DUTCH VIEWS ON ADC LICENSE HARMONIZATION

1. (U) This message is sensitive but unclassified. Please
protect accordingly.



2. (SBU) On May 7 econoff received the GONL response to
reftel non-paper. The response came in the form of a letter
to AS Wolf from Dirk Bruinsma, DG of Foreign Economic
Relations of the Ministry of Economic Affairs. Text of the
letter follows in para 4.



3. (SBU) Bruinsma,s letter restates the Netherlands,
desire to reach an understanding with the U.S. on controlling
the export of high-speed 14-bit ADCs to China (10th para) and
comments favorably on most of the conditions suggested by the
U.S. for inclusion in such an understanding (fifth para).
The letter takes issue, however, with the idea of
differential conditions for fully- and non-fully-PRC-owned
manufacturers (sixth and seventh paras), and suggests that a
flat non-reexport clause would be preferable to identifying
specific countries for such a prohibition (eighth and ninth
paras).



4. (SBU) BEGIN TEXT.
The U.S. Embassy in The Hague presented me on April 14th 2004
a non-paper titled &U.S. VIEWS ON ADC LICENSE HARMONIZATION
UNDERSTANDING8. In reply I would like to give the following
reaction.
Let me first assure you that the Netherlands export control
authorities are equally pleased to work closely with their
U.S. colleagues on a wide range of issues. Be it issues of
mutual concern, of common interest or both. This applies to
our efforts within the framework of the Wassenaar Arrangement
as well as to our work on issues that might be more
fruitfully approached and dealt with on a bilateral basis.
As to the conditions that could be attached to supplies of
high speed 14 bit ADCs to manufacturers of telecommunications
equipment in China, we have been studying whether it would be
reasonable and feasible to impose robust and yet viable parts
control plans on the recipients of such supplies.
Both the U.S. and the Netherlands have come to the conclusion
that withholding high speed 14 bit ADCs from the Chinese
efforts to create a 3rd generation mobile telecommunication
infrastructure is neither a desirable nor ) considering the
pace of development in this area ) a credible option.
Therefore, our common focus is not to prevent foreign
supplies, but to limit the risk of diversion of supplied ADCs
from manufacturers of telecommunications equipment to
military applications.
In this respect we have appreciated a previous U.S.
non-paper, provided to us in the wake of the visit of U.S.
officials last October, that described the kind of elements
of parts control plans that could be envisaged to deal with
such a risk. We equally appreciate the opportunity to
include the ) in part ) additional conditions presented in
the current non-paper in our studies. Especially the
proposed conditions a,, b,, c,, d,, f,, g,,
and i, will be taken into account in our assessment.
The U.S. proposal to seek only an understanding to apply
these or similar conditions to supplies to
non-wholly-PRC-owned enterprises does not meet our support.
In the Netherlands view such an understanding would have to
cover the conditions attached to supplies of high speed 14
bit ADCs to any and all manufacturers of telecommunications
equipment in China. Either a parts control plan limits the
risk of diversion to a sufficient degree or it does not.
A distinction between State owned or partially private or
even partially foreign owned manufacturers hardly provides
for additional assurances or safeguards but could at the same
time very well limit the Chinese ADC market for foreign
supplies to the extent that competition is unreasonably
impeded.
As to the proposed conditions e, and h, of the current
non-paper, it is our view that the concerns we might have
over possible diversion of ADCs within China or elsewhere
will most likely be more effectively alleviated by a
straightforward non-re-export-clause than by including
elaborate conditions to possible re-export.
The Chinese efforts to create a 3rd generation mobile
telecommunication infrastructure to cover the whole or at
least the most relevant part of the PRC is destined to drive
the production capacity of existing Chinese manufacturers of
telecommunications equipment to the limit. Therefore, a more
strict non-re-export-clause attached to foreign supplies
should not present a problem for any of the current license
applications.
Finally, the Netherlands export control authorities, once the
appropriate conditions to be fulfilled by Chinese recipients
of significant quantities of high speed 14 bit ADCs have been
identified and declared applicable, are interested to come to
some sort of bilateral license harmonization understanding
with the U.S.
An exchange of letters at the appropriate level, describing
the conditions decided upon as well as identifying the
consignees and end-users that have declared to abide by these
conditions, would in my view be adequate to structure and
ensure such a harmonization of policy. This exchange of
letters should of course also constitute an understanding
that any changes in our respective policies towards this
particular concern would have to be communicated to each
other well in advance of being applied.
END TEXT.
SOBEL