Changes to Washington’s so-called China Export Control Policy aim to facilitate export of sensitive high-tech equipment to prevent such products from being used for military purposes. The new policy will also spare the need for U.S. exporters in critical tech sectors to apply for licenses for sales to companies in China.

The United States is attempting to strengthen its economic interests and protect its security interests by revising its export control policy on sales to China of technologies with dual civilian and military use. On June 9, the U.S. said it will revise laws to streamline the process by which American companies traffic in high-tech equipment with Chinese businesses. Rather than having to obtain licenses certifying that their products comply with the cumbersome demands of U.S. export control regulations, they would be allowed to trade freely with anyone on a list cleared by the U.S. government.

The changes to Washington’s so-called China Export Control Policy will spare the need for U.S. exporters in critical sectors — such as semiconductor equipment, avionics and electronics, according to earlier remarks made by Undersecretary of Commerce David McCormick — to apply for licenses for sales to companies in China.

U.S. high-tech exports to China last year reached more than US$12 billion, and the new licensing flexibility will further open up “potentially hundreds of millions of dollars’” worth of American sales to Chinese companies, McCormick said.

In addition, the new policy aims to ensure closer scrutiny of key technology purchases in China by facilitating export of sensitive high-tech equipment to China. The revisions are designed to prevent such products from being used for military purposes.

Export controls, “a product of the Cold War era,” a CNET article on the topic notes, are intended to limit the shipment and sales of goods that could pose national security threats if obtained by certain countries of concern. Indeed, some of the policy surrounds “dual use” items that could have both civilian and military applications, including high-performance computers and encryption products. For example, the cutting-edge composite technology that helps China build commercial aircraft must not also find its way into the Super-7 next-generation fighter aircraft, McCormick said.

At this time, the new policy appears to deal exclusively with China and not with others for which the U.S. has historically regulated exports. However, McCormick said Washington will urge other nations — particularly in Europe and Japan — to take similar steps.

Yet he stressed that Chinese companies first must demonstrate “an established record of nonproliferation and responsible civilian use” of U.S. high-tech products if they want to be importers under the new policy.

“This process will require unprecedented openness and cooperation on the part of Chinese companies, the undersecretary said. “And it will create incentives for them to demonstrate good faith and sound practices. In addition, it will allow U.S. government officials to focus on more complex cases with more severe implications for American security.”

According to McCormick, the U.S. will not use a wide-ranging “catch-all regulation” under the new policy to prevent exports of technologies. Rather, McCormick emphasized, the changes carefully target certain technologies that, while unrestricted until now, have the potential to “materially enhance China’s military capabilities.” Thus, the policy changes will not subject “everything from fountain pens to office furniture” to government scrutiny. Government analysts have attempted to pare down the list to only those technologies “that would actually contribute to military modernization,” according to CNET.

The development could prove displeasing to technology companies, which have argued in the past that export controls have resulted in barriers to increasing legitimate trade with China. Yet the “estimated cost in lost markets is small” compared to gains in security, McCormick has said.

The U.S. has been worried that China would use imported sensitive high-technology products in its rapidly expanding military modernization program, being implemented under a defense budget with little transparency.

A recent study by U.S.-based nonprofit institution the RAND Corporation said China wanted to strengthen its military capabilities by acquiring advanced, dual-use technologies and incorporating them into defense systems, noting that Beijing’s military budget has risen faster than its overall economy.

The proposed changes are due to be published in the Federal Register in the next couple of weeks. They will be open for public comments for 120 days — longer than usual, some trade specialists have said.

Resources

Feds plan changes in U.S.-China tech trade
by Anne Broache
CNET News.com, June 9, 2006

U.S. To Revise Laws To Boost High-Tech Trade with China
by P. Parameswaran
Agence France-Presse (via DefenseNews.com), June 12, 2006

US official says new export controls won’t hurt China trade
by Rob Curran and Henry Sanderson
MarketWatch, June 12, 2006