BUSINESSWEEK ONLINE : JULY 5, 1999 ISSUE
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INTERNATIONAL -- ASIAN BUSINESS

Memo to Beijing: We're Still Open for Business (int'l edition)
Washington wants to ease, not tighten, export controls

For months, there seemed to be daily revelations of Chinese espionage and details of how Beijing may have acquired technology from U.S. companies to develop advanced weapons. Then came the Cox Committee report on Chinese spying, issued on May 25. As the storm clouds gathered over Capitol Hill, Corporate America braced for onerous new curbs on exporting high-tech goods to China.

It may not turn out that way. While Sino-U.S. tensions remain high, it's now likely that Congress will ease export rules, not tighten them, on goods from personal computers to machine tools. On June 10, the House passed a defense authorization bill that proposes streamlined controls for items not ''of greatest national security concern.'' One key supporter: none other than Representative Christopher Cox (R-Calif.), whose allegations of China's espionage efforts brought the issue to a head. ''The lion's share of this stuff should be fast-tracked,'' Cox told BUSINESS WEEK before the vote. ''It's in the national security interest to enhance our international competitiveness.''

GORING GORE. Cox's view suggests how Republicans will squirm out of the political dilemma China poses for them. They need to take a tough stand on Beijing to satisfy conservative voters, but they are loath to damage U.S. business in China. Indeed, Cox's home state is a major beneficiary of technology sales to the mainland. Companies such as Hughes Electronics Corp. and Intel Corp. are based in California. Solution: Clamp down on the national labs, which have been the focus of U.S. security concerns. That would mollify conservatives--and cast President Clinton and Vice-President Al Gore in the worst possible light. Then the GOP can limit new export restrictions to critical technologies with military applications.

The Senate Banking Committee is now slated to start voting on a new Export Administration Act in early July. That, too, will probably lead to a loosening of controls. Senator Michael B. Enzi (R-Wyo.), chairman of the panel's international trade and finance subcommittee, says he wants to ''focus more resources on the critical technology exports and fewer resources on items that have a marginal benefit to national security.'' Enzi proposes that items generally available in the marketplace should not have to jump through hoops for sale abroad.

Such a shift is overdue. Because of advances in computing technology, some PCs will soon meet the threshold for export licenses for fast-growing markets such as India and China. As they now stand, export restrictions could produce a horrendous bottleneck by yearend. Computer makers expect they will have to seek 40,000 export licenses over the next six months; the Commerce Dept. handled only 390 in 1998.

The computer industry has already weighed in on this issue. In early June, a group of industry execs asked Commerce to raise the threshold for export licenses to the equivalent of a server that uses eight Pentium III chips. ''This is a very critical issue for us,'' says Lewis E. Platt, CEO of Hewlett-Packard Co. and one of the group that traveled to Washington. The betting is that the Administration will soon oblige. In May, a bipartisan coalition of 79 House members gave the White House political cover by asking for a new standard. Under current law, however, that won't take effect for six months. Without an exemption from Congress, the delay could crimp exports through 1999.

The satellite industry faces near-term problems, too. Last year, prompted by its China concerns, Congress shifted review of satellite export licenses from Commerce to the more security-oriented State Dept. European customers are griping that Washington bureaucrats worried about criticism from Congress are sitting on export licenses for everything from technical information to components. U.S. companies fear they'll lose their competitive edge. But Congress may allow State to expedite licensing to allies such as France, while staying strict in China's case.

While the Senate leadership has promised an export bill, gripes from business on one side and national-security hardliners on the other could still scuttle the effort. The White House and business object to some key provisions, such as a requirement for inter-agency consensus that, they say, would cripple the licensing process. The hawks want to expand, not shrink, the number of products subject to export rules. Still, high-tech lobbyists are more sanguine than they were a few months ago. The export-control battle is unlikely to be the riot they feared.

By Stan Crock in Washington

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