CHAPTER 10 TEXT | CHAPTER 10 NOTES
TECHNICAL AFTERWORD: The PRC's Acquisition of Machine Tools, Composite Materials, and Computers for Aircraft and Missile Manufacturing
McDonnell Douglas Machine Tools
In 1993, China National Aero-Technology Import and Export Corporation (CATIC) agreed to purchase a number of excess machine tools and other equipment from McDonnell Douglas, including 19 machine tools that required individual validated licenses to be exported. CATIC told McDonnell Douglas it was purchasing the machine tools to produce parts for the Trunkliner Program, a 1992 agreement between McDonnell Douglas and CATIC to build 40 MD-82 and MD-90 series commercial aircraft in the PRC.
During the interagency licensing process for the machine tools, the Defense Technology Security Administration sought assessments from the Central Intelligence Agency and from the Defense Intelligence Agency, because of concerns that the PRC could use the McDonnell Douglas five-axis machine tools for unauthorized purposes, particularly to develop quieter submarines. Since the PRC wishes to enhance its power projection capabilities and is making efforts to strengthen its naval forces, the five-axis machine tools could easily be diverted for projects that would achieve that goal.
Initially, CATIC told McDonnell Douglas it planned to sell the machine tools to four factories in the PRC that were involved in the Trunkliner commercial aircraft program. When those efforts reportedly failed, CATIC told McDonnell Douglas it planned to use the machine tools at a machining center to be built in Beijing to produce Trunkliner parts for the four factories.
In May 1994, McDonnell Douglas applied to the Commerce Department for licenses to export the 19 machine tools to the PRC. Even after it became apparent that only 20 of the 40 Trunkliner aircraft would be built in the PRC, the U.S. Government continued to accept McDonnell Douglas's assertion that the machine tools were still required to support the Trunkliner production requirements. Accordingly, Commerce approved the license applications in September 1994 with a number of conditions designed to limit the risk of diversion or misuse.
In April 1995, the U.S. Government learned from McDonnell Douglas that six of the licensed machine tools had been diverted to a factory in Nanchang known to manufacture military aircraft and cruise missile components, as well as commercial products. However, Commerce's Office of Export Enforcement (OEE) did not initiate an investigation of the diversion for six months.
The Commerce Department declined an Office of Export Enforcement Los Angeles Field Office request for a Temporary Denial Order against CATIC. The case remains under investigation by OEE and the U.S. Customs Service. With the approval of the U.S. Government, the machine tools have since been consolidated at a factory in Shanghai.
The PRC has obtained U.S. jet engine technology through diversions of engines from commercial end uses, by direct purchase, and through joint ventures. Although the United States has generally sought to restrict the most militarily sensitive jet engine technologies and equipment, the PRC has reportedly acquired such technologies and equipment through surreptitious means.
Prior to 1991, Garrett jet engines had been exported to the PRC under individual validated licenses that included certain conditions to protect U.S. national security. These conditions were intended to impede any attempt by the PRC to advance its capability to develop jet engines for military aircraft and cruise missiles.
The 1991 decision by the Commerce Department to decontrol Garrett jet engines ensured that they could be exported to the PRC without an individual validated license or U.S. Government review. In 1992, the Defense Department learned of negotiations between Allied Signal's Garrett Engine Division and PRC officials for a co-production deal that prompted an interagency review of Commerce's earlier decision. The interagency review raised a number of questions regarding the methodology Commerce had followed in its decision to decontrol the Garrett jet engines.
The PRC continues its efforts to acquire U.S. jet engine production technology. The PRC may have also benefited from the direct exploitation of specially designed U.S. cruise missile engines. According to published reports, the PRC examined a U.S. Tomahawk cruise missile that had been fired at a target in Afghanistan in 1998, but crashed en route in Pakistan.
From the PRC's perspective, the 1991 Gulf War was a watershed event in which U.S. weapons and tactics proved decisive. The war provided a window on future warfare as well as a benchmark for the PRC's armed forces.2
After the Gulf War, senior PRC military leaders began speaking of the need to fight future, limited wars "under high-tech conditions." 3 Senior PRC political leaders support the military's new agenda.4
In a 1996 speech, Li Peng, second-ranking member of the Politburo, then-Prime Minister, and currently Chairman of the National People's Congress, said:
Senior PRC leaders recognize that enormous efforts must be made to "catch up" militarily with the West.6 According to the Defense Intelligence Agency, the PRC's ability to achieve this goal depends in part on its "industrial capacity to produce advanced weapons without foreign technical assistance." 7
Two technologies that have been identified as priority acquisition targets for the PRC are machine tools for civil and military requirements, and jet engine technology.8 This chapter presents two case studies relating to the PRC's efforts to obtain such technologies - its 1994 purchase of machine tools from McDonnell Douglas, and its efforts in the late 1980s and early 1990s to obtain jet engine technology from Allied Signal's Garrett Engine Division.
These case studies illustrate the methods the PRC has used to acquire militarily-sensitive technologies through its skillful interaction with U.S. Government and commercial entities.
However, the case studies do not assess the degree to which the PRC has enhanced its aerospace and military industrial capabilities through the acquisition of U.S. technologies and equipment.
A third technology priority for the PRC - composite materials - is discussed in the Technical Afterword to this chapter.
The PRC is committed to the acquisition of Western machine tool technology, and the advanced computer controls that provide the foundation for an advanced aerospace industry.
Although the PRC acquires machine tools from foreign sources in connection with commercial ventures, it also seeks foreign-made machine tools on a case-by-case basis to support its military armament programs.
Moreover, the proliferation of joint ventures and other commercial endeavors that involve the transfer or sale of machine tools to the PRC makes it more difficult for foreign governments and private industry to distinguish between civilian and military end-uses of the equipment.
The China National Aero-Technology Import-Export Corporation's (CATIC) purchase of used machine tools from McDonnell Douglas, now part of Boeing, is one illustration of the complexities and uncertainties faced by private industry and the U.S. Government in these endeavors.
Traditional machine tools cut, bend, and shape metals and non-metal materials to manufacture the components and structures of other machines. Machine tools form the foundation of modern industrial economies, and are widely used in the aerospace and defense industries.
The capability of machine tools is typically indicated by the number of linear or rotational motions - of either the tool or the workpiece - that can be continuously controlled during the machining process, and by the machining accuracy that can be achieved. The latter is measured in microns, that is, millionths of a meter.
Advanced machine tools can provide five axes of motion - typically horizontal, lateral, and vertical movement, and rotation on two perpendicular axes. Less widely used or required are six- and seven-axis machines, which are sometimes used for special applications.
Machine tools used in aircraft and defense manufacturing today are generally numerically controlled (NC). More advanced equipment is computer numerically controlled (CNC). CNC machine tools are essential to batch production of components for modern weapon systems, and can reduce machining times for complex parts by up to 90 percent compared to conventional machine tools.
In addition, these modern machines require operators with less skill and experience and, when combined with computer-aided design software, can reduce the manufacturing cycle of a product, from concept to production, from months to days.
Machine tools are essential to commercial industry, and high precision, multiple-axis machine tools broaden the range of design solutions for weapon components and structural assemblies. Parts and structures can be designed with advantages in weight and cost relative to what could be achieved with less advanced machine tools. For military and aerospace applications, the level of manufacturing technology possessed by a country directly affects the level of military hardware that can be produced, and the cost and reliability of the hardware.9
The military/civilian dual-use production capability of various types of machine tools is indicated in the following table.
The PRC's access to foreign multi-axis machine tools and controllers has increased rapidly with liberalized international export controls.10
During the Cold War, the Coordinating Committee for Multilateral Export Controls (COCOM) established multilateral controls on exports to the Warsaw Pact allies and the PRC of machine tools that restricted linear positioning accuracy below 10 microns.11 However, the consensus for relatively strict export controls dissolved after the Soviet Union's collapse.
The post-Cold War control regime is embodied in the 1996 Wassenaar Arrangement, and the 1978 Nuclear Suppliers Group Agreement (NSG) governing the export of machine tools that can be used for nuclear weapons development. This current regime has a different focus, as indicated in the following table.
The Wassenaar and Nuclear Suppliers Group Agreement regimes have adopted similar control parameters for machine tools. Generally speaking, lathes and milling machines must be licensed for export if their accuracy exceeds six microns. Grinding machines are controlled at four microns. The Wassenaar Arrangement controls all machine tools capable of simultaneous, five-axis motion, regardless of machining accuracy. The Nuclear Suppliers Group Agreement exempts certain machines from this restriction.12
The PRC is not a proscribed destination for machine tools and other commodities under the Wassenaar Arrangement. This means that Wassenaar regime members treat exports to the PRC according to their individual national discretion. On the other hand, exports to the PRC of Nuclear Suppliers Group Agreement-covered items require individual validated licenses.13
The Wassenaar and Nuclear Suppliers Group Agreement parameters for machine tool controls have been incorporated in the U.S. Commerce Department's Commodity Control List of dual-use items (the list appears in the Export Administration Regulations).14 Machine tools are listed under Category 2 (Material Processing), Group B (Inspection and Production Equipment).15
The Commodity Control List further classifies machine tools - as it does other dual-use items - by an Export Control Classification Number that reflects the item's category, group, types of associated controls, whether the item is controlled for unilateral or multilateral concerns, and a sequencing number to differentiate among items on the Commodity Control List.16
Observers of the PRC's machine tool capabilities do not believe that the PRC can indigenously produce high precision, five-axis machines that approach the quality of Western products.
The U.S. General Accounting Office estimates that the PRC has the capability "to manufacture less sophisticated machine tools, but cannot currently mass produce four- and five-axis machine tools that meet Western standards." 17
According to a 1996 Defense Department assessment, however, the PRC's indigenous machine tool production capability is increasing markedly.18
The PRC has long sought to compensate for its deficiencies in machine tool technology by importing foreign systems. This approach has been facilitated by COCOM's dissolution and the resulting international relaxation of controls on machine tool exports.
Since the end of COCOM in March 1994, PRC military industries have acquired advanced machine tools that would be useful for the production of rocket and missile guidance components, and several five-axis machines for fighter aircraft and parts production. Five-axis machines were controlled under COCOM and are purportedly controlled by Wassenaar.19 U.S. industry sources note that:
In addition, the PRC may be enhancing its ability to produce advanced machine tools through license production arrangements with Western manufacturers.
Other countries developing nuclear weapons and missiles have also apparently benefited from the PRC's ability to acquire advanced machine tools on the world market. As one recent Defense Department assessment noted, the PRC's "recent aerospace industry buildup and its history of weapons trade with nations under Western embargoes makes this increase in key defense capacity of great concern." 21
The Clinton administration has determined that specific examples of this activity cannot be publicly disclosed without affecting national security.
The Select Committee has determined that the U.S. Government is generally unaware of the extent to which the PRC has acquired machine tools for commercial applications and then diverted them to military end uses.
he McDonnell Douglas case illustrates that the PRC will attempt diversions when it suits its interests.
At the request of Congress, the U.S. General Accounting Office in March 1996 initiated a review of the facts and circumstances pertaining to the 1994 sale of McDonnell Douglas machine tools to CATIC. The GAO issued its report on November 19, 1996.
The report can be summarized as follows:
On December 23, 1993, the China National Aero-Technology Import and Export Corporation (CATIC) reached an agreement to purchase machine tools from McDonnell Douglas. CATIC officials signed the purchase agreement with McDonnell Douglas on February 15, 1994.
A May 27, 1994 e-mail message to Assistant Secretary of Commerce for Export Administration Sue Eckert from Deputy Assistant Secretary for Export Administration Iain Baird noted:
Subsequently, according to a June 8, 1994 memorandum to Deputy Assistant Secretary of Defense for Counterproliferation Policy Dr. Mitchel Wallerstein from Acting Director of the Defense Technology Security Administration Peter Sullivan:
Within the Defense Department, the McDonnell Douglas license applications were a cause of concern and internal debate. Specifically, the uniformed military services (Joint Staff) initially recommended denial.
The Joint Staff based its recommendation of denial upon an analysis indicating a high probability that this technology would be diverted for PLA end use.25 Moreover, the Joint Staff noted that, "Even with DoD recommending approval with conditions, this would be a less-than-prudent export to the PRC. This is particularly true in light of Chinese involvement in the world arms market."
The Staff of the U.S. Commander in Chief, U.S. Pacific Command, agreed, noting in an August 1, 1994 memorandum to the Joint Staff that it "concurs with the Joint Staff position to deny"
The Licensing Officer at the Defense Technology Security Administration who was initially assigned responsibility for the McDonnell Douglas license applications also recommended denial. The Licensing Officer reiterated concerns as to CATIC's role in both civilian and military production, and stated that "[n]o quantitative data has been supplied by the exporter, which establishes a clear need for this equipment in China [the PRC]."
Intelligence Community Assessments
A July 27, 1994 Defense Intelligence Agency response to a
request from the Defense Technology Security Administration provided
an assessment.26 It warned that, while similar machine tools
were available from foreign sources, there was a significant
risk of diversion. There was also the additional risk that the
PRC could reverse-engineer the machine tools, and then use them
in other commercial or military production. This would be consistent
with the PRC's practice of reverse-engineering other Western
technology for military purposes.
The establishment of an advanced machine tool facility presents a unique opportunity for Chinese military aerospace facilities to access advanced equipment which otherwise might be denied.
The Defense Technology Security Administration had received information from informants in September 1993 - prior to CATIC's agreement to purchase the machine tools, and a full year before the license was granted - that CATIC personnel had visited McDonnell Douglas's Columbus, Ohio plant and videotaped the machine tools in use, a potentially illegal technology transfer.
The Defense Technology Security Administration reported the information to the U.S. Customs Service, and its agents later paid a visit to the Columbus, Ohio plant. However, following the visit, the U.S. Customs Service determined that no further investigative action was warranted.
During the interagency licensing process for the machine tools, the Defense Technology Security Administration also sought assessments from the Central Intelligence Agency and from the Defense Intelligence Agency, because of concerns that the PRC could use the McDonnell Douglas five-axis machine tools for unauthorized purposes, particularly to develop quieter submarines. Since the PRC wishes to enhance its power projection capabilities and is making efforts to strengthen its naval forces, the five-axis machine tools could easily be diverted for projects that would achieve that goal.
The Defense Technology Security Administration received additional information from informants indicating that CATIC had provided the Shenyang Aircraft Factory, an unauthorized location, with a list of the Columbus, Ohio equipment that had been purchased from McDonnell Douglas.28 Circles around some of the items on the list, according to the translation of a note from Shenyang that accompanied the list, indicated that the Shenyang Aircraft Factory was interested in obtaining those items from CATIC.
The Shenyang list was reportedly obtained from the discarded trash at a CATIC subsidiary in California.
This list was viewed as proof that CATIC intended to divert the machine tools to unauthorized locations. These concerns were reported to the U.S. Customs Service in the summer of 1994.
Changes to the Trunkliner
In June 1994, McDonnell Douglas representatives provided a series of briefings to officials from the Commerce, State, and Defense Departments regarding the nature of the Trunkliner program and McDonnell Douglas's other activities in the PRC.30 In July 1994, however, Flight International magazine announced that the Trunkliner Program had been significantly changed.31
Instead of co-producing 20 MD-82 and 20 MD-90 aircraft in the PRC, only 20 MD-90 aircraft would be built there. Although the PRC would still acquire 20 additional aircraft, those would now be built at McDonnell Douglas's Long Beach, California plant - albeit with many parts that were to be fabricated in the PRC.
Prompted by the press reports, the Defense Department sought additional information from McDonnell Douglas in late July and early August 1994 regarding how the machine tools would be employed if the number of aircraft to be co-produced in the PRC was to be reduced.32
In letters to the Defense Technology Security Administration dated August 8 and August 12, 1994, McDonnell Douglas provided further clarification regarding the number and complexity of the parts that were to be manufactured in the PRC.
Commerce Department Licensing Officer Christiansen recalls that Commerce was not concerned that the number of aircraft to be co-produced in the PRC might be reduced, since parts for the aircraft would continue to be fabricated in the PRC.33
The Defense Technology Security Administration and the Defense Department, on the other hand, were concerned since they thought the machine tools might represent significant excess manufacturing capacity that the PRC might be tempted to divert to other, unauthorized uses.
The actual agreement that reduced the number of aircraft to be assembled in the PRC was signed on November 4, 1994.34
Discussions in the Advisory
Committee for Export Policy
According to the minutes of that meeting, no decision was reached. The Defense Department representative at the meeting advised against approving the licenses that day, because internal Defense Department review was continuing. The Defense Department believed the applications could be approved if reasonable safeguards were put into place to prevent the machine tools from being used for unauthorized purposes.35
Among the other agencies in attendance, the State Department agreed with the Defense Department that further review was required. The Department of Energy deferred to the Defense Department on whether licenses should be approved.36
The license applications for the McDonnell Douglas machine tools were again discussed at a meeting of the Advisory Committee for Export Policy on July 28, 1994. Again, the matter was deferred until the next Advisory Committee meeting. The minutes reflect that "a final decision on this transaction would have to be remanded until the next meeting of the ACEP, or as soon as possible before that date, if all the agencies complete their reviews earlier."
According to the ACEP minutes, the respective positions of each agency on the applications were as follows:37
Those conditions required, among other things, that:
As a final part of the licensing process, a Department of State cable was sent to the U.S. Embassy/Beijing on August 29, 1994 requesting that a senior CATIC official provide a written end use assurance that the machine tools would only be used for specified purposes.40
In a September 13, 1994 response, the U.S. Embassy/Beijing reported that it had obtained the assurance from CATIC Deputy Director Sun Deqing. However, the cable also noted that Deqing had indicated to the embassy officials that:
McDonnell Douglas's Limited
Role at the Machining Center
Notes from a June 7, 1994 briefing that McDonnell Douglas
provided to U.S. Government officials regarding its license applications
indicate that McDonnell Douglas's representatives made references
to the fact that the company was negotiating with the PRC over
changing the mix of aircraft to be built in the PRC.43 CATIC
was to remain responsible for the fabrication of large numbers
of parts both for the aircraft that would be assembled in the
PRC, and for the aircraft that were to be built in the United
States under an "offset" agreement.
The Commerce Department's
Actions in April 1995
In April 4, 1995 letters to the Commerce Department's Office of Export Enforcement, Washington Field Office, and to the Technical Information Support Division/Office of Exporter Services, McDonnell Douglas reported that the machine tools were located at four different places:
According to the letters, a McDonnell Douglas employee had physically observed the machine tools in Tianjin, and confirmed that they remained in their original crates. He had not personally viewed the machine tools at the Nanchang Aircraft Company. However, the McDonnell Douglas letters reported that:
The April 4 McDonnell Douglas letters did not trigger any kind of investigative response.
On April 20, 1995, an interagency meeting was held in which two McDonnell Douglas officials discussed the status and locations of the machine tools. The McDonnell Douglas officials reported that there had been changes in the number of aircraft that would be built jointly with the PRC, and changes in the location of the machine tools.
Since the machine tools were not stored in one authorized location, this violated the licensing conditions. McDonnell Douglas representatives responded by stating that the machine tools had inadvertently been moved to more than one location contrary to what had been specified in the export licenses, but that the building for the machine tools had not been completed and the tools had to be stored somewhere in the interim.
Six months later the Office of Export Enforcement received additional information from Commerce Department Licensing Officer Christiansen that, in conjunction with a formal request from the Defense Technology Security Administration, finally triggered the opening of a formal investigation into the diversion.
The Commerce Department's
Actions in October 1995
In clear violation of the export license, the machine tool - a hydraulic stretch press - had been installed in a building that apparently had been built specifically to accommodate that piece of equipment.
In his e-mail message, Christiansen stated:
The formal request from the Defense Technology Security Administration for an investigation consisted of an October 4, 1995 letter from its Director of Technology Security Operations.45 The Defense Technology Security Administration informed the Acting Director of the Office of Export Enforcement, Mark Menefee, that:
The Office of Export Enforcement determined that an active investigation was warranted, and opened a case file in early November 1995. The case was forwarded to the Office of Export Enforcement's Los Angeles Field Office for investigation because McDonnell Douglas Aircraft in Long Beach, California - the exporter of record for the machine tools - was located in the Los Angeles Field Office's area of responsibility.
Allegation that the Commerce
The Select Committee conducted an investigation of these allegations. However, the Justice Department has requested that the Select Committee not disclose the details of its investigation to protect the Justice Department's prosecution of CATIC and McDonnell Douglas.
On February 5, 1996 U.S. News and World Report reported that the machine tools had been diverted, and that an investigation was underway. The Commerce Department received inquiries from then-Chairman Alfonse M. D'Amato of the Senate Committee on Banking, Housing and Urban Affairs, and from Chairman Benjamin A. Gilman of the House Committee on International Relations, concerning these reported allegations.47 Subsequently, Chairman Floyd D. Spence of the House Committee on National Security and Representative Frank Wolf asked the General Accounting Office to review the facts and circumstances relating to the licensing and export of the machine tools. The results of the General Accounting Office review are summarized earlier in this chapter.48
The February 5, 1996 U.S. News and World Report also claimed that "a confidential U.S. Commerce Department investigative report" had been obtained and used in the article. Concerned that the disclosure of such a report to U.S. News and World Report may have violated the confidentiality provisions of Section 12 (c) of the Export Administration Act, the Office of Export Enforcement initiated an internal inquiry. Responsibility for the disclosure was never determined.
The Office of Export Enforcement's
Los Angeles Field Office's
In late November 1995, the Los Angeles Field Office requested that the Commerce Department issue a TDO against CATIC.50 The TDO request was prepared as a means to compel CATIC to comply with the terms of the machine tool export licenses by preventing the approval of future export licenses.
The Commerce Department declined to issue the TDO. In a December 7, 1995 memorandum, the Office of Export Enforcement Headquarters returned the TDO case report because it contained a number of technical deficiencies, including:
Headquarters, noted, however, that "the violations do appear to be deliberate and substantial." It instructed the Los Angeles Field Office to give the investigation a high priority. Moreover, it instructed them to conduct additional interviews and to obtain relevant documentation.
The Los Angeles Field Office was concerned that Headquarters was using those technical deficiencies as a bureaucratic rationale for not seeking Commerce Department approval of the TDO request.
At the date of the Select Committee's Final Report (January 3, 1999), the Office of Export Enforcement and the U.S. Customs Service reportedly are continuing to investigate the machine tool diversion under the direction of the U.S. Attorney for the District of Columbia.
CATIC Letter Suggests Trunkliner
Program at Risk
McDonnell Douglas characterized Tang Xiaoping's letter as nothing more than a negotiating ploy to try to get McDonnell Douglas to lower the price that it was asking for the machine tools. McDonnell Douglas officials said they did not consider the letter to be a veiled threat by CATIC to cancel or alter the Trunkliner Program if a deal for the machine tool equipment could not be worked out.
According to the Defense Department, however, CATIC had a longstanding, productive relationship with McDonnell Douglas, had made major investments in the Trunkliner Program, and was not going to jeopardize those investments and the Trunkliner Program in a dispute over the price of used machine tools.
Indeed, the purchase price that was eventually agreed to between McDonnell Douglas and CATIC was acceptable to both parties. The value of the machine tools was based upon an appraisal provided by a commercial auctioneer. McDonnell Douglas added a 20-30 percent markup. CATIC acquired all of the machine tools it had originally sought, as well as various other tools, equipment, furniture and other items as part of the $5.4 million purchase agreement.
The machine tools and other equipment purchased by CATIC were excess to McDonnell Douglas's needs. According to McDonnell Douglas, the more modern machine tools and equipment from the Columbus, Ohio plant were not sold to CATIC but were redistributed to other McDonnell Douglas facilities.
According to the March 1, 1994 appraisal, the value of 31 machine tools sold to CATIC - including the 19 machine tools that required export licenses - was $3.5 million.52 This appraisal did not assess the value of other tools, equipment, and furnishings that were included as part of the purchase agreement.
CATIC's Efforts to Create
During those discussions, CATIC expressed an interest in subcontracting with Monitor Aerospace for the production of aircraft parts. Specifically, Monitor would assist the PRC in the production of certain aircraft parts that CATIC was to manufacture for Boeing as part of an offset contract.
Monitto says he proposed that CATIC convince Boeing to transfer
$10 million of the offset work directly to Monitor for one year.
During that year, Monitor Aerospace would assist CATIC in designing
and laying out a new machining center.53
Representatives of CATIC, Aviation Industries of China, and Monitto signed a Memorandum of Understanding (MOU) regarding the machining center joint venture on January 24, 1994.54 CATIC officials took Monitto to an industrial park in Beijing where the machining center was to be built.
In a letter dated January 27, 1994, CATIC informed Boeing that it had signed the joint venture MOU, and asked if Boeing would consider providing Monitor Aerospace with the offset work.55 However, Boeing, in an April 1994 letter, declined CATIC's offer.56
In the spring of 1994, Monitto says CATIC officials again approached him about a machining center joint venture.
Although negotiations were intermittent, Monitto says CATIC informed him in the summer of 1994 that it had purchased machine tools from McDonnell Douglas. As Monitto recalls, CATIC officials asked for his assistance in reassembling the machine tools, and placing them in a machining center. However, he says the precise location of the machining center had not been determined at that time.57
A July 29, 1994 letter from Monitto to Sun Deqing, CATIC's Deputy Director, states:
Additional discussions between CATIC and Monitor Aerospace regarding establishing the machining center appear to have continued into the fall of 1994, after the export licenses for the McDonnell Douglas machine tools had been approved.
Sometime in the fall of 1994, Monitto recalls that CATIC informed him that it intended to place the McDonnell Douglas machine tools at a facility located in the city of Shijiazhuang. Monitto drove to the facility to check out the offer but decided the location was too far from his base of operations in Beijing to be viable. It was "not something I wanted to do," Monitto comments.60
According to Monitto, he has had no further substantive discussions with CATIC regarding the establishment of a machining facility, although he does remain in contact with CATIC on other business-related matters. According to Monitto, McDonnell Douglas was never a party to any of his negotiations with CATIC regarding the establishment of the machining center.61
According to McDonnell Douglas, the first indication it had that CATIC would not establish the machining center took place during a phone call with a CATIC official in May 1995. Subsequently, in a letter dated July 5, 1995, CATIC Supply Vice President Zhang Jianli formally advised McDonnell Douglas that an agreement could not be reached with Monitor Aerospace for a machining center, and that Nanchang Aircraft Factory was interested in purchasing the six machine tools that were stored at that factory.
According to the letter:
According to McDonnell Douglas, it believed that CATIC was serious in its plans to build a machining center in Beijing to produce airplane parts for the Trunkliner Program.
McDonnell Douglas acknowledges, however, that it never asked for, nor was it shown, architectural drawings, floor plans, or other information to indicate that plans for the facility were progressing.
When the machine tools arrived in the PRC, McDonnell Douglas personnel discovered that nine of the machines were stored at two different locations in the port city of Tianjin.63
Moreover, a March 27, 1995 letter from Zhang Jianli, the Vice President of CATIC Supply Company, to McDonnell Douglas's Beijing office explained that six more of the machine tools had been shipped to Nanchang for storage. These machine tools, CATIC represented, remained in their crates.64
Two McDonnell Douglas representatives visited Nanchang to inspect the tools on August 23, 1995 and learned that one of the machine tools - a hydraulic stretch press - had been uncrated and was situated inside a building. Moreover, the building had been built specifically to accommodate that piece of equipment.
Although electrical power had not yet been connected,65 the size of the building and the manner of its construction suggested to them that this facility had been custom built to house McDonnell Douglas equipment, and had been planned for several years:
CATIC (USA) documents66 indicate that an official of "TAL Industries" was primarily responsible for supervising the PRC team that coordinated and supervised the packing and crating of the machine tools and other equipment at the Columbus, Ohio plant.67 According to its responses to a series of Select Committee interrogatories, TAL Industries is a subsidiary of CATIC Supply in the PRC. CATIC Supply, in turn, is a wholly-owned subsidiary of CATIC.68 According to TAL Industries, CATIC Supply owns 90 percent of its stock, and CATIC (USA) owns the remaining 10 percent.69 TAL Industries is located at the same El Monte, California address and has the same telephone number as CATIC (USA).70
Some of the McDonnell Douglas equipment had been sold or given by CATIC to the Nanchang Aircraft Company. At least some of these transfers of ownership must have occurred before any of the equipment was exported from the United States. In addition, the PRC team that coordinated the disassembly and packing of the equipment at the Columbus, Ohio plant included representatives from the Nanchang Aircraft Company, who apparently were responsible for overseeing the packing of the equipment it was obtaining from CATIC.
Internally, CATIC specifically referenced the cargo as Nanchang's equipment.
Separately, the Nanchang Aircraft Company's Technology Improvement Office submitted inquiries to CATIC concerning the location of various pieces of its-Nanchang's-equipment.
Since most of the Columbus, Ohio equipment that was purchased by CATIC did not require an export license,71 CATIC's subsequent sale of that equipment to Nanchang Aircraft Company would not violate U.S. export controls.72 But the CATIC (USA) documents pertaining to Nanchang Aircraft Company's equipment do not explicitly identify the equipment, including the six machine tools that were later found at the Nanchang Aircraft Factory in violation of the export licenses.73
In a September 13, 1995 letter to McDonnell Douglas China Program Manager Hitt, the Vice President of the Nanchang Aircraft Company accepted full responsibility for uncrating and installing the hydraulic stretch press in a newly constructed building. According to the letter:
The letter went on to argue that, because of its size, the hydraulic stretch press had to be uncrated in order to move it to Nanchang from its port of entry in Shanghai. Moreover, the stretch press had then been moved into the "pit" that it would occupy so the new building could be built around it. To do otherwise, the PRC letter said, would have disrupted the construction of the new building.75
The Nanchang Aircraft Company official also apologized for the events that had occurred, and provided assurances that no further installation of the hydraulic stretch press would take place at the Nanchang Aircraft Factory until permission to do so was given by the U.S. Government.76
A July 5, 1995 letter to McDonnell Douglas China Program Manager Hitt from CATIC Supply Vice President Zhang Jianli reflects CATIC's knowledge that prior U.S. Government approval for the transaction was required. According to the CATIC Supply letter:
When Hitt and a colleague visited the Nanchang Aircraft Company on August 23, 1995, the Nanchang Aircraft Company officials informed them that one of the machine tools delivered to Nanchang had been placed inside a building "to protect it from the elements."
At the insistence of McDonnell Douglas's Hitt, the PRC officials took him to the building, where he found a hydraulic stretch press installed in a building that appeared to have been specifically built for it. The building had actually been built around the hydraulic stretch press, since Hitt observed no openings or doorways that were large enough to have allowed the machine tool to be moved into the building from elsewhere. Parts for the machine were strewn about the building in such a manner as to indicate that efforts were underway to reassemble the machine and restore it to operational condition. Although electrical power had not been connected to operate the stretch press, trenches for the power cables had been dug and other electrical work had been completed.
Hitt says the storage explanation he originally was given by Nanchang officials was, without question, disingenuous.
Concerned over Hitt's expressions of anger at seeing the partially installed stretch press, Hitt says Nanchang officials tried to reassure him that they only intended to use the stretch press for civilian production at the factory.
Since early 1996, the McDonnell Douglas machine tools have been stored at Shanghai Aviation Industrial Corporation (SAIC).
|March 28||McDonnell Douglas and CATIC sign contract to co-produce 20 MD-82 and 20 MD-90 series commercial aircraft in the PRC.|
|September||Informants tell Defense Technology Security Administration that PRC nationals are regularly visiting McDonnell Douglas's Columbus, Ohio plant. Concerned that the visits may constitute illegal technology transfer, DTSA contacts U.S. Customs Service.|
|September 30||Letter from CATIC Executive Vice President Tang Xiaoping to McDonnell Douglas Aircraft Company President Robert Hood suggesting that McDonnell Douglas's failure to sell machine tools to CATIC could have a "big influence" on Trunkliner Program.|
|October 13||U.S. Customs Service agent visits Columbus, Ohio plant. Following interviews with McDonnell Douglas officials, U.S. Customs Service agent reports that no further investigative action is contemplated.|
|December 23||CATIC and McDonnell Douglas reach agreement on sale of machine tools and other equipment from McDonnell Douglas's Columbus, Ohio plant, and four machine tools located at Monitor Aerospace, in Amityville, New York. Included are 15 machine tools that require individual validated licenses.|
|January 24||Memorandum of Understanding for CATIC Machining Center joint venture signed by Monitor Aerospace, CATIC, and Aviation Industries of China.|
|February 15||CATIC officials sign purchase agreement for machine tools and other equipment at McDonnell Douglas's Columbus, Ohio plant.|
|March||Disassembly, packing and crating of McDonnell Douglas machine tools and other equipment begins at Columbus, Ohio plant.|
|Spring||Defense Technology Security Administration
learns that manufacturing equipment at McDonnell Douglas's Columbus,
Ohio plant has been exported to the PRC. U.S. Customs Service
|May 26||McDonnell Douglas applies for machine tool export licenses.|
|June 7||McDonnell Douglas briefs Commerce, State, and Defense Department representatives on Trunkliner Program and CATIC Machining Center.|
|June 23||McDonnell Douglas again briefs interagency meeting on Trunkliner program and CATIC Machining Center.|
|June 24||Machine tool license applications discussed at Advisory Committee for Export Policy (ACEP) meeting. Defense Department cautions against rushing to approve licenses pending further review. No decision reached.|
|July 26||Flight International article reports only 20 McDonnell Douglas aircraft to be built in the PRC, with the remaining 20 to be built in the United States.|
|July 28||ACEP meeting again discusses machine tool licenses. Decision deferred until next ACEP meeting.|
|August 25||ACEP meeting minutes indicate export licenses for the machine tools were approved prior to this ACEP meeting.|
|August 29||State Department asks U.S. Embassy/Beijing to obtain end use assurance for machine tools from senior CATIC official.|
|Late August||Commerce Secretary Ronald Brown leads trade mission to the PRC.|
|September 13||U.S. Embassy/Beijing reports that it obtained CATIC end use assurance and advises that final location of the machining center has not been determined.|
|September 14||Department of Commerce formally issues export licenses to McDonnell Douglas for 19 machine tools.|
|October||Construction of machining center was reportedly to begin.|
|November 4||CATIC and McDonnell Douglas sign amended contract reducing the number of aircraft to be built in the PRC from 40 to 20, with the remaining 20 to be built in the United States.|
|Most of Columbus, Ohio machine tools are shipped to the PRC.|
|February||Remaining Columbus, Ohio machine tools are shipped to the PRC. Four machine tools still remain at Monitor Aerospace in Amityville, New York.|
|March 24||McDonnell Douglas representative inspects nine machine tools in original shipping crates at two locations in Tianjin, a port city two hours drive from Beijing. McDonnell Douglas's Beijing office letter to CATIC requests information on machine tools not found in Tianjin.|
|March 27||CATIC letter to McDonnell Douglas's Beijing office assures that six machine tools remain packed and in storage in Nanchang.|
|April 4||McDonnell Douglas letter to the Department of Commerce reports location of machine tools and notes that six of the machine tools are reportedly located at Nanchang Aircraft Company, four remain at Monitor Aerospace in Amityville, New York, and the remainder are stored at two locations in Tianjin.|
|April 20||McDonnell Douglas briefs interagency meeting on locations of machine tools. Commerce Department Office of Export Enforcement representative is present at meeting, and determines that no active investigation is warranted.|
|In telephone call with McDonnell Douglas China program manager, CATIC official says no agreement could be reached with Monitor Aerospace for creation of the machining center. The Department of Commerce is informed.|
|May 15||The Department of Commerce instructs McDonnell Douglas to arrange for the six machine tools at Nanchang to be shipped to and consolidated with the nine machine tools at Tianjin. The Department of Commerce informs McDonnell Douglas that it has revoked the export licenses for the four machine tools at Monitor Aerospace in Amityville, New York.|
|June 1||In a letter to CATIC, McDonnell Douglas requests CATIC take immediate action to consolidate all machine tools at one location in Tianjin, and informs CATIC that the Commerce Department has cancelled the export licenses for the four machine tools in Amityville, New York.|
|July 15||Letter from CATIC to McDonnell Douglas confirms that no agreement could be reached with Monitor Aerospace to build the machining center, and that Nanchang Aircraft Factory was interested in purchasing six machine tools. The letter asks McDonnell Douglas to obtain U.S. Government approval for that transaction.|
|August 1||McDonnell Douglas applies for Commerce Department licenses to allow six machine tools to remain at the Nanchang Aircraft Factory.|
|August 23||During a visit to the Nanchang Aircraft Factory, McDonnell Douglas representatives discover the hydraulic stretch press uncrated and situated in a partially completed custom building designed and built around it.|
|September 28||Commerce Department informs McDonnell Douglas to remain at Nanchang Aircraft Factory.|
|October||McDonnell Douglas requests amended export licenses to allow the machine tools at Tianjin and Nanchang to be moved to Shanghai Aviation Industrial Corporation for use in the Trunkliner program.|
|November 7||Commerce Department's Office of Export Enforcement opens investigation of the machine tool diversion.|
|November 28||The Office of Export Enforcement Los Angeles Field Office asks the Commerce Department to issue a Temporary Denial Order against CATIC.|
|December 7||Office of Export Enforcement denies the request for a Temporary Denial Order against CATIC.|
|December||CATIC Machining Center in Beijing was reportedly to start producing Trunkliner parts.|
|January 31||Commerce Department is informed that five of the six Nanchang machine tools have arrived at the Shanghai Aviation Industrial Corporation. The hydraulic stretch press remains at Nanchang.|
|February 6||Amended licenses are approved by Commerce Department to permit the machine tools to be used by the Shanghai Aviation Industrial Corporation.|
|U.S. Customs Service joins machine tool investigation.|
|April 23||U.S. Embassy official visits Shanghai Aviation Industrial Corporation and examines the machine tools from Tianjin.|
|June 21||Portions of the hydraulic stretch press from Nanchang are reported to be at Shanghai.|
|July||Marc Reardon, the Commerce Department Los Angeles Field Office case agent for the machine tool investigation, resigns.|
|August 5||The remaining parts of the hydraulic stretch press from Nanchang are reported to be at Shanghai.|
The PRC's acquisition of aerospace and defense industrial machine tools from U.S. and foreign sources has expanded its manufacturing capacity and enhanced the quality of military and civilian commodities that the PRC can produce.78
These acquisitions will support the PRC's achievement of a key goal: the development of an aerospace industrial base that is capable of producing components and structural assemblies for modern manned aircraft and cruise missiles.79
To meet combat mission requirements, modern military aircraft and cruise missiles require advanced jet engine systems.80 The PRC does not have an indigenous production capability for advanced jet engines. Thus, acquiring such a capability has been a national priority for the PRC throughout the 1990s.81 Development of new commercial and military jet engines is also a priority. The PRC is also likely to be focused on production of jet engines similar to those used for both commercial aircraft and for cruise missiles.
The PRC's activities indicate that Beijing has a particular interest in the acquisition of jet engine production technologies and equipment from U.S. sources. Moreover, the PRC has reportedly sought to compensate for shortfalls in its indigenous capabilities by acquiring complete jet engines from U.S. sources.82
In the mid-1980s and early 1990s, the PRC apparently adopted a three-track approach to acquiring U.S. equipment and technologies in order to advance its own military jet engine capabilities:
The PRC's acquisition targets suggest that it planned to acquire several families of jet engines that could be adapted to various military and commercial applications.83
The PRC has been particularly interested in acquiring "hot section" technology from U.S. sources.84 The United States is the world leader in hot section technology for turbojets and turbofan engines. As a result, U.S. military aircraft can outlast and outperform foreign-built military aircraft.85 In this regard, the PRC seeks:
In 1983, the PRC legally acquired two General Electric CFM-56 jet engines, ostensibly to analyze the engines for a potential civil aircraft upgrade program. In the course of the export licensing process, the Defense Department insisted on restricting the PRC's use of the engines. Under the terms of the licensing agreement:
Defense Department officials were concerned because the CFM-56 hot sections are identical to those used in the engines that power the U.S. F-16 and B-1B military aircraft.88
The PRC later claimed that the CFM-56 engines were destroyed in a fire.89 More likely, however, is that the PRC violated the U.S. end-use conditions by reverse engineering part of the CFM-56 to develop a variant for use in combat aircraft.90
Despite the suspected reverse engineering of the two General Electric jet engines that were exported in 1983, G.E. reportedly signed a contract in March 1991 with the Shenyang Aero-Engine Corporation for the manufacture of parts for CFM-56 engines.91 According to one source, Shenyang "put in place quality and advanced manufacturing systems to meet US airworthiness standards." 92
The PRC aggressively attempted to illegally acquire General Electric's F404 engine, which powers the U.S. F-18 fighter.93 The PRC likely intended to use the F404 jet engine in its F-8 fighter.94 The PRC succeeded in acquiring some F404 technology through an indirect route by purchasing the LM-2500, a commercial General Electric gas turbine containing the F404 hot section.95
In addition, G.E. has reportedly proposed a joint venture with the PRC to manufacture the so-called CFM-56-Lite. The engine could power the PRC's planned AE-100 transport.96
The PRC also has targeted large engines for aerospace and non-aerospace applications. The PRC's acquisition plans reportedly include Pratt & Whitney JT-8 series engines and technology to support its large aircraft projects, as well as marine derivatives of the G.E. LM-2500 for naval turbine propulsion projects.97 Regarding the JT-8 series:
The PRC's efforts to acquire compact jet engines can be traced to 1965, when the Beijing Institute of Aeronautics and Astronautics launched a project to copy the U.S. Teledyne-Ryan CAE J69-T-41A (depicted at right).99
The Teledyne engine powered the U.S. Air Force AQM-34N Firebee reconnaissance drone, a number of which were shot down over the PRC during the Vietnam conflict.100 The PRC's copy of the U.S. turbojet, dubbed WP-11, began ground testing in 1971 and currently powers the PLA's HY-4 "Sadsack," a short-range anti-ship cruise missile.101
The PRC began work on cruise missile engines in the 1980s. The PRC's interest in developing long-range cruise missiles increased dramatically after the 1991 Persian Gulf War, when the performance of U.S. Tomahawk cruise missiles demonstrated the effectiveness of precision missile strikes using conventional warheads. However, technical challenges slowed Beijing's efforts. For this reason, the PRC has attempted to acquire foreign-built engines for technical exploitation. If the PRC succeeds in building cruise missile propulsion and guidance systems, then it would probably not have difficulty marketing cruise missiles to third world countries.102
In 1990, the PRC attempted to advance its cruise missile program by purchasing the Williams FJ44 civil jet engine (depicted at right).103 This compact turbofan was derived from the engine that powers the U.S. Tomahawk cruise missile (shown below).
The FJ44 engine might have been immensely valuable to the PRC for technical exploitation and even direct cruise missile applications.104 But the PRC's effort to acquire FJ44 engines was rebuffed.105
The redundancy inherent in the PRC's three-track approach to advancing its military jet engine capabilities - diversion of engines from commercial use, direct purchase, and joint ventures - began to bear fruit in the early 1990s.106
The Cold War's end and a liberalization of Cold War-era export controls on dual-use products and technologies opened new opportunities for the PRC to acquire advanced jet engines and production capabilities. A notable opportunity developed in 1991 when, as part of an overall liberalization of export controls by the Coordinating Committee for Multilateral Export Controls (COCOM), the Commerce Department decontrolled a popular jet engine manufactured by Allied Signal's Garrett Engine Division.
Prior to 1991, the Garrett engine required an individual validated license that included restrictive conditions.
The Commerce Department's decision that Garrett jet engines were decontrolled ensured that they could be exported to the PRC without a license or U.S. Government review. The decision also opened the way for a jet engine co-production arrangement sought by the PRC.
Negotiations for a co-production deal between Allied Signal and PRC officials progressed until July 1992, when the Defense Department learned of the plan.107 The Defense Department's reaction to the news sparked an interagency review of the Commerce Department's decision to decontrol the Garrett engines.
The co-production deal was terminated after the review demonstrated the potential national security implications of transferring jet engine production capabilities to the PRC.108
The PRC's reported motivation for initiating the Garrett engine purchase was the PRC's requirement for a reliable, high-performance Western engine for its developmental K-8 military aircraft.109
The K-8, depicted below, is a multi-role aircraft that can serve as a trainer, fighter, or light ground attack bomber.110 The K-8 project was initiated by the PRC around 1987, and later became a joint effort with Pakistan.
PRC aerospace organizations involved in the project included:
The PRC's access to the Garrett TFE-731 (depicted below) may have influenced its choice of small jet engines in general, and K-8 propulsion in particular. The PLA purchased a fleet of Learjets from the U.S. on the understanding that the aircraft would be for civil use. It is suspected, however, that the PLA diverted both the aircraft and the engines for military purposes, including PLA reconnaissance missions.112
In August 1989, Allied Signal applied for an export license to sell a variant of the TFE-731, the TFE-731-2A-2A, to the PRC. Four engines and spare parts were to be shipped.113 The U.S. Federal Aviation Administration (FAA) had certified the TFE-731-2A-2A as a "civil" engine.114
According to Iain S. Baird, then-Deputy Assistant Secretary of Commerce for Export Administration, the Commerce Department had licensing authority for the civil engine regardless of its military (i.e., the PLA's K-8 military aircraft) application.115
The 1989 application for the export of the Garrett engines to the PRC raised concerns among officials at the Defense Technology Security Administration, which was the focal point for export policy guidance and license reviews within the Defense Department.116
A Defense Technology Security Administration technical analysis, for instance, indicated that the TFE-731-2A-2A had "some design and manufacturing technical data common to the TFE1042 and TFE1082," both of which are combat aircraft engines.117
Given this Defense Department judgment, a condition was placed by the Commerce Department on the export license for the TFE-731-2A-2As:
The case was also reviewed by COCOM. Subsequently, the Commerce Department issued an Individual Validated License (number D032648) for the Garrett engines on May 30, 1990.119
In December 1990, Allied Signal asked the Commerce Department for approval to sell an additional 15 of the TFE-731-2A-2A engines to the PRC.120
These engines were reportedly to be used for the first production run of the PLA's K-8 military aircraft, which were to be sold to Pakistan. The Defense Department and COCOM again reviewed the license application, and Defense requested conditions that would forbid the release of TFE-731-2A-2A "design methodology, hot section repair/overhaul procedures and manufacturing information." 121
On June 12, 1991, the Commerce Department granted Individual
Validated License D130990, which included the Defense Department's
In August 1991, Allied Signal requested that the FAA re-certify the TFE-731-2A-2A engine with a digital electronic engine controller.123 The FAA had certified the engine in 1988 with an analog engine controller.124
It is unclear from the available information whether the PRC requested this upgrade of the engine to include the digital electronic engine controller, or whether Allied Signal decided to upgrade the engine on its own initiative.125
On September 1, 1991, the Commerce Department published revisions to the Export Administration Regulations to reflect liberalized export controls that had been agreed to by the United States and its COCOM partners.126 The revised regulations decontrolled many jet engines, but continued to control exports of engines equipped with full authority digital engine control (FADEC) systems.127
These militarily-sensitive systems control jet engine operations to permit, among other things, maximum propulsion performance for manned and unmanned military air vehicles.128
According to Defense Department records, Allied Signal sent a one-page document to the Commerce Department on September 30, 1991 representing that the TFE-731-2A-2A did not use a FADEC system, but instead used a less capable digital electronic engine controller (DEEC). For this reason, Allied Signal officials believed the TFE-731-2A-2A was completely decontrolled under the revised Export Administration Regulations and COCOM controls.129
Technical experts at the Defense Technical Security Agency had already presented their analysis to Commerce Department officials, countering that the TFE-731-2A-2A contained a FADEC and therefore remained controlled under COCOM and U.S. regulations.130
On October 1, 1991, one day after receiving the Allied Signal document regarding the FADEC issue, the Commerce Department ruled that the TFE-731-2A-2A did not contain a FADEC. The Commerce Department then informed Allied Signal's Garrett Engine Division that it could export TFE-731-2A-2A jet engines to the PRC under a General License (a so-called G-DEST license) pursuant to the Export Administration Regulations, as long as production technology was not transferred.131
Defense Department records indicate that officials at the Defense Technology Security Administration concurred with the Commerce Department decision to permit this export, but mistakenly believed it was still under an Individual Validated License arrangement - that is, with the requested Defense Department conditions.132
Subsequently, the Commerce Department amended the October 1, 1991 decision and notified Allied Signal on November 25, 1991 that it had decontrolled the TFE-731-2A-2A entirely.133
Engine production technology could now be exported to the PRC without a license.134 According to Defense Department records, Commerce Department officials relied exclusively on Allied Signal's September 30, 1991 representation concerning the engine controller for the TFE-731-2A-2A - that is, that the controller was not a FADEC, and thus was no longer controlled.135
Bruce C. Webb, then a senior analyst at the Commerce Department's Office of Nuclear Controls, recalls that a U.S. Government advisory group had reviewed the Allied Signal document and agreed with the company's assertion that the TFE-731-2A-2A was not equipped with an embargoed FADEC.136 However, in response to document requests by the Select Committee, the Commerce Department was unable to provide any records of any technical reviews that it may have conducted.137
Iain Baird, then-Deputy Assistant Secretary of Commerce for Export Administration, claims that the Commerce Department coordinated with appropriate agencies before making the General License determination in November 1991. However, the Commerce Department was unable to provide the Select Committee with any documentary evidence to this effect.138
A Defense Technology Security Administration staff member suggests that other agencies learned of the decision by chance, or "dumb luck." 139 In addition, according to a December 29, 1992 Defense Department memorandum for the record:
After receiving a copy of the July 1992 cable, the Defense Technology Security Administration initiated an interagency review of the Commerce Department General License decision regarding the Garrett engines.141 The Commerce Department agreed to suspend its decision pending the outcome of the review.
Officials at the Defense Technology Security Administration reportedly were especially concerned over any transfer of jet engine production technology to the PRC. They were also surprised that the Commerce Department opted not to coordinate its decision, given the agency's oft-repeated concerns over any transfer of jet engine production technology to the PRC.142
The Commerce Department's decision to decontrol Garrett engine technology was considered in the context of several U.S. policies. Two policies in particular dominated the interagency debate: the 1991 Enhanced Proliferation Control Initiative (EPCI), and COCOM controls on jet engine technologies.
The Enhanced Proliferation Control Initiative was established by the Bush administration to provide a non-proliferation "safety net." It was intended to restrict the export of technologies usable for chemical and biological weapons or missiles, regardless of whether such technologies were controlled under existing international agreements (for example, under the 1987 Missile Technology Control Regime).
As explained by the Commerce Department:
According to the August 1991 interim Enhanced Proliferation Control Initiative regulations, the Commerce Department should have conducted a "case-by-case" review of Allied Signal's proposed export to determine whether it "would make a material contribution to the proliferation of missiles." If the export were "deemed to make such a contribution, the license [would] be denied." 144
Baird states that an Enhanced Proliferation Control Initiative review was not conducted for the engines, but was conducted for the production technology: "As far as the engines went, sending the whole engine up, we didn't feel it raised EPCI concerns. As far as the technology went, we did." Baird did not further explain the basis for the Commerce Department decision that the Garrett engines themselves did not require an Enhanced Proliferation Control Initiative review; nor did he explain why the technology did raise EPCI concerns.145
The Department of Commerce was unable to provide the Select Committee with any records of the Enhanced Proliferation Control Initiative review it conducted for the Garrett engine production technology.146
Allied Signal's partners in the Garrett engine transaction included:
A 1992 U.S. Government review of these proposed end users found that the export of Garrett engine production technology to the PRC could pose a national security threat to the United States.
The review found that PRC co-production of Garrett TFE-731-2 engines would enable Beijing to develop higher quality turbojet and turbofan engines for use in military and civilian aircraft and in cruise missiles. PRC access to this production process would also give Beijing the means to extend the range of its cruise missiles. This was of special concern because PLA missiles, rockets, and aircraft are produced at facilities also used for civilian production.
A Garrett representative confirmed that the Zhuzhou South Motive Power and Machinery Complex was the intended producer of the Garrett TFE-731-2 engine. There was concern that a flow-through of applicable production technologies to the PRC's cruise missile engine program was almost inevitable.147
The PLA's HY-4 cruise missile is reportedly now powered by a copy of a U.S. turbojet engine.148 In addition, the conditions placed on the export of the Garrett engine technology of course would not prevent the PRC from reverse engineering the engine if that were the PRC's intent.149
Each of the PRC participants in the Garrett engine co-production venture produces military hardware. Despite the assurances of Allied Signal that the engines it proposed to produce in the PRC would be used entirely for commercial purposes, PLA personnel were prominent in the negotiations with Garrett. The CATIC representatives were the same individuals who were prominent in the Committee on Foreign Investment in the United States (CFIUS) case involving the attempted purchase of MAMCO, a Boeing contractor, by CATIC. This is the only CFIUS case in which the President reversed a sale on national security grounds.150
Because the PRC could incorporate complete TFE-731-2A-2A engines or modified variants directly into cruise missile airframes, export to the PRC of the engines themselves - as well as the production technology - presented a national security threat.151
COCOM and Export Administration Regulation reviews were conducted to assess sensitive components in the Garrett TFE-731-2A-2A jet engine.
When Allied Signal's Garrett Engine Division upgraded the TFE-731-2A-2A with the addition of a digital engine controller, it claimed that the new system did not require an export license under the revised Export Administration Regulations and COCOM controls. It was determined that COCOM had not developed an agreed-upon technical definition to distinguish restricted from unrestricted engine controllers.152 This shortfall in the regime set the stage for an extended interagency debate over the status of the TFE-731-2A-2A vis-à-vis COCOM regulations.
The Defense Department believed the Garrett engines contained an embargoed, full authority digital engine control (FADEC) system. Moreover, the Defense Department obtained new information about improvements to the Garrett TFE-731-2A-2A that raised additional national security concerns.153
Regarding the FADEC issue, the Defense Department acquired analysis and technical studies from numerous sources. A Defense Technology Security Administration analysis explained, for example:
Additional confirmation of these findings was contained in a technical paper developed by the engineering staff at the Defense Technology Security Administration:
The Defense Department inquiry found further that Allied Signal initially did not provide accurate information to the Federal Aviation Administration during the civil certification process for the TFE-731-2A-2A:
The evidence obtained by the Defense Department indicated that the TFE-731-2A-2A was not simply a 20-year old engine for business jets, as Allied Signal and Commerce Department officials had claimed.156 (Indeed, as of January 3, 1999, the TFE-731-2A-2A has never been used in a business jet.)157
It is true that the engine had been derived from the TFE-731-3, an engine used in both civil and military applications, including the Cessna Citation III business jet and the CASA C-101BB ground-attack jet. But the engine had been upgraded with a new turbine to lower its infrared signature, thus improving the combat survivability of the aircraft in which it would be contained - for example, through the ability to escape detection by surface-to-air missiles.158
The Garrett engine controversy was ultimately resolved through an interagency agreement at the Deputy Assistant Secretary level. Regarding the disputed engine controller, the Deputy Assistant Secretary of Defense for Counterproliferation Policy, Mitchel B. Wallerstein, described an interagency compromise in a March 21, 1994 letter to the Deputy Assistant Secretary for Export Controls at the State Department:
The State Department agreed with this proposal, and stated further: "We do not believe that it is necessary to coordinate multilaterally with our COCOM partners before moving to G-DEST treatment." 160
Peter M. Leitner, senior trade advisor at the Defense Technology Security Administration, believes that the "definitional carve out" entailed a political decision to change the definition of the engine controller in order to circumvent export regulations and, in this case, avoid a COCOM review. According to Leitner, "you come up with some unique definition of the item and try to exempt or carve out coverage of that item in the regulations." 161
Baird believes that COCOM reviewed the export license application for the upgraded variant of the Garrett TFE-731-2A-2A.162 Webb believes COCOM did not review the application.163 The Commerce Department was unable to provide records of any COCOM review conducted for the upgraded Garrett engines.164
Defense Department records indicate that some U.S. government officials believed a COCOM review of the upgraded engines was essential. Without such a review, the United States might be seen by its partners as attempting to "circumvent CoCom controls." 165
Wallerstein interprets the reference to "a carve out from the definition of FADEC" to mean that the disputed FADEC engine controller would be removed or modified to ensure that the TFE-731-2A-2A could be exported without controlled technology.166 However, Wallerstein does not recall seeing any technical proposal from Allied Signal to modify the engine controller.167
The documentary record suggests that the final, upgraded variant of the Garrett TFE-731-2A-2A was never submitted for a review by COCOM, which ceased operations in April 1994.168
This interagency decision was finalized and reported in the news media in October 1995. As the Wall Street Journal reported then:
Between 1992 and 1996, Allied Signal reportedly exported 59 of these TFE-731-2A-2A jet engines to the PRC. Beijing's main interest was in acquiring a production capability for the engines; thus, it halted further orders when co-production plans were scuttled.171
The PRC is continuing its effort to acquire production processes for U.S. jet engines. For example, Pratt & Whitney Canada, a subsidiary of Connecticut-based United Technologies, in February 1996 became "the first foreign company to establish an aviation parts manufacturing joint venture in China (with Chengdu Engine Company)." 172 The Chengdu Engine Company manufactures components for, among other purposes, large jet engines used in Boeing aircraft.173 The Chengdu factory also manufactures parts for the PRC's WP13 turbojet engine, which powers the PLA's F-8 fighter.174 In 1997, a new joint venture was reportedly proposed for Chengdu.
United Technologies operates additional aviation joint ventures with Xi'an Airfoil Technology Company and China National South Aero-Engine and Machinery Company. These ventures are largely comprised of manufacturing jet engine "cold section" components or producing relatively low-technology "hot section" components.176 United Technologies claims that it has coordinated these aviation projects fully with the appropriate export licensing organizations in the U.S. Government.177
THE PRC'S ACQUISITION
Many of the same machine tools and manufacturing processes are also used in manufacturing strategic and tactical missiles.
The requirements of the aircraft industry, although far outweighed by those of other industries in terms of production volume, have played an important role in helping to motivate the development of machine tools of high precision and versatility. For example, in the United States, some of the earliest research on numerical control of machine tools was sponsored by the U.S. Air Force. The work was done at MIT, with application to aircraft manufacturing as the objective.179
The PRC, too, has recognized the importance of machine tools in both its military and civilian aircraft production programs, as well as in industry generally. Particularly since the 1960s, it has embarked on a variety of programs both to acquire machine tools from foreign sources, and to develop an indigenous machine tool industry.
The United States has exported substantial numbers of advanced machine tools to the PRC for aircraft co-production programs, including the Boeing 737 and the McDonnell Douglas MD-80, under end-use agreements and controls. (Prior to the 1960s, before the ideological break with the Soviet Union, the PRC relied to a considerable extent on technology transfer in the aircraft and missile field from the Soviet Union. More recently, since the collapse of the Soviet Union, transfer of aircraft technology from Russia, driven by economics if not ideology, has been increasing.)
Manufacturing Processes for Aircraft Structures
1 "Report to Congress Pursuant to Section 1305
of the FY97 National Defense Authorization Act," Defense
Intelligence Agency, April 1997.
CHAPTER 10 TEXT | CHAPTER 10 NOTES