By Bruce Odessey
Washington File Staff Writer

<i>This article is one in a series
(http://usinfo.state.gov/eap/east_asia_pacific/china/us_china_trade_relatio
ons.html) on U.S.-China economic relations.

Washington -- China should understand that preventing proliferation of
weapons of mass destruction is in its own best interest, a U.S. State
Department official says.

Even though the Chinese have published regulations for controlling
exports that could be used by other countries pursuing nuclear, chemical
or biological weapons (CBW) or missiles, the official said, Chinese
companies, most of them state-owned, continue to make many troubling
shipments.

The official, who asked not to be identified, said in an April interview
that from January 2001 through April 2005 the State Department has
sanctioned foreign companies 115 times over controlled export shipments
and that 80 of those sanctions were aimed at Chinese companies.

"You can see that the great majority of entities we sanction are Chinese
entities," he said, "and that's because the great majority of the supply
to proliferation programs that we see is from Chinese entities."

Such sanctions typically include prohibitions on U.S. exports of
controlled items to the entities and on certain U.S. imports from those
entities.

The Chinese should understand that they would be threatened directly by
a nuclear North Korea or a nuclear Iran or by the terrorist groups these
countries support, the official said.

"They're threatened by the destabilization of the world economy if
there's a CBW war in the Middle East that disrupts the world's oil
supply," he went on.� "It's in their interest to make sure that Chinese
companies are part of the solution rather than part of the problem."

He said the Chinese government has compiled lists of controlled items in
line with commitments to multilateral export-control regimes and has
halted some problematic shipments.

Yet Chinese entities continue shipping technology to missile programs in
countries of concern, he said.

The multilateral export-control regimes are not treaty-based
organizations but voluntary groups of like-minded countries pledged to
allow exports of controlled items only after careful scrutiny.

In some cases, the Chinese are licensing exports that the United States
would not approve because the Chinese have different policies, the
official said.� For example, he said, the Chinese do not view Iran in the
negative way the United States does, and China has economic and political
interests in that country.

"We don't believe they're taking adequate account of the risk that the
item they're approving is actually going to end up in a program for
weapons of mass destruction or missiles," the official added, however.

In some cases problematic shipments come out of China because the
Chinese government has not spent enough money on enforcement, he said.

The official said some of the Chinese entities sanctioned under U.S. law
are repeat offenders -- serial proliferators.� The state-owned
manufacturer China North Industry Corporation, or Norinco, is one.� China
Great Wall Industry Corporation, another state-owned company with links to
China's military, is another.

Gary Milhollin, an academic expert on weapons proliferation, has said
that continued sales by serial proliferators appear to demonstrate "that
our sanctions policy is not working very well."

In March 10 testimony before the U.S.-China Economic and Security Review
Commission in Washington, Milhollin said that U.S. sanctions policy should
be improved to affect not only a subsidiary company but also the parent
company.

Existing U.S. sanctions impose penalties too small to hurt the offending
companies' profitability, added Milhollin, who is director of the
Wisconsin Project on Nuclear Arms Control.

"Although Norinco may have actually lost some money due to sanctions,"
Milhollin said, "Norinco officials must have decided years ago that the
profits they would receive from continuing to sell missile and other
technology to Iran would more than compensate for any American business
they lost due to sanctions."

On a related issue, U.S. government officials express satisfaction that
the Chinese are abiding by their commitments to use advanced technology
imported from the United States for legitimate uses.

The U.S. Department of Commerce controls exports of what are called
dual-use items -- technology that could have both civilian and military
applications.

In April 2004, the United States and China reached agreement on allowing
Commerce Department inspectors to make visits to verify that customers in
China are using licensed technology exports as intended for civilian use
and are not diverting those exports to military applications.

In the year since then, another U.S. trade official said, the Chinese
have allowed these Commerce end-use visits to be done in a timely manner
and without resistance.

"They realize that if there's some question or suspicion about items
that have gone to them being misused or diverted or the products of those
items being misused or diverted, that ultimately will probably hurt them,"
said the official, who also asked not to be identified.

He said controlled items amount to a relatively small proportion of U.S.
exports to China -- in the year ending September 2004, about $525 million
of licensed exports out of about $36 billion total exports.

Most of the controlled exports are capital goods, according to Commerce
numbers; about $220 million of the licensed exports were equipment for
manufacturing semiconductors.

The official said that, in the licensing process, Commerce Department
examiners look at the export destination to find out who the owners are,
who the customers are and whether the internal technology controls are
adequate.

He ranked export destinations in China for level of cooperation in
export licensing.� Easiest to deal with are Western subsidiaries operating
in China, followed by new Chinese entities that operate on a transparent
Western business model, he said.� After that, he said, are companies that
were spun off from Chinese research institutes and, finally, companies
that have done work for Chinese military or security forces.

The Commerce Department requires U.S. companies and other organizations
to obtain approval before foreign nationals from certain countries are
allowed to work on projects involving controlled technology.� An export
license is required because regulations treat any release of controlled
technology or software source code to a foreign national as a "deemed
export" to the home country.

Of nearly 1,000 deemed export license applications filed in the year
ending September 2004, the official said, about 400 of them were for
technology involving work performed by people from China.

China continues to ignore its responsibility as a newly emerged global
economic player to control the flow of weapons and weapons technology out
of its borders to the hands of dangerous people, said a U.S. official in
Beijing who asked not to be identified.� This threatens the security not
only of the world, but of China itself, he said.� Even though China has
demonstrated openness in regard to the control of imports of dual-use
technology, much more must be done to stop the leakage of dangerous
technology outward, and fast, he said.

(The Washington File is a product of the Bureau of International
Information Programs, U.S. Department of State. Web site:
http://usinfo.state.gov)
NNNN