Korea and Iran, and possibly Iraq. This is in addition to the longstanding missile forces of Russia and China. Short- and mediumrange ballistic missiles pose a significant threat right now.

Mr. Chairman, Russian entities continue to provide other countries with technology and expertise applicable to CW, BW, nuclear and ballistic missile and cruise missile projects. Russia appears to be the first choice of proliferant states seeking the most advanced technology and training. These sales are a major source of funds for Russian commercial and defense industries and military research and development. Russia continues to supply significant assistance on nearly all aspects of Tehran's nuclear program. It is also providing Iran with assistance on long-range ballistic missile. Chinese firms remain key suppliers of missile-related technologies to Pakistan, Iran and several other countries. This in spite of Beijing's November 2000 missile pledge not to assist in any way countries seeking to develop nuclear-capable ballistic missiles. Most of China's efforts involve solid propellant ballistic missiles, developments for countries that are largely dependent on Chinese expertise and materials. But it has also sold cruise missiles to countries of concern, such as Iran.

North Korea continues to export complete ballistic missiles and production capabilities, along with related raw materials, components and expertise. Profits from these sales help Pyongyang to support its missile and probably other WMD development programs, and in turn generate new products to offer its customers, primarily Egypt, Libya, Syria and Iran.

North Korea continues to comply with the terms of the agreed framework that are directly related to the freeze on its reactor program. But Pyongyang has warned that it is prepared to walk away from the agreement if it concluded that the United States was not living up to its end of the deal.

Iraq continues to build and expand an infrastructure capable of producing weapons of mass destruction. Baghdad is expanding its civilian chemical industries in ways that could be diverted quickly into CW production. We believe Baghdad continues to pursue ballistic missile capabilities that exceed the restrictions imposed by U.N. resolutions. With substantial foreign assistance, it could flight-test a longer-range ballistic missile within the next five

years.

We believe that Saddam never abandoned his nuclear weapons program. Iraq maintains a significant number of nuclear scientists, program documentation, and probably some dual-use manufacturing infrastructure that could support a reinvigorated nuclear weapons program. Baghdad's access to foreign expertise could support a rejuvenated program. But our major near-term concern is the possibility that Saddam might gain access to fissile material. Iran remains a serious concern because of its across-the-board pursuit of weapons of mass destruction and missile capabilities. Tehran may be able to indigenously produce enough fissile material for a nuclear weapon by later this decade.

Mr. Chairman, both India and Pakistan are working on the doctrine and tactics for more advanced nuclear weapons, producing fissile material and increasing their stockpiles. We have continuing concerns that both sides may not be done with nuclear testing. Nor

can we rule out the possibility that either country could deploy their most advanced nuclear weapons without additional testing.

Mr. Chairman, I want to talk about Russia, China and North Korea, and then we will go to questions. And I appreciate the patience, but I think it's important.

Mr. Chairman, with regard to Russia, the most striking development, aside from the issues I have just raised, regarding Russia over the past year has been Moscow's greater engagement with the United States. Even before September 11, President Putin had moved to engage the United States as part of a broader effort to integrate Russia more fully into the West, modernize its economy, and regain international status and influence. This strategic shift away from a zero-sum view of relations is consistent with Putin's stated desire to address many socioeconomic problems that could cloud Russia's future.

During his second year in office, he moved strongly to advance his policy agenda. He pushed the Duma to pass key economic legislation on budget reform, legitimizing urban property sales, flattening and simplifying tax rates, and reducing red tape for small businesses. His support for his economic team and its fiscal rigor positioned Russia to pay back wages and pensions to state workers, and amassed a post-Soviet high of almost $39 billion in reserves. He has pursued military reform. And all of this is promising, Mr. Chairman. He is trying to build a strong presidency that can ensure these reforms are implemented across Russia, while managing a fragmented bureaucracy beset by internal networks that serve private interests.

In his quest to build la strong state, however, we have to be mindful of the fact that he is trying to establish parameters within which political forces must operate. This managed democracy is illustrated by his continuing moves against independent national television companies. On the economic front, Putin will have to take on bank reform, overhaul Russia's entrenched monopolies and judicial reform to move the country closer to a Western-style market economy, and attract much-needed foreign investment.

Putin has made no headway in Chechnya. Despite his hint in September of a possible dialogue with Chechen moderates, the fighting has intensified in recent months, and thousands of Chechen guerrillas and their fellow Arab mujahidin fighters remain. Moscow seems unwilling to consider the compromises necessary to reach a settlement, while divisions among the Chechens make it hard to find a representative interlocutor. The war meanwhile threatens to spill over into neighboring Georgia.

After September 11, Putin emphatically chose to join us in the fight against terrorism. The Kremlin blames Islamic radicalism for the conflict in Chechnya, and believes it to be a serious threat to Russia. Moscow sees the U.S.-led counterterrorism effort, particularly the demise of the Taliban regime, as an important gain in countering the radical Islamic threat to Russia and Central Asia. So far Putin's outreach to the United States has incurred little political damage, largely because of his strong domestic standing. At the same time, Mr. Chairman, Moscow retains fundamental differences with us, and suspicion about U.S. motive persists among Russian conservatives, especially within the military and the secu

rity services. Putin has called the intended U.S. withdrawal from the ABM Treaty a mistake, but has downplayed its impact on Russia. At the same time, Russia is likely to pursue a variety of countermeasures and new weapons system to defeat a U.S.-deployed missile defense.

With regard to China, Mr. Chairman, I told you last year that China's drive to become a great power was coming more sharply into focus. The challenge, I said, was that Beijing saw the United States as the primary obstacle to its realization of that goal. This was in spite of the fact that the Chinese leaders at the same time judged that they needed to maintain good ties with us.

A lot has happened in U.S.-China relations over the past year, from the tenseness of the EP-3 episode in April, to the positive image of President Bush and Jiang Zemin standing together in Shanghai last fall, highlighting our shared fight against terrorism. September 11 changed the context of China's approach to us, but it did not change the fundamentals. China is developing an increasingly competitive economy and building a modern military force with the ultimate objective of asserting itself as a great power in East Asia. And although Beijing joined the coalition against terrorism, it remains skeptical of U.S. intentions in Central and South Asia. It fears that we are gaining regional influence at China's expense, and views our encouragement of a Japanese military role in counterterrorism as support for Japanese rearmament, something that the Chinese firmly oppose.

On the leadership side, Beijing is likely to be preoccupied this year with succession jockeying, as top leaders decide who will get what positions, who will retire at the Party Congress, and in the changeover in government positions that will follow next spring. This preoccupation is likely to translate into a cautious and defensive approach on most policy issues. It probably also translates into a persistently nationalist foreign policy, as each of the contenders in the succession context will be obliged to avoid any hint of being soft on the United States.

Taiwan also remains the focus of China's military modernization programs. Over the past year, Beijing's military training exercises have taken on an increasingly real-world focus, emphasizing rigorous practice and operational capabilities and improving the military's actual ability to use force. This is aimed not only at Taiwan but at increasing the risk to the United States itself in any future Taiwan contingency. China also continues to upgrade and expand the conventional short-range ballistic missile force it has arrayed against Taiwan.

Finally, Mr. Chairman, let me say that with regard to North Korea the suspension last year of engagement between Pyongyang, Seoul and Washington reinforced the concerns I cited last year about Kim Jong-II's intentions towards us and our allies in Northeast Asia. His reluctance to pursue a constructive dialogue with the South, or to undertake meaningful reforms suggests that he remains focused on maintaining internal control at the expense of addressing the fundamental economic failures that keep the North Koreans mired in poverty, and pose a long-term threat to the country's stability.

North Korea's large standing army continues to be a primary claimant on scarce resources, and we see no evidence that Pyongyang has abandoned its goal of eventual reunification of the peninsula under the North's control.

Mr. Chairman, I skipped some things, and I'll end there, because I think we want to move to questions as soon as you can. I wonder, Mr. Chairman, if I can just respond for a minute to both of your opening statements on the whole terrorism issue and how we proceed ahead, because I think it's important. You get to speak to the American people-so do I-and I think it's important that they hear us on this question.

We welcome the Committee's review of our record on terrorism. It's important we have a record. It is a record of discipline, strategy, focus and action. We are proud of that record. We have been at war with al-Qa'ida for over five years. Our collective success inside Afghanistan bears a reflection of the importance we attach to the problem and a reflection of a demonstrated commitment to expanding our human assets, technical operations, fused intelligence, seamless cooperation with the military. These are things we have been working on very hard over the last five years.

During the millennium threat, we told the President of the United States that there would be between five and 15 attacks against American interests both here and overseas. None of these attacks occurred-primarily because of the result of heroic effort on the part of the FBI and the CIA inside the United States and overseas to ensure that those attacks were not successful.

A year later the COLE was bombed. We lost a battle there. Part of the problem that we need to address as you look at this is not only to assess what we can do unilaterally or in conjunction with our military and law enforcement colleagues, but the countries out there who have often deflected us, or have not recognized there was a terrorism problem, who didn't help us solve problems that we could not solve simply on our own.

In the last spring and summer we saw-in the spring and summer of 2001-again we saw spectacular threat reporting about massive casualties against the United States. These threat reportings had very little texture with regard to what was occurring inside the United States. We again launched a massive disruption effort. We know that we stopped three or four American facilities from being bombed overseas. We know we saved many American lives. We never had the texture that said the date, time and place of the event inside the United States would result in September 11. It was not the result of the failure of attention and discipline and focus and consistent effort, and the American people need to understand that.

What Tom Ridge is doing today in protecting the homeland, in thinking about our border control policies, our visa policies, the relationship between all our organizations-airport security-all of these things must be in place. Intelligence will never give you 100 percent predictive capability on terrorist events.

This community has worked diligently over the last five years, and the American people need to understand that with the resources and authorities and priorities the men and women of the

may have, we owe it to the country to look at ourselves honestly and systematically. But when people use the word "failure," "failure" means no focus, no attention, no discipline-and those were not present in what either we or the FBI did here and around the world.

And we will continue to work at it. But when the information or the secret isn't available, you need to make sure your backside is protected. You need to make sure there is a security regime in place that gives you the prospect of succeeding-and that's what we all need to work on together.

The decision of the President to go inside the sanctuary and take the war to the Taliban and al-Qa'ida may be the most significant thing that happened, because all of this preparation has resulted in destroying that sanctuary, even as we chase everybody around the world. We have disrupted numerous terrorist acts since September the 11th, and we will continue to do so with the FBI. And we welcome the Committee's review. It is important for the American people. But how we paint it is equally important, because they need to know that there are competent men and women who risk their lives and undertake heroic risks to protect them.

Thank you, Mr. Chairman. Thank you, Mr. Vice Chairman.
Chairman GRAHAM. Thank you, Mr. Director.

Mr. Director, we are all concerned about the aftermath of September 11 and what we are doing in order to reduce the prospects of a similar horrific event in the future. One of the issues that you discussed was the fact that Usama bin Ladin did not believe that the United States would retaliate in the way it did.

What was the basis of bin Ladin's failure to appreciate what the consequences of his action should be? And what is your assessment of the similar feelings of other terrorist groups or of the leaders of the nations that you have described as being the most threatening to the United States as to what U.S. response would be to their actions against the interests of the United States here in the homeland or abroad?

Director TENET. Well, sir, obviously in my statement-well, I have never had a chance to talk to bin Ladin-I would love the opportunity some day, and I speculate. But I think that the importance of the sanctuary-I think he always believed it would be denied as a place where we would operate directly. And I think the importance of devastating the central command and control node can't be underestimated. The disruption that's occurred is formidable. And Afghanistan will not be replicated other places in the world.

Other governments with whom we are working with will have to step up to the challenge of recognizing that just because it is Americans who are killed, in fact in the World Trade Center many, many people from many nations were killed. Their law enforcement practices, their visa control systems, their willingness to change their laws to allow us to work with them to disrupt these organizations means that what we need to tell these people is that you cannot operate any place safely in the world, and that rather than go up and down-rather than a focused-you know, one of the problems is people somehow-my fear is six months from now everybody will say, well, the World Trade Center has receded-so the