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Trade V Security: The Great China Question
posted Wednesday, 14 June 2006
Although America has faced a great many challenges over the last 50 years, both from within and without, one of the most constant of these problems has always been finding a way to balance the needs of National Security against the needs of the economy. A struggle which has pitted some of America's most powerful, and influential, groups against each other for decades.
The Teams
On one side of this debate is big business. With campaigners arguing that they require a free hand to sell their products on the international market, and to do business with as wide a range of people as possible, in order to remain competitive in todays global environment.
However, on the other side of the debate is America's abundance of Neo-conservative lobbyists groups and Think Tanks, not to mention the military and intelligence communities. Who hold true to the argument that, regardless of how much money you can make, there are some very good reasons not to sell missile guidance chips to people who might want to kill you.
Unsurprisingly, not to mention increasingly, much of the focus of this debate, in recent years at least, has been centered on US trade with China. A country which is not only one of America's largest strategic competitors, but is also potentially one of the word's fastest growing export markets.
Renewed Concern
Although Security V Trade has long been an issue in the Sino-US relationship, it was brought into the headlines this May, with the release of the “Enhancing Dialogue, Moving Forward” - A White Paper from the Chinese branch of the American Chamber of Commerce, known as AmCham.
As part of the wider issue of Sino-US trade, the influential NGO used its yearly report on Sino-US trade issues to launch a blistering attack on restrictions imposed on the export on non-military goods to China; Branding them as being overzealous, unclear, and harmful to America's ability to compete for China's import markets.
| “AmCham fully supports a targeted and efficient export controls program that keeps American military technology safe; however, the current program is neither sufficiently targeted nor efficient.” “Enhancing Dialogue, Moving Forward”, AmCham, (2006) |
Status Quo - The China Threat
As far as China is concerned, Washington has traditionally always erred on the side of caution, and has put into place several layers of regulations restricting exports to China; covering everything from industrial chemicals and consumers microchips, to guided missiles and air defense radars.
In the largest part, these restrictions are designed not only to prevent the sale of weapons to China, but also to prevent the transference of precision mechanical and electronics devices/components to China that could be used to produce anything that could threaten the security of America and its allies.
| “The risk of transferring US commercial technology has been a staple of the larger US debate over China policy for many years. Trade with China is routinely viewed through the prism of Chinese military capabilities” James A. Lewis, Center for Strategic and International Studies |
Put simply, and in in the voice of a conservative, Washington has been acting in order to prevent China from acquiring ' more efficient means to kill US citizens'.
However, AmCham's report has not only moved to highlight the economic damage that is being caused by such restrictions, but also to dispute many of the grounds on which many of them are being enforced. Particularly when the regulations serve to place restrictions on non-sensitive technology that posses little or no threat to the US.
As such, AmCham have voiced that many of these restrictions serve only to make the US less competitive in the international market by
- Burdening US companies with red tape that foreign competitors do not have to deal with,
- Creating entire market sectors that are virtually closed to the US - but which remain open to foreign competitors
- Forcing American industry to maintain a 'blacklist' of willing customers with who they cannot trade, but their overseas rivals can, based on their connections to restricted Chinese groups.
| “unilateral restrictions on exports to China of non-sensitive technology only benefits foreign competitors.” “Enhancing Dialogue, Moving Forward”, AmCham, (2006) |
Even where no foreign competition exists, such restrictions, AmCham have argued, represent opportunities to expand Sino-US trade that are 'needlessly lost ' because of 'unnecessarily heightened concerns' over National Security.
Too Restrictive?
While it did acknowledge the need to maintain a strong export control system -to ensure that dangerous or sensitive technology did not fall into the wrong hands - AmCham's report highlighted significant differences of opinion between the business and defense communities, as to exactly what should be considered a 'dangerous' or 'sensitive' technology, and exactly what US companies should be allowed to freely export to China.
| “AmCham fully supports a targeted and efficient export controls program that keeps American military technology safe; however, the current program is neither sufficiently targeted nor efficient.” “Enhancing Dialogue, Moving Forward”, AmCham, (2006) |
Describing them as having 'an unrealistically narrow focus', AmCham laid down a strong critique of the framework behind US export controls, and accused them of focussing solely on whether or not an exported item had the 'capacity' to be used for military purposes, rather than the 'likelihood' that the item would be used in this way, or the potential threat level involved if it was.
| “an effective export control policy is an important objective of the U.S. Government, but we feel that such a policy should be targeted towards issues that truly represent national security challenges.” “Enhancing Dialogue, Moving Forward”, AmCham, (2006) |
Chief among AmCham's concerns was the accusation that the current US security regime has lead to export permits being refused needlessly due unrealistic concerns over security, and to safe items being forced to wait unacceptable amounts of time for export permits.
Both of which, it voiced, were damaging the US economy, but doing little or nothing to protect National Security as most potential export were non-military, and fell into three categories
- Items which pose no actual threat in Chinese hands.
- Items that could potentially be used by the military, but were being exported for other purposes. For example lightweight aerospace composites that could be used to build fighter aircraft, but which are destined for use on passenger aircraft.
- Items that could potentially be used by the Chinese military, but which would not increase China's capabilities beyond their current threat level. Including outdated technologies, technologies that China already manufactures for export, and technologies that other countries do not classify as harboring a potential threat, and so willingly sell to China on a regular basis.
Under the current regime, engine components for heavy truck are considered to be a duel use technology because of their potential to be used in military transport vehicles and their export can be time consuming and problematic, with the risk of Washington stepping in to veto any orders made at any point in the export process. This comes despite the fact China already has the capacity not only to manufacture such engine components for its own military, but also that it is well known as an exporter heavy trucks for other countries.
Similarly, aircraft navigation equipment is considered to be a threat to national security because security sources warn that it has the potential to be retrofitted to guided missiles. This comes despite conflicting data from the aircraft industry that holds that most airline navigation equipment lacks the accuracy of existing Chinese missile guidance systems, and that attempts to remove or refit guidance chips would likely render them unusable.
| “We feel it would be appropriate for Congress and the executive branch to review the conceptual framework and terms of reference of our export control regime in light of these concerns.......A more complete, dynamic national security analysis would also take into account the damage an overly restrictive export control policy has on the economic viability of U.S. companies” “Enhancing Dialogue, Moving Forward”, AmCham, (2006) |
American engine and navigation components are however known to be of a constantly high quality, and are coveted by civilian industry in China for their reliability and their capacity to enhance the safety margins of civilian aircraft.
Less diplomatic sources have previously described the ethos behind US export restrictions against China as being 'If it can be used as a weapon, then it will be used as a weapon', and have accused Washington of restricting the sale of items to the Mainland that pose 'more of a danger to US citizens when thrown, than when installed'.
Small Players
In addition to criticizing, export restrictions for being 'overzealous' AmCham's white paper also criticized them for being highly 'ambiguous'. Particularly where products themselves might pose no threat, but could still be banned from export on the grounds that one of their components - for example, a specialist microchip – could be harvested by the Chinese military.
According to AmCham, this ambiguity often forces US companies to either 'run the gauntlet' of the US export regime, or to preemptively design 'China specific' versions of their product using only components that are known to be safe for export - but which may be of a lower quality, be more difficult to integrate into a product, or which might simply delay the manufacturing processes unduly - rather than risk having their product refused permission for export.
| “Unclear rules can also add additional costs in the design stage, as products destined for the Chinese market may or may not be approved for export and thus certain technologies must be designed out of products regardless of whether they would actually be restricted.” “Enhancing Dialogue, Moving Forward”, AmCham, (2006) |
AmCham noted that such ambiguities are of particular concern to small businesses and specialist manufacturers, many of whom are seeking to expand into China's growing market, but who lack experience exporting to so-called 'problem' countries.
| “Small and medium sized firms in particular, which are unable to hire specialized personnel with export control experience, find compliance with export controls especially challenging and burdensome.” “Enhancing Dialogue, Moving Forward”, AmCham, (2006) |
Many of America's cuting edge science and technology innovators are Small-Medium sized firms with little or no import/export experience. Included among these are some of the top contributors to America's space program, which frequently sources equipment through the use of private sector grants, and someof its fastest rising niche electronics companies.
Protecting America?
As a key point in its argument against the current regime, AmCham laid down several strong criticisms of the use of 'National Security' as the foundation for export restrictions, among which was the standard argument that 'if China can't buy it from the US, it simply goes elsewhere'.
| "The loss in export sales does not bring about a corresponding gain in America's security because the technology that U.S. exporters cannot bring into China is being brought in by other trading nations, most often by one of America's allies” “Enhancing Dialogue, Moving Forward”, AmCham, (2006) |
This argument has often been applied directly to weapons sales, but in AmCham's case, largely refers to 'duel use' components and materials. Including the aforementioned aerospace components.
Proponents of the current regime have however traditionally dismissed this argument as being akin to saying 'If American's are going to die anyway, we might as well make sure that we're the ones turning a profit on it'.
Economic Benefits?
Historically, both American exporters and the Chinese government have often cited US restriction on trade with China as being a contributing factor to the trade deficit, and have called for the lowering of barriers as a way of decreasing the Sino-US import/export imbalance. However, the exact economic impact of a lowering of barriers is still being debated.
During 2005, US firms only applied for permission to export approximately $US1 Billion in potentially sensitive components and finished goods to China. However observers have voiced that this figure is misleading, and should not be taken as representative of the potential level exports, which could in fact be far higher.
Unknown Calculated Factors?
Observers hold that current figures for sensitive exports cannot be used as a benchmark for the benefits of reducing restrictions because they cannot be used to calculate the level of trade that is lost through Chinese companies being unwilling to take the risk of having an order vetoed by Washington, or unable to afford the possibility that problems in the approvals process might delay the order of vital components for their product lines.
| “Many Chinese companies have said to AmCham members that they never bother to begin negotiations with American firms for purchase of high-tech goods because of the uncertainty surrounding the approval and licensing programs.” “Enhancing Dialogue, Moving Forward”, AmCham, (2006) |
Similarly, observers have voiced that current figures cannot be used to determine the total export revenue lost to the US by American companies deciding that current restrictions make trading with China too difficult or too risky, to bother with, and so deciding to concentrate on domestic markets or less lucrative foreign markets.
Observers have also voiced that sensitive export figures cannot be take as being representatives of the market as a whole because they do not include US exports made through third parties, so as to avoid Federal export restrictions.
Less Regulations, More Trade?
According to some sources, a relaxation in regulations could lead to a many fold increase in Sino-US trade, possibly running into several hundred million dollars..
| [The trade increase could potentially run into] hundreds of millions of dollars” David McCormick, Undersecretary of Commerce for Industry and Security, US |
Not everybody however agrees that lowering export restrictions would increase trade by any significant amount.
Reasons for this belief include the fact that China's currency remains low against the dollar, making the import of US goods expensive for Chinese customers, and the fact that Chinese markets for expensive finished industrial products, one area in which America still leads China, remain small.
According the National Foreign Trade Council, a Washington based group which represents 300 US companies in free trade issues, the current trade deficit is so large that even a near total relaxation on non-military sales would be so small that it would have little impact on the current Sino-US trade deficit.
| “[The Sino-US trade gap is] not going to be overcome by increasing shipments of high-tech products. You can’t even make enough airplanes, which are the biggest-ticket item we’ve got, to cover that gap” William Reinsch, President, National Foreign Trade Council, US |
During 2005, America imported $US 243.4 billion of Chinese goods, while sending back only $US41.8 Billion worth of exports. Approximately $US12 billion of this is classified as being High Technology.
Loosing Streak?
Despite the case being put forward for by AmCham, many China watchers feel that the current level of tension between the US and China make any meaningful relaxation of trade restrictions 'unlikely' in the near term.
| “Right now, on balance, I’d say that there’s enough reservation and concern about the relationship that [the pro-relaxation camp] doesn’t have the momentum it needs to see serious movement.” William Dobson, Managing Editor of Foreign Policy, Carnegie Endowment for International Peace |
Indeed, some China watchers are even warning that the situation is likely to get worse, with Congress placing more items on the list of restricted exports, and introducing a tougher screening program, as concern grow over the prospect China's current program of military modernization might soon enable it to withstand a direct attack from US forces in the event of an open conflict breaking out over the disputed island of Chinese Taiwan.
There is however some hope that the export process may soon become more easier in some areas. With Washington announcing, in June of this year, several new initiatives aimed at expediting the export of components from sectors that are 'critical' to Sino-US trade and to areas China's industries that either supply or feed off of US industries. Including the consumer electronics industry; which that is supplying the US retail sector with cheap electronics, and the comercial aviation industry; which with which the US is facing strong competition exporting to from the EU.
However, Washington has firmly stated that such relaxations would only occur if China agrees to open up its internal structure to greater US scrutiny, so as to ensure that duel use items end up being used for civilian purposes.
| "This process will require unprecedented openness and cooperation on the part of Chinese companies. And it will create incentives for them to demonstrate good faith and sound practices.” David McCormick |
Unsurprisingly, as the Chinese system is notoriously opaque, not to mention adverse to scrutiny from regimes that frequently make hostile gestures towards it, this is seen as being a sticking point.
Keeping China Down?
As a side issue, China watchers have previously expressed concern that many US export restrictions appear to have a duel purpose in themselves, and have voiced that many restrictions might be less about protecting American citizens from an active military threat, and more about protecting America, as a whole, from a rising China, by ensuring that China's rise occurs as slowly as possible.
As such, some China watchers have accused Washington of using 'the China threat' as a pretext to prevent US companies form exporting items to China that would allow China to compete more effectively with the US.
Accusations include that Washington has:
Purposefully created an air of 'uncertainty and doubt' over the issuance of export permits, to dissuade companies from trading or co-operating with China.
- Knowingly placed restrictions on precision technologies that would enable China to improve the efficiency of its industry and infrastructure; Allowing it to compete on a more even level with the US.
- Placed unnecessarily strict restrictions on the export of heavy vehicle components and aerospace technology in order to retard the growth of China's internal transport infrastructure. Thus restricting its capacity to develop the internal logistics and supply chains that are vital for domestic economic growth and rationalization.
- Placed restrictions on advanced computational equipment and semi conductors in order to retard China's ability to develop a commercial satellite and supper computer industry that is capable of competing with America's own industries.
- Placed restrictions on entry Visas for Chinese businessmen, in order to 'push business deal onto Chinese soil', where there is less legal protection, and more uncertainty, for foreign companies. Thus making US companies less willing to commit.
It should be noted that such concerns have been expressed independently, and did not form part of the AmCham report.
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