EXPORT CONTROL BILATERAL TALKS BETWEEN GERMANY AND

C O N F I D E N T I A L BERLIN 000219

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DOC FOR BIS A/S CPADILLA/MDIPAULA-COYLE
STATE FOR PM/DDTC AND EUR/AGS

E.O. 12958: DECL: 02/02/2017
TAGS: ETTC EINV GM
SUBJECT: EXPORT CONTROL BILATERAL TALKS BETWEEN GERMANY AND
DOC ASSISTANT SECRETARY PADILLA

REF: 06 PARIS 7705

Classified By: Minister-Counselor for Economic Affairs Robert F. Cekuta
, for reasons 1.4 (b) and (d).


1. (C) Summary: Assistant Secretary of Commerce for Industry
and Security Christopher Padilla met a range of German export
control officials and industry representatives December 1,
2006, to discuss export control issues. Assistant Secretary
Padilla and his German interlocutors discussed 1) the U.S.
Government's proposed China licensing policy rule, 2)
implementing the UNSCR 1718 sanctions on North Korea, 3)
establishing a working-level dialogue regarding thermal
imaging and night vision technology, and 4) concerns over the
diversion of dual-use commodities through the UAE,
particularly Dubai. The Germans made mostly positive
comments about the U.S. proposals and suggestions. End
Summary.

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Meeting at the Ministry of Foreign Affairs
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2. (C) Assistant Secretary Padilla first met German MFA
officials Michael Witter, Deputy Director General for
Economic Affairs, Goetz Lingenthal, Office Director of the
Export Control Division for Dual-Use Goods, and Jan Freigang,
Desk Officer in the Export Control Division for Conventional
Arms. A/S Padilla began by noting in December 2003 the 33
members of the Wassenaar Arrangement (WA) agreed on a
Statement of Understanding (SOU) that requires member
countries to take appropriate measures to ensure a government
authorization is required for exports of non-listed, dual-use
items for military end uses in destinations that are subject
to a binding United Nations Security Council (UNSC) arms
embargo or any relevant regional or national arms embargo.
The USG is drafting two regulations to implement this SOU:
one specifically for China, and one for all the other
countries subject to arms embargoes. In both regulations,
the Department of Commerce will require a license for
otherwise uncontrolled goods and technologies when the
exporter knows that the export has a military end use.


3. (C) The Commerce Department decided to implement a
separate regulation toward China (published in proposed form
in July 2006 and to be finalized in early 2007) to address
better the unique U.S.-China bilateral economic and political
relationship. It has been long-standing U.S. policy, A/S
Padilla noted, to encourage legitimate civilian
high-technology trade with China while restricting exports
that could contribute to the country's military
modernization. The proposed China rule both addresses U.S.
commitments under the 2003 Wassenaar Arrangement SOU and
further clarifies this long-standing U.S. policy.
Importantly, the proposed rule does not impose a broad
military "catch all" on exports to China. Rather, A/S
Padilla pointed out, it will impose new licensing
requirements on 47 specific items and technologies that could
be incorporated into Chinese weapons systems. (Note: A/S
Padilla shared the list with Witter. End note.) Assistant
Secretary Padilla urged the German Government to work with

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the USG to ensure that the Chinese military could not obtain
such systems from other Wassenaar countries, as it is the
USG's view that the export of these technologies and their
incorporation into weapons systems undermines the EU arms
embargo. He urged Germany implement similar controls as part
of its WA commitments.


4. (C) Assistant Secretary Padilla said the China regulations
would also include a new authorization for validated end
users (VEU),or trusted customers. This authorization would
allow the export without a license of certain controlled
items to specified, pre-vetted end users. The trusted
customer concept could greatly facilitate civilian commercial
trade with PRC end-users who have an established record of
engaging only in civil end-use activities. The Department of
Commerce and other relevant agencies will evaluate
prospective validated end users on a range of factors,
including history of compliance with U.S. export controls and
agreement to periodic visits by USG officials.


5. (C) Commerce hopes to include a list of initial candidates
that could be eligible for VEU status when the regulation is

published in early 2007. The VEU concept has the potential
to remove from the licensing system several hundred routine
licenses to China, worth hundreds of millions of dollars. If
successful, the program could be expanded to other countries.


6. (C) Assistant Secretary Padilla then noted that the second
regulation will implement a military end-use control to other
countries against which the U.S. maintains arms embargoes.
These countries include Afghanistan, Belarus, Myanmar, Cote
d'Ivoire, Cuba, Haiti, Iran, Liberia, Libya, North Korea,
Somalia, Syria, Vietnam, and Zimbabwe. The Assistant
Secretary noted that this regulation will apply to all items

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included on the Commerce Control List and that the regulation
would be published in interim final form later in 2006. The
USG will report on this regulation at the meeting of the
Wassenaar Arrangement the following week.


7. (C) Witter noted Germany favors increased transparency
concerning military denials in the WA and hopes to see
progress in this regard in 2007, which is an assessment year,
despite previous Russian obstructions. Witter said the
German Government agrees with the USG concerning arms exports
to China. He stated Germany applies stricter standards for
embargoing items of military use to China than the EU
regulations provide. Concerning dual-use items, Witter said
the German Government scrutinizes export applications on a
case-by-case basis to ensure no German-origin items that
could be used militarily are sent to China. Witter supported
the idea of presenting the military catch-all provision to
the WA. He said that any changes to the arms embargo on
China must be made in collaboration with WA partners. In the
end, though, Germany will follow EU regulations on dual-use
items. As for other WA issues, Witter said that Germany
favors increased transparency concerning military denials,
partly because Russia held other issues hostage over military
denials.


8. (C) Turning to North Korea, A/S Padilla noted that on
November 13 the USG submitted its report on implementation of
UNSCR 1718, which calls for sanction on North Korea because
of its test of a nuclear device. This report included the
list luxury items that the USG was banning for export to
North Korea. The U.S. list does not include food items or
those used by ordinary North Koreans, as President Bush has
made it clear that the U.S. would not use food as a weapon.
Instead, the U.S. list included items used by Kim Jong-il and
items he uses to award elites for their loyalty. For
example, the motor scooters that many North Koreans use for
transportation are not on the U.S. list, while
Harley-Davidson motorcycles, too expensive for all but the
most politically well-connected, are. The USG does not want
the UN to debate a common list of luxury items, since such a
process would be time-consuming and would provide an excuse
to delay UNSCR 1718 implementation on more important
provisions concerning the export of armaments, dual-use
items, and other service items to North Korea.


9. (C) Witter said that the European Commission was close to
reaching consensus on the list of luxury goods that EU
members would ban from exporting to North Korea. He
recommended that all parties to UNSCR 1718 should keep their
lists of banned luxury goods informal. Otherwise legalistic
wrangling over harmonizing the different lists could delay
the process and perhaps prevent a finalized list from being
realized.


10. (C) Assistant Secretary Padilla then turned to the issue
of thermal imaging cameras, the controls on which are
particularly important given the variety of military and
potential terrorist uses. Thermal imaging cameras provide
significant advantage in the areas of targeting,
surveillance, and force mobility, and Commerce issues more
licenses for thermal imaging cameras than for any other item.
Civilian uses, however, for thermal imaging cameras have
grown considerably and are now used for such civil end-uses
as search and rescue, firefighting, and maintaining high
voltage lines.


11. (C) The EU countries combined imported the highest number
of U.S.-origin thermal imaging cameras, accounting for
approximately 65 percent of all export applications.
Assistant Secretary Padilla noted some concerns over the
export of certain cameras from EU countries, citing

British-origin sensitive night-vision equipment that had been
recovered from Hizballah fighters during the recent war in
Lebanon. Not all thermal imaging cameras are equally
capable, and major exporting countries should coordinate to
decide which low-end cameras should not require export
controls and which high-end ones should have stricter
controls.


12. (C) Assistant Secretary Padilla proposed a working-level
dialogue among U.S., French, British, German, and Swedish
experts to focus on sharing best practices and other
information related to the licensing and enforcement of
exports of thermal imaging cameras. The dialogue could
specifically address licensing conditions, controls on the
most capable items, concerns related to specific end users,
transshipment concerns, and enforcement actions that relate
to EU entities. Assistant Secretary Padilla proposed
organizing the first meeting in Europe during the first half
of 2007.


13. (C) Witter said Germany has very strict export controls
based on the technical specifications of thermal imaging
cameras. He said low-end thermal imaging systems are not
listed, while high-end systems are either on military lists
or dual-use lists. Witter stated the German Government is
open to discussion on revising the technical standards for
controls. He also said his government was willing to work
with Israel to determine the source of some thermal imaging
equipment that had been used by Hizballah against Israel.


14. (C) Turning to illicit diversion, A/S Padilla briefed
Witter on USG concerns about the diversion and proliferation
of dual-use items transitting the United Arab Emirates (UAE).
The UAE lacks an export control system but is a key regional
transshipment hub. The USG has found evidence of diversion
of goods controlled by multilateral regimes routinely
diverted from Dubai to Syria or Iran. UNSCR 1540 obligates
all member states to criminalize WMD proliferation and to
establish effective export controls and strong enforcement
measures. In its December 2004 report on UNSCR 1540
implementation, the UAE Government (UAEG) committed to
enacting an umbrella export control law in the "very near
future." The USG has worked with the UAEG since 2001 on
capacity building, but the UAEG has not made progress on
establishing an export control system. It has said for over
a year that its draft law has been delayed in the
legislature. If the UAE makes no progress by January or
February 2007, the USG may impose more restrictive licensing
on the UAE. Assistant Secretary Padilla said it would be
useful for the German Government to influence the UAEG
concerning the latter's failure to pass an export control
law, consistent with UNSCR 1540, 1696, and 1718.


15. (C) According to Witter, the German Government shares the
USG analysis that the UAE, particularly Dubai, is a
transshipment hub for goods for Iran. Although he said he
understood the USG's growing impatience with the UAE, he
counseled against taking stronger action. He said
confrontation with the UAE would be counterproductive and
that Germany favors giving the UAE more chances to develop
better export controls and to implement them. He cited an EU
pilot export control outreach program with the UAE being run
by the German Federal Economic and Export Licensing Agency
(BAFA). He urged the USG to give more time to the UAE to
improve its export control record, although he was uncertain
about how much influence Abu Dhabi could exert on Dubai.
Lingenthal cited a bilateral meeting in Dubai the previous
week between German export control officials and UAE
counterparts as evidence that at least the higher working
levels of the UAEG are interested in export controls and
cooperation. Like Witter, Lingenthal counseled supporting
the progress that the UAE has made concerning export
controls.

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Meeting with Federal Export Economic and Licensing Agency
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16. (C) Assistant Secretary Padilla's second meeting was with
BAFA President Bernhard Heitzer and Juliane Willmann-Lemcke,
Deputy Office Director of BAFA's Press and Public Relations
Division. Padilla briefed Heitzer on USG concerns regarding
illicit diversion through the UAE, implementation of UNSCR

1718, and on the proposed night vision dialogue. During the
meeting, Heitzer discussed BAFA's outreach programs on behalf
of the EU with Serbia, Montenegro, Croatia, and the UAE.
Heitzer mentioned that Dubai posed more of a challenge for
the EU export control outreach program than the other
Emirates. According to him, Dubai lacks a coordinated system
of export control, and not all of its export control
officials are equally interested in the issue.
Willmann-Lemecke added that the UAE in general, however,
seemed enthusiastic about BAFA's training programs, with some
officials saying that they would like to create a BAFA
equivalent.


17. (C) Regarding UNSCR 1718, Heitzer said Germany will not
apply sanctions on the DPRK unilaterally, but will follow EU
regulations to implement UNSCR 1718 once they are issued. He
agreed that it would be counterproductive for the UNSC to
negotiate a harmonized list of luxury goods to be sanctioned.
Concerning thermal imaging equipment, he said that it would
be advisable for BAFA experts to forge a consensus with
counterparts from at least four like-minded WA partners
before raising the issue in a WA plenary. Heitzer said that
the thermal imaging equipment that ended up with Hizballah
was lower-end technology.

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Meeting with German Industry Representatives
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18. (C) Assistant Secretary Padilla next discussed the future
of export controls with members of the Federation of German
Industries (BDI). The BDI members responded favorably to the
idea of a "trusted customer" approach to licensing, in which
end users with a good record would not need to have so much
scrutiny applied to them on license applications. The BDI
members discussed export control lists at length,
recommending that lists of proliferation-related entities
should be harmonized within international organizations, such
as the OECD or NATO.

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Meeting with the Economic Ministry
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19. (C) Assistant Secretary Padilla's last meeting was with
officials from the Federal Ministry of Economics and
Technology (BMWi): Guenther Sproegel, Office Director of the
International Export Control Regimes, Christof Wegner of the
Export Control of Conventional Military Equipment Division,
and Dirk Berg of the Export Control of Dual-Use Goods for
Conventional Military Equipment Division. Padilla briefed
them on the proposed China policy rule, implementation of
UNSCR 1718, the proposal for a night vision technical
dialogue, and diversion concerns for the UAE.


20. (C) Wegner said except for France EU member states had
little interest in discussing the end of the arms embargo on
China. According to him, the German Government prefers the
status quo, versus lifting the arms embargo or expanding it.
Wegner said the EU only declared an embargo on lethal weapons
or lethal delivery systems; otherwise, each EU member state
decides what to license. Wegner noted Germany subjects all
military goods for China to licensing. Sproegel added that
if the USG ever has information some dual-use technology
could be applied to weapons, it should share it with the
German Government. The German Government could then
disseminate the information or list the technology, because
some German exporters may not recognize the military use
otherwise. Berg noted BAFA carefully screens all license
applications to export civil aviation-related goods to China.
Even though Chinese firms participate in Airbus A-350
production, and therefore receive aircraft commodities from
Germany, BAFA will deny licenses if it determines that the
goods in question have a military use. Sproegel and Berg
both said that BAFA consults the German Federal Intelligence
Service (BND) in such cases.


21. (C) Sproegel agreed it would be counterproductive to try
to have the UNSC harmonize the different lists of luxury
goods subject to sanctioning under UNSCR 1718. Sproegel said
Germany exports almost nothing to North Korea, except for
some food items. Even before passage of UNSCR 1718, the
German Government reviewed only three license applications in

2006 to export dual-use chemicals to the DPRK. The German
Government denied licenses in all three cases, according to
Sproegel.


22. (C) Sproegel also acknowledged the challenges Germany
faces in conducting export control outreach in the UAE.
Sproegel said the German Government delivered a message to
Abu Dhabi the week before, that if the UAE Government did not
make tangible progress in producing an adequate export
control system, then the UAE will not receive any sensitive
technology from Germany in the medium term. What Germany
expects from the UAE is the establishment of a licensing
authority and some way to determine and investigate end
users, according to Sproegel. He also said that because the
German Government recognizes that the UAE is a transshipment
point for sensitive technology to Iran, BAFA is very cautious
about approving licenses for listed goods to the UAE.
Germany's goal is to prevent the export of any
military-listed goods to Iran. Sproegel suggested the USG
and German Government work together in Abu Dhabi to help the
government there develop the appropriate export controls.


23. (C) Berg said some German firms complain about the WA
controls on thermal imaging equipment. He suggested that
lower-end infrared equipment need not be so tightly
controlled and that technical experts from WA partners should
discuss the parameters of what should be controlled.


24. (C) Sproegel raised Proliferation Security Initiative
(PSI) issues with A/S Padilla. Sproegel noted, for instance,
that PSI partners have different standards of jurisdiction
when it comes to halting exports. He said PSI partners need
to formulate interception clauses or else modify laws and
suggested that the USG help those who need it. He also said
some partners are unwilling to stop shipments once under way
because of concerns that the exporter will demand
compensation. Sproegel identified the lack of compensation
provisions as a challenge for PSI partners. He also said the
German Government is concerned about shipments of non-listed
items that are still sensitive in nature to undesirable end
users. He asked whether PSI covers those scenarios.
Sproegel ended by advocating that Germany and the United
States and other like-minded partners collaborate more
closely in all international export control regimes.


25. (U) This message has been coordinated with BIS Assistant
Secretary Padilla.

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TIMKEN JR