EXPORT CONTROL BILATS BETWEEN SWEDEN AND DOC

C O N F I D E N T I A L STOCKHOLM 000077

SIPDIS

DOC FOR BIS A/S CPADILLA/MDIPAUL-COYLE
DEPT FOR PM/DDTC
SIPDIS

E.O. 12958: DECL: 01/23/2017
TAGS: ETRD ETTC EINV KSTC SW
SUBJECT: EXPORT CONTROL BILATS BETWEEN SWEDEN AND DOC
ASSISTANTSECRETARY CHRISTOPHER PADILLA

Classified by Keith Curtis for Reasons 1.4 (d)
and (e).



1. (C) Summary: On December 7, Assistant Secretary of Commerce for
Export Administration Christopher Padilla met with a Swedish
interagency group to discuss a variety of export control and
strategic trade issues. The two sides addressed the U.S.
Government's proposed China licensing policy rule, a proposal to
establish a working-level group to discuss controls regarding night
vision technology, concerns over illicit diversion through the United
Arab Emirates, and implementation of United Nations Security Council
Resolution 1718. End Summary.

Export Controls and China


2. (C) Padilla began by noting that, in December 2003, the 33
members of the Wassenaar Arrangement agreed upon a statement of
Understanding (SOU) that requires member countries to take
appropriate measures to ensure that 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 for countries subject to arms embargoes, and
one specifically for China. In both regulations, the DOC 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 first regulation will implement a military end-use
control to 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. Padilla noted that this regulation
will apply to all items listed on the Commerce Control List, and that
the Regulation will be published in interim final form later in 2006.
The USG reported on this regulation at the meeting of the Wassenaar
Arrangement in December 2006.


4. (C) The second Regulation would be focused only towards China.
Padilla explained that the Commerce Department decided to implement a
separate regulation towards China to better address the unique
U.S.-China bilateral economic and political relationship. It has
been longstanding U.S. policy 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, it is a "catch some" that
will impost new licensing requirements on 47 specific items and
technologies that could be incorporated into Chinese weapons systems.
Padilla urged the GOS to work with 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 the GOS to implement similar controls
as part of its Wassenaar Arrangement commitments. He noted that he
had traveled to Paris and Berlin and would be traveling to London, to
urge other EU governments to implement similar controls.


5. (SBU) Padilla then explained that the China regulation would also
include a new authorization for validated end users (VEU),or trusted
customers. This authorization would allow the export of certain
controlled items to specified, pre-vetted end-users, without a
license. The trusted customer concept could greatly facilitate
civilian commercial trade with PRC end-users that have an established
record of engaging only in civil end-use activities. The DOC 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.


6. (SBU) 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 take
out of the licensing system several hundred routine licenses to China
worth hundreds of millions of dollars. If successful, this program
could be expanded to other countries.


7. (C) Richard Ekwall, Director of Export Controls, the Ministry of
Foreign Affairs, replied that Sweden had helped push the WA SOU in
2003 and has a catch-all policy in place. Sweden has an embargo on
China, and treats dual-use items destined for military end use as a
military item. Swedish exporters must come forward to the government
and ask whether they can make an export to a military end user before
a license is formally submitted. The Swedish Inspectorate of
Strategic Products then takes a formal decision on whether the export

should be controlled and will notify the exporters. Swedish
exporters generally do not request licenses for exports to the
Chinese military because they know that they will be denied.


8. (C) Padilla noted that his appeared to be an informal approach,
and not a list-based procedure, which Ekwall confirmed. When
pressed, Ekwall confirmed that the Swedish government had no plans to
publish official regulations or rules codifying this catch-all.
Padilla urged the GOS to take a more formal approach, and voiced USG
concerns that the EU will implement the WA SOU differently from the
United States. Responding to a question from Ekwall, Padilla
explained that while he did not expect the new China rule to have a
significant impact on U.S. exports to China, U.S. industry was
extremely concerned with the compliance and liability burdens of the
rule, and the potential loss of market share to European competitors.


9. (SBU) Turning to other issues, Ekwall noted that the Wassenaar
Arrangement had been very successful this year, particularly the
passage of best practices in Intangible Technology Transfer. He
believed that Wassenaar was becoming a more mature organization,
noting that delegates are far more prepared now for Plenary sessions
than in the past. He is confident that there will be good groundwork
for the upcoming assessment year, despite the continuing differences
over transparency and denial consultations.

Thermal Imaging Cameras


10. (SBU) A/S Padilla turned to the issue of thermal imaging
cameras, controls of which are particularly important given their
variety and their military and potential terrorist uses. Thermal
imaging cameras provide significant advantage in the areas of
targeting, surveillance, and force mobility, and DOC issued more
licenses for thermal imaging cameras than any other product.
However, civilian uses for thermal imaging cameras have grown
considerably and are now used for such civil-end-uses as search and
rescue and firefighting.


11. (C) The EU was the largest importer of U.S.-origin thermal
imaging cameras, accounting for approximately 65 percent of all
export applications. Padilla noted some concerns over the export of
certain cameras from the EU, citing British-origin sensitive
night-vision equipment that had been recovered from Hezbollah
fighters during the war in Lebanon. Not all thermal imaging cameras
were equally sensitive, and major exporting countries should
coordinate to decide which low-end cameras did not require export
controls, and which high-end ones should have stricter controls.


12. (C) Padilla proposed a working level dialogue among U.S.,
French, British, German, and Swedish experts focused 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
sensitive items, concerns related to specific end-users,
transshipment concerns, and enforcement actions. Padilla proposed
organizing the first meeting in Europe during the first half of 2007,
and noted that both the French and German governments had already
agreed.


13. (C) Ekwall agreed with the proposal, stating that it could be
"useful." He did caution that if a handful of EU countries got
together to discuss this issue, other countries in the Wassenaar
Arrangement could feel excluded. Padilla agreed, but countered that
it would still be useful to discuss perspectives outside the
Wassenaar arrangement, for example end users of concern.
Nonetheless, Padilla agreed that we should be very sensitive to these
concerns. Ekwall agreed and Padilla promised to follow up with a
formal proposal.

United Arab Emirates - Port of Diversion


14. (C) Turning to illicit diversion, Padilla briefed the Swedish
group on USG concerns about the diversion and proliferation of dual
use items transiting the United Arab Emirates (UAE). The UAE lacks
an export control system and is a key regional transshipment hub.
The USG has found evidence of diversion of goods controlled by the
multilateral regimes routinely diverted from Dubai to Syria and Iran.
He cited the case of Mayrow General Trading, which had acquired
electronic components and devices capable of being used to construct
improvise explosive devices (IEDS) that are being used against
coalition forces in Iraq and Afghanistan. The USG has worked with
the UAEG since 2001 on capacity building, but the UAEG has not made
progress on passing an export control law, despite repeated promises.
It has asserted for more than a year that its draft law is delayed
in its legislature. If the UAE makes no progress in the next month
or two, the USG may impose more restrictive licensing on the UAE. It
would be useful for the GOS to weigh in with the UAEG over the
latter's failure to pass an export control law, consistent with

United Nations Security Council Resolutions 1540, 1696, and 1718.


15. (C) Ekwall responded that Sweden also had serious concerns
about diversion through the UAE and is working with the EU to help
UAE improve its export controls. Germany is leading the EU efforts,
and in ongoing technical visits and exchanges, the EU has discovered
that the UAE has virtually no controls or laws on sensitive items.


16. (C) Padilla noted that he had discussed this issue with his
German counterparts, who believe that federal authorities in Abu
Dhabi understand the importance of having an export control system,
but the ruler of Dubai seems strongly opposed. Padilla had suggested
that the Germans send a high-level message to the UAE about these
concerns. Germany officials in the Ministry of Foreign Affairs said
that the State Secretary would be traveling to UAE and would deliver
this message. Padilla urged Sweden to also deliver a high-level
message in the very near future.


17. (C) Ekwall promised to pass along this request to the relevant
levels of government, but noted that the EU should continue in its
capacity building exchange. While Padilla agreed that this was
important, he stressed that the USG has been conducting such
exchanges for over three years and has lost patience. The USG now
views these requests for technical assistance as an excuse to delay.

Sanctions on North Korean Luxury Goods


18. (SBU) Turning to North Korea, Padilla noted that on November
13, the USG submitted its report to implementation of UNSCR 1718.
This report included the list of 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 US would not use food as a weapon.
Contrarily, the U.S. list included items used by Kim Jong-Il and
those he used to award elites for their loyalty. For example, motor
scooters that many North Koreans used for transportation are not on
the U.S. List, while Harley Davidson motor cycles, 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 goods 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, and other service items to North
Korea.


19. (SBU) Ekwall agreed, and noted that it was taking the EU quite
some time to come up with its own list. Doing so in the UN would
also be time consuming and would take away from the more important
elements of the resolution.

Participants

United States Government:

Christopher Padilla, Assistant Secretary of Commerce for Export
Administration
Michael DiPaula-Coyle, Policy Advisor
Keith M. Curtis, Senior Commercial Officer
Tuula Javanainen, Commercial Specialist
Government of Sweden:

Richard Eckwall
Andreas Ekman, Director General, Swedish Inspectorate of Strategic
Prodcuts
Egon Svensson, Engineering Director, Swedish Inspectorate of
Strategic Products
Jamal Alassaad, Desk Officer, Americas Department, Ministry of
Foreign Affairs


24. (U) Assistant Secretary Padilla cleared this cable.

WOOD