Export Controls For the 21st Century

Export Controls For the 21st Century

This promises to be a year in which the trends we have seen in the economic and technological positions of the United States and China continue. The first seven years of this decade have seen China dramatically change its economic status and increase its world manufacturing market share.

One indicator of China’s meteoric rise can be tracked from 2000, when its industry purchased half the value of the machine tools of U.S. industry, to its consumption level today, when it purchases three times the value of all machine tools purchased in the United States.

I would argue that machine tool consumption is a reasonably reliable indicator of industrial strength. If true, we can conclude that China is likely to be one of the major industrial powers of the 21st Century.

As a technological indicator, China now has more than 400 indigenous companies that manufacture machine tools, including many five-axis models. Indeed, China now boasts eight companies that produce five-axis numerical controllers.

Thus, it would be reasonable to conclude that China is moving towards self-sufficiency in machine tools – most likely as part of its overall plan to become the leading manufacturing power in the world.

In pursuit of this long-term objective, Chinese companies have purchased some of the premier machine tool companies in the world, such as Beijing Number One’s recent purchase of Waldrich Coburg.

Moreover, Chinese companies are in machine tool joint ventures with companies as technologically sophisticated as Okuma, Zimmermann, and a number of Taiwanese machine tool companies. Even assuming there is no direct technology transfer from these joint ventures, Chinese management and product sophistication cannot help but benefit from such partnerships.

Add to this the fact that our nation’s bilateral trade deficit with China amounted to more than $250 billion last year and that the Chinese “sovereign wealth fund” is taking significant positions in U.S. commercial and investment banks, and you see how much the world is changing in the 21st Century.

How have the U.S. government’s export control agencies reacted to this remarkable shift in the world’s industrial landscape?

Last year they announced a tightening of the list of acceptable end users in China and a lengthening of the control list to those end users. This year both the Commerce and the State Departments have announced a liberalization of licensing procedures. But despite the remarkable technological progress of China in machine tools and other technologies, the overall list of controlled items has changed very little in the new century.

Meanwhile, U.S. machine tool companies have lost market share in China, as their competitors have used our government’s slow and unpredictable licensing process against them when they pitch their products.

If U.S. machine tool companies had merely held onto their Chinese market share during the past decade, they would have generated almost twice the sales that they produced in 2007.

Cutting-edge technology has moved on to carbon fiber placement, lasers and water jet cutting. But, on behalf of AMT member companies, I still find myself arguing with the U.S. government – and sometimes losing – the case for the licensing of this or that five-axis machine tool to a Chinese aircraft factory that is already well-stocked with comparable European machines.

Unfortunately, despite the best efforts of the Commerce Department, the machine tool export licensing process has changed very little.

Our current export control system is certainly not depriving the Chinese of anything that they could not purchase elsewhere. But in the process, we are undermining our own defense industrial base.

The only way that U.S. companies can continue to produce world-class technology for our own military is by being com-petitive in what will soon be the world’s largest machine tool market.

The time for fiddling with the process is past. It is time for a fundamental rethinking of what we are trying to accomplish in our strategic and economic competition with China.

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