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AmCham China News

By Justin Chan, Fannie Chen and Ingrid Lombardo

There is a growing body of evidence that shows that current US export controls, which are designed to protect America’s national security interests, are outdated. In fact, they negatively impact the opportunities for US companies, while failing to enhance US national security.

According to results from a recent Impact of US Export Controls survey jointly conducted by AmCham China and the American Chamber of Commerce in Shanghai (AmCham Shanghai), US companies have lost hundreds of millions in sales to foreign competitors due to real and perceived restrictions from US export controls. While respondents, comprised of US companies with operations in China, gave wide ranges in their estimates of the total negative impact of the policy dollar amounts and lost US jobs, the losses were clear and substantial.

In almost all cases where sales were lost, international non-US competitors provided equivalent products or services. This means that rather than boosting America’s national security, export controls instead increased European and other competitors’ sales at the expense of American companies. The findings emphasize the importance of implementing an export control policy that enhances the national and economic security of the US, while taking a realistic view of the availability of products in foreign markets.

Hundreds of Millions in Lost Sales
US export controls govern the shipment, transmission or transfer of specific products and information to foreign entities. Outdated export controls restrict items and technologies that once impacted national security but no longer do because of rapid technology developments and increasing availability in foreign markets.

This presents a severe challenge to US companies in China competing against companies from countries without the same restrictions. Reforming these controls would provide US businesses a level playing field to compete in international markets. Recent reports estimate that reform could increase US sales in China by hundreds of millions of dollars annually for hightech companies. Revising US export control policy is a critical element to ensuring continued US economic security and success over the next decades.

To help quantify the export controls’ damage to US industry and measure the true impact on US competitiveness in China, a group of 16 high-tech companies that form AmCham China’s Export Compliance Working Group
(ECWG) recently conducted a survey. In April 2009, the ECWG circulated the survey to members of AmCham- China and AmCham Shanghai, inviting them to provide comments about how US export controls have impacted their business. In total, 134 members completed the survey, 77 of them from AmCham China and 57 from AmCham Shanghai. Among AmCham China members, the greatest survey response came from the sectors of aerospace, information technology and internet services. Meanwhile, AmCham Shanghai respondents tended to come from the electronics, engineering and technical consulting services sectors.

The ECWG survey produced some striking results. Respondents whose businesses involve the export of licensable items reported customers preferred buying non-US products due to concerns about American export controls at a rate of 51 percent. Meanwhile, 25 percent of all respondents, and 47 percent of those with businesses involving the export of licensable items in China, have lost sales because of US export controls.

Of those who had lost sales due to US export controls, 96 percent found out that their customers purchased the item from non-US sources. Among the 14 companies that provided value estimates, the total impact of US export controls on lost sales was placed at more than US $560 million per year. Although most respondents were not able to provide value estimates of lost sales, the data given provides an estimate that the total value of lost sales and opportunities to American businesses in China reaches the billions of US dollars per year.

The ECWG compiled this compelling evidence of US export control damage to industry in its report “Lost US Sales and Opportunities in China Due to US Export Controls.” This report was then submitted to the US Department of Commerce in April. In follow-up meetings, US officials, including members of Congress, expressed great interest in, and appreciation for, the data from the report. It had particularly strong impact within the Department of Commerce and added momentum to existing initiatives to address export control reform.

Huge Potential in the Green Energy Sector
One emerging market that could greatly benefit from the loosening of overly restrictive controls on US technology in the future is the emerging green energy sector in China. Wind energy, for example, has experienced fast growth as international and Chinese domestic wind turbine and blade manufacturers establish production bases in China. Due to fierce competition in this market, technology breakthrough is required to achieve higher capacity per unit, higher speed and efficiency, and lower noise.

One way to achieve these goals is to incorporate carbon fiber composite materials within wind turbine blades. Carbon fibers are lighter than the traditional fiberglass, and their use could result in increased blade speed and higher energy output. However, carbon fibers are currently restricted by US export controls, and thus far, Chinese wind turbine manufacturers have had difficulty accessing them, if at all. While there are reasons to restrict the export of carbon fibers to military end users in China, there is no security threat in exporting them to commercial wind turbine blade manufacturers with no ties to the Chinese military.

Another example is the field of solar panels and high-efficiency lighting (LED). The majority of solar cells currently being produced in China are silicon based. The next generation of solar panels uses a type of compound solar cell, called GaAs III-V, which is produced using controlled MOCVD equipment and is also used to produce LEDs. Many Chinese green energy companies are looking to integrate the production process of solar cell manufacturing and LED production because the same equipment can be used. This is driving LED manufacturers to consider producing commercial solar cells. However, US export controls pose a significant barrier for Chinese manufacturers who wish to import MOCVD equipment.

The green technology space is equally important to the US and China, from both the environmental and economic standpoint. As an international leader in greentech solutions, the US should be able to take advantage of the sincere interest in China to develop clean energy solutions by promoting and selling its products in China. Limits on technology transfer have the potential to hinder US-China cooperation that not only contributes to a more sustainable environment but will also encourage investment and create jobs.

Conclusions and Recommendations for US Government

US industry is hopeful that the efforts of the ECWG and American businesses will result in changes for US export control policy. This would allow US companies to engage as responsible partners in future Chinese high-tech markets, such as aerospace, manufacturing equipment and green technology. The stakes are high and time is of the essence. Until the US is able to properly calibrate its export control policy, American businesses will continue to lose hundreds of millions—if not billions—of US dollars every year in China. Meanwhile, their European and other non-US competitors step in and fill the gaps.

The ECWG applauds the US government’s broad interagency review of dual-use and defense item export controls. When considering export control reform, the US government should base policy on up-to-date information about indigenous capability and non-US foreign availability, especially in China. The US government should also continue consultation with private industry for input on the control-list\ based on dynamic market changes, as it has done over the past three years with the ECWG. And finally, the US government should allocate more on-the-ground resources, beyond pre and post-shipments, to gather and assess information for up-to-date Chinese domestic technological capability and foreign availability.

Justin Chan is editor-in-chief of AmCham Shanghai's Insight magazine.

Fannie Chen is a policy analyst at AmCham China.

Ingrid Lombardo is a consultant at Larkin Trade International (LTI) Associates. She can be reached at: ilombardo@larkintrade.com