China Export Controls Coming To A Head

China Export Controls Coming To A Head

As a former Under Secretary of Commerce for Export Administration in the Reagan Administration, it gives me no pleasure to criticize the good faith attempts of the current administration to institute new export control regulations. Nevertheless, even though the Bush Administration has worked for two years to fashion a workable "China Catch-All" regulation, the final product is not likely to make the United States exporting community happy. Nor is it likely to increase U.S. national security appreciably either. Let me briefly explain my concerns.

Almost two years ago, the administration announced that it intended to impose export controls on dual-use products and technology that would likely be used by the Chinese military.

It felt the need to do this because of a commitment made at the 2003 session of the Wassenaar Arrangement (the multilateral export control organization).

At the 2003 session, it was agreed that there ought to be an attempt to cut off export of dual-use goods and technology to any country that is the subject of a multilateral arms embargo if the goods and technologies might be useful for building weapons systems (munitions).

In the succeeding two years it became apparent that other Wassenaar Arrangement members were thinking of targeting North Korea and Iran for such an embargo, and that the U.S. government was the only one that had added China as a potential threat.

The U.S. used the Tiananmen Square sanctions as the justification for adding China to the embargo list.

The European members of the Wassenaar Arrangement, who already were debating whether to repeal their commitment to enforce the Tiananmen Square sanctions altogether, repeatedly have rejected U.S. appeals to join the attempt to toughen export controls on China. They see China almost exclusively as a market, rather than a threat.

Apparently, the Japanese (our major ally in East Asia) agreed with the principle of the new regulations, but declined to voice their support publicly or to publish the requisite regulations to enforce the new embargo list.

That leaves the U.S. government alone in the public announcement of and in the application of the new regulations on China.

The U.S. exporting community repeatedly has stated its opposition to the proposed new regulations, but apparently to no avail. The new "China Catch-All" regulations are likely to be published soon, and they are likely to contain the same defects that have been pointed out since they were in draft form.

Given the lack of enthusiasm for the U.S. interpretation of the 2003 Wassenaar agreement, it is certain that the new regulations will be unilateral, giving the Chinese alternative sources for any item that we may deny them. U.S. companies, which will be compelled to enforce the new regulations, will have an even more complicated matrix of prohibited products, technologies, and end-users than they do today, with heavy fines for violations of the new, complex set of restrictions.

For its part, the Chinese government has already indicated that it does not intend to increase its bureaucracy to process the new end-user certificates that the regulations will require, further slowing the entire process and putting U.S. exporters at a disadvantage compared with their foreign competitors, who will not require the new paperwork.

Worse, potential Chinese buyers are not likely to read the new regulations in detail and will not realize that they are less draconian than the original proposals. What they are likely to glean from the U.S. government announcement is, simply, that it is going to be more difficult to purchase what they need from U.S. sources.

Their likely reaction to that news will be to shift more purchases to alternative, less complicated and less uncertain sources of supply.

The Chinese government already blames export controls (unfairly, I think) for the size of the bilateral trade deficit. The new "China CatchAll" regulations will provide even more ammunition for that argument, with little or no appreciable effect on the intended target. Does this make sense, either in terms of trade policy or national security policy?

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