Exclusive: In latest Chinese jab, US compiles list of 89 companies with military ties

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(Reuters) – The Trump administration is set to declare that 89 Chinese aerospace companies and other firms have military ties, preventing them from purchasing a range of American products and technology, according to a draft copy of the list seen by Reuters.

FILE PHOTO: A model of Commercial Aircraft Corp of China Ltd (COMAC) C919 passenger plane is on display at Aviation Expo China 2017 in Beijing, China September 19, 2017. REUTERS / Stringer

The list, if released, could further exacerbate trade tensions with Beijing and harm U.S. companies that sell civil aviation parts and components to China, among other industries.

A spokesperson for the US Department of Commerce, which produced the list, declined to comment. China’s Foreign Ministry did not immediately respond to a request for comment.

Commercial Aircraft Corp of China Ltd (COMAC), which is leading China’s efforts to compete with Boeing and Airbus, 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 that the United States considers to be “military end-users,” a designation that means American suppliers must apply for licenses to sell them a wide range of commercially available items.

As a rule, applications for such licenses are more likely to be refused than granted.

US President Donald Trump has stepped up his actions against China in recent months. Ten days ago, he unveiled an executive order banning U.S. investments in Chinese companies that Washington says are owned or controlled by the Chinese military.

The pending list comes after the Commerce Department expanded the definition of “military end-user” in April.

The April rule includes not only the armed service and the national police, but any person or entity that supports or contributes to the maintenance or production of military items – even if their activities are primarily non-military.

The export restriction applies to items as disparate as computer software such as word processing, scientific equipment such as digital oscilloscopes, and aircraft parts and components.

When it comes to airplanes, the items include everything from brackets for the flight control units to the engines themselves.

News of the list comes at a sensitive time for the U.S. aerospace industry as Boeing seeks approval from China for its 737 MAX after it was cleared by U.S. regulators last week. In March 2019, China was the first country to bring the plane to a standstill following two fatal crashes and it is already expected to wait months for the ban to be lifted. A Boeing spokesperson declined to comment.

Washington trade attorney Kevin Wolf, a former trade official, said the trade shared the draft rule with a technical advisory committee made up of industry representatives and should have been kept confidential.

Wolf said the rule and list could still be changed and time is running out for it to go into effect under the Trump administration because it would need to be cleared and sent to the Federal Register, the official US publication for the rules, by mid-December.

In the draft rule seen by Reuters, the Commerce Department said being able to control the flow of American technology to listed companies was “vital to protecting the national security interests of the United States.”

But a former US official who did not want to be identified said that “just making a list and filling it out is an act of provocation.” An aerospace industry source said it could prompt China to fight back.

The inclusion of COMAC would come as a surprise to at least one large U.S. supplier, who had determined that the company was not a military end user, the industry source said.

A list would also give European competitors an opening to promote their manufacturers, stressing that they do not have to jump such hurdles, even if the United States grants the licenses, the industry source said.

General Electric Co and Honeywell International, both provide COMAC and have joint ventures with AVIC.

A spokesperson for GE said its global joint ventures operate under all laws and the company has been working to secure licenses related to military end users.

A spokeswoman for Honeywell declined to comment.

In addition to the 89 Chinese registrations, the draft rule also designates 28 Russian entities, including Irkut, which also aims to break into the Boeing market with the development of its MC-21 airliner.

The list of 117 companies is “not exhaustive”, according to the draft rule, 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

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