Global public policy: Export controls and U.S.-China trade negotiations

JENNIFER DOURIS O’BRYAN, SPIE

Export control was a major issue during Cold War. In the current era of large tariff conflicts, such controls have again become important aspect of international trade. Jennifer Douris O’Bryan, Government Affairs Director at SPIE, spoke about both export control—namely the Wassenaar Arrangement—and the current status of the U.S.-Chinese tariff conflict.

The Wassenaar Arrangement is an international body that unites 43 states mainly from North America and Europe. As the figure shows, most of Eastern Europe and Russia, India, Australia, and South Africa participate in the Wassenaar Arrangement, but not China and none of the other East-Asian countries except Japan (see figure). The participating states apply export controls to all items set forth in a List of Dual-Use Goods and Technologies and the Munitions List, with the objective of preventing unauthorized transfers or re-transfers of those items.

For the audience at the Marketplace Seminar, Category 6, Sensors and Lasers, is most relevant. Unlike other kinds of trade deals and pacts, Wassenaar is not a static list. Every year, the countries that participate in Wassenaar meet in Vienna and debate proposals to either increase or decrease the controls that they have agreed to. They present these proposals in spring to begin the conversations and then they make decisions in fall, in the October timeframe, on what proposals the countries will decide to accept. Once a proposal has been accepted, the countries who participate in Wassenaar go back and implement it in their own country's regulations.

It should be noted that regulations can be an addition to existing controls, or, if a technology has become available outside of Wassenaar participating countries, they can be removed or reduced to avoid competitive disadvantages for those abiding by the rules.

While proposals to change the Wassenaar list are made by governments, the local industry can bring in suggested proposals to their government for consideration as a backed government proposal as well. SPIE has been very much involved in such activities. In fact, O’Bryan currently chairs the Sensors and Instrumentation Technical Advisory Committee (TAC) within the U.S. Department of Commerce, which advises the U.S. government on export control regulations.

This TAC meets quarterly and discusses proposals that are going to be developed from the community by both TAC and non-TAC members. To improve community involvement, they will host meetings with the international community affected by these controls. The first was held at SPIE Photonics West 2020, and the next is scheduled for the SPIE Security and Defense conference in Edinburgh, Scotland, in September 2020. O’Bryan encouraged the audience to contact her for an invitation. Before the meeting, she is collecting proposals for discussion.

She also presented some topics under discussion, such as quasi-continuous-wave (QCW) lasers. In this case, technical details have to be resolved for a reasonable definition. In another case, lasers for material processing of 1 to 6 kW, and even up to 12 kW, could be decontrolled because they have become available from sources in China.

Based on the improving laser production capabilities in China, it’s fair to ask how Chinese regulation efforts are evolving. O’Bryan said, “Currently, export control laws within China are more of a patchwork of different laws.” In 2017, China released an export control law that provided a more comprehensive system for export controls. And in December 2019, the country released a second draft of this legislation.

O’Bryan described this draft legislation: “Some of the things that are in there—creation of a control list—would include things similar to what we all abide by: a dual-use list, a military items list, and a nuclear items list. It's unclear if controls will apply only to Chinese origin products or whether they will also apply to technology from elsewhere that is exported into China. It creates a structure for licensing applications for controlled technology. For the first time, it introduces the concept of deemed transfer, which is similar to deemed export. That again is a Wassenaar concept, but it would control exchange to non-Chinese companies within China.”

Phase 1 of the trade deal

In the second part of her presentation, O’Bryan reported on details of the new U.S.-China trade deal. The office of the President published a respective statement on December 13, 2019: “The United States and China have reached an historic and enforceable agreement on a Phase One trade deal that requires structural reforms and other changes to China’s economic and trade regime in the areas of intellectual property, technology transfer, agriculture, financial services, and currency and foreign exchange. The Phase One agreement also includes a commitment by China that it will make substantial additional purchases of U.S. goods and services in the coming years. Importantly, the agreement establishes a strong dispute resolution system that ensures prompt and effective implementation and enforcement.”

According to O'Bryan, China has committed to buy an additional $200 billion in U.S. goods and services by 2021. The U.S. reduces its tariffs from 15% to 7.5%. The agreement adds several provisions to protect confidential information considered to be trade secrets. Additionally, China has agreed to not support forced tech transfer via acquisition or investment. They've also agreed to accept licensing applications from U.S. financial companies. Though that doesn't automatically grant them access, they are just saying they will accept their applications. Both countries have made an agreement to refrain from competitive devaluation of currency.

A Bilateral Evaluation and Dispute Resolution Office is part of the agreement that would receive and evaluate complaints from the two countries. If a complaint cannot be resolved, O’Bryan explained, a tariff would go into place regarding that complaint and the other country would not be allowed to retaliate. Of course, if they did, it would just dissolve the deal as written.

Quite interesting are the things that are not part of the deal, as O’Bryan revealed: “It did not include the issue of China's use of industrial subsidies and state-owned enterprises. It also didn't address some cybersecurity issues.” About a Phase Two of the negotiations, she said: “Many predict that Phase Two of the deal will be much more difficult to negotiate out than Phase One, but I also think that people who've been affected by the trade deal and the tariffs, are pleased to see that at least some progress has been made and that negotiations are continuing.”

Some statements from the lively Q&A session are worth mentioning. Asked for the direct impact of the new agreement on the photonics community, O’Bryan answered: “The reduction in tariffs might help you out to some extent, but again, most of the problems caused by the tariffs aren't going to be addressed until Phase Two, unfortunately.”

Another statement from the audience related to Chinese investments: There are no big changes to be seen since any such activity has basically dried up. O’Bryan responded that the U.S and European governments will continue trying to limit Chinese investments into critical technologies as part of their legislation.