Research Story of the Week

What's Behind U.S. Nonproliferation Sanctions Against Norinco?

Phillip C. Saunders and Stephanie C. Lieggi

Logo Norinco logo.


The Bush administration's decision to impose a ban on imports from the China North Industries Group (Norinco) and its subsidiaries for transfers of dual-use equipment to a company involved in Iran's ballistic missile program marks a significant shift in the Bush administration's nonproliferation policy. The sanctions were prompted by increasing U.S. concerns about Iranian weapons of mass destruction (WMD) and missile programs and dissatisfaction with China's slow progress in implementing effective export controls. Although the official announcement does not specify precisely what was transferred, press reports suggest that Norinco made a series of transfers of dual-use materials (possibly including high-strength maraging steel) that could be used in Iran's ballistic missile program. The items transferred do not appear to be specifically covered by China's recent export control regulations or the Missile Technology Control Regime (MTCR) control list. By employing two executive orders as the basis for sanctions, the Bush administration is lowering the threshold of items that can trigger sanctions and moving beyond international export control standards. The economic impact of the sanctions, which could disrupt up to $100 million in Norinco exports to the United States, signals the Bush administration's impatience with China's unwillingness to halt low-level transfers of equipment that could aid Iranian WMD and missile programs.

The Legal Basis for Sanctions against Norinco

The State Department announced on 23 May 2003 that the U.S. government had imposed sanctions against China North Industries Group (Norinco) for supplying materials to Iran's missile program. The sanctions include a ban on exports of defense articles and services to Norinco, a ban on U.S. government procurement of Norinco products, and a two-year ban on imports of Norinco products. Although the official announcement does not specify what materials were transferred, press reports indicate that Norinco was providing maraging steel and other items to Shahid Hemmat Industrial Group, an entity involved in Iran's ballistic missile development program. Unlike most Chinese firms that have been sanctioned in the past, Norinco has sizeable business ties with U.S. companies and offices in the United States. Norinco is an important supplier of military-related goods to the People's Liberation Army and is active in the international arms trade sector, but the company and its subsidiaries are also involved in civilian enterprises, trading in items such as light industrial and high-tech products. The sanctions may cost Norinco as much as $100 million a year in lost exports to the United States and are also likely to hurt Norinco's U.S. trading partners, which include large corporations such as Wal-Mart and Kmart.

The Bush administration employed two rarely used executive orders as the basis for the Norinco sanctions.[1] The executive orders permit the use of lower standards for triggering sanctions, provide for stiffer penalties, and give the administration more discretion on the duration of the sanctions. The executive orders allow for an import ban on entities engaged in transfers of anything that "has materially contributed" to any country "acquiring the capability to develop, produce, stockpile, deliver, or use weapons of mass destruction or their means of delivery." Although there has been no official statement indicating why the executive orders were employed in this case, the Bush administration appears to be responding to a series of transfers of low-level items that may not be covered by the MTCR control list or that skirt the limits of the Chinese missile technology export controls adopted in August 2002. Legislation used for previous sanctions, such as the 1992 Iran-Iraq Arms Non-Proliferation Act and the 2000 Iran Nonproliferation Act, is either based specifically on international export control lists or lacks provisions for an import ban that would make the sanctions bite. The Bush administration appears to be lowering the threshold for sanctions (and possibly the standards of evidence) in order to send China a clear message that any transfers that contribute to Iranian WMD and ballistic missile programs will have consequences. The executive orders also give the administration the flexibility to lift the sanctions in the future without the need for Congressional action or authorization.[2] The announcement specifies a two-year duration for the sanctions, but the executive order used states that the sanctions can be terminated by the Secretary of State if the sanctioned entity has ceased all proliferation activities. Washington has probably made Beijing (or Norinco directly) aware of what must be done for the sanctions to be lifted.

China's Proliferation Record with Iran

For the last two decades, the U.S. government has been concerned about China's proliferation activities, especially with respect to Iran. Economic reforms implemented in the 1980s gave Chinese firms financial incentives to export a wide range of goods and technologies, including ballistic missiles and dual-use technologies that could be used in WMD programs. China was initially unwilling to change its export control policies due to the economic benefits these exports had for China's defense industry and the political influence this trade gave Beijing in key regions such as the Middle East. Throughout the 1990s, the U.S. government pressured Beijing to strengthen export controls and to stop proliferating WMD-related technologies. This pressure, along with China's increased participation in international nonproliferation regimes, eventually resulted in a series of pledges from China to improve its proliferation behavior. China cancelled several major deals with Iran, including the planned provision of a nuclear reactor and sales of anti-ship missiles. Implementation of these pledges was far from perfect, however, with the Chinese government adopting a narrow interpretation of China's nonproliferation commitments and Chinese firms making liberal use of loopholes in Chinese export control regulations. As a result, the United States imposed sanctions on Chinese companies and individuals involved in the transfer of WMD materials and technology to Iran on numerous occasions between 1997 and 2002.[3]

Beijing promulgated a comprehensive set of export controls in 2002 in an attempt to resolve disputes with the United States over its proliferation activities and to improve bilateral relations.[4] The new regulations also reflected an increased recognition of the danger WMD proliferation could pose to China's own national security. The regulations and control lists covered all WMD programs and exports of ballistic missiles and missile technology. The new export controls brought China's regulations close to international standards and filled most of the gaps identified by U.S. authorities. However the new regulations did not address U.S. concerns about trade with specific "countries of concern" such as Iran. After the announcement of the regulations, Beijing pointedly remarked that China would implement the regulations based on its own understandings of which states posed proliferation risks.

Beijing's new missile technology export regulations include a control list that closely matches the MTCR control list, fulfilling a promise that China made to the United States in November 2000.[5] However China's missile export control list has a number of minor gaps, which could potentially be loopholes allowing the export of certain items useful for ballistic missile development programs without licenses. Neither the Chinese government nor the company has denied that Norinco traded with Iranian firms, although they do deny that any items traded were for "relevant" Iranian missile programs. The Chinese denials, combined with the Bush administration's use of broad-based executive orders, suggest that the transfers that triggered the sanctions were either for missile systems that fall below the MTCR standards (the ability to deliver a 500 kg payload to a 300 km range) or for specific items not covered by the MTCR control list or the 2002 Chinese export control regulations.

Imposing Sanctions: Why Now?

Sino-U.S. relations have improved significantly over the last two years, with the two countries cooperating on security issues such as combating international terrorism and resisting North Korea's nuclear ambitions. Although sticky issues such as U.S. arms sales to Taiwan and China's opposition to missile defense remain, the overall momentum in bilateral relations has been positive. Given these positive trends and a scheduled meeting between President Bush and Chinese President Hu Jintao on June 1st, why has the United States imposed sanctions on China now?

The sanctions likely reflect a combination of increasing U.S. concerns about Iranian WMD and missile programs and dissatisfaction with China's slow progress in implementing effective export controls. Bush administration officials have recently accused Iran of having active chemical and nuclear weapons programs as part of efforts to focus international attention on Tehran's suspected WMD programs and reported harboring of terrorist operatives involved in the recent attacks in Saudi Arabia. These concerns probably contributed to Washington's decision to take a forceful approach on this case. Earlier sanctions against Chinese companies were primarily symbolic since the businesses involved had only minimal interaction with the United States. These measures were meant to punish Norinco in order to make clear that Washington wants to see concrete efforts taken to halt any Chinese assistance to Iran's WMD programs.

A second reason reflects concerns about implementation of Chinese export controls. When Beijing announced its new regulations in 2002, U.S. officials were cautiously optimistic about China's seriousness, taking a "wait-and-see" approach. The recent sanctions suggest that the Bush administration has decided that China's behavior is not progressing at an acceptable pace. When Beijing published the 2002 regulations, Chinese arms control officials played down discrepancies with the MTCR as irrelevant because Chinese entities did not produce the items in question, or "they have never come into the picture, or because our experts do not know exactly what they are."[6] However, some U.S. analysts and officials were concerned that the discrepancies might be intentional loopholes intended to allow Chinese companies to complete already existing contracts (particularly with Pakistan) and to allow Chinese companies to continue exports of dual-use items not covered by international export control lists. While the Bush administration has been silent on reported Chinese "grandfathering" of existing missile technology contracts with Pakistan, the current tension between Washington and Tehran has reduced U.S. tolerance for low-level Chinese exports that might assist Iran's WMD and missile programs. Washington probably also wants to send a strong message that the Chinese government should utilize "catch-all clauses" in the new Chinese export control regulations to stop Chinese firms from exploiting loopholes to transfer dual-use equipment and technology to entities involved in WMD and ballistic missile development. The U.S. government likely approached China on this matter prior to the announcement of sanctions, but presumably did not receive a satisfactory response from Beijing.

Conclusion
Concerns about Iranian WMD and ballistic missile programs--and the desire to push the Chinese government to implement its export control regulations rigorously--caused the Bush administration to impose nonproliferation sanctions that will have a significant economic impact on Norinco and its U.S. customers. Beijing will likely complain that these sanctions are based on U.S. security concerns rather than international nonproliferation norms, and may seek some symbolic ways to retaliate against U.S. firms. However the sanctions are unlikely to inflict major damage on bilateral relations. If Norinco ceases exports of dual-use goods to Iran and the Chinese government implements its export control regulations more effectively, the sanctions will likely be lifted relatively quickly.


[1] The executive orders in question were both issued by President Clinton in the 1990s. Executive Order 12938 was signed in November 1994 and Executive Order 13094, which expanded the scope of Executive Order 12938, was signed in July 1998.
[2] The executive order does not specify a duration for sanctions, but the notice in the Federal Register announcing the sanctions noted a period of two years.
[3] See "US Arms Control/Nonproliferation Sanctions Against China," <http://www.nti.org/db/china/sanclist.htm>.
[4] See Jing-dong Yuan, Phillip C. Saunders, and Stephanie Lieggi, "Recent Developments in China's Export Controls," Nonproliferation Review (Fall-Winter 2003), pp. 153-167.
[5] In November 2000, China issued a policy statement on missile nonproliferation in which the government promised to issue export control laws covering missile technologies. The pledge also stated that the new laws would include such regulations as license application and review, end-user certifications, and a "catch-all" clause. See "People's Republic of China Foreign Ministry Spokesperson's Statement" from 21 November 2001, <http://www.nti.org/db/china/engdocs/prcmtcr.htm>.
[6] "Briefing by Mr. Liu Jieyi Director General of Arms Control and Disarmament Dept. MFA on the Promulgation of Regulations on Export Control of Missiles and Missile-related Items and Technologies and the Control List," 27 August 2002, on China's Ministry of Foreign Affairs Website <http://www.fmprc.gov.cn/eng/34245.html>.


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Author(s): Phillip Saunders, Stephanie Lieggi
Related Resources: Missile, East Asia, U.S., Weekly Story
Date Created: May 30, 2003
Date Updated: June 6, 2003
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