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Relaxed rules for U.S.-China tech dealings spark controversy

Last summer, the Bush administration changed its policy for exporting technology products that the Chinese could use for military purposes. Critics say the move could imperil U.S. security.

WASHINGTON--The Bush administration sought to deflect criticism Wednesday over a new policy that clears hurdles for certain companies in China to receive exports of American-made multigigaflop computers, lasers, and other "sensitive" technologies with potential military uses.

Under rules that took effect last summer, some companies in China are--or will be--permitted to bypass normal legal procedures for receiving exports of certain restricted hardware and software from the United States. That list includes certain chemicals that could be used to build weapons, telecommunications equipment designed to operate at very high and very low temperatures, and computers with processor performance speeds "exceeding 0.5 weighted teraflops."

Since the Cold War, the United States has limited export of certain so-called "dual use" products that could have both military and civilian applications. The new privilege--called "Validated End User" status--applies exclusively to companies in China. They must agree to submit to a "comprehensive" review process by numerous U.S. government agencies, both before and during their participation in the program, and have a record of using American technologies "responsibly." Five companies have landed that status so far.

At an event hosted by the conservative Heritage Foundation here on Wednesday, Commerce Department Undersecretary Mario Mancuso and an adviser defended the new policy as a key part of the United States' extremely complex relationship with China. The goal, Mancuso said, is to balance national security interests with economic ones: after all, China is quickly becoming one of the world's largest economies and the United States' biggest trading partner.

The VEU program is a wise move because it allows regulators more time to concentrate on whether to grant licenses to "riskier" companies, Mancuso said. It may also give other Chinese companies a "market-based incentive" to abide by U.S. export control laws in hopes of achieving that more liberated trade status, he added.

The latest approach, however, is drawing fire from critics who argue the Bush administration is being shortsighted and overly trusting. For instance, the Wisconsin Project, a nonprofit group focused on nuclear arms control, contended in a report released last month (PDF) that two of the VEU companies--Shanghai Hua Hong NEC Electronics Company and BHA Aerocomposite Parts Co.--shouldn't be on the list because of ties to the Chinese military and other government-owned operations.

Mancuso insisted that the companies named in the Wisconsin Project report were selected only after undergoing a "rigorous" analysis based on classified and publicly available information. He added that all of the companies selected must submit to periodic follow-up investigations, including on-site visits, by U.S. regulators and that their status can be revisited if problems arise.

Critics didn't buy those explanations. One of the prime concerns with exporting sensitive technologies to Chinese firms is that they will divert those ideas to the military, and the new policy won't prevent that from happening, said Peter Leitner, president of the pharmaceutical company MaxWell USA and a former senior trade advisor to the Secretary of Defense.

"The characterization of these companies as being safe is absurd," Leitner said during a panel discussion after Mancuso's speech. "They're embedded with government controlled entities who dictate the terms of trade. Government plays a huge role in directing trade, directing corporate activities, directing where technology goes, and will continue to do so in the indefinite future."

Those naysayers are living in the past, argued Mark Groombridge, a senior adviser to undersecretary Mancuso. Traditional export controls aren't as effective as they once were because of increasingly global "networks of production" and less restrictive export controls in other major industrial nations, Groombridge said.

Besides, the new Commerce Department rules may liberalize export requirements to the select VEU companies, but they actually create new licensing requirements for everyone else, Groombridge added. That's because categories of American high-tech products that previously escaped export control rules are now subject to them.

"To say there's no strategic thinking going on about China is just simply and factually inaccurate," Groombridge said.

John Tkacik, a senior research fellow with the Heritage Foundation's Asian Studies Center, questioned whether the new policy ultimately serves American interests.

"One might wonder whether letting this kind of technology leak off to China does have the appropriate safeguards to be sure it doesn't get stolen and put together by a Chinese company," he said.