China’s export-driven economy feels the pain of a global recession during the holiday season. The magnitude of China’s manufactured goods, and China’s role as both an import and export partner of the United States, makes the business relationship between the two countries especially complex. PHOTO BY ROBERT EATON.
The United States controls exports with China to mitigate trade, address security concerns, and communicate foreign policy. The Export Administration works within the U.S. Department of Commerce; its function is legislated by Congress. A globalized world economy, the magnitude of China’s manufacturing production, and China’s role as both an import and export partner makes this complex business relationship one of the most important of our time.
Control of exports from the United States helps to limit China’s access to products and technologies that can be used for military purposes. But export controls also restrict American businesses from competing fully in the global marketplace.
In 2007 the White House revived a push for a renewal of the Export Administration Act (EAA). The EAA regulates the export and re-export of many commercial goods and most goods that have both commercial and military applications, known as dual-use items. China is one of the main targets of this legislation not only because China’s military continues to grow and modernize but also because of the Chinese government’s willingness to trade with nations the United States finds objectionable. China is described as one of the major players in cloak-and-dagger black-market efforts to take highly sensitive U.S. technology and trade it or share it with such nations as Russia, Pakistan, North Korea, and certain countries in Africa.
Export Control Laws
The United States government considers export control laws a vital tool to strengthen national security. Even though the EAA lapsed in 2001, it has been renewed in large part by executive order since then. In April 2007 new legislation was introduced to renew the EAA in its entirety.
Export control laws, first enacted in 1979, give the U.S. Department of Commerce authority to control so-called dual-use items, products that could have military as well as civilian applications. But this causes a problem. With the growing globalization of the economy, business and trade groups do not want to see money-making possibilities hampered by restrictions on what they can and cannot ship to one of the world’s most important markets. At their most extreme, export controls ban certain transactions with certain foreign countries; at the very least, they require proof and certification that advanced or sensitive items shipped overseas will stay in the hands of the person or entity they are sent to.
Trade versus Security
In 2002 Vann H. Van Diepen, then acting deputy assistant secretary of state for nonproliferation control, said that China was the focus of U.S. export control policy because of its growing regional military power and because certain Chinese entities had been involved in military proliferation. He acknowledged, however, that because of the size of China’s market, there was a need for balance. Companies generally accept and understand the restrictions on trading actual munitions and armaments to foreign countries that are not allied with the United States, but there have been disagreements over dual-use items and technologies.
Standards are in place to try to determine whether an item can be controlled, including whether it is available on the mass market and from a friendly foreign country and if the sale of the item would pose a national security threat to the United States. For example, a bullet is always a weapon. But a computer could be a necessary component in a missile system and, at the same time, have a definite civilian purpose. In deciding what to do about the export of computers, the U.S. government established how many millions of theoretical operations per second (MTOPS) a computer would have to perform to qualify as a high-performance computer. Those are the computers whose sales the government regulates because only computers of that caliber are useful in a missile system. But it is increasingly difficult for the government’s regulations to keep pace with improvements in computer performance.
Policymakers have difficulty reaching consensus on dual-use items. Some support less restrictive measures that would allow the export of many technologies and would ban only those that could easily be used for military purposes. Others would ban export of any item that could have any function militarily, a category that includes items as various as trucks and vans that could be used as personnel transports and metal fittings that might possibly be used in military equipment. For example, machine tools such as lathes are subject to export restrictions because they are critical to the production of missiles. But not allowing U.S. companies to sell these machines to China cuts U.S. companies off from a huge market of Chinese manufacturers who could also use these dual-use items to create nonmilitary products.
In addition to their concerns over being excluded from China’s lucrative market, U.S. firms are also concerned about possible confusion over legislated constraints if new export controls increase rapidly. They fear that eventually the system of controls will become so complex that businesses will not be able to determine whether a transaction is above board.
Since 2001
When China joined the World Trade Organization (WTO) in December 2001, the gates were opened for an immense flow of trade between China and the rest of the world. This was a positive development for the United States because, in becoming a member of the WTO, China accepted standard international trading regulations. At the same time, it meant that the United States had to compete with the rest of the world for a share of the Chinese market. Competition means that any trade restrictions pose both favorable and unfavorable consequences.
In a May 2005 update of The Export Administration Act: Evolution, Provisions, and Debate, a Congressional Research Service (CRS) report, the CRS described the challenge of controlling exports in a globalized world economy and suggested that export controls are not the best option. The report stated that unilateral export controls were becoming increasingly unworkable in a global economy. The report further noted that earlier export controls were based on products being manufactured or assembled in one country, but now goods are often manufactured and assembled in several countries.
Another challenge to unilateral export controls is the mass-market provision of the EAA. A product can be regulated as a dual-use item only if it is not available on the mass market or from a foreign country that does legitimate business. These provisions limiting the applicability of dual-use regulations were designed to help keep U.S. companies competitive by allowing them to trade in any product that is available from another country and by limiting the U.S. government’s ability to keep U.S. companies out of markets. But in practice, according to the CRS, those provisions are not sufficient to offset the competitive handicap that the EAA regulations force U.S. companies to operate under. The challenge to U.S. competitiveness comes from the complexity of the controls; from the arduous process of seeking licenses, approvals, and permits for exports of potentially sensitive items; and from the length of time involved in updating restrictions.
An example of the complexity of export controls comes from 1998 and 1999, when President Bill Clinton was pushing for an update to the MTOPS standard for controls on high-performance computers. A higher MTOPS standard, which would take into account advances in the computing abilities of general-use computers, would, theoretically, have allowed more machines to avoid being classified as high-performance computers and, therefore, would have allowed them to avoid being subject to dual-use regulation. But computer trade groups testified that the change would not have allowed U.S. companies to keep pace with foreign suppliers, who, unhindered by similar legislation in their home countries, could offer more powerful general-use computers on the world market.
Although the EAA expired in 2001, President George W. Bush maintained much of the export control legislation by executive order during his time in office. The International Emergency Economic Powers Act (IEEPA) gave the president the authority to declare something originating in a foreign country an unusual and extraordinary threat to the nation’s security, foreign policy, or economy and to deal with that threat through blocking transactions and freezing assets. IEEPA penalties are not as strong as EAA penalties, however. The Export Enforcement Act of 2007, a bill to extend the EAA for five years, was introduced in the U.S. Senate in 2007. The proposed legislation would have increased penalties for export control violations and would have expanded the authority of the Department of Commerce to investigate potential violations of EAA overseas. No further action was taken on the bill in the 110th Congress. Should the bill come up for consideration in the future, the battle is sure to be fierce with supporters of the EAA worried about national security and opponents worried about the economic well-being of U.S. companies.
Further Reading
Aubin, Y., & Idiart, A. (2007). Export control law and regulations handbook: A practical guide to military and dual-use goods, trade restrictions and compliance. Alphen aan den Rijn, The Netherlands: Kluwer Law International.
Cupitt, R. T. (2000). Reluctant champions: Truman, Eisenhower, Bush and Clinton: U.S. presidential policy and strategic export controls. New York: Routledge.
Fergusson, I. F. (Ed.). (2006). The Export Administration Act: Controversies and debates. New York: Novinka Books.
Fergusson, I. F. (2008). The Export Administration Act: Evolution, provisions, and debate. Congressional Research committee report. Retrieved February 19, 2009, from http:www.fas.orgsgpcrssecrecyRL 31832.pdf
Statement of Vann H. Van Diepen before the U.S.–China Commission. (2002). Retrieved February 19, 2009, from http:www.uscc.govresearchpapers2000_2003pdfsvand.pdf
Source: Eldridge, Scott II. (2009). Export Controls, U.S.. In Linsun Cheng, et al. (Eds.), Berkshire Encyclopedia of China, pp. 788–790. Great Barrington, MA: Berkshire Publishing.
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