[R-G] China-Iran Trade Surge Vexes U.S.

[Yoshie Furuhashi]

Noam Chomsky says: "Despite the saber-rattling, it is, I suspect,
unlikely that the Bush administration will attack Iran" ("Chomsky:
There Will Be a Cold War Between Iran and the U.S.," City Lights, 30
July 2007, 31 July 2007, <http://www.alternet.org/story/58243/>).

Iran's Islamists don't think that the Bush administration will go
beyond covert actions, "democracy assistance," and economic sanctions
at this point either.  On this they agree with Noam Chomsky, and so do
I (except you can never put any act of adventurism past Washington, so
my confidence is not 100%).

Since the empire's main tools against Iran are neither missile attacks
(possible but unlikely) nor ground invasion (impossible now) but
economic sanctions, "democracy assistance," and covert actions, what
military hardware and capacity for conventional warfare Iran has is
not yet relevant (the Russians and the Chinese do not give away their
goodies nowadays, but they have been willing to sell quite a few, and
the Iranians have been able to pay for them -- unfortunately. neither
Moscow nor Beijing would share with Tehran the best of what they got).

The most important questions are whether other countries* are willing
to subvert formal and informal sanctions on Iran that Washington has
been putting together and whether the Iranians are willing to make
material sacrifices for their country's independence, such as
tolerating gasoline rationing, which Iran's government would not have
risked if it hadn't thought that Washington might use Iran's
dependence on gasoline import against the country, and moderating
factional divisions and class and other social conflicts, so as to
deny the empire an ability to divide and conquer.

* <http://online.wsj.com/article/SB118547206362379113.html?mod=googlenews_wsj>
China-Iran Trade Surge Vexes U.S.
Friday, 27 July 2007
By Neil King Jr.

WASHINGTON -- The U.S. government says a handful of Chinese companies
have ramped up shipments of sensitive military technologies to Iran,
part of a surge in China-Iran trade that is complicating efforts to
apply pressure on Tehran to rein in its nuclear program.

The State Department and its embassy in Beijing have lodged "numerous"
formal protests with the Chinese government since the start of the
year over the shipments, U.S. officials said. They said the goods have
included a range of specialty metals and other dual-use items that
could aid Tehran's missile and nuclear programs, with some cargoes
going to Iran's main ballistic-missile producer. The U.S. argues that
such trade is barred under a December United Nations sanctions
resolution on Iran.

The Chinese government declined to respond to questions about the U.S.
allegations. It has previously accused the U.S. of placing sanctions
on Chinese companies based on scant evidence.

The growing dispute over China's burgeoning trade with Iran -- its
exports to Iran in the first six months of this year surged 70% from
2006, to $3.2 billion -- comes at a sensitive time. The U.N. Security
Council, which includes China as one of its five veto-wielding
permanent members, is weighing whether to push ahead on a third
resolution to impose tougher trade and financial sanctions on Iran
over its uranium-enrichment work.

The U.S., Britain and some other European countries allege that Iran
is pursuing nuclear weapons under the guise of a civilian power
program, a charge Tehran denies. The U.N. has already imposed two sets
of sanctions on Iran to get it to halt its nuclear program. These
measures have ordered a freeze of the international assets of a major
Iranian bank and 10 entities connected to the country's nuclear and
missile programs, and imposed an embargo on Iranian arms exports,
among other steps. Far from backing off, Iran has pressed ahead with
its nuclear program.

The debate over how to proceed with Iran is likely to take center
stage when world leaders meet in September for the annual U.N. General
Assembly. China and Russia, another permanent Security Council member,
appear increasingly leery of supporting sanctions that would strike at
companies more central to Iran's economy or banking system.

China's controversial shipments to Iran, which coincide with a furor
over defective Chinese exports to the U.S., also raise questions about
Beijing's ability to control the transfer of potential weapons
materials to countries under international scrutiny.

The U.S. has long accused China of supplying nuclear technology to
countries such as North Korea, Pakistan, Iran and Libya. In recent
years, though, Beijing has joined international nonproliferation
agreements and imposed tougher rules on exports.

"This is no longer a government policy problem," said Joseph
Cirincione, an arms-control expert at the liberal Center for American
Progress. "It is a matter of China actually implementing the export
controls it now has in place. It is a problem that many countries
have."

In a classified incident this year, U.S. intelligence agencies tipped
off authorities in Singapore about a container that was transiting
through its port from China en route to Iran. Inside the container,
Singaporean customs agents found large quantities of a chemical
compound used to make solid fuel for ballistic missiles, U.S. and
other international officials said.

More disturbing, U.S. officials said, was the intended recipient: the
Shahid Bagheri Industrial Group, which is responsible for Iran's
efforts to develop long-range missiles. The company was among the 10
entities targeted in the set of U.N. sanctions levied on Iran in
December.

U.S. officials declined to name the Chinese company that was allegedly
behind that shipment or the other companies allegedly behind other
recent shipments. The officials said most of the questionable Chinese
exports to Iran have come from five or six Chinese firms, all of which
are under unilateral U.S. sanctions for allegedly shipping missile
components and other restricted military equipment to Iran. Since
2005, the U.S. has imposed unilateral sanctions on nine Chinese
companies believed to be engaged in such trade. The sanctions bar U.S.
companies from doing business with any of these companies.

Companies the Bush administration considers "serial proliferators" to
Iran include Beijing Alite Technologies Co., China Great Wall Industry
Corp. and China National Precision Machinery Import/Export Corp. An
official from Beijing Alite said the company's products "have nothing
to do with military weapons" and that it stopped trading with Iran in
2003. A China Great Wall spokeswoman said the company "never had any
business relationship with Iran." An officer at China National
Precision declined to comment.

When the U.S. renewed sanctions on these companies last year for
allegedly continuing shipments of sensitive materials to Iran, a
Chinese Foreign Ministry spokesman said the U.S. had provided no clear
evidence of wrongdoing and criticized the move as "groundless and
extremely irresponsible."

For the White House, China's growing economic ties with Iran pose the
biggest impediment to its strategy of combining incentives and
economic pressure to get Tehran to back off its nuclear work. While
many European companies and banks have begun to cut back their
dealings with Iran, Chinese companies are surging ahead. A branch of
China North Industries Group, or Norinco, China's huge state-owned
defense-industrial manufacturer, just signed a deal valued at nearly
$590 million to supply subway trains for Tehran's metro system.

U.S. officials said that in discussions with Beijing, Chinese
officials have denied specific shipments violated U.N. resolutions or
other international treaties. In other cases, they promised to
investigate, but with no apparent follow-through. U.S. officials said
China has clamped down in some instances. Don Mahley, a senior State
Department official, told a congressional panel this month the U.S.
was unable "to ascertain the level of control or awareness that
Chinese officials have over increasingly freewheeling Chinese
companies that trade in materials related to [weapons of mass
destruction] and their delivery systems."

Bush administration officials said the U.S. is also monitoring
shipments to Iran from companies in other countries, including Germany
and Italy. They said Washington could move to impose U.S. sanctions on
some of the companies in coming months.

<http://online.wsj.com/public/article/SB117495743693749812-siqnI8qlULM9hbMuAlzn4v7_q7s_20070425.html>
Trading Outcry Intensifies
Firms Face More Calls to Cut
Ties With Censured Nations
By PAULO PRADA and BETSY MCKAY
March 27, 2007

(See Corrections & Amplifications item below.)

American companies that do business with countries subjected to U.S.
trade sanctions face increasing financial and political pressure to
stop as tensions between Iran and the United Nations Security Council
worsen.

As a result, many companies are severing connections -- or plan to
when current contracts end -- with customers in the 13 countries or
regions penalized after the U.S. accused them of supporting terrorism,
human-rights abuses or other unacceptable behavior.

The clamor spotlights how scores of U.S.-based companies manage to do
business in sanctioned countries either through offshore subsidiaries
or using export licenses granted by the Treasury Department. After
seeing this traffic grow briskly for several years, companies now find
lawmakers stepping up efforts to tighten restrictions and shareholders
and fund managers steering investments away from countries in
Washington's doghouse.

Companies whose foreign subsidiaries operate in a sector dominated by
a sanctioned nation's government -- General Electric Co., Halliburton
Co. and Dresser-Rand Group Inc. among them -- have faced particularly
harsh criticism. Securities filings show many other U.S. corporations
acknowledge their overseas units conduct such business, and the
federal government last year fined at least a dozen U.S. companies for
violating sanctions in Iran, Sudan, Cuba and elsewhere.

"It's questionable and shameful, if not treacherous, behavior," Sen.
Frank Lautenberg said. As part of an Iran sanctions bill introduced in
the Senate last week, the New Jersey Democrat included provisions that
would ban subsidiaries of U.S.-controlled companies that lack a
special export license from doing business in Iran. The new Democratic
majority in Congress tilts the odds in favor of his effort, which
failed as an amendment to three bills in previous sessions largely
because of Republican opposition.

The growing scrutiny comes amid political and grass-roots pressure on
U.S. investors, such as state pension funds, to dump shares of
non-U.S. companies with major investments in energy businesses in
Iran. Earlier this month, Republican Rep. Ileana Ros-Lehtinen of
Florida introduced a bill calling for federal pension funds to sell
shares of any company with more than $20 million in Iran's energy
sector. Such companies include Royal Dutch Shell PLC, based in the
Netherlands; Total SA of France and Russia's OAO Gazprom.

"We're concerned most about...companies that have financial
relationships with a government, helping to develop oil fields and
profits that are then turned around to support terrorism," said Sarah
Steelman, state treasurer in Missouri, who oversees one of the
country's first "terror-free" public investment funds, the $29 million
Missouri Investment Trust.

Florida lawmakers are considering requiring the state's pension fund
to sell any holdings in companies found to have ties to Iran's energy
industry. A separate bill could force the pension fund to divest
itself of 12 companies operating in Sudan, in protest of militia
attacks terrorizing the Darfur region. And pension funds in at least
seven other states already have sold stakes in U.S. companies linked
to Sudan.

The exact number of companies doing business despite trade embargoes
isn't clear, partly because federal officials won't disclose which
companies are legally allowed to export to proscribed countries,
citing a trade-secrets law. Among those known to have interests in
Iran are GE, which services power plants through contracts set up by
non-U.S. subsidiaries; Xerox Corp., which sells spare parts and
supplies, though no longer sells copiers there; and Overseas
Shipholding Group Inc., which operates tankers that at times dock in
Iran and transport Iranian oil to other foreign buyers.

Many in business and industry oppose any tightening of sanctions laws,
which already put them at a disadvantage with overseas rivals.
"Foreign competitors are not dummies," said William Reinsch, president
of the National Foreign Trade Council, a business group that promotes
free trade. Sanctions can "destroy your reputation as a reliable
supplier, and it's something that your foreign competitors will play
up shamelessly with their customers."

U.S. exports to sanctioned countries surpassed $1.15 billion last
year, according to the U.S. Census Bureau. Exports to Iran were $85
million, up from $8 million in 2001. Those figures don't count
services such as consulting or revenue generated through subsidiaries
in embargoed countries. Despite the increase, trade with Iran is at
less than 20% of its volume in the early 1990s, before the Clinton
administration tightened restrictions on sales or investments by U.S.
companies.

"U.S. companies are generally happy to do business in these places
because they want to build a relationship in case things thaw," said
Adam Pener, chief operating officer of Conflict Securities Advisory
Group Inc., a consulting firm that advises institutional investors on
the risks of buying stakes in companies with exposure to countries
linked to terrorism. "As soon as people start shining the light on
these things, it's a no-brainer...to leave because you don't want to
be seen as supporting or associated with terror."

[Chart]
<http://online.wsj.com/public/resources/images/NA-AM420_SANCTI_20070326190431.gif>

Under U.S. law, makers of agricultural products, medicine, equipment
and services can get licenses to legally export items as long as they
are used for food, health or humanitarian purposes. But that
definition is broad enough to include photography equipment, musical
instruments, plastics and tobacco, according to the Census Bureau.

Companies without a license still can do business through foreign
subsidiaries if those units are run separately from the U.S. parent
and don't have any U.S. citizens as managers, directors or employees.
But non-U.S. units can be difficult to monitor, and some critics claim
they offer a huge trade loophole for American companies.

In filings with the Securities and Exchange Commission this year,
various U.S. companies acknowledge their foreign subsidiaries conduct
business in embargoed countries. A recent filing by heavy-machinery
maker Dresser-Rand, for instance, notes that "some of these
countries...are or previously have been identified by the State
Department as terrorist-sponsoring states" and that "our reputation
may suffer due to our association with these countries."

Natco Group Inc., a Houston maker of oil-and-gas-production equipment,
said in a filing that subsidiaries in the United Kingdom, Japan and
Canada "have made sales" and "expect to continue making sales...to
customers in certain countries that are subject to U.S. government
sanctions."

Dresser-Rand, of Houston, declined through a spokesman to comment.
Calls to Natco seeking comment weren't returned.

Last year the Treasury Department's Office of Foreign Assets Control
fined more than a dozen U.S. companies for violations. Supermicro
Computer Inc., a San Jose, Calif., maker of computer servers, paid
more than $450,000 in fines because the company, through a Dubai-based
distributor, knowingly sold 300 computer motherboards in Iran. Howard
Kalt, an investor-relations manager for Supermicro, says the company
severed its relationship with the distributor and launched an "export
compliance program," and that violations by the company "are all past
tense now."

The heightened scrutiny has led some companies to say they will wrap
up operations their subsidiaries conduct in sanctioned countries when
they complete existing contracts.

Flowserve Corp., a supplier of pumps, valves and other equipment, gets
1% to 2% of its revenue from Iran, Syria and Sudan. The Dallas company
is making "a voluntary withdrawal" from pursuing additional business
there but "may continue to honor certain existing contracts,
commitments and warranty obligations," according to a securities
filing last month. A company spokesman, in an email response to
questions about the decision, said "once these legally compliant
warranties and contractual commitments expire, these subsidiaries will
no longer do any business in these countries."

Such withdrawals can be slow, though. GE and Halliburton, for example,
reacted to pressure by announcing in 2005 they would stop seeking new
business in Iran. Yet neither has actually pulled out.

GE still has "long-term service agreements and maintenance agreements"
for power plants and sells spare parts for oil and natural-gas
projects there, spokesman Gary Sheffer said. Its Iran operations are
handled through units in Austria, Canada, China, France, Italy and the
U.K.

Halliburton is "winding up our work in Iran, and will exit upon the
completion of existing commitments," spokeswoman Melissa Norcross
wrote in an email.

--Neil King Jr. contributed to this article.

Write to Paulo Prada at paulo.prada at wsj.com and Betsy McKay at
betsy.mckay at wsj.com

Corrections & Amplifications:

General Electric Co. says it will have no business dealings in Iran
once its existing contracts there expire, except for humanitarian and
other business activity licensed by the U.S. government. This article
implies but doesn't specifically state this aspect of GE's intentions.
GE says the contracts not covered by those U.S. licenses will have
expired by the end of 2008.

--
Yoshie