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SOVIETS' WITH CHINA. FURTHERMORE, WHETHER THERE IS SUBSTANTIAL IMPROVEMENT IN SINO-SOVIET RELATIONS OR NOT, RETURNING TO AN ADVERSARIAL RELATIONSHIP WITH CHINA IS STILL CONTRARY TO OUR INTEREST THIS LATTER CONTINGENCY WOULD VASTLY COMPLICATE U.S. STRATEGIC AND DEFENSE PLANNING WITH CONSIDERABLE CONSEQUENCE FROM A POLITICAL, MILITARY, AND BUDGETARY POINT OF VIEW.

NEVERTHELESS, WE REALIZE THE NEED TO BALANCE OUR NATIONAL SECURITY CONCERNS WITH OUR DESIRE TO PROMOTE A BETTER LIFE FOR THE PEOPLE OF CHINA. IF WE FAIL TO STAND FIRM IN OUR SUPPORT FOR BASIC FREEDOMS IN CHINA WE RISK INDIRECTLY CONTRIBUTING TO THE FURTHER REPRESSION OF THE CHINESE PEOPLE. THE STEPS WE AND OTHERS HAVE TAKEN HAVE MADE IT CLEAR TO CHINA THAT "BUSINESS AS USUAL" CAN NOT BE CONDUCTED UNDER CURRENT CONDITIONS. HOWEVER, WE MUST UNDERSTAND THAT OUR ABILITY TO AFFECT THE POLITICAL CLIMATE INSIDE CHINA IS SEVERELY LIMITED. WHILE WE CAN'T BE SURE WHAT EFFECT SANCTIONS MIGHT HAVE ON THE CHINESE, OR IF THEY WILL HAVE ANY EFFECT AT ALL ON CHINESE LEADERS, OUR MORAL AND POLITICAL PRINCIPLES REQUIRE THAT WE STAND UP FOR FREEDOM IN CHINA AND AROUND THE WORLD.

Mr. SOLARZ. Ms. McEntee.

STATEMENT OF HON. JOAN MCENTEE, ACTING UNDER SECRE

TARY FOR EXPORT ADMINISTRATION, U.S. DEPARTMENT OF COMMERCE

Ms. McENTEE. Mr. Chairman and members of the committee, I appreciate the opportunity to testify on our current policy on exports to the People's Republic of China. The Commerce Department's Bureau of Export Administration is the agency responsible for controlling export of commercial items that may also have military applications, so-called dual-use commodities.

This morning I intend to discuss the Commerce licensing procedures that have been implemented since the Presidential directive concerning China.

The authority of the Commerce Department to control the export of dual-use commodities is contained in the Export Administration Act, which allows controls for national security, foreign policy and short supply reasons.

From a historical background, we have come a long way, as Mr. Williams and Mr. Ford have indicated, since 1981 when President Reagan first directed U.S. agencies to change U.S. technology transfer policies toward China. The purpose of this initiative was to support China's technological and economic development, to further China's integration into the world economic system and to assist the stable growth of China's economy.

I would like to discuss briefly the strategic rationale for the U.S. Government's technology transfer policy toward China. As you know, the United States and our COCOM allies control the export of sophisticated technology in order to counter the strategic threat to the West from the Soviet Union and its Warsaw Pact allies.

Because the People's Republic of China is not an adversary nation, and because we have a mutual strategic interest vis-a-vis the Soviet Union, the U.S. and COCOM have agreed to permit the export of increasingly sophisticated technology to China at the national discretion of each member nation, without COCOM review. Items falling within these technical parameters are informally known as "green zone” products.

There is general agreement both within the government and within the business community that the green zone has allowed COCOM to retain national security controls on truly strategic items while substantially increasing the opportunity for business to participate in China's development.

As I said, the relaxation of our export controls was based on the agreement among the COCOM allies that China posed little direct strategic threat. The U.S. Government's China policy has brought about significant economic and strategic benefits, as my colleagues from the State Department and the Defense Department have said, derived from expanded technological cooperation with the Chinese. The expansion of free enterprise in China has been a significant

in That is why the events of Sune 4 are so disheartening. Let me outline the actions that Commerce has taken in light of those events.

Parallel with the President's decision to restrict military and commercial military sales to China, the Department of Commerce is subjecting PRC export license applications to extremely close scrutiny and is providing for enhanced management review.

We have instructions for licensing officers to review PRC export applications on a case-by-case basis, with special attention for sales to or for the armed forces, to or for the police, and sales to any entity of crime control equipment.

Given the particular sensitivity of export transactions to the PRC at this time, we are subjecting all cases to additional screening. Under normal circumstances licensing officers make final decisions on applications except under limited instances: One, when they judge that a case involves particularly sensitive policy issues; or, two, when there is an interagency disagreement. However, since June 4, no case has been licensed without the approval of the Branch Chief and Division Director.

At the end of each day, the Division Director presents the Director of Export Licensing a review of all PRC cases that are ready for decision. He indicates which he recommends for approval and which he recommends for further escalation to Commerce Department policy officials.

The Office Director, in turn, presents the sensitive cases before the Acting Under Secretary for Export Administration and other senior departmental officials. As the Acting Under Secretary, I decide licenses to be approved, denied, returned without action, or held until further information regarding a transaction is provided.

Other related licensing activity includes efforts to reach a government-to-government agreement permitting a distribution license (DL) program for the PRC. The adoption of the distribution license was to have been announced this summer in conjunction with Secretary Mosbacher's visit to the PRC, which was indeed canceled. This action was to have been a significant step forward in licensing liberalization for the PRC. However, at this time further consideration of the agreement is on hold.

Further liberalization of export controls had also been under close review within COCOM. Efforts in this direction will be coordinated closely with our allies in COCOM. However, for the moment, further liberalization is also unlikely.

Mr. Chairman, and members of the committee, you can be assured that our department will continue to monitor the situation in China closely and implement an export licensing actions necessary to further the policy decisions of the President.

Thank you.

[The prepared statement of Hon. Joan McEntee follows:)

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DEPARTMENT'S BUREAU OF EXPORT ADMINISTRATION (BXA) IS THE AGENCY

RESPONSIBLE FOR CONTROLLING EXPORT OF COMMERCIAL ITEMS THAT MAY

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ALSO HAVE MILITARY APPLICATIONS, SO CALLED "DUAL USE"

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THE AUTHORITY OF THE COMMERCE DEPARTMENT TO CONTROL THE EXPORT OF

DUAL USE COMMODITIES IS CONTAINED IN THE EXPORT ADMINISTRATION

2

ACT (EAA), WHICH ALLOWS CONTROLS FOR NATIONAL SECURITY, FOREIGN

POLICY AND SHORT SUPPLY REASONS.

BACKGROUND:

FROM A HISTORICAL PERSPECTIVE, WE HAVE COME A LONG WAY SINCE 1981

WHEN PRESIDENT REAGAN FIRST DIRECTED U.S. AGENCIES TO CHANGE U.S.

TECHNOLOGY TRANSFER POLICIES TOWARD CHINA.

THE PURPOSE OF THIS

INITIATIVE WAS TO SUPPORT CHINA'S TECHNOLOGICAL AND ECONOMIC

DEVELOPMENT, TO FURTHER CHINA'S INTEGRATION INTO THE WORLD

ECONOMIC SYSTEM AND TO ASSIST THE STABLE GROWTH OF CHINA'S

ECONOMY.

I WOULD LIKE TO DISCUSS BRIEFLY THE STRATEGIC RATIONALE FOR U.S.

GOVERNMENT TECHNOLOGY TRANSFER POLICY TOWARD CHINA.

AS YOU KNOW,

THE UNITED STATES AND OUR COCOM ALLIES CONTROL THE EXPORT OF

SOPHISTICATED TECHNOLOGY IN ORDER TO COUNTER THE STRATEGIC THREAT

TO THE WEST FROM THE SOVIET UNION AND ITS WARSAW PACT ALLIES.

BECAUSE THE PEOPLE'S REPUBLIC OF CHINA IS NOT AN ADVERSARY

NATION, AND BECAUSE WE HAVE A MUTUAL STRATEGIC INTEREST VIS-A-VIS

THE SOVIET UNION, THE U.S. AND COCOM HAVE AGREED TO PERMIT THE

EXPORT OF INCREASINGLY SOPHISTICATED TECHNOLOGY TO CHINA AT THE

NATIONAL DISCRETION OF EACH MEMBER NATION, WITHOUT COCOM REVIEW.

ITEMS FALLING WITHIN THESE TECHNICAL PARAMETERS ARE INFORMALLY

KNOWN AS "GREEN ZONEW PRODUCTS.

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