Winning on Details, Losing on Policy

By the time that you read this column, it is likely that the Commerce Department's Bureau of Industry and Security will have issued a new version of the socalled "China Catch-All" regulations.

As explained by Bureau of Industry and Security officials last year, the purpose of these regulations is to cut off militarily useful dual-use products and technology from the Chinese military. The U.S. government feels that it made a commitment to institute these new controls at a meeting of the multi-lateral export control organization, the Wassenaar Arrangement, two and one-half years ago. Unfortunately, it does not seem that the other 32 members of Wassenaar feel that they are under a similar obligation to tighten their export controls with regard to China.

For the past several weeks, a leaked version of these proposed regulations has been circulating among exporters interested in high technology China trade. Having seen the proposed regulations, I can say there is good news and bad news in the new version of the proposed regulations.

The good news is they are substantially less onerous to exporters than the first version issued last August. The Bureau of Industry and Security recognized how much of an impediment-to exporting the earlier regulations-would have been - with an illdefined definition of what constituted a Chinese military end-user and with an open-ended definition of the universe of products and technologies that would be controlled. Those problems were eased with tighter definitions of the objectives in all those problem areas. Moreover, in a surprise move, the Bureau of Industry and Security also included a narrower definition of what it would consider to be "knowledge" by an exporter of the identity of his customer.

All of those new provisions make this version of the "China Catch-All" regulations a substantial improvement over the earlier version.

Nevertheless, the bad news about the new regulations is that - after a year of internal debate - the Bush Administration still intends to go ahead with new export control restrictions on China trade. Thus, the tightening of China export control regulations continues.

This is unfortunate because the Chinese already perceive the United States to be the most restrictive and least reliable trading partner among all the major industrial countries. This is due to both the application of the U.S. export control restrictions already in place and the manner in which they have been applied by the U.S. government.

The European Union has already made it clear that it does not feel itself bound by the Tiananmen Square sanctions banning the sale of munitions to China, and could even formally end their commitment to enforcing those sanctions within the next year. Thus, the EU could very well be loosening China export controls as we are tightening them. Certainly, neither Russia nor most of the other non-EU Wassenaar members --with the almost certain exception of Japan — are likely to publicly endorse our new approach.

Thus, there is little hope for wide acceptance of a new set of multilateral, more restrictive export controls towards China. That will make the new U.S. "China Catch-All" regulations even more irritating to the Chinese government, particularly because these regulations will be introduced after a recent series of Chinese government commitments to improve their own export control cooperation with the United States, with the Wassenaar Arrangement, and with the Nuclear Suppliers Group. As a result, the new regulations would be precisely the wrong signal to send to the Chinese government if the U.S. government seeks continued cooperation on export control and increased high technology trade with China.