Speeches and Articles by U.S. Consul General James B. Cunningham

Export Controls Seminar Luncheon Speech
Hong Kong

By James B. Cunningham
Consul General of the United States of America

March 31, 2008

(As prepared for delivery)

Good afternoon.

It is a great pleasure and honor to be here today to speak to this distinguished and diverse audience. This is a groundbreaking event in Hong Kong for us, and I am gratified that so many of you have elected to come and learn more about U.S. and Hong Kong export controls.

I want to start with a special greeting to our colleagues from the Hong Kong Trade and Industry Department. As I'll mention later, your participation in this event is just one reflection of our proactive and collaborative relationship in the area of export controls or, as you refer to it, Strategic Trade Controls.

I also want to thank all of the participants from various Hong Kong, mainland Chinese, Japanese, U.S. and other multinational corporations. I see that we have representatives from a wide range of sectors of the economy including electronics, aviation, chemicals, logistics, professional services and many others. Export controls clearly touch on just about all sectors of the economy and many departments of our respective governments.

Finally, let me extend a special thanks to the representatives of B-I-S who have traveled a long way to share their expertise with us.

Today, I want to talk briefly about three topics, and I think it's fair to say that all three of those topics revolve around the notion of partnership and collaboration. Your presence here is a reflection of our government's partnership with industry in this very important area. Also, an event such as this one in Hong Kong would not be complete without talking about the United States government's collaboration with the Hong Kong Special Administrative Region Government in the area of export controls. Finally, it is fitting and appropriate that I talk a bit today about the growing partnerships between U.S. and Chinese businesses and increasing cooperation between our two governments on a variety of shared interests.

As you all know, not a day goes by without some additional new and alarming proliferation-related news headline. Those headlines are a reflection that there are few, if any, more important issues facing the world these days than proliferation of weapons of mass destruction.

And the reality is that while governments can lead in the fight against proliferation, it is an issue than cannot be solved by governments alone. There is simply too much trade for any single authority or group of governments to effectively control. That is why all governments, including those of the United States and Hong Kong, rely on you, the business community, to ensure that sensitive technologies do not end up in the wrong hands.

That means that when you screen new potential customers against lists of individuals, entities and countries of concern, you are doing your part to ensure that your business does not foster proliferation. When you decline to do business with groups and individuals that are linked to terrorism, you are doing your part to keep the world as a whole a safer place.

It is popular in some business circles to talk about export controls as a cost of doing business. And while there are costs associated with compliance, let me suggest that the costs of not complying are potentially so much greater.

Conversely, let me suggest that export controls don't hinder trade and aren't just a cost of doing business. Rather, they make trade possible. Only with trust and security can we maintain and grow our combined trade with each other and with the world at large. Your continued vigilance in export controls ensures that your company continues to have access to U.S. products and technologies in a timely fashion.

In sum, to keep our trade open and secure, we rely on your participation in this important system.

Hong Kong, which relies so much on free and open trade, understands well the critical need for secure trade. Hong Kong has put in place an effective, highly autonomous, and transparent export control regime, and repeatedly emphasizes its commitment to maintaining that system's effectiveness. As you heard earlier today, the Hong Kong strategic commodities control system applies to all items and technologies listed on the major multilateral export control regimes. In fact, the United States often holds up the Hong Kong export control system as a model for other territories, particularly those that rely on heavy transshipment trade to show that increased trade and increased security are not mutually exclusive.

As with many other jurisdictions, the United States cooperates with Hong Kong in the enforcement of our respective export controls. As in the case of government-industry cooperation, the United States is committed to creating and growing international partnerships to combat proliferation.

Our cooperation with the Hong Kong government is consistent with the United States' overall support of the One Country/Two Systems model established in the Sino-British Joint Declaration of 1984 and formally recognized under both U.S. and Chinese law. Consistent with the One Country/Two Systems model and as a result of Hong Kong's independent export control system, Hong Kong enjoys a special status under U.S. export control laws. Many items controlled for export to mainland China -- such as certain electronics, semiconductor testing equipment and composite materials and related technology do not require a license for export to Hong Kong. This special treatment for Hong Kong is based on the continued autonomy of Hong Kong's customs territory from mainland China, as well as the strong support of the United States for the values that Hong Kong represents in Asia -- open markets, free trade and the rule of law.

Greater economic integration between Hong Kong and the mainland is inevitable. At the same time, to maintain its preferential status in the U.S. export control system, Hong Kong must continue to ensure the continued integrity and autonomy of its customs territory. You have heard today about Hong Kong's "no undercut" policy, whereby it will not authorize exports from Hong Kong that undercut the export control requirements of its trading partners. We support this key pillar of the Hong Kong Strategic Controls System and urge Hong Kong to continue to maintain an effective and independent export control system.

To our colleagues in the Hong Kong government, I say that we are your partners in nonproliferation and export controls. We support the One Country/Two Systems model generally and with specific application to export controls.

Let me turn, lastly, to a short discussion of the United States' relationship with mainland China in the area of export controls. I would like to start with some trade statistics because I think that sometimes the adversarial rhetoric in the press obscures the tremendous growth in trade between the United States and China, and our collaboration on issues of mutual concern: for example, in nonproliferation efforts, specifically with regard to North Korea's nuclear programs.

I turn first to the tremendous growth in exports from the United States to China. Total exports from the United States to mainland China have grown sharply over the past several years. Since 2004, overall U.S. exports to mainland China have increased from 34.7 billion U.S. dollars to 65.2 billion U.S. dollars in 2007, a remarkable 88 percent increase in just 3 years. In the area of high tech exports, the numbers are equally impressive. In 2006, U.S. high-tech exports to China grew by 44 percent to 17.7 billion U.S. dollars and in 2007, that number climbed to 20.3 billion U.S. dollars. This compares to total exports to India of 17.6 billion U.S. dollars and 7.4 billion U.S. dollars to Russia in 2007.

At the same time, a small but very strategically significant portion of overall U.S. exports to China is subject to export licensing requirements. The products in this category are the products that many of your companies make or sell. They include sophisticated avionics equipment, electronics and other items that are primarily commercial in nature but may also have military or WMD applications. Because of their dual nature, these items require an extra degree of scrutiny to ensure they would not be used in ways contrary to U.S. national security or foreign policy. As a percentage of overall exports to China in 2006, Department of Commerce-licensed exports in these products represent only 1.3 percent of total trade, or roughly 230 million U.S. dollars. For the first 10 months of 2007, shipments under Department of Commerce licenses totaled 484 million out of total exports of 52.5 billion U.S. dollars, less than 1% of total exports for that time period.

The Bureau of Industry and Security has recently unveiled its Validated End User, or V-E-U program, which has the potential to dramatically reduce even this small percentage of trade that requires an export license. I understand you'll hear more about this new and innovative program this afternoon. That program is a reflection of the continued evolution of our export controls system, which is now focusing more and more on end-users and less on the country in which those end-users are located.

I highlight the statistics I just mentioned to stress that we are committed to increasing our exports to China. While some may argue about the proper method of reducing the overall United States trade deficit with mainland China, increasing exports, consistent with national security, is one of the best ways to reduce our deficit. And as you can see, the items requiring a license for export to China -- while significant from a military or foreign policy perspective -- have a modest impact overall on the value of total exports to mainland China. However, we do realize that this is an issue of major concern to those present here today, and the U.S. Government remains committed to facilitating the appropriate free flow of goods through developing and expanding programs like V-E-U.

I also highlight these statistics to underscore longstanding U.S. foreign policy as it relates to our relationship with China. That policy has remained remarkably consistent over several decades and over multiple U.S. administrations. Specifically, it is U.S. policy to encourage China's peaceful economic development and participation in the global economy as a responsible stakeholder and partner. U.S. exports generally, and U.S. high tech exports in particular, support the U.S. goal of supporting China's economic development.

Even as we remain vigilant against the organized efforts to acquire and misuse some sensitive technologies, we support China's rapid peaceful economic growth and integration in the global economic system. And we continue to look for ways in which we can work in partnership with China in trade, nonproliferation and other areas.

In conclusion, let me thank you again for your attention and commitment to keeping our trading system and the world safe and secure. These are complicated and sometimes sensitive issues and I'm glad we have the opportunity in forums such as this one to talk through them further. We continue to look for ways that we can work in partnership with you to simultaneously increase trade while keeping it secure.

Thank you.

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