Insistence on enforcing the existing export control policy can only damage the interests
of the American high-tech industry without improving national security. This is because
the U.S. is no longer the sole source of much high technology. If other nations won't
follow the U.S. on restricting exports to China, then the policy can't be effective. Unilateral control by the U.S. only
shackles American high-tech firms
from being able to compete in China.
In 2000, China's market for semiconductors was one-fifth the size of
the U.S. market. Since then, it has
overtaken the U.S. to become the
world's largest market, representing
more than 21% of the worldwide
total. By 2010, China will be buying
$124 billion worth of ICs, or 40% of
the world consumption.
Where is the growth coming from? The obvious answer is that
China has become the preferred electronics factory of the world.
Semiconductor chips are put into the laptops, camera phones,
MP3 players, digital cameras, flat-panel TVs, DVD players, and
many other consumer electronics made in China. In 2005, China
exported over $137 billion worth of electronic goods, 88% of this
coming from foreign invested factories.
China needs to greatly increase its semiconductor fabrication capacity to meet this demand. But the U.S. export control
process keeps American companies from being competitive in
the fastest growing market for semiconductor equipment.
Everybody in China knows they can buy equivalent equipment
from European or Japanese suppliers much more readily than
from American suppliers.
AMERICAN DELAYS
Sam Wang, the Silicon Valley-based
senior executive for SMIC of Shanghai, described the differences in ordering equipment for his company's first fab in China at a recent luncheon forum. He said that if SMIC ordered a
piece of equipment from Europe, it would arrive in two weeks.
Ordered from Japan, it would arrive in two months. But if the
source was from the U.S., SIMC would not know if the order
would be honored even after six months.
Washington officials have pointed out that the value of orders
subject to export approval is barely 1% of the total trade deficit
between China and the U.S., inferring that export control has little
impact on bilateral trade. According to its own trade statistics, China imported $247 billion worth of high-tech products in 2006.
The U.S. share of China's imports was barely 8% of that total,
behind the European Union and South Korea and well behind Japan, Taiwan, and the Association of
Southeast Asian Nations. Our success
in China should not be measured by
the value of orders submitted for
export approval but by opportunities
lost to suppliers from other countries.
The Bureau of Industry and Security
of the Department of Commerce (DoC)
has proposed to broaden control by
including some 47 categories of "dual-use" goods and technology. The industry responded that most of the products are available from other countries without restraint. In some
cases, China has been making technologically more advanced
versions than those being considered for restricted export.
LOSING ON DUAL USE
The U.S. government defines
dual use as any product and technology that could have military as well as civilian application. The problem is that virtually
any technology-based product could conceivably have military
use. A far more important but overlooked question should be
whether dual use is relevant. None of the other countries that
compete with American companies in China think so.
Indeed, the Government Accountability Office of Congress
and experts that have testified before Congress have stated on
numerous occasions that dual-use items do not affect China's
military prowess and are irrelevant to the perceived national
security of the U.S.
While the existing export control process cannot impact
national security, it can hurt American firms' ability to compete
for business. The $50-billion-a-year semiconductor equipment
industry is a case in point. While this industry was created and
once owned by the U.S., today, American companies' market
share in China is less than 45% and falling.
In fact, the DoC recently announced a revised regulation in
regard to high-tech export to China, ostensibly simplifying the
licensing process. Yet even this revision does not alter the self-imposed handicap confronting American suppliers.
See Associated Figure