1. (U) This is an action request. Please see paragraph 2.



2. (C) ACTION REQUEST: Department requests Embassy
Paris provide the interagency cleared paper
"U.S. Paper on Dual Use Machine Tool Exports" in paragraph 3
below to the French Missile Technology Control Regime (MTCR)
Point of Contact(POC) for distribution to all Partners.
Department also requests Embassy The Hague provide paper to
the Licensing and Enforcement Experts Meeting (LEEM) Co-Chair
Klaas Leenman, and Embassy Canberra provide paper to the
Australian MTCR Plenary Chair for 2008/2009 and/or
appropriate staff. Info addressees also may provide to host
government officials as appropriate. In delivering paper,
posts should indicate that the U.S. is sharing this paper as
part of our preparation for the LEEM that will be held in
conjunction with the MTCR Plenary in Canberra (November 3-7).
END NOTE.




3. (U) BEGIN TEXT OF PAPER:

U.S. Paper on Dual Use Machine Tool Exports

Background

The export of machine tools has drawn increased attention
from the international non-proliferation community due to
their diverse set of applications in the production and
manufacture of nuclear weapon components as well as
components used in conventional weapons and missiles. MTCR
controls focus on those machine tools that have an
application in missile production such as spin-forming and
flow-forming machines or filament winding machines. Other
traditional machine tools such as those for cutting and
grinding have an application in the production of certain
missile components but are also associated with the
production of nuclear weapons and conventional arms. Some of
these general purpose machine tools, which also have multiple
industrial uses, are controlled by the Wassenaar Arrangement
(WA) and Nuclear Suppliers Group (NSG), while some low-end
machines are not controlled at all.

Machine tools present a unique non-proliferation challenge in
that they are extremely common items required for a variety
of industrial applications completely unrelated to the
manufacture of missile systems. The U.S. uses "catch-all"
controls to effectively address this issue; the U.S. imposes
"catch-all" export controls based on the end-use or end-user
of an item or technology, instead of basing controls on the
capabilities of the equipment or technology regardless of its
intended use or user. Therefore, the U.S. "catch-all"
controls can prohibit an export of a machine tool destined to
a missile project of concern whether it is a WA or NSG
controlled item or even if it is not listed on any of the
multilateral regime control lists.


Technical Overview

Machine tools are important for a number of manufacturing
processes. There are a wide variety of machine tools
available but the basic operational characteristics include
(1) turning, (2) milling, (3) grinding, and (4) cutting,
generally of metal in the fabrication of very precise parts
and components.

Turning machines (lathes) are used in the fabrication of
parts commonly used in nuclear and missile programs as well
as commercial aircraft engine production. The parts being
manufactured rotate during the machining process, while the
cutter is usually held stationary. This produces mostly
cylindrical parts.

Milling machines (or machining centers) are used to fabricate
parts and components that are not cylindrical. Multi-axis
milling machines can move simultaneously around the part
being manufactured producing complex shapes. This includes
the 5-axis milling machines that are commonly used to
fabricate the most complex components for nuclear weapons,
missiles, and some conventional weapons, as well as common
components for the automotive industry and similar industrial
applications.

Grinding machines remove material from flat and contoured
surfaces using an abrasive wheel. These machines are used to
machine very hard metals and where high-quality surface
finishes are required. This category also includes jig
grinders and cutter grinders that have a small precision
grinding tool.

The above machine tools vary greatly in size, weight and
accuracy. A large facility may not be necessary to utilize
machine tools; facilities such as average size machine shops
used by the automotive industry to fabricate parts would be
sufficient to operate most machine tools.

Licensing and Controls

Machine tools that present a function in the manufacture of
missiles systems, such as filament winding machines and spin-
or flow-forming machines are controlled for missile
technology (MT) reasons and require a license for export. In
addition to the production and manufacture of conventional
arms, nuclear weapons, and usefulness in missile programs,
machines tools are also utilized in many segments of
manufacturing throughout the world. However, many common
machine tools are widely utilized in a plethora of
industries; from the transportation industry to the
manufacture of household appliances, but also may require a
license for export.

This is illustrated by the array of licenses for machine
tools. In the past 5 years, the Department of Commerce's
Bureau of Industry and Security (BIS) has approved 831
licenses, rejected 6 and returned without action 92 license
applications for machine tools that are controlled for
national security or nuclear proliferation reasons but not
for missile technology. Of the denials, 3 were rejected due
to risk of diversion to an unreliable end user or risk of
diversion to a proliferation program of concern. During FY
2007 BIS approved 193 licenses for "machine tools and any
combination thereof, for removing (or cutting) metals,
ceramics or composites." These particular machine tools are
controlled by the NSG for nuclear proliferation (NP) reasons
only. Of the 193 licenses, 94 were destined for Mexico for
use in manufacturing diesel engines, air conditioning units,
air wheel and brake components for aircraft, water heaters
and automotive parts. One of the 193 applications was denied
because of a direct and
significant contribution to power projection, air superiority
and military capabilities and risk of diversion to programs
of concern, including missile programs.

The above denials occurred because in the United States
machine tools that are controlled by either the WA or NSG can
also be reviewed for missile proliferation reasons and even
denied for missile proliferation reasons by utilizing the
Enhanced Proliferation Control Initiative (EPCI) cross-over
provision in section 742.5 of the Export Administration
Regulations.

For example, if an item controlled for NP reasons will be
used in a missile program of concern or by a missile
end-user, then the license application must meet the
licensing criteria of both the nuclear and missile
regulations located in the Export Administration Regulations
for approval. In addition, machine tools that are not
controlled by any regime are still subject to the U.S. and
MTCR catch-all provisions.

The U.S. also maintains catch-all controls for
proliferation-based end-uses and end-users in order to stem
the proliferation of Weapons of Mass Destruction WMD and
their delivery systems. Licensing requirements are imposed
on the export and re-export of any goods and technologies
when the exporter "knows," has "reason to know," or "is
informed" by the U.S. Government that the goods or
technologies will be used in connection with proscribed WMD
activities such as nuclear explosive activities, missile
development activities, or chemical/biological weapons
activities.

Conclusion:

Although machine tools have use in many industries, it is
important to consider the potential missile-related uses of
machine tools during the risk assessment in licensing
process. Machine tools are precisely the kind of dual-use
equipment that proliferators are eager to acquire. Partners
must use their "catch-all" or other national regulatory
approaches to have the ability to review exports of non-MTCR
controlled machine tools to prevent them from being diverted
to missile end-uses of concern. This is most critical for
the more sophisticated machines controlled by the NSG and the
WA, but also for those machines that fall outside of control
parameters.

END TEXT OF PAPER.



4. (U) Please slug any reporting on this or other MTCR
issues for ISN/MTR. A word version of this document will be
posted at www.state.sgov.gov/demarche.
RICE