BILATERAL NONPROLIFERATION DIALOGUE: SMALL GROUP

S E C R E T BEIJING 005360 E.O. 12958: DECL: 08/15/2027 TAGS: PARM PREL ETTC MTCR CH SUBJECT: BILATERAL NONPROLIFERATION DIALOGUE: SMALL GROUP DISCUSSION OF A WAY FORWARD ON NONPROLIFERATION SANCTIONS Classified By: Political Minister Counselor Aubrey Carlson. Reasons 1.4 (B) and (D). ¶1. (S) Summary: In a small group meeting concluding bilateral nonproliferation talks August 13, ISN PDAS McNerney outlined a U.S. proposal to work cooperatively to end proliferation by specific sanctioned Chinese companies with a view toward eventually removing sanctions on companies that demonstrate a sustained commitment to nonproliferation. To this end, McNerney conveyed the U.S. desire to begin a dialogue with China North Industries Corporation (NORINCO) to establish whether it can serve as a model company for other Chinese companies to follow. MFA Arms Control and Disarmament Department Director General Zhang Yan responded positively to the U.S. proposal and encouraged the United States to also begin a dialogue with China Great Wall Industries Corporation (CGWIC),which McNerney agreed would be productive. Zhang pledged to press NORINCO and CGWIC to work constructively with the USG. End Summary. ¶2. (S) Principal Deputy Assistant Secretary of State for International Security and Nonproliferation Patricia McNerney met August 13 with MFA Arms Control and Disarmament Director General Zhang Yan in a small group at the conclusion of bilateral U.S.-China Nonproliferation meetings (septels) to discuss developing a cooperative mechanism for enhancing U.S.-China nonproliferation engagement. Drawing from the interagency-approved strategy on ending Chinese proliferation, McNerney expressed U.S. desire to create an incentive structure for Chinese companies currently under U.S. sanctions to work with the USG with a view toward ending their proliferation activities and ultimately removing existing sanctions. She highlighted that sanctioned Chinese companies can choose to take the "good path" of ending proliferation and establishing an internal compliance program (ICP) to prevent future proliferation. The benefits of taking this path, she explained, could be public recognition by the USG of the company's efforts, waiving of U.S. sanctions as appropriate, and enhanced international recognition leading to normalized business relations with the United States and globally. On the other hand, the McNerney continued, Chinese companies can also continue on a "bad path" that would lead to continued U.S. sanctions and public stigma. ¶3. (S) As part of this proposal, McNerney indicated that the USG would like to use the China North Industries Corporation (NORINCO) as a test case. She stated that the USG would like to invite senior NORINCO officials to Washington to start a dialogue that would address NORINCO's business model and strategic plan, its ICP process, the nature of existing business with Iran and other countries of concern, and efforts taken in relation to UN Security Council resolutions. The invitation would be extended exclusively to NORINCO's senior corporate officials, who would be asked to be unaccompanied by advisors from the University of Georgia or the China Arms Control and Disarmament Agency. The ultimate goal of this engagement, she explained, would be to ensure strong nonproliferation credentials by large Chinese companies currently under nonproliferation sanctions, and to remove current sanctions on such companies. This effort, she said, would meet common U.S. and PRC nonproliferation objectives. ¶4. (S) In parallel, PDAS McNerney suggested that the U.S. and Chinese governments develop a framework for enhanced cooperation and transparency. She indicated that the USG would prepare for China a nonpaper outlining such cooperation, including enhanced transparency of enforcement measures by China and strengthened EXBS and other government-to-government cooperation aimed at enhancing enforcement actions. That nonpaper could serve as the basis for reaching agreement on a framework for enhanced cooperation between the two governments. ¶5. (S) DG Zhang responded enthusiastically to the U.S. proposal, characterizing it as encouraging, constructive and innovative. He stated that the PRC has been working with large Chinese companies under U.S. sanctions, such as NORINCO and China Great Wall Industries Corporation (CGWIC),to improve their performance and to put in place internal mechanisms to prevent proliferation. According to Zhang, these companies have made tremendous efforts in this area, have learned important lessons from past proliferation activities, and would not engage in problematic transactions in the future. As such, he urged the USG to begin engaging with both companies, which McNerney agreed would be a good approach. Zhang further believed that USG engagement with these companies, the possibility of the removal of sanctions, and the prospect of U.S. business opportunities would create incentives for the companies to terminate business with Iran and/or North Korea. This would create positive results for other companies to follow, Zhang said. He also proposed that the United States could attach conditions in the event that these companies re-engage in proliferation activities. He pledged to press the companies to engage constructively with the USG and to be transparent and forthcoming. Lastly, Zhang expressed his belief that positive engagement between the USG and NORINCO and CGWIC, and possibly additional entities, would strengthen the hand of the MFA in nonproliferation vis-a-vis other PRC agencies on the issue of stopping arms trade with Iran and North Korea. ¶6. (U) PDAS McNerney cleared this cable. RANDT NNNN End Cable Text