VZCZCXYZ0013
RR RUEHWEB

DE RUEHHK #0082/01 0100809
ZNR UUUUU ZZH
R 100809Z JAN 07
FM AMCONSUL HONG KONG
TO RUCPDOC/USDOC WASHDC
INFO RUEHC/SECSTATE WASHDC 0071
RHMFIUU/HQ BICE WASHINGTON DC UNCLAS HONG KONG 000082 
 
SIPDIS 
 
USDOC FOR 532/OEA/LHINES/DFARROW 
USDOC FOR 3132 FOR FCS/OIO REGIONAL DIRECTOR WILLIAM 
ZARIT 
BICE FOR OFFICE OF STRATEGIC INVESTIGATIONS 
 
BEIJING FOR FCS JEANETTE CHU 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS:          
SUBJECT: EXTRANCHECK: POST SHIPMENT VERIFICATION: 
ETERNAL INTERNATIONAL 
 
REF: A) USDOC 06269 B) HK 00038 
 
1.Unauthorized disclosure of the information provided 
below is prohibited by Section 12C of the Export 
Administration Act. 
 
 2. As per reftel A request and at the direction of the 
Office of Enforcement Analysis (OEA) of the USDOC 
Bureau of Industry and Security (BIS), Export Control 
Officer Philip Ankel (ECO) and Commercial Assistant 
Sandy Lai conducted a post shipment verification (PSV) 
at Eternal International (HK) Limited (Eternal HK), 
Unit 2706, Metropole Square, 2 On Yiu Street, Hong 
Kong.  The items in question are 200 Neophotonics PCB 
base assemblies, classified under Export Control 
Classification Number (ECCN) 4A001 and most likely 
controlled for national security (NS) reasons. If 
properly classified, these items would most likely not 
require a license for export to Hong Kong but would 
require a license for export or reexport to mainland 
China.  It is possible that these items are controlled 
for missile technology (MT) reasons and would then 
require a license to both Hong Kong and mainland China. 
 The exporter is Electromax Inc. of San Jose, 
California. 
 
 3.  The ECO and Commercial Assistant visited Eternal HK 
at the address referenced above on December 19, 2006 
and met with Ms. Denise Leung, Customer Service Manager 
responsible for this shipment.  Ms. Leung was open and 
forthcoming during the interview.  She provided 
background on Eternal HK and its business, which 
involves the provision of a logistics and freight 
forwarding services.  It is the Hong Kong branch office 
of Eternal Asia (www.eternalasia.com), a large mainland 
China based supply chain management and logistics 
company. The offices of Eternal HK are located in a 
larger office building and contain a series of cubicles 
for customer service representatives.  The address 
provided in reftel A (Unit 3, First Floor, Topsail 
Plaza, 11 On Sum Street, Hong Kong) corresponds to 
Eternal HK's warehouse space directly across the street 
from the offices of Eternal HK.  Eternal HK has been in 
existence since 2000 while Eternal Asia was established 
in 1997. 
 
 4.  Ms. Leung stated that with respect to the shipment 
in question, Eternal HK accepted the shipment of the 
200 base assemblies on September 21, 2006 and 
subsequently reshipped those items to Photon Technology 
Co., Ltd. in Shenzhen on September 23, 2006 (Photon 
Shenzhen).  According to the Photon Shenzhen web site 
(www.photontec. com), the Shenzhen Photon facility is 
an affiliate of Neophotonics, Inc. of San Jose, 
California (more information at www.neophotonics.com). 
 Ms. Leung stated that Photon Shenzhen may itself use 
the items or resell them to other buyers in the 
mainland. Coincidentally, the ECO and Commercial 
Assistant conducted a PSV at another, unrelated, 
company, involving Photon Shenzhen (see reftel B). 
 
 5.  Ms. Leung provided the ECO with the relevant 
shipping documents in respect of those shipments into 
the mainland.  Those documents reflect that Eternal HK 
is the seller and Eternal Supply Chain Management Ltd. 
in mainland China is the buyer of the applicable items. 
 Eternal Asia markets itself as providing inventory 
management services.  The sale price reflected in the 
transaction documents between Eternal HK and Eternal 
Supply Chain Management Ltd. reflects a significant 
markup over the sum paid to Electronomax Inc. (the U.S. 
exporter).  In particular, the total invoice price for 
the Electromax to Eternal HK transaction is USD 62,907 
while Eternal HK apparently sold the same items to 
Eternal Supply Chain Management Ltd. for USD 81,529. 
 
 
 6. When asked by the ECO whether Eternal HK was 
familiar with U.S. export control regulations, Ms. 
Leung said it was not.  Ms. Leung stated that, in 
certain cases where it knew of the controlled nature of 
items under Hong Kong law, Eternal HK would apply for 
applicable Hong Kong import and export control 
licenses.  She cited cases involving Cisco items for 
which Eternal HK obtained Hong Kong Trade and Industry 
 
 
Department (TID) licenses when it was informed that 
such licenses were necessary.  In other instances, 
Eternal HK looks up the brand name and model number and 
compares it against a list of controlled technologies 
on the TID website to determine whether a license is 
required.  Where, as in this case, parts and components 
are involved, Eternal HK does not apply for TID 
licenses unless it is informed that such a license is 
required.  Ms. Leung stated that Eternal HK does not 
have contact with exporters and that all customer 
relationships are handled by Eternal HK's parent 
company in the mainland. 
 
 7.  The ECO stressed to Ms. Leung that the reexport of 
the items was subject to U.S. export control 
regulations and later provided additional BIS guidance 
on obligations of reexporters as well as a link to the 
BIS website so that Eternal could become more aware of 
U.S. export control rules. 
 
 8.  At the time visited, Eternal HK did not appear to 
be a suitable recipient of the controlled items (as 
logistics provider) since it is unfamiliar with U.S. 
export controls and exercises only limited controls on 
reexports of controlled commodities. Consistent with 
BIS guidance on the classification of checks where the 
check reveals a cause for concern about the suitability 
of the parties involved, the ECO recommends that this 
PSV be classified as Unfavorable. 
 
Cunningham