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September 22, 2017

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U.S. tightens up military exports to China

Despite protests from some major U.S. corporations, the Bush administration on Friday tightened regulations governing the export to China of aircraft engines, high-performance computers and other technologies that have possible military uses.

The Commerce Department added 31 new products requiring special export licenses in hopes of keeping them out of the hands of China's military. The licenses, which companies complain are complicated to obtain, try to assure that technology sold to civilian companies doesn't end up being used to improve Chinese missiles and other weapons.

Administration officials say they are trying to balance economic needs with growing concerns about the communist nation's rapid military modernization and access to advanced Western technology. But U.S. businesses say the new rules, proposed last summer and sharply criticized since, won't be effective because many of the so-called "dual-use" products are easily available from other countries.

All the regulations will do, companies fear, is drive away Chinese business at a time when the U.S. trade deficit with the world's most populous nation is soaring. It reached a record high of US$233 billion last year.

The rules change "puts American companies at a disadvantage," said William A. Reinsch, president of the National Foreign Trade Council, which represents companies doing business abroad. "The long-term impact will be people dropping out of the Chinese market and less trade."

Because of the rapid growth of its economy and military, China is one of the largest foreign markets for exports that require licenses. In 2006, nearly 10 percent of all U.S. export licenses were for sales to China, worth about US$2.4 billion. U.S. companies exported US$55 billion in licensed and unlicensed goods, which include such wide-ranging products as iPods and soybeans, to the country last year.

Federal officials listened to some of the criticism and trimmed the number of new products on the list by about a third. For example, Commerce Department officials said they originally had planned to require licenses for some general-purpose telecommunications equipment but decided to require them only for gear that operates in extreme temperatures and could be used in space.The U.S. government categorizes countries by their potential security threat, then limits the export of products that can be used for purposes such as waging terrorism, building missiles or developing nuclear weapons. Dozens of products already are restricted for sale to China. In many cases, those items also have harmless civilian uses — high-powered computers, for example, are used in advanced weather forecasting — and U.S. officials allow the exports if companies can prove the technology won't end up in the wrong hands.

Last July, the Commerce Department's Bureau of Industry and Security proposed requiring licenses for the sale of 47 additional products to China. Among them were types of computers, aircraft, semiconductor equipment, navigation systems and telecommunications components.

To offset the effect, the bureau proposed a new program that would exempt sales to Chinese companies that undergo special clearance reviews validating they do not deal with the military.

"We seek to actively encourage legitimate civilian trade between the United States and China, even as we prudently hedge against the rapid growth in China's military capabilities," Christopher A. Padilla, assistant commerce secretary for export administration, said in a speech in China in January.

Businesses balked, complaining that other countries were not joining the United States in the new export controls and that the "validated end user" program wouldn't work because Chinese officials were unlikely to allow the required on-site inspections on companies by U.S. officials.

A spokesman for China's Commerce Ministry strongly criticized the proposal after it was announced, urging the United States drop its "Cold War mind set."

Industry trade groups and affected companies such as The Boeing Co., Sun Microsystems Inc. and Applied Materials Inc. urged the Commerce Department to scrap the plan or make major changes.

Companies submitted evidence about products on the new list that were easily available from other countries or even in China. William Morin, director of government affairs for Applied Materials praised Commerce officials for removing semiconductor manufacturing equipment — its primary product — from the proposed additions. But he said the controls on other products would work only if other countries also restricted them.

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