This record is a partial extract of the original cable. The full text of the original cable is not available.

S E C R E T SECTION 01 OF 03 THE HAGUE 000484 

SIPDIS 

STATE FOR NP/ECNP AND EUR/UBI/HOLLIDAY 
DOD FOR U/S WYNNE, U/S BRONSON AND N. BRELAND 

E.O. 12958: DECL: 02/18/2009 
TAGS: ETTC KSTC PARM NL CH
SUBJECT: DUTCH UNVEIL THEIR 14-BIT ADC PARTS CONTROL PLAN 

REF: A. 2004 STATE 239012 

¶B. 2004 THE HAGUE 3156 (NOT ALL) 

Classified By: Richard Huff, Econ Counselor, for reasons 1.4 (b) and (d 
). 

1 (S) Over the last two years, Defense and State export 
control officials have been working with the GONL towards 
agreement on rules governing sales of 14-bit analogue to 
digital converters (ADCs) to Chinese companies. Most 
recently, on 14 November, 2004 State NP/ECNP and DOD officers 
briefed Dutch Ministry of Defense (MOD), Economic Affairs 
(MEA) and Foreign Affairs export control staff on Chinese 
end-users (ref A). At that meeting the Dutch said Philips 
Electronics had pending sales of 14-bit ADCs to Chinese 
companies. The GONL favored a parts control program to 
govern these sales, and promised to share their plan with us 
as soon as it was ready (ref B). 

¶2. (S) On February 11, 2005, MOD officials provided post's 
Office of Defense Cooperation with a letter from Dutch MOD 
Armaments Director RADM Dirk van Dord to Acting U/S Michael 
Wynne and Deputy U/S Lisa Bronson (para three), an advance 
copy of the Dutch parts control plan (para four) and an annex 
to the plan (para five). MEA officials told us Dutch State 
Secretary for Trade Karien van Gennip will provide the USG 

SIPDIS 
with an official copy of the plan and annex, probably in 
March. ODC has forwarded the letters to their principals. 
Text of the letter, plan and annex follow. 

----------------------------------------- 
COVER LETTER TO U/S WYNNE AND U/S BRONSON 
----------------------------------------- 

¶3. (S) Begin text of letter: 

The Hague, 11 February 2005 

The last two years we discussed the subject of the 14-bit 
Analogue Digital Converters (ADCs), the potential export of 
ADCs by Philips to the People's Republic of China (PRC), in 
several bilateral meetings. After having evaluated all the 
relevant aspects, the Ministry of Economic Affairs will 
inform the United States government about the position of the 
Dutch government. The purpose of this letter is to inform 
you about this letter and to provide background information 
on the decision. 

The Dutch government will apply strict export conditions to 
the supply of high speed 14-bit analogue-to-digital 
converters (ADCs) to Chinese manufacturers of 
telecommunication equipment. The conditions have been 
accepted by Philips Electronics (see annex). 

The decision to apply these specific conditions was taken 
after due consideration of all relevant aspects presented in 
several US non-papers, the bilateral meetings as well as the 
identical letters sent by the Deputy Secretaries Kassinger, 
Armitage and Wolfowitz in August 2004 to State Secretary Van 
Gennip, Minister Bot and State Secretary Van der Knaap 
respectively. 

You will notice that the conditions laid down in the parts 
control plan bare a close resemblance to the license 
conditions agreed on by the (US) Advisory Committee on Export 
Policy with regard to an application, more than a year ago, 
by (a) US exporter(s) of 14-bit ADCs to Chinese entities and 
in that sense constitute the sought after level of 
harmonization of conditions as set by the export control 
authorities in both our countries. 

You may also notice that the Netherlands export control 
authorities have not in advance limited the applicability of 
these conditions to any particular Chinese manufacturers of 
telecommunication equipment or for example excluded certain 
such manufacturers by virtue of stock ownership (i.e. no 
distinction between wholly and non-wholly owned PRC 
companies). Specifically included within the scope of these 
conditions are contracts with manufacturers based outside 
China but with (known intended use of) production facilities 
in China. By thus expanding rather than limiting the scope 
of harmonized conditions, unwarranted distortion of the 
Chinese market for telecommunication equipment incorporating 
high speed 14-bit ADCs is avoided. As long as the production 
of these 14-bit ADCs is limited to companies based in either 
the US or the Netherlands all such ADCs entering the Chinese 
market as bulk supply of parts will in fact be covered by a 
similar parts control plan. 

To conclude, I assure you that this issue has kept my 
personal attention all the time. Please be aware that to 
ensure that all the defense interests would be addressed, the 
final parts control plan was formulated in close co-operation 
with my staff. If you need any clarification, please do not 
hesitate to contact me personally. 

Dirk van Dord 
Rear Admiral 

END TEXT. 

------------------ 
PARTS CONTROL PLAN 
------------------ 

¶4. (S) Begin text of Parts Control Plan: 

SECRET - RELEASABLE TO THE UNITED STATES OF AMERICA 

SIPDIS 

NETHERLANDS' APPROACH TO DELIVERIES OF ADCs TO CHINESE 
ENTITIES 

Conditions set by the Netherlands export control authorities 
and agreed to by Koninklijke Philips Electronics N.V. 
(Philips) to the supply (supply is understood to mean the 
actual delivery of ADCs to production facilities where these 
ADCs are processed into telecommunication equipment or into 
assembled parts of such equipment, irrespective of the 
question whether the ADCs are sold directly to the 
manufacturers involved or through intermediates.) of high 
speed 14-bit analogue to digital converters (hereafter: 
14-bit ADCs) to manufacturers of telecommunications equipment 
in the People's Republic of China (hereafter: Chinese 
manufacturers). 

Before signing a contract for the supply of 14-bit ADCs to 
any Chinese manufacturer Philips will establish that the 
relevant contract, be it with a Chinese manufacturer or an 
intermediate, contains clauses to effectively assure that: 

¶1. all 14-bit ADCs that are to be supplied under this 
contract will solely be used for the manufacture of base 
stations or parts thereof for civilian communication purposes; 

¶2. telecommunication equipment or assembled parts of such 
equipment containing these 14-bit ADCs can only be sold to 
telecommunications operators or any other third party after 
receipt of an end-use statement by such a third party 
declaring that the equipment or assembled parts will solely 
be used for civilian communication purposes; 

¶3. the supply of these 14-bit ADCs will occur according to 
an agreed parts control plan with the features described in 
the delivery procedure in Annex 1; 

¶4. the person(s) who will be responsible for the proper 
implementation of the parts control plan and its delivery 
procedure is (are) identified by name and function; 

¶5. all parties concerned agree - or will have agreed in 
advance of any supply to them - to provide Philips with all 
information required to enable Philips to report on the 
implementation of the parts control plan to the Netherlands 
export control authorities; 

¶6. no objections exist or will be raised against audits to 
be performed by or on behalf of the Netherlands Government on 
the implementation of the parts control plan at the 
manufacturers site. 

Prior to the first regular supply of 14-bit ADCs to any 
Chinese manufacturer of telecommunications equipment or parts 
thereof, Philips will be allowed, under the conditions 
described above, to supply a set of samples in a quantity - 
yet to be decided - that will not exceed the number 
appropriate for testing and prototype manufacturing purposes. 

Should Philips be asked to supply 14-bit ADCs to a 
manufacturer outside China, but with (the use of) production 
facilities in China, then the relevant contract must 
stipulate that all the clauses mentioned above as well as the 
delivery procedure described in Annex 1 will apply in full to 
any shipments of 14-bit ADCs to such production facilities in 
China. 

END TEXT 

¶5. (S) Begin text of Annex. 

------- 
ANNEX 1 
------- 

Annex 1 - Delivery Procedure 

Physical deliveries will be made to manufacturers, not to 
intermediates. Invoicing, however, can be done as required. 

Philips will register the date, the amount of ADCs involved 
and the particular recipient of every relevant shipment. 

Each recipient will register the date and the amount of ADCs 
involved of every shipment received with a reference to the 
supplier's order/delivery number. 

Since the total stock at Chinese manufacturers production 
sites may not exceed the amount of ADCs necessary for two 
weeks production the Chinese manufacturer will provide 
Philips either directly or trough any intermediate supplier 
with the following documentation for each production site: 

- A detailed production schedule for the period of three 
weeks starting the day the order is placed and specifying the 
exact quantity of 14-bit ADCs need to complete that 
production plan; 

- The exact quantity of 14-bit ADCs on stock at the moment of 
ordering; 

- A declaration containing the exact quantity of 14-bit ADCs 
destroyed because of malfunctioning of PCB's or base stations 
and a precise description of the manner in which these ADCs 
were destroyed. This declaration must cover the period 
between the date of the previous order and the date of the 
new order and it must be signed by the quality control 
manager of the production site in question. 

The volume of any follow on supply will be adjusted if a 
report by the Chinese manufacturer shows a significant 
deviation from the anticipated volume for two weeks 
production. 

Philips will archive all information on the implementation of 
the parts control plans and will make this information 
available for scrutiny by the Netherlands export control 
authorities upon request. 

Philips will provide the Netherlands export control 
authorities with a quarterly summary report on the 
functioning of the parts control plans as well as on the 
quantity of ADCs supplied to Chinese manufacturers under 
those parts control plans. 

Philips will inform the Netherlands export control 
authorities forthwith of any irregularities it notices in the 
figures or in case it has reason to believe that any Chinese 
manufacturer or intermediate involved in the parts control 
plans is not compliant with these conditions. 

END TEXT. 

SOBEL