EXTRANCHECK: POST SHIPMENT VERIFICATION:

UNCLAS HONG KONG 000082

SIPDIS

USDOC FOR 532/OEA/LHINES/DFARROW
USDOC FOR 3132 FOR FCS/OIO REGIONAL DIRECTOR WILLIAM
ZARIT
BICE FOR OFFICE OF STRATEGIC INVESTIGATIONS

BEIJING FOR FCS JEANETTE CHU

SIPDIS

E.O. 12958: N/A
TAGS: BMGT BEXP HK ETRD ETTC
SUBJECT: EXTRANCHECK: POST SHIPMENT VERIFICATION:
ETERNAL INTERNATIONAL

REF: A) USDOC 06269 B) HK 00038

1.Unauthorized disclosure of the information provided
below is prohibited by Section 12C of the Export
Administration Act.


2. As per reftel A request and at the direction of the
Office of Enforcement Analysis (OEA) of the USDOC
Bureau of Industry and Security (BIS),Export Control
Officer Philip Ankel (ECO) and Commercial Assistant
Sandy Lai conducted a post shipment verification (PSV)
at Eternal International (HK) Limited (Eternal HK),
Unit 2706, Metropole Square, 2 On Yiu Street, Hong
Kong. The items in question are 200 Neophotonics PCB
base assemblies, classified under Export Control
Classification Number (ECCN) 4A001 and most likely
controlled for national security (NS) reasons. If
properly classified, these items would most likely not
require a license for export to Hong Kong but would
require a license for export or reexport to mainland
China. It is possible that these items are controlled
for missile technology (MT) reasons and would then
require a license to both Hong Kong and mainland China.
The exporter is Electromax Inc. of San Jose,
California.


3. The ECO and Commercial Assistant visited Eternal HK
at the address referenced above on December 19, 2006
and met with Ms. Denise Leung, Customer Service Manager
responsible for this shipment. Ms. Leung was open and
forthcoming during the interview. She provided
background on Eternal HK and its business, which
involves the provision of a logistics and freight
forwarding services. It is the Hong Kong branch office
of Eternal Asia (www.eternalasia.com),a large mainland
China based supply chain management and logistics
company. The offices of Eternal HK are located in a
larger office building and contain a series of cubicles
for customer service representatives. The address
provided in reftel A (Unit 3, First Floor, Topsail
Plaza, 11 On Sum Street, Hong Kong) corresponds to
Eternal HK's warehouse space directly across the street
from the offices of Eternal HK. Eternal HK has been in
existence since 2000 while Eternal Asia was established
in 1997.


4. Ms. Leung stated that with respect to the shipment
in question, Eternal HK accepted the shipment of the
200 base assemblies on September 21, 2006 and
subsequently reshipped those items to Photon Technology
Co., Ltd. in Shenzhen on September 23, 2006 (Photon
Shenzhen). According to the Photon Shenzhen web site
(www.photontec. com),the Shenzhen Photon facility is
an affiliate of Neophotonics, Inc. of San Jose,
California (more information at www.neophotonics.com).
Ms. Leung stated that Photon Shenzhen may itself use
the items or resell them to other buyers in the
mainland. Coincidentally, the ECO and Commercial
Assistant conducted a PSV at another, unrelated,
company, involving Photon Shenzhen (see reftel B).


5. Ms. Leung provided the ECO with the relevant
shipping documents in respect of those shipments into
the mainland. Those documents reflect that Eternal HK
is the seller and Eternal Supply Chain Management Ltd.
in mainland China is the buyer of the applicable items.
Eternal Asia markets itself as providing inventory
management services. The sale price reflected in the
transaction documents between Eternal HK and Eternal
Supply Chain Management Ltd. reflects a significant
markup over the sum paid to Electronomax Inc. (the U.S.
exporter). In particular, the total invoice price for
the Electromax to Eternal HK transaction is USD 62,907
while Eternal HK apparently sold the same items to
Eternal Supply Chain Management Ltd. for USD 81,529.



6. When asked by the ECO whether Eternal HK was
familiar with U.S. export control regulations, Ms.
Leung said it was not. Ms. Leung stated that, in
certain cases where it knew of the controlled nature of
items under Hong Kong law, Eternal HK would apply for
applicable Hong Kong import and export control
licenses. She cited cases involving Cisco items for
which Eternal HK obtained Hong Kong Trade and Industry


Department (TID) licenses when it was informed that
such licenses were necessary. In other instances,
Eternal HK looks up the brand name and model number and
compares it against a list of controlled technologies
on the TID website to determine whether a license is
required. Where, as in this case, parts and components
are involved, Eternal HK does not apply for TID
licenses unless it is informed that such a license is
required. Ms. Leung stated that Eternal HK does not
have contact with exporters and that all customer
relationships are handled by Eternal HK's parent
company in the mainland.


7. The ECO stressed to Ms. Leung that the reexport of
the items was subject to U.S. export control
regulations and later provided additional BIS guidance
on obligations of reexporters as well as a link to the
BIS website so that Eternal could become more aware of
U.S. export control rules.


8. At the time visited, Eternal HK did not appear to
be a suitable recipient of the controlled items (as
logistics provider) since it is unfamiliar with U.S.
export controls and exercises only limited controls on
reexports of controlled commodities. Consistent with
BIS guidance on the classification of checks where the
check reveals a cause for concern about the suitability
of the parties involved, the ECO recommends that this
PSV be classified as Unfavorable.

Cunningham