Export Controls:

Sale of Telecommunications Equipment to China

NSIAD-97-5: Published: Nov 13, 1996. Publicly Released: Nov 21, 1996.

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Pursuant to a congressional request, GAO reviewed the transfer of broadband telecommunication equipment to HuaMei, a joint venture between SCM Brooks Telecommunications, a U.S. limited partnership, and Galaxy New Technology, a Chinese company primarily owned by an agency of the Chinese military, focusing on the: (1) civil and military applications of the exported telecommunications equipment, its availability, and the importance of these applications to China's military; and (2) process and rationale for liberalizing the export of telecommunications equipment shipped to China.

GAO found that: (1) there are numerous civil and military applications for broadband telecommunications equipment, such as Asynchronous Transfer Mode (ATM) and Synchronous Digital Hierarchy (SDH) equipment, including video-conferencing, remote command and control, and telemedicine; (2) since the liberalization of exports of advanced telecommunications equipment, such equipment is now readily available in China; (3) SDH equipment, in particular, is being manufactured and used to upgrade China's telecommunications networks to international standards; (4) according to U.S. government officials, the Chinese military is seeking to acquire ATM and SDH equipment, which may benefit its command and control networks by the end of the next decade; (5) furthermore, these officials stated that as China's telecommunications infrastructure is modernized, the Chinese military will also benefit; (6) the creation of the new General License category, GLX, by the Commerce Department in April 1994, allowed the export of ATM and SDH equipment to HuaMei without a validated license having to be issued by the Commerce Department; (7) ATM and SDH equipment were two of a number of dual-use telecommunications items that were included under GLX; (8) GLX includes many items that would have been typically approved for export to civil end users in the licensing process; (9) according to U.S. government officials, GLX was created in response to the end of the Cold War and the expiration of the Coordinating Committee for Multilateral Export Controls, to ease export restrictions and reduce administrative burdens on U.S. exporters; (10) determining who is a civil end user under GLX is the responsibility of the exporting companies; (11) however, this is particularly difficult in China because of the Chinese military's significant involvement in various commercial ventures; (12) there is no information readily available to exporters on how much military involvement in a commercial entity constitutes a military end user; and (13) based on this one case, GAO is not making any recommendations; however, as the Commerce Department gains experience under GLX, it may want to assess the need to provide additional information or guidance to exporters to help them determine when they should request a government review of an end user.

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