Where Industry and Security Intersect
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It is a pleasure to here at the Anaheim Chamber of Commerce and to have the opportunity to discuss important trade issues with you, especially with respect to Asia and the new economy. I want to thank the Chamber for putting together this conference along with the District Export Council, UPS, and my Commerce Department colleagues at the U.S. Foreign and Commercial Service.
I assume most of you attended the panel discussions this morning highlighting the tremendous opportunities for expanded trade in Asia and the tools available to industry to help in that regard. These are exciting developments, and I want to spend some time discussing them with you.
We took a major step toward realizing the potential of the Asian market last week when the President signed legislation granting Permanent Normal Trade Relations with China after months of contentious debate in the Congress. This was an historic moment that has been in the making since the first efforts to create an organized framework for world trade and finance were begun over fifty years ago. Not only will PNTR help deepen market reforms in China, it will also open virtually every economic sector to U.S. exports, from agriculture to telecommunications and technology to a variety of products and services like autos, banking, and insurance.
As you may already know, China is California's 12th largest export market. Between 1993 and 1998 California's exports to China increased by $817 million, an increase of 50%. Nationally from May 1998 to May 1999, U.S. exports to China increased 20% from $4.9 billion to $5.9 billion. For small to medium-sized enterprises, China is the 10th largest export market as of 1997, and in that same year, 82% of all U.S. exporters to China were SMEs.
PNTR and China's accession into the World Trade Organization will move China to open its markets, either eliminating tariffs or reducing them significantly for a number of product and service areas that are important to Southern California. Tariffs will be completely eliminated on information technology products including electronics, telecommunications equipment and computer equipment, and across the board tariffs on manufactured products will be slashed an average of 60% on everything from civil aircraft and parts to scientific and measuring equipment. Sales of U.S. agricultural commodities in China are expected to result in $2 billion annually by 2005. Professional services, including financial and environmental consulting, will also find new opportunities in China.
All of the trade concessions in PNTR were made by China and were unilateral -- the United States will simply maintain the market access policies that we already apply to China. One of the primary Chinese concessions is an obligation to publish laws and regulations relating to their trade policy and to allow international review of Chinese trade decisions. This is crucial for American business because it provides a stable export environment, fixed ground rules and legal recourse on pertinent decisions. In addition, the Commerce Department will have a rapid response team both here and in China that will work under tight deadlines to investigate commercial problems.
Under PNTR and WTO laws, U.S. companies will also have greater ability to establish China-based operations that can import and distribute products.
Just as the Commerce Department provides services to American business that enable them to understand and work through trade regulations, licensing restrictions and international laws, we will provide technical assistance and work with China to help them conform their laws to the WTO.
In the meantime, a nationwide campaign of seminars has begun to educate U.S. companies, especially small and medium sized businesses, on their legal rights and opportunities presented by China's new WTO commitments. An aggressive trade promotion campaign aimed at the Chinese market was launched with the August Virtual Trade Mission that was featured at the World Computer Congress in Beijing.
China PNTR is part of a larger effort underway at the Commerce Department to help American companies reap the benefits of the global -- and increasingly digital -- economy. As Intel Chairman Andy Grove once put it, "In five years, people will be in the Internet business or they won't be in business at all." That is why the Commerce Department has made e-commerce a central part of its trade promotion efforts.
At the outset of this Administration some seven years ago, only 90,000 individuals were using the Internet compared to over 300 million today. The Internet has changed the way people communicate and do business throughout the world and has provided every region of the world with the opportunity to grow and prosper. Asian nations in particular have embraced the Internet and e-commerce, providing a sound opportunity for U.S. information technology companies.
Even so, there remains a risk that new barriers to global e-commerce will emerge as foreign governments look to over-regulate the Internet and set rules that shut out American companies. We, of course, are working to see that this does not happen.
Emerging economies today are facing the same challenges the U.S. faced over the last decade. The choices they make now will have a long-term impact on whether they will share in the type of growth experienced by the United States and whether U.S. IT companies will participate in that growth.
For our part, the Commerce Department has developed a three-part program to help U.S. companies prosper in the global economy, while at the same time doing our part to bridge the digital divide both here and abroad.
First we have begun at home. Our primary focus has been to ensure that a larger percentage of Americans are included in the information revolution. We have done this by wiring schools across the country and by providing Internet access to under-served communities.
We are also working to make government a model for connectivity. At the Commerce Department, we totally revamped how we do things so we can better use technology to connect U.S. businesses to the new digital economy. For example, we provide online tools and services designed to do everything from finding international partners to getting paid. We also developed a comprehensive domestic outreach program that includes roundtables with U.S. IT companies, an e-exporting seminar series, and a seminar series on doing business with China.
Second, we are creating partnerships with emerging economies to share U.S. technology and experiences. We have developed a number of bilateral programs that increase cooperation between the public and private sectors to narrow the digital divide, promote e-commerce and increase trade through the use of technology.
For example, we offer, through the International Trade Administration, Technical Assistance Programs to help emerging economies use IT applications to solve major policy issues such as health care, disabled access, education, government procurement and the digital divide and to improve the delivery of government services and fight corruption.
Commerce also offers Small Business Seminars with U.S. high tech companies, providing training to emerging economies on using IT and the Internet to take advantage of the benefits of the digital economy. Special emphasis is placed on legal, financial, customs and logistical issues, and the various tools, techniques and strategies for using the Internet and e-commerce to participate in the digital economy.
Third, we have fostered the right policy environment by keeping both the Internet and foreign markets open to private sector driven global growth. This effort includes e-commerce joint statements promoting U.S. government policy goals of private sector leadership, minimal regulation, and investment driven by competition and market forces. We have held formal policy dialogues with other governments, including the ASEAN nations, the EU, FTAA and APEC, and we have held orientation visits in the United States to focus on technology issues from telecom deregulation to e-government to e-banking.
As the number of Internet users rises to 1 billion by the year 2005, we must continue to innovate and respond to the changes brought about by the IT revolution. By working to build digital bridges to both individuals and companies, by creating partnerships with emerging economies to foster their growth, and by addressing policy issues that threaten to derail global economic expansion, we will continue to prosper in the new digital economy.
Now let me switch gears a little and turn your attention to the area of trade policy which I am involved and that is export controls. I know many of you here are involved in high tech industry and are involved in producing any number of innovative technologies from semiconductors to aerospace. You undoubtedly know the importance of export controls when it comes to promoting trade and understand the devastating effects that the wrong kind policy can have on an industry, and ultimately, our economy.
Federal Reserve Chairman Alan Greenspan has frequently credited technological development with providing the productivity increases that have fueled the longest period of economic growth in our nation's history. As we see here in Orange County and up north in Silicon Valley where I visited earlier this week, information based industries - from biotechnology to telecommunications and microelectronics and the like - are now the #1 driver in our economy.
We have worked hard to make sure that our export control policy reflects this new reality, not merely because it is in our economic interest, but because it is fundamental to our national security as well. Thus, this Administration has done a great deal to liberalize controls, lifting unnecessary burdens imposed on industry as globalization has expanded trade to all corners of the world and transformed the way our military thinks about technological advantage.
But, despite our efforts, which the President and Vice President recognized early on as a priority, export controls remain a contentious part of our national security debate, particularly with respect to China. While the global economic and strategic framework to which export controls must adapt has changed, the policy making process has been slow to evolve. In other words, economic globalization is moving faster than politicians can comprehend and deal with.
When this Administration began its work, we were at a crossroads in U.S. strategic trade policy. The design of our export control system was antiquated and its process creaky, having been designed for the Cold War, when political relationships were less ambiguous.
Our goal was to build a strong Western alliance as a bulwark against Communism. Our security was tied to keeping advanced capabilities out of our adversaries' hands. This meant keeping our best technology from reaching beyond our borders.
Then the world changed dramatically. The familiar framework we had followed for nearly a half-century required new flexibility to deal with more ambiguous, but equally real emerging threats. Instead of bipolar simplicity, we face a number of rogue states -- or should I say "states of concern"? -- bent on acquiring weapons of mass destruction and destabilizing their regions through acts of terrorism.
The Administration realized early on that rapid technological change and economic globalization compelled comprehensive reform of our export control system in ways which balance the need to protect sensitive goods and technologies without imposing unnecessary or ineffective constraints on business. That is why we liberalized outdated controls, streamlined our existing export control system, enhanced our enforcement programs, and helped to strengthen multilateral regimes.
In liberalizing controls, we have focused on narrowing the range of these controls to cover only the most critical products and technology. Our rationale is clear. We do not protect national security by unnecessarily controlling widely available, older generation products.
This is perhaps our most fundamental change, and a considerable part of my job has been to explain and defend it. The equation is simple and basic: strong exports = strong high tech companies = a strong defense = improved national security.
This equation is based on our realization that the new era we live in is one where the military prime contractor is no longer king; the technology driver in the economy is the civilian sector; and success measured in terms of profits that can be put back into R&D on next-generation products depends on exports.
That means, particularly in microprocessor based sectors, accepting, if not encouraging expanded exports ultimately promotes our security rather than our vulnerability.
We have put ourselves in the paradoxical situation where denial or delay of exports under the rubric of national security has, in the end, done more harm than good to our nation's military and economic strength.
Where this is most clearly illustrated is in the area of commercial communications satellites. The transfer of licensing jurisdiction over satellites from the Commerce Department back to the State Department has affected a broad range of U.S. industry, from small, high tech firms to industrial giants. Since the transfer, which this Administration opposed, satellite exports have declined forty percent, from $1.06 billion in 1998 to $637 million in 1999 according to Census Bureau export statistics, and the satellite industry tells us that the U.S. share of the world market has dropped from 73% in 1998 to 62% in 1999 and to 42% currently. The changed controls on satellites bear much of the responsibility for this. This problem now threatens to spill over into related "space qualified" items.
While the Department of State has taken action to alleviate some of the problems, the fundamental issue remains that it is not practical or desirable to treat commercial export sales as munitions transfers. The better solution is to recognize dual use items for what they are and control them through the Commerce procedures that are designed for that purpose. In fact, legislation was introduced in the House last May to do precisely that.
Another area that continues to inspire spirited debate is encryption. The Administration remains committed to a market-driven approach to encryption exports that balances privacy and e-commerce with national security and law enforcement. The challenge for the next Administration will be to maintain this balance while promoting this technology as a fundamental tool of e-commerce.
Indeed, this has been the guiding principle of the Administration's policy. We have worked to enact a simpler, streamlined approach to controlling this technology based on technical reviews of encryption items in advance of sale, licensing in cases when they are exported to certain government end-users, and a post-export reporting system that takes into account industry distribution models.
Despite that progress, we are mired in a broader philosophical debate, as those who reject this Administration's new thinking about export controls seek legislatively to roll back the clock. This is a profoundly dangerous approach which will not only cost the U.S. market share and jobs; it will cost us our technological leadership and will compromise our security.
Thus, the stakes are not small and the challenges not minor. And the debate will continue beyond the election, just as it has for the last decade. Those still fighting the Cold War are not going to stop in November, and those who have invested their intellectual energy into trying to turn the clock back have no reason to suddenly set it right.
This Administration has stood firm on these issues, not because it is in your interest, though it is, but because it is in the interest of a stronger America. As I said earlier, we are winning --because we have the facts and the better argument --but you should not for a moment assume that the fight is over or that you can abandon your own efforts for rational export controls. While I will join with President Clinton in continuing our work until the last hour of the last day, you must remain ready to carry on the fight that will continue after us.
In April of 2002 the Bureau of Export Administration (BXA)
changed its name to the Bureau of Industry and Security(BIS). For historical
purposes we have not changed the references to BXA in the legacy documents
found in the Archived Press and Public Information.