Dual-Use Technology Sales to Chinese Companies Criticized

By Matthew Harwood

A U.S. government program that allows Chinese companies to purchase dual-use technology from the United States has come under harsh criticism by a nonprofit nuclear arms control group, reports the Associated Press.

The program launched in June lets prescreened civilian Chinese buyers purchase such products as aircraft engines without having to obtain a license for each deal. American officials said it would boost U.S. exports while denying Chinese military contractors access to technology that might speed weapons development.

But two companies that were approved on the grounds that they were civilian and would make peaceful use of U.S. technology have military ties and might pass on sensitive know-how to Iran or Syria, the Wisconsin Project on Nuclear Arms Control said.

The group says the Commerce Department should end its Validated End-User program. Obtaining the VEU designation is a big deal, explains the group's report, "In China We Trust," because "Freed from the requirement of an export license,
the companies, known as 'Validated End-Users,' will be able to import a range of controlled U.S. goods more quickly and easily, since U.S. officials will no longer review these shipments before they go out."

According to the international law firm, Baker Botts L.L.P., here's how a Chinese company could be validated by the U.S. government to buy certain dual-use technology:

To be classified as a validated Chinese company, an entity must meet a number of criteria to be reviewed by the U.S. government, including, among others, (i) a demonstrated record of engaging in the use of U.S. controlled items for civil end-use activities, (ii) a demonstrated history of compliance with U.S. export controls (iii) and the willingness to agree to on-site reviews by representatives of the U.S. Government to ensure compliance with the conditions imposed by the VEU authorization.

The group says that two of the five companies that received the VEU designation do not meet the U.S. government's criteria. The first company, Shanghai Hua Hong NEC Electronics Company, Ltd. (HHNEC), is owned chiefly by the China Electronics Corporation (CEC), a Chinese-government conglomerate that produces military equipment and consumer electronics. It has also been called by the Justice Department in 2006: a "technology procurement arm of the People's Liberation Army."

A woman in HHNEC's legal department, reached by the Associate Press, said, "We have a strict set of processes to select customers and we do not do business with the military. It would be impossible for us to supply technologies to Iran and Syria."

The second company, BHA Aerocomposite Parts Co., Ltd., however, presents even more problems. It's partial owner, AVIC I, is an "instrumentality of the Chinese government," according to the report, "that produces fighters, nuclear-capable bombers, and 90 percent of the aviation weapon systems used by the People's Liberation Army." A subsidiary and import-export arm of AVIC I, named CATIC, is currently under State Department sanction for proliferation violations to Iran and/or Syria.

Making matters more complicated, 40 percent of BHA is owned by the Boeing Company, which the State Department fined after it was accused of exporting controlled navigation equipment for missiles and aircraft to China without the proper authorization. Boeing has been fined four times since 1998 for similar violations. The third co-owner of BHA, Hexcel Corporation, was also fined last year by the Commerce Department  for selling controlled carbon fabric to China without an export license.

A spokeswoman from Boeing told the AP that the company obeys U.S. export rules.

But the watchdog group argues the United States can not trust these companies and that the VEU program should be suspended. "The program should not resume until an improved review process is in place, one that takes into full account the activities of companies associated with the firm under review, and one that rejects risky candidates such as HHNEC and BHA."



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