www.insightmag.com/news/357426.html
Joint Direct Attack Munition (JDAM) project, more widely known as smart bombs, raising heavy security issues related to the transfer of military technology to the PRC. The factory uses rare earths to produce sintered neodymium-iron-boron permanent magnets that have many industrial applications but are essential to the servos critical to precision-guided munitions. According to documents obtained by Insight, Magnequench UG currently is producing thousands of the rare-earth magnets for "SL Montevideo Tech," a Minnesota-based manufacturer of servos. That company confirmed to Insight that it holds a Department of Defense (DoD) contract to produce the high-tech motors for the precision-guided JDAM. The Valparaiso-based manufacturer, originally known as UGIMAG, became Magnequench UG when it was acquired by Magnequench Inc. Magnequench was a spin-off company of General Motors Corp. Clyde South was a negotiator for the United Auto Workers Local 662 representing the workers at Magnequench when the consortium began negotiating to buy the company in 1995. In an interview with Insight, South says that worker concern about PRC influence over the consortium led to an "agreement with GM" that the plant would remain in Anderson for at least 10 years According to South, the buyers made the same agreement with the union, but since he had doubts about their intentions he took his concerns to Washington. In August 2001, the sixth year of the 10-year agreement, South's distrust was validated when the consortium's managers "told us they intend to close the plant" and eliminate roughly 400 jobs. The Magnequench plant in Anderson transforms neodymium, iron and boron into powder using a unique patented process that produces the exotic rare-earth magnets. Following the buyout in 1995, the production line at Anderson was "duplicated in China" at a facility built by the PRC company. According to South, after the company "made sure that it worked, they shut down" the Anderson facility. South says he suspects the buyout was about getting the technology, adding, "I believe the Chinese entity wanted to shut the plant down from the beginning. This was not long after the consortium purchased UGIMAG in Valparaiso, according to critics, telling the workers there that they planned to keep the factory running. Insight contacted union official Michael O'Brien, who confirmed negotiations with Magnequench UG regarding the company's future, but declined to comment further. The transfer to Communist China of technologies that make rare-earth permanent magnets also is a matter of concern for defense and national-security experts, says Peter Leitner, a senior strategic-trade adviser to the DoD. An insider tells Insight that "Magnequench UG is the last American company making these rare-earth magnets. He says the Chinese "have targeted the manufacturing process through a variety of suspicious business activities and have been furiously transferring the manufacturing technology to China, thereby becoming the only source. Because of the PRC's involvement in the 1995 buyout of Magnequench, the deal required the approval of the Committee on Foreign Investments in the United States (CFIUS), which is chaired by the secretary of the Treasury. Air Force C-17 strategic transport plane and the MX intercontinental ballistic missile were made. In 1994, CATIC made an offer to buy Plant 85 and relocate it to what was to be a civilian aircraft-production facility, according to government documents. The request for an export license for the plant's machine tools touched off a bitter feud among export-control officials at the DoD that still lingers nine years later. Those opposed to the sale argued that once the Plant 85 machine tools were exported to the PRC, they would be used to produce missiles for China's People's Liberation Army (PLA). Those who favored the sale pointed to the ancillary deal the PRC dangled in front of McDonnell Douglas to purchase more than $1 billion worth of aircraft. In the end, those in favor of the sale of Plant 85 won out and those opposed almost immediately were vindicated. When asked about the shutdown of the Anderson plant last year, he acknowledged having a 10-year agreement with GM and the steelworkers, but insists that despite the early termination of that agreement the workers "got a fair deal" when the company bought out their contract. Cox tells Insight the closing of the Valparaiso plant was a matter of economics, and denies that the company is moving equipment to China. Insight has obtained evidence that "somewhere else" may mean China. A copy of an internal memo from the Valparaiso plant seems to contradict the "sell or auction" option. Meanwhile, employees of Magnequench UG have placed their hope in an unlikely labor-union ally. The one surefire deterrent to Magnequench UG's move to China would be for President George W. Wheeler is an investigative reporter for Insight magazine.
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