[Infowarrior] - Some China firms avoid U.S. technology transfer licenses

[Richard Forno]

 Some China firms avoid U.S. technology transfer licenses
By Steven R. Weisman
Tuesday, January 1, 2008
http://www.iht.com/bin/printfriendly.php?id=8978324

WASHINGTON: Six months ago, the U.S. government quietly eased some
restrictions on the export of sensitive technologies to China. The new
approach was intended to help U.S. companies increase sales of
high-technology equipment to China despite tight curbs on sharing technology
that might have military applications.

But now the administration is facing questions from weapons experts about
whether some equipment - newly authorized for export to Chinese companies
deemed trustworthy by Washington - could instead end up helping China
modernize its military. Equally worrisome, the weapons experts say, is the
possibility that China could share the technology with Iran or Syria.

The technologies include advanced aircraft engine parts, navigation systems,
telecommunications equipment and sophisticated composite materials.

The questions raised about the new policy are in a report to be released
soon, possibly this week, by the Wisconsin Project on Nuclear Arms Control,
an independent research foundation that opposes the spread of arms
technologies.

The government's new approach is part of an overall drive to require
licenses for the export of an expanded list of technologies in aircraft
engines, lasers, telecommunications, aircraft materials and other fields of
interest to China's military.

But while imposing license requirements for the transfer of these
technologies, the administration is also validating certain Chinese
companies so that they can import these technologies without licenses. Five
such companies were designated in October, but as many as a dozen others are
in the pipeline for possible future designation.

Mario Mancuso, the under secretary of commerce for security and industry,
said the new system was resulting in more effective protections.

"We believe that the system we have set up ensures that we are protecting
our national security consistent with our goal of promoting legitimate
exports for civilian use," he said during an interview. "We have adopted a
consistent, broad-based approach to hedging against helping China's military
modernization."

But the Wisconsin Project report, made available to The New York Times,
asserts that two nonmilitary Chinese companies designated as trustworthy are
in fact high risk because of links to the Chinese government, the Peoples
Liberation Army and other Chinese entities accused in the past of ties to
Syria and Iran.

One of the Chinese companies, BHA Aerocomposite Parts, is partly owned by
two U.S. companies: the aircraft manufacturer Boeing and the aerospace
materials maker Hexcel, with each holding a 40 percent stake. The remaining
20 percent is owned by a Chinese government-owned company, AVIC I, or China
Aviation Industry Corp. I.

"In principle you could find companies that would be above suspicion, but in
this case they haven't done it," said Gary Milholin, the Washington director
of the Wisconsin Project. "If you just look at the relations these companies
have, rather than be above suspicion, they are highly suspicious."

The Wisconsin Project report also asserts that both Boeing and Hexcel have
been cited for past lapses in obtaining proper licenses for exports.

Spokesmen for both Boeing and Hexcel said during interviews that they were
fully confident that BHA had no ties to the Chinese military and that its
use of aircraft parts and materials were strictly for commercial and
civilian ends.

Milholin said that research by his staff had uncovered several links with
the Chinese military establishment involving both BHA and another of the
five companies, Shanghai Hua Hong NEC Electronics.

AVIC I, the Chinese government entity that owns a minority share of BHA,
also produces fighters, nuclear-capable bombers and aviation weapons systems
for the People's Liberation Army, the report says. The U.S. State Department
has cited another AVIC I subsidiary, China National Aero-Technology Import &
Export, for links to arms sales to Iran and Syria.

The report also says that Shanghai Hua Hong NEC Electronics is majority
owned "through a corporate chain" by China Electronics, which the report
says is a government conglomerate that produces military equipment along
with consumer electronics. It has a subsidiary, the report says, that
procures arms for the military.

Milholin said that the new administration policy granting companies the
right to import some technologies without prior licenses was adopted quietly
as "a stealth attack on export controls."

But Mancuso, the Commerce Department official who oversees the program,
noted that the department proposed it publicly in mid-2006 and adopted it a
year later after lengthy public comment by interested parties and members of
Congress.

In addition, he said, no Chinese company can receive sensitive technologies
- as part of a category known as "validated end users" - without a review of
its record by the State, Energy and Defense departments and by relevant
intelligence agencies. The five companies designated in October, he said,
were approved without dissent by these units of the government.

"China is a huge market for our commercial technology exports," Mancuso
said. "Yet there are real security risks we are mindful of. We take that
concern very, very seriously." Only those companies that have "a
demonstrable record of using sensitive technologies responsibly" are
approved, he said.

Beyond that, he said that companies for which licensing requirements had
been lifted were subject to additional disclosure obligations, including
on-site visits by U.S. government personnel.

Business groups that advocate greater technology-sharing with China in
civilian aeronautics and other areas say that the administration has been
cautious in its new policy, in particular choosing Chinese companies with
U.S. partners or owners.

The three other Chinese companies announced as "validated end users" in
October are Applied Materials China, a subsidiary of Applied Materials USA,
a maker of semiconductors; Chinese facilities operated by National
Semiconductor, an American company; and Semiconductor Manufacturing
International.