PRC EXPORT LICENSING POLICY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85M00364R000701150007-4
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 8
• Document Creation Date: December 20, 2016
• Document Release Date: December 17, 2007
• Sequence Number: 7
• Publication Date: March 29, 1983
• Content Type: MEMO

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,EXECUTIVE SECRETARIAT
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THE SECRETARY OF COMMERCE
Washington, D.C. 20230
Executive 716g18fty
,3-0176 1
MAR 2 9 1983
MEtIORANDUM FOR William P. Clark
Assistant to the President
for National Security Affairs
Subject. PRC Export Licensing Policy
In my January 26 memorandum (Attachment A), I stated that the
Administration's export control policy on dual-use licensing cases
to the People's Republic of China was encountering serious
problems to the degree that the President's directive for a "clear
and predictable" policy was not being implemented. I promised at
that time to undertake an in-depth assessment of the sitLlation and
to recommend to you possible solutions. My staff has ;just
completed this review, which is also being made available to the
a
t"
Board as soon as possible; this memorandum will be the basis for
our discussion.
r
U y
series of statistical charts and explanations are at Attachment
n to convene a meeting of the Export Administration Review
I l
anal sis of the problem and options for solving it follow.
0
in the minds of the Chinese and the U.S. business community.
interagency group considering our broad China policy.
Although we have improved upon the previous Administration's
record, our current PRC export license policy remains in
difficulty both within the agencies seeking to administer it,
I. Background
The Administration's current export control policy toward the PRC
was'set forth in a Presidential directive of June 8, 1.981. The
policy called for "approval of technology to China at
significantly higher technical levels than at present, albeit
somewhat below those approved for other friendly non-allied
countries." A technical benchmark of two-times the level of
exports licensed to the Soviet Union (prior to its invasion of
Afghanistan) was established to guide licensing to the PRC.
Additional guidance on interpreting and implementing this policy
was issued on Nay 6, 1982 (Attachment C). Although more export
approvals for the PRC have accompanied the existing policy (see
chart 1), implementation remains difficult and the Chinese and
U.S. business are intensely dissatisfied.
Not referred to DOC.
Waiver applies.
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The problems in implementing the May 6, 1982 guidance cluster
around two broad questions.
1. Is two-times an effective technical guideline?
2. How is the two-times benchmark to be applied to specific
licensing cases?
II. Is the two-times benchmark an effective guide?
The two-times benchmark does not lend itself readily to the
Commodity Control List (CCL) system.
The CCL can be sub-divided into three components: "entries,"
which are the most comprehensive aggregation of product listings;
"general product categories," a somewhat narrower division; and
finally the "products" themselves. In total, the CCL encompasses
215 entries; over 400 general product categories; and well over
100,000 products.
.There are 187 CCL 'entries' which potentially pertain to the PRC.
After almost two years of attempting to implement the two-times
benchmark, the Departments of Commerce and Defense have been able
to agree on its application in only 17 of the 187 CCL entries --
and then in only some of the product categories covered by these
17 entries. These 17 CCL entries contain 110 general product
categories, but agreement on how to apply the two-times benchmark
has been reached for only 32 of these general product categories.
The 32 general product categories cover approximately 30 perc-ent
of the total license applications to the PRC. In those product
categories for which there is no 'agreement on application of the
two-times benchmark, licensing applications are handled on a
case-by-case review.
The Departments of Commerce and Defense have reached an impasse in
defining turther the two-times benchmark within the CCL entries.
A number of specific problems have been encountered:
For certain items two-times is not meaningful because the
item is denied export to the Soviet Union (thus, two-times
zero is "zero"). One example is mask alignment equipment
(see chart 6), which is used for microcircuit semiconductor
production. Because the two-times policy cannot be applied,
an agreement between Defense and Commerce was reached whereby
the manufacture of 4K memory chips would be the standard, but
chips between 4K and 16K would be decided on a case-by-case
basis. By contrast, in the Free World there is widespread
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availability of 64K chips and the capability to produce
them. The capacity to produce 256K chips which is now
developing in several countries, will also become widespread.
For many products, such as computers, there are numerous
technical parameters which are administratively hard to
determine. For example, there are 14 different technical
parameters in deciding whether a. given computer system would
be licensed to the PRC. In contrast, only 2 parameters (bus
rate and processing data rate) are used for determining which
computers may be exported to Free World countries.
For some commodities interagency agreement on licensing to
the PRC has been possible only at levels less than two-times
that to the Soviet Union. For example, chart 5 shows that
performance speed of disk memory commodities exported to the
PRC is less than two-times that to the USSR.
Even in instances where the two-times benchmark has been
successfully applied, it frequently does not represent a
substantial liberalization. Although current policy is to license
at levels "somewhat below those approved'fOr other friendly
non-allied countries", the commodities licensed to the PRC are
dramatically less sophisticated than those commodities licensed to
the Free World.
For example, chart 4 shows that the two-times policy has been
applied to the size of internal memory in computers; but in
comparison to what can be licensed to the Free World, it is
dramatically less.
Chart 7 (analog-to-digital converters)' also demonstrates the
disparity between products licensed for the PRC and those for the
Free World. Although the PRC two-times benchmark is 100
kilohertz, the state-of-the-art for the Free World is 50,000
kilohertz or 500 times that of the PRC.
Furthermore, even in those instances where the two-times benchmark
is exceeded and a commodity licensed, approval' frequently includes
extensive special conditions, such as monthly or quarterly on-site
visitations and other constraints not usually imposed on Free
World cases.
III. How is two-times applied to specific licensing cases?
The May 6, 1982 guidelines provide a "predisposition of approval"
for exports to the PRC, except where the export poses a "major
risk to national security." The guidelines on their face seem to
state that where the export contributes to Chinese military
capability in the four special mission areas (nuclear weapons and
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their delivery systems, electronic warfare, anti-submarine warfare
and intelligence gathering) the export by definition poses a major
risk to our national security. Furthermore, the narrative in the
May 6, 1982 memorandum is written in such a way that this same
analysis seems to apply regardless of whether the export is above
or below two-times. Thus, the two-times benchmark in practice has
been ignored in a number of instances by the Department of Defense.
Clearly, if the two-times benchmark is to guide licensing
decisions where exports are within the four special mission areas,
there should be a different standard as to approval or denial
depending on whether the export is above or below the benchmark.
(Exports outside the mission areas, by definition, pose no threat
to U.S. national security.)
Further, I would argue that factors other than just "contribution
to Chinese capability" in the four mission areas also need to be
considered in assessing "major risk to national security."
Additional factors should include the actual threat to the United
States and availability from foreign sources of a comparable
product.
IV. Options
We have identified four possible options.
1. Place the PRC in the Free World export licensing category,
thereby treating it the same as the United Kingdom,
Yugoslavia and India.
Pros
Relatively simple to administer.
- Creates closer strategic ties between the PRC and the
Cons
Allies might balk at such a bold U.S. move for China, as
we simultaneously attempt to tighten controls toward USSR.
- Might entail unacceptable risks to long-term U.S.
national security interests.
- Politically unacceptable to treat China as a Free World
country.
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2. Keep the PRC in its present country grouping ("P") and treat
the PRC essentially the same as a Free World country (e.g.,
the United Kingdom, Yugoslavia and India) for dual use
products, but retain case-by-case controls on COCOM,
munitions list, and atomic energy list items.
Pros
- Lliminates comparisons between licensing treatment of PRC
and USSR, putting PRC in clearly favorable position.
- Blunts criticism by Allies that the United States is
taking PRC completely out of COCOM controls.
Interagency differences in implementation would be
significantly reduced.'
- Creates closer strategic ties between PRC and the United
States, but without as great a risk of 'adverse political
fallout under option 1.
Cons
Same as option 1, except risks to U.S. national security
interests would be less due to COCOM, munitions, and
atomic energy controls.
3. Modify the May 6, 1982 guidance by:
a. Selecting a more suitable technical benchmark than two
times, in order to better balance our twin desires of
treating China as a friendly rion-allied country and at
the same time safeguarding our national security
interests; and
b. Clarifying the licensing policy for exports within the
four special mission areas.
These modifications of the current guidance would entail a
discrete set of choices:
a. Selection of the technical benchmark. The alternatives
include:
i. 75 percent of the state-of-the-art technology
readily available in the Free World;
ii. replace two times with five times;
iii. technology levels commonly available in COCOM
countries in 1979; and
iv. retain the current two times technical level.
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b. Licensing policy within the four special mission areas.
There are two broad options:
i. Exports with technical characteristics below the
benchmark would be licensed without exception.
Exports with technical characteristics above the
benchmark would be approved case-by-case, except
where the export poses a major risk to U.S. national
security. In determining whether a proposed export
above the benchmark constitutes a major risk to
national security, the following factors must be
accounted for:
China's indigenous military capabilities;
the contribution to Chinese capabilities;
foreign availability
the degree of actual threat to the U.S./Allies
national security.
ii. Exports with technical characteristics below the
benchmark would be approved,.unless the export poses
a major risk to our national-security. In
determining whether the proposed export below the
benchmark constitutes a major risk to national
security, the factors listed under Option "i" must
be accounted for. For exports with technical
characteristics above the benchmark, license
applications would be denied.
Pros
- Provides clearer operational guidance on how to apply the
Substantially expands licensable PRC list.
- Sufficiently bold that bureaucracy would get the
liberalization message. .
Demonstrates to the Chinese that the Administration
remains committed to implementing a more liberal
licensing policy.
Cons
- Might entail risks to long-term U.S. national security
Continues to require interagency negotiations to
translate policy into specifics.
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4. Keep the May 6, 1982 guidelines without modification, but
direct DOD and DOC to reach agreement by May 15, 1983 on the
technical parameters for all products/subproducts in the
major CCL entries where almost all PRC license applications
fall.
Pros
- Extends PRC licensing policy to full range of important
Cons
- Provides no modification in the current PRC licensing
policy to remedy its weaknesses.
Recommendation: Adopt Option 3(a)(i) and 3(b)(i). Attachment D
is a proposed amendment to the May 6, 1982 guidelines
incorporating this recommendation. Because this recommendation
would still require application to the CCL entries, I recommend
that the President also direct DOD and DOC.to reach agreement by
May 15, 1983 on the technical parameters for all
products/subproducts in the major CCL entries applicable to the
PRC.
Secretary of Commerce
Attachments
Tab A: January 26, 1983 Memorandum from Malcolm Baldrige
Tab B:
Tab C:
Tab D:
to William P. Clark
Charts and Analysis
I.lay 6, 1982 Memorandum from William P. Clark
Proposed Amendment to May 6, 1982 Memorandum
cc:
George
Casper
Donald
William
P. Shultz
W. Weinberger
T. Regan
P. Casey
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