U.S. missed security problems in sale to Japanese

April 09, 1993|By New York Times News Service

WASHINGTON -- A review by the Commerce Department has found that the U.S. government missed key national security problems when it allowed a Japanese company to buy the only U.S. manufacturer of some computer components used in the Patriot and Trident missiles.

The transaction, involving a unit of Applied Magnetics Corp. of Goleta, Calif., was approved by the Bush administration in January. The sale was the first foreign investment issue taken up by the Clinton administration, which theoretically could still cancel it.

Foreign embassies and many U.S. and foreign corporations have followed the case as a bellwether of the new administration's attitudes toward the sale of companies with militarily strategic technologies. Federal law requires extensive review of

such sales, but the Bush administration routinely approved the deals at the end of the reviews.

The Defense Department has tried to avoid depending on Japanese companies for key military equipment, partly to avoid the risk of losing supplies in any political confrontation and partly because the employees of U.S. defense companies vote in the United States and Japanese defense workers do not.

After being told yesterday of the Commerce Department findings, Sen. Jim Exon, a Nebraska Democrat who wrote the foreign investment review laws, said: "The transaction never should have been approved." Mr. Exon criticized the Bush administration's original decision after it was revealed in news reports Jan. 25.

The Commerce Department's findings, contained in a confidential memo to the Treasury Department, come at an awkward time. Japanese rime Minister Kiichi Miyazawa is to arrive in Washington next week for his first meeting with &L President Clinton.

The administration is trying to balance its concern about Japan's trade surplus with the need for Japanese participation in aid to the former Soviet Union.

According to the memo, the interagency committee that approved the sale Jan. 19 was unaware that the Applied Magnetics unit was the only U.S. company producing parts for sophisticated computer laser-disk drives.

The eight-agency Committee on Foreign Investment in the United States was also unaware of the extent to which the Navy's Trident missiles and the Army's Patriot missiles depend on these components, the memo said.

A Treasury Department official said yesterday night that the details of the Commerce Department memo were being actively investigated by the Treasury and Defense Departments. A U.S. official who insisted on anonymity said that some of the information in the memo was not new, but the official declined to be more specific.

A copy of the memo was mailed to the New York Times in an envelope with no return address. Federal officials confirmed its authenticity.

Federal law allows the Treasury to reopen the case and cancel the sale if it determines that there were "material" misrepresentations made by the participants.

William R. Anderson, the chief executive of Applied Magnetics, said in a telephone interview yesterday that no misrepresentations had been made.

Mr. Anderson said other companies, mainly in Japan, were producing similar products and that any national security concerns about the deal were unfounded.

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