By Dr. Paul Freedenberg Vice President Government Relations AMT The Association For Manufacturing Technology
Disturbing news for another sector of U.S. manufacturing: A number of Chinese companies will soon be exporting five-axis machine tools into this country. Now, U.S. builders have to wait to see how the U.S. Defense Department's
Defense Trade Security Administration (DTSA) reacts to this news and if the implications are fully absorbed by DTSA policymakers.
For the past decade, I have tried to convince DTSA that the five-axis machine tool is a mature technology — in existence for almost 40 yr — and that efforts to deny the spread of that technology to an economy as large and as dynamic as China's will be unsuccessful. That's because where we perceive a threat to national security, our allies see a huge and attractive market holding great opportunity for sales growth. In fact, their only concern is that potential Chinese competitors might steal their technology and manufacture similar machine tools at half the cost.
Ever since the Defense Science Board's 1976 Bucy Report on export-control policy, the position of the Defense Department has been that keeping the "know-how" out of the hands of potential adversaries is more important than denying the finished product of that know-how. This was true for DoD's CoCom policy during the time of the Soviet Union, and it has also been true in its attitude toward technology transfer to China.
In practice, DTSA has taken a particularly hard stand against the export of advanced machine tools (and semiconductor manufacturing equipment) to China, taking the position that this equipment is the key to the Chinese government developing the capacity to manufacture advanced-weapons systems. In theory, this may be true, should China ever take an adversarial position toward the U.S., but three major factors have changed since the time of CoCom.
First, unlike CoCom, the U.S. does not have a veto over other nations' exports in the current multilateral export-control organization (known as the Wassenaar Arrangement). Second, we no longer live in an era of East-West hostility (if anything, the hostility is North-South, with terrorism replacing Communism), and our allies are free to pursue their own foreign policies and technology-transfer policies as they see fit. Finally, the Chinese learned from the economic collapse of the Soviet Union and are spending relatively little on military hardware. Instead, they are aggressively pursuing a strategy of economic growth that has made their country an incredibly attractive market (with 9% growth and 1.3 billion consumers) while being far less militarily threatening on the world stage.
Given these facts, the U.S. government has found itself alone in keeping advanced technology from being sold to China. Now, we find the Chinese not only entering our domestic market but also threatening our civilian manufacturing/defense industrial base.
How long will it take DTSA to realize that its attempt to deprive the Chinese of five-axis technology has only prevented U.S. companies from entering a machine tool market twice as large as the U.S.? That policy has let our trade competitors (and CoCom allies) grab the lion's share of the China market.
It has also made a number of U.S. companies vulnerable to Chinese competition — sadly, in an export-control category where they would be tightly licensed in selling the same product into China.
The Defense Department needs to change its technology-transfer policy to deal with this new reality. But will U.S. companies ever recover from the harm that has already been done?
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