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Commerce Department sees increasing high-tech trade, enhanced security

WASHINGTON, DC - 06/22/06 - The US has strengthened its economic interests and protected its security interests by improving its export control policy on sales to China of technologies with dual civilian and military use, according to David McCormick, under secretary of commerce for industry and security.

McCormick made his comments on "China Policy and High Technology Trade" before the recent Technology and Public Policy Program organized by the Center for Strategic and International Studies, a Washington, DC-based research center. 

"US policy should facilitate sales of American-made semiconductors to companies in China for use in stereos or [video games], but not for advanced missile systems or submarines," he said.

"Strengthening our economic interests and our security interests in China need not be a zero sum game."

McCormick said the US Commerce Department's Bureau of Industry and Security (BIS) has made considerable progress over the last several years in increasing the effectiveness of its strategic trade controls, which has supported the growth of legitimate civilian technology trade. 

"We have an increasingly healthy high-tech trade relationship with China with over $12 billion in US high-tech exports to China last year," he said. 

China's emergence as a major economic power is a significant development that has led the US to review "major facets" of its policies, McCormick said. 

The Bush Administration "has responded to China's rise by encouraging it to act as a responsible stakeholder - that is, to take greater responsibility for the health and success of the global system from which China has significantly benefited, he said, adding, "Our goal is straightforward: that China's development be both peaceful and prosperous."

Cooperation between the two countries has created tremendous opportunities, McCormick said, but real challenges remain, requiring "careful and candid dialogue."

For example, he noted, the US continues to be concerned about China's failure to protect the intellectual property rights of US producers and its lagging record on safeguarding human rights.

"China's military modernization is a third area of concern, and one which is particularly central to export control policy," he said. 

McCormick cited a recent study by the Santa Monica, California-headquartered RAND Corporation, which found that China has sought to acquire dual use technologies that could be incorporated in its defense systems.

"It is important to note that China's growing and nontransparent military budget has risen faster than its overall economy," he said. 

China's declared military budget grew at an average annual rate of about 16% between 1994 and 2004, he said, with annual expenditures possibly reaching $90 billion in 2005. 

According to official government figures, only the US and Russia spent more on military-related projects. 

A report from the US Department of Defense warned that China's military capabilities could become a "credible threat" to other forces operating in the region if these trends continue, McCormick said. 

China's focus on obtaining technology that can be used to strengthen its missile capabilities and naval forces has created uncertainty about its intentions, he said, forcing the US and other countries in the region to take precautions.

"US policy - export control policy in particular - must reflect this caution and this concern," he said. 

In April, McCormick said, the US-China Joint Commission on Commerce and Trade, a government-to-government consultative mechanism on trade and commercial issues, announced the establishment of a high-tech strategic trade working group. 

The working group's mission was to improve the effectiveness of US export controls in order to facilitate legitimate civilian technology trade.

New US export-control policy requires "closer scrutiny of key technology purchasers in China," said McCormick.

To become eligible to import "certain technologies," he said, Chinese companies must undergo a certification process in which they "demonstrate an established record of nonproliferation and responsible civilian use of US imports." 

The change has taken a burden off US exporters of potential dual use items such as semiconductors and electronics, McCormick said. 

These companies will no longer be required to apply for export licenses, which earlier applied to "potentially hundreds of millions of dollars worth of sales," he said.

McCormick cautioned that the certification process "will require unprecedented openness and cooperation on the part of Chinese companies."

But it also will have tangible benefits, he said, because it creates incentives for those companies "to demonstrate good faith and sound practices." 

The policy will strengthen US security, McCormick said, "because it allows the US government to focus on particular cases and areas of risk that have the greatest significance."

The US will also continue to conduct "on-the-ground spot checks in China to reduce the risk that civilian exports are diverted to third parties or to China's own military purposes," he added.

Policies that involve national security and economic objectives often are believed to require "trade-offs that inevitably promote one at the expense of the other," McCormick said.

These changes to technology export controls, he concluded, "are 'win-win' and they enhance both US economic and security interests while encouraging China to act as a responsible stakeholder now and in the future."

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