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Magnequench is an Indianapolis-based
company. It specializes in the obscure field of sintered magnetics.
Essentially, it makes tiny, high-tech magnets from rare-earth
minerals ground down into a fine powder. The magnets are highly
prized by electronics and aviation companies. But Magnequench's
biggest client has been the Pentagon.
The neodymium-iron-boron magnets
made by Magnequench are a crucial component in the guidance system
of cruise missiles and the Joint Direct Attack Munition or JDAM
bomb, which is made by Boeing and had a starring role in the
spring bombing of Baghdad. Indeed, Magnequench enjoys a near
monopoly on this market niche, supplying 85 percent of the rare-earth
magnets that are used in the servo motors of these guided missiles
and bombs.
But the Pentagon may soon be
sending its orders for these parts to China, instead of Indiana.
On September 15, 2004 Magnequench shuttered its last plant in
Indiana, fired its 450 workers and began shipping its machine
tools to a new plant in China. "We're handing over to the
Chinese both our defense technology and our jobs in the midst
of a deep recession," says Rep. Peter Visclosky, a Democrat
from northern Indiana.
It gets stranger. Magnequench
is not only moving its defense plants to China, it's actually
owned by Chinese companies with close ties to the Chinese government.
Magnequench began its corporate
life back in 1986 as a subsidiary of General Motors. Using Pentagon
grants, GM had developed a new kind of permanent magnet material
in the early 1980s. It began manufacturing the magnets in 1987
at the Magnequench factory in Anderson, Indiana.
In 1995, Magnequench was purchased
from GM by Sextant Group, an investment company headed by Archibald
Cox, Jr-the son of the Watergate prosecutor. After the takeover,
Cox was named CEO. What few knew at the time was that Sextant
was largely a front for two Chinese companies, San Huan New Material
and the China National Non-Ferrous Metals Import and Export Corporation.
Both of these companies have close ties to the Chinese government.
Indeed, the ties were so intimate that the heads of both companies
were in-laws of the late Chinese premier Deng Xiaopeng.
At the time of the takeover,
Cox pledged to the workers that Magnequench was in it for the
long haul, intending to invest money in the plants and committed
to keeping the production line going for at least a decade.
Three years later Cox shut
down the Anderson plant and shipped its assembly line to China.
Now Cox is presiding over the closure of Magnequench's last factory
in the US, the Valparaiso, Indiana plant that manufactures the
magnets for the JDAM bomb. Most of the workers have already been
fired.
"Archie Cox and his company
are committing a criminal act," says Mike O'Brien, an organizer
with the UAW in Indiana. "He's a traitor to his country."
It's clear that Cox and Sextant
were acting as a front for some unsavory interests. For example,
only months prior to the takeover of Magnequench San Huan New
Materials was cited by US International Trade Commission for
patent infringement and business espionage. The company was fined
$1.5 million. Foreign investment in American high-tech and defense
companies is regulated by the Committee on Foreign Investments
in the United States (CFIUS). It is unlikely that CFIUS would
have approved San Huan's purchase of Magnequench had it not been
for the cover provided by Cox and his Sextant Group.
One of Magnequench's subsidiaries
is a company called GA Powders, which manufactures the fine granules
used in making the mini-magnets. GA Powders was originally a
Department of Energy project created by scientists at the Idaho
National Engineering and Environmental Lab. It was spun off to
Magnequench in 1998, after Lockheed Martin took over the operations
at INEEL.
In June 2000, Magnequench uprooted
the production facilities for GA Powders from Idaho Falls to
a newly constructed plant in Tianjin, China. This move followed
the transfer to China of high-tech computer equipment from Magnequench's
shuttered Anderson plant. According to a report in Insight magazine,
these computers could be used to facilitate the enrichment of
uranium for nuclear warheads.
GA Powders isn't the only business
venture between a Department of Energy operation and Magnequench.
According to a news letter produced by the Sandia Labs in Albuquerque,
New Mexico, Sandia is working on a joint project with Magnequench
involving "the development of advanced electronic controls
and new magnet technology".
Dr. Peter Leitner is an advisor
to the Pentagon on matters involving trade in strategic materials.
He says that the Chinese targeted Magnequench in order to advance
their development of long-range Cruise missiles. China now holds
a monopoly on the rare-earth minerals used in the manufacturing
of the missile magnets. The only operating rare-earth mine is
located in Batou, China.
"By controlling access
to the magnets and the raw materials they are composed of, US
industry can be held hostage to Chinese blackmail and extortion,"
Leitner told Insight magazine last year. "This highly concentrated
control-one country, one government-will be the sole source of
something critical to the US military and industrial base."
Visclosky and Senator Evan
Bayh asked the Bush administration to intervene using the Exon-Florio
Amendment to the 1988 Defense Appropriation Act to pry the Chinese
money out of the company and force Magnequench to keep its factories
in Indiana.
There was precedent for just
such a presidential move. In 1990, George H.W. Bush ordered the
state-owned China National Aerospace and Export Company to divest
its interest in Mamco Manufacturing of Seattle, reportedly because
of concern that the Chinese firm could have use Mamco to acquire
jet fighter engine technology. The directive came from Bush three
months after CATIC had seized control of Mamco. When after six
months the Chinese company refused to relinquish its interest
in Mamco, Bush ordered the Treasury Department to place the company
in receivership and barred the Chinese officials from having
any access to its facilities.
Unlike his father, Bush 2 declined
to respond to the pleas from Visclosky and Bayh. The Treasury
Department, which could have intervened to stop the move, also
refused to act. Visclosky says that he also contacted the Pentagon.
Its procurement officials admitted to him that Magnequench was
the only domestic supplier of the smart bomb magnets (Hitachi
holds the other contract), but that it had no idea that company
was owned by the Chinese or that it was packing up for Tianjin.
As the doors closed on its
Valparaiso plant, a memo came from Magnequench executives advising
that its HQ will be soon be relocated from Indianapolis to Singapore.
No word on yet whether Cox is moving too.
And yes, when the Republicans
made a mountain out of what turned out in the end to be a pretty
small molehill concerning transfers of satellite technology to
China in Clinton time, they said it might be grounds for impeachment.
William Safire wrote lots of columns on the matter. Not a bleat
from Safire now.
This article is excerpted
from Jeffrey St. Clair's new book, Grand
Theft Pentagon.
Now
Available
from CounterPunch Books!
The Case
Against Israel
By Michael Neumann
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