EXCLUSIVE: U.S. to tighten export rules on 5 firms in China

EXCLUSIVE:

The U.S. government is taking steps to suspend a program that allows five companies in China to obtain sensitive U.S. technology without an export license, according to documents and interviews.

The move is driven by concerns that existing safeguards are inadequate to keep Beijing from gaining access to strategic military equipment.

The Commerce Department’s Bureau of Industry and Security recently drafted a new regulation, obtained by The Washington Times, that would suspend the so-called Validated End-User program. Since October 2007, the program has granted “trusted status” to select companies doing business in China.

The program allowed the companies to obtain dual-use technologies without the formal security checks required for an export license. Congressional investigators recently raised concerns that the program lacked safeguards, and that the Beijing government is refusing to allow U.S. officials to conduct full inspections at Chinese facilities to see whether companies are diverting U.S. high technology to the military.

A Commerce Department official, who spoke on the condition of anonymity because of ongoing diplomatic negotiations, told The Times that the Bush administration plans to suspend the program unless it can impose safeguards before it leaves office next month.

“This program will either be fixed or ended before Jan. 20,” the official said, adding that a decision will be made “in days, not weeks.”

China could avoid a suspension of the program by agreeing to U.S. demands for on-site inspections. The official said, however, that it does not appear likely that Beijing will make concessions before the Bush administration leaves office.

Chinese Embassy spokesman Wang Baodong did not address the end-user issue directly, but said China generally favors looser export controls in the interest of expanding trade cooperation with the United States.

“We believe that the U.S. releasing controls on exports to China conforms with the common interests of the two sides, particularly against the backdrop of the deepening and extending international financial crisis and the slowdown of the world economy,” Mr. Wang said in an e-mail.

The draft order states that the five companies are not to blame for the planned suspension. In fact, U.S. intelligence and security agencies approved the five companies’ participation in the end-user program last year, the Commerce Department official said.

Critics of the program, however, have raised concerns that two of the five companies involved have links to the Chinese military or to other companies that in the past were identified as involved in illicit technology acquisition and arms proliferation.

Government officials close to the dispute said China is refusing to permit on-site inspections by U.S. security officials, viewing it as an infringement of sovereignty. Chinese officials also oppose new on-site inspections because they would undermine Beijing’s effort to force the easing of all U.S. export restrictions, the sources said.

Additionally, China’s government was angered by new export control restrictions imposed last summer on the sale to China of U.S.-made dual-use goods, such as inertial navigation and underwater propulsion technology.

The Commerce Department official said concerns over China’s military buildup and aggressive efforts to obtain U.S. technology for its military prompted a review of the program. “The last thing we want is a program that is not fully backed [with security checks],” the official said.

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