Truth or Consequences #5: The C.W.C. Will Not Be Good for Business — To Say Nothing of The National Interest
(Washington, D.C.): Proponents of the
Chemical Weapons Convention (CWC) now
awaiting consideration by the United
States Senate often declare that industry
supports this controversial treaty. That
claim requires careful consideration
since, on its face, this arms control
treaty will have myriad, and possibly
quite adverse, implications for many
American businesses. Such implications
arise from the reporting, regulatory and
inspection requirements generated by the
treaty’s verification regime.
Who Will Be Affected?
A common misconception is that only
chemical manufacturing
businesses will be covered by these
requirements. To be sure, such
pervasively regulated companies will
face additional reporting requirements
and be subjected to routine inspections
by foreign nationals. A trade association
representing some of these companies —
the Chemical Manufacturers Association
(CMA) — has judged the impacts of the
CWC on its member companies to be
acceptable, however. (Interestingly, some
CMA companies — for example, Dixie
Chemicals and Sterling Chemicals — have
expressed opposition to the treaty on the
grounds that the costs entailed in
further reporting requirements,
additional regulatory burdens and
intrusive on-site inspections will be
unacceptable.)
In fact, thousands of
companies that do not produce but simply use
a wide variety of chemicals or chemical
compounds — notably, Discrete Organic
Chemicals (DOCs)
— will also be burdened with new and
potentially onerous responsibilities
under the CWC. While the CWC’s
proponents frequently claim that many of
these companies will be able to get away
with filling out a simple, short form,
there is reason to believe otherwise.
For a good many of the affected
companies, the CWC’s reporting
requirements will entail a
time-consuming, and assuredly
expensive, process of producing
declarations, filing reports and
complying with new regulations. These
industries may also face challenge
as well as routine inspections. Challenge
inspections permit the use of sampling
procedures — for example the use of mass
spectrometers — that go beyond
those to which companies facing only
routine inspections are exposed and that
have considerable potential for the loss
of Confidential Business Information (
Among the industries facing such
prospects are: automotive, food
processing, biotech, distillers and
brewers, electronics, soap and
detergents, cosmetics and fragrances,
paints, textiles, non-nuclear electric
utility operators and even ball-point pen
ink manufacturers. The following
well-known U.S. companies — none of
which has anything to do with the
manufacture of chemical weapons — have
been identified by the Arms Control and
Disarmament Agency as subject to the
CWC’s terms: Sherwin-Williams,
Nutrasweet, Jim Beam, Archer Daniels
Midland, Lever Brothers, Kaiser Aluminum,
Goodyear Tire and Rubber, Xerox, Raytheon
and Conoco.
Last but hardly least, in addition to
the obligations befalling the foregoing
industries, the Chemical Weapons
Convention would allow any site
in the United States to be subjected to
intrusive challenge inspections.
While proponents downplay the danger that
such an arrangement might be abused by
foreign governments, there are no
guarantees that such abuses will not
occur.
Who Speaks for All
the Affected Industries?
While the Chemical Manufacturers
Association has been the most vocal
industry advocate of the Chemical Weapons
Convention, it represents only some 190
of the companies expected to be covered
by the treaty. It has aggressively
lobbied Senators and other trade
organizations on behalf of the treaty,
evidently persuaded not only that the CWC
will not hurt its businesses but will
actually benefit them. Notably,
CMA believes this accord’s Article XI
will clear the way for a substantial
increase in U.S. exports of chemical
manufacturing equipment and materials.
Since the bulk of this prospective
increase may involve markets not
currently open to American chemical
concerns — presumably, including pariah
states like Iran and Cuba — it is
unclear just how willing responsible
companies and/or the U.S. government will
be to engage in this sort of trade.
Such exports are currently proscribed by
the supplier-control arrangement known as
the Australia Group. If, as seems likely,
the CWC has the effect of vitiating the
Australia Group mechanism, CW-relevant
exports may be permitted even to
dubious customers — but it will be hard
to contend that the effect on curbing
proliferation of chemical weapons will be
a positive one.
The truth of the matter is that no one
can say for sure how many companies will
be caught up in the CWC’s reporting,
regulatory and inspection regime.
It is safe to say, however, that there
will be thousands affected (according to
official U.S. government estimates as
many as 3,000-8,000.) Even if
one counts facilities, as few as two-fifths
of those affected are owned by CMA member
companies. Indeed, as Dr. Will Carpenter,
formerly Vice President for Technology at
the Monsanto Agriculture Company and a
CMA representative, noted in an article
in Ratifying the Chemical Weapons
Convention:
“The leaders of the chemical
industry, through the board of directors
of the CMA, have always emphasized
support of the convention. There
are, however, another 60 to 80 trade
associations whose members will also be
regulated by the National Authority [set
up to implement the CWC]….An
overwhelming number of these companies
are not aware of the implications of the
Chemical Weapons Convention despite a
continuing effort by ACDA, the CMA, and
other organizations to get the word
out.”
How Will
American Businesses be Affected?
The impact of the Chemical Weapons
Convention on American companies will
occur through two avenues:
1) Impacts Due to New
Reporting and Regulatory Requirements:
The data required by the treaty’s
verification regime differs in both
quantitative and qualitative respects
from that already collected for other
regulatory purposes. For example, current
environmental regulations do not cover
all of the chemicals relevant to the CWC.
Moreover, of those that are
covered, the production thresholds
triggering current reporting requirements
are set much higher than would be the
case under the CWC. In addition, some
existing regulations require reports
concerning future actions (whereas the
treaty imposes obligations for
considerable retroactive
reporting). Some of these current
regulations apply to chemical producers,
but not to industrial processors or
consumers of chemicals. And deadlines for
reports required by the CWC will be
shorter, and necessitate more frequent
updating, than those presently demanded,
for instance, by the Environmental
Protection Agency. For all these reasons,
new reporting requirements will have to
be levied by the U.S. government in the
implementing legislation for the
Convention.
These new requirements may prove to be
viewed by large concerns as simply a
marginal additional cost of doing
business. Smaller companies,
however, may find these additional
requirements to be considerably more
burdensome. This is
particularly true since some companies
will be obliged to file detailed
declarations for the first time. Such
reports will also have to be updated on
an annual basis. The associated
costs for preparing these reports are
likely to run to the thousands — and
perhaps hundreds of thousands — of
dollars per company.
What is more, the new U.S. bureaucracy
dubbed the “National Authority”
to whom these reports will be sent, must
be notified of changes in declared
activities five days before they
occur. Complying with this
requirement is likely to prove
problematic for companies unable to
predict their activities; it certainly
will be burdensome. A failure to
comply with this reporting regime could
result in civil and perhaps even criminal
penalties.
2) Impacts Arising
from On-Site Inspections: Any
company that provides declarations to the
“National Authority” should
prepare to be inspected. Once
the U.S. National Authority turns the
information thus supplied over to the new
international bureaucracy
created under this Convention — the
Organization for the Prohibition of
Chemical Weapons (OPCW) — the OPCW’s
Technical Secretariat will have the
authority to conduct on-site inspections
(both routine and challenge inspections)
to verify the data thus supplied.
Depending on the sorts of chemicals
declared and the nature of the
inspections, the amount of notice,
duration and degree of intrusiveness of
the inspection can vary. For example, advance
notice can be as little as twenty-four
hours; the duration can extend to 96
continuous hours; and the international
inspectors can in some instances demand
to examine any data, files, processes,
equipment, structures or vehicles deemed
pertinent to their search for illegal
chemical manufacturing activities.
What Will Be At Risk?
It is a virtual certainty
that, in the course of at least some such
inspections, confidential business
information (CBI) will be put at risk.
In 1993, the Congressional Office of
Technology Assessment identified examples
of proprietary information that could be
compromised:
- The
formula of a new drug or
specialty chemical - A synthetic route that requires
the fewest steps or the cheapest
raw materials - The form, source, composition and
purity of raw materials or
solvents - Subtle changes in pressure or
temperature at key steps in a
process - Expansion and marketing plans
- Raw materials and suppliers
- Manufacturing costs
- Prices and sales figures
- Names of technical personnel
working on a particular project - Customer lists
According to the Office of Technology
Assessment (OTA), the means by which the
foregoing and other sensitive business
information could be acquired by foreign
inspectors (at least some of whom may be
agents of their governments’ intelligence
services and specialists in the conduct
of commercial espionage) include
via the following:
- manifests and container labels
that disclose the nature/purity
of the feedstock and the identity
of the supplier - instrument panels [e.g.,
networked computer monitors]
revealing precise temperature and
pressure settings for a
production process - chemical analysis of residues
taken from a valve or seal on the
production line - visual inspection of piping
configurations and
instrumentation diagrams could
allow an inspector to deduce flow
and process parameters - audits of plant records
A loss of confidential
business information either through a
challenge inspection, or through sample
analysis, could be particularly troubling
for those in the chemical, pharmaceutical
and biotechnology industries.
Many companies have not sought patents
for such proprietary information lest
they be compromised by Freedom of
Information Act (FOIA) requests, to which
patents are subject. Even so, in August
1993, the OTA estimated that the U.S.
chemical industry loses approximately
$3-6 billion per year in counterfeited
chemicals and chemical products.
If proprietary formulas are
compromised by commercial espionage, the
cost can be very great. For example, it
takes an average of 10 years and an
investment of $25 million to perfect a
new pesticide. U.S. pharmaceutical
companies must invest an average of 12
years and on the order of $350 million in
research and development to bring a
breakthrough drug to market.
Clearly, while it is difficult to
assess the potential dollar losses that
may be associated with the compromise of
proprietary business data, information
gleaned from inspections and data
declarations literally could be worth
millions of dollars to foreign
competitors. A small company
whose profitability (and economic
survival) derives from a narrow but
critical competitive advantage will be
particularly vulnerable to industrial
espionage. The OTA
notes that for a small company,
“even visual inspection alone might
reveal a unique process configuration
that could be of great value to a
competitor.”
The Risk is Real
Unfortunately, these are not
hypothetical or “worst case”
scenarios. In preparation for the
CWC, the U.S. has conducted mock
inspections at seven government and
private sector industrial sites. The
results validate fears that even routine
access by the OPCW’s international
inspectors could result in the loss of
commercial and/or national security
secrets. This would certainly be true of
the access allowed under more intrusive
challenge inspection provisions.
These conclusions are evident, for
example, in a report submitted by the
U.S. government to the Conference on
Disarmament concerning the third of these
so-called National Trial Inspections. It
was conducted by U.S. experts at the
Monsanto Agricultural Company’s Luling,
Louisiana plant in August, 1991. The
report said, in part:
“The Monsanto
representative who was on the inspection
team to determine the extent of CBI he
could obtain, determined there would
be a loss of such information.
He stated he was able to obtain enough
information about the glyphosate
intermediate process merely by equipment
inspection to save a potential competitor
considerable process development, time
and dollars. He said a
knowledgeable inspector could compromise
Monsanto’s proprietary business interests
with no access to their records beyond
the quantity of phosphorous trichloride
consumed.” (Emphasis
added.)
Even Exterior Sampling Can
Put CBI At Risk: Another
mock inspection revealed that soil
and water samples taken even from the exterior
of buildings at a chemical plant three
weeks after a production run
revealed the product of the operation and
process details. This is
especially worrisome in terms of the
implications for confidential business
information since the CWC’s
Verification Annex (Part II paragraph
(E)(55)) explicitly affords an
inspection team the right to take samples
on-site using highly invasive mass
spectrometers and, “if it deems
necessary,” to transfer samples for
analysis off-site at laboratories
designated by the OPCW. And, as Dr.
Kathleen Bailey of the Lawrence Livermore
National Laboratory told the Senate
Foreign Relations Committee on 21 March
1996:
“Experts in my laboratory
recently conducted experiments to
determine whether or not there would be a
remainder inside of the equipment that is
used for sample analysis on-site. They
found out that, indeed, there is residue
remaining. And if the equipment
were taken off-site, off of the Lawrence
Livermore Laboratory site, or off of the
site of a biotechnology firm, for
example, and further analysis were done
on those residues, you would be able to
get classified and/or proprietary
information.”
Matters are made worse by the prospect
that the OPCW is likely to allow a number
of states parties’ laboratories to
conduct sample analysis. Among the
nations that have expressed an interest
in providing such laboratory services are
several with dubious records concerning
non-proliferation and/or a record of
using multilateral organizations — among
other devices — for intelligence
collection (including commercial
espionage).
Conclusion
The Chemical Weapons
Convention will entail real, if as yet
unquantifiable, costs for thousands of
U.S. industries having nothing to do with
the manufacture of chemical weapons.
Such costs might be justifiable if the
treaty were likely to be effective in
ridding the world of chemical weapons —
or even in appreciably reducing the
likelihood of chemical warfare.
Unfortunately, while the CWC’s
verification regime will be sufficiently
intrusive to jeopardize U.S. proprietary
interests, it is woefully inadequate to
detect and prove non-compliance by closed
societies determined to maintain covert
chemical weapons capabilities
notwithstanding their treaty obligations.
As a result, the burdens that American
private industries will be asked to bear
— largely without their knowledge —
simply cannot be justified on national
security or any other grounds.
– 30 –
1. The CWC defines
DOCs only in the following, expansive
terms: “Any chemical belonging to
the class of chemical compounds
consisting of all compounds of carbon
except for its oxides, sulfides and metal
carbonates.”
2. In fact, ACDA
Director John Holum has indicated that
the United States’ obligations under the
CWC would not be allowed to compel it to
sell CW-relevant technology to
proliferating states. Even if that
position were actually adopted by the
U.S. government after treaty
ratification, Article XI would still
provide political cover for other nations
feeling no such compunction and deny
Washington grounds for objecting.
3. N.B.
The UN’s on-site inspection effort in
Iraq (UNSCOM) has been unable to
ascertain the true status of Saddam
Hussein’s weapons of mass destruction
programs despite five years of challenge
inspections under a regime providing for
far more intrusive, timely and
comprehensive than those authorized by
the CWC.
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