republic so we thank you both for
distinguished service.
I wanted to ask you both this question. Mr. Rademaker, maybe you
first. Ms. McNerney talked about that the U.N. Security Council had
agreed to put sanctions on Iran to help persuade Iran not to pursue
the nuclear weapons development. Is, as far as you can tell, is China
living up to the obligations that it assumed in voting for those
sanctions in the Security Council?
MR. RADEMAKER: I don't personally have any information to suggest
that they are violating the legal obligations that they have under
existing U.N. Security Council resolutions.
One of the points I make in my testimony, however is that China
has been unhelpful in helping us bring to bear maximum economic
pressure through the United Nations Security Council. They've never
exercised their veto, which I guess would be clear proof that China
was preventing more serious action by the Security Council, but my
understanding of the dynamic within the Security Council is that
Russia has on occasion threatened to veto more serious action, and by
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all appearances, China was supportive of Russia's position in those
discussions.
So I think the complaint that I have about China and Iran on the
diplomatic level these days is that they, well, my complaint is
twofold.
First, that they are not supporting our efforts and those of
like-minded Western countries on the Security Council to persuade the
Council to take more serious action that would get Iran's attention
and perhaps make a difference, perhaps give the Iranian government
reason to rethink its nuclear policies.
But then, secondly, an additional point that I make in my
testimony, China increasingly is pursuing its own economic advantage
in Iran, and this has become the leading explanation that one receives
these days from our European allies when they are asked why don't you
act either unilaterally or multilaterally with us to impose additional
measures on Iran outside of the Security Council?
Assuming we continue to have problems persuading Russia and
perhaps China to agree to more meaningful Security Council action,
let's act on our own to make Iran pay an economic price. Let's curtail
investment. Let's curtail trade credits.
The European governments continue to subsidize both investment
and trade with Iran, and the justification or the rationalization that
one often hears today from Europeans for their continued pursuit of
those kinds of policies is, what would be the point of our giving up
those markets or foregoing those investments because we've seen when
we pull out, the Chinese immediately step in?
I don't happen to agree that that's a sufficient reason for the
Europeans not to do more, but I would accept that there is a certain
logic to the position, and our ability to multilaterally impose
meaningful measures on Iran in concert with our European allies and
the Japanese is very much undermined if China for reasons of economic
self-interest is going to step in every case and replace the
investment or replace the trade that we want to withhold.
COMMISSIONER MULLOY: Good. Mr. Sokolski.
MR. SOKOLSKI: I think it's even worse than that.
COMMISSIONER MULLOY: No, but are they violating?
MR. SOKOLSKI: Let me answer. First, if you take a look at the
sanctions, they are in some instances specific enough never to be
violated and vague enough never to be enforced. So first cut, you're
probably not going to get anybody red-handed on this one. So that's
point one.
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I'd say it's worse than even Steve has laid out because the
Chinese have made a lot of bad investments in Iran. It's kind of like
American companies that overinvest technology in China and they have
to get their money out, and it takes awhile. They've done the same
thing in Iran, mostly because the investments are being dictated by
this desire by the state to have a strategic connection with Iran.
Well, but it has this perverse effect. They have to somehow get
leverage over the Iranians. One of the ways to do this is to have
trade
that is critically dependent on the Chinese supplying certain
things.
Now, they're going to be very careful to fly below the radar
screen as much as possible of anything that's sanctionable activity.
I mean this example I used in my oral presentation just at the
beginning goes to this. Front companies that acted as brokers for the
North Koreans to get items to the Syrian reactor project, the folks
that were interested in that project know how important those front
companies were. Did they violate any rules? No.
So they're going to have an interest to continue to do this.
Tiananmen Square and the sanctions that followed from Tiananmen Square
are very much on their mind and why they are so aligned with the
Russians in opposing sanctions. When you put those factors that I've
laid out all together, it suggests a kind of prevailing strategic
interest in playing the game at the margin.
So we're going to have to be more clever in identifying what's
sanctionable, number one. Number two, we're going to have to try to
figure out how to get the Chinese interested in something other than
just getting their money out of Iran, and finally, I think we're going
to have to just more generally impress upon them how risky this
business is.
HEARING COCHAIR REINSCH: Thank you.
Commissioner Wessel.
COMMISSIONER WESSEL: Thank you.
I want to challenge two items, Mr. Sokolski, not in a big way.
You said that China wants to get its money out of Iran. I believe
they're going to get oil out of Iran, and so there is a long-term
economic benefit for what they're doing. Their MOU relating to access
to the fields is I think rather aggressive, as I understand it, number
one.
Number two, you said early on in your testimony that China should
move towards a more profit-based approach as it relates, I believe, to
nuclear power development, et cetera, and I'm reminded I believe it
was of Jim Fallow's book many years ago, More Like Us, that we
continually have this mind-set that we want to impose on China as to
how they address things. It's a non-market economy. Profit is at times
an alien concept to how one develops economic models there.
So challenging those two issues. But more importantly, and the
question was made of the earlier panel I believe by Mr. Shea,
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Commissioner Shea, what additional tools rather than just operation
under the current tools--you've talked about specificity, et cetera--
what additional tools do you think we should be looking at, Congress
should be looking at, to give to the administration, if any, to
enhance our success in this important area?
For both witnesses, that last question.
MR. SOKOLSKI: Since I'm challenged--
COMMISSIONER WESSEL: Challenged in a non-confrontational way, if
you will.
MR. SOKOLSKI: Okay. Well, let me answer in a nonconfrontational
way.
COMMISSIONER WESSEL: Yes, please.
MR. SOKOLSKI: Yes. They want to get the oil. The question is when
are they going to get it and at what cost? And so far, it's a long
ways away and costs lots more than they hoped it would. It's one of
the reasons things aren't working out quite as well as they want.
COMMISSIONER WESSEL: Okay.
vhere. I think, think of the follow-on to Kyoto as a problem for
everybody, that people are going to have to, as governments, come to
conclusions about what they're going to invest in to reduce their
emissions.
You want people to make the decisions on the basis of what's
quickest, cheapest. It's a compound. So you're not interested in lunar
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power, for example, even though it might be the cleanest but it's
neither quick nor cheap.
To make those decisions, it would be useful if the international
norms, not American norms, of open bidding and international
competition and clearly stating as much as possible what things cost,
was something we encouraged.
The more we do that, the better whatever the result is likely to
be, and if something is dumb, it will become evident that it's dumb
quicker and then you can make a change.
COMMISSIONER WESSEL: No argument there.
MR. SOKOLSKI: In answer to your question, I think the single-most
important thing Congress could do to give our executive branch the
tools it needs is less money. This is counterintuitive. I think when
you keep sending money to the Energy Department, it keeps coming up
with ideas of how to spend it that don't make sense.
It would be helpful to send less. And particularly, the programs
that they're engaged in with South Korea, with this pyroreprocessing
program, which is really just some additional steps to regular
reprocessing, is making it very clear that we're prepared to see South
Korea come very near nuclear weapons technical capability.
Similarly, the money that is being proposed to be spent on the
Global Nuclear Energy Partnership with Russia on fuel-making
activities that are uneconomical in the extreme probably doesn't do
anything to discourage China to think about what it's doing that's
similar.
And then finally I think the biggest incentive, separate from
what we give tools to our government to do, I think Japan is in a real
bind right now. It has spent $20 billion on a single plant to make--I
mean it's just an enormous amount of separated plutonium per year. I
think in the testimony I have the figure. It's mind-boggling.
If you hold on, it's mind-boggling enough I want to actually cite
it here for the record.
COMMISSIONER WESSEL: 2,000 tons; is that the--
MR. SOKOLSKI: Well, hang on here. Let's see here.
COMMISSIONER MULLOY: 20 billion.
MR. SOKOLSKI: Well, that's the amount for the plant, but the
amount of separated plutonium this thing produces per year is equally
as interesting. Here we go. Right. It produces five metric tons of
separated plutonium annually. That's enough for a thousand nuclear
weapons per year.
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Now, if you think for a moment that the Chinese don't pay
attention to that, you haven't been reading the news. The Chinese have
volunteered that they don't want to engage in a nuclear arms race in
the region.
