For Immediate Release: June 18, 2007
Thank you, John, for that kind introduction.
And thank you to the U.S.-China Business Council for organizing this event. I’m delighted to be here with you this morning.
And, of course, thank you to Hogan & Hartson for making this wonderful venue available to us today.
The U.S.-China Business Council is a widely-respected advocate for almost 250 U.S. companies with business operations in China. I look forward to working closely with you in the future to maximize secure opportunities for U.S. businesses to compete, win, and prosper in China.
It’s my privilege to be here this morning, and it’s fitting too. Tomorrow, the Federal Register will publish our updated China regulations, which have come to collectively be known as the “ China rule.” As I believe you will find, the China rule has benefited greatly from your constructive input since it was first proposed in July 2006.
Before I begin my remarks about the rule itself, I’d like to provide some background about China and about the challenge of export controls generally.
China and Export Controls Today
China’s rise over the past three decades has been a signature development for U.S. economic and national security policy. For U.S. policy on high-tech exports, China offers the starkest example of the end of the Cold War—a time when our export control policy was straightforward, a period when we assumed that “allied” countries had trustworthy customers and “adversary” countries had dangerous ones. Today, the world is different and far more complex. For a variety of reasons, a customer’s address tells us far less than it once did about a company’s trustworthiness.
In this way, China, India—virtually all of America’s trading partners-- contain an assorted and varying mix of attractive trade opportunities and security risks. And that makes formulating narrowly tailored and effective export controls harder. At the same, because U.S. companies now compete in a hypercompetitive global market, the costs of getting our policies wrong are immense-- and rising. And not just in terms of lost market share for U.S. industry, though that would be concerning enough. Because our military “overmatch” capabilities require and are sustained by, over the long-term, cutting-edge U.S. technology, there is a national security—as well as economic-- imperative for ensuring that U.S. industry remains the most dynamic, the most competitive, and the most innovative in the world.
When the U.S.-China Business Council was founded in 1973, the U.S. did not yet have formal diplomatic relations with China. President Nixon had just completed his historic visit to Beijing. Bilateral trade was next to nothing. Today, China is the fastest growing export market for U.S. industry.
In 2006, U.S. high tech exports to China grew by 44 percent to 17.7 billion—more than the entire value of U.S. exports to partners like India, Russia, and Thailand. Just 1.3 percent of that total (or $231million in trade) required a Commerce Department license. This percentage, while barely a rounding error in the overall trade figures, is critical to U.S. national security. These are the exports of sensitive items that require an extra degree of scrutiny—items like certain chemicals, avionics, and sophisticated electronic equipment that could be used to support China’s military modernization.
In approaching the final rule, our goal at BIS was to arrive at a focused, streamlined, and effective dual-use policy with regard to China that reflects our broader foreign policy toward that country. It was also our goal to do so in a way that was consistent with our larger mission of promoting U.S. leadership in strategic technologies.
The China Rule: The Right Balance
It has long been U.S. policy to encourage China’s political and economic integration with the world, while hedging against the uncertainty of a rapid and opaque Chinese military build-up. The rule to be published tomorrow is a great step forward in our China policy by better aligning our dual-use export control policy with our broader foreign policy.
In particular, the rule does two very important things. First, the rule encourages China’s further economic integration with the world by facilitating high-tech exports to companies in China which have a record of using them responsibly.
Specifically, the rule facilitates high-tech trade by launching the new “Validated End User” program or VEU. VEU will allow pre-screened customers to receive selected U.S. technologies without the need for individual licenses, which will significantly lower the administrative and regulatory burden of exporting to these “trusted” customers. VEU will reduce lag time, expense, and uncertainty in the licensing process, helping U.S. exporters to be even more competitive in China. VEU will also act as a powerful market-based incentive for good behavior by rewarding the many firms in China who handle sensitive U.S. technology with care.
Second, the rule prudently hedges against China’s military modernization by imposing new controls on a narrow, focused set of the most sensitive dual-use technologies, such as lasers and radar antennas, when they are intended for use in Chinese weapons systems. As China’s military modernization increasingly relies on commercial, off-the-shelf products, this targeted set of controls will ensure that dual-use products are not a back door to breaking the U.S. arms embargo on China, in effect since 1989.
The China Rule: A Model for Future Cooperation
The final rule’s precision and balance is no accident, but is the product of a lengthy, fact-based, rigorous analytic process—as it should be. During the course of our review, we received more than 1,000 pages of feedback, and consulted with our friends and allies around the world. We thoroughly analyzed, reviewed and considered every comment, and read every page. And we listened. In particular, industry data on foreign availability informed the meticulous scrub of the 47 ECCNs originally proposed to be subject to the military end use control. Of the 47 ECCNs that had been proposed, only 31 remain in the final rule. This 34% reduction in ECCNs is a direct result of industry’s constructive input into the process.
The public comments also alerted us to problems in our proposed process for achieving VEU status. The final rule is now much clearer on this point. In fact, we’ve made so much progress on VEU generally, that other countries, including India, have expressed interest in learning more about how VEU can streamline and accelerate high-tech trade with their markets. We intend to continue our aggressive outreach to industry over the coming weeks to ensure that you are aware of the significant benefits of VEU in China. Over time, we will also actively look for appropriate opportunities to extend this innovative, paradigm-shifting program elsewhere in the world.
The final rule also addresses industry concern about additional administrative burdens relating to end-use certificates. In light of industry input, we raised the dollar threshold for obtaining an end-use certificate to $50,000 (from $5,000), which should eliminate any incremental administrative burden as a result of the rule.
The improvements in the final rule are real. They are the direct result of your constructive input into the process. I firmly believe that ongoing, open, constructive dialogue between industry and government is vitally important for BIS to perform its function well. And, I believe our shared experience on the China rule should serve as a powerful model of cooperation going forward.
The rule to be published tomorrow marks both an end and a beginning. It is the end of a long and healthy debate about how to fine tune export controls to strike the right balance in our complex relationship with China. But it is also the beginning of new, enhanced opportunities for U.S business to boost legitimate high technology trade with one of the most important new economies in the world.
Thank you, again, for your gracious hospitality and for giving me the opportunity to speak with you today.