Electronic Design

U.S. Export Control Policy Hurts American Interests In China

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.

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.

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

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