CHINA THUMBS ITS NOSE AT TRADE AGREEMENTS


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CHINA REJECTS US SUPER COMPUTER VERIFICATION




To:               BILL REINSCH@BXA@BXA1,AMANDA DeBUSK@BXA@BXA1
                  R. ROGER MAJAK@BXA@BXA1


Cc:               FRANK DELIBERTI@BXA@BXA1,WILLIAM SKIDMORE@BXA@BXA1
                  Hoyt Zia@BXA@BXA1,STEPHEN LEACY@BXA@BXA1
                  MIKE HOFFMAN@BXA@BXA1,JIM LEWIS@BXA@BXA1
                  EILEEN ALBANESE@BXA@BXA1,HARK MENEFEE@BXA@BXA1
                  THOMAS ANDRUKONIS@BXA@BXA1,HATTHEW BORHAN@BXA@BXA1
                  Mark Bayuk@USFCSBeijingeDoC

Bcc:
From:             Intern One@USFCSBeijing@DoC
Subject:          Export Control Discussions at MOFTEC
Date:             Tuesday, January 20, 1998 13:48:51 CST
Attach:
Certify:          N
Forwarded by:


SUMMARY: US export control delegation's meeting with MOFTEC on
Monday, January 19, 1997 went as expected -- progress regarding
the export control seminar agreed to at the October 1997 JCCT,
but only limited engagement on end-use check issues, not all of
it positive. More work on advancing end-use check issues will
need to be done by CS-Beijing and possibly during proposed visit
by MOFTEC Vice-Minister to Washington in conjunction with the
US-China export control seminar in April 1997. END SUMMARY

OVERVIEW
1. On Tuesday afternoon, the Commerce-led interagency export
control delegation visited MOFTEC and met with Zhou Ruojun,
Division Director in the Department of Science and Technology at
MOFTEC and Li Xie, an official in her division. The US side
consisted of Commerce representatives Hoyt Zia, Commerce Chief
Counsel for Export Administration (delegation head), Stephen
Leacy, Senior International Advisor at Export Enforcement and
Mike Hoffmann, Director of BXA's Western Regional Office. Thomas
Maertens, Deputy Director of PM's Office of Arms Control and
Export Control Policy represented the Department of State.
Present from the American Embassy were Senior Commercial Officer
Alan Turley, BXA Attache Mark Bayuk and Tim Neely from the
Embassy's Economic Section.

2. Zhou began the meeting by apologizing for the absence of Liu
Hu, Director General of the Department of Science and Technology
at MOFTEC. According to Zhou, Liu Hu had a cold and was unable
to participate in the discussions.

3. Zia began the substantive discussions by stating that the
delegation was in Beijing as a follow-on to Secretary Daley's
visit to Beijing for the October 1997 US Commerce
Department-MOFTEC annual session of the Joint Commission on
Commerce and Trade. Zia said that at the JCCT, Commerce
Assistant Secretaries DeBusk (Enforcement) and Majak (Licensing)
discussed a number of issues, including a US-China export
control seminar, revitalizing our pre-license check program in
China and initiating a post shipment verification program here.
Zia said that all remain priority items for BXA and Commerce and
are reflected in the November 19 and December 21, 1997 letters
that A/S DeBusk and Majak jointly sent to Liu Hu. (Note: the
first letter concerned the export control seminar and the second
related to end-use checks issues and problems.)

4. At the beginning of the discussions on end-use checks, Zhou
handed Zia a letter from Liu Hu to A/S DeBusk and Majak written
in Chinese. After the meeting, SCO Turtey provided delegation an
informal oral translation and stated that he would have his
staff provide one in writing. Issues raised in the letter were
discussed by Zhou during the meeting (see below.)

EXPORT CONTROL SEMINAR
5. Zhou stated that MOFTEC has begun preparations for the
seminar according to the US draft agenda (sent as an attachment
to the DeBusk/Majak November 1997 letter.) She said that
although the target date for the seminar in Washington was early
April 1998, the exact timing and participants would require the
approval of the State Council. Zhou explained that this was
necessary because, with the participation in the seminar by
Commerce Under Secretary Reinsch, MOFTEC would therefore send a
Vice Minister. Zhou stated that in addition to MOFTEC, she
expected that China would also send representatives from MFA and
possibly the Atomic Energy Agency. She agreed to the outline of
the US proposed agenda, stating that the Chinese side would
present an introduction of its export control policy and
enforcement system as well as introduce the work in export
controls China has done in the last several years. Zhou asked if
it would be possible for the Chinese side to have meetings with
US industry representatives either before of after the seminar
to learn how industry works with the US government on developing
export controls.

PRE-LICENSE CHECKS
6. On end-use checks, Zhou took a harder line. Zia began the
discussion on pre-license checks (PLCs) by recalling the
DeBusk-Liu Hu discussions during the October 1997 JCCT. Zia
noted that, as stated in the December 19 DeBusk/Majak letter,
BXA was still trying to find a mechanism to reinstate PLCs to
help further the strategic trade interests of both countries. At
this point, Zhou gave Zia a letter from Liu Hu to take back to
DeBusk/Majak.  She then discussed issues raised in the letter,
which she said had also been discussed during the October 1997
JCCT. Her major concerns related to the inconsistent nature of
the pre-license checks requested of MOFTEC over the last several
years and the fact that there is no formal agreement between the
two governments on conducting these checks. On the latter point
she noted (as does Liu Hu's letter) that the language cited in
the December 19 letter to Liu Hu concerning end-use check
cooperation was inappropriate because the "letter was unsigned."
[Note: The December 19 DeBusk/Majak letter contains the sentence
"We wish to remind you of our understanding in the November 1983
US-China exchange of letters and paragraph 6 of the implementing
"Letter of Understanding." Embassy (and BXA) have copies of the
signed November 1983 exchange of letters, but our copy of the
implementing letter is unsigned.

7. Rather than engage in a fruitless discussion of the US-side's
"understanding" of the "intent" of the signed exchange of
letters, Zia moved on to a discussion of what would be the
mechanism to revitalize pre-license checks (PLCs) in China. Zhou
stated that over the years China had taken a "flexible response"
to US- requested PLCs but that this had led to uneven results
from the Chinese perspective. She complained that on occasion
MOFTEC, at US request, would schedule a PLC only to have the US
later cancel the request and not conduct the PLC. She also
complained that on other occasions, after a PLC was conducted,
the US had still denied the license, wondering "does the PLC
have a positive result in the promotion of trade." She stated
that Liu Hu had discussed these problems during the JCCT and
that China was still looking to the US for a "positive reaction"
in return for more "flexibility" on the Chinese side regarding
PLCs.

8. Zia noted that the President's recent decision regarding
peaceful nuclear cooperation with China was in fact such a
positive development. In spite of additional discussion, Zhou
would not elaborate on what she meant by more positive reaction.
She did note that the offer made by DeBusk at the JCCT to
provide more transparency regarding the US interagency process,
including at the upcoming seminar, would be helpful.

9. Zia responded that while the US is always willing to hear of
problems in our procedures so we can improve them, that the
"practical reality" is that we need end-use checks as a
"confidence building measure" and that this would be helpful to
making progress in US-Sino trade relations and important to the
Administration's attempts to strengthen our relationship. In
spite of several attempts by Zia to draw Zhou out on what the
Chinese side believed necessary regarding PLCs, no further
substantive response was received from Zhou.

POST SHIPMENT VERIFICATIONS
10. Zia then explained the NDAA requirements for post shipment
verifications (PSVs) on high performance computers exported to
China and asked Zhou how we could implement this procedure. Zhou
initially stated that she was "not in a position to talk too
much about this." After further prodding by Zia, Zhou stated
that her understanding was that "Chinese importers and US
exporters already had agreements on on-site inspection
activities between them." She was unwilling to discuss this issue
any further.

OBSERVATIONS/COMMENTS
11. The export control seminar seems on track. Zhou agreed to
provide additional details (including fixing a date and
tentative participating agencies) to CS-Beijing in early
February, ahead of any required formal State Council approval.
BXA will need to decide whether it can meet China's desire for
meetings with US industry officials either before or after the
scheduled seminar.

12. CS-Beijing agreed to continue to press MOFTEC on both PLCs
(i.e., to try and understand what the Chinese side needs to
reinstitute the procedure) and post shipment verifications
(i.e., to see on what basis these can be established.) The
upcoming visit by MOFTEC's Vice Minister may also present BXA an
opportunity to raise these issues "above" Liu Hu's head.

13. Liu Hu's absence from these discussions was unexpected and
unfortunate.  AmEmbassy Beijing officials believe that he may
genuinely be sick -- the flu is going around Beijing and he
"usually" cancels his meetings further in advance when he has a
"diplomatic" illness. A well-placed AmEmbassy official has heard
that Liu Hu may soon leave his position, perhaps to be posted to
Hong Kong. AmEmbassy will continue to follow this potential
development very closely and report to Washington when anything
substantive is learned.

This message was drafted by the visiting export control
delegation and cleared by CS-Beijing prior to transmission.


COMMERCE REJECTS CUSTOMS REQUEST TO ATTEND SUPER COMPUTER MEETING



To:            Mark Bayuk@USFCSBeijing@DoC
Cc:            Alan Turley@USFCSBeijing@DoC
               Constance Taube@USFCSHongKon@DoC
               David Katz@USFCSHongKon@DoC,Ira Kasoff@USFCSHongKon@DoC


BCC:
From:          N=MATTHEW BORMAN/C=US/A=ATTMAIL/P=GOV+COMM.BXA/O=BXA
Subject:       re: China update -Reply
Date:          Tuesday, January 13, 1998 22:25:41 CST
Attach:
Certify:       Y
Forwarded by:

Thanks for the information.

The itinerary I have for Hoyt has him arriving in Beijing on
Saturday, January 17 at 115p on China Southern Flight 309
(departs Hong Kong at 1020a).

For what its worth, I agree with you that it would not be
appropriate to bring the USCS representative to the meeting with
MOFTEC. USCS has no role in the issues you will discuss with
MOFTEC and his presence could make the meeting more complicated.

>>> Mark Bayuk   Jan 13, 1998  1:40 am >>>
Matt:

We are confirmed for MOFTEC at 2:00 pm on Monday for Liu Hu.
David Benher of US Customs( Steve Leacy knows him) just called
me and stated he heard about the BXA travelers at country team
today and wanted to come along to MOFTEC. I told him rather
flatly and abruptly, no.    He admits he has never met anyone
from the S&T Directorate before. I do not think this is a good
meeting time to introduce him. I have already sent the meeting
at MOFTEC and already said who is coming. He is not happy. I
said that I would arrange a meeting for him to meet you in the
Embassy on the 20 of January.

I have no information on what flight you are coming to Beijing
from Hong Kong. What is this information?  As BXA General
Counsel Hoyt Zia has at least the rank of an Assistant
Secreatary I can get an FCS vehicle (in this case a Minivan) to
meet your group of four at the airport and take you to your
hotel.

Mark

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