SPEAKERS CONTENTS INSERTS Tables
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80–966PDF
2002
LOOSE NUKES, BIOLOGICAL TERRORISM, AND CHEMICAL WARFARE:
USING RUSSIAN DEBT TO ENHANCE SECURITY
HEARING
BEFORE THE
COMMITTEE ON
INTERNATIONAL RELATIONS
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
SECOND SESSION
JULY 25, 2002
Serial No. 107–99
Printed for the use of the Committee on International Relations
Available via the World Wide Web: http://www.house.gov/international—relations
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COMMITTEE ON INTERNATIONAL RELATIONS
HENRY J. HYDE, Illinois, Chairman
BENJAMIN A. GILMAN, New York
JAMES A. LEACH, Iowa
DOUG BEREUTER, Nebraska
CHRISTOPHER H. SMITH, New Jersey
DAN BURTON, Indiana
ELTON GALLEGLY, California
ILEANA ROS-LEHTINEN, Florida
CASS BALLENGER, North Carolina
DANA ROHRABACHER, California
EDWARD R. ROYCE, California
PETER T. KING, New York
STEVE CHABOT, Ohio
AMO HOUGHTON, New York
JOHN M. McHUGH, New York
JOHN COOKSEY, Louisiana
THOMAS G. TANCREDO, Colorado
RON PAUL, Texas
NICK SMITH, Michigan
JOSEPH R. PITTS, Pennsylvania
DARRELL E. ISSA, California
ERIC CANTOR, Virginia
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JEFF FLAKE, Arizona
BRIAN D. KERNS, Indiana
JO ANN DAVIS, Virginia
MARK GREEN, Wisconsin
TOM LANTOS, California
HOWARD L. BERMAN, California
GARY L. ACKERMAN, New York
ENI F.H. FALEOMAVAEGA, American Samoa
DONALD M. PAYNE, New Jersey
ROBERT MENENDEZ, New Jersey
SHERROD BROWN, Ohio
CYNTHIA A. McKINNEY, Georgia
EARL F. HILLIARD, Alabama
BRAD SHERMAN, California
ROBERT WEXLER, Florida
JIM DAVIS, Florida
ELIOT L. ENGEL, New York
WILLIAM D. DELAHUNT, Massachusetts
GREGORY W. MEEKS, New York
BARBARA LEE, California
JOSEPH CROWLEY, New York
JOSEPH M. HOEFFEL, Pennsylvania
EARL BLUMENAUER, Oregon
SHELLEY BERKLEY, Nevada
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GRACE NAPOLITANO, California
ADAM B. SCHIFF, California
DIANE E. WATSON, California
THOMAS E. MOONEY, SR., Staff Director/General Counsel
ROBERT R. KING, Democratic Staff Director
DOUG SEAY, Professional Staff Member
LIBERTY DUNN, Staff Associate
C O N T E N T S
WITNESSES
The Honorable Ellen O. Tauscher, a Representative in Congress from the State of California
The Honorable Alan P. Larson, Under Secretary for Economic, Business, and Agricultural Affairs, U.S. Department of State
James L. Fuller, Ph.D., Director, Defense Nuclear non-proliferation Programs, Pacific Northwest National Laboratory
Charles B. Curtis, President, The Nuclear Threat Initiative
Constantine Menges, Ph.D., Senior Fellow, Hudson Institute
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LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
The Honorable Henry J. Hyde, a Representative in Congress from the State of Illinois, and Chairman, Committee on International Relations: Prepared statement
The Honorable Ellen O. Tauscher: Prepared statement
The Honorable Alan P. Larson: Prepared statement
James L. Fuller: Prepared statement
Charles B. Curtis: Prepared statement
Constantine Menges: Prepared statement
APPENDIX
The Honorable Joseph R. Biden, Jr., a U.S. Senator from the State of Delaware: Prepared statement
The Honorable Richard G. Lugar, a U.S. Senator from the State of Indiana: Prepared statement
The Honorable Christopher H. Smith, a Representative in Congress from the State of New Jersey: Prepared statement
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The Honorable Earl Blumenauer, a Representative in Congress from the State of Oregon: Prepared statement
LOOSE NUKES, BIOLOGICAL TERRORISM, AND CHEMICAL WARFARE: USING RUSSIAN DEBT TO ENHANCE SECURITY
THURSDAY, JULY 25, 2002
House of Representatives,
Committee on International Relations,
Washington, DC.
The Committee met, pursuant to call, at 10:50 a.m. in Room 2172, Rayburn House Office Building, Hon. Henry J. Hyde presiding.
Chairman HYDE. The Committee will come to order. The collapse of the Soviet Union heralded a new era, liberating hundreds of millions from the chains of annihilation. But this miraculous event was not an unalloyed good. Throughout its 7 decades, the Soviet Union operated as a gigantic war machine, its economy, energies, and resources devoted to creating the means for the destruction of its endless enemies. The world has inherited the massive arsenal left behind and, with it, a mortal threat.
For well over a decade, we have been alert to the dangers posed by the combination of this deadly legacy and the frayed guarantees of its continued control. To secure these weapons and materials and the vast infrastructure that made possible their creation and manufacture, we have invested billions of dollars and tremendous effort, and there are many successes to report. But the task is far from over and is made more urgent by the efforts to terrorists and rogue states alike to secure access to weapons of mass destruction. The smallest gaps in our defenses can have unimaginable consequences, and the first and most important line in our defense must be to prevent that access from occurring.
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Given this very real threat, we must focus our attention on devising the most effective means to counter it. There are many factors to consider, among them the lessons learned from our non-proliferation programs to date, the degree to which we can persuade our allies to share responsibility for addressing a problem that threatens us all, and the extent to which the cooperation of the Russian government is likely to be forthcoming. I confess that this latter question causes me great concern. Russia's record of cooperation in our existing non-proliferation programs is far from perfect, despite the commitments and assurances received or mandated by the agreements that established them.
Far more disturbing is the problem of Russia's continuing proliferation of weapons, materials, and know-how to states such as Iran and China. Clearly, if we are to be successful in preventing the world from becoming an even more dangerous place, we must receive the cooperation of our friends and allies in all areas of concern, not simply those demarcated by U.S. funding.
It is for these and other reasons that we have called today's hearing on the proposal to use Soviet-era debt to the United States to advance our non-proliferation efforts. The financial aspects of this innovative proposal are of considerable interest in themselves, and I look forward to a discussion of their merits and implementation. But of far greater importance is the degree to which this funding mechanism can have a positive influence on the broad range of factors I mentioned earlier.
We have time to consider and weigh our options, but we have none to waste. Delay and indecision can only increase the risks we confront. The threat may seem distant and abstract, but we cannot allow the absence of crisis to lull us into a deceptive sleep, for then we would be certain to be awakened by a sudden alarm, one announcing the arrival of a new and darker era.
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It is my hope that our discussions here today will equip us with the means to avoid that fate and to allow us to make secure our future and that of the entire planet as well and I am now pleased to yield to the distinguished Ranking Democrat on the Committee, Mr. Tom Lantos.
[The prepared statement of Chairman Hyde follows:]
PREPARED STATEMENT OF THE HONORABLE HENRY J. HYDE, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ILLINOIS, AND CHAIRMAN, COMMITTEE ON INTERNATIONAL RELATIONS
The collapse of the Soviet Union heralded a new era, liberating hundreds of millions from the chains of dictatorship and the threat of annihilation. But this miraculous event was not an unalloyed good. Throughout its seven decades, the Soviet Union operated as a gigantic war machine, its economy, energies, and resources devoted to creating the means for the destruction of its endless enemies. The world has inherited the massive arsenal left behind and, with it, a mortal threat.
For well over a decade, we have been alert to the dangers posed by the combination of this deadly legacy and the frayed guarantees of its continued control. To secure these weapons and materials and the vast infrastructure that made possible their creation and manufacture, we have invested billions of dollars and tremendous effort, and there are many successes to report. But the task is far from over and is made more urgent by the efforts of terrorists and rogue states alike to secure access to weapons of mass destruction. The smallest of gaps in our defenses can have unimaginable consequences, and the first and most important line in our defense must be to prevent that access from occurring.
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Given this very real threat, we must focus our attention on devising the most effective means to counter it. There are many factors to consider, among them the lessons learned from our non-proliferation programs to date, the degree to which we can persuade our allies to share responsibility for addressing a problem that threatens us all, and the extent to which the cooperation of the Russian government is likely to be forthcoming.
I confess that this latter question causes me great concern. Russia's record of cooperation in our existing non-proliferation programs is far from perfect, despite the commitments and assurances received or mandated by the agreements that established them. Far more disturbing is the problem of Russia's continuing proliferation of weapons, materials, and know-how to states such as Iran and China. Clearly, if we are to be successful in preventing the world from becoming an even more dangerous place, we must receive the cooperation of our friends and allies in all areas of concern, not simply those demarcated by U.S. funding.
It is for these and other reasons that I have called today's hearing on the proposal to use Russia's Soviet-era debt to the United States to advance our non-proliferation efforts. The financial aspects of this innovative proposal are of considerable interest in themselves, and I look forward to a discussion of their merits and implementation. But of far greater importance is the degree to which this funding mechanism can have a positive influence on the broad range of factors I have mentioned earlier.
We have time to consider and weigh our options, but we have none to waste. Delay and indecision can only increase the risks we confront. The threat may seem distant and abstract, but we cannot allow the absence of crisis to lull us into a deceptive sleep. For then we would be certain to be awakened by a sudden alarm, one announcing the arrival of a new and darker era.
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It is my hope that our discussions here today will help to equip us with the means to avoid that fate and to allow us to make secure our future and that of the entire planet as well.
Mr. LANTOS. Thank you very much, Mr. Chairman. There are few issues more important than preventing the spread of nuclear, chemical, or biological materials and agents from falling into the hands of either terrorists or nations that support terrorism. We have all been sensitized to the vast and incalculable consequences of an attack on an American or European city by terrorists using even a crude and improvised nuclear weapon or radioactive conventional explosives, the so-called ''dirty bombs.'' Terrorist chemical or biological attacks would sow great panic, create severe economic hardship, and depending on the ingenuity of the attack, could result in hundreds, thousands, or a much vaster number of Americans killed and injured.
We have been warned many times that it is absolutely critical that we and other nations invest significantly greater resources with much greater urgency to safeguard these materials and agents in the states of the former Soviet Union. Parenthetically, Mr. Chairman, I have been going to the Soviet Union since 1956 on a fairly regular basis, and if there is anything that keeps me awake at night, it is the sloppy, utterly unreliable, utterly nonnuclear conventional housekeeping everywhere in the Soviet Union and now in Russia. If the finest Soviet hotels cannot sweep their rugs, which is not an overly complex technological feat, how they keep this incredible range of weapons and materials under water-tight control escapes my comprehension. So the issue you have chosen to devote this hearing to is extremely important, and I want to compliment you.
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In January of last year, a blue-ribbon panel headed by Lloyd Cutler and Howard Baker, two distinguished Americans and good friends, declared that an investment of $30 billion over 10 years was necessary just to deal with the unsecured Russian nuclear material and technology. At long last, we are beginning to awaken to this enormous task. I think the Administration deserves credit in proposing its 10+10 over 10 concept in which we would spend $10 billion, and our European friends would spend $10 billion over a 10-year period to deal with this issue.
Today's hearing is on one of the more innovative ideas to support our non-proliferation security, establishing a program to convert Soviet era debt to the United States and other members of the Paris Club into new resources for securing former Soviet nuclear, chemical, and biological materials. I note with interest that the G–8 recently endorsed the concept of debt conversion as a possible means to implement this 10+10 over 10 commitment.
As the events of September 11th have made crystal clear, we no longer have the luxury of making incremental policy and program adjustments to safeguard our security. We must move both swiftly and boldly, and proposals such as debt relief for non-proliferation is an example of innovative thinking we must have. I urge the Administration, Mr. Chairman, to move quickly to bring such a program to swift fruition, and I want to commend our most distinguished colleague, Congresswoman Tauscher, my good friend and fellow Californian, who in a very brief period of time has made herself one of the leaders in Congress in dealing with national security issues. She is the quintessential good public servant dealing with the most important issues of our age, and I am delighted she is our first witness.
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Chairman HYDE. Thank you very much, Mr. Lantos. Mr. Gilman.
Mr. GILMAN. Thank you, Mr. Chairman. I want to commend you for holding today's hearing. It is vitally important that we are exploring ways to prevent the proliferation of weapons of mass destruction, and we welcome the gentlelady from California, Ms. Tauscher, as our first witness. I know that she has had a long-term commitment to this issue.
On September 11th, the lives of virtually every American man, woman, and child changed forever in our nation. Those barbaric attacks brought us to the realization that no one is immune from wanton acts of terrorism. Yet as horrifying as those terrorist attacks were, the damage and casualties could have been much greater if the terrorists had used weapons of mass destruction such as nuclear, chemical, radiological, or biological weapons.
We are all fully aware of the destructive potential of those weapons of mass destruction and the efforts of Osama bin Laden and al Qaeda who would try to acquire them. The only practical way for them to obtain the materials to build a nuclear, radiological, chemical, or biological weapon is to buy or steal the materials necessary to build one from a state that already has such weapons. Russia remains the world's largest warehouse of weapons of mass destruction, in particular, nuclear weapons and materials, much of it poorly protected.
Russian facilities housing weapons-grade nuclear and biological materials receive very low funding, lack trained security personnel, and do not have sufficient equipment for securely storing such material. Weapons-grade and weapons usable nuclear materials have been stolen from some Russian institutes. There is also little doubt that undetected smuggling has occurred, although we are unable to deduce the extent of such thefts. And while our nation continues to assist Russia in safeguarding and improving security at facilities housing weapons of mass destruction through the cooperative threat reduction program and the U.S. Department of Energy's material protection, control, and accounting program, many risks still remain. Russian housing facilities remain highly vulnerable to a well-planned and executed terrorist attack or infiltration.
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And since Russia is a valuable partner in our war on terror, it is imperative that we assist it in improving the security of weapons usable materials. The Russian Federation Debt Reduction for Nonproliferation Act of 2002 is one such measure. That act establishes within the Department of the Treasury the Russian non-proliferation investment facility for the purpose of providing for the Administration of Soviet era debt reduction and authorizes the President to reduce the amount of outstanding Soviet era debt owed by the Russian Federation to our nation for the purpose of facilitating debt-for-non-proliferation exchanges.
Mr. Chairman, in closing, I would like to thank our witnesses for taking the time and effort to help us with their knowledge and experience today, and I hope this hearing will provide greater insight into the Russian Federation Debt Reduction for Nonproliferation Act and the actions that our Administration and Congress can take to help Russia in enhancing the safeguards and securing the facilities housing their weapons of mass destruction. Thank you, Mr. Chairman.
Chairman HYDE. Thank you. The gentleman from California, Mr. Schiff.
Mr. SCHIFF. Mr. Chairman, I want to thank you for holding this very important hearing today to address ways to reduce the threat weapons of mass destruction pose to the United States, and I want to thank our colleague from California for her leadership on this issue and welcome.
Eleven years ago, the Nunn-Lugar Cooperative Threat Reduction Program (CTR) was born out of a necessity to ensure that the nuclear arsenal of the Soviet Union would not fall into the wrong hands as the Soviet Empire was coming apart. Throughout the latter half of the Cold War, the Soviet and U.S. camps had achieved mutually assured destruction capability, resulting in an uneasy yet stable security. The enemy was clear and identifiable. However, the demise of the Soviet Empire ushered in a new, post-Cold War period with unclear and unidentifiable threats and a new and very real sense or urgency, instability, and insecurity.
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In the 11 years since, while much has been done to dismantle Russia's and the former Soviet Republic's nuclear weapons, the dangers persist, and in the post-September 11th world the threat is clear and tangible. In addition to the traditional nuclear weapons proliferators such as North Korea and China, countries such as Libya, Iran, Iraq, and stateless terrorist organizations such as al Qaeda are actively in search of nuclear weapons technology and materials. It is this latter type of threat, the unclear, mobile, and not easily identifiable source of threat, that compels us to continue and increase our efforts to secure Russia's nuclear materials.
Nunn-Lugar CTR has made significant achievements in reducing threats from the former Soviet Union. However, continuing economic and social weaknesses in Russia, coupled with an eroding early warning system, poorly secured nuclear, chemical, and biological weapons and materials, and poorly paid Russian weapons scientists and security personnel increase the threat of mass destruction on an unprecedented scale, especially if these materials fall into the hands of terrorists or rogue nations.
Now more than ever we must make a fundamental shift in the way we think about nuclear weapons, the spread of weapons of mass destruction, and our national security. Using Russia's debt to the United States as a funding mechanism for programs addressing the inadequate security of Russian weapons stockpiles is an innovative approach. The Russian Federation Debt Reduction for Nonproliferation Act, which I was pleased to coauthor with Ms. Tauscher, Mr. Green, and Mr. McHugh, will provide mechanisms to forgive the repayment of the $3.7 billion in loans and credits owed to the United States by Russia in exchange for cooperation with U.S. efforts in Russia to monitor and reduce weapons usable nuclear material, nuclear and other weapons of mass destruction and the facilities where they may be built.
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Securing Russia's nuclear arsenal is a massive challenge but not an impossible one. While the costs of a terrorist attack on the United States involving Russian expertise or involving smuggled Russian nuclear, chemical, or biological materials are potentially staggering, funding for the simple measures that can prevent these attacks is both sensible and urgent. The use of this important funding mechanism could accelerate the progress in reducing these threats to the United States' security and help the Russian Federation secure its weapons stockpile.
Thank you again, Mr. Chairman. Thank you, Ms. Tauscher, for your leadership, and I look forward to hearing from our distinguished panels.
Chairman HYDE. Thank you, sir. The gentlelady from the 1st District of Virginia.
Ms. DAVIS. Thank you, Mr. Chairman. I would just like to welcome my colleague from Armed Services and look forward to hearing her testimony. Thank you.
Chairman HYDE. Thank you, Ms. Davis. The gentleman from Wisconsin, Mr. Green.
Mr. GREEN. Thank you, Mr. Chairman. I would merely associate myself with the remarks of my colleague from California, and I, too, look forward to the testimony and the full discussion of this issue. Thank you.
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Chairman HYDE. At this time I would like to note that Mr. McHugh, Mr. Schiff, and Mr. Green of our Committee are cosponsors of H.R. 3836, the ''Russian Federation Debt Reduction for Nonproliferation Act of 2002,'' and we want to thank them for their valuable work on this important issue. And now, Mr. Chabot, if you have an opening statement.
Mr. CHABOT. Thank you, Mr. Chairman. I will be very brief. I look forward to the gentlelady's testimony here this morning, and I agree with many of the things my colleagues have already stated, particularly the importance in not allowing these weapons to get into the hands of those who wish this country ill. We have to do everything we can to make sure that does not happen.
I have to, however, acknowledge that I am not a big fan of forgiveness of debt under any circumstances, whether it is Third World nations, whether it is Africa, whatever, for a whole range of issues but principally for the reason that you basically invite future instances of countries getting debt and just expecting that it is going to be forgiven. So the repayment to us goes down toward the bottom of the list when a country is deciding what it is going to do with its limited assets and limited resources. So for that reason, I generally in the past have opposed proposals in which we are going to forgive debt, but I am certainly willing to listen. I would thank the gentlelady for putting thought and effort into this proposal, but I have to state that I am generally going to be fairly skeptical of this because I am not a big fan of forgiving debt under any circumstances.
Chairman HYDE. If I might leap into this mini-discussion, it seems to me this is not a straight forgiveness—this is a trade-off. What we are trading off for is, it seems to me, pretty worthwhile, so I would ask my good friend to kindly listen to it with an open mind, and I know you will.
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Mr. CHABOT. And I will certainly keep a semi-open mind, especially since the Chairman has requested that.
Chairman HYDE. I hope we can elevate that to a quasi-open mind.
Well, I want to welcome our first witness, Representative Ellen Tauscher from the great state of California. Currently serving her third term, she sits on the Armed Services Committee and is the senior Democrat on the congressional panel overseeing the National Nuclear Security Administration, the Federal agency that manages the U.S. nuclear weapons program. Ms. Tauscher also has the distinction of being the only Member of Congress to have two national defense laboratories—Lawrence Livermore and Sandia California—in her district. We are very happy to have you with us today, and please proceed. If you can confine your statement to 5 minutes, give or take, and then your whole statement will be made a part of the record. Ms. Tauscher.
STATEMENT OF THE HONORABLE ELLEN O. TAUSCHER, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA
Ms. TAUSCHER. Thank you very much, Mr. Chairman, Ranking Member Lantos, friends on the Committee, and colleagues. I would like to thank you for the opportunity to testify before your Committee on the issue of debt for non-proliferation.
Mr. Chairman, I know that this is not a new issue to you, and I commend you for holding a hearing on what I believe would be a powerful tool in improving the security of the United States and strengthening our relationship with Russia. I would also like to recognize the support of my colleagues on this Committee, John McHugh, my good friend and fellow Californian Adam Smith, and Mark Green, who have worked with me on debt-for-security legislation.
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And the timing of this hearing could not be better. The May 24th arms agreement with Russia and the G–8 Summit in Canada this June together provide a critical framework for U.S.-Russia relations that emphasizes increased economic security and cooperation, and identifies preventing the spread of weapons of mass destruction as a top priority for both countries. Secretary Powell called the Moscow Treaty an important element of a new strategic framework involving a broad array of cooperative efforts in political, economic, and security areas.
At the G–8 Summit, the leaders of the industrialized nations went one step further, specifically outlining what economic mechanisms should be used to combat the threat of weapons of mass destruction. Indeed, as you know, they launched a new global partnership against the spread of weapons and materials of mass destruction to support specific cooperation projects that address non-proliferation, disarmament, counterterrorism, and nuclear safety issues.
This commitment to non-proliferation itself is important, but even more notable is the leaders' agreement to fund non-proliferation programs at $20 billion over the next 10 years and specify that a range of financing options, including the option of bilateral debt program exchanges, will be available to countries that contribute to this new global partnership.
As you know, Mr. Chairman, more than a decade after the end of the Cold War, thousands of poorly guarded nuclear weapons and materials still remain in Russia, increasing the possibility for their diversion or theft into the hands of terrorists. Existing U.S.-Russian threat-reduction programs have had an impressive track record over the last decade, but the challenge of securing Russia's vast nuclear arsenal is far from having been met.
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A more robust investment and international participation is needed to accelerate and complement U.S. efforts, and debt-for-security swaps are an ideal investment. For example, the Department of Energy's material protection, control, and accounting program will not complete comprehensive security upgrades on fissile materials in Russia until 2011, but more focused funding and effort could enable at least rudimentary security improvements at these sites over the next 9 months.
In January of last year, a bipartisan task force chaired by former Senator Howard Baker and former White House Counsel Lloyd Cutler highlighted this problem, stating that
''the national security benefits to United States citizens from securing and/or neutralizing the equivalent of more than 80,000 nuclear weapons and potential nuclear weapons would constitute the highest return on investment in any current U.S. national security defense program.''
The Baker-Cutler task force strongly recommended that, at a minimum, investment in DOE non-proliferation activities should be increased to roughly 1 percent of the annual U.S. defense budget, which would total about $3 billion per year, or $30 billion over the next 10 years.
I welcome the Administration's pledge at the G–8 meeting to commit $10 billion to threat-reduction programs, but to actually improve on current funding levels, the $10 billion figure has to be a floor, not a ceiling. It sounds like a lot of money, I know, but non-proliferation programs are the only proven way to literally buy down our risk that a loose Russian nuke will be stolen by a terrorist and aimed at us.
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The G–8 Agreement and its specific reference to debt reduction as a mechanism for combatting the spread of weapons of mass destruction is a vital development, as it does a number of things. It helps Russia reduce its outstanding debt, it involves Russia and the rest of the G–8 countries in programs that directly improve United States national security, and it extends burden sharing to our allies.
In terms of Russia's incentives, we know that Russia has identified $17 billion in its Fiscal Year 2003 budget for servicing its debt. Now is the time to seize this unique moment in history to put in place a tool that could both minimize the threat posed by weapons of mass destruction and help stabilize the Russian economy.
Accordingly, I introduced bipartisan legislation supported by three Members of this Committee—Representatives John McHugh, Mark Green, and Adam Schiff—the Russian Federation Debt Reduction for Nonproliferation Act of 2002, and it is a mouthful. This legislation would establish debt-for-non-proliferation swaps and is modeled on past successful debt reductions for environmental efforts.
Our bill authorizes the President to establish an office at the Treasury Department to administer the debt reduction and authorizes $150 million in appropriations over Fiscal Years 2002 and 2003 to offset the cost of debt reduction to the Treasury. The bill gives the President the authority to reduce the Lend Lease and agricultural portions of Soviet era debt and replaces those obligations with new obligations defined through a ''Russian Nonproliferation Investment Agreement'' to be negotiated with the Russians and resulting in a non-proliferation fund.
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Both our bill and the Senate bill would allow the President to sell the debt to an eligible third party or to the Russian government, provided that required non-proliferation plans, commitments, and transparency measures are in place. The bill further requires that non-proliferation programs be approved by the United States Government directly or via its representative on any governing board established to manage the funds, incorporate best practices from established threat-reduction and non-proliferation assistance programs, be free of Russian taxes, be subject to U.S. audits, and that 75 percent of the funds be spent in Russia.
Finally, the bill mandates that the President or his designee enter into discussions with the Paris Club of creditor states on getting them to agree that significant portions of their bilateral debt with Russia be devoted to non-proliferation and arms-reduction activities.
I recognize that our bill and the Senate version are only one way of addressing debt-for-security, but I believe that it gives the President a vital tool to defend our nation, and I look forward to working with my colleagues in Congress in this Committee and others and the Administration to move this measure forward.
Mr. Chairman, I would like to briefly discuss what Mr. Chabot was talking about. I think that those are natural prejudices. I think that there is no one certainly that takes the oath that we take that takes American taxpayer dollars seriously, takes the ability to protect the American people seriously that believes that we should get into a situation where we are willy nilly allowing nations that we are creditors to to forgive their debt. But I think that we have to use a different set of terms, and I think we have to realize that we are already spending hundreds of millions of dollars a year in Russia to achieve some of these ends.
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If we can find a way to balance that investment with not only the performance that we would have but also have the extra sweetener of improving the Russian economy, improving relations, and having partners to do that, which would be the G–8 countries, I think that is a win for the American people. I do not think anyone is interested in encouraging bad debtor nations, but I think we are all united in making sure that non-proliferation is an issue that we are all putting on the front burner and that we are putting our money into and that we are being creative in the ways we do it.
I very much appreciate you having me here today. I hope that we can move this legislation. I appreciate your leadership. I thank my colleagues for listening, and I look forward to working with you.
[The prepared statement of Ms. Tauscher follows:]
PREPARED STATEMENT OF THE HONORABLE ELLEN O. TAUSCHER, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA
Mr. Chairman, Ranking Member Lantos—I would like to thank you for the opportunity to testify before your committee on the issue of debt-for-nonproliferation.
Mr. Chairman, I know that this is not a new issue to you, and I commend you for holding a hearing on what I believe would be a powerful tool in improving the security of the United States and strengthen our relationship with Russia.
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I would also like to recognize the support of my colleagues on this committee, John McHugh, Adam Schiff and Mark Green, who have worked with me on debt-for-security legislation.
The timing of this hearing could not be better.
The May 24 arms agreement with Russia and the G–8 Summit in Canada this June together provide a critical framework for U.S.-Russia relations that emphasize increased economic and security cooperation, and identifies preventing the spread of weapons of mass destruction as a top priority for both countries.
Secretary Powell called the Moscow Treaty an important element of a new strategic framework involving a broad array of cooperative efforts in political, economic and security areas.
At the G–8 Summit, the leaders of the industrialized nations went one step further, specifically outlining what economic mechanisms should be used to combat the spread of weapons of mass destruction.
Indeed, as you know, they launched a new global partnership against the spread of weapons and materials of mass destruction to support specific cooperation projects that address non-proliferation, disarmament, counter-terrorism, and nuclear safety issues.
This commitment to non-proliferation itself is important, but even more notable is the leaders' agreement to fund nonproliferation programs at twenty billion dollars over the next ten years and specify that ''a range of financing options, including the option of bilateral debt for program exchanges, will be available to countries that contribute to this Global Partnership''.
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As you know, Mr. Chairman, more than a decade after the end of the Cold War, thousands of poorly guarded nuclear weapons and material still remain in Russia, increasing the possibility for their diversion or theft into the hands of terrorists.
Existing U.S.-Russian threat reduction programs have had an impressive track record over the last decade, but the challenge of securing Russia's vast nuclear arsenal is far from having been met.
A more robust investment and international participation is needed to accelerate and complement U.S. efforts, and debt-for-security swaps are the ideal investment.
For example, the Department of Energy's Material Protection, Control and Accounting Program will not complete comprehensive security upgrades on fissile materials in Russia until 2011, but more focused funding and effort could enable at least rudimentary security improvements at these sites over the next nine months.
In January of last year, a bipartisan task force chaired by former Senator Howard Baker and former White House Counsel Lloyd Cutler highlighted this problem stating that:
''the national security benefits to U.S. citizens from securing and/or neutralizing the equivalent of more than 80,000 nuclear weapons and potential nuclear weapons would constitute the highest return on investment in any current U.S. national security defense program.''
The Baker-Cutler task force strongly recommended that, at a minimum, investment in DOE nonproliferation activities should be increased to roughly one percent of the annual U.S. defense budget which would total about three billion dollars per year, or thirty billion over the next ten years.
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I welcome the administration's pledge at the G–8 meeting to commit ten billion dollars to threat reduction programs.
But to actually improve on current funding levels, the ten billion figure has to be a floor and not a ceiling.
It sounds like a lot of money, I know, but nonproliferation programs are the only proven way to literally buy down our risk that a loose Russian nuke will be stolen by a terrorist and aimed at us.
The G–8 agreement and its specific reference to debt reduction as a mechanism for combating the spread of weapons of mass destruction is a vital development as it does a number of things: it helps Russia reduce its outstanding debt; it involves Russia and the rest of the G–8 countries in programs that directly improve U.S. national security; and it extends burden-sharing to our allies.
In terms of Russia's incentives, we know that Russia has identified seventeen billion dollars in its fiscal year 2003 budget for servicing its debt.
Now is the time to seize this unique moment in history to put in place a tool that would both minimize the threat posed by weapons of mass destruction and help stabilize the Russian economy.
Accordingly, I introduced bipartisan legislation supported by three members of this committee,—Representatives John McHugh, Mark Green, and Adam Schiff—the Russian Federation Debt Reduction for Nonproliferation Act of 2002 (H.R. 3836).
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The legislation would establish debt for nonproliferation swaps and is modeled on past successful debt reductions for environmental efforts.
Our bill authorizes the President to establish an office at the Treasury Department to administer the debt reduction and authorizes one hundred and fifty million dollars in appropriations over fiscal years 2002 and 2003 to offset the cost of debt reduction to the Treasury.
The bill gives the President the authority to reduce the Lend Lease and agricultural portions of Soviet-era debt and replaces those obligations with new obligations defined through a ''Russian Nonproliferation investment Agreement'' negotiated with the Russians and resulting in a Nonproliferation Fund.
Both my bill and the Senate bill would allow the President to sell the debt to an eligible third party or to the Russian government, provided that required nonproliferation plans, commitments, and transparency measures are in place.
The bill further requires that nonproliferation programs be approved by the U.S. government directly or via its representative on any governing board established to manage the funds, incorporate best practices from established threat reduction and nonproliferation assistance programs, be free of Russian taxes, be subject to U.S. audits and that seventy five percent of the funds be spent in Russia.
Finally, the bill mandates that the President or his designee enter into discussions with the Paris Club of creditor states on getting them to agree that a significant portion of their bilateral debt with Russia be devoted to nonproliferation and arms reductions activities.
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I recognize that our bill and the Senate version are but one way of addressing debt-for-security, but I believe that it gives the President a vital tool to defend our nation and I look forward to working with my colleagues in Congress and the administration to move this measure forward.
Thank you, Mr. Chairman, and I am ready to answer any questions you might have.
Chairman HYDE. Thank you very much. I want to extend our appreciation for you appearing here and your very timely, valuable testimony on an important, critical subject. We know you are committed to a thorough examination of the issues that are the focus of this hearing, and you have added an important dimension to our discussion and debate on the subject.
I have thought that Russia is owed a lot of money by Iraq, and the same principle might be put into play with Iraq, so this has great possibilities.
Ms. TAUSCHER. Yes. As a small child I spent 14 years on Wall Street, and I think that there are very innovative things that we can do that are part of existing financial models and markets that our Treasury Department uses right now to stabilize our fiscal policy and our international monetary policy that really apply here. There are ways for us to negotiate with not only the Paris Club but other creditor nations around the world to help restructure Russian debt, to get them better deals, but the nice thing is that we get something very, very important to us, which is not only a more secure Russian economy and help them emerge as a player, but also we get to buy down our risk that a weapon of mass destruction lands on our shores or harms our fighting men and women around the world or our interests around the world.
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Chairman HYDE. Well, thanks for your contribution. We do not usually question witnesses from the Senate or the House.
Ms. TAUSCHER. And boy do I appreciate that.
Chairman HYDE. It is with great restraint that we rein ourselves in. Thank you, Ms. Tauscher.
Mr. LANTOS. May I just——
Chairman HYDE. Mr. Lantos.
Mr. LANTOS [continuing]. Mention one small thing, Mr. Chairman? I now know who that small, cute child on Wall Street was that I was watching over the years. I just would like to suggest to my friend and colleague that she is doing an invaluable service to all of us in bringing forward the legislation, which I will be most happy to cosponsor.
Ms. TAUSCHER. Thank you very much.
Mr. LANTOS. I think it is a very valuable piece of legislation. I am sorry our friend from Ohio left because I think it is important to point out that we have to be candid in our thinking with respect to the concept of debt relief. I believe that individuals, and I am not referring to him, who think nothing of providing unconscionable tax loopholes which amount to incredible tax reductions and in some cases the total avoidance of the paying of taxes would be horrified at the notion that we forgive taxes. We have to look rationally at policies and their impact.
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Clearly, Russia today is not in a position to provide for the total security of all of these dangerous materials, and if by the debt-reduction program we can facilitate this, it is clearly in our interest. So I think my colleague from California is coming to us with a very valuable proposal that we hope will become legislation.
Ms. TAUSCHER. Thank you.
Mr. SCHIFF. Mr. Chairman, I just want to point out that our colleague from Ohio is still quasi-present.
Chairman HYDE. I think this is a California production here, all of you, and——
Ms. TAUSCHER. We need Illinois' help.
Chairman HYDE. That is right. Well, thank you very much.
I would like to welcome Alan P. Larson, the Under Secretary of State for Economic, Business, and Agricultural Affairs. Mr. Larson serves as the senior economic advisor to Secretary of State Powell, and included among his responsibilities is the entire range of international economic policy. Since joining the State Department in 1973, Mr. Larson has served in senior positions dealing with economics, trade, finance, energy, sanctions, transportation, and telecommunications. From 1990 to 1993, Under Secretary Larson served as the U.S. Ambassador to the Organization for Economic Cooperation and Development.
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Under Secretary Larson, we are honored to have you appear before us today. Please give us as close as you can come to a 5-minute summary, and your full statement will be made a part of the record.
STATEMENT OF THE HONORABLE ALAN P. LARSON, UNDER SECRETARY FOR ECONOMIC, BUSINESS, AND AGRICULTURAL AFFAIRS, U.S. DEPARTMENT OF STATE
Mr. LARSON. Mr. Chairman, thank you very much. Mr. Lantos and distinguished Members of the Committee, we really appreciate the opportunity to testify today on the G–8 Global Partnership Against the Spread of Weapons and Materials of Mass Destruction. My testimony is going to focus on one of the possible means of financing this important initiative, and that is waiving repayment of specific amounts of Russia's Soviet era debt to the United States in order to free up resources for expanded non-proliferation programs.
There are two very important reasons for expanding cooperation on non-proliferation. The first is the national security imperative of destroying or bringing under responsible control materials, expertise, and technologies that hostile powers could use to threaten the United States. The attacks of September 11 have given us a glimpse of the terror that such materials in the wrong hands could inflict on the American people or on the people of any country.
The second reason is the new opportunity opened by the U.S.-Russia strategic relationship. Over the last year Russia has confirmed its position as a partner in the war against terror. In particular, the Russian leadership has made clear its interest in doing more to eliminate or secure weapons of mass destruction and related material.
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One fruit of this new spirit is the G–8 Partnership. This agreement between Russia and the other G–8 countries was the most notable achievement of the G–8 Summit in Kananaskis. The United States played a leading role, but all of the G–8 partners, including most especially the Canadian host, deserve great credit for recognizing and seizing a historic opportunity.
The partnership commits the G–8 to raise up to $20 billion over 10 years for cooperation projects to address non-proliferation, disarmament, counterterrorism, and nuclear safety issues. The United States intends to provide half. Our partners will seek to match this amount. This initiative will make possible substantially increased non-proliferation efforts. It also includes a commitment to principles to prevent proliferation, to guidelines for more effective implementation of cooperation projects, and an agreement to coordinate our projects to obtain the broadest possible coverage of non-proliferation requirements.
Bilateral debt for program exchange is one option for financing these projects. The Administration will consult closely with the Congress on those non-proliferation programs and projects that we would like to support and on the choice between debt or more traditional ways of financing the projects.
Our concept of how a debt option might work is very straightforward. The United States would agree to waive collection of a given amount of debt payments owed by the Russian government on Russia's Soviet era debt. In return, Russia would spend more on agreed non-proliferation activities. The financial and the budget mechanics would need to be worked out in the negotiations. We do know the Russian authorities are interested in such an approach to their Soviet era debt, but beyond that there are details that will need to be addressed.
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The Administration does not consider this sort of financing as debt relief. Financially, Russia does not meet the normal requirements for debt relief. At the same time, Russia cannot afford to do everything we would like it to do. It has inherited a number of burdens, among them a vast and decaying collection of Soviet era weapons and production facilities. The unfinished work includes destruction of chemical weapons in compliance with international obligations, the shutdown of plutonium production facilities, and disposal of excess fissile material, and the dismantling of strategic launch systems. These tasks remain despite substantial past U.S. assistance.
While it is true that Russia's budget position has strengthened, it still faces great demands and serious social problems. Between 22 and 33 percent of the Russian people live in poverty. Life expectancy has declined over the last decade.
The Administration has agreed to consider this exceptional way of financing for Russia because of the unique burden that Russia bears from the Cold War. It is not in our interest that Russia should face alone the hard choice between meeting the basic needs of its population or eliminating chemical weapons or excess plutonium.
It really is only in Russia that we confront so starkly this combination of Cold War era debts and the proliferation threat. It is only in Russia that we see debt exchange for financing non-proliferation efforts as a plausible approach. It would use Soviet era debt to help Russia address Soviet era problems.
We appreciate greatly the Committee's interest in this issue, and we look forward to working with the Committee on some technical revisions of the legislation to make it even more useful for this purpose.
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In closing, I would like to emphasize that this initiative is a work in progress, but it is a very innovative option that the Administration believes we would like to have available as we work with the Russian Federation on addressing these Soviet era threats to our mutual advantage. Thank you very much.
[The prepared statement of Mr. Larson follows:]
PREPARED STATEMENT OF THE HONORABLE ALAN P. LARSON, UNDER SECRETARY FOR ECONOMIC, BUSINESS, AND AGRICULTURAL AFFAIRS, U.S. DEPARTMENT OF STATE
I would like to thank Chairman Hyde and other distinguished committee members for the opportunity to testify on the G–8 Global Partnership Against the Spread of Weapons and Materials of Mass Destruction. My testimony will focus on one of the possible means of financing this important initiative—the waiver of U.S. collection of Russia's repayment on its Soviet-era debt to the U.S. in order to finance Russia's implementation of expanded non-proliferation programs.
Let me step back from the debt issue for a moment and underscore two very important reasons for expanding cooperation to promote non-proliferation. The first is the national security imperative of destroying or bringing under responsible control the materials and technologies that could let hostile powers threaten the United States with weapons of mass destruction. The attacks of September 11 have given us a glimpse of the terror that such weapons, in the wrong hands, could inflict on the American people, or on the people of any country.
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The second reason is the new opportunity opened by the U.S.-Russia strategic relationship. Over the last year Russia has confirmed its position as a partner in the war against terror and is cooperating with the United States on many issues. In particular, the Russian leadership has made clear its interest in doing more, cooperatively, to eliminate or secure weapons of mass destruction and related material, equipment and technologies
One fruit of this new spirit is the G–8 Global Partnership Against the Spread of Weapons and Materials of Mass Destruction. This agreement between Russia and the other G8 countries was the most notable achievement of the G–8 Summit in Kananaskis. It will focus on non-proliferation, disarmament, counterterrorism and nuclear safety projects, initially in Russia. The U.S. played a leading role, but all of our G–8 partners—Russia, Germany, France, the United Kingdom, Italy, Japan, the European Union, and, of course, Canada—deserve great credit for seeing and grasping a historic opportunity.
The Global Partnership commits the G–8 to raise up to $20 billion over 10 years for cooperation projects to address non-proliferation, disarmament, counter-terrorism and nuclear safety issues. The United States has agreed to provide half of this sum; our partners will contribute a matching amount. This initiative will make possible substantially increased nonproliferation efforts, through new and expanded multilateral and bilateral projects.
The initiative also includes a commitment to a set of principles designed to prevent terrorists from gaining access to weapons or materials of mass destruction. And the G8 partners agreed on guidelines for new or expanded cooperation projects to provide for more effective implementation. Partners will coordinate their projects to obtain the broadest coverage of non-proliferation requirements, avoid gaps or overlap, and help resolve any implementation problems.
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The initiative allows each partner the flexibility to finance and carry out projects in a manner consistent with its program priorities, national laws and budgetary procedures. Bilateral debt for program exchange is an option for financing projects under the Partnership. We do not know at this point whether others will use debt exchange or more conventional assistance or a mix of both. We do know that debt exchange will be difficult for some of our partners. The Administration will consult closely with Congress on the formulation of non-proliferation and threat reduction programs and projects and on the choice between debt or more traditional assistance as a funding vehicle.
The Administration's concept for how a debt option might work is straightforward. The United States would agree in advance to waive collection of a given amount of debt payments owed by the Russian government to the United States government on Russia's Soviet-era debt. As a consequence, Russia would be able to make expanded budgetary expenditures for agreed non-proliferation activities. The financial and budget mechanics would be worked out in negotiations with Russia, subject to the requirements of U.S. law. We know the Russian authorities are interested in applying such an approach to part or all of their Soviet-era debt to the United States. Beyond that, there are still many details that would need to be worked out. We need to determine under what conditions we could offer such an option to Russia. The Russians will need to decide whether such a deal would be advantageous for them, relative to other options.
I would like to highlight one point, that the Administration does not consider this kind of a financing vehicle as debt relief, per se. Financially, Russia does not require further debt relief. Since its financial crisis in 1998, Russia has adopted improved economic policies and has benefited from relatively high world oil prices. Although it remains a country with serious poverty and pressing needs, it can and is paying its bills.
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At the same time, Russia cannot afford to do everything we would like it to do. In the wake of the breakup of the former Soviet Union, Russia chose to take over the assets and liabilities of the Soviet Union. This decision saddled Russia with a number of burdens, among them a vast and decaying collection of Soviet-era weapons and production facilities. In addition, Russia assumed the entire Soviet debt in exchange for title to all Soviet assets abroad. A decade later, these decisions and a changing global environment have left Russia with many responsibilities: to destroy chemical weapons in compliance with international obligations; to close down plutonium production facilities and dispose of excess fissile material; to dismantle old ballistic missile submarines and other strategic launch systems. It must secure remaining WMD or materials. These tasks remain despite U.S. assistance of $7 billion to Russia and other former Soviet states for these purposes.
While Russia's fiscal position has strengthened enormously over the past three years—it is now running budget surpluses—Russia is pursuing an ambitious set of structural reforms that will involve significant fiscal outlays over the medium term. The World Bank's new country assistance strategy records how costly and painful the transition from a command economy has been.
Between 22 and 33 percent of Russians live in poverty. The life expectancy of a man declined from 64 years to 59 over the past decade. The government must cope with persistent financial demands to update its antiquated education and health systems. While Russia has been devoting its own resources to the destruction and control of dangerous materials, budget pressures have made it difficult to proceed with these tasks as fast as the Russian leadership and we believe is necessary.
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The Administration has agreed to consider this exceptional financing option for Russia because of the unique burden Russia bears from the Cold War. It is not in our interest that Russia should face alone the harsh choice between the basic needs of its population or eliminating chemical weapons or excess plutonium. This is why we provide assistance, and this is why we would agree to allow Russia to use funds that it would otherwise pay us in order to achieve our mutual objectives.
Only in Russia do we confront so starkly the combination of Cold War debts and the proliferation threat. We see debt exchange for financing non-proliferation efforts as a possible approach unique to Russia. It would use Soviet-era debt to help Russia address Soviet-era problems. Under the G–8 Global Partnership, other types of financial assistance—notably provision of goods and services—can be made available to other countries of the former Soviet Union. The United States is committed to continuing and expanding our current non-proliferation programs in Ukraine, Kazakhstan, Uzbekistan and other former Soviet states, and we encourage our G–7 partners to expand their own efforts there.
Members of the committee understand the priority we accord to cooperative non-proliferation and threat reduction activities in Russia. We appreciate your willingness to hold this hearing on addressing those needs by facilitating debt exchange. I would like to describe more specifically some of the preliminary ideas we have on this issue. And we would be happy to work with Congress as the Administration moves forward with this initiative to shape the language of this bill, which does, in our view, need some technical revisions to make it more suitable for this purpose.
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A debt exchange arrangement would be a contract between the United States and Russia. First, the contract would be based on a mutually agreed upon price for a clearly defined product, just as is the case with our current assistance programs. For instance, if the U.S. and Russia agreed that a specific project would cost $50 million over three years, then the U.S. would relieve Russia of the obligation to make $50 million of debt payments over three years—a dollar-for-dollar proposition. There would be an agreed timeline for delivery, with clear benchmarks for tracking specific projects. We would insist on effective monitoring and accountability, a key part of our DOD, DOE and State programs. The contract would include provisions for suspension, and even termination, of the debt exchange, in the event of non-performance. The Committee should note, however, that as provided under the Credit Reform Act, the Administration would request that Congress provide the costs of this contract at the outset of the program.
In closing, I would like to emphasize that this initiative is a work in progress. Many details remain. But it is an innovative option that the administration would like to have available for working with the Russian Federation on addressing Soviet-era threats to our mutual advantage.
Although much work is still necessary to develop the technical aspects of this proposal, I would be happy to answer any questions, to the best of my ability.
Mr. GILMAN [presiding]. Thank you, Mr. Secretary.
In light of the initiation of the Global Partnership Against the Spread of Weapons and Materials of Mass Destruction announced in the June G–8 Summit, what changes or modifications should we be making in the respective versions of the Russian Federation Debt Reduction for Nonproliferation Act in the House and Senate?
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Mr. LARSON. First of all, I do want to welcome this legislation. I think it is very important. We would like to work with the Committee on the details.
I think the biggest thing that I would mention in this hearing is our view that it would be advantageous in a piece of authorizing legislation not to have a dollar value ceiling on the extent to which we could use this option. We would like to be in a position to consider very carefully internally the trade-offs between waiving payment of debt and other means of financing, and we would like to be able to engage with the Russian Federation to examine what their preferred modalities would be. And so it would be good to have some flexibility in terms of the size of the U.S. portion that ultimately might be financed through waiver of debt payments.
Mr. GILMAN. Thank you, Mr. Secretary. The 10+10 over 10 program endorsed at the recent G–8 meeting calls for the U.S. to spend $10 billion over the next 10 years on non-proliferation in the Russian Federation, to be matched by another $10 billion from our allies. How were those amounts determined? Is the money to be spent on existing programs or on new ones? And if money is spent on new programs, what areas are those expected to address that are not being adequately covered by our existing efforts?
Mr. LARSON. First of all, I think the two very important elements of this G–8 initiative are, first, the greatly increased recognition by the Russian Federation that cooperation in addressing these proliferation problems is something that is fundamentally in their interest. And the conversations that we have had with the Russian Federation during the months before the announcement of the G–8 initiative have been very encouraging. Obviously, we worked closely with the Russian Federation before the G–8 initiative, and I think we have detected a greatly enhanced interest and appreciation on their part of the stake they have in this.
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Second, we did achieve in the months before the announcement of this initiative commitments that we had not been able to achieve before from other industrialized countries to join us in a burden-sharing effort. I do not think that anyone who was involved in this would feel that they were in a position to say that we know that $20 billion is exactly the right amount and that it is not going to perhaps require more. But we did feel it was very important to establish a basic burden sharing. We felt that with the support of the Congress we could count on continuing an effort that would amount to roughly $10 billion over 10 years. We felt it was important to get other countries who have an interest in this to come up with comparable amounts, and I think that really was the basis of the number that you referred to.
Mr. GILMAN. Thank you, Mr. Secretary. One more question. What are the relative costs and benefits of funding by either assistance or debt reduction? Are there any significant financial advantages of either one?
Mr. LARSON. I would like to start out with what is almost a basic truism. I think before getting into the details of the budget accounting of this it is important to recognize that if we are to forego payment of $50 million owed to the United States that that is a real cost. And the objective of this arrangement would be to ensure that the Russian Federation made additional expenditures on agreed programs of $50 million.
So I want to make very clear at the beginning that there is a real cost, that this is not something that is free. And I think it is important to look at it as something where the real cost is the dollar value of the payments that are foregone.
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It is true that in under credit reform when we budget for these things, the rules the Congress has set forth instruct the executive branch to examine, first of all, the fact that there is a time value to money, so payments in the future, therefore, are worth less to us than payments today, and in any sort of debt repayment scenario there is always some chance that that payment will not be made. And so those discount factors enter into the equation, and when we budget for waiving debt, the dollar value of the budget cost tends to be somewhat less than the sum of the payments foregone, and that is a factor that I am sure the Committee will want to consider. But I do not think anyone should focus excessively on that because the underlying fact is the basic trade-off here is that we are agreeing to forego payment of a certain amount of money if that same amount of money is devoted by the Russian Federation to agreed non-proliferation programs.
Mr. GILMAN. Thank you, Mr. Secretary. Mr. Schiff?
Mr. SCHIFF. Thank you, Mr. Chairman, and I agree certainly with the point you just made, Mr. Secretary, particularly since Russia would not otherwise qualify for debt relief, it makes sense not to discount the value of the debt reduction excessively.
I have really two questions. The first is that I know part of the concern with expanded funding of Nunn-Lugar in one form or another has been whether Russia is meeting its financial commitment to the program. Are they doing their share? The other part of the question is does this funding mechanism, in your view, have any particular strengths or weaknesses as a vehicle of getting Russia to meet its commitment to the program? The second question is does this program give us any additional leverage in our ability to deter Russia from exporting technologies to China, Iran, other places, given the fact that really this program is in our self-interest whether there is any Russian contribution or not? Do we have much leverage via this program?
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The argument can be made in theory, maybe even in practice, that to the degree we are providing Russia financial support, we are enabling them economically to produce weapons and technology to export to places we do not want. Obviously, that is not how we would want them to be using our support. Does this give us any added leverage?
Mr. LARSON. First of all, I would like to stress that we would expect to apply to any programs done under a debt-waiver approach the same sort of rigorous controls in terms of oversight, monitoring, audits, and inspections that we do under our current threat-reduction programs. And while you would want to talk directly with the people in the Defense Department and the Energy Department who run those programs for an assessment of Russia's contribution, my sense is that we were somewhat disappointed with their performance before 2000 and that we have been pleased with very significant improvements in their performance and their commitment since then. So we have detected not only an improvement in their overall attitude but an improvement in their performance in working with us and meeting their contributions under the programs that we have had in place.
I think that the fact that the Russian Federation has been interested in debt exchange is something that could contribute to increasing even further this seriousness of purpose that they have been displaying. There is a political factor here. The Russian Federation has been concerned for some time that after the Cold War they accepted the obligation of repaying all of the debts of the former Soviet Union. They took over many of those assets, but as we have seen, the assets in many cases are liabilities. They are these decaying and dangerous facilities that require expenditures to monitor and control and in some cases dismantle and destroy. So I think there is a benefit that they see in pairing up these two Cold War era problems, the debt burden that they inherited and these dangerous facilities that they have also inherited.
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I think also the fact that this has become a multilateral program involving the other G–8 countries is something that helps us work more effectively with the Russian Federation on the concerns that we have over activities that could make international proliferation problems worse. We have now the Germans and the French and the British and the Canadians and the Japanese that are part of this framework, and the fact that it is a group effort means that there are other countries who can join us in raising these concerns with the Russian Federation. I think it provides a framework that does augur well for improving even further the cooperation.
Chairman HYDE [presiding]. The gentleman's time has virtually expired, not quite. I am informed that we expect the next vote around noonish. The Republicans are notified there is a Republican conference in 8C5 after the next vote, and that, of course, throws a monkey wrench into our schedule here. So with your indulgence, Ms. Davis and Mr. Pitts, we will forego your question period of the Under Secretary and thank him and try to get as far as we can with our next panel before we all have to dash off to a conference which may or may not be of transcendent importance. Thank you, Mr. Larson, very much.
Mr. LARSON. Thank you, Mr. Chairman.
Chairman HYDE. I would to welcome our third panel of witnesses. Dr. James Fuller, who is the Founding Director of the Pacific Northwest Center for Global Security at the Pacific Northwest National Laboratory, operated by Battelle for the U.S. Department of Energy. Dr. Fuller has served as technical adviser to both the Department of Energy and the Department of Defense in several capacities related to nuclear arms reductions, including the President's Committee on Fissile Material Control and Warhead Reduction Monitoring.
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Our next witness is Charles Curtis, President and Chief Operating Officer of the Nuclear Threat Initiative. He previously served as Chief Operating Officer of the United Nations Foundation and, from 1994 to 1997, as the Under Secretary and, later, Deputy Secretary of the Department of Energy. Formerly, Mr. Curtis was a partner at the Washington law firms of Hogan & Hartson and Van Ness Feldman. He also served as Chairman of the Federal Regulatory Commission. Welcome, Mr. Curtis.
Finally, I would like to welcome my friend of many years' standing, Dr. Constantine Menges. Dr. Menges joined the Hudson Institute in 2000 as a Senior Fellow. He previously served as assistant to the President for National Security Affairs and as a national intelligence officer at the CIA. Dr. Menges also acted as Deputy Assistant Secretary for Education and as Assistant Director for Civil Rights in the former Department of Health, Education, and Welfare. From 1990 to 2000, Dr. Menges was a professor at George Washington University, where he directed the Program on Transitions to Democracy. We welcome you, Dr. Menges.
Please proceed with 5 minutes for your statement. We will proceed with the questions as the clock permits us. Thank you. We will open up with you, Dr. Fuller.
STATEMENT OF JAMES L. FULLER, Ph.D., DIRECTOR, DEFENSE NUCLEAR NONPROLIFERATION PROGRAMS, PACIFIC NORTHWEST NATIONAL LABORATORY
Mr. FULLER. Thank you, Mr. Chairman. Thank you very much for the introduction and the opportunity to comment on the use of Russian debt to enhance security. I will present a brief summary of my views from my prepared statement, the full text of which I respectfully submit for the record.
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From my own perspective, there is no question that debt reduction for non-proliferation would advance U.S. proliferation prevention efforts. I wrote an article in Arms Control Today in February advocating this approach. I have given supportive presentations at the EC and elsewhere in Europe, and I was asked late last year by the Carnegie Endowment to participate in a Moscow dialogue on this subject.
What is needed for proliferation prevention efforts is more investment and involvement by our European and global friends, a much greater dimension of program sustainability in Russia facilitated by Russians, and additional investment by the United States in this critical security issue. What we are talking about is truly nothing short of a global proliferation prevention partnership addressing a problem which some in Congress have called the most urgent unmet national security threat to the United States.
Debt reduction for non-proliferation is an actionable idea to help make this all happen, and, very importantly, it is quite synergistic with President Bush's proposal as adopted by the G–8 for the Global Partnership, 10+10 over 10.
On the impact of debt reduction for non-proliferation on existing efforts, it is hard to gauge at this time in part, I believe, because that impact will depend on the manner in which any debt-swap program is implemented. My view is this: We should consider the $10 billion over 10 years commitment made by the United States as a U.S. funding floor since it is consistent with recent and near-term Administration budgets.
We should continue to give priority within this proposed $10 billion expenditure to the critical, more immediate security concerns such as accounting and protection of fissile materials and radiological dispersal device materials, and the continued production of weapons plutonium. And we should probably continue to work on such problems in the somewhat one-sided, service-for-fee, compliance manner that we have been using with Russia for the last several years. We do not want to negatively impact progress in these important areas.
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We should allocate U.S. debt-for funds as incremental increases, in my opinion, over the $10 billion in a manner that further facilitates G–8 contributions and, as importantly, begins to actually develop a sustainable financial and programmatic proliferation prevention partnership with Russia.
I believe that there is enough flexibility in the Senate bill language to conduct implementation in the appropriate manner. I believe that a very good, visible way to facilitate the needed partnerships is to establish a Russian non-proliferation, ruble-denominated fund into which the Russian Federal Government would deposit appropriated monies in exchange for debt cancellation, based on bilateral financial arrangements with contributing G–8 and other nations. The charter of this fund could be made broad enough to accept ruble or hard currency aid from direct contributor deposits as well. This approach is quite analogous to the one the United States and the Paris Club used to establish the highly regarded Polish EcoFund in 1992.
A Russian non-proliferation fund has several advantages. These include: It would allow the G–8 contributors to pool resources to accomplish more. It would provide a mechanism for contributions from other national, multilateral, and even private commercial entities. It would allow Russia a major governance role in partnership with contributors. It would allow Russia to reduce the debt service burden on its budget and improve its credit-worthiness without further tapping into its central bank hard currency reserves. It could be used to provide loan guarantees or direct funding to help build a viable commercial security sector within the Russian Federation. And it could include formal roles for international nongovernmental organizations in supplementing resources and measuring and assuring project performance.
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I respectfully suggest that the Committee consider the merits of a Russia non-proliferation fund within the context of any House and Senate Conference Committee discussions. In my view, a Russia non-proliferation fund would be effective in accommodating key objectives of President Bush's proposal and the G–8 Kananaskis Agreement. Senate bill language describing the Investment Agreement [section 318] and calling for the use of existing administrative mechanisms in subparagraph C might need to be changed in this regard, even though language in section 322 encourages the President to explore the possibilities associated with a unified fund.
The prospects and conditions for ensuring sufficient cooperation and participation by the Russian government are also strongly dependent on implementation. I believe that the Russians are less concerned about drawing down their central bank reserves than they are about projecting to the global financial community that they are in need of help servicing their debt. This is a delicate matter, and if all the United States is offering is a choice between a business-as-usual, $1 billion-a-year direct aid, and a smaller amount of direct aid with the difference being made up by a swap, then a U.S. debt-for initiative is dead on arrival, in my opinion.
The best way for the United States to help ensure Russian cooperation in this matter is to, one, earmark U.S. debt-for monies to be a significant addition to current and projected levels of U.S. direct appropriation; two, apply these monies in a manner that will help guarantee that the other G–8 countries meet their $10 billion over 10-year commitment; and, three, give the Russians a partnership role in governance of the programs in a way that acknowledges their global stature as well as their sovereignty over their national security and financial matters.
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Finally, regarding the operational considerations and options, including participation by nongovernmental organizations, we at Battelle have done quite a lot of work on this subject for the Nuclear Threat Initiative. The value of NGOs to a Global Partnership construct, such as I envision it, is one of administrative facilitation, trusted agent project accountancy, and perhaps even financial contribution, either in-kind or monetary. Battelle studied the construct of 10 different debt-swap and non-proliferation aid programs to reach some conclusions on the best operational model. And without going into detail because of time, we recommend undertaking an approach that has significant creditor and host government involvement along with stringent asset protection assurances similar to the Polish EcoFund model.
Thank you again for this opportunity, Mr. Chairman. I would be pleased to try to answer any questions.
[The prepared statement of Mr. Fuller follows:]
PREPARED STATEMENT OF JAMES L. FULLER, PH.D., DIRECTOR, DEFENSE NUCLEAR NONPROLIFERATION PROGRAMS, PACIFIC NORTHWEST NATIONAL LABORATORY
Thank you for the opportunity to comment on the use of Russian debt to enhance security. I will be presenting a brief summary of my views from my prepared statement, the full text of which I respectfully submit for the record.
My name is James Fuller and I work for Battelle Memorial Institute headquartered in Columbus, Ohio. I am a nuclear scientist, and have been a technical practitioner in the field of U.S.-Russia nonproliferation and arms control for more than 15 years. Battelle is a not-for-profit contract research and development organization that, among a broad variety of science and technology R&D efforts, has supported U.S. national security for decades as a contractor to virtually all elements of the U.S. national security community. Battelle also has a robust technology commercialization enterprise that works in synergy with our support for the U.S. Government. At the Pacific Northwest Division in Richland, Washington, where we operate the Pacific Northwest National Laboratory (PNNL) for the U.S. Department of Energy under contract DE–AC06–76RL01830, my job is to direct all of the laboratory's defense nuclear nonproliferation activities. That said, I wish to convey that the information I am providing here today reflects only my own personal views and does not necessarily represent those of any organization or other person for whom those of us at Battelle have provided support.
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The Debt Reduction for Nonproliferation Act contained in S1803 is an innovative new approach in the prevention of proliferation. This is a good tool for President Bush and future Presidents to use to elicit additional participation by the other industrialized nations. It also could help to increase the investment in Russia proliferation prevention programs to a level more commensurate with those recommended by the bipartisan 2001 Energy Department Russia Task Force. I wish also to commend the wisdom used in drafting of the Senate bill, as evidenced by the fact that it received unanimous bipartisan support in Committee and on the Senate Floor. However, there have been some interesting new developments, so I am also very pleased to see the House giving it careful consideration.
We started thinking about the possibility of Russian debt swaps for nonproliferation in mid-1999 after a seminar at the PNNL Pacific Northwest Center for Global Security by a distinguished economics specialist from the Congressional Research Service, Dr. John Hardt, who came out to the Laboratory and talked to us about Russia's economic policy dilemma and U.S. interests.(see footnote 1) The thought occurred to me that if the United States and other members of the Paris Club had been willing to forgive significant amounts of debt for emerging democracies such as Poland to help with environmental issues, surely it made sense to consider doing the same thing for the Russian Federation in relation to some of the under-funded cooperative efforts to limit the spread of chemical, biological, and nuclear weapons. Unfortunately this message was a tough sell until we de-focused from our specific ideas about how the funding might be utilized, and just concentrated on the merits of debt swaps, particularly from the perspective of their utility in the global arena for eliciting financial partnerships with the industrialized nations. In the interim, the London Club restructured Russian Federation commercial debt, forgiving about 52% without any ''debt-for'' provisions; also, the Federal Republic of Germany and the Russian Federation settled their GDR debt issue without any debt for nonproliferation provisions. I was very glad to hear about President Bush's G8 Global Partnership Initiative at Kananaskis, its 10+10 Over 10 provisions, and the fact it might include debt swaps as a component. An Italian colleague of mine from the NGO and academic community suggested just last week to me, as I prepared my testimony for this hearing, that swaps were the only way many on the European side were going to be able to live up to the commitments made at the G8 summit. I do not know if this is true, but if it is even close, it presents the United States with an opportunity to demonstrate leadership by passing this legislation and taking the necessary additional actions required to bring a Global Partnership to fruition.
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The pros and cons of debt for nonproliferation can be broken down into two basic categories: financial and political. Back in 1999 before London Club restructuring and before the Russian economy had begun to rebound, good financial arguments could be made for the United States to consider restructuring of its Russian holdings in order to help offset the risk of Russian default. Today, that is not the case. Russia has good Central Bank hard currency reserves. Debt restructuring financial arguments today have to be more along the lines of helping our economy indirectly by strengthening the Russia economy, and by recognizing that there is a difference between Russian economic solvency and financial liquidity. While the Russian liquidity crisis seems to have been resolved for the time being, federal budget solvency issues are still a major concern due to the significant portion of the annual budget that must be earmarked for external debt servicing. This burden reduces the funds available for more discretionary programs such as proliferation prevention.
The political dimensions of debt for nonproliferation are embodied in the topics I was asked by Chairman Hyde to comment on today: the utility of this proposal for advancing U.S. nonproliferation programs in the Russian Federation, including its potential impact on the structure and effectiveness of those programs, the prospects and conditions for ensuring sufficient cooperation and participation by the Russian government, and operational considerations and options, including participation by non-governmental organizations.
From my own perspective, there is no question that debt reduction for nonproliferation would significantly advance U.S. proliferation prevention efforts. I wrote an article in Arms Control Today in February advocating this approach. I have given supportive presentations at the EC and elsewhere in Europe. I was asked late last year by the Carnegie Endowment for International Peace to participate in a Moscow Dialogue on this subject. What is needed for proliferation prevention efforts is more investment and involvement by our European and global friends, a much greater dimension of program sustainability in Russia facilitated by Russians, and additional investment by the United States. What we are talking about is nothing short of a global proliferation prevention partnership addressing a problem that the U.S. Congress has called ''the most urgent unmet national security threat to the United States.'' Debt Reduction for Nonproliferation is an actionable idea to help make this all happen. And, very importantly, it is quite synergistic with President Bush's proposal adopted by the G8 at the recent Kananaskis Summit for a Global Partnership Against the Spread of Weapons and Materials of Mass Destruction, what is sometimes referred to as ''10+10 over 10.''
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The impact of a debt reduction for nonproliferation program on existing efforts is hard to gauge at this time because in part that impact will depend on the manner in which any debt swap program is implemented. My view is this: we should consider the $10B over 10 years commitment made by the United States at Kananaskis as a U.S. funding floor since it is consistent with recent and near-term Administration budgets. We should continue to give priority within this proposed $10B expenditure to the critical, more immediate security concerns such as accounting and protection of fissile materials and radiological dispersal device materials, and the continued production of weapons plutonium. And we should probably continue to work on such problems in the somewhat one-sided, contractually forceful service-for-fee ''compliance'' manner that we have been using with Russia for the last several years. We do not want to negatively impact progress by changing the construct. We should allocate U.S. ''debt-for'' funds, for example as prescribed in S1803, as incremental increases over the $10B in a manner that further facilitates other G8 contributions, and, as importantly, begins to actually develop a sustainable financial and programmatic proliferation prevention partnership with Russia. In this manner we can best assure that the positive impact of debt reduction for nonproliferation will be truly significant.
I believe that there is enough flexibility in the Senate bill language to conduct implementation in a manner that would support G8 engagement and also build a sustained partnership with Russia in ways that are also within the spirit and intent of the Kananaskis agreement. I believe that a very good, visible way to facilitate these partnerships is to establish a Russia Nonproliferation (ruble-denominated) Fund, into which the Russian Federal Government would deposit appropriated monies in exchange for debt cancellation, based on bilateral financial arrangements with contributing G8 and other nations. The charter of this fund could be made broad enough to accept ruble or hard currency aid from direct contributor deposits as well. This approach is quite analogous to one that the United States and the Paris Club used to establish the highly successful Polish EcoFund in 1992. A Russian Nonproliferation Fund has several concomitant advantages. These are:
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Allows G8 contributors to pool resources to accomplish more
Provides a mechanism for contributions from other national, multilateral, and even private commercial entities
Allows Russia a major governance role in partnership with contributors
Allows Russia to reduce the debt service burden on its budget and improve its credit-worthiness without further tapping into its Central Bank hard currency reserves
Could be used to provide loan guarantees or direct funding to help build a viable commercial security sector within the Russian Federation
Could include formal roles for international non-governmental organizations in supplementing resources and measuring and assuring project performance.
I respectfully suggest that the Committee consider the merits of a Russia Nonproliferation Fund within the context of your preparations for any House and Senate Conference Committee discussions of debt reductions for nonproliferation. In my view, a Russia Nonproliferation Fund of the type I have described would be effective in accommodating key objectives of President Bush's proposal and the G8 Kananaskis agreement. Senate bill language describing the Investment Agreement (Section 318) and calling for the use of existing administrative mechanisms (sub-paragraph ''c'') might need to be changed in this regard even though language in Section 322 encourages the President to explore the possibilities associated with a ''unified fund.''
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The prospects and conditions for ensuring sufficient cooperation and participation by the Russian government are also strongly dependent on the way in which debt reduction for nonproliferation is implemented. I am quite sure that the Russians are less concerned about drawing down their Central Bank Reserves than they are about projecting to the global financial community that they are in need of help in servicing their debt. This is a delicate matter, and if all the United States is offering is the choice between business-as-usual ($1B/year direct aid) and a smaller amount of direct aid with the difference being made up by a swap, then a debt-for initiative is dead-on-arrival, in my opinion. The best way for the United States to help ensure Russian cooperation in this matter is to: 1) earmark U.S. debt-for monies to be a significant addition to current and projected levels of U.S. direct appropriation, 2) apply these monies in a manner that will help guarantee that the other G8 countries meet their $10B/10 year commitment, and 3) give the Russians a partnership role in governance of the programs in a way that acknowledges their global stature, as well as their sovereignty over their national security and financial matters. This is what the Russia Nonproliferation Fund that I have advocated is designed to do.
Regarding the operational considerations and options, including participation by non-governmental organizations, Battelle has done quite a lot of work on this subject for the Nuclear Threat Initiative. The value of NGOs to a Global Partnership construct, such as I envision it, is one of administrative facilitation, trusted agent project accountancy, and perhaps even financial contribution, in-kind or monetary. Battelle studied the construct of ten different debt swap and nonproliferation aid programs to reach some conclusions on the best operational model. There has never been a debt swap devoted to WMD threat reduction per se, so there is no closely analogous model to consider. The four programs that received our most intense focus were USAID debt swap activities, the Polish EcoFund, the U.S.-Russia International Nuclear Safety Program, and the U.S.-Russia Cooperative Threat Reduction program. We recommend undertaking an approach that has significant creditor and host government involvement similar to the Polish EcoFund model.
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Debt swap funds typically incorporate one-tiered or two-tiered management structures. Lessons learned from the significant body of knowledge on debt-for-nature swaps include the observation that to achieve the best conditions for success and to serve multiple obligations and purposes, a Russia Nonproliferation Fund must be based on a partnership where decision making is authentically shared amongst creditor and debtor stakeholders, where there is efficiency and effectiveness in management and operations, and where there is full accountability in fund allocations and project performance. I support strong payment-for-performance provisions in any fund construct, and a clear up-front understanding that without measurable accomplishments coming from the partnership approach, these debt-for and other aid programs will cease and debt obligations will be reinstated. Given the extent and complexity of the proliferation prevention issues in Russia, we recommend a modified two-tiered structure consisting of an engaged stakeholder Board of Directors made up equally of creditor and Russian representatives, and an Implementation Team that could be heavily supported by NGOs. As I have stated, I believe that NGOs could play a significant role in the success of ''10+10 over 10'' that includes debt swap components.
Chairman HYDE. Thank you very much, Dr. Fuller. Well, they have called the vote on us, and then following that they have this conference. So I am going to ask Mr. Curtis and Dr. Menges if we adjourn until 1:30, would you be able to come back? We will try for 1:15, but it might be 1:30. Thank you very much. I appreciate your courtesy. We stand in recess until 1:30.
[Whereupon, at 12 p.m., a recess was taken until 1:54 p.m.]
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Mr. ISSA [presiding]. Dr. Fuller, please.
Mr. FULLER. I concluded my remarks, Mr. Chairman.
Mr. ISSA. Okay. Then we will go through the rest of the remarks in the hopes that we do have people to ask better questions than I could conjure up. Thank you, Mr. Curtis.
STATEMENT OF CHARLES B. CURTIS, PRESIDENT, THE NUCLEAR THREAT INITIATIVE
Mr. CURTIS. It is a privilege to come before the Committee to talk about this issue of such vital interest to our national security, and I congratulate the Committee for holding these hearings.
I am the President of a charitable foundation called the Nuclear Threat Initiative, or sometimes referred to as NTI, a private organization that is dedicated to reducing the global threat from chemical, biological, and nuclear weapons. It is the premise of our initiative that there exists a gap between the threat and the response to that threat, the efforts taken by our government and other governments. The search for new and creative approaches aimed at closing this gap is what drives NTI's work in this field.
Our initiative, like the legislation before this Committee, both the Senate bill and the House bill, has been structured as a bipartisan initiative. It is Co-Chaired by former Senator Sam Nunn and CNN Founder Ted Turner and uniquely has two sitting U.S. senators on our board, Senator Lugar and Senator Domenici, and as you will recognize, Senator Lugar is a cosponsor of the Senate-passed bill.
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But I appear before the Committee today not on behalf of Senator Lugar but on behalf of our board and its commitment to this important subject. The attacks of September 11 clearly demonstrate that the capacity of terrorists to inflict death and destruction is limited only by the power of their weapons, and their inclination to inflict death and destruction is similarly only limited.
The United States has a vital interest in working with other nations to secure and reduce weapons of mass destruction and their constituent materials around the globe. As the legislation before you makes clear, much of that work, which is urgent in nature, must be accomplished in Russia. The statements of the Chairman and other Committee Members at the beginning of this hearing show clearly that the Committee Members understand what is at stake here and understand the potential that a debt exchange for non-proliferation investment in the Russian Federation has in addressing this problem and, importantly, in bringing additional resources to bear on it.
You have asked me to assess the prospects of ensuring sufficient cooperation and participation by the Russian government in a debt reduction for non-proliferation system. Here I would point to the remarkable breakthrough achieved at the recent G–8 Summit in Canada. Russia emerged from this summit as a full partner, as described by the G–8, in the newly announced Partnership Against the Spread of Weapons and Materials of Mass Destruction. In so doing, Russia pledged to abide by a series of guidelines that are designed to promote transparency and access to facilities involved in threat-reduction projects.
The G–8 guidelines are attached to my written statement. They require Russia and any recipient nation to take steps to ensure that assistance provided will be exempt from taxation and accept the need to have clearly defined milestones for each project with the option of terminating a project if the milestones are not met. Russia, along with the rest of the G–8, also agreed to assure appropriate privileges and immunities for donor government representatives and contractors working on cooperation projects.
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Those of us with years of experience in overseeing cooperative threat-reduction projects in Russia know how important it is to deal up front with these delicate but essential issues. And I would suggest that Russia's commitments in Canada at the G–8 are a basis for a renewed commitment from Russia to these principles of transparency and accountability and that any exercise of debt exchange should hold Russia expressly to those renewed commitments.
Last year, NTI commissioned a study, conducted by specialists at Battelle and led by Jim Fuller, from whom the Committee has just received testimony. That study explored the concept of Russian debt for non-proliferation exchange, and we have made that study available to the Committee for your consideration. Its essential conclusion is that debt reduction for non-proliferation is both useful from a burden-sharing perspective and practical from an implementation standpoint.
It will be complicated, and I urge Members to give the Administration under your authority the opportunity to develop the operational details of the debt-reduction mechanism with maximum flexibility. You heard this morning from Under Secretary Larson asking for additional flexibility to that which is provided in the Senate bill, and I commend the Administration's position to you. We must remember we are addressing the nation's most serious national security threat, what the Congress itself has labeled ''our greatest unmet danger.'' The Administration needs all the tools available or that can be made available in carrying out this important mission on behalf of the American people, and they need maximum flexibility to do so.
In anticipation of your questions, I would like to outline five operating principles, however, that I think could serve as a basis for an acceptable and workable debt-reduction mechanism. These are largely embedded in the legislation before you, but I have to confess that you have to read the legislation pretty carefully to find them. One, debt agreements and conversion framework agreements should clearly define fund governance and asset protection measures. The agreements must also establish transparent systems of program and project management, and the fund must be fully auditable according to practices that have been refined over 10 years of experience in monitoring U.S.-Russia cooperative threat activities. As the Chairman's opening remarks indicated, and I would agree, that has not been a perfect record.
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Two, there should be a mixed board of directors with members from donor nations as well as Russia to govern and oversee project selection and implementation criteria. Three, donors should be able to direct their contributions to specific classes of projects, for example, Scandinavian nations, if they are invited to participate as the Global Partnership expands, might be interested in elimination of general-purpose submarines which threaten the Barents Sea. Other nations might concentrate on the closer dangers of weapons and weapons materials security.
Four, there should be a debt-reinstatement provision that could be used for insurance in the event Russia failed to fulfill the terms spelled out in the implementing agreements, and a debt-reinstatement provision would also provide maximum incentive for Russia's leadership to overcome the inherent bureaucratic impediments to effective implementation of activities and operations in the Russian setting. And five, projects should be executed through contracts with qualified and experienced Western and Russian contractors and released only against work done. This has been an important instrument of cooperative threat reduction. It should be an important discipline on any program that develops under a debt swap.
Last November, President Bush declared that America's number one national security priority was to prevent terrorists and those who support them from acquiring weapons of mass destruction. It was no coincidence that he made this statement with President Putin at his side in Crawford, Texas. Russia is our natural partner in the struggle because Russia's cooperation is essential for any effective program.
We know that terrorist groups have been actively seeking weapons of mass destruction. We also know that Russia is home to vast stores of nuclear, chemical, and biological weapons, as well as people and materials that can produce them. And we know that we are a long way from adequately securing, consolidating, and reducing these weapons and materials. What we do not know is how much time we have to work in cooperation with Russia before the next act of terrorism takes place, an act that might very well involve a nuclear, chemical, biological, or radiological weapon.
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Mr. Chairman, the President needs every arrow in the quiver that you can give him. This legislation will help get the job done, and I urge its prompt enactment.
[The prepared statement of Mr. Curtis follows:]
PREPARED STATEMENT OF CHARLES B. CURTIS, PRESIDENT, THE NUCLEAR THREAT INITIATIVE
Mr. Chairman and members of the Committee, it is a privilege to speak with you today about a matter of great importance to U.S. national security—the need for urgent measures to prevent terrorists from acquiring weapons of mass destruction. I appear before you as the president of a charitable foundation known as NTI—the Nuclear Threat Initiative. Former Senator Sam Nunn joined Ted Turner last year to create NTI for the purpose of reducing the global dangers arising from nuclear, chemical and biological weapons. NTI's board of directors consists of highly regarded security experts from around the globe under the co-chairmanship of Sam Nunn and Ted Turner. I am proud to represent my fellow NTI board members at this important hearing.
NTI is built upon the premise that there exists a gap between the threats posed by weapons of mass destruction and efforts aimed at reducing these threats. The search for new and creative approaches aimed at closing this gap is what drives NTI's work in this field. We have developed considerable programmatic activity in Russia and the former Soviet Union due to the recognition that this region is crucial in efforts to prevent terrorists from obtaining weapons of mass destruction outright or the materials to make them.
Mr. Chairman, in your letter inviting me to testify today, you asked me to address the utility of proposals to use Russia's Soviet-era debt to fund strengthened nonproliferation programs in Russia. From the very outset of my testimony, I want to associate myself and NTI with the findings put forth in the Russian Federation Debt Reduction for Nonproliferation Act as part of S. 1803 and mirrored in H.R. 3836. The findings and purposes state the case for this legislation in cogent and compelling terms. Following in the tradition of the Nunn-Lugar program, S. 1803 enjoys a broad base of bipartisan support beginning with the bill's co-authors: Senators Biden and Lugar. It passed the Senate Foreign Relations Committee unanimously with the strong endorsement of Senator Helms. In a similar spirit of bipartisanship, Representatives McHugh and Schiff joined Representative Tauscher in introducing H.R. 3836 on March 4th of this year.
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The disaster that our nation suffered on September 11 convincingly demonstrates that the capacity of terrorist groups to inflict death and destruction is limited only by the power of their weapons. The United States has a vital interest in working with other nations to secure and reduce weapons of mass destruction and their constituent materials around the globe. As the debt-swap legislation's findings make clear, much of that work—which is urgent in nature—must be accomplished in Russia. Tasks include eliminating chemical weapons, destroying or converting bio-weapons facilities, creating peaceful employment opportunities for weapons scientists, securing nuclear weapons and materials, and rendering nuclear or radiological materials useless to terrorists who are seeking so desperately to acquire them.
The burden presented by these tasks is too great for the United States to tackle alone; we need assistance from our Allies. Russia's long road to economic recovery coupled with its heavy debt-repayment obligations suggest that we are several years away—at best—from Russia assuming full responsibility for securing its own weapons and materials, yet that must clearly be the end point of our efforts. Because our friends in Europe hold significant amounts of Russian debt, a debt-swap mechanism as envisioned by this legislation presents a promising and creative supplemental avenue to explore in generating additional funding streams to help reduce Russia's proliferation vulnerabilities. Converting Russian debt into increased funding for nonproliferation efforts inside Russia would make a vital contribution to global security.
You also asked me to assess the prospects for ensuring sufficient cooperation and participation by the Russian government in a debt-reduction-for-nonproliferation system. Here I would point to the truly remarkable breakthrough achieved at the most recent G–8 summit in Canada. For the first time since the end of the Cold War, the world's leading economies and Russia went on record as recognizing the profound dangers we face around the world in the form of terrorists' determination to acquire weapons of mass destruction. Moreover, the G–8 has now pledged considerable resources—$20 billion over the next ten years—to keep the world's most dangerous groups from acquiring the world's most devastating weapons. We should take note of the fact that Russia emerged from this summit as a full partner in the newly announced G–8 Partnership Against the Spread of Weapons and Materials of Mass Destruction. In so doing, Russia has pledged to abide by a series of stringent guidelines that are designed to promote transparency and access to facilities involved in threat reduction projects. The guidelines crafted by the G–8, which are attached to my written statement, require that Russia take steps to ensure that assistance provided will be exempt from taxation and accept the need to have clearly defined milestones for each project with the option of terminating a project if the milestones are not met. Russia—along with the rest of the G–8—also agreed to assure appropriate privileges and immunities for donor government representatives and contractors working on cooperation projects. Those of us with years of experience in overseeing cooperative threat reduction projects in Russia know how important it is to deal up front with these delicate, but essential issues in order to implement sustainable project activities in Russia.
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President Bush and his Administration could use the legislation before you as a lever—a perhaps vital tool—to ensure that the G–8 meets its recently announced commitment to spend $20 billion over the next decade to secure vulnerable weapons and weapon materials in the former Soviet Union and elsewhere around the world. G–8 leaders specifically mention bilateral debt-for-program exchanges as a possible mechanism to use in meeting this pledge. While some member states may wish to make direct appropriations to support the G–8's Global Partnership, debt swap could play a key role in making sure that there is a sharing of the burden in meeting the global threats we face together in the form of catastrophic terrorism.
There is another element to consider in addressing the prospects of sufficient cooperation and participation by Russia in the G–8 Partnership. Converting Russian debt into increased resources for eliminating proliferation vulnerabilities should lead to greater Russian involvement in securing its own weapons and materials. This enhanced involvement is appropriate, necessary and essential to accelerate ongoing projects.
In 2001, NTI commissioned a study—conducted by specialists at Battelle—to address in detail the concept of a Russian debt-for-nonproliferation swap. This study, which we are making available to your committee, concludes that debt reduction for nonproliferation is both useful from a burden-sharing perspective and practical from an implementation standpoint. As the committee would expect, the development and implementation of a workable debt-swap mechanism will be complicated—but we think doable. I understand the committee's desire to know the details of how debt reduction would work in practice. However, I strongly urge the members to give the Administration—under your authority—the opportunity to develop the operational details of how debt reduction would be implemented. President Bush has a good team in place at the Treasury and State Departments—a team that can work in tandem to turn this concept into a successful policy initiative. To successfully engage Europe and others, however, the United States must lead in developing a working model. In this regard, the $300 million this legislation would authorize for debt reduction represents a suitable amount for use in demonstrating the basic elements of a debt-swap mechanism.
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After reading the G–8 announcement launching the Global Partnership Against the Spread of Weapons and Materials of Mass Destruction, I can see that the Administration is aware of the complications and is prepared to deal adequately with them. In addition, the Battelle report, which I mentioned earlier, provides several useful precedents to guide this work. We at NTI have given this matter a fair amount of thought and we and our consultants would be pleased to explore the underlying issues with the committee and its staff. We have already offered our services to the Administration and have met with financial experts in this country and abroad to explore the essential contours and conditions of a workable program.
Let me, in anticipation of your questions, outline briefly the scope of what may be an acceptable and workable mechanism in the form of a few basic operating principles. You might have your own list, but let me offer five at this time. One, debt agreements and conversion framework agreements should clearly define fund governance and asset protection measures. The agreements must also establish transparent systems of program and project management. And the fund must be fully auditable according to strict requirements that have been refined over ten years of experience in monitoring U.S.-Russian cooperative threat reduction activities. Two, there should be a mixed board of directors—with members from donor countries as well as Russia—to govern and oversee project selection and implementation criteria. Three, donors should be able to direct their contributions to specific classes of projects, for example: submarine elimination or weapons and materials security. Four, there should be a debt-reinstatement provision that could be used for insurance in the event—for whatever reason—that Russia did not fulfill the terms spelled out in the implementing agreements. And five, projects should be executed through contracts with qualified and experienced Western and Russian contractors. This last principle is essential for fund admi