A Summary of “The China Nonproliferation Act”

To Be Introduced by Sen. Fred Thompson (R-TN)
DRAFT National Security Legislation For The China-PNTR Debate

May 2000

A national security bill offered as either “parallel legislation” or an amendment to the bill granting China permanent normal trade relations (PNTR) would provide an annual review mechanism, mandatory sanctions, and an escalating scale of responses to Chinese proliferation of WMD, missile technologies, and advanced conventional weapons — without violating any of the United States’ WTO obligations.

Bill’s Purpose

The purpose of this legislation is to respond to China’s proliferation activities, which constitute a serious threat to the nation’s security by requiring the President to sanction U.S. and foreign “persons” (individuals, companies, groups, etc.) within China who have been identified as proliferators; and to prevent proliferation activities by the PRC by requiring the President to apply gradated measures over time that are directed specifically at the Chinese government.

Triggers

The actions that would trigger sanctions under this amendment would include any transfer, re-transfer, sale, misuse, or diversion from or within China of any goods, services or technology either: (1) listed on various multilateral export control lists codified in international treaties, forums or agreements; or (2) that would be controlled or prohibited for export to China or any Tier IV country if they were U.S. goods, services or technology, if such actions would contribute to the development, improvement, or production of weapons of mass destruction, ballistic or cruise missiles, or advanced conventional weapons or munitions.

Annual Review/Report

The President would submit a report to Congress by June 1st of each year identifying every “person” whose activities in the previous year met the conditions of the Act’s “triggers.”

When the President submits his annual report to Congress identifying all persons who have “triggered” sanctions upon themselves under this Act for their proliferation activities, the President must also report to Congress the actions (sanctions or waivers) he will take against those persons in compliance with this Act. This reporting requirement remains for repeat offenders, persons that failed to correct their behavior and were sanctioned the year prior, and for persons that were relieved of sanctions under the terms of this Act.

Mandatory Sanctions Against the Proliferator

If there were credible evidence that a “person” met the conditions of the triggering actions, the President would be required to deny all pending licenses and suspend all existing licenses (to include prohibiting all after-sale servicing) for the transfer to that person of items that are controlled for export under the Arms Export Control Act, the Export Administration Act of 1979, or the Export Administration Regulations. There is also an across the board prohibition on any U.S. government purchases of goods or services from, and U.S. government assistance (grants, loans, credits, guarantees, etc) to, the proliferator. These sanctions would last for no less than one year.

Additional Sanctions Against the PRC

The President would also be required to apply additional sanctions, targeted at China rather than merely the specific proliferator entity, from a list of non-trade measures. Each of these sanctions would be imposed for a minimum of one year. The first violation would require the immediate imposition of the mandatory sanctions described above. The President would also be required to apply at least one additional measure, appropriate to the violation, from the Tier I list of measures below.

If, after one year, the proliferating person had engaged in additional proliferation or had not rectified, within reason, its prior violation, the President would maintain the existing sanctions imposed the year prior and impose at least one additional measure from Tier II. After the third annual review, if the proliferating person were still proliferating or had failed to correct, within reason, its prior violation, the President would maintain the existing sanctions imposed the year prior and impose at least one additional measure from Tier III.

The penalties in Tiers I through III gradually escalate to place increasing pressure on China to cease its proliferation activities. Note that this legislation in no way constrains the President’s ability to respond to proliferation or other national security threats. The President always has the authority to impose additional sanctions or take additional actions; this legislation merely establishes a minimum response.

Termination of Sanctions

Under this Act, sanctions would cease to apply only if the President determined and certified to the Congress that: (1) credible information indicated that the sanctioned person(s) had ceased their activities; (2) credible information indicated that the sanctioned person(s) had taken reasonable steps to rectify the matter; and (3) the President had received reasonable assurances from the person(s) that they would not engage in similar actions in the future.

Presidential Waiver

The President would be authorized to waive the imposition of sanctions required under this Act if he determined that such a waiver were vital to the national security of the United States.

Congressional Oversight and Recourse

If a person met all of the “triggering” requirements and the President chose not to impose or maintain mandatory or additional sanctions in compliance with this Act, he would be required to report to Congress on the facts and reasons why he had not chosen to enforce the law. Following the report, any Member of Congress could introduce legislation via a Joint Resolution requiring the President to impose the mandatory sanctions, and any additional sanctions as appropriate, consistent with the Act. Such legislation would face an expedited process as a “privileged” motion in the Congress: the committee of jurisdiction in either House would have 15 days to report the legislation out of Committee, before it would be automatically discharged and brought to the floor 15 days later as a “privileged” motion.

Transparency

Any person that met the criteria of the “triggering” actions and was reported by the President to the Congress as a proliferator, would also be reported immediately to the Securities and Exchange Commission (SEC). The SEC would be authorized and required to write all appropriate rules, regulations, and policies to ensure that all investors (private, corporate, state & municipal governments, and otherwise) were notified immediately if the reported proliferators were listed or traded on any U.S. debt or equity markets, and that any written or electronic prospectuses or offerings clearly indicated that the entity were so listed. This notice would remain in effect as long as said company, etc., were reported to the Congress, by the President, as a “person” in violation of this Act.

Additional Reports

Finally, this bill would direct the President to report annually to Congress on the following:

• The proliferation activities of the PRC, specifically its violation of any and all international nonproliferation treaties, agreements, arrangements or commitments to which the United States is a member, regardless of whether the PRC is a member of those regimes or not.
• All incidents of Chinese violations of U.S. export control laws, regulations, procedures or licensing conditions.
• An Inspector General’s report on the performance of the Commerce Department in licensing, regulating and controlling the export of “dual use” items to the PRC, including the number and type of post shipment verifications conducted and any enforcement actions that have been taken to date.
• An assessment of the threats to the United States, its interests, or its Allies resulting from: Chinese proliferation activities; the transfer, re-transfer, sale or misuse of “dual use” items sold to the PRC by the US or other countries; and violations of this Act.

Tiered Additional Sanctions

Tier I–Immediate:

• Suspension of all military to military contacts and exchanges between the PRC and the U.S.
• Suspension of all foreign assistance to the PRC by the U.S. government.
• Prohibition on U.S. bank loans or bond offerings in the U.S. market on the part of all state-owned or affiliated enterprises of the PRC.
• Suspension of any agreement with the PRC or any Chinese national or any entity owned or controlled by nationals of the PRC for the co-development or co-production of any item on the United States Munitions List.

Tier II–Imposed after one year:

• Suspension of all scientific, academic, and technical exchanges between the PRC and the U.S.
• Direction of the Export-Import Bank of the United States not to approve the issuance of any guarantees, insurance, extension of credit, or participation in the extension of credit to the PRC.
• Denial of access to the debt and equity markets of the U.S. by all state-owned or affiliated enterprises of the PRC.
• Prohibition on the sale to the PRC of any item controlled on the Commerce Control List for national security purposes. No after-sale servicing, including the provision of replacement parts, for these items may be conducted either.

Tier III–Imposed after two years:

• Change of China’s export status to a higher tier (Tier IV under the current system) under the Export Administration Regulations.
• Denial of access to the debt and equity markets of the U.S. by any company owned or controlled by nationals of the PRC.
• Prohibition on the sale to the PRC of any item on the Commerce Control List. No after-sale servicing, including the provision of replacement parts, for these items may be conducted either.
• Prohibition on the U.S. Government procuring, or entering into any contract for the procurement of, any goods or services from the PRC.