Sunday, October 14, 2012

Ohio Battle Cry: Remember Columbus, Ohio! Ohio Factory Workers Fought Democrats selling them out!

Ohio Battle Cry:  Remember Columbus, Ohio!

Democrats Sale of Aircraft Machine Factory in Columbus, Ohio to China
By John Mintz
Washington Post Staff Writer
Sunday, June 7, 1998; Page A08

Angry already that their factory was closing, some employees at the McDonnell Douglas Corp. aircraft plant in Columbus, Ohio, lost their tempers one day in August 1993 when dark-suited Chinese officials arrived to inspect the surplus machinery put up for sale. Some workers yelled epithets, blocked the Chinese visitors' video cameras or moved filing cabinets in their path.  The visitors, from a Chinese government aircraft company, were eager to buy the plant's colossal computer-controlled machines, which had made parts for the B-1 bomber and the C-17 transport.

Soon they struck a deal for $5.4 million and, after the U.S. Commerce Department secured a promise that the machines would be used only to build jetliners, the Chinese trundled the equipment into trucks and shipped it to China. But some of the sensitive U.S. equipment turned up at a Chinese factory that makes Silkworm missiles, and in 1996 the Justice Department launched a criminal investigation into whether Chinese officials lied by pledging they would not use the machinery to make weapons, and whether McDonnell Douglas knew or should have known that the Chinese commitment was bogus. The investigation, which is ongoing, could result in charges against both parties of violating the terms of their export license.  As several congressional committees probe the relationship between technology exports to China and national security, the story of how these machine tools the size of a football field were improperly transported to a missile plant serves as a case study in the pressures to export technology and the hazards of trying to control its ultimate uses.

Critics of the Clinton administration's export policy say the criminal investigation shows how administration officials and McDonnell Douglas were so eager to close a big business deal in China that they discounted warnings about the Chinese government's record of misusing sophisticated U.S. technology.  Officials of the Boeing Co., which bought McDonnell Douglas last year, deny any impropriety. They point out that China never used any of the equipment to build weapons. The machinery, between nine and 26 years old, was not particularly sophisticated and could have been bought by the Chinese in Japan or Europe, the firm says. The company points out that McDonnell Douglas itself discovered the improper diversion of the equipment and notified the U.S. government. The machinery was soon transferred to a commercial plant.

"We reported that the machinery was in a place not intended in the license as soon as we knew about it, as we were expected to do," said Larry McCracken, a Boeing spokesman. "This is a case when the export control rules worked," said Commerce Department spokeswoman Susan Hofer.  At the time of the sale, McDonnell Douglas had a huge incentive to increase its commercial ties to China. The company had just emerged from near-bankruptcy, and its almost moribund commercial jetliner division in Long Beach, Calif., was relying on sales to China as a last hope for survival. For several years, the company had been training Chinese engineers and shifting large blocs of work to China in response to assurances that China would sign a $5 billion contract to buy 150 planes.

In 1992, the Chinese agreed to a so-called "Trunkliner" contract, but for many fewer aircraft than originally expected, 40 160-seat MD-90 jets for $1.5 billion.  The following year, the China National Aero-Technology Import and Export Corp., or CATIC -- a Chinese government-run defense firm that is the Chinese military's main purchasing arm -- expressed interest in the machinery at the Columbus plant, which had bent and sculpted huge pieces of metal for the wings and fuselages of Air Force jets since World War II.

McDonnell Douglas officials resisted selling at China's price. In August 1993 a CATIC official in Los Angeles sent a letter to Beijing superiors saying McDonnell's negotiating posture was "bricklike . . . no give. . . . We have to turn over all our cards on the table."  Weeks later, a CATIC vice president warned a top McDonnell executive in a letter that any hope for its huge jetliner deal could be dashed if the company didn't break the "stalemate" and sell the equipment.

"I think for sure, whether or not this procurement project will be successful shall have a big influence on the Trunkliner program and long-term cooperation between AVIC [Aviation Industries Corp. of China, CATIC's parent] and MDC," the CATIC official wrote. Gary Milhollin, a critic of high-tech sales to China, said Chinese officials often demand such "sweeteners" from U.S. companies that are eager to close deals with China.

"The Chinese told McDonnell Douglas, you can either sell us this sensitive technology or risk losing this big aircraft contract," he said. Later in 1993, McDonnell Douglas rejected an offer from a delegation of the plant's 1,000 workers to buy the machines. Instead it struck a deal to sell 19 of the machines to China for $5.4 million, a sum a Pentagon report later compared with a "fire sale." Jump-suited Chinese workers crated the huge machines and loaded them in trucks in March 1994, and the plant shut.

The Commerce Department then began an interagency review on whether to grant a license to export the machinery to the Chinese, who said it would be used exclusively in a planned new plant to make parts for McDonnell Douglas's 40 jets.

Initially, officials of the Navy, Air Force, Joint Chiefs of Staff and Defense Intelligence Agency opposed the sale.

They suspected the Chinese intended to use the machines to make military jets, in part because the machines represented more capacity than was needed for McDonnell's 40 planes. Some Pentagon officials also pointed out that China's military had specifically sought the same equipment to modernize its combat jets, Defense Department documents show.

Officials of the Defense Technology Security Administration [DTSA], the Pentagon agency that opposes weapons proliferation, cited evidence for that assertion: letters to CATIC from a defense plant in Shenyang stating which of the McDonnell Douglas machines it could use. The United States "must assume that any advanced technology in CATIC's hands will be diverted for military production" if the Chinese so choose, DTSA analyst Peter Leitner said in a 1994 memo to Commerce.

"This case represents a very dangerous transfer of a major part of a military aerospace production line" to China. He added that Commerce plans to place meters on the machines to gauge how the Chinese were using them was "meaningless."  Meanwhile, some U.S. agencies received evidence the Chinese had no intention of building the commercial jet parts plant that they promised would be the machines' home. "It was a fantasy plant," said a government investigator who has worked on the case. "McDonnell knew the plant was behind schedule, and maybe wasn't going to be built." Boeing officials today deny this. Amid Commerce's review of the deal, then-Commerce Secretary Ronald H. Brown visited China to promote the sale of U.S. products, and helped persuade top Chinese officials finally to move forward on a renegotiated Trunkliner deal with McDonnell.

Two weeks later, the Commerce Department approved sale of the machines with conditions -- for example, that they be outfitted with usage meters, and that McDonnell report quarterly to Commerce on their location. In the end, despite opposition to the sale by some military officials, the Pentagon itself did not oppose it.

The mammoth crates were shipped from Long Beach in late 1994. Several months later, in March 1995, McDonnell Douglas officials made their discovery: Six of the machines had not been sent to the agreed-on commercial plant in Beijing, but 800 miles away to the Nanchang Aircraft Co., which makes cruise missiles as well as some civilian items.

McDonnell reported the diversion immediately to the Commerce Department, which helped McDonnell persuade the Chinese to transfer the machines from Nanchang to a Shanghai plant that makes plane parts for McDonnell Douglas.  Six months after McDonnell's discovery, Pentagon counter-proliferation officials who felt their warnings had been vindicated started pressuring Commerce to investigate the matter.

Commerce and Customs Service investigators launched a probe of the Chinese diversion in 1995, and the Justice Department took over in 1996.  Investigators have evidence that they believe suggests the machines were intended for military use all along.

In 1993, while Chinese officials swore the machines would be used only for civilian purposes, U.S. spy satellite photos showed construction of the huge building at the Nanchang military plant where the six machines were later installed, government officials said.  Today, all the machines are in the commercial jet plant in Shanghai, though most are not hooked up, McDonnell Douglas said. Industry executives said work on the company's MD-90 jets under the Trunkliner contract, after months of delays, has been scrapped indefinitely. One reason is that Boeing, McDonnell's successor company, is ending MD-90 production in this country.

Democrats war on the people of Columbus, Ohio and the American People:  January 20, 1993 – January 20, 2001

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:

We received 23 applications covering all of the material involved in this project two days ago. [McDonnell Douglas] plans on shipping to CATIC.
We have a long history with CATIC, which has been the consignee on numerous occasions - approved and denied based on licensing policies in effect at the time. CATIC was also the entity that attempted to buy the Machine Tool plant in the Northwest that was "denied" under the CFIUS process.
. . . .
Because of the sensitivity of this case, I think we should get it
to the ACEP [Advisory Committee for Export Policy] ASAP. We are going to suggest to the other agencies that we forgo the 60-90 [day] review process and, instead, bring together all the relevant experts in a special [Operating Committee] meeting in 2-3 weeks to make a recommendation.

If it is not agreed to approve the transaction at that point (and it won't be),
we'll get the issue before the next ACEP.

Stay tuned. 23
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:

An interagency meeting was held 7 June 1994. Defense, State and Commerce were in attendance; Energy and CIA were invited but did not attend.
McDonnell Douglas representatives outlined their proposal. They would like closure on their license applications by 5 July 1994.
The possibility of meeting that request seems remote. First, initial staffing within DoD was accomplished 7 June 1994, when we received the required documentation from Commerce. Second, all parties agree that the prospects for escalation within the [U.S. Government] seem high, due to the scope of the proposed program, and the precedence [sic] it may establish. We will keep you informed of additional developments.24

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
Because of concerns that the McDonnell Douglas machine tools would give the PRC manufacturing production capabilities in excess of what was required for the Trunkliner Program, the Department of Defense asked for information that would assist it in determining whether these machine tools could be diverted to production of PLA military aircraft.

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.

On August 9, 1994, the Defense Intelligence Agency provided a supplemental report explaining the results of its thorough assessment of the applicability of the McDonnell Douglas machine tools to three known PLA fighter aircraft programs, each of which incorporated stealth technologies. The report concluded:

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.

Similarly, placing these machine tools in one facility would reduce the financial outlay needed to acquire duplicate advanced machine tools for multiple military aircraft programs.
DIA . . . maintain[s] that the production capacity resulting from the McDonnell Douglas sale is above and beyond the requirement necessary for exclusive production of 20 MD-82 and 20 MD-90 McDonnell Douglas [aircraft], which is the stated end use in the export license application.
In fact, recent press reporting indicates China [the PRC] has dropped plans to build 20 MD-82s and will limit future production to just 20 MD-90 aircraft.27

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 Program
When McDonnell Douglas applied for export licenses on May 26, 1994, the applications noted that the machine tools would be used by the Beijing CATIC Machining Center primarily for the Trunkliner program. According to those license applications, McDonnell Douglas had a contract with CATIC to co-produce 20 MD-82 and 20 MD-90 aircraft.29

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
The McDonnell Douglas export license applications were discussed at the June 24, 1994 meeting of the Advisory Committee for Export Policy (ACEP).

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

[The Department of Defense] said that, if it had to vote at that time, it would recommend denial of the licenses because of concerns that the machine tools would be diverted. Moreover, there were concerns that the McDonnell Douglas machine tools would give the PRC excess production capacity, thus allowing other machine tools in its inventory to be diverted from civilian to military production.
[The Department of] Energy indicated that, without further review, "it would have to defer to Defense in denying this transaction and the underlying applications."
[The Department of] State recommended approval, provided that appropriate safeguards and conditions could be formulated to minimize the risk of diversion.
[The] Arms Control and Disarmament Agency agreed with DOD [the Defense Department]'s position, noting that it would recommend denial of the license applications should it have to vote at that time.
[The Department of] Commerce recommended approval with conditions to minimize the risk of diversion to unauthorized uses.

The License Is Issued
The Advisory Committee member agencies later agreed to issue the export licenses with 14 conditions.38

Those conditions required, among other things, that:

The machine tools were to be stored in one location pending completion of the Beijing CATIC Machining Center
McDonnell Douglas was to provide quarterly reports to the Department of Commerce and the Defense Technology Security Administration should the Beijing CATIC Machining Center not be completed when the machine tools arrived39

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:

CATIC plans to establish several specialized factories under their new CATIC Machinery Company, and that [the CATIC Machining Center] would be one of those plants. [The CATIC Machining Center] will be established either near Beijing . . . or in Shijianzhuang at the Hongxing Aircraft Company . . .41

McDonnell Douglas's Plans

McDonnell Douglas's Limited Role at the Machining Center
Although McDonnell Douglas was planning to place up to four of its employees at the Beijing CATIC Machining Center, this was not to occur until late 1995 at the earliest.

Moreover, the Machining Center was not to be a joint venture between CATIC and McDonnell Douglas. Rather, it was to be a CATIC facility that supported CATIC's responsibilities to the Trunkliner Program.

Trunkliner Program
Media reports indicated in July 1994 that McDonnell Douglas and the PRC were engaged in negotiations over the number of Trunkliner aircraft to be assembled in
the PRC.42

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.

When queried by DOD officials regarding the continued PRC need for the machine tools in light of possible changes to the Trunkliner program, McDonnell Douglas responded in an August 8, 1994 letter to Defense Technology Security Administration Acting Director Sullivan. The letter provided further explanation regarding CATIC's proposed use of the machine tools. A subsequent August 12, 1994 McDonnell Douglas letter to the Defense Technology Security Administration's Colonel Henry Wurster noted:

. . . The PRC factories that are participating in the Trunk Aircraft Program . . .do not have the capability individually, nor collectively, to accomplish the work share the PRC has agreed to (75 percent of the airframe) . . . If the licenses are denied, the PRC would purchase these types of machines somewhere else . . .

Commerce Department Delays Investigating
Machine Tool Diversion for Six Months

The Commerce Department's Actions in April 1995
As part of the licensing conditions for the machine tools, the machines tools were to be stored in one location pending completion of the Beijing machining center, and McDonnell Douglas was required to ". . . notify the [U.S. Government] of the location of the machine tools and update the [U.S. Government] with any changes of location prior to plant completion."

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:

Nine of the machine tools were located at two sites in the port city of Tianjin, a two hour drive from Beijing
Four other machine tools had yet to be exported and were located at Monitor Aerospace Corporation in Amityville, New York
Six machine tools were reported to be at the Nanchang Aircraft Company 44

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:

. . . CATIC did provide the attached letter to substantiate the list of equipment stored there. CATIC stated that the equipment has not been unpacked and remains in the original crates. [Emphasis in original]

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
An October 5, 1995 e-mail from Christiansen to a number of Commerce Department officials, including Office of Export Enforcement Acting Director Mark Menefee, reported that one of the six machine tools in storage at the Nanchang Aircraft Company had been uncrated, and was in the final stages of assembly.

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:

For OEE [the Office of Export Enforcement], please investigate to determine who was responsible for both the diversion of the equipment originally and second who is responsible for the decision to install the equipment at Nanchang.

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:

During last week's ACEP [Advisory Committee for Export Policy] meeting a package of materials were handed out concerning the violation of McDonnell Douglas's export license to the Chinese.
The facts of the case are that CATIC has intentionally misused the export licenses to put controlled technology at a facility not authorized to receive [it].
This facility as confirmed by the Chinese is involved in the manufacture of both missiles and attack aircraft. I will be forwarding a copy of those materials to you separately.
We believe that this is a very serious matter and that the Office of Export Enforcement should conduct a serious investigation into this matter . . .

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 Department
Discouraged the Los Angeles Field Office's Investigation

On June 7, 1998, the CBS program "60 Minutes" suggested that the Commerce Department or other U.S. Government entities were not necessarily interested in a complete and thorough investigation of the machine tool diversion. Among other things, the program included a brief appearance by Marc Reardon, a former Los Angeles Field Office special agent, who had initially been assigned to investigate the case. According to the official CBS transcript of the program:

[CBS journalist Steve] KROFT: (Voiceover) And there's still some debate over just how hard the Commerce Department tried to find out who the bad guys really were. It took them six months to open an investigation. And Marc Reardon, the Commerce Department case agent assigned to investigate,
says higher ups in Washington didn't seem anxious to
get to the bottom of things.

Did you feel like you were getting support from the department?
Mr. Marc REARDON: No. Not at all.
. . . .
KROFT: (voiceover) Reardon, who is now an investigator with the Food and Drug Administration, says he was told who to interview and what questions he could and couldn't ask.
Has that ever happened before?
Mr. REARDON: Not in my career.
KROFT: What did you make of it?
Mr. REARDON: That somebody didn't really want the
truth coming out.46

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
Request for a Temporary Denial Order Against CATIC

Under the provisions of Part 766.24 of the Export Administration Regulations (EAR), the Assistant Secretary for Export Enforcement is authorized to issue a Temporary Denial Order (TDO):

. . . upon a showing by [the Bureau of Export Enforcement] that the order is necessary in the public interest to prevent an imminent violation of the [Export Administration Act], the [Export Administration Regulations], or any order, license
or authorization issued thereunder.49

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:

Did not include licensing determination for each commodity that was exported. Licensing determinations were necessary elements of proof that the commodities required a license to be exported.
Did not include any documentary evidence such as shipping and export control documents to confirm that the exports had occurred.
Did not include a schedule of violations that described the specific violations that allegedly had occurred.
Did not use the proper form and format that Office of Export Enforcement regulations specified in the Office's Special Agent Manual.
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.
When Obamas' front man Clinton smiles and moves his fingers thinking he is cool--Look out!
President Clinton term in office:  January 20, 1993 – January 20, 2001
(Go to for complete list)
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
is informed.
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.
Late April/
Early May
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.
Late Winter/
Early Spring
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.

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