AUSTRALIA GROUP'S OUTREACH TO CHINA ON

S E C R E T SECTION 01 OF 03 BEIJING 002614

SIPDIS

DEPT FOR ISN/CB, EAP

E.O. 12958: DECL: 06/26/2033
TAGS: PARM KSTC PREL PGOV ETTC ETTRD BEXP CH
SUBJECT: AUSTRALIA GROUP'S OUTREACH TO CHINA ON
NONPROLIFERATION

Classified By: Acting Political Section Chief Ben Moeling. Reasons 1.4
(b/d.

Summary
--------------


1. (S) In a June 25 meeting with Australia Group (AG) Chair
Ian Biggs, PRC MFA Deputy Director General for Arms Control
Li Song objected to news that an AG representative would be
dispatched to Taiwan "shortly" as part of the AG's outreach
program. Biggs said that China should not be surprised by
this as an AG representative visited Taiwan following the
2006 outreach meeting between China and the AG. Biggs told
Li he would relay China's objections regarding Taiwan to the
AG Plenary. Li stated that China fully supports
nonproliferation regimes such as the AG, Missile Technology
Control Regime (MTCR) and the Nuclear Suppliers Group (NSG),
and is fully compliant with the standards set by these
international groups. Li reiterated China's support for the
AG and similar regimes, and looked forward to continued
dialogues and exchanges with the AG. One MFA official noted
that China had recently levied a monetary fine on a company
found to have illegally produced and exported glass line
equipment to Iran. End Summary

AG Outreach to Taiwan
--------------


2. (C) Poloff was invited to attend a June 25 outreach
meeting between the AG Chairman and Chinese Government
representatives. Biggs provided Li with an update on the
outcome of the AG's 2008 plenary meeting and told Li that the
AG would send a representative to Taiwan following the
plenary meeting. Li expressed surprise and said he
understood AG membership to be open to states and outreach
conducted to state actors exclusively. Taiwan is an
extremely sensitive topic to China, continued Li, and China
hopes that the AG's actions in sending a representative to
Taiwan "will not have a negative impact on relations between
the AG and China." China is confident, said Li, that it can
implement international standards on nonproliferation for all
of China, including Taiwan. He emphasized that the AG should
not talk to a local office (meaning Taiwan) without first
consulting the Central Government. Li said he "did not like"
the practice of the AG sending a representative to Taiwan and
that the AG should be more careful in dealing with such
sensitive issues. In a sarcastic tone, Li said that he hoped
that there were no more surprise announcements by the AG
Chair.


3. (S) Apparently caught off-guard by Li's strong statements,
Biggs responded that Taiwan is a large chemical producer and
that the AG's decision to send a representative to Taiwan is
not intended to make a political statement but is merely a
means of sharing information. Though the AG does not conduct
outreach with any other non-state actors, the exchange with
Taiwan is on a different level than other outreach programs
aimed at states. Biggs said that he was surprised at Li's
reaction because, in the name of transparency, China was
informed by the then-AG Chair that a representative would be
sent to Taiwan immediately following its outreach meeting
with China in 2006. Biggs told Li that he would share
China's concerns about Taiwan with the AG Plenary.

China's Compliance with International Standards
-------------- --


4. (S) Li stressed the high degree of importance that China
places on preventing the proliferation of WMD, adding that
China views proliferation as a strategic issue which affects
international and national peace, security and social
development. China has a clear policy to oppose any form of
proliferation and not to assist any country seeking to
proliferate or acquire WMD, Li added. China has improved its
efforts to prevent proliferation and has promulgated specific
laws and regulations on export controls. China continues to
commit greater resources to its efforts to deal with changing
technologies and markets and seeks out opportunities to work
with other countries. To demonstrate China's commitment on
nonproliferation, Li pointed out the 2004 China-European
Union Joint Declaration on Arms Control, China's application
for admission into the Missile Technology Control Regime and
its involvement with the Nuclear Suppliers Group. Li
highlighted the importance of such exchanges to China and
expressed his hope for continued cooperation and further
development of these relationships. Li also proposed that

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the AG and China co-chair seminars or forums on
nonproliferation in the future.


5. (S) Yang provided examples of China's statutory
nonproliferation updates, such as the January 2006 statutory
update on dual-use items, the July 2006 update of the
national control list and November 2006 addition of nuclear
and dual-use items to the national control list based on NSG
criteria. Yang added that in August 2006, authority over all
unlisted items was transferred to the provincial level to
allow greater efficiency and flexibility. Recently, said
Yang, an interagency team on export controls, consisting of
officials from MFA, Ministry of Commerce (MOFCOM),Customs
and other Chinese organizations, was formed to rapidly
respond to emergency situations involving proliferation
concerns. Yang added that the team has the ability, on very
short notice, to stop a shipment from leaving China. The
team responds mostly to leads based on intelligence gathered
and is statutorily required to adjudicate the issue within 45
days.


6. (S) MOFCOM Deputy Director Sun Jian said MOFCOM has
responsibility for regulating the export of all categories of
dual-use items and is responsible for the issuance of all
export licenses in China. For conventional arms, approval is
required from the newly formed Bureau for National Defense
Technology before MOFCOM can issue the license. For chemical
exports, the Chemical Weapons Convention (CWC) of the
National Development Reform Commission (NRDC) is the
approving authority for the export of 54 chemical items,
while MOFCOM retains authority over 10 chemical items.
MOFCOM generally issues export licenses for the one time
export of specific items, but also issues general and bulk
licenses on a case-by-case basis, Sun stated. Moreover,
MOFCOM issues exemptions where no export licenses are needed,
for example in the case of commercial jet engines. In
issuing export licenses, MOFCOM also incorporates a
"catch-all" provision as well as China's new regulations on
intangible technology transfers. In 2007, Sun summarized,
MOFCOM issued approximately 12,000 export licenses.
Approximately 10 percent, or 1,200, were chemical exports,
mostly consisting of sodium sulfide used in leather tanning.
Approximately 0.4 percent, or 48 licenses, were biological
exports focusing mainly on freeze drying equipment.


7. (S) Zhao Yinong from the CWC Office of the NDRC said that
all chemical producers are required to have in place an
Internal Control Program (ICP) before his office issues a
chemical producer's license. The ICP, once in place, must be
reviewed every five years and the control list used in the
ICP is updated every two years. At a minimum, the ICP must
include the following: 1) a leader or responsible party, 2)
review of procurement orders, 3) records of customer orders,
and 4) internal training. Currently, Zhao offered, 60
percent of all chemical producers and 80 percent of all
chemical exporters have in place an ICP program. Several
major producers have implemented comprehensive ICP programs
which include a CWC office and ICP branch offices at each
location, Zhao said.


8. (S) Zhou Yahan from China General Administration of
Customs (Customs) outlined China's enforcement efforts.
Customs has 50,000 national and local officers who are
responsible for 245 ports of entry within China. Zhou
stressed that Customs is an independent organization with no
outside reporting responsibilities. Throughout China,
Customs operates four chemical exam centers, 55 container
examination machines, 193 vehicle identification devices, 568
electronic strobes, 808 container identification devices, and
652 x-ray machines. Customs works closely with MOFCOM in
enforcement efforts and in keeping their national control
list up to date, Zhou said.

Enforcement Action
--------------


9. (S) When asked by Poloff regarding recent enforcement
actions, Li deferred to Yang. Yang said that China recently
levied penalties in an export enforcement case. Yang said
that a "company" (Note: MFA officials confirmed on 27 June
that this case referred to Zibo Chemet) was found to have
illegally produced and exported glass lined equipment to
Iran. The information was provided to China in 2006 by a
"friendly nation" and investigations began thereafter. In
December 2007, MOFCOM, after determining that the company's
Iran-related export activities were in violation of China's

BEIJING 00002614 003 OF 003


export laws, fined the company approximately RMB 45,000 (USD
6,569)(the Chinese participants were unsure of the exact
amount of the fine). Li and Zhou added that Customs is still
investigating to see if anti-smuggling charges apply. When
asked by Poloff if criminal punishments might apply, Li and
Zhou replied that criminal punishment is a possibility.


10. (U) Participants:

AUSTRALIA
-- Ian Biggs, Chair of Australia Group and Assistant
Secretary, Australian Ministry of Foreign Affairs and Trade
-- Nick Purtell, Second Secretary, Australian Embassy
-- Murray Edwards, Counsellor, Australian Embassy

UNITED STATES
-- William Oh, Second Secretary, Embassy Beijing

CHINA
-- Li Song, Deputy Director General, Department of Arms
Control and Disarmament, MFA
-- Yang Yi, Deputy Director, Department of Arms Control and
Disarmament, MFA
-- Jiang Bo, Attache, Department of Arms Control and
Disarmament, MFA
-- Sun Jian, Deputy Director, Ministry of Commerce
-- Zhao Yinong, National Implementation Office for CWC,
National Development Reform Commission
-- Zhou Yahan, General Administration of Customs

RANDT