Multinational Corporate Lobbyists Seek to Improve Private Profits at the Expense of U.S. National Security
William R. Hawkins
Friday, May 12, 2006

GREEDY FIRMS LOBBY AGAINST NATIONAL SECURITY----AGAIN

Last year, the Bush administration proposed new controls to limit the transfer to the People’s Republic of China of technology that could be used to strengthen Beijing’s defense industry and military capabilities. Some items would be prohibited, while special licenses would be needed for other products. There would be more background checks and oversight of transactions. This followed the Pentagon’s findings in its annual report on Chinese military power that Beijing “continues to invest heavily in its military, particularly in programs designed to improve power projection. The pace and scope of China’s military build-up are, already, such as to put regional military balances at risk.” The Bush administration has lobbied hard against a proposed lifting of the European Union arms embargo on China, managing to block it for the moment. Washington has also pressured Israel to curtail its cooperation with China on military programs.

Last July, the House of Representatives passed the 2006-2007 authorization bill for the Department of State (H.R. 2601), which contained two amendments offered by Henry Hyde (R-IL), chairman of the House International Relations Committee. One was the “Strategic Export Control and Security Assistance Act of 2005," which tightened the control process in general (not just for China), and the other was the “East Asia Security Act of 2005," which threatened sanctions against foreign firms and governments that sold arms to China.

Establishing national security as the priority in international economics does not sit well with two groups: American firms that want to sell high-tech goods to China, and the Chinese regime, which wants to acquire technology it does not yet have. Beijing has tried for years to have U.S. export controls lifted, arguing that high-tech exports would reduce the huge U.S. trade deficit, which topped $201 billion last year. President Hu Jintao mentioned this matter on the White House lawn during his meeting with President George W. Bush April 20. But as James Sasser, ambassador to China during the Clinton administration, has said, “The Chinese really don't do any lobbying, The heavy lifting is done by the American business community.”

Another example – in a long series of dreadful examples – of corporate kowtowing to Beijing came after President Hu left the White House. Though the Chinese Foreign Ministry continues to claim Hu’s got all the honors of a “state visit,” he did not get a state dinner at the White House. Hu only got a “working lunch.” The Chinese president did, however, get the equivalent of a state dinner that night at the luxurious Marriot Wardman Park hotel. The event was jointly hosted by what the Chinese Foreign Ministry called “12 friendly organizations” led by the U.S.-China Business Council and the Chamber of Commerce. Some 900 people turned out, most looking for a way to profit by helping Beijing continue its rise as a Great Power.
According to press reports, the computer, aviation, and machinery industries, led by Intel, Boeing, and umbrella groups like the Coalition for Employment Through Exports have been successful in lobbying the Commerce Department for less restrictive rules and a shorter list of controlled products. Among the items taken off the list are aircraft engines, ball bearings, machine tools, and virtual-reality systems. An original list numbering into the hundreds has been reduced to a list of fewer than 50 items. The final version of the new regulations is due out at the end of the month, with a 120 day comment period to follow. It is important that the comments come from a wider circle than the lobbyists employed by the exporters. USBIC will be commenting and we urge our members and readers of this web site to do the same.

I attended the biennial Zhuhai Airshow in 2004. Two strong doses of reality were much in evidence, beyond the very apparent, expansive nature of Beijing’s ambitions. (Boeing’s depiction of Chinese bases on the Moon were quite thought-provoking.) First, there is no clear line separating civilian and military enterprises in China. The aerospace and shipbuilding industries are state-owned and operated, as is most of the rest of heavy industry. Chinese plans for new airliners and executive jets were displayed in the same booths as cruise missiles and artillery rockets. One third of China’s economy is still in the hands of state-owned firms, and much of the so-called private sector is run by elites with direct ties to the government and the Communist party.

Second, there was no lack of American firms eager to sell Beijing whatever it wanted, along with the training, research facilities and production cooperation the Chinese authorities demand as part of any deal. Business firms exist to make money, not to contemplate the larger consequences of their actions. They have no self-control, only the profit motive. That is why export controls by the government, whose duty it is to think about changes in the global balance of power, are necessary.

The argument that high-tech equipment sales to China would significantly close the trade deficit does not add up. Sales of military or “dual use” technology might amount to billions of dollars over some time period, but not on anything like the scale needed to balance trade. For example, 2003 was a peak year for Russian arms sales to China, not just “dual use” technology, but entire weapons systems including fighters, missiles and warships. But the total was only $5.1 billion – a drop in the bucket of our $200 billion plus and growing trade deficit with China.

According to testimony by Francis C. Record, Acting Principal Deputy Assistant Secretary for Counterproliferation at the State Department, before the U.S.-China Economic and Security Review Commission on March 17, 2006, even under the current embargo on lethal weapons, “EU nations have approved significant non-lethal military exports to China, including military helicopters, fire control radar, aircraft engines, submarine technology, and airborne early warning systems. In 2004, these EU governments approved more than 200 defense export licenses worth more than $400 million.” But again, $400 million is a long way from the $200 billion U.S.-China trade gap. The transfer of the knowledge from the sale of American technology to China is doing more to narrow the military capabilities gap than the trade gap. China has shown itself quite adept at taking a few samples and replicating them, making the technology their own without any further need for payments. Beijing’s aim is to create its own self-sufficient military industry complex.

The general consensus at the US-China Commission hearing, at which I also testified, was that lifting of export controls would have only a negligible impact on the trade balance. Some individual companies might make a short-term profit if restrictions were lifted, but if the result was higher performance for Chinese weapons, the cost that the U.S. economy would have to bear to regain its military advantage would be greater by orders of magnitude. For example, Toshiba Machine sold four nine-axis and four five-axis milling machines to the Soviet Union in 1982-1984. The machines were used to make improved propellers for Soviet submarines which made them quieter and harder to detect. Toshiba Marine rang up $17 million for the sales, but it cost the U.S. several billions of dollars to regain the ability to track those improved submarines. China now also has this technology, having bought it from the Russians. Private profit is a wholly inappropriate factor to weigh against national security in contemplating trade with potential adversaries.

A 2002 report by the Government Accountability Office (GAO) concluded, “The current export control system has not effectively slowed China’s ability to obtain billions of dollars worth of advanced semiconductor equipment as part of its national strategy to modernize its semiconductor industry.” The GAO found that licenses were routinely approved and there were inadequate follow-up inspections to confirm promises by China's Commerce Ministry that items would not be used for military purposes. No U.S. department or agency has the manpower to police the use of U.S. technology is a country the size of China once it has been delivered, even if Beijing cooperated, which it doesn’t.

The National Security Strategy of the United States released in March, states, “Our strategy seeks to encourage China to make the right strategic choices for its people, while we hedge against other possibilities.” Part of that hedging involves redeploying aircraft carriers and submarines to the Pacific, developing new deep strike weapons, and strengthening Asian alliances. But export controls are also a proper part of this strategy, to prevent having to face a Chinese regime that has been given the critical capabilities needed to advance its ambitions by irresponsible mercenaries. It is imperative that in the councils of government, patriotic voices are given priority when championing the cause of the United States against the chatter of those subversive corporate lobbyists who no longer care about the future of “their country.” http://americaneconomicalert.org/view_art.asp?Prod_ID=2454



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William R. Hawkins is Senior Fellow for National Security Studies at the U.S. Business and Industry Council.