UKRAINIAN FIRM ARSENAL CONTINUES TO NEGOTIATE

S E C R E T STATE 128635

SIPDIS

E.O. 12958: DECL: 12/16/2034
TAGS: ETTC PARM PREL MTCRE MNUC UP CH
SUBJECT: UKRAINIAN FIRM ARSENAL CONTINUES TO NEGOTIATE
WITH CHINESE MISSILE/SLV END-USER TO SUPPLY GYROTHEODOLITE
(S)

REF: A. 2007 STATE 161304

B. 2007 KYIV 2928

C. 2008 KYIV 706

D. 2008 STATE 111716

E. 2008 STATE 126516

F. KYIV 108

G. STATE 7146

H. KYIV 314

I. STATE 77663

J. KYIV 1376

K. KYIV 1942

L. GOU-PROVIDED NON-PAPER SEP 23-24 2009

Classified By: ISN/MTR DIRECTOR PAM DURHAM FOR REASONS 1.4
(B),(C),AND (D).


1. (U) This is an action request. Embassy Kyiv
please see para 5.


2. (S) Background: Since November 2007, we have
discussed with Ukrainian officials a case involving the
sale of high-accuracy gyrotheodolites by the Ukrainian
firm Arsenal to entities associated with China's
Sanjiang Space Group (CSSG) (Refs). CSSG produces
short-range ballistic missiles that exceed Missile
Technology Control Regime (MTCR) Category I range and
payload thresholds. Gyrotheodolites can be used to
align guidance systems for mobile ballistic missiles,
and can be controlled under the MTCR if designed or
modified for use with Category I or II space launch
vehicles or ballistic missiles. In April 2008, the GOU
responded that Arsenal was not involved in the transfer
of gyrotheodolites to CSSG-associated entities (Ref C).
Subsequently, however, during late July/early August
2008 U.S.-Ukraine nonproliferation discussions in Kyiv,
we provided Ukraine information indicating that as of
July 2008, Arsenal was in the final stages of a
gyrotheodolite contract with China's Wuhan Sanjiang
Import-Export Corporation, an entity subordinate to
CSSG, and asked the GOU to look into this matter (Refs D
& E). In response, GOU officials in January 2009
indicated that Arsenal had not applied for a license to
export gyrotheodolites to China, had not been engaged in
efforts to export gyrotheodolites to China, did not have
any relationship with China's Wuhan Sanjiang Import-
Export Corporation, and did not engage in any
cooperation with Chinese companies (Ref F).


3. (S) Despite the assurances provided by Ukrainian
officials, we now have information indicating that as of
late October 2009, Arsenal was working with the China
Precision Machinery Import/Export Corporation (CPMIEC)
to finalize a contract related to the delivery of a UGT-A
high-accuracy gyrotheodolite to the Beijing Institute
of Control and Electronics Technology (BICET). It
appears that this activity is related to the cooperation
the USG previously raised with the GOU involving Arsenal
and CSSG: BICET - like CSSG - is affiliated with CASIC,
and the UGT-A gyrotheodolite sought by CPMIEC on behalf
of BICET is the same model as that sought earlier by
CSSG. We want to alert Ukrainian officials to this new
information, urge them to conduct further inquiries into
this matter, and take measures to ensure that Arsenal is
not acting as a source of goods or technologies to
China's MTCR Category I programs.


4. (S) Comment: Earlier in 2009, we raised with the
GOU two possibly separate cases involving Arsenal and
gyrotheodolite cooperation with Chinese entities of
proliferation concern. In the first case, we provided
Ukraine with information in January 2009 indicating that
Arsenal was holding discussions with officials from the
China Great Wall Industry Corporation (CGWIC) concerning
a malfunctioning UGT-S high-accuracy gyrotheodolite
previously sold by Arsenal to a Chinese customer (Ref
G). During the September 23-24, 2009 Nonproliferation
Working Group Talks in Kyiv, Ukrainian officials
provided a non-paper confirming that Arsenal had
conducted negotiations with the CGWIC concerning the
warranty repair of a UGT-S gyrotheodolite previously
sold to China, and that GOU authorities had approved a
license for said warranty repair. In the second case
(first raised by the U.S. during the September NPWG
talks),we provided information indicating that Arsenal
was working to establish a partnership related to the
production of gyrotheodolites with China's Shaanxi
Cangsong Machinery Plant (Ref K). Ukraine has not yet
responded on this case. End comment.


5. (S) Action Request: Request Embassy Kyiv approach
appropriate Ukrainian government officials to deliver
talking points in paragraph 6 below and report response.
Talking points also may be provided as a non-paper.
Post can note that this issue could be separate from the
gyrotheodolite cooperation Arsenal has engaged in with
Chinese entities outlined in para 4.


6. (SECRET//REL UKRAINE) BEGIN TALKING POINTS/NON-
PAPER:

-- We would like to follow-up with you on a matter of
proliferation concern and request your government's
continued assistance in investigating and stopping this
activity.

-- In November 2007, we provided you with information
indicating that the Ukrainian firm Arsenal Design Bureau
was finalizing the sale of a UGT-A high accuracy
gyrotheodolite to entities associated with China's
Sanjiang Space Group (CSSG).

-- CSSG produces short-range ballistic missile systems
that exceed Missile Technology Control Regime (MTCR)
Category I range and payload thresholds and is affiliated
with the China Aerospace Science and Industry Corporation
(CASIC),a designer and developer of space launch
vehicles and ballistic missiles.

-- We noted that gyrotheodolites can be used in the
alignment of ballistic missile guidance systems, and if
designed or modified for use with MTCR Category I or II
systems, they are controlled under Item 12.A.1 of the
MTCR Annex.

-- We were therefore concerned that this gyrotheodolite
could be used to support China's MTCR Category I missile
programs.

-- Your April 2008 response indicated that Arsenal was
not transferring gyrotheodolites to CSSG-associated
entities.

-- However, during the 2008 U.S.-Ukraine
nonproliferation talks in Kyiv on July 31-August 1, we
provided further information indicating that in early
July 2008, Arsenal was finalizing a contract with
China's Wuhan Sanjiang Import-Export Corporation on
behalf of CSSG.

-- In response, you indicated that Arsenal did not
request a license/permit from Ukraine's State Service of
Export Control related to the transfer of UGT-A high
accuracy gyrotheodolites to China.

-- You also told us that Arsenal had not been engaged in
efforts to export gyrotheodolites to China, did not have
any relationship with China's Wuhan Sanjiang Import
Export Corporation, and did not engage in cooperation
with Chinese companies.

-- We now have additional information indicating that in
late October 2009, Arsenal Design Bureau was working
with the China Precision Machinery Import/Export
Corporation (CPMIEC) to finalize a contract related to
the delivery of a UGT-A high-accuracy gyrotheodolite to
China.

-- We understand that the ultimate end-user of this item
is the Beijing Institute of Control and Electronics
Technology (BICET),an entity that - like CSSG - is
affiliated with CASIC.

-- This activity appears similar to the cooperation we
previously raised with you involving Arsenal and CSSG.

-- Additionally, the UGT-A gyrotheodolite sought by
CPMIEC on behalf of BICET is the same model as that
previously sought by CSSG, according to our information.

-- Although Arsenal may not have applied to Ukrainian
authorities for a license related to the transfer of
gyrotheodolites to China, it appears that negotiations
are occurring nonetheless.

-- We urge you to investigate the possibility that
Arsenal may be involved in these negotiations without
having applied for the necessary licenses from Ukrainian
authorities, and to take measures to ensure that Arsenal
is not serving as a source of goods or technologies for
China's MTCR Category I programs.

-- We look forward to hearing of any updates on the
progress of your investigation of this case.


7. (U) Please contact ISN/MTR's John Paul Herrmann with
any questions or follow-up related to this case (202-647
1430 - herrmannjp2@state.gov or
herrmannjp@state.sgov.gov) and slug reporting on this
issue for ISN/MTR, EUR/UMB and EUR/PRA.


8. (U) A word version of this document will be posted at
www.state.sgov.gov/demarche.
CLINTON