Trading with the Enemy: The Making of US Export Control Policy toward the People’s Republic of China

269 Pages·2016·2.642 MB·English

by  Hugo Meijer

Introduction
University Press Scholarship Online
Oxford Scholarship Online
Trading with the Enemy: The Making of US
Export Control Policy toward the People's
Republic of China
Hugo Meijer
Print publication date: 2016
Print ISBN-13: 9780190277697
Published to Oxford Scholarship Online: March 2016
DOI: 10.1093/acprof:oso/9780190277697.001.0001
Introduction
Hugo Meijer
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Introduction
US-China Relations and Interstate RIVALRY in a Globalized
Economy
In the twenty-first century, the US-China relationship is characterized
by a mixture of economic interdependence and rivalry in the military
realm. On the one hand, since the establishment of their diplomatic
relations in 1979, the economies of the United States and of the
People’s Republic of China (PRC) have grown increasingly intertwined.
US-China bilateral trade has dramatically increased from $5 billion in
1981 to $536 billion in 2012, and the PRC is today the second-largest
US trading partner (after Canada).1 China has been the fasting-growing
export market for US companies, with an export growth of 542%
compared to 80% with the rest of the world between 2000 and 2011.2
In particular, the PRC has become a key export market for American
high-technology products. US exports of advanced technology products
(ATPs) have expanded constantly from 2000 to 2009, with an annual
average increase (p.2) of 13%.3 In 2012, US exports of ATPs to China
were $22.2 billion and represented 20.1% of US total exports to China.4
On the other hand, coupled with the thickening of their economic
relations, there have been growing concerns within the US government
over China’s military modernization in the post–Cold War era. The
combination of China’s defense budget increase, foreign technology
imports, domestic research and development (R&D), and military-
industrial espionage have fueled a major military modernization effort.
Between 2004 and 2013 Beijing’s officially disclosed military budget
grew at an average of 9.4%, reaching $132 billion in 2014.5 China’s
R&D spending rose from $10.8 to $168 billion between 2000 and
2012.6 Beijing has also sought to acquire, through both licit and covert
means, foreign defense-related technology to fuel its military
modernization.7 As a consequence, successive US administrations have
carefully scrutinized and responded to the evolution of the strategy and
military capabilities of their “most likely future politico-military near
peer competitor.”8 The United States and China have therefore become,
as David Shambaugh puts it, “tangled titans” in a “cooperative-
competitive dynamic.”9
(p.3) The complexity of managing the conflicting security and
economic dynamics in the US-China relationship was eloquently
expressed by former Assistant Secretary of State for East Asian and
Pacific Affairs Winston Lord when he asked “how do we reconcile our
competing goals in a post–Cold War agenda when security concerns no
longer lend us a clear hierarchy?”10 Arguably, this mixture of multiple
and contradictory interests is one of the fundamental features of the
post–Cold War international environment. During the Cold War, the
United States and the Soviet Union were economically independent of
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Introduction
each other. As a consequence, economic statecraft was integrated with
and subordinated to US security objectives. In the post–Cold War era,
the absence of an overarching strategic threat, coupled with growing
economic interdependencies, has created an international system in
which the two objectives of economic welfare and the protection of
national security can increasingly represent trade-offs. As Richard
Rosecrance argues, “the essential problem for countries seeking to
enhance both security and the economy is that success in one may
involve a trade-off that entails failure in the other.”11
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Introduction
The Relevance of Strategic Trade Controls in Sino-American
Relations
In light of the intertwining logics of military competition and economic
interdependence at play in US-China relations, this book examines how
the United States has balanced its national security and economic
interests in its relationship with the People’s Republic of China. To do
so, it investigates a strategically sensitive yet under-explored facet of
US-China relations, namely the making of American export control
policy on military-related technology to China since 1979. Export
controls stand at the frontier between military considerations (the
maintenance of military preeminence by avoiding the transfer of
sensitive technologies to potential competitors) and economic interests
(job creation, exports, and economic growth). At any time, a balance
must be found between the economic interests involved in exporting
high technologies and the military implications of potential transfers of
sensitive technologies. Trade-offs are therefore intrinsic to export
control policy. In the words of (p.4) Senator John McCain (R-AZ), “How
do we move forward to assure the freest trade possible without
jeopardizing national security?”12
This is especially true for dual-use information and communications
technology (ICT, such as high-performance computers,
telecommunications equipment, or semiconductors) and satellite
technology—the main technology categories analyzed in this work—
given that their high-technological content makes them at once highly
profitable exports and sensitive technologies with military
applications.13 These technology categories are included in the US
Department of Defense’s Militarily Critical Technologies List (MCTL),
that describes those technologies considered to be “critical to
maintaining superior US military capabilities” and whose acquisition by
potential adversaries “would lead to the significant enhancement of
[their] military-industrial capabilities [. . .] to the detriment of US
security interests.”14 High-performance computers (HPCs), or
supercomputers, have both civilian applications (such as weather
forecasting) and military/intelligence applications. They are used by the
National Security Agency (NSA) for code breaking (cryptography) and
code protection (cryptanalysis), and by the Pentagon for simulating
nuclear weapons tests, chemical and biological weapons production,
designing and modeling complete submarine hulls, developing non-
acoustic anti-submarine warfare sensors, and designing improved
nuclear weapons and ballistic missiles. Telecommunications equipment
such as fiber optics and digital switches can be used by the People’s
Liberation Army to establish a high-speed and safe telecommunications
network among China’s seven military regions. In addition, the volume
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Introduction
and velocity of communications made possible by this digital
telecommunications equipment pose a significant challenge to the
ability of US intelligence agencies, and in particular the NSA, the
cryptologic intelligence agency of the Department of Defense, to
eavesdrop, intercept, and analyze telecommunications traffic in China.
Semiconductors have civilian applications such as in personal
computers and cellular telephones, but can also be used by the PLA in
military applications and weapons systems, such as the use and
development of cruise missiles, of electronic warfare systems, and of
intelligence, reconnaissance, and surveillance systems for supporting
military operations. (p.5) Finally, satellites have intelligence as well as
military applications. As Lt. Col. Peter Hays explains, “information
gathered from and transmitted through space is an integral
component” of a nation’s military strategy and operations; “space-
based capabilities enable military forces to be warned of missile
attacks, to communicate instantly, to obtain near real-time information
that can be transmitted rapidly from satellite to attack platform, to
navigate to a conflict area while avoiding hostile defenses along the
way, and to identify and strike targets from air, land or sea with a
precise and devastating effect.”15 Furthermore, the technology used to
integrate the satellite with its launcher could be used by the PLA to
upgrade its ballistic missile program.
Two key interrelated trends have contributed to the growing
importance of dual-use technologies in the post–Cold War security
environment.16 First, the reduction in defense budgets, the continuing
growth in the costs of new weapons systems coupled with the higher
innovation rates of the high-tech commercial sector relative to the
defense sector, have led to a growing reliance of the military on
commercially developed technologies.17 Second, changes in strategic
thinking—driven by the so-called Revolution in Military Affairs (RMA)
and in particular the concept of Network Centric Warfare (NCW)—have
fostered a growing emphasis on the use of dual-use technologies in
modern combat. NCW aims at turning information superiority into
combat power by integrating C4ISR capabilities and long-range
precision weapons into a “system of systems.”18 NCW relies on critical
dual-use technologies—such as satellites, computer processor chips,
and software—in order to achieve command, control, communications,
computers, and intelligence (C4I) capabilities, interoperability, and
space dominance.19 This book focuses specifically on (p.6) dual-use
ICT and space technologies because of their critical role in the so-called
Revolution in Military Affairs and, specifically, in Network Centric
Warfare, as well as in China’s military modernization effort.
Furthermore, after the establishment of the US and European
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Introduction
embargoes on arms sales to China in 1989, the acquisition of foreign
dual-use equipment became a main pillar of Beijing’s military buildup.
As explained by the congressional US-China Economic and Security
Review Commission (USCC), “China’s military strategists view the US
dependence on space assets and information technology as its ‘soft ribs
and strategic weaknesses.’”20
In light of the growing relevance of dual-use technology in modern
military systems, the economic interdependence between the US and
its post–Cold War near-competitor—which stands in stark contrast with
the US-USSR economic relationship—has greatly complicated the
security/economic calculus at play in US-China relations. As stressed by
two former US government officials in charge of export controls,
“during the Cold War, countries rather neatly divided into blocs, and
export control decisions were [. . .] largely based on those divisions. In
today’s global marketplace, however, potential rivals are also actual
markets.”21 As previously mentioned, the PRC has become a key export
market for US high-tech companies. In particular, by 2011 China had
become by far the largest single export market for US “controlled”
technologies (i.e., subject to export controls) with 86% of the total, with
Russia ranking second with roughly 6%.22 US export control policy
toward China therefore exemplifies the delicate balance between
national security and economic interests that US officials must strike.
While growing US economic interests in the Chinese market are likely
to press for liberalizing the controls on the export of these
technologies, their relevance for the modernization of the People’s
Liberation Army would require the maintenance of stringent controls.
As former Under Secretary of Commerce Jeffrey Garten puts it, in
dealing with China the US government “faces excruciating trade-offs.
On the one hand we have overwhelming commercial goals. On the other
hand, we have to be careful about transferring technology, first because
there could be unintended military consequences, and secondly
because we could be transferring our (p.7) competitiveness.”23 This
field of inquiry therefore allows to investigate how the US government
has balanced potentially competing national security and economic
interests in its relationship with the People’s Republic of China and
whether this balance has evolved over time. As Adam Segal puts it, “the
problem of designing effective export control policies for China
exemplifies paradigmatic changes in the relationship among
technology, trade, and national security since the fall of the Soviet
Union.”24
A Framework for Analyzing US Export Control Policy toward the
PRC: International or Domestic Sources of Foreign Policy?
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Introduction
The shifts in US export control policy over time and across technology
areas are puzzling in that they might suggest, on the surface, an
inconsistent and contradictory management of the national security and
economic interests at stake in American export control policy toward
China. Indeed, weapon systems as well as dual-use ICT and satellite
technologies have been subject to very different export control policies
over the time period considered. Throughout the 1980s, with the
establishment of the so-called Green Line policy for China, major
liberalizations of the controls on arms and dual-use technology exports
took place as a means to foster US-China strategic cooperation to
balance off the Soviet Union in the context of the so-called strategic
triangle (Washington-Moscow-Beijing). In the late 1980s, a space
cooperation agreement was established which allowed US-built
satellites to be launched on Chinese rockets. The crackdown on the
students’ demonstration on Tiananmen Square in 1989, however, paved
the way for a severe restriction of US export controls, the temporary
freeze of further liberalizations, and the embargo on arms sales. At the
same time, with the collapse of the Soviet Union, the rationale for Sino-
American strategic cooperation and for US defense and dual-use
technology transfers to China disappeared. In certain segments of the
American political system, China increasingly came to be seen as a
potential military threat. Nevertheless, on the one hand, the Clinton
administration implemented major liberalizations on the controls of
dual-use ICT (e.g., high performance computers and
telecommunications equipment) that were pursued in the early George
W. Bush administration. On the other hand, after an (p.8) initial
liberalization (1992–1999), communications satellites have been under
very stringent controls (from 1999 to 2014)—regulated as defense
articles rather than as dual-use technologies—to the point that the US
satellite industry lost a significant share of the international market. In
the late 2000s, the US government, through the so-called China Rule,
reimposed stringent controls on a limited number of items (the Military
End-Use List) while establishing the Validated End-User program to
facilitate dual-use trade with trusted civilian end-users in China. Finally,
the Obama administration has embarked on a major reform of the US
export control system aimed at putting “higher fences around fewer
items,” that is on a narrowed-down set of critical items that the US can
effectively control while retaining stringent restrictions on defense-
related exports to China.
What factors explain these diverging policy outcomes over time and
across different technologies in the making of US export control policy
toward China? Do these variations reflect fundamental shifts in the way
the US government has managed potentially conflicting national
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Introduction
security and economic interests in its relationship with the PRC?
Several competing theoretical perspectives could be adopted to shed
light on the evolution of US export control policy, each one offering
diverging explanations of the changes in US policies over time and
across technologies. Are the variations in US export control policy—the
dependent variable—determined by changes in the distribution of
capabilities in the international system, or are they the contingent
outcomes of US domestic politics? Different theoretical frameworks
diverge to the extent they attribute primacy either to international or to
domestic variables.
On the one side of the spectrum, realist explanations would attribute
these shifting policy outcomes to systemic factors.25 From this
theoretical perspective, the statesmen’s preferences are based upon
their assessment of the distribution of capabilities in the international
system and organized hierarchically with, at the top of the hierarchy,
military security. Primacy is therefore ex ante accorded to international
factors, and in particular to the state’s relative power. State
preferences are, in other words, largely externally determined and
stable over time. In the making of US export control policy toward
China, this Außenpolitik perspective would expect, first, national
security to necessarily prevail over economic considerations, and
second, external factors to consistently trump domestic political
pressures. However, (p.9) realism’s analytical focus on relative power
as the crucial independent variable cannot make sense, for instance, of
why congressional action became increasingly influential and intrusive
upon the executive branch priorities in the mid to late 1990s to the
point that it was able to roll back and reverse previous governmental
decisions on satellite export controls (as shown in Chapter 6). Second,
and relatedly, by assuming fixed and externally determined state
preferences, this framework is unable to investigate the focal point of
this study (i.e., whether and how the balance between national security
and economic interests in the making of US export control policy
toward China has evolved over time).
On the other side of spectrum, the Innenpolitik perspective, namely
liberalism, considers domestic politics as the independent variable that
explains variations in foreign policy outcomes. Liberalism opens up the
“black box” of the state and examines its institutions as well as the
preferences and interests of key domestic actors. This pluralist or
“society-centered” approach assumes that societal groups play a
central and continuing role in foreign policy formulation. Andrew
Moravcsik explains that the state is “a representative institution
constantly subject to capture and recapture, construction and
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Introduction
reconstruction by coalitions of social actors.”26 State preferences are
therefore socially determined. As a consequence, liberalism tends to
assume that states do not maximize a fixed and externally determined
“national interest” but are, in Waltz’s terminology, “functionally
differentiated” in that they pursue particular combinations of interests
preferred by the most influential domestic groups.27 This, in turn,
means that foreign policy is considered as the outcome of the
competition between domestic interest groups with different objectives
and political resources that are able to make their preferences and
interests prevail over those of other groups. The main shortcoming of
this approach is its lack of systematic attention to the international
determinants of foreign policy. As shown in Part I of this book,
throughout the last decade of the Cold War, US export control policy
toward China was largely driven by strategic considerations in a
triangular diplomatic game aimed at balancing off the Soviet Union.
The puzzle is why, in the post–Cold War era, the policy has exhibited
diverging directions over time and across technologies. Therefore,
considerations of international factors—such as the polarity of the
international system—cannot be eclipsed from the analysis of US export
control policy.
(p.10) Moving beyond the Foreign/Domestic Dichotomy
In light of the limitations of both a strictly either bottom-up or top-down
approach, this book contends that in order to examine US export
control policy toward China and, more broadly, foreign policy making, it
is necessary to move beyond the dichotomy between domestic versus
international sources of foreign policy. Robert Putnam noted the “need
to move beyond the mere observation that domestic factors influence
international affairs and vice versa [and] to seek theories that integrate
both spheres, accounting for the areas of entanglement between
them.”28 He has proposed a two-level game approach to the study of
international negotiations in which statesmen manipulate both
domestic and international politics. Diplomacy is a process of strategic
interaction in which actors simultaneously try to take account of and, if
possible, influence the expected reactions of other actors, both at home
and abroad. Statesmen act as “janus-faced,” balancing both
international and domestic concerns in a process of “double-edged”
diplomacy.29 The most important insight of Putnam’s work is that
political leaders are simultaneously and constantly playing both in the
domestic and in the international arena. As Helen Milner rightly points
out, however, despite a number of articles that have attempted to
provide more rigorous treatments of this approach, Putnam’s “two-level
game” has remained underdeveloped theoretically.30
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Introduction
This book aims to propose a foreign policy framework that allows us to
move beyond the foreign/domestic dichotomy by including both
domestic and international factors as independent variables, and by
incorporating the mutual influence of external and internal pressures
on one another, or feedback loops.
(p.11) This framework builds upon Glenn Snyder’s work on “process
variables,” namely on the “way in which structural and unit influence
are transmitted onto [foreign policy] outcomes.”31 In line with his
tripartition between structures, processes, and interactions, it
distinguishes a variety of layers between the international and the
domestic structures (the two independent variables) that shape and
mold the outcomes of US export control policy toward China (the
dependent variable)32: (I) International Structure, Structural Modifiers,
Relationship; (II) Domestic Politics; and (III) Feedback Loops. On the
other hand, adopting concepts and methods derived from the sociology
of elites, this framework assesses the evolving policy positions and
relative influence of the key domestic coalitions of actors that compete
in the making of US export control policy (see Figure I.1).
(p.12) International
Factors
International
Structure. At the
systemic level, the
structure of the
international system is
understood in line with
the various realist
theories, that is, as the
organizing principle of
the international
Figure I.1 Explanatory Framework.
system (anarchy) and
polarity, the
distribution of resources (e.g., military, economic) among states.
Structural Modifiers. Structural modifiers are variables that modify
the effects of the more basic structural elements of the international
system on foreign policy outcomes and inter-state interactions but that
are not interaction themselves. In other words, structural modifiers are
“system-wide influences that are structural in their inherent nature but
not potent enough to warrant that designation.”33 The first structural
modifier are multilateral institutions, which refers to the institutions for
governing export controls: the Cold War Coordinating Committee for
Multilateral Export Controls (COCOM) and its post–Cold War successor,
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