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.
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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