In latest China jab, U.S. drafts list of 89 firms with military ties

Avic Joy Holdings HK

23/11/2020 03:43

By Karen Freifeld
    Nov 22 (Reuters) - The Trump administration is close to
declaring that 89 Chinese aerospace and other companies have
military ties, restricting them from buying a range of U.S.
goods and technology, according to a draft copy of the list seen
by Reuters.
    The list, if published, could further escalate trade
tensions with Beijing and hurt U.S. companies that sell civil
aviation parts and components to China, among other industries.
    A spokesman for the U.S. Department of Commerce, which
produced the list, declined to comment. The Chinese foreign
ministry did not immediately response to a request for comment.
    Commercial Aircraft Corp of China Ltd (COMAC), which is
spearheading Chinese efforts to compete with Boeing  BA.N  and
Airbus  AIR.PA , is on the list, as is Aviation Industry
Corporation of China (AVIC) and 10 of its related entities.
    The list is included in a draft rule that identifies Chinese
and Russian companies the U.S. considers "military end users," a
designation that means U.S. suppliers must seek licenses to sell
a broad swath of commercially available items to them. 
    According to the rule, applications for such licenses are
more likely to be denied than granted. 
    U.S President Donald Trump has stepped up his actions in
recent months against China. Ten days ago, he unveiled an
executive order prohibiting U.S. investments in Chinese
companies that Washington says are owned or controlled by the
Chinese military.  L1N2HY2O7 
    The pending list comes after the Commerce Department
expanded the definition of "military end user" in April.
 L2N2CF0JS  
    The April rule includes not only armed service and national
police, but any person or entity that supports or contributes to
the maintenance or production of military items -- even if their
business is primarily non-military.
    The export restriction applies to items as disparate as
computer software like word processing, scientific equipment
like digital oscilloscopes, and aircraft parts and components. 
    In terms of aircraft, the items include everything from
brackets for flight control boxes to the engines themselves. 
    News of the list comes at a sensitive time for the U.S.
aerospace industry as Boeing seeks Chinese approval of its 737
MAX after it was cleared by U.S. regulators last week. In March
2019, China was the first nation to ground the jet following two
fatal crashes and it is already expected to wait months to lift
the ban. A spokesman for Boeing declined to comment.
    Washington trade lawyer Kevin Wolf, a former Commerce
official, said Commerce had shared the draft rule with a
technical advisory committee of industry representatives, and it
should have been kept confidential.
    Wolf said the rule and list still could be modified and that
the clock was running out for it to go into effect under the
Trump administration since it would need to be cleared and sent
to the Federal Register, the official U.S. publication for
rules, by mid-December. 
    In the draft rule seen by Reuters, the Commerce Department
said being able to control the flow of U.S. technology to the
listed companies was "vital for protecting U.S. national
security interests".
    But a former U.S. official who did not want to be
identified, said "merely creating a list and populating it is a
provocative act." An aerospace industry source said it could
spur China to retaliate. 
    The inclusion of COMAC would come as a surprise to at least
one major U.S. supplier, which had determined the company was
not a military end user, the industry source said. 
    A list also would provide European competitors with an
opening to promote their manufacturers, by pointing out they do
not have to clear such hurdles, even if the U.S. grants the
licenses, the industry source said.
    General Electric Co  GE.N  and Honeywell International
 HON.N , both supply COMAC and have joint ventures with AVIC.
    A GE spokesperson said its global joint ventures operate in
compliance with all laws, and that the company has worked to
obtain licenses related to military end users. 
    A Honeywell spokeswoman declined to comment.
    Besides the 89 Chinese listings, the draft rule also
designates 28 Russian entities, including Irkut, which is also
aiming to break into Boeing's market with its MC-21 jetliner
development. 
    The 117-company list is "not exhaustive," the draft rule
said, and is considered an "initial tranche." 

 (Reporting by Karen Freifeld; additional reporting by Tim
Hepher in Paris and David Shepardson in Washington. Editing by
Chris Sanders and Michael Perry)
 ((karen.freifeld@thomsonreuters.com; +1(646) 223-6921;))