SOLICITING UAEG SUPPORT TO ENGAGE CHINA ON

S E C R E T STATE 099002

SIPDIS

E.O. 12958: DECL: 09/16/2033
TAGS: ECON EFIN KNNP PARM PTER IR PINR
SUBJECT: SOLICITING UAEG SUPPORT TO ENGAGE CHINA ON
PROLIFERATION-RELATED TRADE WITH IRAN

Classified By: ISN Patricia A. McNerney for
reasons 1.4 (b) and (d).


1. (U) This is an action request. Please see paragraph 4.

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SUMMARY/BACKGROUND
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2. (S) Getting China to aggressively implement United Nations
Security Council resolutions as well as more effectively
enforce its own export controls regarding transfers of
dual-use and military items to Iran is an essential component
of our overall diplomatic strategy to thwart Iran's pursuit
of nuclear weapons and delivery systems for weapons of mass
destruction. We are therefore approaching key countries to
enlist their cooperation in convincing Beijing to stop
Chinese entities from selling commodities used in Iran's
weapons programs or munitions that could be retransferred by
Iran to terrorists or insurgents in the Middle East and
Afghanistan. Post is instructed to present the enclosed
nonpaper outlining our concerns, to ascertain to what degree
host governments share our assessment, and to request they
approach China on proliferation concerns.


3. (S) Shipments of proliferation concern from China and
Iran, some originating in North Korea, regularly transit
through the Straits of Malacca, and call in UAE for services
or transshipping of cargo. Often the U.S. requests the UAEG
to take action to detain and inspect cargo based upon
U.S.-supplied information indicating an Iranian end user
designated under applicable UN Security Council Resolution.
While the UAEG has been willing to take appropriate action,
but it then faces the problem of the disposition of seized
items. In some cases, China has been reluctant to recall
such shipments, despite requests to do so and U.S. attempts
to facilitate their return. We expect the UAE may be willing
to engage in a dialogue with Beijing on shipments of concern,
but will expect the U.S. to support their case with China.

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OBJECTIVE/ACTION REQUEST
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4. (S/REL UAE) Washington requests Posts deliver the
non-paper in paragraph four to appropriate host government
officials in the ministry of foreign affairs. Post should
pursue the following objectives:

-- Approach host government officials to enlist their
cooperation in convincing Beijing to stop Chinese entities
from selling commodities used in Iran's nuclear and missile
programs or munitions that could be retransferred by Iran to
terrorists and insurgents in the Middle East and Afghanistan;

-- Present the nonpaper in paragraph four outlining our
concerns, ascertain to what degree they share our assessment,
and request they approach China with our concerns on these
proliferation issues;

-- Note that such interventions with Beijing should highlight
the concern of the international community that China needs
to do more to counter the international security threat
presented by Iran;

-- Request that in raising their concerns with China, they
should highlight the importance of Beijing setting a good
example as a responsible international stakeholder on
nonproliferation issues;

-- Note that perceptions that Beijing has become a supporter
or defender of Iran, a country widely viewed as a sponsor of
terrorism and one that refuses to address international
concerns over its nuclear programs, could ultimately damage
China's reputation.

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NONPAPER FOR UAE
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5. (SECRET//REL UAE) BEGIN POINTS:

-- We are sharing information with a number of key allies to
develop a concerted diplomatic approach to China to (1)
persuade China to enforce its export control laws more
effectively and to aggressively implement relevant UNSCRs to
prevent transfers and transshipment of items to Iran's
nuclear and ballistic missile programs or of conventional
arms to Iran; (2) obtain an agreement from China to
thoroughly verify the bona fides of Iranian end users; (3)
persuade China to conduct an inventory of those arms already
transferred to Iran to determine the extent of diversion and
prevent future diversions; and (4) obtain China's agreement
to strictly enforce end-use requirements placed on Iran in
order to prevent onward transfers of conventional arms to
militants in Iraq and Afghanistan.

-- Over the past several years, the U.S. has made repeated
approaches to Beijing at all levels regarding transfers by
Chinese entities of weapons-related items to Iran, as well as
transshipments of concern via Chinese sea ports.

-- We are particularly concerned that Iran has in turn
supplied weapons purchased from China to militants fighting
against U.S. and Coalition forces in Iraq and Afghanistan.

-- While China's nonproliferation record has improved in some
areas, certain state-owned Chinese entities and private firms
continue to export or transship key items and/or dual-use
technology needed to develop weapons of mass destruction or
their means of delivery, as well as conventional weapons to
Iran.

-- Chinese companies continue to deal with companies that are
fronts for entities designated under UNSCRs 1737, 1747, and
1803, which require Member States to "ensure that any funds,
financial assets or economic resources are prevented from
being made available by their nationals or by any persons or
entities within their territories, to or for the benefit of"
persons and entities designated in these sanctions. Any
transaction involving UNSCR-designated entities or those
acting on their behalf would likely be contrary to the asset
freeze provision.

-- Chinese companies continue to transfer items to Iran,
regardless of end-user, that are prohibited pursuant to
UNSCRs 1737, 1747 and 1803 due to their possible use in
Iran's nuclear or delivery vehicle programs. UNSCRs 1737 and
1803 also establish a requirement on states to prevent the
transfer, directly or indirectly from their territories or by
their nationals, to or for the benefit of Iran, of sensitive
nuclear and missile-related items (including Nuclear
Suppliers Group (NSG) and Missile Technology Control Regime
(MTCR)-controlled items).

-- China has insisted that exports of non-listed, dual-use
goods are outside the scope of UNSCRs 1737, 1747, and 1803
and has adopted a narrow interpretation of the asset freeze
requirement that does not extend to freezing commodity
shipments owned or controlled by UNSC-designated entities or
those acting on their behalf.

-- When confronted with U.S. evidence that Iran provided
Chinese-origin arms to militants in Iraq and Afghanistan,
Beijing has asserted that it takes U.S. concerns seriously,
but that it is winding down arms sales to Iran and respects
Iran's end user guarantees. It has also insisted on physical
inspection of seized weapons before accepting U.S.
allegations that the weapons are of Chinese origin and were
retransferred by Iran.

-- U.S. pressure does seem to have achieved some concrete
results: Chinese arms sales to Iran dropped from roughly $45
million in 2006 to roughly $14 million in 2007. Given the
lingering and potential threat to our Coalition troops, we
want to maintain the pressure on China.

-- We also believe it is necessary to urge China to
investigate and take steps to prevent Chinese companies from
engaging in deceptive financial practices. To that end, we
also urge your government to be vigilant to possible
proliferation-related financial activities between China and
Iran by entities under your jurisdiction.

-- We would be interested to learn whether your own
intelligence assessments of China's dealings with Iran
supports our experience and to what extent your government
shares our concerns.

-- We ask that your government approach China on these
proliferation issues and highlight the concern of the
international community that Beijing needs to do more to
counter the international security threat presented by Iran.

-- To counter Chinese insistence that it is following the
"letter of the law" with regard to UNSCRs, we have attempted
to drive home to Chinese officials that if China comes to be
perceived within the U.S as a supporter or defender of Iran,
a country widely viewed as a sponsor of terrorism and one
that refuses to address international concerns over its
nuclear programs, that this could ultimately damage China's
reputation and its bilateral relationship with the United
States. To the extent that your government shares this
perspective, it might be effective in your own approach to
China, we recommend this line of argument.

-- Moreover, engagement with China should highlight the
importance of Beijing setting a good example as a responsible
international stakeholder and actor on nonproliferation
issues in general.

-- The following two case studies provide concrete examples
of objectionable transactions by Chinese entities and
evidence of the Chinese government's apparent reluctance to
take appropriate steps to prevent such behavior.

-- We are sharing these cases with you as background and hope
to start a dialogue between our governments on this issue.
We therefore ask that you do not share these specific cases
with your Chinese interlocutors in your engagement.


A. Iraq

-- Our military forces in Iraq have captured a number of
new-condition Chinese produced small arms from Shia militants
in Iraq. These weapons have been found together with
newly-produced Iranian military materiel.

-- Our forces have also recovered one expended missile from a
2002-vintage Iranian Misagh-1 man-portable air defense system
(MANPADS) that was fired at a Boeing 747 civilian airliner
over Baghdad in August 2004. Based on U.S. examination of
the Misagh-1, we have concluded that it is based on the
Chinese QW-1 MANPADS and is assembled in Iran using a mix of
Chinese and Iranian parts. In addition, we recently
recovered two Chinese-origin QW-1 MANPADS that Iran had
transferred to Iraqi insurgents.

-- We have also recovered in Iraq since mid-2006 hundreds of
newly-produced Iranian PG-7-AT1 rocket-propelled grenades
that contain Chinese-made base detonators manufactured as
recently as 2004. Iraqi Shia militants repeatedly have fired
these grenades at Coalition forces.


B. Missile Technology

-- In recent years, Chinese firms have offered and sold a
range of raw materials and components, some of which are
controlled under the Missile Technology Control Regime
(MTCR),to Iran's ballistic missile programs. Iran is using
technologies from China to develop and produce various
short-range and medium-range ballistic missiles.

-- For example, the Chinese entity Dalian Sunny Industries
(a.k.a. LIMMT Metallurgy and Minerals Co. and LIMMT Economic
and Trade Organization) has provided both
MTCR/UNSCR-controlled and other goods to an Iranian missile
entity.

-- From February to April 2007, Shahid Bakeri Industrial
Group (SBIG),Iran's solid-propellant ballistic missile
organization which is designated in UNSCR 1737, negotiated
the purchase of graphite and tungsten materials.

-- SBIG continued to negotiate transfers of tungsten-copper
alloy plates, tungsten powder, and graphite from LIMMT in
mid-May to mid-June 2007.

-- LIMMT was to send shipments of graphite and
tungsten-copper in August 2007 to SBIG. Deutsche Bank AG,
Frankfurt, acted as an intermediary bank in this transaction.

-- LIMMT's financial transactions with SBIG are often
denominated in Euros and therefore are probably facilitated
by a European bank. Any transaction conducted on behalf of
LIMMT with SBIG through a European bank constitutes a
violation of the asset freeze in UNSCR 1737 paragraph 12.

-- While China has initiated an investigation into this
entity, transactions between LIMMT and SBIG have continued.

-- In another example, in 2007, we urged China to investigate
transfers of magnesium powder potentially controlled by the
MTCR/UNSCR, by a Chinese firm to Iran. Our information
indicated that to facilitate this transfer, the entities
involved intended to deceptively label some of these
shipments to mislead Chinese export authorities.

-- Chinese officials concluded that the export of magnesium
powder in this case should be considered "normal trade."

-- We look forward to working with you on this and other
related security and counter-proliferation matters, and are
prepared to provide additional assistance as appropriate.

END POINTS FOR UAE.

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REPORTING DEADLINE
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6. (U) Posts should report results within seven days of
recept of this cable. Please slug replies for ISN, INR, T,
Treasury, and NEA. Please include SIPDIS in all replies.

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POINT OF CONTACT
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7. (U) Washington point of contact for follow-up information
is Michelle New, ISN/CPI, (202) 647-0186, or
newml@state.sgov.gov.


8. (U) Department thanks Posts for their assistance.
RICE