Monday, October 5, 2009

U.S. Eases Restrictions on Dual-Use Exports to China

Defense News


U.S. Eases Restrictions on Dual-Use Exports to China

By Wendell Minnick

TAIPEI — The United States and China have reached an export agreement that could allow Chinese companies easier access to dual-use technologies that have military applications.

The U.S. Commerce Department’s Bureau of Industry and Security (BIS) announced the full implementation of the Validated End-User (VEU) program for China on Jan. 13.

“We are pleased to have reached this mile­stone agreement with China, one of our nation’s most important trading partners,” said Mario Mancuso, undersecretary of commerce for industry and security.

“This agreement will maximize the security and trade-enhancing benefits of the VEU program, and continue a promising chapter in civilian U.S.­China high-technology trade. U.S. exporters now have a more streamlined way to export to companies in China who have a record of using U.S. technology responsibly.”

The new agreement comes at a bad time for Chinese democracy activists. This year marks the 20th anniversary of the 1989 Tiananmen Square crackdown. The result of that incident was across-the-board restrictions on military sales to China.

With the new agreement, China could get “streamlined” military technology despite assurances from BIS.

“I’m conflicted about this new validated end-user program,” said Richard Bitzinger, a former U.S. intelligence analyst, now a fellow at the Institute of Defence and Strategic Studies at Singapore’s S. Rajaratnam School of International Studies.

“Certainly, about 99.9 percent of the world’s trade in high­tech, dual-use items involves trust — trust that the end-user will not illegally divert such technologies to unpermitted military purposes. So I wouldn’t like to paint all Chinese companies with the tar brush and single them out for heightened suspicion, just because they’re Chinese and pose a potential problem.”

That said, Bitzinger said that some Chinese companies have “demonstrated a pattern of suspicious behavior, and once the technology is transferred into China, it’s basically going into a huge black box.”

He is particularly concerned that the Commerce Department may be “turning a blind eye to affiliated companies with whom the prime end-user might be dealing and who might somehow, some way, gain access to these technologies and use them for military ends.

“The ‘techno-nationalist’ pattern of industrialization and economic development in China is predicated on the idea of diffusing technologies throughout the economy, and all the controls in the world may not affect this grand strategy,” Bitzinger said.

China has been forced to use espionage to access restricted U.S. technology.

On Jan. 10, U.S. Justice Department agents in California took into custody Beijing resident William Chai-Wai Tsu, a naturalized U.S. citizen, for exporting to China 200 sophisticated integrated circuits for use in communications and radar equipment for potential military use, in violation of the International Emergency Economic Powers Act.

Mancuso said in a Dec. 17 news release that the VEU program “does not provide companies with access to ‘strategic military equipment.’ The items approved for export under VEU are dual-use in nature and are used for strictly commercial purposes.”

He further said that formal security checks were required for an export license. “In fact, companies approved for VEU undergo a much more rigorous and demanding interagency review than that required for an individual export license,” Mancuso said.

“This move is necessary to avoid hobbling U.S. technology exporters who want to do business with Chinese commercial enterprises,” said Loren Thompson of the Lexington Institute, Arlington, Va.

“The current approach of requiring separate permits for every major transaction puts U.S. manufacturers at a disadvantage at a time when the U.S. is running a merchandise trade deficit of nearly $2 billion per day.”

Five companies have already been approved as VEU companies, Mancuso said, and among other requirements, VEU companies must “maintain comprehensive compliance programs and agree to allow on-site reviews.”

The five VEUs include: 

■ Applied Materials China, a subsidiary of U.S.-based Applied Materials, with facilities in Beijing, Shanghai and Wuxi. 

■ Boeing-Hexcel-AVIC I joint venture, with a composite parts manufacturing facility in Tianjin for commercial aircraft.

■ National Semiconductor, which produces analog-to-digital converters at facilities in Beijing, Shanghai and Shenzhen. 

■ Semiconductor Manufacturing International, a pure-play integrated circuits foundry with manufacturing facilities in Beijing, Chengdu, Shanghai and Tianjin. 

■ Shanghai Hua Hong NEC, a pure-play integrated circuits foundry that produces integrated circuits, pressure transducers, chemical handling equipment, chemicals, semiconductor raw materials and semiconductor manufacturing equipment in Shanghai.

Established in 2007, the VEU program uses a market-based approach to facilitate civilian high-tech trade with China, a BIS news release said.

“The program permits civilian companies in China, who pass a rigorous national security review and agree to strict follow-on compliance obligations, to receive under a VEU-specific authorization the same U.S.-controlled items they could previously receive under individual Commerce Department licenses.”

Mancuso and China’s Ministry of Commerce (MOFCOM) Vice Minister Wei Jiangguo signed the “Guidelines for U.S.-China High Technology and Strategic Trade Development” in December during the 18th Joint Commission on Commerce and Trade in Beijing.

BIS and MOFCOM developed the agreement under the auspices of the U.S.-China High-Technology and Strategic Trade Working Group.