Exchange of Letters with US Department of Commerce
Robert Mosbacher (Designate)
Secretary of Commerce
January 25, 1989.
The most important item of our times may be to make the trademark, Made in the USA attractive enough to cause our exports to increase to equal or exceed our imports. Wheat and beef require oil in its production and transportation to the market. Energy is a large component of all material items that we buy and sell. Your experience in gas and oil should be helpful to perform the task ahead.
The purpose of this letter is to request guidance of the Department of Commerce with respect to my future trade dealings with the USSR. President Gorbachev has started a plan to make the trade mark, "Made in the USSR", attractive to his own people and for the export market. The task is enormous. It can succeed if the Soviets introduce foreign and private ownership into some of the parts of the economy. It is not yet clear, but it appears that they will allow western firms to own and control more than fifty percent of some new enterprises in the Soviet Union.
A recent agreement between the Soviet automobile industry and Ford will allow the production of quality automobiles for the Soviet market and for export. Entry into the export market will do more to improve their ability to produce quality products than sales of equipment and technology could ever do. Labor costs by any western standard are low and will continue for a long period. The USSR could become tough competition and a vast market for our products.
My current contacts with Soviet people who want to be business men and organizations that want joint ventures on a small scale has led me to understand that they need business minds more than they need technical minds.
Their graphite industry has offered items of their production for sale to the West. The items offered are high strength carbon fibers and end use items of composites of carbon-carbon. These items are restricted by COCOM and can not be exported to the USSR and other countries without a license. Patents may restrict the sales so I suggested a list of items that could be sold which would not infringe patents. I do not intend to become involved in the supply of equipment or technology to produce these products.
MY FIRST QUESTION IS: If I make a detailed market survey of customers for this type of product including quality, end use and quantity does this come into conflict with any Technical Data regulations? I do not have any specific technical data on this subject which is not already published.
My dealings with the USSR started in 1972 with the KAMA group. They came to an end when the press announced that I had sold equipment that would increase the accuracy of Soviet rockets. The press reports were based upon a news leak by Richard Perle, former Defense Department official, in January 1985. Air Force Magazine compared the loss of technology to be equal to the loss of atom bomb secrets to the Soviets. Knute Royce of Hearst Newspapers released the story in a small Albany, New York newspaper. His story was true, "The bombshell was a dud" as no technology was sold or transferred. Other newspapers picked the accuracy of rockets for front page releases.
The press stories of the time had some foundation in fact. On February 8, 1985 the British government, under pressure from our government changed the regulations to preclude the shipment of vacuum induction furnaces utilizing susceptor and hot isopresses above five inches regardless of pressure. The final container was seized at the port of Hull. The customs agents should have allowed the company to take back the container and apply for a license.
Nothing in that container would have required a license under the new regulations so they destroyed it. This act meant that the company had delivered the entire project for insurance purposes.
Thatcher returned from Moscow on February 13, 1985 after meeting the new First Secretary of the USSR. She first met him in Britain as the leader of a trade delegation in November 1984 and stated, "A contract is a contract" in his presence on the steps of John Brown Engineering (a supplier of pipeline compressors that the American Government embargoed for a brief period). Upon her return from that meeting the Department of Trade in London informed me that we could continue to send engineers to the Soviet Union and to supply parts that did not require a license. In other words, finish the contract. They told us verbally that it would be in the best interest of the United Kingdom if we would stop but would and could not put it in writing. The government put the monkey on our back.
The insurance company wanted their money back and was telling us to finish the contract. In order to avoid conflicts within departments of government the DTI decided that we were not insured and that the funds were paid to us in special circumstances so the title of the property was ours and we would not be required to minimize the insurance company's loss.
The Soviet Trade Delegation in London was aware that we could finish the contract. The USSR buyer asked us to amend the contract to preclude any item that gave us difficulties so as to complete the task. The British even gave us the spares that remained in Scotland for free and customs officers were standing by as we packed the items.
No regulations existed until they were hand delivered to Consarc in New Jersey on April 5, 1985. I retained a first class law firm in Washington to assist in obtaining a letter that would not allow me to finish the contract. Meetings took place in May 1985 with high level staff members of the Department. It was understood that I could not return to the project under technical data regulations. On July 8, 1985 the Department gave me clear and informed permission to complete the contract.
The requirement to refund any monies to the insurance company still blocked the completion in a real terms since we has already been paid and the effort would be for nothing. We did not want to be black listed so I formed a Scottish company to conclude the contract. The name of the company was BEPA that is the Russian spelling for Vera, my Russian wife's name. The British and American authorities were informed of my actions as soon as I returned from Moscow.
On September 26, 1985 the regulations were changed to rescind my permission to proceed. I quit the project in total, but a British citizen, with full knowledge of the British government continued the project. My activity after that time with the Soviets was limited to other contracts with items that did not require individual validated licenses.
In August 1987, about the time of the Toshiba sale to the Soviets, the Pentagon leaked the additional facts (I can not obtain these facts under the freedom of information act because they are classified) to Knut Royce who was by that time an employee of the Long Island tabloid, Newsday. Royce informed me that he asked the Department of Commerce for information but he felt he was being stonewalled.
Royce approached the Dingell Committee suggesting they look into the matter. A letter to the Secretary of Commerce in early October 1987 asked for the information and for testimony from individuals on this matter. The letter was signed by Dingell with CB as the staffer. I gave the Committee many documents through Royce but they did want my testimony.
On November 8, 1987 Newsday published a massive article on the subject. The world press picked it up as a major loss of rocket technology. Time magazine ran my picture in the International issue of November 23, 1987 beside McVey (a person that may have shipped computers to the USSR) so as to tag me as a technobandit.
On December 9, 1987 ABC News reported the Congressional hearing and a major loss of rocket know how caused by errors of the American and British Governments. The Committee has not yet issued a report. My last telephone conversation with Congress (Beville) indicated that the departments were sanitizing the report. THE WHOLE EVENT APPEARS TO BE FOR THE MEDIA DURING THE WEEK GORBACHEV WAS IN WASHINGTON.
I offered to testify or give information to Commerce, Defense and Special Customs agents but no one answered my letters. I was interviewed by Project Exodus in 1985 and by the FBI in 1986 but the documents are classified. The British government decided to deport me on August 5, 1988 as a security risk based upon the news reports. Special customs agents met me upon my return to New York. A meeting was arranged in Washington with security agents, Defense, and Customs attending but the would not give me their names or departments. The long interview in October 1988 gave me the feeling that they only wanted to protect the stories they already had in their files.
The embargoed contract was based upon a patent issued to my employer in my name about eighteen years ago. I had never been able to make the idea work for commercial purposes. A new idea which was a sold to the Soviet customer included the use of very large pieces of rigid carbon bonded carbon insulation. To produce this material I arranged to start a new firm in Scotland utilizing the process published from Oak Ridge in great detail in 1971. We did not succeed with this idea but was able to use the material in the construction of some of the furnace parts. The embargo took away the need to finish the process in Scotland. I later resigned from the company in July 1987 to look for another place to use this idea.
In late 1987 COCOM members decided to place this simple carbon insulation on the control list. The documents that support the need to control this item are based upon false information. The regulations caused the Soviets to start to produce the material themselves and it is my understanding that it is much cheaper and maybe better than the product produced in Scotland.
MY REAL INTEREST IS: Pitch is a by product of the petroleum industry which can be spun into low strength carbon fibers using technology already existing in the USSR. These fibers when cut to a short length are mixed with starch in a water bath. Using simple filter technology the fibers can be formed as a lightweight substrate form. When cured by existing technology, the basis for which has been published since 1880, the form is a light insulating material with little strength. Natural gas is the passed through this form in vacuum at the correct temperature and pressure. The result is that the form is increased in density to the level required for the end product. I will not become involved with the production of high strength fibers or composites. The thermal process appears to be the same regardless of the strength of the fibers. The thermal process is in textbooks and well published in the open literature.
MY SECOND QUESTION IS: Does the Department of Commerce have any objection to me entering a joint venture to produce and sell carbon insulation and normal carbon artifacts based upon Soviet technology and that technology published in the open literature. I know that the process will work but do not possess the technology. I know that the economics of raw materials and labor are very favorable in the USSR and that I could arrange exchange trade for American made equipment on a very profitable basis. The furnace equipment used is well within the present regulations, but an oven can be used to cook anything the user puts into it.
I am willing to come to Washington to meet with any technical people who require additional information. I intend to continue trade in some acceptable form with the USSR. I believe it is in the best interest of both countries to do so.
All my activities will be open to the governments and the press to avoid past negative publicity and misunderstandings. My next trip to the USSR is scheduled for February 8, 1989 so any information the Department could furnish me before that date would be helpful.
James F Metcalf
IT TOOK A WHILE TO REPLY. But without an answer to my question.
UNITED STATES DEPARTMENT OF COMMERCE
The Under Secretary for Export Administration
Washington, D.C. 20230
April 17, 1989
Mr. James Metcalf
Dear Mr. Metcalf:
Thank you for your recent letter to President Bush requesting information on the export trade with the Soviet Union. I have been asked to reply.
The requirements of the Export Administration Regulations (ERA) in relation to the two issues raised in your letter are as follows:
- "If I make a detailed market survey of customers for this type of product including quality, end use and quantity does this come into conflict with any Technical Data regulations? I do not have any specific technical data on this subject which is not already published."
- Market surveys generally do not generally include proprietary technical data that is subject to export control. It would appear from your description that the results of this survey would not be subject to export controls.
- "Does the Department of Commerce have any objection to me entering a joint venture to produce and sell carbon insulation and normal carbon artifacts based upon Soviet technology and that technology published in the open literature."
- The Department of Commerce will need additional information before we can make a licensing determination. In order to give you a formal advisory opinion on the licensing procedures applicable to the proposed joint venture, we will need a detailed description of the proposed transaction.
Should you have additional questions, please contact Surendra Dhir, Director, Capital Goods Technology Center, on (202) 377-5695.
When I called the Washington number Dhir answered the phone. He told me that Freedenburg was no longer with the department and he did not have a copy of my letter.
To: Department of Commerce
From: James F. Metcalf
June 8, 1989
Attention: Mr. Tripp
You seem to be the person with the most knowledge on the subject of carbon insulation. The following are the notes in my journal that recorded our telephone conversation. Any corrections would be appreciated.
Jeff Tripp from the Department of Commerce returned my call on June 7. He had not seen my new letter but was aware of my first letter and the answer in April. He was informed of my intentions in the Soviet Union. He gave me the following informal information: The carbon insulation can now be exported to any country except the Soviet block without controls. If the material is exported from the USSR to the USA it can not be re-exported without license. The 99.9 percent has not been changed but he advised that it could be in a given afternoon. He advised me not to spend a great deal of money making a 99.8 grade for export to Russia. He advised that Commerce does not have the ability to remove an item from the control list without the approval of the Pentagon and of thirteen COCOM nations each which have veto power. He told me that some very powerful voices have spoken on this subject and he doubted it would be removed. He told me that I would not be allowed to pass technical data with respect to producing the restricted material to the Soviets without a license. He was aware that the Soviets already have the technology to produce this product.
I asked that as much of the informal information as possible be given to me in formal form. He was told that a request not to proceed in the best national interests in the absence of laws to restrict the activity would be obeyed. I told him that a meeting was being arranged with FMI and others to discuss the possibilities.
The enclosed fax has been modified somewhat for other purposes, but it has the same content and questions that were asked on June 15.
If additional information is required do not hesitate to ask.
Tripp did not ask for any corrections. I was asking about importing not exporting.
June 15, 1989
United States Department of Commerce
Washington D. C. 20230
Attention: Mr. Surendra Dhir
Dear Mr. Dhir:
This letter is confirming a telephone conversation with Mr. Tripp on June 19, 1989. It is also to provide the information requested in a letter from Paul Freedenberg, the previous Under Secretary for Export Administration, on April 17, 1989. This letter was in reply to my letter to President elect Bush on January 18, 1989 which enclosed a long letter to the Secretary of Commerce.
You indicated that Mr. Freedenberg was no longer with Commerce and since you did not have a copy of the letter it was faxed to you on May 2, 1989.
I have been very busy in the Soviet Union for the past month in preparation of a proposed joint venture to sell carbon artifacts in the world market. The first step of the proposed process is to produce about one hundred tons of carbon bonded carbon fiber blocks using facilities and know-how already in the Soviet Union.
The States imports about fifty tons of this material from Japan, Germany, France and Scotland at the present time. American production, mainly FMI in the state of Maine may be in excess of twenty tons per year. If costs were reduced and other sizes and shapes were brought to the market the annual sales to the American market could exceed three hundred tons. The world market could exceed five hundred tons per year.
This carbon fiber insulation block may require a license if exported from the States. The present regulations that define density, purity, and strength properties were copied from the original sales literature of Calcarb Inc. of Scotland. (A Company formed based upon my leadership and idea's). Purities and strengths less than those defined offers the best values in the general market place. Placing of this item on the control list in the first place was based on misinformation and maybe even lies to appease the Pentagon and Thatcher government. If we got on our knees and begged we could not sell this material to the Soviets again.
High strength carbon fibers are now being produced in Japan for less than ten dollars per pound that is ten to one hundred times less than the same material used for the B-2 or MX production. Soviet industry is willing to compete with the new prices for this product. Patent protection is the only reason that I have not tried to import this product.
The business plan presently under discussion with the Soviets will utilize scraps of carbon fibers which are now being thrown away and carbon fibers produced from rayon which is presently being discarded from their very inefficient textile industry. Natural gas from west Siberia that is now being burned to the atmosphere is also part of the business plan to produce a very useful product. It is truly the most economic place in the world to produce these products. Our Pentagon may be surprised to find that the costs of some carbon items can be reduced a thousand fold. The scandal of toilet seats will pale in comparison.
My overall plan for this product will reduce the air pollution on our planet more than the effect of one million cars running on energy produced by corn from Nebraska. The Bush administration must not be caught up in the same mistake of the Carter administration on the methanol solution.
Government money was spent to produce this fuel from corn when Carter stopped its export to Russia. The company that produced the fuel used more energy from natural gas than the energy it produced to fulfill a political commitment while making millions from a gullible government. We all live on the spaceship, planet earth, and we must acknowledge that clean air is a world problem.
My question now is: Can I become the business catalyst to promote a new enterprise in the USSR, using their technology and equipment to produce a material for export from the USSR that may not be exported to the USSR?
The product is from scraps and therefore will not be 99.9% carbon. However, the technology is the same for higher purity materials. The product is not useful for insulating induction furnaces utilizing susceptors for operation above 2000 degrees C. The furnaces used in this operation do not exceed 1850 degrees C. The carbon fibers that are cooked from rayon are not high strength.
My input will be very important to the success of the venture, as I will provide the business plan and the external market. As consultant I will assist in the selection of the economic technical variables. I will also advice as to the best sizes and shapes that best suits the market. My business management of this project will add to the infrastructure of the Soviets to produce many carbon parts. The embargoed equipment will not be used for this effort.
The money generated from export sales of these products will be used to import goods and services from the USA. As agent for several American companies my income will be from fees and commissions from these sales. A Company that is not under my control will handle sales of the Soviet made carbon.
The current export regulations do not appear to restrict the activity that is now in final planning stages. If there is any rule which would require a license or if our government thinks it is not in our best interests, I will stop the activity and seek other area's of trade.
My time is short, as usual, so a quick answer to my question is required. If required I will come to Washington to answer any questions and give full answers to any department that needs additional information. This offer has been refused for the past seven years.
Please do not discard this letter in file 13. Many of my letters with real questions in the past were not answered. I am a person that can provide a major input to future trade links between America and the Soviet Union. I believe that trade is the simple answer to peace in the future.
James F Metcalf
- AllCarb is the trade name of the proposed product that is owned by BEPA, which in Russian translates to TRUST.
Dhir did not answer the above letter. My question was about import of this product. He gave me the rules for export in an attempt to confirm what his coworker had told me verbally.
UNITED STATES DEPARTMENT OF COMMERCE
Bureau of Export Administration
Washington, D.C. 20230
10 July 1989
Mr. James F. Metcalf
Boston, Massachusetts 02114
Dear Mr. Metcalf:
This is in response to your recent conversation with Mr. Tripp requesting a formal statement summarizing his verbal comments to you.
- General license G-DEST in (is) available for export or carbon fiber insulation controlled by Export Control Commodity Number 1734A to all destinations except country groups Q, S, W, Y, Z, and the Peoples Republic of China and Afghanistan. This change in the Export Administration Regulation (ERA) became effective with its publication in the May 15, 1989 Federal Register.
- There are circumstances in which a General License may not be used. These prohibitions are listed in part 771.2(c) of the ERA.
- The U. S. export controls on this insulation are derived from a unanimous agreement of the Coordinating Committee (CoCom). Whereas the CoCom agreement places an embargo on this commodity to the Warsaw Pact countries and the PRC, free world license requirements are determined at National discretion. The control is periodically reviewed by the Committee and can only be changed with unanimous agreement.
- All technical data, except that which is authorized by the general license GDTA or GDTR, requires an individual validated license for export from the United States to the Soviet Union.
Should you have additional questions regarding export of technical data, please call Mr. Jim Seevaratnam at (on) (202) 377-5695.
This is the Dhir that testified as a key witness for the prosecutors in 1995. I told the defense lawyers as early as 1986 that the key to overturn the conviction was in CoCom. In 2003 after SECRET CoCom records were opened by the courts the judge overturned the 1995 conviction.
The answer I was waiting for came on the same day as the first letter.
UNITED STATES DEPARTMENT OF COMMERCE
10 July 1989
Mr. James F. Metcalf
One Longfellow Place 1723
Boston, Massachusetts 02114
Dear Mr. Metcalf:
This is in response to the question raised in your recent letter: "Can I become the business catalyst to promote a new enterprise in the U.S.S.R., using their technology and equipment to produce a material for export from the USSR which may not be exported to the U.S.S.R.?
If the Soviet Union has the equipment, technology and materials required to produce the insulation, then production should be possible without any exports from the United States. U. S. export controls, therefore, do not apply.
Your participation in the marketing of the Soviet product is not controlled by the Export Administration Regulations and, if your effort is limited to the authorization of general license GDTA or GDTR described in parts 779.3 and 779.4 of the Export Administration Regulations.
Should you have any additional questions, please call Jim Seevaratnam at (202) 377-5695.
I attempted to get a clear answer to my questions from Seevartnam. I knew the law but I wanted it in writing to my specific questions. He called me on the 19th of November 1989. He asked me not to write so much because my question was too simple to answer.
To: United States Department of Commerce
Attention: Technical Support Staff
From: BEPA Corp.
November 2, 1989
Mr. James Seevaratnam called me today in reply to my fax letters to him of 13 July and Sept. 26.
He said the questions contained were too simple and fundamental and therefore could not be answered. He asked me to write your office for an advisory opinion.
My firm has signed an agreement for a joint venture with the Soviets to produce and market carbon bonded carbon fiber insulation of the type controlled by the Export regulations and in agreement with CoCom. Additionally it is planned to further densify this product for many structural and chemical carbon uses using chemical vapor deposition from natural gas.
The agreement is to use the equipment and technology already installed at this factory several years ago by the Soviets for some other purposes.
The product is based upon using carbon fiber scraps that are derived from other carbon processes. The product will not be exactly as that produced in the USA, Japan or Scotland, but rather will have specific specifications of its own. It is expected that it will be a superior product and due to the fact it is based on scrap, and produced with low cost natural gas it will be the most cost effective product of its type in the world.
My technical input is to be limited to the feed back of the U.S and world market place. In other words specifications from the customers which define their requirements. One example could be a request for quotation for material used on F 16 aircraft, if such information was open to public tender. Most of the requests from the market place will be for insulation and other furnace elements and components.
It is further agreed that I will supply equipment from the West that would improve the economics and technical abilities of this joint venture, provided export approval is granted, or if the equipment is freely exportable. My partner in the Soviet Union may want me to supply certain textile cutting equipment as part of my capital input into a joint venture.
DOES THE PROPOSED END USE OF EQUIPMENT WHICH ITSELF DOES NOT REQUIRE A VALIDATED LICENSE ALTER THE NEED TO OBTAIN A LICENSE?
My position is that of businessman and catalyst to their very massive physical factory and technical staff. This is more important than any supply of equipment or technology to this joint venture. Business know-how is very important to the new economic restructuring of the Soviet economy.
My questions to Seevaratnam were as follows:
My first Question was: If during the course of marketing the insulation, and artifacts made from the product, it becomes necessary to define items such as density, strength, size, shape, fiber size, fiber length, and chemical composition which customers require. Are these customer specifications technical data under the regulations?
My second question was: If I become a consultant to guide the business to produce the most economic products for the market based upon technology that is published and known to the Soviet engineers. Is this activity of assisting is the selection of the most optimum technology from variables presented by the Soviet engineers considered as technical data under the regulations?
Answers to the two final questions will allow me to decide if a joint venture is attractive. Monies generated in the worldwide market place will produce a fund to purchase American made equipment for many purposes which are now and will be allowed by the regulations. Impact on American production will be positive since a larger market and supply of scrap will be generated. British and Japanese firms will lose their market share.
My next trip to the USSR is scheduled for November 25, 1989, so please consider my question as urgent. Mr. Dhir and Seevaratnam have past files on this subject.
James F. Metcalf
Commerce did not answer this letter.
My partners were good engineers in the craft and did not need my technical input. They had full information for the equipment shipped by Calcarb to Russia in 1985. They were up to date on the process used at that facility. AND they had a document written and published by George C. Wei and J M Robbins at Oak Ridge National Labs in 1985. This document gave complete details on the production of the carbon insulation I wanted to produce and sell. The information was in the public domain and DID NOT require a license.
I wanted the government fully informed. I also sent copies of all communications to Royce at Newsday to be sure the press was informed.