Licensing Mass Destruction

Page 10 of 25

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.

Licensing Mass Destruction

Page 11 of 25

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

http://www.wisconsinproject.org/pubs/reports/1991/licensemd.html

11/19/2002

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

http://www.wisconsinproject.org/pubs/reports/1991/licensemd.html

11/19/2002

Licensing Mass Destruction

Page 13 of 25

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.

http://www.wisconsinproject.org/pubs/reports/1991/licensemd.html

11/19/2002

Licensing Mass Destruction

Page 14 of 25

The Commerce Department's process is secret. Neither Congress nor
the public is permitted to examine Commerce licensing in the open.
This is true despite the fact that dual-use licenses are supposed to be
for civilian items restricted to peaceful use.
Commerce refuses even to confirm the existence of an individual
license application, and refuses to disclose which applications have
been approved after the exports have gone out. Cases come into public
view only when someone inside the government becomes angry
enough to leak them to the press. This means that only the exporters
know which cases are pending, and only the exporters' voices are
heard by the licensing officers when decisions are made. The effects
are to freeze the public and Congress out of the process and to open
the door to the worst forms of private lobbying.

The Commerce Department argues that secrecy is necessary to protect proprietary interests. But the U.S. nuclear industry competes well on the international market despite the openness of NRC regulation.

Congress should now require the Commerce Department to publish quarterly summaries of all dual-use licensing actions. This information already exists in a database. It could be released by pushing a button. The resulting list would be the same as the one that Commerce released in March on Iraq, but would include countries such as Iran, Libya and Syria. The list would only cover licensing actions that have been completed. Pending sales would not be revealed. Congress could accomplish this by amending Section 12(c) of the Export Administration Act, which the Commerce Department now interprets as requiring complete secrecy for dual-use licenses.

The list would also include the name of the exporter. If a company is ashamed of having sold one of its products to a developing country, the company should not have made the sale in the first place. Reputable companies do not object to telling the truth about their business. If the sales are legitimate, and satisfy the export criteria, there is no reason to keep them hidden. The decision to license them is an official government act paid for with tax dollars. Pushing export licensing into the light of day would encourage the exporters to be honest, encourage the government to be careful, and allow the public to find out whether U.S. exports are undermining national security.

ANNEX: IRAQI END USERS

Following is a list of the known Iraqi military and nuclear end users that imported sensitive American equipment from 1985 to August 2, 1990, when Iraq invaded Kuwait:

Iraqi Airways: One of the "agents and front companies" that Iraq used for its "arms procurement network," according to the U.S. Treasury Department. In a press release on April 1, 1991, Treasury

http://www.wisconsinproject.org/pubs/reports/1991/licensemd.html

11/19/2002