With New China Regulations, What Do We Gain?

With New China Regulations, What Do We Gain?

China is by far the largest machine tool market in the world. Although the final numbers are not in, it is likely that machine tool acquisitions by Chinese companies were three times those of U.S. companies last year. Yet despite the attractiveness of the China market and despite the fact that none of our allies, with the exception of Japan, agree with our assessment of the strategic threat that China poses, the U.S. Government is about to go forward with still another round of tightening the export control rules that govern trade with that country: The so-called "China Catch-All" regulations.

The most important point to be understood with regard to U.S. export control policy is that while it is ostensibly aimed at keeping dangerous technology out of the hands of so-called rogue states, such as Iran, North Korea, and Syria, the really important issues revolve around the question of what to do about China. Unfortunately, our government addresses China unilaterally, because there is absolutely no consensus within the Western alliance about how to treat technology transfer to China.

Indeed, it would be fair to say there is a lack of both national and international consensus regarding China. Judging from official statements over the past decade, it is sometimes unclear what U.S. technology transfer policy toward China is. China is obviously seen as a major trading partner, and a target for our trade promotion programs. Our two-way trade exceeds a quarter of a trillion dollars per year. Because of the huge bilateral trade deficit, the U.S. Government makes great efforts to ensure that U.S. companies obtain their fair share of the China market.

Clearly, however, China is also viewed as a major strategic threat. This is reflected in the fact that U.S. review of licenses for exports to China is far more rigorous—and more time-consuming—than that of any other industrialized state. Moreover, the U.S. is by far the most likely to deny those license applications.

Other countries within the Wassenaar Arrangement (the multilateral export control organization) simply do not shareour assessment of the risk factors involved in technology transfer to China. Indeed, one could say without any equivocation, that our European allies maintain what could be characterized as a favorable export licensing policy toward China.

The disparity in export licensing is made even more frustrating to U.S. machine tool builders by the fact that many of the commercial aircraft factories in China contain joint ventures and co-production arrangements with American airframe and aircraft engine companies. In other words, despite the fact that these Chinese factories are constantly monitored by American executives (or at least have a strong American presence to assure the production of quality components), U.S. export control policy creates a situation in which machine tools in those factories are almost certain to be supplied by European machine tool builders. How does this enhance our national security?

If, as expected, the U.S. government goes forward with its latest round of regulatory restrictions, it will amount to still another layer of unilateral export controls. This is particularly frustrating, because the current liberal rules of the Wassenaar Arrangement allow Chinese companies to simply turn to another Wassenaar member to obtain the products that the new U.S. regulations will deny them, frequently with no delay or conditions. The result is likely to be that the Chinese are denied nothing, while the U.S. companies are burdened with one more piece of evidence that could convince Chinese purchasers that American companies ought to be viewed as unreliable suppliers.

Readers of this column have criticized my lax attitude regarding the Chinese ability to obtain advanced machine tools and other high technology. Yet I challenge anyone to explain how the latest "China Catch-All" regulations will do anything to reverse that trend.

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