Where Industry and Security Intersect
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Thank you, John, for the kind words. I’m delighted to be here with all of you today.
The last time I addressed the U.S. – China Business Council was on the eve of our announcing the new China rule—in June of last year—a rule which implemented important changes in our export control regulations with respect to China.
As I mentioned at the time, we at BIS greatly value the Council’s constructive input in this area, and we look forward to continuing to work with all of you in the future on these and other China-related issues.
Let me begin by stating what I hope is obvious: China is one of America’s most important overseas markets, and we are committed to doing our part to ensure that U.S. exporters can appropriately capture the enormous opportunity that China represents.
That is why we feel it important that we take the time--from time to time-- to let you know what we’re thinking in government. This is especially important in light of how complicated the U.S.-China relations can be, and how important this bilateral relationship is.
Quite apart from the vibrant commercial relationship that your companies and clients are forging in China, it is striking the number of areas where bilateral cooperation has improved in recent years, ranging from combating terrorism, preventing disease pandemics to reversing environmental degradation.
But important issues of concern still remain. These include the pace and transparency of China’s military modernization, the status of China’s integration into-- and embrace of-- a rules-based global economic system, China’s human rights record, and our continuing efforts to seek a peaceful resolution to the Cross-Straits issue.
BIS Mission and Role—The China Case
Everyday BIS helps shape the bilateral relationship in at least two core regulatory areas. On the outbound side, BIS administers and enforces the dual-use export control system. On the inbound side, BIS actively participates in the interagency CFIUS process.
While I will spend our time together today discussing export controls, both of these areas are informed by our broader China policy, which, in the words of President Bush, seeks to “encourage China to make the right strategic choices for its people, while hedging against other possibilities.”
As a national security bureau within an economic cabinet department, BIS understands the importance of working with U.S. firms to ensure that our regulatory system does not impose arbitrary or ill-conceived restrictions on legitimate commercial activity that supports our economic interests, and facilitates America’s engagement with China.
At the same time, our most solemn obligation is to protect the security of the nation. We must—and are committed to-- vigorously administering and enforcing controls to stem the proliferation of weapons of mass destruction and the means of delivering them, and to prevent the export (and re-export) of items that will support China’s military modernization.
Against this stark backdrop, the actual export control statistics might come as a surprise to you. While we take our obligation to regulate the export of controlled technologies very seriously, U.S. export controls touch a relatively modest—but critical--slice of U.S. exports to China.
For example, total U.S. exports to China totaled $65.2 billion in 2007. Of this $65.2 billion, less than 1% required a license from the Department of Commerce.
If one narrows the set and looks at the impact of our dual-use controls on U.S. high tech exports to China in 2007, the figure is 2.2%.
Moreover, year on year numbers for U.S. civilian high tech exports to China are increasing. U.S. high tech exports to China increased by approximately 15% in 2007 from the previous year. My point is not that trade controls caused this increase in trade, but that the sometimes heated rhetoric about the scope and impact of trade controls is contradicted by the facts.
The Big Picture: U.S.-China Policy
One very important message that often gets lost in the minutiae of the regulations is that our China export control policy is driven by, supports, and is best understood by reference to our nation’s larger foreign policy toward China.
And it is U.S. policy to welcome-- and to work for-- China’s peaceful integration into a rules-based global economy. China is a large and developing nation, and China’s economic success can help it meet the needs of her people and, in principle, be a source of stability in the international system.
At the same time, it is also our view that Beijing significantly understates its military spending, and exhibits a defense and security posture which appears to be at odds with its official pronouncements. In its most recent annual report, our Defense Department noted a related point when it concluded that China’s lack of transparency in its military and security affairs “poses risks to stability by increasing the potential for misunderstanding and miscalculation.”
China’s new emphasis on the development of high-tech cyber and space warfare capabilities—best characterized by its provocative January 2007 test of an anti-satellite weapon-- is also particularly troubling, and this too seems to be at odds with what its official “near defense” security posture would suggest.
BIS and Related China Export Control Issues
All of this demonstrates the continued need to apply prudent oversight over the most sensitive U.S. dual-use items which, by definition, have both civilian and military applications.
That is why last year, BIS imposed additional export control requirements on approximately 20 categories of products (or 31 ECCNs) and associated technologies ranging from depleted uranium, lasers, to certain types of avionics and aircraft equipment. These items were chosen specifically because they could be incorporated into weapons systems used by the Chinese military, or be used to develop the niche military capabilities that China now seeks.
The promotion of human rights and civil liberties is also an indispensable component of U.S. foreign policy, and the United States has long made clear its concerns with China’s human rights record. While we are pleased that China has recently agreed to reengage our government directly on this important issue, enforcing U.S. regulations on crime control items, including the Tiananmen Square Sanctions in place since 1989, is a top priority for this administration.
For important foreign policy reasons, we are also in the process of reviewing our global regulations on these “crime control items” – or items which can be used by state security forces for both investigative and enforcement purposes, but can also be used to suppress political dissent and violate human rights.
While this review is not China-specific or China-driven, we recognize that these regulations do have an important China dimension and we look forward to hearing from all interested stakeholders—those in the private sector and those in the NGO community-- on this important matter.
U.S.-China Policy: Moving Forward
But even as we hedge against an uncertain future, we are also working hard-- and smart-- to help China’s leadership make the right strategic choices.
That is why BIS signed important high-tech trade guidelines with the Chinese to boost secure, civilian bilateral technology trade, and why BIS has also implemented the “Validated End User,” or VEU, program in China.
The innovative VEU program permits pre-screened civilian companies in China who pass a rigorous national security review and agree to strict follow-on compliance obligations to receive under a VEU-specific authorization the same U.S. items they could receive under individual Department of Commerce licenses. This program reduces the time, expense, and uncertainty in the licensing process and will make US exporters more competitive in China. It will also act as a powerful, market-based incentive, rewarding responsible practices by the many civilian firms in China that handle controlled technology with care.
Currently, there are 5 companies in China that have been approved by the US government for participation in the VEU program. While the program is still in its early stages of implementation (it’s less than a year old), we are pleased with the results to date. As we continue to assess the VEU program over time in China, the ability to efficiently conduct meaningful on-site visits will be a critical factor to our long-term support—and expansion—of the program.
We are also seeking to expand civilian high-tech trade with China in a number of sectors where trade or investment barriers still remain. In this area, BIS plays a key role in two important U.S. government initiatives. First, BIS is the U.S. lead for the U.S.-China High-Technology Working Group, or HTWG, which I co-chair with MOFCOM Vice Minister Jiang. The HTWG meets twice a year to discuss ways to facilitate safe, secure, civilian bilateral high technology trade. We are currently working with the Chinese to arrange details for the next meeting sometime over the next few months.
BIS also actively supports Secretary Paulson’s broader efforts within the Strategic Economic Dialogue, which I imagine many in this room have followed closely.
Perhaps most important, we have—over the course of the past 14 months—built a candid, constructive, and pragmatic working relationship with our Chinese counterparts at MOFCOM—on multiple levels-- about these issues. We don’t always see eye to eye, but I can assure you there is open and frank dialogue and mutual professional respect—and, most important, results.
Conclusion
I will end here by reiterating my thanks to the U.S. – China Business Council and to all of you.
As I stated at the beginning, the U.S.-China relationship is complex, but it is worth the effort to get right. And as we at BIS do our part on behalf of this relationship, we look forward to your continued input and constructive assistance.
Thank you for your kind attention. I look forward to your questions.