GERMAN PROPOSAL TO AMEND AUSTRALIA GROUP GUIDELINES

C O N F I D E N T I A L BERLIN 000892

SIPDIS

STATE FOR ISN/CB AND EUR
SIPDIS

E.O. 12958: DECL: 05/03/2017
TAGS: PARM CBW PREL ETTC GM
SUBJECT: GERMAN PROPOSAL TO AMEND AUSTRALIA GROUP GUIDELINES

Classified By: Global Affairs Counselor Donald R. Shemanski,
for reasons 1.4 (b) and (d).


1. (C) German MFA Export Control Division Deputy Chief Markus
Klinger passed the following two draft proposals and draft
annex to Global Affairs officer April 27. Klinger said the
German Government proposes to amend the Australia Group (AG)
Guidelines "to limit the risks of proliferation and terrorism
involving chemical and biological weapons by controlling
tangible and intangible transfers that could contribute to
CBW activities by states or non state actors." He said the
German Government will circulate the two proposals and an
accompanying "Best Practices" annex for controlling
intangible transfers of technology (ITT) via the Australia
Group Information System (AGIS). Germany's goal is for all
AG partners to review the proposals and annex, be prepared to
discuss them at the June 4-7 AG Plenary in Paris, and adopt
them at the Plenary. Klinger mentioned that the proposals
and annex being circulated to all MTCR partners, though
German-produced, were screened with the EU partners of the AG
first. Klinger said the German Government would welcome USG
input on the papers, but no later than May 10. Such a
deadline would allow Germany to incorporate any input into a
revised draft by May 15, which is the latest that any
proposals can be submitted for consideration at the Plenary.
If Germany receives no input from any partner by May 10, then
the drafts will stand as they are for discussion at the
Plenary, Klinger said.


2. (C/REL MTCR) Begin texts of English-language documents:

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Draft as of 19 April 2007
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AUSTRALIA GROUP


INTANGIBLE TECHNOLOGY TRANSFER


German Proposal to amend the "AG Guidelines"


The purpose of the AG Guidelines is to limit the risks of
proliferation and terrorism involving chemical and biological
weapons by controlling all transfers that could contribute to
CBW activities by states or non state actors.

The AG control lists provide for the control of intangible
transfers of technology (ITT). Technology is defined as
"specific information necessary for the development
production or use of a product" that may "take the form of
technical data or technical assistance". Export is defined
as an actual shipment or transmission of AG-controlled items
out of the country which includes transmission of technology
by electronic media, fax or telephone. Technical assistance
may take forms such as instruction, skills, training, working
knowledge, consulting services.

New export channels such as fax and e-mail, along with
increased mobility of labour, have made it increasingly easy
to transfer AG controlled technology. In the information
technology age the control of intangible technology transfers

has become a key challenge to export control and
non-proliferation.

To highlight the importance of AG controls on intangible
transfer of technology and reflect the fact that the AG
Control Lists already provide for ITT, Germany proposes that
the AG Guidelines be amended as follows (bold):


1. The purposes of these Guidelines is to limit the risks of
proliferation and terrorism involving chemical and biological
weapons by controlling tangible and intangible (previous
three words are bold) transfers that could contribute to CBW
activities by states or non state actors,....


--------------
Draft as of 19 April 2007
--------------

AUSTRALIA GROUP


INTANGIBLE TECHNOLOGY TRANSFERS


German Proposal
for
Best Practices to implement controls on intangible technology
transfers (ITT)

Export controls on intangible transfers of AG-controlled
technology are crucial to ensure the credibility and
effectiveness of AG export controls. New export channels
such as fax and e-mail, along with increased mobility of
labour, have made it increasingly easy to transfer
AG-controlled technology.

The issue of ITT was first raised in 1999. In 2002 the AG
amended the AG Control lists to accommodate ITT. This and
the various presentations made at the Joint Session
Information Exchange and Enforcement meeting 2006 revealed
that all AG members recognize the challenge of ITT and are
willing to address and solve the difficulties in designing
and enforcing controls.

The purpose of the attached proposal for "Best Practices" is
to provide guidance on how to implement effective national
controls on intangible transfers of technology. These Best
Practices consist of the following key elements:


I. Government controls on intangible transfers of technology


1. Electronic transfers of technology

2. Oral and manual transfers of technology

II. Self-auditing by industry, academics and individuals,
which requires on the part of governments


1. Awareness-raising and outreach programmes to educate
and involve industry and academia

2. Compliance visits to measure "best practices" and
compliance

III. Sanctions

To address the difficulty of devising practical means of
enforcing ITT controls, Germany has compiled the Best
Practices described in the Annex. These are based on the
discussion over the past couple of years in the AG and at the
2004 Berlin Export Control Seminar on Controls on Intangible
Technology Transfer as well as on Germany's own experience.

In the light of the above, Germany proposes the following
decision:

Participants agree on the Best Practice Guide described in
the Annex as a useful outline to implement ITT controls.
(previous sentence is in italics)


--------------
Annex
--------------

AUSTRALIA GROUP

Best practice Guide
for Implementing Controls
on Intangible Transfers of AG-Controlled Technology


Introduction

This document presents best practices on how to implement
effective controls on intangible transfers of AG-controlled
technology. The AG Control lists define technology as
"specific information necessary for the development,
production or use of a product" that may "take the form of
technical data or technical assistance". "Technical data"
may take forms such as blueprints, plans, diagrams, models,
formulae, tables, engineering designs and specifications
manuals and instructions written or recorded on other media
or devices such as disk, tape or read-only memories.

The AG control lists provide for two distinct situations in
which an intangible transfer can occur:

-- First, the transmission of AG-controlled technical data by
electronic media (e-mail, the Internet or an intranet etc.),
fax or telephone. In this case, the technology is fixed in a
tangible medium of expression (hardware such as (previous two
words are in italics) read-only memories, disks etc.) before
and after the transfer. It is the means of transfer that is
intangible.
-- Second, oral transfer of AG-controlled technology through
personal exchange or transfer of AG-controlled technology by
hand (manual transfer). Such technical assistance may take
forms such as instruction, skills, training, working
knowledge or consulting services. Here the technology itself
is intangible.


Implementation strategy

Successful implementation of controls on intangible transfers
of AG-controlled technology involves a three-pronged approach:


I. Government controls on intangible transfers

Government controls require specific strategies with regard
to:

1. intangible electronic transfers of AG-controlled
technology

2. oral and manual transfers of AG-controlled technology

II. Self-auditing by exporting industry, academics and
individuals

Self-auditing requires that control authorities conduct:

1. awareness-raising and outreach programmes to inform
and involve industry and academia

2. visits to measure "best practices" and compliance
with national export controls

III. Sanctions

Sanctions for export control violations require appropriate
provisions in criminal law as well as in administrative law.



I. Government controls on intangible transfers

Government controls on intangible transfers require clear
laws and regulations on the transmission of controlled
technology. To enforce controls, government authorities have
various instruments at their disposal prior to, during and
after the transfer. Different strategies are required for
electronic transfers of technology, on the one hand, and oral
and manual transfers of technology, on the other hand. In
both areas, difficulties in monitoring the transfer of such
know-how highlight the need for less emphasis on checking the
transfer itself and a shift towards more emphasis on
establishing self-auditing procedures in cooperation with
exporters.


1. Electronic transfers of technology (previous sentence is
underlined)

a) Export control laws and regulations
Exporters and control authorities must know what constitutes
an intangible electronic transfer of controlled technology,
which countries and what types of technology are subject to
controls, and what exceptions apply.

-- Definition of what constitutes an electronic transfer
Electronic means of transfer include telephone, fax, e-mail,
the Internet or an intranet.

-- Specification of the transmitting and the recipient country
Controls will focus on electronic transmission of controlled
technology to another country.

-- Specification of the controlled technology
Controls could cover transfers of
- AG-listed technology only, or
- AG-listed technology and non-listed technology in
cases where the exporter is aware that the latter items are
intended for use in connection with chemical or biological
weapons or that the latter items could contribute to CBW
activities or was informed by the national authority that the
latter items are or may be intended for such an end-use.

-- Exceptions to controls
In line with the AG control lists, laws should specify that
technology in the public domain as well as basic scientific
research or the minimum information necessary for patent
application are not subject to controls.

-- Ensuring coherency of laws and regulations
The overall design of the regulatory environment should
facilitate understanding and compliance on the part of
industry and academia. To this end, it would be useful to
maintain familiar licensing procedures and to widen the scope
of existing export controls. One way how electronic
transfers of controlled technology could be incorporated into
the existing regulatory framework is illustrated by the AG
definition of "export". The AG defines export as "an actual
shipment or transmission of AG-controlled items out of the
country. This includes transmission of technology by
electronic media, fax or telephone."

b) Enforcing export controls on electronic transfers
Control authorities have several methods at their disposal to
ensure efficient enforcement of controls on electronic
transfers.

-- Pre-transfer strategies
Control authorities should exchange information with other
countries on suspicious attempts to acquire dual-use chemical
or biological manufacturing facilities and equipment. If
national law permits, control authorities could monitor
specific entities to prevent illegal transfers of controlled
technology.

-- Post-transfer controls
By its very nature, the electronic transmission of software
and technology, e.g. by downloading data or sending faxes or
e-mails abroad, creates considerable scope for illegal
transfers. That is why external audits to ensure compliance
with export controls as well as criminal investigations to
uncover illicit transfers are so important.

- If all transfers that require licenses are
documented, this facilitates audits and criminal
investigations. Industry, academic institutions and
individuals should be obliged to keep certain records of
electronic transfers of controlled technology for an
appropriate time period (e.g. the last 3 years),in
accordance with national legislation and practices. Adapting
record-keeping requirements to the different types of
licenses reduces the administrative burden on companies and
institutions.

- Both external auditing and investigation authorities
require highly-trained and specialized staff to develop
auditing strategies and investigation techniques designed to
detect illegal electronic transfers of controlled technology.
Strong IT skills are required to audit and investigate
electronic transfers, e.g. by examining server protocols.

Other documents that may provide evidence of illegal
intangible transfers include:
- business documents,
- internal communication papers,
- financial transactions, and
- contacts with tangible information recipients prior
to and after the respective transfer.

Possible elements of a comprehensive criminal
investigation strategy include:
- examination of correspondence and telecommunications
based on a strong indication that an illegal act has been
committed; fundamental and legal rights must be respected in
this connection;
- search warrants and confiscation of items;
- observation;
- exchange of data among public authorities;
- interviews;
- monitoring of financial transactions.

c) Electronic transfers to foreign persons within national
borders
In addition, some method of regulating the electronic
transfer of controlled technology within national borders
should be considered, when the same transfer would require an
export license if exported to the country of which the
foreign person is a national.


2. Oral and manual transfers of technology
Personal exchange of AG-controlled technology via
instruction, skills, training, working knowledge and
consulting services as part of scientific or technical
cooperation does not necessarily involve tangible sources of
information.

a) Export control laws and regulations
Industry, academia and control authorities need to know what
constitutes an oral or manual transfer of controlled
technology, which transmitters and recipients and what types
of technology are subject to control, as well as what
exceptions apply.

-- Definition of what constitutes an oral or manual transfer
of technology
Oral and manual transfers of technology involve the personal
exchange of instruction, skills, training, working knowledge
and consulting services as part of scientific or technical
cooperation. Here the technology is intangible: Know-how is
carried in peoples' minds rather than in a tangible medium of
expression.


-- Specification of the transmitter and recipient
Controls on oral and manual transfers of technology may
cover, in a manner consistent with national laws and
practices, two distinct situations:

- a national goes abroad to provide know-how
(technology) to a foreigner and/or
- a person on national territory provides know-how
(technology) to a foreigner.

-- Specification of controlled technology
Controls may cover transfers of

- AG-listed technology only, or
- AG-listed technology and non-listed technology in
cases where the exporter is aware that the latter items are
intended for use in connection with chemical or biological
weapons or that the latter items could contribute to CBW
activities or was informed by the national authority that the
latter items are or may be intended for such an end-use.

-- Exceptions to controls
In addition, national laws and regulations should
specifically state what is excepted from controls on oral and
manual transfers of technology (e.g. technology in the public
domain, basic scientific research).

b) Enforcing export controls on oral and manual transfers

-- Pre-transfer strategies
Control authorities should exchange information with other
countries on suspicious attempts to acquire dual-use chemical
or biological manufacturing facilities and equipment. As to
oral transfers of controlled technology (not information in
the public domain or basic scientific research) on national
territory, the screening of visas may be a useful instrument
for preventing proliferation.

- Countries may seek to use existing visa screening
procedures to prevent proliferation. One objective could be
to establish whether there is any link between specific visa
applications and certain sensitive CBW activities. Special
care could be taken when screening visa applications from
graduate students and scientists in sensitive disciplines.
Visa-issuing authorities could require comprehensive
information from applicants and apply a risk profile based on
nationality (countries with programmes of concern) or
possible links to CBW-related business and industry.

- Authorities could be encouraged to exchange
information on, and obtained through, current visa screening
practices (trends, suspect persons and institutions, etc.).

--Controls on transfers as such, post-transfer controls
Whenever oral or manual transfers of controlled technology do
not involve tangible sources of information, enforcing
controls on the transfer as such and post-transfer monitoring
becomes difficult. However, oral or manual transfers of
controlled technology will often go hand in hand with
tangible exports of controlled technology. Scientists,
designers, engineers and other persons involved will take
tangible sources of technology abroad to back up the transfer
of personal know-how.

Due to the nature of electronic, oral and manual transfers of
technology, there are no border controls to prevent the
transfer of information itself. The strategies for
government controls outlined above therefore highlight the
need for the collaboration of the export industry, academics
and individuals. There should be less emphasis on policing
and checking the actual transfer and a shift towards more
emphasis on building confidence and establishing
self-auditing procedures in cooperation with exporters.

II. Self-auditing by industry, academia and individuals

Consequently, the second key element to successful
implementation of controls on intangible transfers of
AG-controlled technology is self-auditing by industry,
academia and individuals. On the part of control
authorities, this requires (1.) awareness-raising and
outreach programmes to inform and involve industry and
academia, and (2.) visits to measure "best practices" and
compliance with export controls.

1. Awareness-raising and outreach
programmes to inform and involve industry and academia
(previous sentence is underlined)

Awareness-raising and outreach programmes for industry and
academia are particularly important for preventing illicit
electronic, oral and manual transfers of controlled
technology (Footnote 1).

-- As a first step, industry and academia should be informed
about the new controls. One way would be to send out
newsletters, leaflets or bulletins to relevant target groups.
Internet postings, regulatory manuals, articles in relevant
journals, publications and seminars can also promote
awareness and help industry and academia to comply with the
regulations on intangible transfers. The success of these
measures depends on the accurate targeting of industry,
academic institutions and individuals in possession of the
relevant technology. Experience suggests that the target
group for electronic and oral transfers is broad: it includes
engineers, designers and individual scientists -- all of whom
arguably did not need to be aware of export controls in the
past. Awareness-raising campaigns should take into account,
moreover, the different awareness levels and information
needs of industry and academia. While companies will to some
extent be familiar with export controls on transfers of
technology, research facilities are only rarely aware of
their responsibility to prevent proliferation and terrorism
involving chemical and biological weapons.

-- By providing expertise and advice to industry and academic
institutions on how to design and implement internal
compliance programmes, governments can help reduce the burden
on their export control authorities. In most cases,
companies and academic institutions also have an interest in
ensuring that sensitive items are not inadvertently supplied
for use in CBW activities -- not to mention industry's
proprietary interest in denying sensitive information to
competitors. The work of export control officers in industry
and academic institutions is crucial in providing target
groups with easy access to all relevant information and
advice on intangible transfers.


2. Conducting visits to measure "best practices" and
compliance (previous sentence is underlined)

Regular auditing of internal compliance programmes by export
control authorities helps to promote "best practices" and to
measure compliance with controls on electronic, oral and
manual transfers of controlled technology. Entities should
be required to demonstrate the effectiveness of their
internal compliance programmes.

To do so, entities should:
- be familiar with export control legislation and
precisely classify all the listed items they deal with;
- have a system in place to ensure that all staff are
aware of the export control issue and adhere to the required
procedure for making a transfer of controlled technology;
- assign clear responsibilities for export controls
(preferably involving senior staff) and
- have a system in place to ensure that licenses cover
all relevant transfers of technology.

Export control authorities' awareness-raising and training
efforts should focus on entities that are found to be
significantly lacking in compliance.

III. Sanctions

The third key element to successful implementation of
controls on intangible transfers is the credible threat of
sanctions for non-compliance. For such controls to be
effective, violations must be investigated and prosecuted.
To do so, control authorities must be prepared to invest the
necessary resources.

Different types of sanctions provide appropriate incentives
for compliance with controls on intangible transfers:

Criminal law should target individuals and entities that
make, or aid and abet anyone in making, illicit transfers of
technology. Criminal sanctions should comprise prison
sentences and fines for individual offenders, as well as
fines for companies and other entities.

At administrative level export control authorities may
additionally
- require the exporter to take all necessary actions to
ensure future compliance (e.g. establish an effective internal
compliance programme) and/or
- deny export licenses to non-complying exporters.

Footnote 1: See "Australia Group Awareness-Raising Guide"

End texts of English-language documents.
KOENIG