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Weapons of Mass Destruction (WMD)

Statement by

William A. Reinsch
Under Secretary
Bureau of Export Administration
U.S. Department of Commerce

before the

Joint Economic Committee
United States Congress

Tuesday, April 28, 1998

      Mr. Chairman, members of the Committee, thank you for the opportunity to discuss the issue of China's access to dual-use and military technologies. This is an important issue which is central to the mission of my agency. Relations with China are in a period of transition, and this can createthepotentialforrisksintechnologytransfer. Ourjobistomanagethatpotentialriskso that the U.S. can reap the substantial benefits posed by China trade for our economy and for American foreign relations without adversely affecting our security. I want to describe how this is done.

      First, we should consider the broad factors which shape technology transfer issues with China. These include:

  • Trade. China is a dynamic market, with high rates of growth and real opportunities for foreign firms. The U.S. has a significant advantage in the high value, high tech end of the market, but we have serious competition from the European Union and Japan. At the same time, U.S. demand for Chinese goods is high, and we have a significant bilateral trade deficit which we would do well to rectify. While technology transfer restrictions account for only a small portion of the trade deficit, in many cases they have a deterrent effect on trade expansion that goes beyond our national security needs.

  • The policies of other countries towards China. Before 1994, when COCOM ended, we and our major trade partners had a coordinated, multilateral approach to high tech trade with China. Since that time, we have found a growing difference in how we and our allies treat high tech exports to China. A number of our allies no longer appear to regard China as being of strategic concern and have dismantled export restrictions on a range of dual-use technologies. The result is that some U.S. controls have become increasingly unilateral and thus ineffective as restraints on China's ability to acquire advanced technology.

  • Security and Nonproliferation. Security and nonproliferation remain central to our dialogue with the Chinese, and have a profound effect in shaping high tech trade with China. We have serious differences with China on a variety of nonproliferation issues and have consistently engaged China to bring its practices into line with international norms. We have made notable progress in the nuclear area and are working to broaden this dialogue and to promote cooperation between the US and China on other security issues.

  • The laryer bilateral relationship. China is in the midst of broad social, economic and political change. The Administration's goal of engaging China to influence its evolution to an open, market-oriented society shapes our technology transfer policies. A stable, prosperous and open China at peace with its neighbors is in the best interests of the entire world, including the United States, and appropriate transfers of civil technology can help achieve that goal.

      Export controls are one of the principal tools we use to manage technology transfer. U.S. dual-use regulations allow for extensive review and denial of license applications in cases where a strategically sensitive item would make a "direct and significant" contribution to China's military capabilities. In addition, Tiananmen Square sanctions prohibit the export of arms, satellites and dual-use items used for crime control unless there is a Presidential waiver. U.S. policy since Tiananmen Square is to deny export of controlled dual-use technology to the Chinese military and police.

      The Clinton Administration has significantly improved the dual-use export control process by, among other things, strengthening the role of other agencies in the review process. The source of this revitalized process is Executive Order 12981, issued in December 1995. E.O. 12981 gives the Departments to Defense, Energy, State and the Arms Control and Disarmament Agency the right to review any license of interest to them. It establishes a clear system for escalation and resolution of disputes, all the way to the President if necessary, and provides for an appropriate review of technology transfer cases by the intelligence community. As a result, dual-use license reviews are more thorough, more complete, and more carefully considered than at any time in the past.

      In addition to E.O. 1298 1, the Commerce Department has taken a number of steps to reinforce our ability to enforce export regulations. We have increased the number of enforcement agents in the field and have ensured that they are well trained and better equipped to carry out their enforcement mission. The Congress could help us in this regard by passing a renewal of the Export Administration Act which would, at a minimum, raise the level of the penalties for export violations from those set almost a decade ago. Under current circumstances, financial penalties are little more than the cost of doing business for many companies.

      Beyond these improvements, as part of the Administration's larger bilateral strategic and nonproliferation dialogue, we have engaged with the Chinese government on how to improve cooperation on export controls and have taken steps to help ensure that U.S. technology is properly safeguarded. The bilateral seminar on export controls held earlier this month in Washington was a good beginning to this process, and we hope to expand our dialogue with the Chinese to reach greater mutual understanding and cooperation in export controls and end use visits.

      Satellite exports are an example of how effective dual-use export controls allow American exporters to compete and win without risk to our national security. Our controls on satellite

      exports to China are extensive and involve a number of measures to reduce the risk of unauthorized transfers of technology, including a bilateral technology safeguards agreement and the presence of Department of Defense monitors at Chinese launch sites. Also, sensitive military satellite technology remains on the U.S. Munitions List administered by the Department of State. Allowing China to launch U.S.-made satellites, under these safeguards, has been an important factor in helping U.S. companies dominate the satellite market. Most sales are to U.S. or third country firms who have chosen to purchase Chinese launch services.

      The world satellite market was valued at more than $51 billion in 1997. The U.S. has the lion's share of this market. Satellite manufacturing alone employed 60,000 people in the U.S. and generated more than $8 billion in revenue for our country. Thirty-five commercial launches took place in 1997, by France, the United States, Russia and China, and we expect more in the years ahead. Commercial satellites are a key industry sector and vital to the health of the American economy as a whole. Our ability to maintain our leadership in this sector also has important implications for our military, which utilizes the same technology and depends on healthy American companies to meet its needs.

      Jurisdiction for licensing exports of communications satellites was transferred from the State Department to Commerce in November, 1996. Since then, we have issued three licenses for satellites, with the concurrence of all agencies, to be launched in China. No satellite licenses for China are pending now at Commerce.

      Another good example of the nexus between security and trade is high performance computers. High performance computers have attained a symbolic importance in our debates over technology transfer which their real utility may not warrant. It helps put the issue in perspective if you remember that some of the weapon systems found in the U.S. arsenal today were built with computers whose performance was below I 000 MTOPS -- in some cases with performance of 500 MTOPS. These were the supercomputers of the 1980's, but today you can find more capable machines on many office desktops. The U.S. currently dominates the high performance computer market, in part because of the computer export policy adopted by this administration in 1995. This sector is vital to the of the U.S. economy as a whole. Exports account for roughly half the revenues of U.S. computer companies. Ill-advised export legislation could put this vital sector at risk without a justifiable benefit to national security.

      Satellites and computers are only one part of U.S. exports to China, which were valued at more than $12 billion in 1997. Commerce received 849 export licenses for China in 1997, valued at one billion dollars. Eighty percent of the licenses we received were given permission to export; export was not allowed for the remainder for a variety of reasons including a lack of sufficient information. This eighty percent approval rate for China is lower than most other countries, including Russia. Applications for China usually take fifty-four days to process, sometimes because we must wait for sufficient information. The average for all licenses is twenty-nine days. These figures show that China licenses are subject to extensive scrutiny and review to ensure that U.S. interests are well protected. Our nonproliferation policy is fundamental to protecting U.S. national security, but it is not without real cost to the United States. These licensing statistics do not reflect the sales lost by U.S. firms in China because of export control

      policy or licensing delays. U.S. exporters face de facto unilateral controls on exports to China in several sectors where they have a demonstrated competitive advantage. For example, it has been reported that U.S. firms lost the contract for a three billion dollar semiconductor project to a Japanese firm largely because of Japan's apparent willingness to transfer advanced technology quickly and without extensive conditions.

      China poses a difficult problem for U.S. export controls today, and the integration of China into a stable world order is one of the paramount challenges for American foreign policy. It is apparent that we are divided in thinking about how to meet that challenge, with some in the Congress and the media having apparently already decided that China is a committed adversary that we should treat the same way we treated the Soviet Union during the Cold War. Others, including the Administration, believe that the old Cold War controls aimed at the Soviet Union are not relevant to new and more complex situations like that of China, and that if we ignore the differences we risk producing the very result we wish to avoid. At the same time, as we pursue a policy of engagement, we clearly do it cautiously with our national security in mind. While the problems are not to be minimized, our relationship with China represents enormous opportunities for the United States if we can manage it well. And that is what we are committed to do.

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