Where Industry and Security Intersect
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Too harsh and restrictive? Or too loose and accommodating?
Relatively efficient and transparent? Or outmoded and opaque?
Vital for facilitating high-technology trade? Or standing in the way of billions of new potential exports?
Almost every day, I hear some version of these comments, describing the U.S. export controls from seemingly parallel universes. In some quarters, U.S. export controls are seen as overly restrictive and outdated. In others, there is concern that too much high technology is being freely traded around the world, too easily.
Both cannot be right, and in fact neither perspective is fully accurate. Export controls do not exist in a policy vacuum, isolated from broader issues of national or international concern. America’s export controls on sensitive goods and technology are guided by and reflect larger U.S. foreign policy and national security imperatives. They are designed to facilitate civilian high-technology trade in a way that also protects U.S. national security interests.
All of you are here today because you want to learn more. This seminar is in itself the result of improved U.S.-China cooperation on export controls, the result of the work of the JCCT’s High-Technology and Strategic Trade Working Group (HTWG). The HTWG was established in 2006 and grew out of the fruitful interaction between the Commerce Department’s Bureau of Industry and Security and China’s Ministry of Commerce, and it promises to be a useful forum for working through the full range of bilateral export control and high technology issues. We are looking for many more successes, in addition to this seminar.
Secretary of Commerce Carlos M. Gutierrez traveled to China twice late last year, most recently to participate in the Strategic Economic Dialogue with senior Chinese officials. In his discussions with Vice Premier Wu Yi and others, Secretary Gutierrez heard a lot about U.S. export controls. He asked me to come to China this month to follow up on those discussions, and to discuss with our Chinese colleagues pending changes in U.S. export controls and their effect on high-technology trade.
Perhaps more than in any other case, the cacophony of views on export controls is evident in discussions about how such restrictions apply to trade with China. Some of our Chinese friends, joined by some in the business community, argue that controls hold back trade and should be largely eliminated. Many others believe that controls on trade with China should be tightened significantly in light of China’s rapid military modernization and Chinese efforts to obtain controlled U.S. technology. As we at the Commerce Department seek to navigate the strong currents of views on both sides of the Pacific, we are guided by a clear and unwavering principle: U.S. export controls must reflect and support America’s larger foreign policy toward China.
That policy has remained generally consistent for more than thirty years. Across seven presidential administrations of both parties, the United States has worked to encourage China’s political and economic integration with the world. Thirty years ago, China was just beginning to emerge from the Cultural Revolution. It was poor, isolated, and opposed to nearly every international institution. But under Deng Xiaoping, China’s leaders reversed course and decided to embrace globalization.
The United States worked to integrate China into the international system, and encouraged China’s market reforms. The results are remarkable, and on vivid display here in the city of Shenzhen. This city was a small fishing village of 20,000 people in 1979. Today, it boasts a population of 4 million, is the world’s fourth-largest container port, and has attracted investment from 100 of the world’s top 500 companies. Shenzhen is just one example of how China’s economic integration with the world has lifted millions out of poverty and brought China closer to the world. It is U.S. policy to encourage China’s peaceful economic development, and our export controls support that by helping to facilitate hundreds of millions of dollars of civilian high-technology trade annually.
China appears to be most focused on ensuring a peaceful international environment that it will allow it to concentrate on its domestic economic development and its many social challenges. Yet China has also grown to play a more important role on the world stage, especially in international institutions like the United Nations, the World Trade Organization, and the International Atomic Energy Agency. Driven by common interests, the United States and China have cooperated on issues such as North Korea, counter-terrorism, and other matters. Encouraged by these developments, the United States has urged China to become a “responsible stakeholder” in the international system that has enabled its success.
Indeed, U.S. policy recognizes that the United States and China share many common interests in counter-terrorism and non-proliferation of weapons of mass destruction (WMD), and we hope to work with China to improve its own export control system and to cooperate in denying WMD to terrorists. In my meetings last week in Beijing, I suggested to my counterparts in the Ministry of Commerce that the United States and China have greater dialogue between our respective regulatory officials to share information.
There has long been a certain duality inherent in America’s relationship with China. We seek to actively encourage legitimate civilian trade between the United States and China, even as we prudently hedge against the rapid growth in China’s military capabilities. The Bush Administration is shaping America’s export control policies to reflect the complex and multi-faceted nature of our relationship with China.
Export controls are not relics of a Cold War mentality, but rather help to facilitate and encourage civilian high-technology trade, while limiting access to a targeted, focused list of technologies that could make a direct and significant contribution to certain Chinese weapons systems and war-fighting capabilities. The United States has noted that China’s military, like many others, is relying on commercial technologies to enhance and enable certain weapons systems. We therefore believe imposing controls on a focused list of technologies – in a very particular set of circumstances with national security implications – is an appropriate reflection of America’s larger foreign policies.
This must be a targeted and calibrated response, and not a futile attempt to hold back the forces of economic globalization. Indeed, total licensed trade in 2005 was about $2.4 billion, or only 4.7% of total U.S. exports to China. And in terms of actual exports of “advanced technology products” (ATP), only 0.6% of such U.S. exports to China required an individual validated license, and more than $350 million in ATP exports went to China under one of several license exceptions available in our regulations. The license burden on high-tech sales to China isn’t out of line with export license requirements for other destinations; about 0.4% of actual U.S. ATP exports to the European Union also required an export license.
Some have argued that these numbers tell only part of the story, and that export controls on high technology products are responsible for deterring billions in U.S. exports that we never see in the licensing system. They argue that overly restrictive U.S. controls are diverting sales to European and Japanese competitors. There is simply no evidence for these claims. In fact, U.S. high technology exports to China have markedly increased since China’s entry to the WTO, at generally the same rate as our European competitors. U.S. exports of ATP products increased 108% from 2000 to 2005, only slightly less than the 127% increase registered by our principal European competitors. Japanese ATP exports increased more, but in commodity electronic products that are not directly competitive with U.S. exports. Neither the EU nor Japan have displaced the United States in the ATP products we export.
The Bush Administration has proposed important revisions and clarifications to export controls on trade with China. Perhaps most importantly, we plan to create a new export authorization – known as Validated End-User, or Trusted Customer – that will facilitate civilian high-technology trade with China. It is one of the most important changes to export control policy in many years, and represents a new direction that has the potential to liberalize many millions of dollars of trade.
The concept is simple. For civilian customers who have demonstrated their ability to use controlled items responsibly, fewer export licenses will be required. When I was in Beijing last week, I explained to my Chinese government colleagues how VEU would work. I assured them that the intent is to facilitate more high-technology trade with civilian customers, in a way that will be neither overly burdensome nor intrusive. As I explained, this concept was introduced as part of our proposed rule regarding China, but we have also seen a significant level of interest from firms in other countries such as India, and we intend to proceed with them.
I am often asked about U.S. export control measures applied against companies involved in sales of weapons and other technology to countries like Iran. Sanctions such as these are one part of our export control system, but our approach is not – and cannot be – one dimensional. In fact, VEU is a step in a new direction, because it creates positive, market-based incentives and rewards for companies that act responsibly with sensitive products. Chinese firms with established civilian credentials and a good record of handling such products will enjoy better access to controlled technology than their competitors. And U.S. exporters will be able to sell more efficiently to their best civilian customers.
Last December 4 was the closing date for comments on the proposed export control changes. We received more than 50 individual submissions, amounting to nearly 1,000 pages of detailed comments. I’ve read them all. Secretary Gutierrez asked me to come to China to discuss these issues with the Chinese Government, and with American and Chinese businesses. We value our cooperative relationship with China, and are committed to two-way dialogue based on mutual respect and understanding. That means we explain our perspectives, even if we don’t always agree.
My meetings in Beijing were productive, friendly, and informative. We discussed the Validated End-User program, as well as progress under the U.S.-China End-User Visit Understanding. I expressed our appreciation to the Ministry of Commerce for good cooperation in recent months on conducting end-use visits, which help to facilitate exports of high technology to Chinese customers. I urged my Chinese counterparts to help us maintain momentum and access for end-use visits, to ensure the continued smooth implementation of the vitally important End-Use Visit Understanding.
I will return to Washington with a better understanding of China’s views, and I hope Chinese officials will have a better understanding of the changes we are going to make, and why. In particular, I hope our Chinese colleagues will appreciate that the trusted customer program is an important new mechanism to facilitate trade. When I return to Washington, we will carefully review the input we received from all sources. As a result of this review, there may be some changes to the original proposal.
Many of you here have urged us to change U.S. export controls. Further changes in U.S. export controls on China are possible, but U.S. export controls derive from fundamental national security and foreign policy concerns, and it is unrealistic and irresponsible to hope that controls will simply be broadly eliminated.
The Bush Administration has followed a better approach – a principle we might call “positive reciprocity”: the United States is prepared to take positive steps on export controls when China takes reciprocal positive steps. For example, under the U.S.-China End-Use Visit Understanding, China’s positive step in cooperating with us on conducting end-use visits in particularly sensitive cases led to the positive result of expanded sales of U.S. high-tech products in key sectors such as the semiconductor manufacturing industry. With the VEU authorization, responsible use of controlled technology by Chinese firms will have the positive result of expanded access to that technology from the United States.
The “positive reciprocity” principle recognizes that the United States and China share many common interests in the area of export controls. It can be a future roadmap for mutual cooperation in facilitating responsible, civilian trade in high-technology products. Building on the foundation of the EUVU Understanding and the VEU program, the United States will work in the context of the JCCT High-Technology and Strategic Trade Working Group to identify other possible areas where mutually reinforcing, reciprocal steps might be taken that improve security, strengthen nonproliferation, and encourage trade. We look forward to the next meeting of this group this spring in China.
China’s political and economic footprints are big and growing. China is increasingly influential at the negotiating tables of international diplomacy – and international business. America’s export control policy must reflect our desire to encourage China’s peaceful development, even as we maintain restrictions on items that would significantly contribute to China’s military modernization.
In making the careful decisions about where to draw those lines, the United States will continue to seek maximum input from all those affected by these policies. Your participation here today is vitally important in helping us to build cooperative and constructive relationships between business and government, and between the United States and China. For that, and for your kind attention today, I thank you very much.