What Else Is Iran Hiding?

Why the Qom plant could be just the tip of the iceberg.

Finding himself caught in a sudden media storm while in New York last week, Iranian President Mahmoud Ahmadinejad tried to defend his government's construction of a second centrifuge facility, buried inside a mountain near the city of Qom.

Unfortunately, the Qom facility might not be the end of the story. A centrifuge plant needs feedstock, uranium hexafluoride -- a material derived from refined uranium ore and produced at a conversion plant. Iran would probably not risk trying to divert feedstock from its declared conversion plant at Esfahan, which is under the watchful eye of the International Atomic Energy Agency (IAEA). Iran could therefore have also set up a clandestine conversion facility, or have succeeded in procuring the material illicitly.

Moreover, the evidence that the new facility is part of a military program is compelling. According to unclassified U.S. government talking points, the clandestine facility near Qom is "intended to hold approximately 3,000 centrifuges" of an unknown type. In 2007, Gholamreza Aghazadeh, then head of the Atomic Energy Organization of Iran (AEOI), said that Iran's target was to have 50,000 centrifuges at its Natanz enrichment facility. This number was needed to make "meaningful amounts of nuclear fuel" for one or two commercial-scale power plants to generate electricity.

Thus, by Iran's own admission, the Qom facility is too small for civilian purposes. It is not, however, too small to produce meaningful amounts of highly enriched uranium for a nuclear weapons program.

U.S. intelligence also describes the facility as being "located in an underground tunnel complex on the grounds of an Islamic Revolutionary Guard Corps Base" unknown to all but the most senior AEOI officials. Links between a supposedly civilian facility and a military organization always worry IAEA inspectors, and they should worry us too. Iran's core obligation to the Nuclear Non-Proliferation Treaty, which it says it fully upholds, is to ensure that all its nuclear activities are exclusively for peaceful purposes -- building an underground nuclear facility on a military base certainly raises questions about Iranian intentions. Finally, because it was a clandestine plant, the Qom facility was clearly much more suited to military ends than the facility at Natanz, which is subject to IAEA monitoring.

Although the military purpose of the Qom facility is compelling, Ahmadinejad's legal arguments are not. "According to the IAEA rules, countries must inform the agency six months ahead of the gas injection in their uranium enrichment plants," he said last week. "We have done it 18 months ahead and this should be appreciated, not condemned."

But Ahmadinejad got the IAEA rules wrong. At issue is a seemingly obscure but crucially important provision known as "Code 3.1". This is contained within Iran's "subsidiary arrangements," the detailed legal agreement with the IAEA specifying the nuts and bolts of safeguards.

In February 2003, Iran became the last state with significant nuclear activities to adopt the revised version of Code 3.1, requiring it to notify the IAEA of new nuclear facilities as soon as the decision to build one is made. This agreement entered into force through the standard procedure of an exchange of letters between Iran and the IAEA.

Ahmadinejad's claim is based on the old version of Code 3.1, which does indeed require states to report new facilities to the agency "normally no later than 180 days before the facility is scheduled to receive nuclear material for the first time." He invoked the old version because in March 2007 Iran announced that it would no longer be bound by the new version. But it takes two parties to terminate an agreement -- and the IAEA has never accepted Iran's 2007 decision. (The IAEA has continued to insist in vain that Iran reconsider its decision, making it difficult for the agency to carry out its task of designing safeguards for Iran's new nuclear facilities.)

Iran has tried to justify its unilateral abrogation of the modified Code 3.1 by saying that it has not been ratified by the Majlis, the country's parliament. However, Iran -- like every other state that deals with the IAEA -- modifies its subsidiary arrangements without parliamentary ratification. It is not tenable for Iran to claim that some parts of the subsidiary arrangements require ratification whereas others do not.

Moreover, according to the U.S. intelligence community, Iran started building its facility near Qom some time before March 2007, while it claimed to be bound to the new Code 3.1. If the IAEA verifies this sequence of events, then Iran's position will be even more indefensible than it currently is.

Tehran's decision to allow the IAEA to inspect the Qom facility, though welcome, is not enough. Iran now needs to cooperate fully and proactively with the IAEA. It needs to answer all of the IAEA's questions so that inspectors are able to understand as much as possible about the new facility, Iran's centrifuge production capabilities, and the probable military dimension to its program. Inspectors also need to be able to uncover any other clandestine facilities that might be out there.

The events of the last few days might conceivably be what's needed to spark Iranian cooperation. Iran feels able to defy the IAEA and the U.N. Security Council because the veto-wielding members of the Security Council do not have a unified position. The revelation of the Qom facility -- hidden from the international community and not declared to the IAEA as required -- demonstrates that, contrary to its protestations, Iran is not complying with its international obligations and that its nuclear program does have a military dimension. It could give Britain, France, and the United States exactly the lever they need to build a consensus that the Security Council's demands can go unheeded no longer.



The Party's Not Over

Why China's 60th birthday is nothing to celebrate.

On Sept. 16, the blockbuster film The Founding of a Republic was released to commemorate the 60th anniversary of the founding of the People's Republic of China, which occurs Thursday, Oct. 1. Featuring more than 100 big-name mainland and Hong Kong actors including Jackie Chan and Jet Li, one of the more poignant moments occurs when the actor playing Mao Zedong holds back tears and emotionally proclaims on the eve of the rise of a new and independent country, "The Chinese people have stood up." The film then awkwardly hurries forward to December 1978, when Deng Xiaoping heralds the era of "opening and reform" in the Middle Kingdom.

It is undoubtedly a propaganda film, as would be expected of anything conceived by the Beijing Municipal People's Political Consultative Conference. But the ambitious sweep of events over six decades is a reminder of something else: The reform period since Deng took power will be nearing the completion of its 31st year -- more than half the age of modern China.

This is significant because China's leaders since Deng have been telling the world that the Chinese Communist Party (CCP) will soon relinquish its dominance over the Chinese economy and society, and is assiduously laying the groundwork for fundamental economic and political reform, and eventually democracy -- but only after it recovers from the chaos and destruction of the Mao years. After all, Deng famously declared that democracy was "a major condition that emancipated the mind." But the reform period of 31 years has exceeded Mao's 27 years of terrible rule. The excuse that the party will "let go" its economic and political power but for the ghost of Mao and his terrible legacy is wearing thin.

So, first things first. Why should the party "let go" more power and instead work toward building institutions that will aid political reform and eventually democracy in China? Because in one important respect, authoritarian China is failing: While the Chinese state is rich and the party powerful, civil society is weak and the vast majority of people remain poor.

But aren't China's leaders doing a magnificent job of at least leading the country toward prosperity? After all, since Deng's reforms, Chinese GDP has grown 16-fold. And isn't this ultimately for the benefit of most of the country's people? Not in China's model of investment-led state corporatism hatched after the 1989 Tiananmen protests to preserve the economic power and relevance of the party.

Surprisingly, the greatest contributor to Chinese growth since the 1990s is not net exports but domestically funded fixed investment used to buy machinery or construct buildings and infrastructure such as roads and bridges. For example, this constituted more than half of GDP in 2008 and more than 45 percent of GDP growth in that year. Due to this year's massive $586 billion stimulus, about 75 percent of growth this year -- now touching 8 percent -- has been achieved through state-led fixed investment.

But not just the high reliance on fixed investment is striking. Where the capital goes is also all important. China is unusual in that bank loans -- drawn from its citizens' deposits funneled into state-controlled banks -- constitute about 80 percent of all investment activity in the country. Although state-controlled enterprises produce between one-quarter and one-third of the country's output, they receive more than three-quarters of the country's capital, and the figure is rising. Revealingly, state-controlled enterprises received more than 95 percent of the 2009 stimulus money. The Chinese state sector currently owns at least two-thirds of all fixed assets in the country.

Economic growth in poor countries is meaningful if it manages to raise the standard of living of the majority of citizens. But predominantly state-led models for growth, as in China, usually lead to profound structural inequalities that are difficult to resolve.

Tellingly, China's 50 million to 200 million-person middle class (depending on how we define the term) is the strongest supporter of the party, which is about 75 million strong. These elites comprise the fastest-growing groups wanting to become party members, almost a quarter of whom are professionals and skilled workers, a third students, and another third successful businesspeople. Joining the party has become a lucrative career move. By controlling the most important industries and the bulk of the country's capital (through state-owned banks), as well as by overseeing an extensive system of awards, promotions, and regulation, the CCP continues to control and dispense a dominant share of the country's most valued economic, professional, and intellectual opportunities.

Meanwhile, about 1 billion people are missing out on the fruits of prosperity. The country's "bottom billion" are outsiders to China's state-led model of development. They have little prospect of rising up and suffer under the yoke of frequently corrupt and incompetent rule by China's 45 million local officials. For example, according to a 2005 Chinese Academy of Social Sciences report, more than 40 million households have had their lands illegally seized by corrupt and unaccountable local officials over the past decade. In the 1990s, poverty alleviation slowed dramatically, and since 2000, the numbers of those still in poverty actually doubled in absolute terms. In one generation, China has gone from being the most equal to the most unequal country in all Asia.

It was not always like this. Eighty percent of the hundreds of millions of Chinese who have escaped poverty did so in the first 10 years of reform leading up to the 1989 Tiananmen protests -- before the state retook control of the economy. Across the board, incomes were rising with the tide. There was a decrease in the numbers, discretionary powers, and duties of local officials. Private businesses were outperforming even the best state-controlled ones, and an independent middle class was growing and thriving. Then came Tiananmen, and Beijing halted reforms and changed direction. (Predictably, all of this is left out in The Founding of a Republic.)

The planned celebrations in Beijing and other cities will no doubt be spectacular. But as the planned military parade, showcasing five types of domestically designed missiles, and other festivities take place, the power of the state will also be on show. There will be a huge People's Armed Police and People's Liberation Army contingent there just in case protesters make an appearance. Snipers will line the tops of buildings along the designated parade path. October 1 will demonstrate the party's success in holding onto power and the strength and wealth of the Chinese state, but not that of its people.

China needs to build institutions -- and especially promote the rule of law, accountability, and transparency -- and the state needs to take its hands off the levers of economic power. The party knows full well that these conditions will likely lead to political reform and are therefore resisting change. But if that occurs, then the Chinese people -- and not just the state -- will have much more to celebrate next time.

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