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Importer: University of Baghdad Value: $11,000

Commerce also approved several military items to military buyers without consulting the Department of Defense. These included the machine tools and lasers, discussed above, which are used to fabricate rocket casings, the quartz crystals discussed above which are used as components in ground radar, and the navigation, radar and airborne communication equipment sold to the Iraqi Air Force and Ministry of Defense. Exports of such clearly military items to military buyers should have been referred to U.S. security experts.

The Defense Department, in fact, played only a minor role in the
export approval process. The Pentagon saw an export case for only
two reasons. First, it was consulted for its opinion whether an item
was likely to be diverted to a Cocom-proscribed country (primarily the
East Bloc). For these cases, the Pentagon had no power to decide
whether the export might contribute to nuclear, missile or chemical
weapon proliferation. Such a decision was outside the scope of its
review.

Second, the Pentagon saw a handful of nuclear cases because it
participated in the Subgroup on Nuclear Export Coordination (SNEC),
the interagency group that evaluates nuclear-related exports. But the
SNEC reviewed only 24 of the 771 cases approved from 1985 to
August 1990--three percent of the total. Commerce essentially
bypassed the SNEC by failing to refer cases to it. Thus, for the vast
majority of the exports--roughly 97%--the Pentagon did not
participate in judgments about the risk of proliferation. Neither did the
Arms Control and Disarmament Agency or the intelligence agencies.
They had no role beyond their participation in the SNEC. Thus, in
97% of the cases, Commerce alone decided, or decided with the
concurrence of Energy or State, whether an item increased the risk of
nuclear or missile proliferation.

Commerce did not follow a consistent pattern in selecting the few
cases it did send to the SNEC. The Iraqi Atomic Energy Commission,
for example, bought a large computer, valued at $2.8 million (case
B175217) which was not referred to the SNEC, and also bought
$87,000 worth of precision electronic and photographic equipment
(ECCN 6599) with no external review at all (case D042767). But a
second computer, worth only $24,390 (case B108166), was referred to
the SNEC, indicating that the SNEC may not have received the most
important cases. Ten of the items approved for the Iraqi Atomic
Energy Commission were on the Nuclear Referral List, but only three
were submitted to the SNEC.

Commerce also approved $200,000 worth of computers for Al-Qaqaa, the Iraqi nuclear weapon design laboratory. Commerce did not refer the computers to either the Department of Energy or the SNEC.

Violations of policies

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The Commerce Department had full authority to reject every
application discussed above. Under Commerce regulations, dual-use
exports must satisfy specific criteria. The criteria include the
following tests: whether the stated end use is acceptable, whether the
item could aid nuclear weapon or missile development, whether the
importing country has a nuclear or missile development effort, and
whether the recipient country has good "non-proliferation
credentials."/12

Iraq never came close to passing those tests. The "stated end use" of
some of the items was explicitly to produce rockets and radar. The
items exported, such as machine tools and radar components, were
obviously powerful enough to aid missile and nuclear development. It
was also clear that Iraq had nuclear and missile development
programs. Iraq had been trying to build nuclear weapons since at least
1981, when Israel bombed the Osirak reactor near Baghdad, and Iraq
had been known since the mid-1980s to be working with Argentina
and Egypt on nuclear-capable missiles. In addition, U.S. intelligence
knew by the mid-1980s that many of the importers listed on the
licenses were fronting for Iraqi nuclear and missile sites. If the
Commerce Department had applied its own criteria, it would have
denied many of the Iraqi applications.

Dangerous end users

The annex to this report lists Iraq's known military and nuclear end
users. The sixteen buyers listed either built, equipped or operated
Iraq's nuclear, missile and chemical weapon sites. Given the
centralized control of all important activity in Iraq, and the supreme
importance of the Iraqi military, the true list of military users is surely
longer. Any sensitive export to a buyer in Iraq must have been
available to the military, regardless of what the export application
said.

Nevertheless, the sales to these sixteen buyers tell an important story. All sixteen imported U.S. computers, the indispensable tool of modern research and manufacture. These computers must have aided the work of virtually every Iraqi nuclear, missile and chemical weapon site. Altogether, about $25 million worth of U.S. computers went to the sixteen military or nuclear buyers identified in this report. Iraq's total purchases of U.S. computers amounted to more than $96 million, one fourth of all the Iraqi dual-use imports from the United States.

Exports were also licensed that--for reasons known only to
Commerce--did not appear on the list released to the public. In 1987,
Electronic Associates of Long Branch, New Jersey sold Sa'ad 16 a
"hybrid digital-analog computer," specially designed for wind tunnel
experiments on missiles. The computer is reportedly identical to a
computer now operating at the U.S. government's White Sands missile
range in New Mexico. The sale went to MBB and Gildemeister, the
two German companies that were Sa'ad 16's main missile technology

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suppliers. The Department of Defense opposed the sale and had the license brought before the National Security Council in September 1987. Although the NSC decided to block the export, the computer had been shipped eight months earlier in January, without the Pentagon's knowledge.

Commerce also approved exports informally that do not appear on the public list. In response to an exporter's request, Commerce can approve a shipment by stating that no license is required. Two of these cases have recently come to light.

In 1989, the Consarc Corporation of New Jersey notified Commerce that it wanted to export a "skull" furnace to Iraq. Consarc explicitly told Commerce that the furnace could aid a nuclear program. The furnace could melt zirconium for nuclear fuel rods, could melt titanium for missile nose cones and other critical missile parts, and might be able to melt plutonium and uranium for nuclear bomb cores. The skull furnace was to be accompanied by three other furnaces: an electron beam furnace from Consarc, and furnaces for vacuum induction and heat treatment from Consarc's subsidiary in Scotland.

Used together, the four furnaces would have far exceeded Iraq's stated
purpose, which was to manufacture artificial limbs for victims of the
Iran-Iraq War. According to U.S. officials, Iraq would have had a
"Cadillac" production line for atomic bomb and ballistic missile parts,
even better than the facilities at American nuclear weapons labs.
Commerce nevertheless told Consarc that no export license was
needed.

In June 1990, a person outside the government told the Pentagon about the sale. This set off a chain of official reactions that led the White House to block the shipment.

It turns out that equipment accompanying the furnaces needed export licenses. In June 1989, Commerce licensed special computing equipment to control the furnaces' operation (case D030956) and in January 1990, Commerce licensed numerical control equipment to make new crucibles for the furnaces (case D064342). This latter export was crucial. One of the main reasons for thinking that the original skull furnace might not be used to make A-bombs was that the original crucible was not suited for melting heavy metals such as uranium. But when Commerce licensed the equipment for making additional crucibles, Iraq got what it needed to make A-bomb cores.

Also in 1989, another New Jersey company, Struthers, Dunn, Inc. of
Pitman, contacted the same Commerce representative, Michael
Manning, who had advised Consarc. Iraq wanted to buy "time-delay
relays," devices that have civilian uses but are also used to separate the
stages of ballistic missiles in flight. Iraq wanted a special model,
"tested for shock and vibration" that would perform at 350,000 feet--
66 miles above the earth. Ronald Waugaman, who handled the case

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for Struthers, Dunn, said "when I heard 350,000 feet, I thought missile."/13

Waugaman said he told Manning about the high-altitude specifications, which were military grade. They contradicted Iraq's official claim that the relays were for "heavy industrial use." Waugaman said he told Manning that "they're not putting tractors 350,000 feet in the air."/14 Nevertheless, Waugaman said that U.S. officials told him that if a civilian end use was stated, there was no reason to bar the export.

RECOMMENDATIONS

Strengthening U.S. Export Controls

The U.S. export control system has broken down for three reasons: the wrong people are in charge of it, Congress has ignored it, and it is

secret.

Remove export control from the Commerce Department

It has frequently been said that there is a conflict between the Commerce Department's duty to promote exports and its duty to regulate them--that Commerce has conflicting missions in the export field. The licenses to Iraq prove that this is true. Commerce licensed items that did not meet its export criteria, that it knew would be diverted from their supposed civilian purposes, and that it knew would help Iraq's nuclear and missile programs. Commerce even excluded the State and Energy Departments from the licensing process, in violation of its own procedures.

The best known example of a federal agency that tried to promote and regulate at the same time is the old Atomic Energy Commission, which had the job of both promoting and regulating nuclear energy until 1974, when Congress decided to split the functions. The Nuclear Regulatory Commission now regulates; the Department of Energy promotes. Everyone agrees that nuclear regulation gained great credibility and effectiveness from this separation.

Congress should now follow this precedent for dual-use licensing. It should take this function away from Commerce and give it to an independent regulatory agency such as the Nuclear Regulatory Commission or to some other department, such as Defense, that has no export promotion function. The Commerce Department, which specializes in trade, is not the place to decide strategic questions. An agency that specializes in national security should have that task. It is essential to recognize that the real significance of dual-use items is strategic, not economic. The number of items on the control list is small; well over 90% of the applications to export them are granted; and the value of the few applications denied is tiny compared to the

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overall value of U.S. foreign trade.

It has been suggested that Congress should create a new agency to handle all export licensing. Such a move would be sound if Congress could insure that industrial interests would not take the agency over, as they have the Commerce Department. Industry would have a great incentive to pack such an agency with personnel loyal to its interests.

It would be safer and more logical to make the Defense Department the "hub" for controlling all exports relevant to nuclear, chemical, biological and missile proliferation. Most of the expertise is already in the Pentagon, and any additional expertise could be transferred from other agencies and obtained through the national laboratories. Commerce, which has no substantive expertise on dual-use technology, should retain only a record keeping function. Commerce should refer applications to the Pentagon, which would make the final licensing decision in consultation with the Commerce, Energy, and State Departments, and with the Arms Control and Disarmament Agency and the intelligence agencies. This change would put military experts in charge of exports with military applications.

Impose Congressional oversight

Congress essentially ignored export licensing to Iraq until the invasion of Kuwait. Oversight was entirely lacking during the period preceding the Gulf War. If Congress had looked into what the Commerce Department was doing, Congress would have learned quickly that Commerce was not following the rules. A Congressional reaction might have stopped some of the worst exports from going out.

Congress should now impose an effective form of oversight. A Congressional committee with jurisdiction over national security matters should be given the task of overseeing and evaluating export licensing. That committee could be a subcommittee of one of the Armed Services committees, or of the Governmental Affairs or Government Operations committees, or of the Joint Economic Committee. The committee or subcommittee should receive complete reports on pending or approved licenses and should have sufficient staff to oversee export controls. If necessary, it could receive assistance from the General Accounting Office or the Office of Technology Assessment.

Open export licensing to public view

The other important lesson we can draw from nuclear regulation is the great benefit of making decisions in public. All of the Nuclear Regulatory Commission's export licenses are granted on the public record and in the light of day. This is the main reason why there are no horror stories about U.S. nuclear exports to Iraq. Neither exporters nor regulators want to defend such transactions in public, so they do not happen.

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