SHIELD S18S-05: ZIBO CHEMET TRANSFERS

S E C R E T STATE 077681 SIPDIS NFORN E.O. 12958: DECL: 07/22/2034 TAGS: PARM ETTC CH IR SUBJECT: SHIELD S18S-05: ZIBO CHEMET TRANSFERS GLASS-LINING TECHNOLOGY TO IRAN REF: A. 08 BEIJING 2648 ¶B. 08 BEIJING 2614 ¶C. 08 BEIJING 1263 ¶D. 07 BEIJING 5848 ¶E. 07 STATE 123386 AND PREVIOUS Classified By: John Norris, DAS, EAP/FO Reasons 1.4 (c) and (d) ¶1. (U) This is an action request. Please see paragraph 5. ¶2. (S//NF) BACKGROUND: The United States and China have had an ongoing dialogue about U.S. proliferation concerns regarding Zibo Chemet Equipment Company's transfers of glass-lined chemical processing equipment to Iran. The equipment is controlled by both China and the Australia Group (reftels C through E). The United States imposed Iran, North Korea, and Syria Nonproliferation Act sanctions on Zibo Chemet for these activities as recently as April 2007. China has since investigated the firm and taken limited punitive action against it (reftels A and B). ¶3. (S//NF) BACKGROUND CONT'D: We have new information indicating that Zibo Chemet transferred technology for the production of glass-lined reactor equipment to Iranian customers, significantly enhancing Iran's ability to produce indigenously chemical equipment suitable for a chemical warfare program. The transfer will also put the many Chinese producers of AG-controlled chemical equipment that abide by their country's export control laws at a competitive disadvantage. Though such technology is controlled by the Australia Group's lists, the United States is uncertain as to whether it is also controlled by China's export control laws. We would like to alert the Chinese government to these transfers and use this opportunity to highlight the importance of controlling intangible technology transfer under domestic export control laws. ¶4. (SBU) ACTION REQUEST: Department requests that Post deliver the points in paragraph 5 to appropriate host government officials and report a response. The points may be left as a nonpaper. END ACTION REQUEST. ¶5. (U) Begin talking points/nonpaper: (SECRET//REL CHINA) -- In the spirit of our bilateral cooperation in preventing proliferation, we would like to raise a matter of chemical weapons (CW) proliferation concern and request the Chinese government's assistance in investigating this activity. -- We have discussed the activities of Zibo Chemet on several different occasions and welcome China's decision to take punitive measures against Zibo Chemet Equipment Company in response to transfers of glass-lined chemical equipment to Iran. -- Zibo Chemet has recently transferred Australia Group-controlled technology to manufacture glass-lined chemical reactor vessels to the Iranian entity Shimi Azarjaam. -- This glass-lining plant is located in Shokoohieh Industrial Park, Qom, Iran. -- The Zibo Chemet activity in question is of serious proliferation concern. -- Iran's acquisition of the technology and equipment to manufacture glass-lined chemical reactor vessels will significantly contribute to its indigenous capability to support a CW program. -- Such technology transfers also puts at a competitive disadvantage the many Chinese producers of glass-lined chemical equipment that abide by China's export control laws. -- We believe this situation highlights the importance of having rules governing intangible transfers of technology, to include hands-on training, required to produce export-controlled goods. -- We urge China to investigate this information, determine whether its export control regulations address this situation and, if not, include in its punitive measures steps that prevent Zibo Chemet from providing Iran with the ability to make corrosion-resistant chemical processing equipment. -- We would appreciate China sharing with us the results of its efforts in this matter as soon as possible. ¶6. (S//NF) Please begin all responses with SHIELD S18S-05 and slug for ISN. ¶7. (U) Department thanks post for its assistance on this matter. CLINTON