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• Russia continues to supply significant assistance on nearly all aspects of Tehran's nuclear program. It is also providing Iran assistance on long-range ballistic missile programs.

(U) Chinese firms remain key suppliers of missile-related technologies to Pakistan, Iran, and several other countries. This is 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 missile development 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.

• We are closely watching Beijing's compliance with its bilateral commitment in 1996 not to assist unsafeguarded nuclear facilities, and its pledge in 1997 not to provide any new nuclear cooperation to Iran.

• Chinese firms have in the past supplied dual-use CW-related production equipment and technology to Iran. We remain concerned that they may try to circumvent the CW-related export controls that Beijing has promulgated since acceding to the CWC and the nuclear Nonproliferation Treaty.

(U) North Korea continues to export complete ballistic missiles and production capabilities along with related raw materials, components, and expertise. Profits from these sales help P'yongyang to support its missile and probably other WMD-development programs, and in turn generate new products to offer to its customers-primarily Iran, Libya, Syria, and Egypt. North Korea continues to comply with the terms of the Agreed Framework that are directly related to the freeze on its reactor program, but P'yongyang 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.

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(U) Iraq continues to build and expand an infrastructure capable of producing WMD. Baghdad is expanding its civilian chemical industry in ways that could be diverted quickly to CW production. We believe it also maintains an active and capable BW program; Iraq told UNSCOM it had worked with several BW agents.

• We believe Baghdad continues to pursue ballistic missile capabilities that exceed the restrictions imposed by UN

resolutions. With substantial foreign assistance, it could flight-test a longer-range ballistic missile within the next five years. It may also have retained the capability to deliver BW or CW agents using modified aircraft or other unmanned aerial vehicles.

• We believe Saddam never abandoned his nuclear weapons program. Iraq retains 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.

(U) Iran remains a serious concern because of its across-theboard pursuit of WMD and missile capabilities. Tehran may be able to indigenously produce enough fissile material for a nuclear weapon by late this decade. Obtaining material from outside could cut years from this estimate. Iran may also flight-test an ICBM later this decade, using either Russian or North Korean assistance. Having already deployed several types of UAVs—including some in an attack role-Iran may seek to develop or otherwise acquire more sophisticated LACMs. It also continues to pursue dual-use equipment and expertise that could help to expand its BW arsenal, and to maintain a large CW stockpile.

(U) Both India and Pakistan are working on the doctrine and tactics for more advanced nuclear weapons, producing fissile material, and increasing their nuclear stockpiles. We have continuing

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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. Both countries also continue development of long-range nuclear-capable ballistic missiles, and plan to field cruise missiles with a land-attack capability.

(U) As I have mentioned in years past, we face several unique challenges in trying to detect WMD acquisition by proliferant states and non-state actors. Their use of denial and deception tactics, and their access to a tremendous amount of information in open sources about WMD production, complicate our efforts. So does their exploitation of space. The unique spaceborne advantage that the US has enjoyed over the past few decades is eroding as more countriesincluding China and India-field increasingly sophisticated reconnaissance satellites. Today there are three commercial satellites collecting high-resolution imagery, much of it openly marketed. Foreign military, intelligence, and terrorist organizations are exploiting this-along with commercially available navigation and communications services-to enhance the planning and conduct of their operations.

(U) Let me mention here another danger that is closely related to proliferation: the changing character of warfare itself. As demonstrated by September 11, we increasingly are facing real or potential adversaries whose main goal is to cause the United States pain and suffering, rather than to achieve traditional military objectives. Their inability to match US military power is driving some to invest in "asymmetric" niche capabilities. We must remain alert to indications that our adversaries are pursuing such capabilities against us.

RUSSIA

(U) Mr. Chairman, let me turn now to other areas of the world where the US has key interests, beginning with Russia. The most striking development regarding Russia over the past year has been

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Moscow's greater engagement with the United States. Even before September 11, President Putin had moved to engage the US 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 with the United States is consistent with Putin's stated desire to address the many socioeconomic problems that cloud Russia's future.

(U) During his second year in office, Putin 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, amass a post-Soviet high of almost $39 billion in reserves, and meet the major foreign debt coming due this year (about $14 billion) and next (about $16 billion).

• He reinvigorated military reform by placing his top lieutenant atop the Defense Ministry and increasing military spending for the second straight year-even as he forced tough decisions on deemphasizing strategic forces, and pushing for a leaner, betterequipped conventional military force.

(U) This progress is promising, and Putin is trying to build a strong Presidency that can ensure these reforms are implemented across Russia-while managing a fragmented bureaucracy beset by informal networks that serve private interests. In his quest to build a strong state, however, 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 of Russia's entrenched monopolies, and judicial reform to move the country closer to a Western-style market economy and attract much-needed foreign investment.

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(U) 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 mujahedeen 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.

(U) 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 US-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.

(U) So far, Putin's outreach to the United States has incurred little political damage, largely because of his strong domestic standing. Recent Russian media polls show his public approval ratings at around 80 percent. The depth of support within key elites, however, is unclear-particularly within the military and security services. Public comments by some senior military officers indicate that elements of the military doubt that the international situation has changed sufficiently to overcome deeply rooted suspicions of US intentions.

(U) Moscow retains fundamental differences with Washington on key issues, and suspicion about US motives persists among Russian conservatives especially within the military and security services. Putin has called the intended US withdrawal from the ABM treaty a "mistake," but has downplayed its impact on Russia. At the same time, Moscow is likely to pursue a variety of countermeasures and new weapons systems to defeat a deployed US missile defense.

CHINA

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