Export control reform could follow health care as a hot potato for President Obama. {”s” : “amat,ba,ge,hon,ibm,lorl,msft”,”k” : “c10,l10,p20,t10″,”o” : “”,”j” : “”} The Obama administration, with the support of Defense Secretary Robert Gates, might ease U.S. export control rules that ban sales of advanced technologies with military applications to many countries, including China. Critics say the rules are out of date and let Europe, Japan and Korea win business in fast-developing countries. Gates has said such a move would not hurt national security, but many earlier bids to modify export controls have failed over the issue. The Commerce Department two years ago eased export rules to China and India. Under the validated end-user program, Commerce conducts on-site checkups at overseas facilities. The VEU program has helped companies such as General Electric (NYSE: GE – News ), Boeing (NYSE: BA – News ), and chip gear giant Applied Materials (NasdaqGS: AMAT – News ). The Obama Administration is mulling a much wider overhaul of export rules. Some changes might not need congressional approval, observers say. Some likely would. House Foreign Relations Committee Chairman Howard Berman, D-Calif., is expected to introduce legislation next year tied to the export rules overhaul. Many high-tech industries — including aerospace, information technology, electronics and communications — have their fingers crossed that some significant changes will finally happen. One key change would be to speed a licensing process under which companies must get approval to sell goods on Commerce’s list of sensitive technologies. It’s not clear how far the administration’s reforms will go, though there is support from both Democrats and Republicans. “The direction is obvious — there is going to be some degree of liberalization,” said Jacob Kirkegaard, research fellow at the Peterson Institute for International Economics. “But there’s going to be a lot of Congressional examination by the national security hawks. They will want to limit reform.” During President Obama’s visit to China this week, a Chinese commerce ministry spokesman blamed restrictions on high-tech exports to China in part for the growing U.S. trade deficit. “The United States should seriously review its exports control policy, not create various trade barriers to protect domestic industry,” said the Chinese trade official, Yao Jian. National Security Fears However, many members of Congress still have grave concerns over sales to China of “dual-use” high-tech goods that have civilian and military applications. China hawks recall the 1999 Cox Commission’s findings that China evaded export controls to illegally obtain missile design and satellite technology. Loral Space & Communications (NasdaqGS: LORL – News ) and Hughes Electronics paid large fines for violating export control law. The Cox report also said China circumvented controls on high-end computers. Under new 2007 “China Rules,” exporters must apply for licenses if they know high-tech items are intended for military end-use. “We have a complex relationship with China,” said Mario Mancuso, attorney at Akin Gump Strauss and former undersecretary at Commerce’s Bureau of Industry and Security. “They’re a competitor in some respects. We’re very mindful that we don’t want to contribute to China’s military capability. With respect to China, we’re trying to strike the right balance.” Industry Hopeful Meanwhile, there’s cautious optimism among industry groups. “I do believe we are going to see major changes in the next year,” said Frank Vargo, vice president for International Economic Affairs at the National Association of Manufacturers. “The bulk of it can be done by the administration; it doesn’t require new legislation. But some will.” In August, President Obama ordered an interagency review of U.S. export controls. Commerce Secretary Gary Locke on Oct. 1 said current rules are a relic of the Cold War with the Soviet Union: “We need to fundamentally revise our export controls system to account for the emergence of new foreign markets, competitors and multifaceted threats that have arisen over the past few decades.” He proposed eliminating licensing requirements to export certain dual-use, high-tech goods. “Our old adversaries are now some of our most significant trading partners,” said Locke, former governor of Washington, where Microsoft (NasdaqGS: MSFT – News ) is based and Boeing has major manufacturing operations. In mid-October, the Obama administration shifted authority for approving sales to China of missile and space technology from the White House to Commerce. Earlier attempts at easing exporting rules have bogged down, says Bill Reinsch, president of the National Foreign Trade Council and a former trade official at Commerce. “This review has modest hopes of being different,” he said. “One reason is that the president himself launched it. And there’s a key internal advocate, Secretary of Defense Gates.” ‘Smart Security’? Reinsch added that the reform argument “is not fundamentally an economic argument. It’s not about jobs and exports. It’s about smart security that denies the bad guys the stuff you don’t want them to have but doesn’t deny companies the opportunity to make sales. Gates understands that the Pentagon’s ability to buy cutting-edge stuff depends on an intelligent export control policy.” American firms have argued that they need to grow export sales to invest in research and develop future technology for the U.S. military. “There may be a better sense of where all this might go in the early part of next year,” said John Frisbie, president of the U.S.-China Business Council. U.S. industry says Commerce’s dual-use list needs to be updated regularly. “We need a new way of evergreening our control list,” NAM’s Vargo said. “There’s stuff that’s been on there for 20 years.” That approach works both ways. In 2007, the Bush administration removed some products restricted from China but added others, such as lasers, underwater cameras and radar antennas. China’s military increasingly relies on commercial, off-the-shelf products. So U.S. export rules need to be more focused, says Mancuso. “We need to build higher walls around a smaller set of products,” he said. He says the U.S. also needs to rethink its assumption that it’s the main supplier of high-tech goods. Many other countries offer advanced products, with less hassle. U.S. Bids Not Sought Meanwhile, the machine tools industry has been a big critic of U.S. export policy. Chinese companies will not ask U.S. suppliers to bid on sales, the industry says, because of the drawn-out licensing process. “It’s taken as a given among Chinese that any machinery is going to be controlled, so they just buy it from Europe,” said Vargo. Still, some observers say the red tape isn’t as cumbersome as claimed. In 2008, IBM (NYSE: IBM – News ), Honeywell (NYSE: HON – News ) and other U.S. high-tech firms were able to sell security equipment to China for the Olympics. Mancuso says the VEU program, launched by President Bush and supported by the new administration, could expand export sales. But BIS declined to provide export data. BIS has OK’d six companies under the program. Among them: Boeing Tianjin Composites, Applied Materials China, Aviza Technology and National Semiconductor (NYSE: NSM – News ). Frisbie says the VEU program mostly involves U.S. joint ventures — not Chinese companies — and needs to be expanded to make an impact. In July, Commerce OK’d India’s first VEU firm, General Electric India. U.S. companies are eager to sell nuclear gear in India, which plans to build new power plants through 2050. But the Obama administration’s planned export reforms could run into global hurdles. The U.S. and 40 other countries have signed an international export control system known as the Wassenaar Arrangement. If the Obama administration removes some high-tech goods from Commerce’s dual-use list, it might need to get Wassenaar members to agree to changes, Clif Burns, an attorney at Bryan Cave, said in ExportLawBlog. Try out IBD Investing Tools absolutely FREE with a 2-Week FREE trial of investors.com. Read the original post: Obama Administration May Ease Controls On High-Tech Exports (Investor’s Business Daily)
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Obama Administration May Ease Controls On High-Tech Exports (Investor’s Business Daily)
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