Wisconsin Project on Nuclear Arms Control

Testimony: Export Compliance: Ensuring Safety, Increasing Efficiency

May 20, 2008April 3, 2017 By Arthur Shulman

Testimony of Arthur Shulman

General Counsel, Wisconsin Project on Nuclear Arms Control

Hearing on Export Compliance: Ensuring Safety, Increasing Efficiency

Before the Committee on Foreign Affairs
Subcommittee on Terrorism, Nonproliferation, and Trade
United States House of Representatives

May 20, 2008

I am pleased to appear before this distinguished Subcommittee to discuss the importance of strong export controls in stemming the spread of mass destruction weapons.

I will cover four topics. First, the dangers posed by the administration’s present effort to weaken the export licensing process; second, the need to improve industry’s ability to police itself; third, the difficulties that will be created for verification and enforcement as the government continues to reduce licensing requirements; and fourth, the risks of transshipment and diversion posed by places like Dubai.

A nuclear sub-prime crisis?

For over a decade, we have seen a consistent push by industry to weaken U.S. controls on the export of militarily sensitive technologies. Though tasked with protecting U.S. national security, successive administrations have succumbed to the pressure to “modernize” export controls and to make them less “burdensome” and more “efficient.” The result has been to emphasize greater profits from exports and disregard the risk that American products will be diverted. This policy is very like the one that some of our banks adopted recently when they disregarded risk, thought only of profits, and shoveled money out the door to finance real estate sales. Risks are real, and the penalties for ignoring them are real, as we are now learning in the financial arena. The same is true for national security. If our government continues to diminish export controls, we will pay the penalty of watching our own products arm our enemies. We will have produced the equivalent of a nuclear sub-prime crisis.

There are a number of ways in which the administration has chosen to reduce controls. I will discuss two of them here today. First, there is the “Validated End-User” (VEU) program initiated last year by the Commerce Department. That program allows select companies to receive controlled dual-use goods without export licenses. Second, there are the defense trade cooperation treaties with the United Kingdom and Australia, now awaiting approval by the Senate. These treaties would create new “communities” of buyers in those two countries who could receive munitions items from the United States license-free.

Making sure the “trusted” are trustworthy

Both the VEU program and the treaties depend on identifying “trusted” customers abroad. Yet, it is far from clear whether the government agencies seeking to rely on such “trusted” buyers are able and willing to screen carefully and to verify sufficiently. In January, my organization published a report on the VEU program. The report revealed that the “trusted” customers being chosen were not necessarily trustworthy.

The Commerce Department’s Bureau of Industry and Security (BIS) claims to select each Validated End-User based on “the entity’s record of exclusive engagement in civil end-use activities,” and on “the entity’s relationships with U.S. and foreign companies,” among other factors. BIS also requires VEU applicants to supply an “overview of any business activity or corporate relationship that the entity has with either government or military organizations.” All of this information is supposed to be vetted by BIS and by an interagency committee, which must approve each candidate unanimously. But our report on the program reveals that two of the first five Chinese companies designated as VEUs are closely linked to China’s military-industrial complex, to Chinese proliferators sanctioned by the United States, and to U.S. companies accused of export violations. Commerce hand-picked these companies, tellingly noting that they accounted for 18% of licensed U.S. exports to China.

Part of the problem is that Commerce’s procedures are not well-defined and appear to be getting weaker. For example, BIS intended to rely on mandatory end-use visits in China to verify that American exports were not being diverted. But the Chinese Ministry of Commerce refused blanket consent to such visits. BIS then settled for reviews if “warranted” and with ample notification to the Chinese government. BIS has also eliminated a requirement that U.S. exporters report annually what they sell under the VEU program. BIS argued that it can already access this information through the Automated Export System (AES), despite questions as to whether the system can track this data in the detail required. Congress should insist that the program be halted until the GAO determines that it does not reduce our national security.

The defense trade cooperation treaties with the United Kingdom and Australia are heading down the same dangerous path. The treaties establish new exemptions from export license requirements for arms trade with each of those countries. But the treaties, as well as their implementing arrangements, leave many important questions unanswered.

The treaties allow license-free arms exports to foreign buyers in “approved communities” and for an as-yet undisclosed list of “operations, programs and projects.” But as with the VEU program, details are unclear about which companies will be deemed “trusted,” and how our government will ensure that they continue to be trustworthy. For example, it is unclear whether the government will screen freight forwarders and other intermediaries involved in arms sales under the treaties. The treaties and their implementing arrangements are also vague about verification, site visits and inspections.

Both the VEU program and the treaty exemptions serve to decrease our government’s role in controlling sensitive exports. This creeping abrogation of a key national security function is highly risky. By eliminating the pre-shipment checks performed by licensing officers, the responsibility for spotting and preventing diversion attempts shifts to the exporter – who may lack the necessary training and resources – and to customs officials, who may lack the ability to screen license-free exports adequately before they leave U.S. ports.

Greater reliance on industry – with little help from government

Although greater reliance is being placed on industry to screen its own transactions, industry has never received enough guidance from the government. An example is the Entity List maintained by BIS. The List is supposed to be a primary means for informing exporters about foreign entities that pose a risk of diversion. An exporter usually must apply to BIS for a license before selling to an entity on the List. The List, however, is incomplete and out of date, especially its China section. For example, an organization listed seven years ago as “13 Institute, China Academy of Launch Vehicle Technology, (CALT), a.k.a. 713 Institute or Beijing Institute of Control Devices” is no longer part of CALT. It is now subordinate to the China Aerospace Times Electronics Corporation (CATEC). Another entry is a mystery: “Xiangdong Machinery Factory.” There are several entities in China with current or former names that can be translated in full or in part as “Xiangdong Machinery Factory,” yet the List supplies no other identifying information about the entity it means to designate.

The Entity List is wholly insufficient to help exporters identify the risky companies and organizations of which they should be wary. Despite criticism from auditors and requests from industry and national security advocates, little has been done to ensure the currency and usefulness of information now on the List.

For several years, the Wisconsin Project has tried through various channels to convince BIS that the Entity List must be updated and made more useful. This spring, we grew tired of waiting and decided to do the work ourselves. In April, we posted on our website (at www.wisconsinproject.org) an annotated version of the Entity List’s China section, complete with updated entity names (including in Chinese) and contact information. We invite exporters to use this new resource for more effective export screening. We also hope that BIS will incorporate our updates in the official Entity List, and make additional requested changes. Then the Entity List can become a real tool for exporters to screen their exports and prevent diversions.

Revising the Automated Export System: H.R. 5828

The automated export compliance screening proposed for the Automated Export System (AES) by H.R. 5828 also has great potential for helping exporters. It would make classification decisions for exporters, and would screen their transactions against the restricted party lists. Such services are now available commercially, but are not affordable for some exporters.

Although H.R. 5828 contains sound ideas, it does not go far enough to make AES what it must become in light of the current trend toward reduced licensing. The following changes would improve the bill:

AES should provide comprehensive coverage of export information. The bill, however, allows the Secretary of Commerce to grant exceptions to mandatory a priori filing. To keep such exceptions to a minimum, they should require interagency approval.
AES must be kept abreast of export control laws and regulations, and it must gather complete information for blocking, tracking and enforcement purposes. AES was not ready to perform a key function for the VEU program (identifying the exported item fully) at the time of VEU implementation; this should not happen.
Sharing of AES data with other appropriate federal agencies should be mandatory, and procedures for such sharing should be transparent. For example, members of the interagency committee charged with selecting Validated End-Users should be able to track VEU exports independently to verify that each “trusted” customer remains trustworthy. Federal investigators and prosecutors should have ready independent access to export data.
In the proposed scheme to license AES filers, procedures for revocation or suspension of licenses should include an option to suspend a license immediately (blocking access to the system) if a violation of export control or AES rules is imminent. An analogy is the Temporary Denial Order available under the Export Administration Regulations.
The automated export control screening/blocking mechanism for AES could reduce inadvertent errors by filers and help less experienced exporters. By retaining filing data, the system could also decrease diversion risk by limiting bad actors’ ability to “game” the system without being discovered.
- Automated screening should be comprehensive across the AES system. It should encompass all export control regulations relevant to AES (including those of the Nuclear Regulatory Commission) and should screen against all restricted party lists (including administrative debarments under ITAR part 128).
- The bill does not explain how the automated screening model would apply to the exporters who use post-shipment filing. If post-shipment filing is to continue, its “trusted” users must be vetted even more thoroughly.
- The system should be more consistent in screening transactions. The bill describes export compliance conditions which should generate a “fatal error” for an AES filing attempt, and other conditions which merit only “warning” messages. But some of the conditions resulting in warnings do not appear to be qualitatively different from those producing “fatal errors.”
- The bill should explicitly mandate the recording and retention of AES users’ actions while filing export data, and should allow for use of such data for enforcement. This would allow detection of attempts to circumvent controls by changing information initially rejected by the screening system.

Verification and enforcement are more difficult without export licenses

The GAO has noted concerns from the Justice Department and from Customs about investigating and prosecuting violations when exemptions from licensing requirements apply. The GAO found that “it is particularly difficult to obtain evidence of criminal intent since the government does not have license applications and related documents that can be used as proof that the violation was committed intentionally.” In addition, the Justice Department itself has pointed to the importance of the “domestic evidentiary trail” created by the licensing process, and warned that licensing exemptions for countries (like those created by the munitions treaties) could “greatly impede the ability of the law enforcement community to detect, prevent and prosecute criminal violations.” In the absence of export licenses, it appears that the Automated Export System will be the only record the U.S. government has of exports under “trusted” customer programs. Further, the House International Relations Committee has noted the inclination of the courts to “view the licensing requirement as highly relevant to the establishment of a person’s legal duty under U.S. law” and the tendency of federal prosecutors to “regard the absence of a license requirement as signifying an activity of lesser importance to the U.S. government…”

As fewer exports of sensitive goods are screened by licensing officials, export control must also rely more on Customs to review outgoing shipments and verify the self-policing activities of industry. But there is evidence that Customs may not be up to the task. Customs and Border Protection (CBP) of the Department of Homeland Security (DHS) is charged with inspecting outbound shipments. But in September 2007, the DHS Inspector General reported that “outbound shipments are not consistently targeted and inspected by CBP Officers at the ports for compliance with federal export laws and regulations … because CBP does not devote sufficient resources to the function [and] does not have the information necessary to effectively monitor the program.” Immigration and Customs Enforcement (ICE), also at DHS, is responsible for investigating export violations. But ICE is also responsible for immigration enforcement. The rapidly growing demands of this competing function may well diminish the resources available for export control.

Oversight remains necessary

Until last year, the Inspectors General of the Departments of Commerce, Defense, Energy, and State, in consultation with the Director of Central Intelligence and the Director of the Federal Bureau of Investigation, were required by statute to assess whether export controls and counterintelligence measures are adequate for preventing the acquisition of sensitive U.S. technology and technical information by countries and entities of concern. The Inspector General at the Department of Homeland Security also participated in these reviews. The Inspectors General identified numerous shortcomings, prompting improvements. These reviews should be re-instituted and made permanent.

Transshipment and Diversion – the case of the United Arab Emirates

The subcommittee has asked me to discuss the risks of transshipment and diversion. I would like to offer for inclusion in the record an article listing transshipments of dangerous items through Dubai in the United Arab Emirates. The article appeared in the New York Times on March 4, 2004. Unfortunately, things have not improved much since then.

My organization has documented how Dubai and other points in the United Arab Emirates have served for decades as the main hubs in the world for nuclear and other smuggling. In the 1980’s, several shipments of heavy water, a nuclear reactor component, were smuggled from China, Norway and the Soviet Union through Dubai to India, so India could use its reactors to create plutonium for nuclear weapons. In the 1990’s, companies in Dubai willingly coordinated the notorious smuggling network of Pakistani scientist A. Q. Khan. Through Dubai to Iran were shipped two containers of gas centrifuge parts from Mr. Khan’s laboratories for about three million dollars worth of U.A.E. currency. Also in the 1990’s, a Dubai company attempted to violate U.S. export control laws by shipping Iran a material useful for manufacturing ingredients for nerve gas, and the German government listed six firms in Dubai as front companies for Iranian efforts to import arms and nuclear technology. In October 2003, Emirates customs officials, over U.S. protests, allowed 66 high-speed electrical switches ideal for detonating nuclear weapons to be sent to a Pakistani businessman with ties to the Pakistani military. An affidavit, signed by an official in the U.S. Department of Commerce, shows that the director of customs in the Emirates refused to detain the shipment despite a specific request by one of the Department’s agents.

Even more recently, American-made computer circuits received by Mayrow General Trading in Dubai were diverted to Iran, and eventually turned up in unexploded roadside bombs in Iraq. Other dual-use goods – including specialized metals, aircraft parts and gas detectors – have also continued to move through Dubai to Iran, Syria and Pakistan. Until the Mayrow discovery, the U.S. government had quietly pressed Emirates officials (with little success) to monitor U.S.-origin dual-use goods in the UAE, and to do more to prevent their diversion. After Mayrow, the administration issued what was widely viewed as a public threat to the Emirates. The Commerce Department proposed in February 2007 to designate “Destinations of Diversion Concern,” and to impose additional restrictions on exports to such places.

But the proposal stalled after UAE officials promised to adopt an export control law. The law was adopted last year, and Emirates officials point to a handful of enforcement actions since then. Nevertheless, export control experts and even Dubai traders red-flagged by the United States say that little has actually changed. Dubai is still a grave security risk. Iran continues to import large quantities of goods through Dubai’s revolving door. It will not be possible to curb Iran’s nuclear imports unless Dubai and the other Emirates clean up their act.

My organization supported the “Destinations of Diversion Concern” proposal when it was issued, and recommended that the United Arab Emirates be so designated immediately. I recommend now that Congress take this step through legislation. Such a designation would send a strong public signal that there are consequences for choosing profit over international security. The UAE should be treated the same way for export control purposes as countries like Pakistan that are using it as a diversion point.

U.S. Entity List – Annotated China Section

April 1, 2008April 3, 2017

The Wisconsin Project presents below the China section of the current U.S. Entity List, annotated by the Wisconsin Project to increase its usefulness as a screening tool for exporters. (Learn more about the Entity List and why an annotated version is necessary.) The List is maintained in its original format, and our annotations are clearly indicated in blue and fully referenced to official or otherwise reliable sources. For each Chinese entity on the List, we include additional names and abbreviations, in both English and Chinese, and address information. To facilitate simple searching, we include relatively minor variations of word order and spelling. We also note the proliferation programs of concern indicated by the Bureau of Industry and Security (BIS) for each entity — to help exporters decide whether their products are likely to be useful for (and diverted by) the entity for an illicit purpose. In several cases, we include additional notes to help exporters identify the entity.

This document will be updated immediately with any official changes promulgated by BIS, and other revisions and additions will be made on an ongoing basis. We welcome comments and suggestions on this project at [email protected]. We hope that BIS will adopt these and other revisions to the Entity List, to maintain its relevance and usefulness to exporters as a key tool for ensuring that sensitive dual-use American exports are not misused.

Supplement No. 4 to Part 744 – ENTITY LIST

This Supplement lists certain entities subject to license requirements for specified items under this part 744 of the EAR. License requirements for these entities includes exports and reexports, unless otherwise stated. This list of entities is revised and updated on a periodic basis in this Supplement by adding new or amended notifications and deleting notifications no longer in effect. (Wisconsin Project annotations in blue.)

COUNTRY	ENTITY	LICENSE REQUIREMENT	LICENSE REVIEW POLICY	FEDERAL REGISTER CITATION
CHINA, PEOPLE’S REPUBLIC OF	13 Institute, China Academy of Launch Vehicle Technology, (CALT), a.k.a. 713 Institute or Beijing Institute of Control Devices note: this entity is no longer part of China Academy of Launch Vehicle Technology – it is now subordinate to China Aerospace Times Electronics Corporation [1] (CATEC),[2] which is a subsidiary of China Aerospace Science and Technology Corporation [3] (CASC)[4] a.k.a. 13th Institute;[5] China Aerospace Times Electronics Corporation The 13th Institute;[6] China Aerospace Times Electronics Corporation 13th Research Institute;[7] 北京控制仪器研究所 (“Beijing Institute of Control Devices”);[8] 13所 (“13 Institute”)[9] address: No. 52 Yongding Road, Haidian District, Beijing 100039 [10]	For all items subject to the EAR.	See §744.3(d) of this part. missile end-uses	66 FR 24265 5/14/01
	33 Institute, a.k.a. Beijing Institute of Automatic Control Equipment a.k.a. 33rd Institute;[11] Beijing Automation Control Equipment Institute;[12] BACEI;[13] Beijing Automatic Control Equipment Institute;[14] No. 33 Research Institute of the Third Academy of CASIC;[15] 33所 (“33 Institute”);[16] 北京自动化控制设备研究所 (“Beijing Automation Control Equipment Institute”)[17] note: CASIC is also known as China Aerospace Science and Industry Corporation;[18] the “Third Academy” of CASIC is also known as China Haiying Electromechanical Technology Academy,[19] or CHETA [20] address: Yungang, Fengtai District, Beijing;[21] P.O. Box 7209-7, Beijing, 100074 [22]	For all items subject to the EAR having a classification other than EAR99 or a classification where the third through fifth digits of the ECCN are “999”, e.g., XX999.	See §744.3(d) of this part. missile end-uses	66 FR 24266 5/14/01
	35 Institute, a.k.a. Beijing Huahang Radio Measurements Research Institute a.k.a. 35th Institute;[23] Beijing Huahang Radio Measurement Institute;[24] No. 35 Institute of the 3rd Academy of CASIC;[25] 35th Institute of 3rd Academy, China Aerospace Science and Industry Corporation;[26] 35th Institute, China Aerospace Science & Industry Corporation;[27] 35所 (“35 Institute”);[28] 北京华航无线电测量研究所 (“Beijing Huahang Radio Measurements Research Institute”)[29] address: No. 3 Hepingli South Road, Dongcheng District, Beijing;[30] P.O. Box 1447, Beijing, 100013 [31]	For all items subject to the EAR having a classification other than EAR99 or a classification where the third through fifth digits of the ECCN are “999”, e.g., XX999.	See §744.3(d) of this part. missile end-uses	66 FR 24266 5/14/01
CHINA, PEOPLE’S REPUBLIC OF	54th Research Institute of China, a.k.a. Communication, Telemetry and Telecontrol Research Institute (CTI) a.k.a. China Electronics Technology Group Corporation No. 54th Research Institute;[32] The 54th Research Institute of CETC;[33] 中国电子科技集团公司第五十四研究所 (“China Electronics Technology Group Corporation No. 54 Research Institute”)[34] address: No. 589, Zhongshan W. Rd., Qiaoxi, Shijiazhuang, Hebei, China 050081 [35]	For all items subject to the EAR having a classification other than EAR99 or a classification where the third through fifth digits of the ECCN are “999”, e.g., XX999.	See §744.3(d) of this part. missile end-uses	66 FR 24266 5/14/01
	A.C. International, Room 1104, North Tower Yueziu City Plaza, No. 445 Dong Feng Zhong Rd., Guangzhou, China	For all items subject to the EAR. (See §744.11 of the EAR)	Presumption of denial. national security/foreign policy	73 FR 54504 9/22/08
	Asia International Trading Company, Room 1104, North Tower Yueziu City Plaza, No. 445 Dong Feng Zhong Rd., Guangzhou, China	For all items subject to the EAR. (See §744.11 of the EAR)	Presumption of denial. national security/foreign policy	73 FR 54504 9/22/08
	Baotou Guanghua Chemical Industrial Corporation, 202 Factory Baotou, Inner Mongolia a.k.a. Baotou Guanghua Chemical Industry Corp.;[36] China Nuclear Industry 202 Plant;[37] China National Nuclear Baotou Guang Hua Chemical Industry Co., Ltd.;[38] 包头光华化学工业公司 (“Baotou Guanghua Chemical Industrial Corporation”)[39] address: P.O. Box 456, Baotou, Inner Mongolia, China 014035 [40]	For all items subject to the EAR having a classification other than EAR99.	See §744.2(d) of this part. nuclear end-uses	66 FR 24266 5/14/01
	Beijing Aerospace Automatic Control Institute, 51 Yong Ding Road Beijing a.k.a. 12th Institute;[41] China Aerospace Science and Technology Corporation First Academy 12th Research Institute;[42] Beijing Spaceflight Autocontrol Research Institute;[43] 北京航天自动控制研究所 (“Beijing Aerospace Automatic Control Institute”);[44] 12所 (“12 Institute”)[45] note: the “First Academy” of China Aerospace Science and Technology Corporation is also known as China Academy of Launch Vehicle Technology [46] (CALT)[47] address: No. 50 Yongding Road, Haidian District, Beijing;[48] No. 50 Yongding Road, Haidian Dist., Beijing, China, 100854;[49] P.O. Box 142-402, Beijing, 100854 [50]	For all items subject to the EAR having a classification other than EAR99.	See §744.3 of this part. missile end-uses	64 FR 28909 5/28/99
	Beijing Institute of Structure and Environmental Engineering, a.k.a., Beijing Institute of Strength and Environmental Engineering, No. 36 Wanyuan Road Beijing a.k.a. 702 Institute;[51] BISE;[52] Aerospace 702 Institute;[53] China Aerospace Science and Technology Corporation First Academy 702nd Research Institute;[54] Beijing Institute of Strength and Environment Engineering;[55] Beijing Institute of Strength and Environment;[56] 北京强度环境研究所 (“Beijing Institute of Strength and Environment”);[57] 702所 (“702 Institute”);[58] 航天702所 (“Aerospace 702 Institute”)[59] address: No. 1 Nandahongmen Road, Beijing;[60] No. 1, Nandahong men, Donggaodi, Fengtai District, Beijing, China 100076;[61] P.O. Box 9200-72, Beijing 100076 [62]	For all items subject to the EAR having a classification other than EAR99.	See §744.3 of this part. missile end-uses	64 FR 28909 5/28/99
	Beijing Power Machinery Institute a.k.a. 31 Institute;[63] 31st Research Institute of CASIC;[64] Aerospace Third Academy 31st Research Institute;[65] Beijing Power Generating Machinery Institute;[66] 北京动力机械研究所 (“Beijing Power Machinery Institute”);[67] 31所 (“31 Institute”)[68] address: Yungang, Fengtai District, Beijing;[69] P.O. Box 7208-23, Beijing 100074 [70]	For all items subject to the EAR.	See §744.3(d) of this part. missile end-uses	66 FR 24266 5/14/01
	Beijing University of Aeronautics and Astronautics (BUAA), a.k.a. Beihang University a.k.a. Beijing Hangkong Hangtian Daxue;[71] Beijing Aviation and Spaceflight University;[72] 北京航空航天大学 (“Beijing University of Aeronautics and Astronautics”);[73] 北航大学 (“Beihang University”)[74] address: Xueyuan Road No. 37, Haidian District, Beijing, China [75]	For all items subject to the EAR.	See §744.3(d) of this part. missile end-uses	66 FR 24266 5/14/01 70 FR 54629 9/16/05
CHINA, PEOPLE’S REPUBLIC OF	China Aerodynamics Research and Development Center (CARDC) Sichuan Province a.k.a. China Aerodynamic Research and Development Center;[76] 中国空气动力研究与发展中心 (“China Aerodynamics Research and Development Center”)[77] address: P.O. Box 211, Mianyang, Sichuan, P.R. China, 621000 [78]	For all items subject to the EAR having a classification other than EAR99.	See §744.3 of this part. missile end-uses	64 FR 28909 5/28/99
	Chinese Academy of Engineering Physics (a.k.a. Ninth Academy, including the Southwest Institutes of: Applied Electronics, Chemical Materials, Electronic Engineering, Explosives and Chemical Engineering, Environmental Testing, Fluid Physics, General Designing and Assembly, Machining Technology, Materials, Nuclear Physics and Chemistry (a.k.a. China Academy of Eng[ineering] Physics [CAEP]’s 902 Institute, Mianyang), Structural Mechanics; Research and Applications of Special Materials Factory; Southwest Computing Center (all of preceding located in or near Mianyang, Sichuan Province); Institute of Applied Physics and Computational Mathematics, Beijing; and High Power Laser Laboratory, Shanghai) a.k.a. China Academy of Engineering Physics;[79] CAEP;[80] 中国工程物理研究院 (“China Academy of Engineering Physics”)[81] address: P.O. Box 919-9, Mianyang, Sichuan Province, 621900;[82] No. 64 Mianshan Road, Mianyang, Sichuan Province 621900 [83]	For all items subject to the EAR.	Case-by-case basis.	62 FR 35334 6/30/9766 FR 24266 5/14/01
	Chitron Electronics Company Ltd., a.k.a. Chi-Guang Electronics Company Ltd (Chitron-Shenzhen), 2127 Sungang Rd, Huatong Bldg, 19/F, Louhu Dist, Shenzhen, China 518001; and 169 Fucheng Rd, Fenggu Bldg., 7/F, Mianyang, China 621000; and Zhi Chun Rd, No 2 Bldg of Hoajing Jiayuan, Suite 804, Haidian Dist, Beijing, China 100086; and 40 North Chang’an Rd, Xi’an Electronics Plaza Suite 516, Xi’an, China, 710061; and 9 Huapu Rd, Chengbei Electronics & Apparatus Mall, 1/F Suite 39, Chengdu, China 610081; and 2 North Linping Rd Bldg 1, Suite 1706, Hongkou Dist., Shanghai, China 200086	For all items subject to the EAR.	Presumption of Denial national security/foreign policy	75 FR 1700 1/13/10
	First Department, China Academy of Launch Vehicle Technology, (CALT) a.k.a. China Aerospace Science and Technology Corporation First Academy First Design Department;[84] Aerospace First Department;[85] Beijing Institute of Astronautical Systems Engineering;[86] Aerospace First Academy First Department [87] address: No. 1 Nandahongmen Road, Donggaodi, Fengtai District, Beijing 100076;[88] P.O. Box 9200-10 No. 1, Beijing 100076 [89]	For all items subject to the EAR.	See §744.3(d) of this part. missile end-uses	66 FR 24266 5/14/01
	Northwest Institute of Nuclear Technology, in the Science Research, Xi’an, Shaanxi a.k.a. NINT;[90] Northwest Nuclear Technology Institute;[91] Institute of Northwest Nuclear Technology;[92] 西北核技术研究所 (“Northwest Institute of Nuclear Technology”)[93] address: P.O. Box 69, Xi’an, Shaanxi Province 710024 [94]	For all items subject to the EAR.	See §744.2 of this part. nuclear end-uses	64 FR28909 5/28/99
CHINA, PEOPLE’S REPUBLIC OF	Northwestern Polytechnical University a.k.a. NPU;[95] Northwest Industrial University;[96] 西北工业大学 (“Northwest Polytechnical University”)[97] address: 127 Youyi Xilu, Xi’an 710072, Shaanxi [98]	For all items subject to the EAR having a classification other than EAR99 or a classification where the third through fifth digits of the ECCN are “999”, e.g., XX999.	See §744.3(d) of this part. missile end-uses	66 FR 24266 5/14/01
	Shanghai Academy of Spaceflight Technology, Shanghai, Spaceflight Tower 222 Cao Xi Road Shanghai, 20023 a.k.a. SAST;[99] 8th Academy of CASC;[100] China Aerospace Science and Technology Corporation Eighth Research Academy;[101] Shanghai Academy of Space Technology;[102] Shanghai Academy of Spaceflight Technology of Casc;[103] Shanghai Aerospace Bureau;[104] 上海航天技术研究院 (“Shanghai Academy of Spaceflight Technology”)[105] address: No. 222, Caoxi Rd., Xuhui, Shanghai, China 200235 [106]	For all items subject to the EAR having a classification other than EAR99.	See §744.3 of this part. missile end-uses	64 FR 28909 5/28/99
	Shanghai Institute of Space Power-Sources, Shangahi, 388 Cang Wu Rd Shanghai a.k.a. SISP;[107] 811 Institute;[108] China Aerospace Science and Technology Corporation Eighth Academy 811th Research Institute;[109] No. 811 Research Institute;[110] 上海空间电源研究所 (“Shanghai Institute of Space Power Sources”);[111] 811所 (“811 Institute”)[112] address: No. 388 Cangwu Road, Xuhui District, Shanghai, 200233 [113]	For all items subject to the EAR having a classification other than EAR99.	See §744.3 of this part. missile end-uses	64 FR 28909 5/28/99
	Southwest Research Institute of Electronics Technology, Chengdu a.k.a. SWIET;[114] China Electronics Technology Group Corporation 10th Research Institute;[115] Southwest China Institute of Electronic Technology;[116] The Electronic 10th Institute of China Electronics Technology Group Corporation;[117] The 10th Institute of CETC;[118] 西南电子技术研究所 (“Southwest Research Institute of Electronics Technology”);[119] 中国电子科技集团公司第十研究所 (“China Electronics Technology Group Corporation 10th Research Institute”)[120] address: No. 4 Jiuxianqiao Road, Chaoyang District, Beijing 100015;[121] No. 48 Chadianzi East Street, Chengdu, Sichuan Province 610036 [122]	For all items subject to the EAR having a classification other than EAR99 or a classification where the third through fifth digits of the ECCN are “999”, e.g., XX999.	See §744.3(d) of this part. missile end-uses	66 FR 24267 5/14/01
	Tracy Little, Room 1104, North Tower Yueziu City Plaza, No. 445 Dong Feng Zhong Rd., Guangzhou, China	For all items subject to the EAR. (See §744.11 of the EAR)	Presumption of denial. national security/foreign policy	73 FR 54504 9/22/08
	Wong Yung Fai, a.k.a. Tonny Wong, Unit 12B, Block 11, East Pacific Garden, Xiang Lin Road, Futian District, Shenzhen, China	For all items subject to the EAR. (See §744.11 of the EAR)	Presumption of denial. national security/foreign policy	75 FR 1700 1/13/10
	Xian Research Institute of Navigation Technology a.k.a. China Electronics Technology Group Corporation 20th Research Institute;[123] Xi’an Research Institute of Navigation Technology;[124] The 20th Research Institute;[125] Xi’an Research Institute of Navigation Tech.;[126] No. 20th Research Institute, China Electronics Technology Group Corporation;[127] 西安导航技术研究所 (“Xi’an Research Institute of Navigation Technology”);[128] 中国电子科技集团公司第二十研究所 (“China Electronics Technology Group Corporation 20th Research Institute”)[129] address: No. 1 Baisha Road, Xi’an, Shaanxi Province;[130] P.O. Box 92, Xi’an 710068 [131]	For all items subject to the EAR having a classification other than EAR99.	See §744.3(d) of this part. missile end-uses	66 FR 24267 5/14/01
CHINA, PEOPLE’S REPUBLIC OF	Xiangdong Machinery Factory note: the information provided is insufficient to identify this particular entity – there are several entities in China with current or former names that can be translated in full or in part as “Xiangdong Machinery Factory”[132]	For all items subject to the EAR.	See §744.3(d) of this part. missile end-uses	66 FR 24267 5/14/01

Footnotes:

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U.S. Entity List

April 1, 2008April 3, 2017

The Entity List was established in February 1997 to inform exporters and the general public about foreign entities whose activities impose a risk of diverting exported and reexported items into programs related to weapons of mass destruction. Since then, the grounds for identifying an entity on the List have expanded to include being sanctioned by the U.S. State Department. The presence of an entity on the List triggers additional licensing requirements for transactions involving controlled dual-use goods and technology. The List is in Supplement No. 4 to Part 744 to the Export Administration Regulations (15 C.F.R. Part 744, Supp. No. 4), and is maintained by the Bureau of Industry and Security (BIS) at the U.S. Department of Commerce. Click here for official information about the List.

The Entity List is intended to serve as a key tool in our first line of defense against proliferation – U.S. exporters screening their own transactions involving sensitive items. But the List is not effective for this purpose, because its information is often incomplete and out of date – insufficient for exporters to identify reliably the risky companies and organizations of which they should be wary, and for which they may need export licenses. These deficiencies undermine U.S. and international security, not only by hampering exporters’ screening, but also by weakening efforts to enforce export control restrictions and to punish violators. This is particularly true in the case of Chinese entities on the List, which are especially poorly identified. At a time when U.S. high-tech exports to China’s often-opaque industry are booming, and as Chinese efforts to acquire sensitive controlled technology from the United States continue unabated, it is essential to supply exporters with as much information as possible on the entities that should not be receiving such technology.

Recent efforts by the Bureau of Industry and Security (BIS) regarding the List have been largely limited to adding and removing a few entities, and proposing additional grounds for adding entities to the List. Despite requests from industry and national security advocates, little has been done to ensure the currency and usefulness of information already on the List. (Click here to see the China section of the current U.S. Entity List, annotated by the Wisconsin Project to increase its usefulness as a screening tool for exporters.)

Iran Watch Roundtable: An Assessment of Europe’s Leadership in Confronting the Iranian Nuclear Challenge

February 6, 2008April 5, 2017

Panelists:
Philip Gordon
Hans-Peter Hinrichson
Danielle Pletka
Simon Shercliff
Terence Taylor

Moderated by:
The Wisconsin Project on Nuclear Arms Control

Introduction

Since the autumn of 2003, when the scope of Iran’s illicit nuclear activities became public, Britain, France and Germany (the “E3”) have led negotiations aimed at limiting the scope of Iran’s nuclear program. For several years, this diplomatic initiative was the only concerted effort made to ascertain whether Iran would be willing to freeze its nuclear work in exchange for political, economic and nuclear benefits. As part of this effort, the E3 negotiated a first uranium enrichment freeze in October 2003. When this agreement fell apart, the same three countries, along with E.U. foreign policy chief Javier Solana (the “EU3”), concluded a second accord in November 2004, which again froze parts of Iran’s enrichment program. During both of these freezes, European officials held numerous meetings with their Iranian counterparts aimed at brokering a long-term agreement. Despite these efforts, Iran resumed enrichment in early 2006, and the case moved to the U.N. Security Council.

It is a striking fact that on an issue challenging both U.S. nonproliferation efforts and U.S. national security, the E3 and then the EU3 led negotiations with Iran, although the United States was active at the International Atomic Energy Agency. This new leadership from Europe raises several questions: What can we learn from Europe’s role in confronting the nuclear challenge posed by Iran? What did the Europeans achieve? Where are the negotiations going now? And what are the implications for future leadership on nonproliferation?

In an effort to shed light on these questions, the Wisconsin Project on Nuclear Arms Control hosted a roundtable discussion in Washington D.C. last autumn. The panelists were Philip Gordon, Senior Fellow for U.S. Foreign Policy at the Brookings Institution, Hans-Peter Hinrichson, First Secretary for Security Policy at the German Embassy, Danielle Pletka, Vice President for Foreign and Defense Policy Studies at the American Enterprise Institute, Simon Shercliff, First Secretary in the Foreign Security Policy Group at the British Embassy, and Terence Taylor, Director of the International Council for the Life Sciences and Senior Advisor and Director of Biological Programs for the Global Health and Security Initiative at the Nuclear Threat Initiative

In sum, the panelists found that E3/EU3 negotiations with Iran helped create an international consensus on the threat posed by Iran’s nuclear program, and shaped the world’s response to that threat. Though Europe’s diplomatic effort has now moved to the U.N. Security Council, the panelists believe that E.U. countries should continue to play a leading role in the process, by pushing for further Security Council sanctions and, if necessary, pursuing E.U. sanctions outside the Council. European action on Iran could serve as a useful model for E.U. leadership on other foreign policy issues, though the panelists found it premature to characterize E.U. leadership on nonproliferation as an alternative to the leadership provided by the United States.

Following is the moderators’ summary of the discussion. The findings are a composite of the panelists’ individual views; no finding should be attributed to any single panelist, or be seen as a statement of policy of any government.

Finding 1: The European negotiations with Iran had a positive effect but the achievements have been largely procedural and institutional:

they heightened international concern over Iran’s nuclear program and shed light on Iran’s intentions;
they gave E.U. countries a stake in the success of the negotiations and raised the stature of E.U. foreign policy;
they provided the United States a policy to adhere to; but
it is unclear whether they impeded Iran’s nuclear progress.

When the scope of Iran’s nuclear violations began to emerge in 2003, they were not viewed by most of the world as a major security threat. The panelists found that by undertaking negotiations with Iran at that time, Britain, France and Germany helped the International Atomic Energy Agency gain information about Iran’s nuclear activities, which gradually drew attention to how these activities violated Iran’s international obligations. The negotiations educated the world about the direction of Iran’s nuclear program and brought the threat posed by this program from the sidelines to the fore.

Under the E3’s October 2003 agreement, Iran pledged to suspend uranium enrichment, to cooperate with the IAEA, and to ratify the Agency’s Additional Protocol on enhanced inspections. Pending ratification, Iran agreed to act “in accordance with the protocol in advance of its ratification.” This gave IAEA inspectors greater access to Iranian nuclear facilities, and required Iran to answer questions about its past and current nuclear work. Information provided by Iran and gathered by inspectors was published in IAEA reports, which were then circulated to IAEA member countries, discussed at IAEA governing board meetings, and reported on in the international press. A detailed picture of Iran’s nuclear intentions—with several glaring holes—began to emerge. Iran’s refusal to fill these holes, its defiance of inspections obligations, and its intermittent and uneven compliance with agreements made with Europe in 2003 and in 2004 to suspend uranium enrichment increased suspicion as to Iran’s intentions. The burden of proof, from the perspective of international public opinion, shifted to Iran. A series of IAEA resolutions, which condemned Iran’s lack of cooperation with the Agency and called on Iran to suspend proliferation-sensitive projects, further consolidated international opinion against Iran.

In August 2005, after several months of meetings, the EU3 offered Iran a package of economic, security and nuclear energy incentives in exchange for a freeze of Iran’s work on uranium enrichment, among other things. This offer had the support of China and Russia, and of the United States, which conceded to no longer block Iran’s application to join the World Trade Organization and Iran’s efforts to procure parts for civilian aircraft. The package included access to light-water power and research reactors, and guarantees related to external sources of fuel for those reactors. Even the prospect of indigenous nuclear fuel production was left open, after a period of confidence-building. Yet Iran rejected the offer on the day it was submitted. Iran’s refusal, and the manner in which it was delivered, strongly suggested that Iran was not prepared to negotiate its nuclear work at that time. Countries reasoned that if Iran’s intention was truly the development of a nuclear energy program to generate electricity, then such an offer would at least merit consideration. Iran’s abrupt refusal showed that it intended to enrich uranium at any cost, which, taken in conjuncture with the omissions in Iran’s disclosures to the IAEA, suggests a military aim instead of a long-term energy goal. Iran’s response further delegitimized its nuclear program in the eyes of the world.

Thus, the world came to understand that Iran’s nuclear ambitions—notably its pursuit of uranium enrichment and heavy water technology—are indeed a threat. On September 24, 2005, the IAEA governing board officially found Iran in non-compliance with its inspections (safeguards) obligations and voted nearly unanimously to send the issue to the U.N. Security Council. The panelists believe that the near unanimity of this vote was due to the E3/EU3 process, which produced international consensus as to how to respond to Iran.

The panelists also found that the negotiations raised the stature and self-esteem of E.U. foreign policy. Europe was not merely a player in the diplomatic effort; it had crafted and was leading the effort. The decision by Britain, France and Germany to include Javier Solana, the E.U.’s high representative for foreign and security policy, confirmed that the initiative undertaken by the E3 was indeed a European one. Bringing together all 27 E.U. countries behind a single policy dramatically increased Europe’s leverage. It also marked the first time the E.U.’s economic power was brought to bear on a security issue. Having taken the lead in negotiations, the European Union necessarily staked its prestige on the outcome. When negotiations failed to yield an agreement, E.U. countries led efforts to move the issue to the U.N. Security Council.

Most panelists found the delay in taking Iran to the Security Council excessive, and thought the E3 should have pressed for referral sooner. Others argued that it was better to wait and ensure that the referral, when it came, was followed by meaningful action. The example of North Korea’s referral to the Security Council in February 2003 was cited as a precedent to avoid; the Security Council took no action following the referral, which weakened the Council’s credibility.

Iran’s referral, as a result of consensus-building, was more successful. After Iran was referred in September 2005, the Security Council issued a presidential statement condemning Iran by late March 2006, and a first resolution under Chapter VII of the U.N. Charter was adopted in June. And when the Security Council finally adopted a resolution sanctioning Iran, on December 23, 2006, it did so unanimously. A second sanctions resolution, adopted on March 24, 2007, was also unanimous. These votes had a powerful impact on Iran. They sent a strong message to Iran’s leaders and to its population that the world was unified in its stance against Iran’s nuclear work. The Security Council demanded that Iran suspend uranium enrichment and its work on a heavy water reactor – the same red lines first set forth by the E3/EU3. This was a strong endorsement of Europe’s efforts.

The United States had kept its distance during the early stages of the E3/EU3 negotiations. Though not explicitly condemning the European efforts, the United States remained skeptical. Not until March 2005 did it offer its tepid endorsement. Until then, U.S. policy on Iran was adrift, with an oft-repeated insistence that Iran be sent to the U.N. Security Council, with rumors of military strikes on Iran’s nuclear facilities and hints of regime change. The panelists agreed that Europe achieved a large foreign policy success by persuading the United States that the negotiations were productive and worth joining.

Winning this U.S. support was a victory for Europe’s commitment to “soft power.” In 2003, Europe feared that the United States might use “hard power” in Iran as it had in Iraq. Indeed, all but one panelist found that the E3’s motivation to take a leading role in the Iran crisis stemmed largely from fears that without a new diplomatic effort, the United States might decide on military action. The negotiations decreased the likelihood of this prospect by giving the United States a policy alternative.

The negotiations also offered a benefit for the United States. The U.S. efforts to convince banks, companies and governments around the world to either reduce or end business in Iran got an important boost. Thanks to the E3/EU3 negotiations, the world learned about Iran’s nuclear violations and its continued defiance, which led to a perceived increase in the risk associated with Iran. Without being obliged to do so, many banks, particularly in Europe, began limiting their exposure. This made more potent the warnings issued later by the U.S. Department of the Treasury.

Despite these benefits, some panelists expressed concern that the U.S. had allowed itself to focus too much on the negotiations and not enough on what they were meant to—but had not—achieved. Namely, a freeze of all Iran’s enrichment related activities. The Europeans did obtain two freezes, one in 2003 and a second in 2004. The panelists judged these freezes to be the principal achievements of the process, insofar as delaying Iran’s nuclear progress is concerned. Even during these periods, however, Iran continued auxiliary efforts, including uranium conversion and centrifuge component manufacturing. Therefore, it is uncertain whether the freezes materially delayed Iran’s program.

Finding 2: E.U. member countries should be ready to impose increased sanctions on Iran independently of the United Nations.

Most panelists found the time for such action to be imminent and emphasized that neither E.U. nor U.N. sanctions need be ironclad in order to have an impact.
Britain, France and Germany should still use their good offices to keep the U.N. sanctions process moving forward in parallel to any E.U. action.

The panelists agreed that maintaining unity among the E3 countries during the early stages of negotiations with Iran was relatively easy. Achieving consensus among the larger group of countries now involved in negotiations is more difficult; unity takes more time and requires compromise. Since March 24, 2007, the date of the most recent Security Council Resolution, the E3+3 countries (Britain, France and Germany, joined by China, Russia and the United States) have taken a long time to agree on a timetable for stepping up sanctions against Iran, and on the specific penalties that might be imposed. This slow response runs counter to the principle that has guided European diplomacy with Iran since 2003: a lack of compliance by Iran is meant to lead to increased pressure, which at this point means further sanctions.

Given the impasse, most panelists found that the European Union should not wait indefinitely for the Security Council to act. They argue that there is a “tipping point” at which concessions made to Russia and China in order to keep the coalition together are detrimental to the overall goal of preventing Iran from achieving a nuclear weapon capability.

Independent E.U. action could include targeting additional Iranian financial institutions and banning E.U. companies from undertaking new energy development projects in Iran. The E.U. could also require member states to reduce export credit guarantees to firms seeking to do business in Iran. The sanctions should aim to further isolate Iran economically and exploit the weaknesses of Iran’s economy. They should also increase awareness within the Iranian ruling elite as to the costs of the country’s nuclear policy. The European Union already acted outside of the Security Council last April, when it froze the assets of additional Iranian organizations and individuals linked to proliferation, banned the individuals from travel within the European Union, and instituted an official ban on E.U. arms sales to Iran. According to the panelists, the pressure of additional E.U. sanctions may not be sufficient to persuade Iran to compromise, but it will certainly not do so in the absence of such sanctions.

Most panelists found Europe could take the lead in implementing sanctions outside the Security Council, and then try to convince other countries that trade with Iran, like Malaysia, Singapore, South Korea and the United Arab Emirates, to follow suit. By showing a willingness to sacrifice its business with Iran, Europe could hope to win support for similar measures from more reticent countries.

If additional sanctions cause an increasing number of companies and banks in Europe to cut ties with Iran, there would be a multiplier effect. If a German bank does not to extend a line of credit to those doing business with Iran, a message is sent to other banks and companies: Iran is a risk. This message of increased risk already has been conveyed in statements made by inter-governmental groups like the Financial Action Task Force and the Group of Seven. Most panelists found that an official requirement by European governments that their companies and banks disengage from Iran would have a powerful effect beyond Europe; it could prompt banks around the world to disengage as well.

Though businesses in Russia and China may step in—and in many cases already have—the loss of trade with Europe could still be costly. Iran’s new partnerships with the east have been made by necessity, not choice. It now costs Iran more to get a letter of credit because Iran may have to query three banks. And Iran would prefer to buy high technology items from Germany rather than from Malaysia. The fact that Iran continues to use illicit procurement networks in Europe is proof of this.

The panelists found that leadership renewal in Europe has already bolstered the prospect of independent E.U. action. For France—an opponent of the U.S.-led Iraq war in 2003—to be arguing for stepped up sanctions against Iran sends a message that the effort to curb Iran’s nuclear program is not a goal shared only by Britain and the United States. French President Nicolas Sarkozy and German Chancellor Angela Merkel are Atlanticists who have taken firm positions on this issue, and British Prime Minister Gordon Brown will not want to appear weak on one of his first major foreign policy challenges. For instance, in a speech last November, Mr. Brown announced that Britain “will lead in seeking tougher sanctions both at the U.N. and in the European Union, including on oil and gas investment and the financial sector.” In the absence of E.U. action, some panelists predicted that member states such as Britain and France may act on a national level.

The panelists also found that Europe could serve as a bridge during negotiations at the Security Council between the United States, which is arguing for more stringent sanctions, and Russia and China, which are reluctant to agree. In particular, Europe could fill the vacuum left by the poor state of relations between the United States and Russia. Most panelists believe that a concerted campaign by European leaders, in which the importance of the Iranian nuclear case is emphasized, could help persuade Russia to support a more robust line on Iran in the Security Council. This campaign would not, on its own, tip the scales in favor of tougher Security Council sanctions, but it could have a positive influence on the direction of the sanctions process.

Most panelists would like to see E.U. member states help constrain what they regard as the excessive political activities of IAEA Director General Mohamed ElBaradei. In their view, his decision last August to pursue a “work plan” on resolving questions about Iran’s nuclear past, which it had repeatedly refused to answer, sidelined negotiations at the Security Council on a third sanctions resolution and provided cover for countries seeking to delay additional sanctions. These panelists argue that E.U. countries could use their combined influence in the IAEA governing board to encourage Dr. ElBaradei to confine his activities to his official mandate which is to verify nuclear material and inform the board if there is a doubt about the peaceful nature of a country’s nuclear work.

The panelists emphasized that strong sanctions are needed at some level to send a message to the world that proliferation has costs. If Iran is not punished and isolated because of its nuclear violations and its defiance of binding Security Council resolutions, the message to other countries will be that proliferation goes unpunished. The nonproliferation regime will be weakened as a result.

Finding 3: The European Union is not an alternative to the United States on nonproliferation, despite Europe’s leadership in negotiating with Iran.

U.S. participation in the E.U.-led negotiations was essential and increased their value and credibility.
The negotiations are a model for E.U. action on foreign policy issues.

The panelists dismissed the suggestion that through its leadership in negotiations with Iran, Europe had proven itself to be an alternative to the United States in meeting the challenges posed by nuclear proliferation. They found that U.S. endorsement of and participation in the process was crucial. Without U.S. support, the incentives package offered to Iran in August 2005 would have lacked credibility. It included, among other things, promises of nuclear technology sharing and the sale of aircraft parts. Such goods would not have been supplied to Iran by European companies fearful of jeopardizing their larger volume of trade with the United States, and their assets under U.S. control.

While Europe may not have replaced the United States, it continues to play an important role in the Iranian nuclear crisis. European economic ties are a “stick” against Iran that is unavailable to the United States, which has not traded with or invested in Iran for decades. The panelists found that alone neither the European Union nor the United States has the necessary leverage over Iran to force a change of direction. Fortunately, the U.S. position on the Iranian nuclear crisis has not been dramatically different from Europe’s. After the divisiveness over Iraq, the convergence of views on the Iranian nuclear threat has projected the image of a united front and has allowed Europe and the United States to work together.

Because of this convergence, the panelists found that any attempt by the United States to enforce laws that punish foreign companies for investing in Iran could backfire. One such law, the Iran Sanctions Act (ISA), penalizes development assistance to Iran’s oil and gas sectors and could ensnare several major European energy companies. If European governments are unwilling to bar their own companies from such investment as part of the sanctions process, then these governments are unlikely to do so as a result of an economic threat from the United States. Indeed, if the ISA were enforced after years of neglect, European countries might follow through on a threat to challenge the legality of such laws at the World Trade Organization. Still, most panelists found that the threat of enforcing U.S. laws like the ISA might help pressure European energy companies and banks to avoid Iran. In their view, U.S. congressional initiatives to tighten ISA by closing loopholes and eliminating waivers could have a deterrent effect.

Though Europe may not be ready to take over as the world’s national security leader in lieu of the United States, the European negotiations on Iran could become a model for the European Union on other foreign policy issues. The panelists found that the example of a small, avant-garde group of countries leading the rest was effective. This is true despite the fact that it takes time to achieve consensus among the 27 E.U. member states. The negotiating format had the benefit of making it harder for Iran to play different European powers off each other. It also heightened the impact of the policy on Iran and showed that Europe could act as a unit.

In China We Trust? Lowering U.S. Controls on Militarily Useful Exports to China

January 1, 2008April 3, 2017 By Matthew Godsey and Gary Milhollin

Executive Summary

In mid-October, the U.S. Commerce Department began to implement a new program to reduce controls on the sale of militarily useful American products to China. For the first time, certain companies in China are being allowed to receive such products from the United States without obtaining an export license that would otherwise be required. The Commerce Department is selecting beneficiaries of this program in China on the ground that they are trustworthy–that is, that they are exclusively civilian and can be trusted to confine to peaceful use items that are also highly useful for military production or for making weapons of mass destruction. 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.

Of the first five companies approved, however, two (forty percent of the total) do not meet the selection criteria. They are affiliated closely to China’s military industrial complex and to companies that have been punished by the U.S. government for proliferation or other improper export behavior. Reducing controls on exports to such companies increases the risk that American goods will help China improve its armed forces, and that American goods will be sent illicitly to Syria or Iran.

One of the five companies is Shanghai Hua Hong NEC Electronics Company, Ltd. (HHNEC). This company is majority owned through a corporate chain by China Electronics Corporation (CEC), a Chinese government-owned conglomerate that produces a large array of military equipment, in addition to consumer electronics. In 2006, the U.S. Justice Department described one of CEC’s subsidiaries as a “technology procurement arm of the People’s Liberation Army,” and in 2004, the U.S. Defense Department described the subsidiary as a “critical element of the PLA’s C4I [command, control, communications, computers and intelligence] modernization effort.” Also in 2006, the U.S. State Department punished another CEC subsidiary for proliferation to Iran and/or Syria. Given this negative record, there is a clear risk that CEC will import sensitive American goods without a license through the subsidiary the Commerce Department has blessed, and then shift the goods to one of its other subsidiaries that is outfitting the Chinese army, or supplying Iran or Syria.

A second company the Commerce Department approved is BHA Aerocomposite Parts Co., Ltd. It is partially owned by AVIC I, an instrumentality of the Chinese government that produces fighters, nuclear-capable bombers, and 90% of the aviation weapon systems used by the People’s Liberation Army. AVIC I’s 50% subsidiary and import-export arm, CATIC, is currently under State Department sanctions that punish proliferation to Iran and/or Syria–one of four such sets of penalties imposed on the firm since 2002 for proliferation to Iran or Syria. A second co-owner of BHA is the Boeing Company, which was fined last year after the State Department accused it of exporting controlled navigation equipment usable in aircraft and missiles to China without the required authorization (the fourth such fine since 1998). The third co-owner is Hexcel Corporation, fined last year by the Commerce Department after allegedly supplying controlled carbon fabric to China without an export license. In 2007, Hexcel was also fined after charges that it knowingly used defective fiber in bulletproof vests sold to U.S. law enforcement officers. It is difficult to see how these three owners of BHA can be trusted to obey U.S. export control laws.

The new program, as it is being implemented, gives Chinese military parent companies the ability to gain access without an export license to virtually unlimited quantities of American products in categories that have long been restricted because of their military potential. CEC, through a firm that it controls, will be able to more easily acquire advanced equipment for manufacturing semiconductors, an essential technology for modern weaponry, that would greatly aid its ongoing production of radar systems for the People’s Liberation Army and its production of communications electronics for China’s air force and navy. CEC will also be able to more easily receive pressure transducers, which can help make semiconductors, but are also needed in large quantities for gas- centrifuge uranium enrichment. If CEC shifts some of these items to its subsidiary that has been supplying Iran, they could wind up at Iran’s uranium enrichment plant at Natanz, which the United States and its allies fear is moving Tehran closer to a nuclear weapon capability.

AVIC I, through a firm that it partially owns, will gain freer access to carbon fibers and composite structures, products that could aid its ongoing production of military aircraft, unmanned aerial vehicles, and other weapon systems. It will also gain greater access to high-performance machine tools, which could aid its production of China’s new Jian-10 fighter and its effort to improve China’s nuclear-capable B-6 (Hong-6) bomber.

Reducing the regulatory “burden” of export licensing—both for the government and for U.S. exporters—is a key motive for the Validated End-User program. When the Commerce Department announced the names of the first five companies approved, it remarked that they had accounted for eighteen percent of the total exports licensed to China in 2006. This factor may help explain why two companies as risky as HHNEC and BHA could be certified as “trusted customers” at the outset of a new program.

In view of the failure of the selection process to safeguard U.S. national security, the Commerce Department should suspend the Validated End-User program pending a Government Accountability Office (GAO) investigation. 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.

To read the report, click here: In China We Trust? Lowering U.S. Controls on Militarily Useful Exports to China

To view the associated diagrams, click here: BHA; HHNEC

In Iran We Trust?

December 6, 2007March 30, 2017 By Valerie Lincy and Gary Milhollin

The New York Times
December 6, 2007

Washington–On Monday the United States intelligence community issued what everyone agrees was blockbuster news: a report stating that in the autumn of 2003, Iran halted its nuclear weapons program. The National Intelligence Estimate has been heralded as a courageous act of independence by the intelligence agencies, and praised by both parties for showing a higher quality of spy work than earlier assessments.

In fact, the report contains the same sorts of flaws that we have learned to expect from our intelligence agency offerings. It, like the report in 2002 that set up the invasion of Iraq, is both misleading and dangerous.

During the past year, a period when Iran’s weapons program was supposedly halted, the government has been busy installing some 3,000 gas centrifuges at its plant at Natanz. These machines could, if operated continuously for about a year, create enough enriched uranium to provide fuel for a bomb. In addition, they have no plausible purpose in Iran’s civilian nuclear effort. All of Iran’s needs for enriched uranium for its energy programs are covered by a contract with Russia.

Iran is also building a heavy water reactor at its research center at Arak. This reactor is ideal for producing plutonium for nuclear bombs, but is of little use in an energy program like Iran’s, which does not use plutonium for reactor fuel. India, Israel and Pakistan have all built similar reactors — all with the purpose of fueling nuclear weapons. And why, by the way, does Iran even want a nuclear energy program, when it is sitting on an enormous pool of oil that is now skyrocketing in value? And why is Iran developing long-range Shahab missiles, which make no military sense without nuclear warheads to put on them?

For years these expensive projects have been viewed as evidence of Iran’s commitment to nuclear weapons. Why aren’t they still? The answer is that the new report defines “nuclear weapons program” in a ludicrously narrow way: it confines it to to enriching uranium at secret sites or working on a nuclear weapon design. But the halting of its secret enrichment and weapon design efforts in 2003 proves only that Iran made a tactical move. It suspended work that, if discovered, would unambiguously reveal intent to build a weapon. It has continued other work, crucial to the ability to make a bomb, that it can pass off as having civilian applications.

That work includes the centrifuges at Natanz, which bring Iran closer to a nuclear weapon every day — two to seven years away. To assert, as the report does, that these centrifuges are “civilian,” and not part of Iran’s weapons threat, is grossly misleading.

The new report has also upended our sanctions policy, which was just beginning to produce results. Banks and energy companies were pulling back from Iran. The United Nations Security Council had frozen the assets of dozens of Iranian companies. That policy now seems dead. If Iran is not going for the bomb, why punish it?

No company or bank will agree to lose money unless a nuclear threat is clear. Likewise, is it fair for the United Nations to continue to freeze the assets of people like Seyed Jaber Safdari, the manager of the Natanz plant, or companies like Mesbah Energy, the supplier of the reactor at Arak, because of links to a program that American intelligence believes is benign? One European official admitted to us that he and his colleagues were flummoxed. “We have to have a new policy now for going forward,” he said, “but we haven’t been able to figure out what it is.”

This situation is made all the more absurd by the report’s suggestion that international pressure offers the only hope of containing Iran. The report has now made such pressure nearly impossible to obtain. It is hardly surprising that China, which last week seemed ready to approve the next round of economic sanctions against Tehran, has now had a change of heart: its ambassador to the United Nations said yesterday that “we all start from the presumption that now things have changed.”

We should be suspicious of any document that suddenly gives the Bush administration a pass on a big national security problem it won’t solve during its remaining year in office. Is the administration just washing its hands of the intractable Iranian nuclear issue by saying, “If we can’t fix it, it ain’t broke”?

In any case, the report is an undoubted victory for Iran. Even if it opens the way for direct talks, which would be a benefit, it validates Iran’s claim that efforts to shut down Natanz are illegitimate. Thus Iran will be free to operate and add to its centrifuges at Natanz, accumulate a stockpile of low-enriched uranium customary for civilian use, and then have the ability to convert that uranium in a matter of months to weapons grade. This “breakout potential” would create a nuclear threat that we and Iran’s neighbors will have to live with for years to come.

Valerie Lincy is the editor of Iranwatch.org. Gary Milhollin is the director of the Wisconsin Project on Nuclear Arms Control.

Comments on the U.S. Commerce Department’s Proposal Concerning the Entity List

August 6, 2007April 3, 2017 By Arthur Shulman

U.S. Department of Commerce
Bureau of Industry and Security
Regulatory Policy Division
Room H2705
14th Street and Pennsylvania Avenue, NW
Washington, DC 20230

RE: Comments on Proposed Rule – Authorization to Impose License Requirements for Exports or Reexports to Entities Acting Contrary to the National Security or Foreign Policy Interests of the United States

Dear Sir or Madam,

The Wisconsin Project on Nuclear Arms Control submits the following comments in response to the Bureau of Industry and Security’s June 5, 2007, Proposed Rule (72 Fed. Reg. 31005), which proposes to expand the scope of reasons for which BIS may add parties to the Entity List.

The Project is a non-profit organization that conducts outreach and public education to inhibit the proliferation of mass destruction weapons and their means of delivery. For more than twenty years, the Project has pursued its mission by advocating strong and effective export and transit controls worldwide. The Project commends the Commerce Department for considering measures to strengthen the Entity List, and supports the proposed change in principle. However, additional actions are necessary to ensure that the List serves its original, intended function as a key nonproliferation tool in the U.S. dual-use export control system.

In the Proposed Rule, BIS seeks authorization to add to the Entity List entities that BIS has reasonable cause to believe, based on specific and articulable facts, have been, are or pose a risk of being involved in activities that are contrary to the national security or foreign policy interests of the United States, or those acting on behalf of such entities. This would be a broad and beneficial control, allowing BIS to conduct more prior reviews of exports to risky end-users. In particular, BIS should use the proposed new Section 744.11 to impose export license requirements on entities that have been targeted for nonproliferation-related reasons by other agencies of the U.S. government, and by foreign governments, in cases where other sections in Part 744 do not already allow inclusion of such entities on the Entity List. This approach would become another tool allowing BIS to work with its counterparts within and outside the U.S. government to ensure that entities of proliferation concern worldwide are denied access to controlled goods and technologies.

To read the complete letter, click here: Comments on the U.S. Commerce Department’s Proposal Concerning the Entity List

Responding to Iran’s Nuclear Challenge

July 25, 2007April 4, 2017 By Gary Milhollin

Remarks at a Heritage Foundation Event on Iran’s Rising Challenge: Nuclear and Energy Security Dimensions

July 25, 2007

Thank you for the kind invitation to speak to you today on the subject of Iran. My task is to explain how to stop Iran’s nuclear program. I have been given about twenty minutes to accomplish this feat.

First, I should say that our best opportunity to stop, or at least slow down Iran’s nuclear progress was in the late 1980s and early 1990s, when the Pakistani scientist A.Q. Khan was supplying the foundation for Iran’s present centrifuge program. Khan was a known nuclear smuggler, having stolen designs from Europe for a uranium enrichment plant in the 1970s. Nevertheless, he was able to jet around the world on numerous trips that spread the means to enrich uranium to both Libya and North Korea, as well as to Iran, in the 1990s. Our intelligence agencies, which are our first line of defense against proliferation, either saw nothing or did nothing. This was a very expensive failure.

The International Atomic Energy Agency was inspecting Iran’s nuclear sites during this time, but of course it was only inspecting the sites Iran had declared, and was only looking at the material that Iran allowed it to see. Iran, however, was doing its most important nuclear work in secret, so the IAEA too missed Iran’s enrichment efforts.

Thus, Iran was able to start an ambitious centrifuge program in secret, and get it well underway, in violation of its pledges under the Nuclear Nonproliferation Treaty without getting caught. A classic case of how little protection we really have against the spread of the bomb.

Our second opportunity was in 2003. Iran’s secret sites were unveiled in August 2002, and in October 2003 the IAEA reported that Iran had been running a secret program for nearly two decades. Iran’s work with nuclear material had unquestionable violated its inspection pledges under the nonproliferation treaty.

So what happened to Iran? Practically nothing. The IAEA could not bring itself to declare Iran in “noncompliance” of Iran’s obligations under the treaty, and therefore send Iran to the U.N. Security Council, where sanctions could be voted. This was the second opportunity lost. Instead, a process of negotiation began, which did result in a couple of suspensions of Iran’s enrichment program, but which never slowed down the program much.

In September 2005, after negotiations failed, the IAEA finally referred the case to the Security Council– a full two years after Iran’s violations were clear.

The first U.N. sanction that was binding was passed in December of 2006. That was more than a year after the referral, and more than three years after the violations became clear. The message to Iran has been that punishment is not certain, and is not swift.

So today we have arrived at a point where we have two U.N. sanctions resolutions, which Iran is ignoring. This is not surprising because the sanctions are quite weak. They put a list of Iranian firms under a trade-ban and do some other minor things.

As it turns out, these resolutions are already being violated. Since the resolutions went into effect, my organization has tracked seven shipments into Iran to an entity with which trade is banned. The seven shipments probably are a small percentage of what is really going in, and there is no reason to think they will stop.

What about further U.N. sanctions? They are not being actively worked on, according to press reports. Why? Perhaps it is because Iran has agreed to let the IAEA inspect some things, which appear to be things that the IAEA had the right to inspect anyway. Thus, the diplomatic process at the United Nations has produced little, and appears to be leading nowhere.

And what has the United States been doing all this time? First, our government scoffed at the Europeans for negotiating. Then, we half-heartedly supported them. Finally, we have endorsed the negotiations, while not participating in them directly. In effect, our policy has been to hope this nasty problem would go away while we were busy next door. A couple of years ago, our government even put out information to the effect that Iran was as much as ten years away from the bomb. That was clearly wrong. Our government was trying to get the public to believe that “If we can’t fix it, it’s not broken.”

After missing our two best chances, we are now faced with alternatives that are much more expensive, and even frightening.

What are they?

A) Stay the present course, which consists of muddling about at the U.N. That simply won’t do it. Iran could have 2,000 centrifuges running by the end of this year. That is not certain, but it is a definite possibility. In a year’s time they could enrich enough material for a bomb, if configured to do so. Or, more likely, they could begin building a stockpile of low-enriched uranium that would give Iran a “breakout” potential. That is, Iran would have a stockpile of uranium that could be raised to bomb grade within a short time of a decision to do so. This would confer upon Iran a “virtual arsenal.” In sum, Iran’s progress on the ground has far outstripped the pace of diplomacy. The best that can be said for the activities at the United Nations is that they are creating the impression that we are doing something.

B) Military Action – Bombing is an uncertain business. The best precedent for seeing what might happen if we bombed Iran is to look at what happened when we bombed Iraq during the first Gulf War. We missed Iraq’s most important nuclear site because we did not know it was there. We found that out because inspectors went into Iraq after the bombing. Will Iran allow inspectors in after it is bombed? Probably not. We won’t know whether we have hit the important stuff. We also won’t know what Iran will do in retaliation. And we won’t know whether we will have the military means to respond to that retaliation—given the poor condition of our defense forces at this time. Bombing would be a step into the unknown. We have not done well recently in predicting the outcome of our military actions in the Middle East.

C) Economic Isolation – We could try to isolate Iran economically. Iran would have to walk up the hill Libya walked up, look into the future, and decide that the prospects were so bleak that it made sense to give up the bomb. That would require real economic pain for Iran. So far, there is no strategy I can see for inflicting it. European taxpayers are still subsidizing loans. Foreign companies are still investing in Iran’s oil fields. America does not have a crash program to reduce its own oil imports. America is not taxing gasoline the way Europeans do. America is not requiring higher gas mileage from its automakers. America is not expanding its military forces to be able to handle Iraq and Iran at the same time. America has not announced any policy that would result in Iran’s isolation. Thus, there is no formula for convincing Iran to change course. Our government is bereft of ideas on this point. That is not really acceptable. We need an effective policy, and we need it now, because time is running out.

U.S. Failure to Follow Through on Iran Sanctions is Baffling

May 31, 2007April 3, 2017 By Valerie Lincy

World Politics Review
May 31, 2007

Last week, the International Atomic Energy Agency reported once again that Iran had defied U.N. Security Council demands to stop enriching uranium. And in response, the United States once again demanded that international sanctions against Iran be made more severe.

This call for sanctions—which has become routine by now—would be a lot more credible if it were not for a one embarrassing fact: The United States now lags many other countries in enforcing sanctions that the United Nations has already voted. One of the few real penalties to survive previous rounds of Council negotiation over sanctions is an asset freeze on Iranian entities involved in missile and nuclear work. Yet of the 50 entities listed in Security Council Resolutions 1737 and 1747, the United States has frozen the assets of only twelve (pdf file). The European Union, by contrast, has frozen the assets of all entities named in both resolutions (see here and here).

The lack of follow-through in Washington is baffling. Freezing the assets of Iran’s nuclear and missile builders would inhibit them from buying crucial technology. It would also make it harder for them to finance their work. A freeze on assets would go beyond the general restrictions on U.S. trade with Iran that date from the 1980’s.

To implement the financial penalties contained in both resolutions, the United States has chosen to use a June 2005 Executive Order, which allows the President to freeze the assets of entities engaged in proliferation activities. But only a handful of the Iranian organizations whose assets the United Nations has asked its member states to freeze have so far been designated under this Executive Order. Not yet targeted are Pars Trash and Farayand Technique—two entities involved in Iran’s centrifuge enrichment work. The same goes for the Esfahan Nuclear Technology Center, where the uranium gas feedstock for Iran’s centrifuges is produced, and for the Karaj Nuclear Research Center, which houses dismantled equipment from undeclared laser enrichment work and where unexplained traces of highly enriched uranium and plutonium were found by U.N. inspectors. All four of these entities are part of the Atomic Energy Organization of Iran.

It should be obvious that one of the best ways to tighten the noose around Iran’s nuclear and missile developers is to tie up their subsidiaries. Without such a step, the former can continue to operate through the latter. Iran’s Defense Industries Organization oversees several key subsidiaries, including Parchin Chemical Industries, the Ammunition and Metallurgy Industries Group and an organization know as “7th of Tir,” all of which the United Nations has linked to nuclear and missile work, and for which it has required an asset freeze. But the United States still has not obliged. The same is true of the Fajr Industrial Group, a subsidiary of Iran’s Aerospace Industries Organization that, according to the Security Council, is involved in Iran’s missile program.

The United States may believe—wrongly, in fact—that most of these entities are already covered by a U.S. asset freeze because they are “owned or controlled” by or act “for or on behalf of, directly or indirectly,” an organization listed in the Executive Order. The Executive Order does include Iran’s Atomic Energy Organization, its Aerospace Industries Organization and its Defense Industries Organization. It is extremely unlikely, however, that U.S. banks around the world, which are expected to freeze the assets of these entities, will know the names of their subsidiaries. To make sanctions work in the real world, a bank needs to be told exactly whose assets to freeze.

What’s more, assets must be frozen swiftly, before they can be moved to safety. The United States waited three months to take action after the Security Council asked for an asset freeze against Iran’s Defense Industries Organization. Why so long? And why has the United States still not frozen the assets of twenty-six of the twenty-seven individuals listed by the Security Council since December? The Executive Order clearly allows for individuals to be subject to its penalties.

This U.S. foot dragging is particularly embarrassing in light of the fact that a number of U.S. allies have already frozen the assets of most, if not all, the persons and organizations that the Security Council has identified. In April, the European Union even exceeded the U.N.’s requirements by freezing the assets of twenty-three new Iranian entities that the United Nations had not named. Included in the E.U. list is a nuclear laboratory linked to undeclared uranium metal conversion experiments, and a number of individuals from Iran’s nuclear brain trust. These individuals, along with those listed in Security Council Resolutions, were also slapped with an E.U. travel ban.

Thus far, the United States has helped shepherd two rounds of unanimously-backed sanctions against Iran through the Security Council, where unanimity among permanent members is difficult to achieve. This process of gradually increasing international pressure on Iran should continue as long as Iran keeps its centrifuges running.

But if the United States really expects sanctions to affect Iran, the United States must take the lead in enforcing them. That means, at a minimum, swiftly implementing U.N. resolutions. Anything less sends a message to the rest of the world that the penalties don’t matter, and that the U.S. policy on Iran is business as usual.

Published in the World Politics Review, a daily foreign policy, national security and international affairs Web publication, on May 31, 2007.

Comments on the U.S. Commerce Department’s Proposed Country Group C: Destinations of Diversion Concern

March 12, 2007April 3, 2017 By Arthur Shulman

U.S. Department of Commerce
Bureau of Industry and Security
Regulatory Policy Division
Room H2705
14th Street and Pennsylvania Avenue, NW
Washington, DC 20230

RE: Comments on Advance Notice of Proposed Rulemaking – Country Group C: Destinations of Diversion Concern

Dear Sir or Madam,

The Wisconsin Project on Nuclear Arms Control submits the following comments in response to the Bureau of Industry and Security’s February 26, 2007, Advance Notice of Proposed Rulemaking (72 Fed. Reg. 8315), which proposes to designate Country Group C in the U.S. Export Administration Regulations for countries that are “Destinations of Diversion Concern.”

The Project is a non-profit organization that conducts outreach and public education to stop the proliferation of mass destruction weapons and their means of delivery. For more than twenty years, the Project has pursued its mission by advocating strong and effective export and transit controls worldwide. The Project commends the Commerce Department for considering whether to designate countries that are of diversion concern, and endorses such designations in principle.

There is no question that diversion of sensitive items compromises the effectiveness of U.S. export controls, undermines international counterproliferation efforts, and could help terrorists and their state sponsors. Particularly dangerous are transit hubs that do not check adequately what passes through their territory – through negligence or willful disregard. A stark example of this danger was provided recently by the revelations that the A. Q. Khan nuclear proliferation network trafficked its wares mostly through the United Arab Emirates (U.A.E.), which is one of the largest transit points in the world. The Wisconsin Project has documented more than two decades of diversions through the U.A.E. to India, Iran, Pakistan and other proliferant countries. This history is detailed in an article the Project published in the New York Times and in a chronology from the Project’s Risk Report database, both of which are enclosed. These diversions from the U.A.E. continue to the present day.

To read the complete letter, click here: Comments on the U.S. Commerce Department’s Proposed Country Group C: Destinations of Diversion Concern

Testimony of Arthur Shulman

Executive Summary

The New York Times December 6, 2007

Remarks at a Heritage Foundation Event on Iran’s Rising Challenge: Nuclear and Energy Security Dimensions

World Politics Review May 31, 2007

The New York Times
December 6, 2007

World Politics Review
May 31, 2007