US President George W. Bush's plan to toughen restrictions on technology exports to China has set off a struggle between US national security officials concerned about China's military threat and US companies increasingly dependent on overseas markets.
The US Commerce Department plans to issue new rules by year's end imposing stricter limits on the export of civilian technology that can be exploited for military use, such as aircraft parts, computer chips and machine tools, said Peter Lichtenbaum, the department's acting undersecretary for industry and security. The rules would expand the number of items that must be licensed by the government before being sold to China.
The planned changes come at a time when US companies such as Intel Corp and Boeing Co increasingly rely on Asia as a growth engine for sales, and have billions of dollars invested in assembly, research and testing operations in China.
"US industry is integrating with China, but the Bush administration is taking steps that are taking US policy in a virtually opposite direction," said Edmund Rice, president of the Coalition for Employment Through Exports, which represents companies such as Boeing. "They're heading for a clash."
Administration officials say that isn't their intention.
"We want to be sure that we find that balance between national security concerns and commercial opportunity," Commerce Secretary Carlos Gutierrez said in an interview.
The move to toughen export controls comes as US-Chinese economic relations are especially complex. China agreed under US pressure to a partial revaluation of its currency last week.
A US$18.5 billion bid by the Chinese government-controlled China National Offshore Oil Corp (CNOOC,
The House approved legislation Wednesday that allows companies to seek a broader array of duties on imports from China and force the Treasury to monitor China's currency policies.
The new export rules would expand restrictions on so-called sensitive items, Lichtenbaum said. Items include semiconductors made by Intel; chipmaking equipment sold by Advanced Micro Devices Inc; airplanes made by Boeing; aircraft parts from Honeywell International Inc; and machine tools made by companies such as Gleason Corp, according to Commerce Department documents.
Intel, the world's largest maker of computer chips, has reported that its Asia operations consistently lead global sales growth. China alone accounted for about US$5 billion of its US$34 billion in revenue last year, the Santa Clara, California-based company said. Intel has 5,000 employees in China and has invested US$1.3 billion in design centers, labs and factories there.
"We're living in a world where technology has become a commodity," Intel spokeswoman Jennifer Greeson said. "Restricting access to markets would have a pretty significant impact on the US technology sector."
Chicago-based Boeing, which earlier this year won orders from China's airlines for 60 of its new 787 jets, said last month it will use about US$600 million in parts from Chinese companies.
Some of those companies have ties to the Chinese military, which may prevent Boeing from sharing sensitive designs or materials.
Rochester, New York-based Gleason sold US$20 million of machine tools used to make gears to Chinese companies last year, roughly 15 percent of total sales. Regulations under consideration could force it to abandon customers such as a transmission maker that sells supplies to both commercial and military companies, Gleason General Counsel Edward Pelta said.
"We could look like a less reliable supplier," he said. "And one lost sale is not an isolated event. It could lead to the loss of substantial follow-on business for years to come."
While the Bush administration is still debating the final shape of the new regulations, an intense lobbying campaign is being waged to influence the outcome, pitting the affected companies and their allies within the administration, such as Gutierrez, against national security officials.
"There is a push and pull between the security people and the economic people" inside the administration, Rice said.
The Defense Department's concerns about dual-use exports have been conveyed by Lisa Bronson, the deputy undersecretary for technology security policy.
"Everyone is interested in making sure that with respect to the military end-users, we have the ability to require a license," Bronson said in an interview. The regulation "is not a ban, it's not a sanction," she said.
Additionally, lawmakers such as California Republican Duncan Hunter, chairman of the House Armed Services Committee, and Illinois Republican Henry Hyde, chairman of the House International Relations Committee, have pressed for tighter controls. They co-sponsored legislation expanding prohibitions on sales to the Chinese military that the House passed July 20.
While the legislation may face a tougher road in the Senate, the pressure from Congress is forcing the Commerce Department's hand, said William Reinsch, president of the National Foreign Trade Council, a business group that represents exporters.
"A lot of the impetus is coming from Congress," he said.
Lawmakers are also lobbying against the restrictions. In return for his vote on the Central American Free Trade Agreement, Illinois Republican Donald Manzullo said he got a pledge from Gutierrez to listen to the concerns of US exporters, especially machine-tool makers, before issuing the regulations.
Right now, only 1.5 percent of the US$35 billion in exports to China requires an export license, the Commerce Department says.
Depending on how the new rules are structured, that percentage could grow to more than 10 percent, lobbyists say.
The Commerce Department is already denying applications to export high-end composite materials used for aircraft if those items "could be diverted to military end-users," Lichtenbaum told the congressionally appointed US-China Economic and Security Review Commission on June 23. The new rules will likely have the most impact on aircraft and avionics, Reinsch said.
Business organizations including the Washington-based US Chamber of Commerce, the nation's largest business group, and the Arlington, Virginia-based Aerospace Industries Association have been working to minimize new restrictions.
Pat McCartan, director of legislative affairs for the aerospace group, said that while "we don't want to supply the Chinese military," the changes being considered by Bush and Congress "would slow to a trickle some of our exports to China."
The changes are being driven in part by fears in the intelligence community and the Pentagon that China's military is tapping the expertise of Chinese engineers working in the US and China-based suppliers to US companies.
The national counterintelligence office says China has been able to exploit the free flow of people and technology created by globalization to become one of the top countries attempting to acquire US technology illegally, spokesman Kelley said.
In its annual assessment of China's military, the US said July 19 that China is using its contacts with US, European, Russian and Israeli companies to acquire civilian technology and know-how that may be used to build up its military capabilities.
"There is no question that the Chinese have a robust industrial espionage infrastructure here in the US," said John Tkacik, a fellow at the Heritage Foundation, a Washington-based research organization. "The Defense Department is at wit's end trying to find enough people to put their thumbs in leaky dikes."
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