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The uncertain environment or continued China trade

By Dr. Paul Freedenberg,
Vice President Government Relations
AMT—The Association For Manufacturing Technology

2005 was a significant year regarding export controls, particularly for the rules that determine what is - or is not --legitimate trade with China. What did not happen, however, was more important than what did.

From last summer to the end of the year it looked as though the U.S. government was about to issue a new regulation known as the "China Catch-all," which had been in the works for two years.

In 2003, the U.S. government had proposed controlling all dual-use items and technologies that might be used by the military of any nation against which there was a multilateral arms embargo. Unfortunately, from the U.S. machine tool industry's perspective, this proposed regulation would have included China as a result of the Tiananmen Square sanctions.

In contrast, the European Union and most of its member states did not agree with this interpretation of the proposed international initiative with regard to China. That meant that, in effect, the U.S. government would have been acting unilaterally, or very close to unilaterally, if it went ahead with the proposed regulation.

When the government initially announced its intention to introduce this "China Catch-all" regulation — and when the Commerce Department's Bureau of Industry and Security discussed this regulation with its industry "Technical Advisory Committees" — it said it intended to control all dualuse items and technologies subject to Commerce jurisdiction that might end up in Chinese military end-use.

This was so broad that it could have brought virtually all exports (whether subject to current license requirements or not) that might end up in Chinese military hands under the new "catch-all" licensing regime. AMT and many other U.S. exporters protested loudly to Commerce and provided analysis showing that such a regulation would dramatically curtail trade to China and make the remaining trade cumbersome and time-consuming.

Now there is good news. Officials from the Bureau of Industry and Security indicate that they have heard the protests and that they intend to issue a less expansive regulation as a result. The likely regulation would explicitly state that companies can not export items listed on the Commerce Control List to Chinese military end-users. This would be a far less restrictive regulation than originally contemplated.

This new version of the proposed regulation is already implicit in the current regulations. Over the recent history of China trade, very few licenses to military end-users have been approved. The new regulation most likely would restrict only exports to military entities of which the exporter has actual knowledge, rather than asking the exporter to ensure that the item would not likely end up being used by the Chinese military even though it was being shipped to what the exporter believed to be a civilian end-user.

Given the initial intention of the Bureau of Industry and Security officials, this is a tremendous victory for continued high technology China trade. But it came only after a long dialog between the business community and the Bureau of Industry and Security.

Ultimately, AMT and the rest of the business community were successful in efforts to educate the Bureau of Industry and Security officials of the deleterious effects of the original proposal, which would have cut off a great deal of China trade and would have put U.S. exporters at an even greater disadvantage vis-;-vis the Europeans in the remaining China trade allowed.

It was a perilous year for China trade. There were no legislative or regulatory opportunities to improve the export control environment, and there was potential for a major setback in high technology trade. Without vigilance and without strong educational and lobbying efforts, the environment for doing business with China could have easily deteriorated significantly.

What did not happen in this regard was more significant than what did.

You can help revitalize U.S. manufacturing! Send this page to your Congressman, local and state government leaders, or your local newspaper editor. Add your own comments on the importance of manufacturing innovation to the health of our economy. Your comments are also welcome at [email protected]

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