Wednesday, September 8, 2010

Obama Delivers on Export Control Reform

The White House recently announced its intention to fundamentally reform the US export control process. This overhaul has been long overdue and will have significant impact on the American economy particularly in Silicon Valley, strengthen US China bilateral relations and simplify the lives of ethnic Chinese professionals working in high tech industry.

As the announcement said, “The current export control system is overly complicated, contains too many redundancies, and, in trying to protect too much, diminishes our ability to focus our efforts on the most critical national security priorities.” Amen. Those of us working in the high tech companies have been saying that, probably in more pungent terms, for decades.

The reform if implemented as announced will greatly simplify the licensing procedure. By strictly defining those items that are subject to control and eliminating multiple and often conflicting agencies, the new policy should render export license application transparent and take away the pain of exporting.

The White House release cited the brake pads for the M1A1 tank as one example of what ails the current export control practice. Same degree of control is applied to the export of the brake pads as it is for the entire tank. Yet the same brake pad is used in fire trucks which can be exported without control. This is the kind of regulatory contradiction the reform hopes to remove.

While the announced intent for export control reform is in general terms and not specifically addressing exports to China, it will have the greatest impact on trade with China. Heretofore, China has been placed in not outright foe and not exactly friend category--which means even export of heavy duty brake pads, in the aforementioned example, is subject to intense scrutiny as regulators examine the likely “dual use” nature of the export sale. Dual use is bureaucratic speak of items for civilian use that could have military application as well, and thus need to tie red tape around the transaction.

China is potentially America’s biggest customer for high tech export. Because of the ambiguity of prevailing export control policy, much of the potential has not been realized. Instead, China buys from Western European countries and Japan because they do share the same concern as the US.

Obama’s intention is good news for Silicon Valley—and other high tech regions—as these companies can now concentrate more on exporting and less energy on walking through the labyrinth of government approval.

This development should also be good news for Chinese Americans working in the high tech industry. Since China has become a major buyer, many of the Silicon Valley companies have wisely employed ethnic Chinese in their firm to engage in marketing and sales to China. Such occupation carried unexpected hazards.

Silicon Valley has witnessed cases where the export manager to China landed in jail for alleged sale of dual use items to China. In one case, it involved the sale of shaker tables. The government accused the ethnic Chinese export manager of selling to a missile making facility in China rather than the locomotive factory stated in the application. By the time the government dropped the charges for lack of substantiation, the ex-export manager had been out of a job for months and confronted with the reality of a ruined career.

With the new regulations, such ambiguity should not happen again and exporting to China no longer a cause for racial profiling.

The export control reform, while long overdue, will be an all around win. We can only hope that politics do not interfere.
A similar commentary was posted on New America Media.

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