managing conflict, building consensus: germany, the …

Washington, DC 15-16 June 1998

American Institute for Contemporary German Studies The Johns Hopkins University

MANAGING CONFLICT, BUILDING CONSENSUS: GERMANY, THE UNITED STATES AND THE PEOPLE’S REPUBLIC OF CHINA CHALLENGES FOR GERMAN AND AMERICAN FOREIGN POLICY

Conference Report

Conference Report

MANAGING CONFLICT, BUILDING CONSENSUS: GERMANY, THE UNITED

STATES AND THE PEOPLE’SREPUBLIC OF CHINA

CHALLENGES FOR GERMAN AND

AMERICAN FOREIGN POLICY

Washington, D.C.15-16 June 1998

American Institute forContemporary German Studies

The Johns Hopkins University

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The American Institute for Contemporary German Studies (AICGS) is a center foradvanced research, study, and discussion on the politics, culture, and society of theFederal Republic of Germany. Established in 1983 and affiliated with The JohnsHopkins University but governed by its own Board of Trustees, AICGS is a privatelyincorporated institute dedicated to independent, critical, and comprehensive analysisand assessment of current German issues. Its goals are to help develop a new generationof American scholars with a thorough understanding of contemporary Germany, deepenAmerican knowledge and understanding of current German developments, contributeto American policy analysis of problems relating to Germany, and promoteinterdisciplinary and comparative research on Germany.

Executive Director: Jackson JanesResearch Director: Carl LankowskiBoard of Trustees, Cochair: Steven MullerBoard of Trustees, Cochair: Harry J. Gray

The views expressed in this publication are those of the author(s) alone. They do notnecessarily reflect the views of the American Institute for Contemporary GermanStudies.

©1998 by the American Institute for Contemporary German StudiesISBN 0-941441-36-9

This AICGS Conference Report paper is made possible through grants from the GermanProgram for Transatlantic Relations. Additional copies are available at $5.00 each tocover postage and processing from the American Institute for Contemporary GermanStudies, Suite 420, 1400 16th Street, NW, Washington, D.C. 20036-2217. Telephone202/332-9312, Fax 202/265-9531, E-mail: [email protected], Web: http://www.jhu.edu/~aicgsdoc/

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C O N T E N T S

Foreword................................................................................................v

About the Authors.................................................................................ix

GERMANY’S CHINA POLICIES: THE POLITICAL ANDSECURITY DIMENSION

Kay Möller.......................................................................................1

GERMANY’S APPROACH TO CHINA’S RISINGINTERNATIONAL COMPETITIVENESS:THE CASE OF CHINA’S ADMISSION TO THEWORLD TRADE ORGANIZATION

Margot Schüller.............................................................................16

U.S. TECHNOLOGY TRANSFER TO CHINA—POLICY AND CHALLENGES

Martha Caldwell Harris.................................................................32

ENHANCING U.S.-CHINA MILITARY RELATIONSDavid Shambaugh..........................................................................48

CONFERENCE AGENDA...............................................................63

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F O R E W O R D

Continuing in its program series German and American Interests:Priorities and Policies, AICGS sponsored a conference on June 15/16entitled “Managing Conflict, Building Consensus: Germany, the U.S.and the People’s Republic of China.” The conference took place oneweek before President Clinton’s first state visit to China and focused onthe increasing significance of the People’s Republic of China both withinAsia and on the global stage. At the same time it examined the policieswhich Germany and the U.S. are using to engage this new China.

From almost any perspective, China’s significance for the U.S. andGermany is increasing in direct proportion to its political and militaryrole in Asia, its economic potential on the world market and its weightwithin the web of international organizations. China is already one of thefive largest economies in the world with exponential growth rates duringthe past ten years and is now one of the world’s top ten exporters. In thelast two decades, China’s foreign trade has increased more than ten-foldfrom $36 billion dollars to over $300 billion. Its sheer size in populationis a powerful magnet for potential foreign investment opportunities.

China has nuclear power capabilities and the ability to export them.It is also capable of flexing its military muscles as was recently illustratedin the waters around Taiwan. This particular dimension makes the role ofthe U.S. in Asia an important consideration for U.S. foreign policy.

When measured across the range of international concerns, be theystrengthening the chances for peace in the Kashmiri, financial stability ineast Asia, efforts to achieve global environmental stability, or controllingthe spread of weapons of mass destruction, China is of enormousimportance to the U.S. and to Germany.

In light of these considerations, the agenda of the conference wasshaped around four major concerns:

* the political and security dimensions of relations with thePeople’s Republic of China and the importance of achieving amaximum amount of transparency in the dialogue with Chinaover what constitutes vital security interests;

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* the issues of China’s membership in the World TradeOrganization (WTO) and the challenge of integrating China intothe WTO regime while preserving its functions;

* the problem of technology transfer and dual use controls inmanaging trade relations with China; and

* human rights and the struggle to define and apply standardswhich determine relations with China.

This conference report contains four papers resulting from theconference. David Shambaugh, professor of political science andinternational affairs and director of the China Policy Program in theElliott School of International Affairs at the George WashingtonUniversity, examines the status of bilateral discussions between theUnited States and the Chinese military as one important dimension ofstrengthening regional security in Asia. Kay Möller, research fellow atthe Foundation for Science and Politics (SWP), Ebenhausen, assesses thedevelopment of German foreign policy toward China and the challengeswhich lie ahead for both Germany and the European Union. MargotSchüller, senior researcher at the Federal Institute of Asian Affairs inHamburg, offers an analysis of the transformation of Chinese economicpolicy as it nurtures its bid to become a member of the WTO and theGerman and EU interests and responses involved in this process. MarthaCaldwell Harris, a visiting scholar at the Atlantic Council of the UnitedStates and former deputy assistant secretary of the Bureau of Political-Military Affairs at the Department of State, examines the thornychallenge of establishing parameters for technology transfer policies asa critical element of U.S.-Chinese relations.

The conference included additional presentations by KlausRupprecht of the German Foreign Office and Lotte Leitch of HumanRights Watch, Brussels, both of whom addressed the issues surroundingthe problems of human rights violations in China and the need for U.S.and European policies to respond. Rupprecht emphasized German policyefforts to help China develop a stronger legal system while Leitch arguedthat both EU and U.S. policies often gravitate to the lowest common

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denominator when dealing with human rights in China. She emphasizedthat the need is for policies to make it harder for companies andgovernment to find an “easy out” when it comes to confronting humanright issues.

Speaking from the perspective of major corporate partners in China,Norbert Graeber of Daimler-Benz AG, Beijing described theexperiences Daimler-Benz has had in China in recent years. He cited theproblems of coping with quotas and license controls as well as technicalstandards as barriers to market entry in China. Lisa Barry of the BoeingCompany suggested that doing successful business in China is directlylinked to strong relations with the Chinese government but also to thepolitical climate between China and the U.S. Both noted that the lack ofopenness in the Chinese financial and banking system makes its difficultfor foreign firms to operate effectively. However, the potential forbusiness in the telecommunications transportation and informationsector is so large that such firms must take a long-term position whendealing with the People’s Republic of China.

AICGS wishes to thank the Program for Transatlantic Relations, theGerman Marshall Fund of the U.S. and Lufthansa German Airlines fortheir support of this conference. Special thanks goes to DavidShambaugh for his help in organizing this program.

Jackson JanesExecutive Director November 1998

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A B O U T T H E A U T H O R S

Martha Caldwell Harris is visiting scholar at the Atlantic Council ofthe United States and has extensive experience in the field of East AsianStudies. She was senior vice president of The Asia Foundation, deputyassistant secretary of the Bureau of Political-Military Affairs at theDepartment of State, and director of the Office of Japan Affairs at theNational Research Council. She is author of numerous publications ontrade and technology issues.

Dr. Kay Möller, research fellow specializing in issues of WesternPacific Security at the Stiftung Wissenschaft und Politik, Mannheim, hasbeen teaching Western Pacific international relations at MunichUniversity since 1992 and joined the United Nations TransitionalAuthority in Cambodia as an elections officer in 1993. He has publishedwidely in and outside Germany.

Dr. Margot Schüller is an economist and works as a senior researcher atthe Federal Institute of Asian Affairs in Hamburg. Her recent worksinclude articles on the Chinese financial system and on the prospects forthe economic relationship between China and Europe. She has co-editeda book on China’s integration into the world economy. Besides lecturingon East Asian Economies at the business school Bremen, ChineseStudies, and at the University of Hamburg, she has worked as aconsultant for German political foundations and developmentorganizations.

Professor David Shambaugh is professor of political science andinternational affairs, director of the China Policy Program in the ElliottSchool of International Affairs at the George Washington University andnonresident senior fellow in the Foreign Policy Studies Program at theBrookings Institution. He is a widely published author of numerousbooks, articles, book chapters, and newspaper editorials.

GERMANY’S CHINA POLICIES: THE POLITICAL ANDSECURITY DIMENSION1

Kay Möller

Emerging powers, especially those of the irredentist variety, disturbglobal or regional power balances. This process has often involved use offorce, as established powers are reluctant to retreat graciously. In moderntimes, responses to systemic challenges have mostly consisted ofcoalition-building and attempts at containment. Whenever people weretired of war, however, or when there was doubt as to the relative gains ofcontainment, or when it was just not clear how far the challenger wouldbe ready to go, the appeasement school of international relations has hadthe upper hand. There have also been instances of selective containment,i.e., concessions were being offered on one front and demanded onanother. European experiences made during the 19th and 20th centuriesseem to suggest that the latter strategy has the greatest potential forminimizing the use of force, but then many other variables would have tobe considered before passing a final verdict.

Since the mid-1990s, politicians East and West have frequentlyreferred to “globalization” when trying to convince their constituenciesof the necessity of radical structural change involving sacrifices to bemade by workers and employees. “Globalization,” as they see it, hasinvolved spectacular increases in international capital flows since theend of the Cold War, threatening traditional industries in the West andJapan, and making emerging economies even more dependent on thevagaries of global financial markets. In such an environment, thePeople’s Republic of China (PRC), which, after the “end of history,” hadstarted looking somewhat anachronistic, is not just seen as the world’slast economic frontier, but as a long-term test case for the evolutionarypowers of capitalism. For the sake of peaceful evolution, the reasoninggoes, there should be no unnecessary distraction from the economicagenda, with “differences in forms and understanding of human rights,”claims on Taiwan and Tibet, and “natural” ambitions to play a moreimportant global and regional role to be respected. This approach hasbeen unwittingly rationalized by a new school of international relationswhose protagonists, also since the end of the Cold War, have been

Managing Conflict, Building Consensus

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claiming that “. . . there is no reason for it (alter) to assume a priori—before the gesture—that ego is threatening, since it is only through aprocess of signaling and interpreting that the costs and probabilities ofbeing wrong can be determined. Social threats are constructed, notnatural.”2

To be sure, the “globalization” argument looks somewhat shaky initself, and contradictions quoted above do not make it more palpable.“Globalization,” for one thing, is no 1990s phenomenon. It “peaked inthe late nineteenth century, reached its nadir in the early 1940s, and hassince rebounded to levels comparable to earlier highs.”3 Spectacularincreases in global capital flows has been witnessed since the breakdownof the Bretton-Woods System of fixed exchange rates in 1971, with theend of international communism playing next to no role at all.4 The lion’sshare of the wealth of industrialized countries is still being generated andconsumed domestically.5 There has undoubtedly been technologicalprogress, but high speed communication, to take but one example, can beboth conducive and subversive to Manchester capitalism. One maysuspect that radical structural change was a non-starter during the 1970sand 1980s, because popular support was required to fight the Cold War.Therefore, present policies, East and West, could be construed asdenying workers and employees the well-deserved “end of history” byonce again supplementing elitism, consumerism and state sovereigntyfor more democracy, more social justice and a polite internationalsociety. And whereas a decrease in social justice is more of a novelty tothe European worker and the democracy-deficit remains more of an EastAsian problem, basic subcurrents would appear to be the same.6 Whilethis suits Chinese ruling elites as much as it suits their Westerncounterparts, consumerism is of course no viable substitute for socialjustice, Indonesia recently taught us something about the merits ofelitism, and the sovereign principle of 17th century vintage can only besold to the broader masses in the guise of nationalism,7 which in turnthreatens the very foundations of “globalization.”

This paper proposes to examine Germany’s China policies (andChina’s responses) under two of the three aspects mentioned above,namely, democracy (approaches to the PRC regime and people) andpolite international society (the bilateral discourse on world and regional

Germany, the United States and the People’s Republic of China

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order), social justice falling more or less out of the scope of bilateraldiplomacy. In so doing, it focuses on more sensitive political and securityissues related to human rights, Hong Kong, Taiwan and Tibet, trade,Chinese arms exports, and Pacific security.

DEMOCRACY

In January 1994, the Federal Foreign Office published “Guidelinesfor German Policy vis-à-vis Asia” which contained the followingparagraph on relations with China:

Our cooperation with China must not be solely orientated alongcommon economic interests. It is just as important to makeknown our concepts of rule of law and a responsible attitude inprotecting the environment and peace [in the framework of] ourpolitical dialogue with China. Our policy vis-à-vis China is noobstacle to the further development of existent intensiveeconomic and cultural relations with Taiwan. In [the frameworkof] our policy vis-à-vis China, we bear in mind the increasingcohesiveness of the Greater China economic era, constituted bythe People’s Republic of China, Taiwan and Hong Kong.8

This kind of rhetoric must have rung hollow in American ears. While theClinton administration, in 1993, was bravely struggling to maintain itsself-imposed human-rights-MFN nexus, the Federal Republic ofGermany (FRG) had already decided otherwise, not least, one is led tobelieve, with a view to economically benefit from Clinton’spredicament. In January 1993, the federal government vetoed the sale often submarines and ten frigates to Taiwan. In March of that year, Chinaordered European passenger aircraft worth US$ 1.2 billion, announcedimports from eastern Germany in the range of US$ 150 million andpromised preferential consideration of German bids for 300 majorinvestment projects totaling US$ 30 billion. In November, ChancellorHelmut Kohl visited Beijing accompanied by forty representatives ofGerman business, who, according to Chinese Prime Minister Li Peng,signed contracts totaling US$ 2.8 billion, one of which provided for the


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delivery of equipment worth about US$ 420 million for the constructionof an underground railway in Canton (a project from which Frenchbidders had been excluded following the Paris government’s consent tothe sale of frigates and fighter aircraft to Taiwan).9 The German side evenmentioned a value of contracts exceeding US$ 4.2 billion. As it turnedout later, many of the projects in question were still being negotiated andthe greater slice of the underground project was to be financed through agovernment grant at extremely advantageous conditions. Also in 1993,and following the imposition of an embargo on U.S. satellite sales toChina, the FRG concluded satellite deals with the PRC worth US$ 1.5billion.10

When two years later, Clinton had delinked MFN and human rightsbut had been drawn into a Taiwanese quagmire, PRC President JiangZemin’s visit to Germany produced investment contracts worth at leastUS$ 1.72 billion—Foreign Minister Qian Qichen mentioned US$ 3.1billion—including the manufacture of minivans and car engines.German car-maker Mercedes had beaten competition from Ford andChrysler for the minivan deal.11 An agreement was signed on the openingof consulates general in Munich and Canton (where France hadpreviously had to close down its own mission because of the Taiwandeal). During his November 1995 trip to China, Chancellor Kohl was thefirst Western statesman to visit a unit of the People’s Liberation Army(PLA), which six years before had cracked down on the PRC’sdemocracy movement. Since 1994, the FRG has been Beijing’s secondmost important source of ODA behind Japan.12

Since 1989, Helmut Kohl somewhat mistakenly believed that thePRC had had a positive influence on events leading to the fall of theBerlin Wall, and, out of gratitude, missed no opportunity to support theprinciple of Chinese unity when meeting Chinese counterparts. For allpractical purposes, Bonn simply ignored the March 1996 tensions in theTaiwan Straits. This did not mean a neglect of economic opportunities inthe island, however. Germany’s Taiwan trade, while only half as big asGermany’s China trade, has been much better balanced in recent years,13

and the federal government has stated its interest in “further developingexisting intensive relations” with Taipei,14 which may or may not haveincluded identification of backdoors for arms exports.15


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If democracy and the independence issue have not played any visiblerole in German approaches to Taiwan, then not least because of Taipei’sown reluctance to pressure its European partners over these topics. Thischanged to some extent with Taiwan’s 1993 initiative to rejoin the UN,but Germany could easily hide behind an EU position to abstain on thisquestion.

If at no time human rights and democracy considerations have visiblyinfluenced FRG thinking about Taiwan, they did play a more prominentrole in the domestic and international debate on Tibet. The first and so farlast western leader ever to do so, Kohl had personally insisted onincluding Lhasa in his official 1987 Chinese itinerary, provoking the ireof the Social Democrat and Green opposition. This anger increased as thefederal government continued to refuse to meet the Dalai Lama. Whentwo months after the chancellor’s visit, Chinese authorities once againrepressed Tibetan protest by force, the Bonn government still spoke of“laudable” progress in Beijing’s policy vis-à-vis the “autonomousregion.”16 By 1996, the whole affair had escalated into the most seriousbilateral crisis since Tiananmen and, arguably, since the establishment ofdiplomatic relations in 1972. At that time, the Friedrich-Naumann-Stiftung, a political foundation close to Kohl’s Liberal coalition partner,had provoked Beijing’s ire by organizing an international conference onTibet in Bonn, and the federal parliament had poured oil in the flames bypassing a resolution on Tibet that mentioned the Dalai Lama’sgovernment in exile. The foundation subsequently had to close itsBeijing office, with China suspending the exchange of high-rankingvisitors and threatening economic consequences. The standoff wasresolved in September 1996, when German Foreign Minister KlausKinkel and his Chinese counterpart Qian Qichen, meeting on the fringeof the 51st UN General Assembly, agreed to henceforth found therelationship on mutual respect, the search for common ground, non-interference, equality, and mutual benefit. Kinkel reaffirmed the “oneChina principle,” German recognition of Chinese sovereignty overTibet, and acceptance of the Tibetan problem as an internal affair ofChina.17 The following year, relations had normalized to the extent thatKinkel and Qian, in a joint newspaper article, suggested that “differences


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and diverging views” form a “normal basis” for an exchange designed tocreate “conditions to learn from each other.”18

On July 1, 1997, admonitions from his British counterpartnotwithstanding, Kinkel joined other European colleagues for theswearing-in of Hong Kong’s provisional legislature, an unelected bodyappointed by Beijing with no legal foundations in the 1984 Sino-BritishJoint Declaration.

To be sure, the Kohl government since 1989 has been paying lip-service to human rights in China, stressing the evolutionary role playedby trade and investment while declaring respect for “differences in formsand understanding of human rights.”19 After a lot of haggling, releasedChinese dissident Wei Jingsheng was at last able to meet ForeignMinister Kinkel in April 1998. Kinkel later insisted to have talked to Weiin his capacity as a member of the Liberal party leadership, not as agovernment minister. Unimpressed by such subtleness, the PRCembassy said it regretted the encounter.20 President Clinton had met bothWei Jingsheng and the Dalai Lama.

In March 1997, Germany did not hesitate to join France in makingknown its disconcert with an annual joint western resolution criticizingChina’s human rights record before the UN’s Geneva-based HumanRights Committee. The decision eventually taken by France, Germany,Greece, Italy, and Spain (incidentally all countries where the Airbusconsortium is based) and later adopted by Britain’s new Laborgovernment, to henceforth abstain from this kind of “diplomaticsymbolism,” was criticized by the State Department’s spokesman ascowardly (which did not prevent Washington from joining the abstaineesthe following year).

As far as Germany was concerned, the way things went could havebeen anticipated much earlier, i.e., right in the aftermath of Tiananmen.By the autumn of 1989, pressured by German business, Bonn had votedagainst EC sanctions taking a binding character and had already startedpushing for their loosening.21

On the other hand, all this bending over to accommodate Beijing’sgerontocrats has produced little results in real terms. Economically, theFRG remains a distant number six in China trade with increasesdiminishing and the deficit growing.22 Germany ranked eighth among the


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sources of realized Foreign Direct Inventment (FDI) in 1996, and hadeven been overtaken by France and a United Kingdom that was thenapproaching what looked like a showdown over Hong Kong.23 And gainsappeared even more meager in political terms: Dialogues andconcessions at all levels notwithstanding, Chinese support for apermanent German seat on the UN Security Council has remainedtheoretical and, in striking contrast with China-U.S. relations, almostevery timid German attempt to free Chinese political prisoners has beenmet with contempt. Foreign Minister Kinkel’s already masochisticfeelings about negotiations in Beijing must have been furtherexacerbated by Kohl himself taking charge of the more “strategic”aspects of China policies. As could be expected, the gesture was verymuch appreciated by the Chinese side.

POLITE INTERNATIONAL SOCIETY

Not to be outdone by its diplomatic counterparts in Bonn andWashington, the federal Ministry of Defense, in its 1994 White Book,alleged a “special interest” taken by Germany as an “economic power” inthe “development of democracy and market economies, regionalstability and the maintenance of peace” in all of Asia.24 This kind ofgerrymandering might have raised an eyebrow or two in Washington:Not only had the federal government adopted a noncommittal stanceduring the 1996 Taiwan Straits crisis, it had actually tried to reapeconomic benefit from tensions building up between China and the U.S.during 1995. By the same token, not only had the FRG abstained fromcriticizing Beijing’s exports of missile and nuclear technologies, it hadbenefitted from subsequent U.S. embargoes in at least one instance.Since the early 1990s, German industry had been lobbying thegovernment for a relaxation of restrictions on arms and dual use exports(i.e., the remaining remnants of post-Tiananmen sanctions imposed bythe EU in June 1989), and Daimler-Benz had actually entered into a jointventure with the PLA on the production of trucks.25 In 1997, Germany,France, Italy, and Spain initiated (yet inconclusive) deliberations onwhen and how to lift the respective embargo. The Clinton administrationhas come under similar pressure from its own military-industrial


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complex, and any decision taken in Brussels would have a significantimpact on U.S. policies.

On the world order front, Beijing has been waving the flag of multi-polarism ever since the demise of the Soviet Union. This leitmotif hasbeen readily adopted by European governments, Federal PresidentRoman Herzog beating Jacques Chirac by six months.26 This may haveappeared as a cheap concession to many a European leader, but theFrench introduced an anti-Atlanticist tinge to the issue,27 and not onlyfrom Paris’ point of view, the 1996 launching of Asia-Europe Meetings(ASEM) of heads of state and government was meant to commit the U.S.to “honest multilateralism.”28 And, to be sure, the Chinese side wasdeadly serious about its own commitment to multipolarity: when worldcommunism was crumbling and Pax Americana loomed large between1989 and 1991, Beijing had hoped that the European Community (EC)could be used as a balancer of U.S. ambitions in a multipolar setting.Following Tiananmen, the first hints of European “pragmatism” hadappeared to justify such expectations. Therefore, developments such asGerman unification, with its potential risks for European unity, wereinitially viewed with scepticism.29 This approach subsequently changedto the extent that China saw itself prevented by Washington fromrealizing its national aspirations, while at the same time witnessing an ECwhich was waving the moral banner at the Community level, while at thenational level practicing the very hard-nosed realism that Beijing itselfwas so familiar with. Furthermore, China had registered post-Maastrichtirritations as early as 1993. And when the EC demonstrated a lack ofunity during the initial phase of the conflict in former Yugoslavia, itsmore important components, from a Chinese viewpoint, had to appear asmore promising partners on the road towards multipolarity than didMaastricht Europe itself.30 The FRG responded to these expectations bywhat it believed to be “symbolic” concessions (acceptance ofmultipolarity at least as a future guiding principle of internationalrelations, the Kinkel-Qian declaration of September 1996) and grantingof “face” by involving China in high level talks on international issuessuch as the stability of the Commonwealth of Independent States, Korea,Cambodia, and nuclear proliferation.31 Both approaches would appearquestionable to the extent that Beijing is known to interpret agreed


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principles as it suits and that, from a Chinese point of view, symbolism isalmost as good as the real thing, i.e., in this case, a strategic partnership.32

While there is further risk of misunderstanding because of a PRCpropensity to disregard the normative side of foreign policies, it has to besaid that German diplomacy has not contributed much to dispel this kindof misperception.

THE GLOBALIZATION TRAP

For fairness’ sake, two additional points merit consideration: (1)What, if the peaceful evolution school of thought was right and sectoralcontainment would do more harm than good, and (2) what would sectoralcontainment of China look like?

Peaceful evolution supposes that Beijing can by and large solve itssocioeconomic problems without resorting to force and that, in theprocess, the PRC will respect its global interdependencies and, byimplication, respect the principle of peaceful conflict solution. Bothpremises are questionable. Whereas China for the time being appears tobe shielded from developments witnessed in the context of East Asia’seconomic crisis, there will be negative effects, and a non-convertiblecurrency cannot be maintained for all times. Problems related to thedissolution of state enterprises could turn out to be insurmountable. EvenDavid Lampton, in an otherwise upbeat article, concedes that “Therestructuring of state enterprises and the bankruptcy of many otherscould put millions more workers onto the streets, just as growth slows.Can China meet these challenges and avoid serious political dislocation?Nobody can be sure.”33 Hong Kong, Macao, Mischief Reef, the TaiwanStraits, and forages into Burma, albeit on a small scale thus far, do notsustain the image of the PRC as a status quo power. Perceptionwise,Beijing may believe to be restoring rather than challenging, but ifinternational politics were to be managed on this kind of premises,Germany might as well claim Alsace, much of Poland and Northern Italy.Lampton also admits that, as far as Taiwan is concerned, “How Beijingwould actually react to the DPP’s (i.e., the pro-independenceoppositional Democratic Progressive Party; the author) assumption ofpower” and “How long will Beijing remain ‘patient,’ are all


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imponderables.”34 And even if one were entitled to adopt a cautiouslyoptimistic outlook, would that justify a disinterested, self-servingEuropean attitude, risking to undermine Washington’s posture at criticalmoments?

If consideration of vital national interests is defined as policiesdesigned to avert negative impacts on a country’s external and internalsecurity, the FRG has no such interest in the western Pacific. Neitherdoes it depend on the region for its resource security, nor would anymajor deterioration of regional stability have an immediate impact onGerman stability. This lack of concern, to be sure, is contradicted byofficial rhetoric. As the federal government understands “globalization,”returns from investment and trade (in this case, the hope for returns atsome unspecified point in the future), are being promoted to themselvesbecome part of a national interest which, in this definition, indeed knowsno boundaries whatsoever.

The contradiction in this approach becomes obvious whenexamining resulting policies: opening up of the Chinese political (andeconomic) system as a logical outcome of “globalization” is beingpostponed to a distant future so as not to undermine supposed economicopportunities on the Chinese market. Political opening up is not beingactively promoted, anyway. Instead of supporting Washington overhuman rights, arms proliferation etc., Germany and the EU have morethan once allowed themselves to be played by the PRC against the U.S.,thereby contributing to Washington’s 1993 change of mind on EastAsian policies. Through ASEM and other dialogues, they havereengaged in the very balancing policies which, if anything, are notconducive to the emergence of a new world order based on universallyaccepted norms. You simply cannot commit the U.S. to “honestinternationalism” together with partners who are themselves anythingbut “honestly internationalist.”

While it remains true that economic exchange will promote middleclasses and entrepreneurial classes in China, it also strengthens theregime’s belief to be able to carry on with its gamble of granting certaineconomic freedoms in exchange for political abstinence. Taken together,the two phenomena, while a recipe for change, are no guaranteewhatsoever for peaceful change. On the contrary, a mobile society and a


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stagnating political center, finding themselves equally confirmed byGerman and European policies, are bound to clash once again in theforeseeable future. German politicians, officials and independent observers,while frequently aware of this risk, tend to play it down as “peanuts” inan otherwise historical game of global dimensions. They will thereforetry to arrange themselves with new Tiananmens and new conflict in theTaiwan Straits. Furthermore and unsurprisingly, there has been aconvergence of views of China between coalition and opposition to theextent that their has been a convergence in interpretations of “global-ization.”

Fortunately, the “globalization” mantra echoed in China andGermany risks to become a self-fulfilling prophecy in the sense thatworkers and employees (not to forget farmers and the unemployed) inEast and West are likely to increasingly resent sacrifices demanded fromthem by self-serving elites and, thanks to global communications, maybetter understand the latters’ true intentions and, perhaps, even joinforces to prevent a worldwide comeback of unfettered Manchester-capitalism. Looking set to aggravate over coming years, East Asia’seconomic crisis will at last unveil the political dimension of thisrelationship. Suharto’s fall cannot but have repercussions on LeninistChina, which looks itself bound for social instability. Germany and theWest cannot but support the IMF and other international institutions inaddressing political requirements for restoring stability. Both East andWest will have to understand that democracy and social justice areprerequisites for stable capitalist economies and, by implication, for apolitical “globalization” that maximizes beneficial effects whileminimizing conflict within and among societies. If the West, during theCold War, had to grudgingly accept the likes of Chile, Turkey andPakistan into its fold, excuses for this kind of principle-bending shouldnot be readily available in the 21st century.

My argument is, of course, based on the assumption that globalwarming, the proliferation of weapons of mass destruction, thepopulation problem, fragmenting states etc. are all more important thanthe remaining Leninist giant of diminished global strategic importance,threatened by disorder at home and unable, as of yet, to project itsmilitary power far beyond its own coastal waters. It is secondly based on


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the assumption that the remaining superpower, by deriving at least part ofits foreign policy agenda from world order considerations, has an interestin promoting the cause of good global governance. The latter assumptioncannot be taken for granted, but the alternative, i.e., anarchical pursuit ofill-defined national interests through a misleading interpretation of“globalization,” simply looks too frightening to merit consideration.

What then would an alternative German China policy look like? Itshould, first of all, be firmly rooted in a European framework. Both theabsence of vital strategic interests and the East Asian economic crisisshould, in theory, be conducive to making the Western Pacific a test casefor a Common European Foreign and Security Policy. Coordinationattempts would focus on the Taiwan issue in general and arms exports toboth China and Taiwan in particular. Hong Kong, too, calls for a jointapproach, should the rule of law be further undermined and shouldcontradictions between civil society on the one hand and localadministration/central government on the other become acute. Theproliferation problem should be addressed jointly with Washington, notonly in abstract terms at the UN level, but with specific regard to the EastAsian region. Japan could be brought closer to NATO; regionaldemocratization and economic liberalization should be supported as amatter of principle and with regard to the economic crisis. Germany andEurope could go even further than Washington in offering support formultilateral regional regimes such as a Southeast Asian NuclearWeapons Free Zone or a CSCE-like structure for Northeast Asia. Lastly,and most importantly, neither the legitimate pursuit of German orEuropean economic interests nor efforts aimed at preserving traditionalbilateral links should prevent the West from jointly responding to newchallenges to civil societies or regional peace and from jointly preparingfor such contingencies.


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ENDNOTES

1. Paper presented at the conference on Germany-China relations, Washington D.C.,

American Institute for Contemporary German Studies, 15/16 June 1998.2. Alexander Wendt, “Anarchy Is What States Make of It: The Social Construction of

Power Politics,” International Organization, Vol. 46, No. 2, pp. 391-425 (404/05).3. Helen V. Milner, “International Political Economy: Beyond Hegemonic Stability,”

Foreign Policy, No. 110 (Spring 1998), pp. 112-123 (119).4. Stefan A. Schirm, Globale Märkte: Ursachen und Wirkungen auf Staaten,

Ebenhausen (Stiftung Wissenschaft und Politik, 1998).5. In 1993, for example, only 5.7 percent of capital generated in Germany was investedabroad (France: 9.1 percent, UK: 18.6 percent, U.S.: 3.7 percent). WorldCompetitiveness Report 1993 as quoted in Lutz Hoffmann, “Der Standort Deutschlandim Vergleich,” Erhard Kantzenbach/Otto G. Mayer (eds.), Deutschland imInternationalen Standortwettbewerb, Baden-Baden (HWWA, 1994/95), p. 59.6. International economic theory suggests, for example, that while inter-industry tradeamong advanced and developing countries can produce overall gains for both regions,workers within each country may well lose. Jeffrey Sachs, “International Economics:Unlocking the Mysteries of Globalization,” Foreign Policy, No. 110 (Spring 1998), pp.97-111 (106). “Pressure for the reduction—or even abandonment of—the welfare statein developed countries, and for the liberalization of the economy in developed ones, hasbeen seen as a byproduct of globalization . . . Globalization moves jobs around the worldand imposes constraints on wage increases as never before.” Milner, “InternationalPolitical Economy,” p. 120. Whereas industrial democracies have been trying to survivethe capitalist onslaught by pooling sovereignty in international institutions, ademocracy deficit has become increasingly obvious in the context of Europeanintegration. Karl Kaiser, “Globalisierung als Problem der Demokratie,” InternationalePolitik, Vol. 53, No. 4 (April 1998), pp. 3-11 (8/9/11).7. In recent German election campaigns, for example, representatives of major partieshave occasionally been tempted to play on populist anti-Maastricht themes. Theapparent inability of the European Union to decide on a Common Foreign and SecurityPolicy, not to mention UK and Danish reservations, are proof of the battle for survivalof traditional nation states. To be sure, this phenomenon is much more obvious in EastAsia, where integration processes remain underdeveloped and old-fashioned nationalistresponses appear much more likely.8. “Leitlinien zur deutschen Asienpolitik,” Bulletin, No. 9 (28 January 1994), pp. 69-71

(author’s translation).9. Kay Möller, “Germany and China: A Continental Temptation,” The China Quarterly,

No. 147 (September 1996), pp. 706-725 (713).10. The New York Times, 12 June 1996, p. 1.


14

11. By 1997, Daimler-Benz was reported to consider withdrawing from the projectbecause of quarrels with its Chinese joint venture partners. Alexandra Voss, “Stand derdeutsch-chinesischen Wirtschaftsbeziehungen Mitte der neunziger Jahre,” Chinaaktuell, Vol. 26, No. 7 (July 1997), pp. 672-684 (678).12. Between 1980 and March 1997, German ODA totaled DM 5.234 billion. During the1990s, almost one quarter of total German ODA has consisted of soft loans awarded toassist German business participation in telecommunication and public transportprojects. Ibid., pp. 682/83.13. In 1996, the FRG imported Taiwanese goods worth DM 8,143.7 million and exportedgoods to Taiwan worth DM 6,705.9 million. Respective numbers for Germany’s PRCtrade were DM 17,609.0 million and 10,889.0 million (Hong Kong: DM 3,485.1 millionand DM 6.383,4 million). Wirtschaftshandbuch Asien-Pazifik 1997/98, Hamburg(Ostasiatischer Verein, 1997).14. Süddeutsche Zeitung, March 31, 1993, p. 2.15. A government veto notwithstanding, German shipbuilders, in a deal involvingmassive bribes, had delivered four minesweepers to Taiwan in 1992. The followingyear, the German press reported exports of Patriot and RAM air defense systems toTaiwan, key parts of which are manufactured by German industry. In July 1995, Bonnexempted Taiwan from its list of “areas of tension,” arms exports to which requireofficial sanctioning. Since 1993, German shipyards have been exploring channels forthe delivery of submarines via third countries such as the U.S., Indonesia, and SouthKorea. In November 1993, the FRG’s foreign intelligence service was reported to haveprovided its Taiwanese counterpart with computer technology for monitoring mainlandtelecommunications worth several hundred thousand DM. Möller, “Germany andChina,” pp. 720-723.16. Frankfurter Allgemeine Zeitung, October 9, 1987, p. 2.17. Kay Möller, “The West and China: Crusaders and Cynics,” Contemporary Southeast

Asia, Vol. 19, No. 3, December 1997, pp. 351-368 (357/358).18. Frankfurter Allgemeine Zeitung, October 13, 1997, p. 16 (author’s translation).19. Federal Chancellor Helmut Kohl as quoted in International Herald Tribune, July 14,

1995, p. 11.20. Süddeutsche Zeitung, April 3, 1998, p. 6.21. Möller, “Germany and China,” p. 718.22. In 1997, Germany-PRC trade reached a volume of DM 30.9 billion, and the Germanside registered a deficit of DM 10.1 billion. Neue Zürcher Zeitung, 29 April 1998, p. 10.The previous year, the PRC with a share of 1.4 per cent ranked 17th among destinationsof German exports and at 2.4 per cent ranked eleventh among sources of Germanimports. Voss, “Stand der deutsch-chinesischen Wirtschaftsbeziehungen,” p. 673.


15

23. Wirtschaftshandbuch Asien-Pazifik 1997-98, pp. 138/139. The FRG’s share inrealized FDI stood at 1.2 per cent in 1996. Voss, “Stand der deutsch-chinesischenWirtschaftsbeziehungen,” p. 676.24. Weißbuch 1994 (Bonn, Federal Ministry of Defense, April 1994) p. 38 (author’s

translation).25. Neue Zürcher Zeitung, November 13, 1995, p. 4.26. Visiting Beijing in November 1996, Herzog mentioned an emerging multipolarworld, in which China would play “an immensely important role” during the nextcentury. Frankfurter Allgemeine Zeitung, November 21, 1996, p. 10. According todiplomatic sources, Federal Foreign Minister Hans-Dietrich Genscher had alreadydiscussed multipolarity with his Chinese hosts during the 1980s.27. Visiting China in May 1997, President Jacques Chirac spoke of China and the EU as“most important poles in the multipolar world that will have emerged twenty to thirtyyears from now.” The joint Sino-French declaration of May 16, 1997 mentioned a“long-term comprehensive partnership” designed to assist in the creation of a “new,multipolar, reasonable, and equitable political-economic world order” and to jointlyfend off attempts at a “domination of international affairs.” Le Figaro, May 16, 1997, p.4 and Neue Zürcher Zeitung, May 17, 1997, p. 3 (author’s translation).28. Gerald Segal, “Thinking Strategically about ASEM: The Subsidiarity Question,”Europe-Asie: Renforcer le dialogue informel (Paris: Institut Français des RelationsInternationales, 1997), pp. 115-27. Initially, the creation of ASEM, on the Europeanside, was meant as a retaliation for the U.S./Australian veto against an EU associationwith APEC.29. Following the establishment of German monetary union in July 1990, Beijing mediahighlighted the economic and social disadvantages incurred by East Germany. Uponreunification, the official Chinese news agency identified a new “superpower,”competing with Moscow and Washington for pre-eminence in Europe. Xinhua NewsAgency, October 1, 1990, as quoted in BBC Summary of World Broadcasts, FE/0844/A1/1 of October 2, 1990. In 1992, the official People’s Daily speculated on Bonn’salleged attempts to dominate the EC and fill the East European power vacuum. “Jinrenchumude Deguo duiwai guanxi” (“Germany’s Foreign Relations under the Scrutiny ofToday’s People”), Renmin Ribao, February 28, 1992, p. 6.30. Su Huimin, “‘Ouzhoude Deguo’ haishi ‘Deguode Ouzhou’” (“‘European Germany’

or ‘German Europe’”), Guoji wenti yanjiu, No. 1 (1993), pp. 20-22.31. Möller, “Germany and China,” p. 719.32. Alfred D. Wilhelm Jr., The Chinese at the Negotiating Table, Style and

Characteristics, Washington, D.C. (National Defense University Press, 1997).33. David M. Lampton, “China: Think Again,” Foreign Policy, No. 110 (Spring 1998),

pp. 13-27 (19).34. Ibid., p. 18.


16

GERMANY’S APPROACH TO CHINA’S RISINGINTERNATIONAL COMPETITIVENESS: THE CASE OF

CHINA’S ADMISSION TO THE WORLD TRADEORGANIZATION

Margot Schüller

China’s rapid economic growth and the rising affluence of a largepart of its population have attracted German businesses eager to seize theopportunities the emerging market presents. To facilitate the upgradingof industries and infrastructure facilities, German companies haveoffered high-tech machinery and equipment. More recently, they havediscovered the Chinese consumer market as well. To evade market-entrybarriers set by Chinese industrial policy and to get closer to the Chinesemarket, German companies have gradually increased their level of directinvestment. Recent large-scale investment projects undertaken byGerman companies indicate the commitment to a long-term engagementin China and the belief in China’s ever increasing economic importance.Cooperation between Germany and China has been supported by theGerman government through various programs and measures, not leastdue to China’s political significance in the Asian region.

Although China has become the tenth largest trading nation due to itsfast increase in international competitiveness, it can not solve its bilateralconflicts over trade issues within the legal framework of a multilateraltrading system because the country is not yet a member of the WorldTrade Organization (WTO). For China as well as for its trading partners,the question of whether and under which conditions admission to theWTO will take place is of crucial importance. Given Germany’seconomic interest in China, the latter’s membership in the WTO isstrongly advocated, although not on any terms. Before analyzingGermany’s approach to China’s admission to the WTO, we will brieflylook at the factors influencing German policy-making with regard toChina. Then, we will question whether and to what extent a genuineGerman approach to China’s admission to the WTO exists, consideringthe integration of Germany in the common policy regime of the EuropeanUnion. Finally, we shall compare the European approach to China’saccession with the one currently adopted by the U.S.


17

FACTORS INFLUENCING GERMAN POLICYMAKINGTOWARD CHINA

Of the factors influencing economic policymaking toward China,three are of particular importance: firstly, China’s economic andpolitical significance for Germany, as this defines the extent to whichpressure groups and the government are interested in pursuing an activepolicy; secondly, Germany’s importance for China with regard to marketsize and its role as a supplier of foreign capital and technology. Themarket size defines the degree to which pressure can be applied from theGerman side to bring about changes in China. And thirdly, the design ofGerman foreign economic policy toward China, given the fact that thepolicymaking of member states within the EU is restricted by thecommon policy toward third countries.

China’s Economic Importance for Germany and Vice VersaAlthough bilateral economic relations have strengthened in recent

years, especially since 1993, China’s importance for the Germaneconomy has remained rather limited as far as total German trade andcapital transfer are concerned. In 1997, for example, China accounted foronly 1.2 percent of total German exports (or 1.9 percent if Hong Kong isincluded).1 In the 1990s, China’s importance with regard to its share inGermany’s total exports and exports to Asia did not increase, but in factdeclined. Looking at the slow growth of German exports to China overthe last years, it is obvious that German companies have had someproblems tapping the Chinese market. This holds true as well for majorexport products such as machinery, transport equipment and electronicproducts, which accounted for around 70 percent of German exports. Incontrast, imports from China have increased at a much higher rate,leading to a rise in Germany’s trade deficit with China, which has morethan doubled within the last five years.2


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Table 1: Bilateral Trade Development Between Germany and China (DM/bn)

Year Total %-change Import %-change Export %-change Balance

1993 23.407 34.6 13.809 18.5 9.598 67.1 -4.211

1994 25.697 9.8 15.400 11.5 10.297 7.3 -5.103

1995 26.596 3.5 15.917 3.4 10.679 3.7 -5.238

1996 28.806 8.3 17.917 12.6 10.889 2.0 -7.028

1997 32.065 11.3 21.436 19.6 10.629 -2,4 -10.807

Source: Statistisches Bundesamt (1996); Statistisches Jahrbuch für die Bundesrepublik Deutschland,

Wiesbanden, p. 299; Ostasiatischer Verein (1998), Ostasien Telegramm, May, 1998.

Although growing, China’s importance for German companies interms of total capital transfer to foreign countries is also rather negligible.The accumulated share of direct investment to China in Germany’s totaldirect investment increased from 0.2 percent in 1993 to 0.7 percent in1996.3 Nevertheless, some large German companies such as VW,Siemens and BASF have heavily invested in China out of strategicconsiderations, viewing China as the key to the Asia Pacific region.

Since 1993, the volume of German-Chinese trade has more thandoubled. Germany’s importance as a trading partner for China, however,has diminished.4 The reasons for this development are manifold. Amongothers, the growth in total Chinese trade has been larger than growth ratesin bilateral trade with Germany. Additionally, Germany’s competitivenesswith regard to prices of its major export products has declined to someextent. Germany’s significance for China, though, cannot only be seen inrelation to its 3.6 percent share in China’s total exports, but its strongeconomic position and political influence within the European Unionmust also be considered. Germany is by far the largest market within theEuropean Union, accounting for 29 percent of China’s trade with the EUin 1997. Within the EU, which represents the most important supplier oftechnology, Germany plays a crucial role in the transfer of know-how.5

According to Chinese statistical figures on foreign capital inflow,German companies have increased their direct investment in China sincethe beginning of the 1990s, but nonetheless, their share in China’s totalforeign direct investment (FDI) has remained quite small. German direct


19

investment accounted for only 1 percent (US$ 1.7 bn) of total FDI in theperiod from 1978 to 1996 compared to the U.S.’ share of 8 percent (US$14.2 bn).6 If we assume that Chinese statistics on FDI are distortedbecause of capital recycled from China through Hong Kong by state-owned companies, among other factors, and if we look at the distributionof German direct investment in various branches of industry andcommerce, we might get a different idea of the importance of Germandirect investments for China. The composition of German directinvestment largely corresponds to the structure of its export products,with around 30 percent of the investment being made in the automobileindustry, 20 percent in the electronic product industry, 17 percent inmachinery and 11 percent in the chemical and pharmaceutical industry.7

These are the sectors chosen by the Chinese government as being themost important for economic development.

Influence of the Common EU Policy on German PolicymakingToward China

Although Germany’s economy is the largest in Europe and Germanhigh technology and engineering are the basis for its continuous exportsuccess, German companies mainly focus on western markets for tradeand investment. While large companies have invested in China on thebasis of their complex global production strategies, medium-sized oneshave been reluctant to do so.8 These companies, however, constitute aconsiderable proportion of Germany’s industry. If they were to invest inChina as well, they would need special help and assistance. The supportof exports and foreign direct investments is an instrument which can beused by any individual member state of the European Union within thescope of its foreign trade policy. Given the decentralized structure of theGerman administrative system, export and investment promotionprograms are pursued by federal and local government organizations tofoster economic relations with China. These activities are supplementedby national federations of industry and trade and by German chambers ofindustry and commerce which have recently extended their network inChina. To support German companies’ entry into the Chinese market,high level government representatives, including federal ministers and


20

even Chancellor Helmut Kohl, have led delegations to China to act as“door openers.”

In contrast, the import policy of EU member states toward thirdcountries is completely designed and controlled by the EuropeanCommission. Therefore, an important proportion of German economicpolicymaking toward China is restricted by the common policy of the EUand has to be channeled through the EU Commission and harmonizedwith the policy of other EU member states. Furthermore, the EuropeanCommission is solely authorized to conduct negotiations to represent thecommon interest of the EU member states toward third countries andinternational organizations. Although the European Union—as well asits individual member states—has signed the WTO agreement, it is theCommission that represents the European Union as sole negotiator andexecutive organ vis-à-vis the WTO. With regard to China’s accession,EU member states have to cooperate and coordinate their points of viewas they have to decide unanimously on the issue.9 Germany’s approachtoward trade issues with China and the country’s admission to the WTOtherefore has to be examined within the framework of the EuropeanUnion’s foreign economic policy toward China.

EU TRADE POLICY TOWARD CHINA

The common trade policy of the EU with regard to China is based onsome principles which are distinctive from those applied in bilateraltrade relations by the U.S. toward China. Since the first trade agreementbetween the EU and China was made in 1978, China has enjoyed most-favored nation (MFN) treatment. The MFN status conferred on China,however, was more restrictive than the MFN clause of the GATT, notgiving China the same advantages, favors or privileges the EU granted toother trading partners. The restriction on the MFN reflected theclassification of China as a non-market economy in which trade washeavily controlled by the state.10 To protect the EU market from anysudden influx of goods, a safeguard clause was introduced in the firsttrade agreement, requiring consultations by both sides before the EUcould apply protective measures such as quantitative restrictions or anti-dumping measures.11 In contrast to the situation in the U.S., China’s


21

MFN status regarding trade with the EU was not based on annualreviews, nor has the EU tried to attach any conditions to the MFN status.Another characteristic of the EU trade policy toward China is theapplication of the EU’s system of general tariff preferences (GSP) fordeveloping countries. Although Article 2 of the 1979 U.S.-China tradeagreement recognizes China’s status as a developing country, GSP hasnot been granted to China by the U.S.12

As the EU consists of member states with distinctive levels ofeconomic development and diverging economic structures, differentinterests of EU member states in economic relations with China did existand were observable, especially before the completion of the EU InternalMarket. China’s growing competitiveness has challenged EU industriesin different ways and provoked different reactions as far as protectivemeasures are concerned. The split in their stance on China was obviousat the beginning of 1993, when a common import regime for the singleEU market was still in preparation, leaving an undefined policy scope tothe EU member states. While Germany and the U.K. liberalized theirimport policy toward China almost completely, France and otherMediterranean countries opposed this policy, claiming it was notconsistent with a common trade policy.13 These countries put pressure onthe EU Commission to retain quantitative restrictions on certain importsfrom China. This is why protective barriers for seven import categoriesde facto increased in 1994, even though the 6,000-odd national quotas inthe trade with China were abolished.14 The need for protection ofdomestic industries vis-à-vis China’s growing competitiveness on theEuropean market is also revealed by the growing number of anti-dumping cases.15

EU Policy toward China’s Admission to the WTOEven when taking the diverging, and sometimes competing, business

interests of EU member states toward China into account, it seemsdifficult now to detect large differences in their stance toward China’sadmission to the WTO. EU member states with industries that have comeunder great pressure by imports from China tend to lobby theCommission more strongly for safeguard measures to protect theirmarkets than others. All member states, however, would lobby for the


22

abolition of state trading in China, which leads to a distortion of prices infavor of Chinese products, undercutting EU producer prices to a largeextent. While all member states want to see China become a contractingparty with the WTO, access to the Chinese market is equally important tothem. There are diverging interests among European industries whichhave invested in key sectors in China such as the automobile or chemicalindustry. Even within a single European industry, a split in stanceregarding the terms of market access can be found, depending on whethercompanies want to export products or to invest in China. Volkswagen,the German car manufacturer, for example, seems to be less keen for lowtariffs on automobiles as this would mean greater foreign competition fortheir production plants in China, while the Federal Association ofGerman Industry, representing the interests of the entire industry, putspressure on the German government to enable them to voice theirdemands for better access to all Chinese markets.16

On the European level, various pressure groups are lobbying forgreater market access to China as a precondition for China’s accession tothe WTO. In its report “European Market Access Problems in China”published in March 1998, the Union of Industrial and Employers’Confederations of Europe (UNICE) requested that China should acceptall WTO disciplines according to a firm timetable bound to asimultaneous dismantling of remaining incompatible restrictions onChinese trade enforced by the WTO.17 Among the remaining tradebarriers related to international trade within the framework of the WTO,UNICE listed restricted trading rights with China practicing importlicensing, legal uncertainties due to lack of transparency in rules andregulations, high tariffs for certain sectors such as automobiles orchemicals, import and export quotas and licenses, a lack of application ofinternational standards, problems with the protection of intellectualproperty rights, discriminatory government procurement practice,heavily regulated trade and restrictions on FDI.18 Basing their data on thesurveys of concrete problems encountered by European companies,national and European-level trade and industry associations lobbied theEuropean Commission in the hope of gaining better terms of access to theChinese market.19


23

Requirements for China’s Accession to the WTOChina’s successful entry into the world market and expectations

about its growing importance to the European economy were acknow-ledged in the European Commission’s 1995 policy paper, “A Long-termPolicy for China-Europe Relations.”20 The Commission recommended aset of policies toward China that included a closer dialogue on economic,social and financial issues, with frequent meetings of economic and tradeworking groups, the support of China’s entry into the WTO, and theencouragement of FDI by European companies to facilitate access to theChinese market.21 The new strategy represents an attempt to dealconstructively with China within a framework of national and privateinitiatives by the European countries. It is also an attempt to redress theever increasing trade deficit with China and the EU’s lack of importanceas a source of foreign capital to China.22

With special reference to China’s accession to the WTO, a secondpolicy paper by the Commission published in March 1998 emphasizesthat the “. . . EU remains one of the keenest advocates of China’s earlyaccession to the WTO . . . ,”23 but not at the expense of letting Chinadistort the WTO as a rule-based system. Therefore, China is expected tomeet WTO principles such as transparency, national treatment and non-discrimination of European companies compared to other tradingpartners. The position of the EU toward China’s admission encompassesvarious additional requirements, which are listed in table 2.

Table 2: The EU’s Requirements for China’s Accession to the WTO and Likely EconomicImpact

EU’s requirementsfor Likely economic impact for Likely economic impact on China China’s accession the EU and other countries

Tariffs: average tariff 8%; Better export opportunities Stronger competition for removal of tariff peaks for the EU and other countries. domestic industries (around 15% and more)

Non-tariff Barriers (NTB): Better export opportunities Stronger competition for removing of all quotas and for the EU and other countries; domestic industries; other NTB less arbitrary discrimination and less rent seeking.

fewer rent expenses.

Removal of monopolies on Opportunity for the EUand Stronger competition for state foreign trade other countries to set up trading trading companies; increase in

companies; better operation efficiency and profit forof foreign subsidiaries. buyers and sellers.


24

Access to services: Increase of FDI from EU Stronger competition for including distribution, and other countries service sector; enhancement telecoms, financial services, in the service sector. of productivity, fostering professional services, of growth of tourism, travel, and medical knowledge-intensive industries. services

Access to the financial sector: Increase of FDI from EU Stronger competition for the financial including banking, securities and other countries sector; fostering of growth of and insurance in the financial sector. knowledge-intensive industries.

Removal of restrictions on Increase of FDI from EU Stronger competition for domestic foreign investment: and other countries, industries; fostering of growth including restriction on legal better transparency, in inland provinces. forms, geographic reduced rent expenses. restrictions, local content, export requirements

Elimination of WTO Better export opportunities Stronger competition for domestic -incompatible measures for the EU and other countries; industries; reduced rent seeking. for promoting key industries better transparency and fewer

rent expenses; increase in FDIfrom EU and other countries.

Implementation of the WTO Incentive for the EU and other Fostering of growth through TRIPS* agreement countries to produce and market production and marketing investments

high quality products. by high-tech companies.

Joining of the WTO Better export opportunities Stronger competition for domestic agreement on Government for EU and other countries. industries; stimulant for efficient Procurement production and lower government

expenditure.

*Trade-related Aspects of Intellectual Property

Source: von der Geest, Willem, “Bringing China into the Concert of Nations: An Analysis of its Accessionto the WTO,” paper prepared for the 14th Sino-European Conference Civilizations, National Powers andEconomics: Convergence or Clash?, co-organized by the Modern Asia Research Centre, Geneva, and theInstitute of International Relations, Taipei, 23-24 September 1997, Commission of the EuropeanCommunities, COM (1998); UNICE, 23.3.98.

The quest to lower the average tariff to 8 percent, which is abouttwice the OECD average, reflects the EU’s understanding of China as adeveloping country. The latest Chinese offer on tariff reduction at theChina Working Group session in April 1998 contained a reduction in theaverage tariff to 10.8 percent by the year 2005. The EU’s proposal toremove tariff “peaks” was meant to simplify tariff negotiations. Lookingat the actual tariff peaks of 80-100 percent for cars, for example, it seemsunlikely that an agreement will be reached in the near future. Tariffs on


25

goods have become a minor problem compared to the access to theservice sector, which the Chinese government is very reluctant to open.

A GERMAN POSITION TOWARDCHINA’S ACCESSION TO THE WTO?

Germany is regarded as one of the strongest and most vocaladvocates of China’s membership of the WTO, reflecting its largeeconomic interest in the country. As already mentioned, neitherGermany nor any other EU member state wishes China to become acontracting party with the WTO on any terms, but it advocates a strongmultilateral trading system with which global trade and investment canbe regulated and world markets kept open.24 Faced with tariff and non-tariff trade barriers to the Chinese market and restricted access to theservice sector, the German government and German companies have akeen interest in reciprocal market opening as a precondition for China’sadmission to the WTO, a general stance toward the accession of Chinawhich seem to predominate both within large companies active in Chinaand within the Federal Association of German Industry (BDI).25 Withregard to the protocol of accession, it requires China to meet a certainnumber of obligations, among others, the compliance with thefundamental criteria of the WTO (i.e., the “single undertaking”), thefulfillment of WTO discipline (consolidated custom duties, non-tariffbarriers) within a period of around five years, the abolition of monopoliescontrolling economic, stock exchange and financial information, theabandoning of all measures subsidizing imports and exports, and thecompliance of state-owned trading companies with WTO rules. Besidesthese general obligations, special rights for the European member stateson the one hand and for China on the other have been proposed. Theserights include the following: 1) benefits from temporary exceptions andtransitional periods where major differences of competitiveness andproductivity take place should be taken into account; and 2) recourseshould be made to trade instruments as well as to safeguard clauses whichcould be used with selectivity if and when needed. 26

The viewpoint of the German government toward China’s accessionto the WTO27 emphasizes market access to all sectors and the abolition of


26

non WTO-compatible restrictions inhibiting trade and investment withina reasonable transition period as well. Although China’s rapid admissionto the WTO is regarded as necessary, it is believed that the speed of theaccession should not be to the detriment of substance. Even in internalpolicy papers of the German government referring to China’s accession,the compatibility of the German stance with that of the EU is explicitlynamed. The adaptation of China’s industrial policy to WTO standardsseems of outstanding importance to German industry, notwithstandingthe interests of single companies such as VW regarding low tariffs. Mostobligations voiced by the German and European companies aspreconditions for market access can be found in the policy papers ofrelevant German government institutions, which have found their wayinto the unified EU position. In sum, there is no special German approachtoward China’s admission or any obvious difference regarding marketaccess vis-à-vis the approach of the European Commission, the solenegotiator on WTO issues.28

Finally, we turn to the question of whether and to what extentGermany/the EU and the U.S. follow different approaches with regard toChina’s accession to the WTO.

DIFFERENCES AND SIMILARITIES BETWEEN THEGERMAN/EUROPEAN APPROACH COMPARED TO THAT

OF THE U.S.

The EU’s approach to China’s accession has two maincharacteristics: firstly, the market access demanded by the EU takesChina’s economic development level and potential into consideration;and secondly, the EU is prepared to follow the Chinese approach ofgradual reform implementation by accepting “. . . clearly definedtransition periods for sectors, where China needs to phase in its WTOobligations beyond the date of accession.” The commission stated twoadditional aspects of the EU approach: the EU should encourage Chinato amend its domestic laws and regulations for foreign investment inanticipation of accession to the WTO; and the EU should assist China inpreparing its economic system, especially in the field of intellectualproperty rights, public procurement, norms and standards and customs,


27

with regard to making the necessary adjustments required for WTOaccession.29 The EU is prepared to conclude its negotiations with Chinaas soon as the specific requirements—shown in table 2—are fulfilled.

Basically, there is not much of a difference in substance between theEU and the U.S. regarding the requirements for China’s entry into theWTO, mainly because the U.S. has changed its policy toward China inrecent years to a remarkable extent. Political determinants of China’saccession have traditionally been much stronger in the U.S. than in theEU. Following the Tiananmen Incident in 1989, the U.S. tried to linkeconomic and human rights issues by using the annual renewal of theMFN status as a threat to force through political changes in the PRC. Thispolicy did not prove to be effective and met with strong criticism fromU.S. businesses fearing that they would lose out in the Chinese market.Even after the separation of MFN renewal from human rights issues,bilateral tensions remained, with the U.S. threatening to impose punitivetrade sanctions in 1996.30 With the increased engagement of large U.S.companies in China, the government’s economic policy has come understrong pressure. Business groups have lobbied for a permanent MFNstatus for China and for liberalization regarding the export of high-technology products to China.31 Due to the growing trade deficit withChina, second only to the U.S.’ deficit with Japan, opening up China’smarket by achieving concessions in the bilateral WTO negotiations hasbecome rather important for the U.S. government—not least for thedomestic policy scene. Chinese President Jiang Zemin’s attendance atthe U.S.-China Summit in October 1997 marked a turning point in thepolitical and economic relations between the two countries.32 In the jointU.S.-China statement of the summit, both sides agreed that a “sound andstable relationship” served their “fundamental interests” and that theywere determined to “build toward a constructive strategic partnership.”33

The EU’s policy toward China was changed to a constructiveengagement approach much earlier. Pressure from countries such asFrance, Germany, the U.K., Italy, Spain, and Greece has also changed theEU’s policy toward human rights. With the spring session of the UnitedNations human rights commission to be held in Geneva in March 1998 inmind, the EU foreign ministers agreed that—for the first time in many


28

years—the EU would not try to table a resolution critical of China, butwould instead encourage dialogue.34

To summarize, we can observe a convergence of the EU and the U.S.approaches toward China’s admission to the WTO, or as one expertconcludes: “Differences in the past between the EU and the U.S. havelargely revolved around tactics rather than substance. The gap hasnarrowed considerably, mainly because of a perceived need for the EUand U.S. to stand shoulder-to-shoulder when tackling market accessproblems.”35 Better access to China’s market and adherence to the rule-based multilateral system of the WTO are in the interests of both the EUand the U.S. Remaining differences seem to relate to the strongerpressure of the U.S. for market access regarding the agricultural sector,while the EU is mainly interested in opening the market formanufactures. Additionally, as both are competing over the Chinesemarket, which is not transparent regarding government-procured largescale projects, the double-track system gives rise to a certain mistrustbetween the EU and the U.S. vis-à-vis concessions made during bilateralnegotiations with China on the terms of its WTO admission. Since theU.S. is a more important market and investor for China than the EU, theasymmetry in economic and political power between the EU and the U.S.complicates cooperation to some extent.


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ENDNOTES

1. Within East Asia, however, China is Germany’s third largest export market after Japanand South Korea, holding a share of 10.7 percent of German exports to East Asia. SeeOstasiatischer Verein (1998), Ostasien Telegramm, May.2. See for example Kaiser, Stefan (1997), “Deutschland verliert an Bedeutung als

Handelspartner Chinas,” Deutsch-Chinesisches Wirtschaftsforum, April , pp. 29-31.3. Deutsche Bundesbank (1998), Kapitalverflechtung mit dem Ausland, Mai.4. See endnote 2; “Defizitzunahme im Außenhandel mit China 1997,” Nachrichten für

den Außenhandel, 15.4.98.5. According to Chinese Customs statistics, trade with Germany amounted to US$ 12.67billion in 1997, while trade with the European Union US$ was 43 billion. See ChinaEconomic News, Beijing, February 23, 1998, p. 7.6. According to MOFTEC statistics supplied by the German Embassy August 13, 1997,Germany’s share of already realized FDI was 0.96 per cent (billion US$ 1.71) and itsshare of contracted FDI accounted for 1.15 per cent (billion US$ 5,41) in the period1978 to 1996.7. This data is based on a survey of 199 out of 1,200 German companies which investedUS$ 1.33 billion in China during the period from 1993 to 1997. The survey wasundertaken by the German Delegation of Industry and Commerce in Beijing and RolandBerger Consulting.8. According to a survey conducted by the HWWA in 1996, 51 percent of large Germancompanies invested in East Asia during the period 1992-94, while the share of small-sized companies investing in East Asia amounted to only 22 percent. See Borrmann, A.et al (1996), Investitionschancen und Erfahrungen kleiner und mittlerer deutscherUnternehmen im asiatisch-pazifischen Raum, Zusammenfassung der Ergebnisse einesForschungsauftrages des Bundesministeriums für Wirtschaft, HWWA Institut fürWirtschaftsforschung, Hamburg. The number of small and medium-sized Germancompanies investing in China, however, has increased since the beginning of the 1990s.See endnote 7.9. The European Union’s competence, however, was restricted to multilateral tradeagreements on goods, while trade agreements in services or trade-related aspects ofintellectual property rights remained subject to rules and regulations of member states.A competency gap; therefore, existed until the draft Amsterdam Treaty extended theCommission’s power to include agreements on services and intellectual property rightsas well. This will facilitate the negotiating authority toward China’s admission to theWTO as well—although the Amsterdam treaty will not come into force before 1999.See Hilf, Meinhard and Christoph T. Feddersen (1998), “GATTing China into the WTO- A European Perspective,” in: Abbott, Frederick M. (ed.), China in the World Trading


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System. Defining the Principles of Engagement. London/Boston, pp. 87-115, see pp. 94-8.10. This classification, however, was removed at the end of April 1998, reflecting thesubstantial advances made by China with regard to the introduction of marketmechanisms. See “EU non-market tag dropped on China, Russia,” Financial Times,28.4.98.11. See Yue, Xiao Zhi (1993), The EC and China. Current EC Legal Developments

Series. Brussels, pp. 21-32.12. Club de Bruxelles (1994), The Chinese Economy and Relations with the EuropeanUnion, Study written by the Club of Bruxelles under the direction of Ghislaine Berruet,see pp. 117-32; Yue, ibid., p. 54.13. Langhammer, Rolf J. (1994), “The Formation of Greater China and the Future ofEU-China Relations,” paper presented at the conference ‘China - A New Growth Centerin World Economy?’, convened by the Forschungsinstitut für wirtschaftlich-technischeEntwicklungen in Japan und im Pazifikraum, University of Duisburg, 11-13 July 1994.14. See Schüller, Margot (1996), “Perspektiven der europäisch-chinesischenWirtschaftsbeziehungen,” in: Bass, Hans H. and Karl Wohlmuth (Hrsg.), China in derWeltwirtschaft, Mitteilungen des Instituts für Asienkunde, Hamburg, No. 271, pp. 149-74, here pp.163-65.15. In 1994, for example, among the 37 anti-dumping cases brought against China, 15were initiated by U.S. companies and nine by European companies. See Schüller, ibid.,p. 165.16. Personal communications with relevant experts at the European Commission,Brussels, and with various experts at the Federal Association of German Industry,Cologne.17. According to a survey cited in the report of UNICE, common problems encounteredby most European companies on the Chinese market are the lack of transparency in rulesand laws, violation of intellectual property rights, discriminatory pricing, breach ofdelivery agreements, difficulties in settling claims, restrictions on marketing anddistribution and obligations to channel goods though foreign trade corporations.Additional factors inhibiting trading and investment by European companies in Chinawere requirements regarding joint ventures and local content , divergent local rules,import quotas and licenses, tariffs, foreign exchange balance requirements, restrictionon expatriate and on recruiting local staff and restriction on exports from China. SeeUnion of Industrial and Employers’ Confederations of Europe (UNICE) (1998), UNICEStatus Report, European Market Access Problems in China, 23 March, Brussels, p. 2.18. UNICE, ibid., pp.5-6.19. See for example China-Britain Trade Group, Trading and Investing in China and theWorld Trade Organization, 4.3.97; UNICE (1998), European Union-China Co-operation, UNICE Statement, 23.3.1998.


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20. Commission of the European Communities, COM (95) 279 final, A long-term policy

for China-Europe Relations, Brussels, 5.7.1995.21. Tanaka, Tomotoyoshi, “Economic and Trade Relations between the EU and China,”

JETRO China Newsletter, no. 121, 1997, pp.16-22.22. Menotti, Roberto, “European-Chinese Relations in the Nineties,” The InternationalSpectator, Vol. XXX, No. 4, 1995, p. 71; Dent, Christopher M., “Economic Relationsbetween the EU and East Asia: Past, Present and Future,” Intereconomics, Jan.- Feb.,1997, pp. 7-13, see p.11.23. Commission of the European Communities, COM (98) 181 final, Building a

Comprehensive Partnership with China, Brussels, 25.3.1998.24. Personal communications with relevant experts at the European Commission,

Brussels.25. Personal communications with experts at the Federal Association of GermanIndustry and with selected German companies, which have invested in China on a largescale.26. These obligations and special rights were proposed by the Federal Association ofGerman Industry (Bundesverband der Deutschen Industrie e.V., BDI) and its Frenchcounterpart, the Conseil National du Patronat Français (CNPF) in their joint PositionPaper Related to Trade Policy Issues, 1997.27. Personal communications with and internal papers of relevant ministries in the

German government.28. Personal communications with experts from Geneva.29. See Commission of the European Communities, COM (98) 181 final, Building a

Comprehensive Partnership with China, Brussels, 25.3.1998.30. See for example “China Policy that successfully courts Failure,” International

Herald Tribune, 20.5.1996.”31. “Lobbygruppe plädiert für offenen Handel,” Handelsblatt, 22.3.1997.32. “U.S. and China plan a watershed summit,” Financial Times, 9.9.1997.33. Ross, Robert S. (1998), The 1998 Sino-American Summit, Asia Society, New York,

June 1998, see pp. 8-9.34. “Das gute Geschäft geht vor,” Süddeutsche Zeitung, 27.2.98 and “The EU switches

to dialogue,” Financial Times, 28.2./1.3.98.35. Personal communications with relevant experts at the European Commission,Brussels.


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U.S. TECHNOLOGY TRANSFER TO CHINA—POLICY ANDCHALLENGES

Martha Caldwell Harris

INTRODUCTION

Technology transfer is a critical element in U.S.-China relations. Itholds the promise of deeper cooperation that brings tangible benefits toboth countries, particularly to China. At the same time, U.S. exportcontrols reflect deep differences in policy between the United States andChina, exemplified by China’s distance from the internationalnonproliferation regimes and from partnership as a trusted hightechnology trading partner.

From a broad U.S. policy perspective, expanded and deepertechnological cooperation with China depends on China’s acceptance ofnonproliferation principles and its willingness to contribute construc-tively to regional security. During the 1990s, China has moved closertoward international norms, joining the United States and other countriesin addressing regional security problems such as those on the Koreanpeninsula. Differences in perspectives as well as domestic politics inboth countries, however, have limited the extent of cooperation inadvanced technology, particularly military technology.

Up until a few months before the second Clinton/Jiang meeting inJune 1998, it appeared that there might be a new breakthrough in U.S.-China technology cooperation, following up on the U.S. decision to openthe way for cooperation for peaceful nuclear purposes at the first summitmeeting in the fall of 1997. Public debate in the United States aboutwhether past transfers were consistent with U.S. security interests andrising tensions in South Asia produced a context unsuitable to significantchanges in U.S. technology transfer policy on export to China. This paperwill analyze U.S. objectives in technology transfer policy vis-à-visChina, briefly outline the dynamics of the incremental and sectoralapproach that characterizes current U.S. policy, and look ahead to thenext few years to highlight challenges and opportunities for the UnitedStates, Germany and other major trading partners.


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In most respects, U.S. and German policies on technology transfer toChina are guided by the same overarching principles of support forglobal nonproliferation norms and the desire to promote deeperengagement with a reform-minded China. The U.S. role in the region asthe guarantor of regional security in northeast Asia, and its forcedeployments and security commitments throughout the region, give theUnited States additional leverage, but also set constraints on U.S.interactions with China that do not similarly affect German policies. TheU.S.-Japan alliance—and continuing Sino-Japanese tensions—ensurethat security remains central to U.S. policies toward China, even in acontext of heightened commercial interest. For both Germany and theUnited States, human rights have influenced technology transfers toChina, but this dimension of policy has figured more prominently in U.S.technology transfer policies over the past decade. U.S. national lawpassed in the wake of the Tiananmen Square repression requires thatexports of items on the U.S. Munitions List be denied to China unless thepresident is willing to make a formal determination that the transfer is inthe national interest. While the European Union has a moratorium onarms transfers to China, the coverage of U.S. sanctions is more extensive,including spare parts for helicopters and requiring individualpresidential waivers for U.S. participation in Chinese satellite launches.

Commercial competition between the United States and Germany forthe China market has the potential to result in a beggar-thy-neighborupping of the technology transfer ante. But both countries, as well asChina, have much more to gain in the long run by keeping securityconcerns at the forefront of technology transfer decisions and taking anincremental approach to changes in export controls so that China hasample time to follow up on promises and ensure that commitments tononproliferation and regional security can be implemented by theChinese bureaucracy. As recent developments in the U.S.-China policydebate illustrate, progress toward expanded technology transfer can berapidly set back if serious doubts arise about whether security concernshave been adequately considered. While it is perhaps understandable thatGermany and the EU have not pushed “hard” security concerns to theforefront in their interactions with China, Germany with significantcumulative investments (valued at 12 billion DM by the German


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ambassador to China, Konrad Seitz1) in China plays an increasinglyimportant role in technology transfer to China. How Germany handlesthose investments, particularly those involving advanced dual-usetechnologies, will be critical to reinforcing nonproliferation efforts andpromoting regional security. The most sensitive and potentiallyproblematic technology transfer area in the near term for both the UnitedStates and Europe relates to conventional arms transfers.

U.S. TECHNOLOGY TRANSFER POLICY:OBJECTIVES AND APPROACHES

China, a declared nuclear weapons state and UN Security Councilmember, is a rising power in Asia, and the U.S. policy of engagementwith China includes technology transfer as an element. Since the end ofthe Cold War, the focus of U.S. technology transfer policy has shifted topromoting nonproliferation as a major element of U.S. foreign policy.China has signed the NPT (Non Proliferation Treaty), ratified the CWC(Chemical Weapons Convention), made assurances related to the MTCR(Missile Technology Control Regime), and joined the ZanggerCommittee dealing with nuclear trade. At the same time, China remainsoutside most nonproliferation regimes (such as the Nuclear SuppliersGroup, the Australia Group and the Wassenar Arrangement), has a weakexport control system, and has been identified as the most significantsupplier of technology and assistance to weapons of mass destruction toforeign countries.

Those who favor a stronger technology transfer relationship betweenthe United States and China (including many in U.S. business) say thatChina has come a long way in a short period of time toward internationalnonproliferation norms. Skeptics, however, note that China has a longway to go before its policies or its system of export controls arecomparable to those of the United States.

China has placed technology transfer at the top of its agenda forengagement with the United States and made clear that it expectsexpanded access to U.S. technology. The stress on technology transferreflects not only Chinese insistence on participating on equal terms in theinternational trading community, but China’s assessment that


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technology transfer is a key to achieving its national aspirations—ineconomic and security terms. China more specifically wants the UnitedStates to end Tiananmen sanctions, which set constraints on transfers ofadvanced dual-use technology as well as military equipment.

The Nuclear Area: Sectoral and Incremental U.S. Approach toCooperation

The nuclear area has been the cutting edge of initiatives for openingU.S.-China cooperation in sensitive technologies in the past few years.Despite a history of assistance by China to nuclear weapons programs inIran and Pakistan (a country that has not signed the NPT and has recentlybegun nuclear testing), the United States and China made considerableprogress in 1997 in moving policies closer. China pledged not to transfernuclear technology to countries with unsafeguarded facilities and to halttransfers to Iran’s nuclear program. As a result, President Clintoncertified that China is not violating the Nuclear Nonproliferation Act andopened the way for cooperation with China in peaceful nucleardevelopment. Doing so requires a presidential determination to exemptChina from Tiananmen sanctions covering nuclear technology transfers.The road to this result has not been an easy one, and there are manyhurdles in the way of full cooperation in nuclear power development, notthe least of which may be financing.

Progress toward loosening of restrictions on nuclear-related transfersnevertheless stands as a textbook example of the approach that the UnitedStates is taking to technology transfer policy more generally. This isessentially a sectoral approach in that each discrete area of technologytransfer (nuclear, missile, biological and chemical, conventionalmilitary) is treated on a separate track. The objective is to move Chinatoward partnership in international nonproliferation efforts in discreteareas as well as to address specific U.S. concerns, such as China’sassistance to Pakistan’s nuclear program. The approach is alsoincremental and involves commitments on the part of China as aprecondition for U.S. loosening of restrictions.

The United States has not, however, insisted that China immediatelyenter all nonproliferation regimes, such as the Nuclear Suppliers Group,but does encourage China to move toward adoption of commitments that


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parallel those of the regime members. Transfers of ring magnets toPakistan, for example, involved enabling technology necessary toPakistan’s nuclear program. The ring magnet case brought attention tothe need for broad-based controls on dual-use technology. In the light ofPakistan’s recent nuclear and missile testing, such concerns wereobviously well founded.

This incremental and sectoral approach offers a number of obviousadvantages to both countries. It makes progress possible without solvingall the areas of difference. It complements the internationalnonproliferation norms and initiatives, but also permits the U.S. toaddress issues of specific concern from a bilateral perspective. Changesin export control policy are clearly related to changes in Chinesecommitments and behavior, allowing the administration to make the bestcase to Congress for why controls should be relaxed in a specific area.China can, and hopefully has, matched its commitments to its capabilitiesto follow through in terms of restricting exports as required. China canmove toward congruity with international nonproliferation norms, buthas not been required by the United States to be “just like” other keysuppliers (in joining the Nuclear Suppliers Group). U.S. business andChinese enterprises receive clear signals about the rules of the road, sothat cooperation can take place in a context of mutual understanding ofoverall national objectives and constraints on cooperation that reflectmutual restraint.

Regional Security ConcernsAnother set of U.S. policy objectives that affect decisions on

technology transfer to China relate to regional security and stability.Unlike nonproliferation policies, where there are internationalagreements in which both the United States and China participate that setthe context, there are no similar joint commitments with respect tosecurity in Asia where there are a number of potential flashpoints forconflict, including the Taiwan Straits, that could involve China and theUnited States. In contrast to the nonproliferation area, the United Stateshas over the years relied more heavily on bilateral alliances—with Japanin particular—for ensuring security in the region. The Chinese typicallysee such bilateral alliances as directed against them, and have attempted


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in recent months to promote “multilateralism” as a vaguely definedcounterpoint.

There is only one international arrangement that has been built topromote global restraint in sales of arms and sensitive dual-usetechnologies when they are likely to threaten regional security—theWassenar Arrangement. China is not a member or a target of thisarrangement, although the United States, Germany, Russia, and morethan thirty countries participate. China has been reluctant to engage intransparency and information-sharing with respect to conventional armstransfers, viewing this as an area of particular sensitivity. But suchopenness is precisely the objective of the Wassenar Arrangement.

Despite the absence of formal architecture for security cooperation innortheast Asia, and China’s concerns about the revised U.S.-Japandefense guidelines, the United States and China have found commonground in cooperating on issues relating to the Korean Peninsula.Whether Chinese and U.S. interests will coincide farther down the roadif reunification actually occurs is a question about which specialistsdisagree, for good reason given the imponderables with respect to timingand precise circumstances for reunification.

Significant tensions in Asia continue to threaten security and there isno multilateral template for Asian security cooperation that can functionas the equivalent to the nonproliferation regimes and agreements in thenonproliferation area. In South Asia, where a prolonged conventionalmilitary conflict over Kashmir now has taken on a new dimension in thecontext of nuclear rivalry brewing between India and Pakistan,international involvement has come late, and Indian officials have citedChina as a growing security threat. The United States and China,however, pledged in June 1998 to work together with other major nuclearweapons powers to address the escalation of tensions in South Asia,following nuclear testing by India and Pakistan. China’s opposition toU.S. arms sales to Taiwan, moreover, remains a fundamental point offriction in the bilateral relationship. Where the United States seesChinese weapons transfers to rogue states as destabilizing, the Chinesesee U.S. arms to Taiwan as deeply threatening. The array of tensions andthe absence of an overarching, multilateral security architecture in theregion, therefore, make it more difficult in the regional security realm to


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chart a parallel, incremental approach toward cooperation that mightmake it possible for the United States to relax controls on conventionalarms transfers.

Conventional Arms Transfers?A primary avenue for beginning the process that could over time lead

to changes in technology transfer policy has been a series of military-to-military contacts at high levels. Chinese officials appear to be as eager astheir U.S. counterparts to pursue such contacts. To date, however,experience and concrete results are still limited. They include a maritimeprotocol designed to avoid incidents at sea announced in 1997 andcommitments to observe training exercises announced in June of 1998.

Although the Chinese have been anxious to visit U.S. militaryfacilities, there has yet to be anything approximating real reciprocity.Over time, deepened military-to-military exchanges could open the wayfor some transfers of items on the U.S. Munitions List. A step-by-stepand cautious approach to deepened military contacts would eventuallyraise issues about exceptions to U.S. export controls on conventionalarms transfers. Military-to-military exchanges dealing with topics suchas nuclear weapons safety or military operations, for example, wouldrequire exceptions to the presumption of denial governing U.S. policy onconventional arms transfers to China. But such decisions are, at present,clearly over the horizon.

There is growing pressure from China and elements of U.S. industryto relax or do away with Tiananmen sanctions. In the face of oppositionin Congress, proponents work the issue by asking for exceptions to thedenial policy for spare parts that other countries are supplying and thatare not critical to military capabilities. If U.S. policy is to be clear andconsistent, it makes no sense to make ad hoc exceptions for any items onthe Munitions List that are covered by State Department controls in theabsence of a clear rationale, such as requirements of a military-to-military exercise or equipment needed for joint cooperation in regionalsecurity.

The European Union’s embargo of arms trade with China is based ona political declaration, allowing members to interpret the scope.Although EU members have not entered into new agreements to supply


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lethal military equipment to China, some European countries haveprovided equipment such as attack helicopters from France based on pre-embargo agreements and others, such as the UK, have interpreted theembargo not to cover “nonlethal” equipment such as airborne earlywarning radars.2 Although the United States and Europe have generallyshown restraint in arms exports to China since 1989, pressure is buildingto loosen up.

Making further progress in the technology transfer area would havebeen hard enough for the reasons suggested above even without therecent debates over transfers related to satellite launches. Furthermovement toward relaxation of controls governing space-related exportsto China had been anticipated earlier in 1998. For example, newspapersreported that the administration would institute a blanket waiver ofTiananmen sanctions for civilian space launches in China if China joinedthe MTCR, a step farther along the trajectory toward conformance withinternational nonproliferation norms. Now the prospects seem dim,despite China’s announcement that it would “consider” MTCRmembership, in view of the hotly charged political debate over whetherpast exceptions permitting U.S. companies to participate in Chineselaunches and to sell satellites to China were consistent with U.S. securityinterests.

It is worth noting that U.S. companies have for years criticized U.S.sanctions as a boon only for German and other foreign companies sellingsatellites and related services to China. As scrutiny of the details oftechnology transfers associated with satellite and space technologyincreases the concern in the U.S. Congress, questions may be raisedabout the technology transfer policies in this sector of non-U.S. firmsfrom Germany and other countries. The retention of critical satellite-related technologies on the U.S. Munitions List reflects U.S. policy ofexcluding transfer of sensitive missile and satellite technology whenU.S. satellites are licensed for commercial launch from China.3

At present, there is ongoing debate about U.S. technology transfers toChina and no U.S. national domestic political consensus in favor ofmoving further down the road toward relaxed export controls. In fact,legislation passed by the House earlier in 1998 would turn back the clocksignificantly and prohibit U.S. firms from any involvement in the China


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satellite market—an outcome unlikely to be sustained in the Senate aftermore reflection and an opportunity for U.S. business to make its case.Blanket charges of lax controls and neglect of national security concernswill likely give way to a more nuanced and sophisticated debate aspolicymakers become more informed about the technical issues relatingto decisions on satellite exports. But the domestic U.S. debate overtechnology transfer to China has become so intertwined with questionsabout political contributions, turf battles relating to agency roles in theexport control process and technical questions about the effectiveness ofsafeguards that it will be difficult to build a strong bipartisan consensusin the near term for new initiatives.

CHALLENGES AND OPPORTUNITIES AHEAD

Although the difficult context for U.S. technology transfer policyprecluded major changes at the Clinton/Jiang summit in 1998, it isimportant to step back and take a longer view. Doing so suggestsopportunities in the technology transfer area for not only the U.S. andChina, but for Germany as well. It also leads to the conclusion that thereare serious potential pitfalls ahead, particularly in the area ofconventional arms transfers. As I mentioned earlier, there is nomultilaterally agreed architecture for Asian security that can serve as aparallel set of guidelines for beginning cooperation involving transfers ofitems on the U.S. Munitions List similar to the nonproliferation regimesand agreements that inform the incremental, sectoral approach that hasbeen pursued in the nuclear area.

Fostering National Chinese Export Control CapabilitiesU.S. technology transfer policy needs to foster cooperation whereby

China develops the infrastructure needed for a fully functioning nationalexport control system. The value of the current approach is that it permitsrelatively quick progress toward deeper cooperation in one area (nuclear)even if there is little or none in other areas. In the longer run, however, theultimate objective is engagement that brings China into constructiveparticipation as a global trading partner in sensitive dual-use goods andconventional arms transfers. China, therefore, will need to develop a


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comprehensive national approach to export controls and to cooperationwith the United States and other exporting countries. A piecemealapproach runs the risk of creating expectations of immediate benefits thatmay not be possible to deliver if China cannot fulfill its commitments toimplement restraint. Deeds must follow words if the incrementalapproach that the United States is pursuing is to work in the long term.The United States and China initiated a working-level exchange onexport controls earlier this year under the rubric of the Joint Committeeon Commerce and Trade, a U.S.-China binational committee chaired bythe Department of Commerce and the Ministry of Foreign EconomicRelations and Trade. This foundation should be built further to anongoing series of discussions that cover procedures for control of arms aswell as dual-use transfers, including licensing as well as enforcement.Such an exchange should include representatives from the entire range ofagencies and ministries, including those involved in defense and militarytransfer decisions, from both countries.

In the past, U.S. government agencies have in some cases beenunable to approve sales to China due to an inability to verify legitimatenon-military end uses and users. China could initiate systematiccooperation with U.S. officials in this area and reap considerable gains interms of learning about routine procedures for export control and infacilitating U.S. exports. The United States and China agreed in June1998 to cooperate further in the area of end-use visits to verify properdisposition of U.S. high technology exports to China. It will be importantto monitor progress in this area to ensure full implementation andcooperation with U.S. authorities, as it will be to follow up to thecommitment to strengthen Chinese export controls on chemicals andrelated production equipment and technology that can be used inchemical weapons production.

Hong Kong authorities have maintained a strong export controlsystem over the years and U.S. policies and law mandate continuedliberal U.S. export policy to Hong Kong so long as it maintains itsautonomous export control system. Taiwan authorities have alsoattempted to develop a system that parallels those of the nonproliferationregime members. Both Hong Kong and Taiwan have followed thenonproliferation regimes closely and believe with good reason that their


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status as trading partners is enhanced by maintenance of roughly similarpolicies. In comparison to Hong Kong and Taiwanese export controlsystems, China’s is weak. China needs to develop a system with similarcapabilities if the export control framework for advanced technologytrade in the area is to be sustained over time.

The United States, Germany and other members of the internationalcommunity can foster attention to export control issues in bilateral andmultilateral dialogues with colleagues in China. Working together, theUnited States and Germany and other countries such as Japan, can ensurethat China understands the objectives of the regimes and can encouragedevelopment of parallel policies and systems—and eventualmemberships when China is ready to take on the necessary commitmentsto share information and exercise restraint.

In the private sector, U.S. and German firms can also contribute asthey form partnerships with Chinese firms. Boeing, Siemens and many ofthe large U.S. and German firms have developed systematic approachesto export controls and compliance with national laws that are powerfulmodels for Chinese enterprises. In dealings with Chinese enterprises andorganizations, foreign firms can contribute to improved understanding ofexport control procedures and rationale. Trade and industrialorganizations can play a role in helping to organize discussions thathighlight the benefits of effective controls to building solid long-termpartnerships.

Cooperation with China in reducing fossil fuel consumption andimproving energy efficiency can be pursued through joint projects thatinvolve the United States, China, as well as Germany and other countries.Demonstrating the positive gains from expanded cooperation is atangible way to address China’s expectations for benefits and to build inmechanisms to ensure that technology and equipment are not re-transferred without authorization. Training enterprise managers whounderstand what compliance means and how to work effectively withforeign counterparts is a real need and the experiences of foreign firmsare certainly relevant. U.S. and German firms will, of course, continue tocompete in the China market, but three-way cooperation in areas such asapplications of civilian space research to meet China’s environmental,


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energy and agricultural requirements could demonstrate shared concernsand responsibilities.

Conventional Arms Transfers—Problems AheadDespite the prospects for mutual gain from cooperation and parallel

actions in the export control and science and technology cooperationarenas, there are serious potential problems ahead, particularly in thearea of conventional arms transfers. Policymakers in Europe and the U.S.need to deal seriously and systematically with the question of whetherand under what conditions to consider transfers of conventional arms toChina. In view of the tough U.S. sanctions and the current politicalcontroversies in the United States over technology transfer to China,pressure to ease national restraints may be particularly keen in someEuropean countries in the short-term.

Although U.S. and European arms transfers to China have been quitelimited, particularly since the Tiananmen Square repression, the Chineseclearly want to change this and European industry appears eager to moveforward. A defense electronics exposition in May in Beijing attracted alarge number of European participants. A number of U.S. observers havebeen anticipating a possible loosening of European policy. At present itappears that the new arms code adopted by the EU foreign ministers inmid-1998 is unlikely to have any direct impact on trade with China.

A worst case scenario would be one in which European nationswould sell military equipment to China that significantly changes thestrategic context in the Taiwan Straits. This would not only complicatethe security problem but also add fuel to the smoldering aspirations ofU.S. industry to sell conventional arms to China. The response of Japanto such a course of events is unclear, but rapidly developing armstransfers to China would certainly alarm Japan and might cause some toconsider security requirements and options in new ways. The U.S.-Japanalliance has been criticized but tolerated by China, in part because of theChinese perception that it serves to limit Japan’s military ambitions toself-defense. Dramatic change in the relative capacity of China couldalso have significant ramifications in the defense plans of other countriesin the region.


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The prospect of the worst case scenario argues for a cautiousapproach to conventional arms sales to China. It makes sense to confirmprogress in other areas of technology transfer cooperation (civiliannuclear, civilian space, electronics) before relaxing controls onconventional arms exports. Deepened military-to-military contactsshould be pursued in order to build trust and knowledge of intentions tolay the groundwork before major changes in export control policy areinitiated.

European nations and the United States have made and will maketheir own national decisions about transfers of conventional arms toChina. And China will continue to apply pressure to end sanctions, bothas a symbolic step and to gain access to technology it wants. Theprovision of arms by Russia complicates the picture, but should not causeimmediate changes in policies elsewhere. Investments made inengagement with China must be protected through a careful laying of thegroundwork before conventional arms sales begin. A stampede to sellarms to China could unleash a disastrous competition among Europeancountries and the U.S. that could ultimately undermine security not onlyin the region but globally.

Under what circumstances should conventional arms transfers beconsidered? One avenue for incremental expansion of technologytransfer would be in the context of cooperative projects that addressregional security concerns. China’s handling of the South Asia nucleararms race will be a telling example of its capacity to contributeconstructively to managing real and urgent regional security matters inwhich China itself has a major stake. China could also contribute furtherto addressing other regional security problems, perhaps by supportingprovision of heavy fuel to North Korea or by not standing in the way ofTaiwan’s contributing. The United States and other countries shouldencourage Chinese participation and shouldering of responsibility toinitiate confidence-building measures. If confidence-building orpeacekeeping measures in South Asia or the Korean Peninsula requirespecialized equipment, a strong case could be made that in such a contextof joint security cooperation with China, provision of U.S. equipmentwould be appropriate. Gaining experience in such a context wouldprovide a carefully controlled experiment embedded in concrete


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requirements of cooperative security. This, I would argue, is the bestapproach as a first step, and one that needs to be developedsystematically and cautiously.

CONCLUSION

China is an emerging global power and technology transfer is acritical element in U.S. and European engagement. It is, however,arguably the most sensitive element in light of differences in policies andthe potential for serious conflict in Asia. The United States and Europewill protect their commercial investments in China, alreadyconsiderable, best by keeping security concerns at the forefront oftechnology transfer decisions. The incremental, sectoral approach hasworked to open the way for cooperation in civilian nuclear development.But the United States and Europe are at the beginning of a road towarddeeper technological cooperation with China and expanding theincremental, sectoral to other areas will require skillful leadership andlaying the groundwork for domestic political consensus.

In light of domestic political pressure and Chinese insistence onloosening restrictions, policymakers in the United States and Europe willfind it difficult to maintain a steady course. In order to do so, they willneed to provide concrete explanations that link changes in export controlpolicy to concrete changes in Chinese commitments and behavior bothwith respect to nonproliferation and regional security. If they are unableto do so and instead pursue ad hoc exceptions to national previouspolicies of restraint, both industry and the Chinese will be confused andglobal security and nonproliferation efforts endangered.

China is arguably the big test case for our collective ability to handlecooperative security and nonproliferation in the next century. The UnitedStates, Europe, Japan, and others must take the lead in structuring aviable relationship with China—one that ensures that security concernsare taken into account and that China develops the necessary capabilitiesto participate as a responsible partner in high technology trade. This willtake patience and restraint, sticks as well as carrots. Consultations amongthe major exporters of technology to China, including the United Statesand Germany, will be necessary on an ongoing basis.


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Controls on technology transfer are often criticized as a hindrance totrade and commerce. In the long run, however, strong economicpartnerships are based on mutual conformance to national laws andpolicies. Trading partners will need to take a systematic and carefulapproach, one that involves informal consultations and comparing ofexperiences, to considerations of when and how to loosen remainingcontrols on high technology exports to China. This is the best way toheighten the prospect that China will become a truly trusted partner andresponsible trader in advanced technology.


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ENDNOTES

1. See Andress Goh, “Lure of the Market Binds Germany to China,” Straits Times

(Singapore), May 14, 1998.2. For a detailed analysis, see General Accounting Office Report to the Joint EconomicCommittee of Congress, China: Military Imports from the United States and theEuropean Union Since the 1989 Embargoes, June 1998, GAO/NSLAD-98-176.3. See statement of John D. Holum, Acting Under Secretary of State for Arms Controland International Security Affairs, before the House International Relations Committeeand National Security Committee, June 18, 1998.


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ENHANCING U.S.-CHINA MILITARY RELATIONSDavid Shambaugh

As Sino-American relations have begun to stabilize in the wake ofreciprocal presidential visits in 1997-98, the security and militarycomponents of the relationship are gaining greater prominence. The twogovernments have agreed to forge a “constructive strategic partnershipfor the 21st century,” and “strategic dialogue” concerning regional andglobal issues has become an important element in improving bilateralties. The Chinese and American military establishments areconcomitantly engaged in establishing confidence building and securityenhancing measures aimed at improving mutual trust and understanding,while decreasing tensions and avoiding an unnecessary slide into anadversarial relationship.

This short study examines the emerging military-to-militaryrelationship, traces its evolution during the decade, discusses theaccomplishments and impediments to date, and considers potentialfuture developments. Although defense ties between the United Statesand China can be expected to grow or atrophy in tandem with the overallbilateral relationship, the military sphere presents special policyconsiderations for both sides and for other actors in the Asia-Pacificregion that warrant careful monitoring and management.

THE EBB AND FLOW OF U.S.-CHINAMILITARY EXCHANGES

After developing rapidly and extensively during the 1980s, Sino-American military relations have had their ups and downs during the1990s. The decade began with their complete suspension following thePeople’s Liberation Army’s (PLA) actions on June 4, 1989.1 As thefreeze in bilateral relations began to thaw slightly in 1993, AssistantSecretary of Defense for International Security Affairs Chas Freemanwas dispatched to Beijing in November in an effort to jump-start militaryexchanges. Freeman’s initiative was successful and immediately borefruit. It set in motion a series of exchanges during Secretary of DefenseWilliam Perry’s tenure.2 Both sides wished to rebuild the defense


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relationship gradually, but it quickly (and quietly) picked up momentum.An initiative to locate U.S. servicemen missing-in-action (MIA) from theSecond World War, and a Joint Commission on Defense Conversion,were begun. Exchanges between the two National Defense Universities(NDU) and some service staff colleges were resumed, and a series ofhigh-level and service exchanges took place:

On the U.S. side: Secretary of Defense William Perry; UnderSecretary of Defense for Policy Frank Wisner; Defense IntelligenceAgency Director Lt. Gen. James Clapper; Commander-in-Chief of thePacific Command (CINCPAC) Admirals Charles Larson and RichardMacke; and U.S. Air Force Chief of Staff Gen. Merrill McPeak, and aport call by the USS Bunker Hill.

On the Chinese side: Deputy Chief of General Staff Gen. Xu Huizi;Commission on Science, Technology, and Industry for National Defense(COSTIND) Vice-Chairman Lt. Gen. Huai Guomo; and Assistant Chiefof General Staff Xiong Guangkai.

Just as bilateral military exchanges were gaining momentum andsome degree of mutual trust and confidence was being restored, theywere derailed by renewed tensions over Taiwan. In May 1995 the PLAcanceled the planned visit by Air Force Commander Gen. Yu Zhenwuand suspended other exchanges in response to the private visit to theUnited States of Taiwan President Lee Teng-hui. Although the Chinesereceived the U.S. NDU CAPSTONE delegation as planned in late May,no exchanges took place until July when a U.S. Army Corps of Engineersdelegation went to China. The tensions in the relationship during thisperiod were palpable.

During the autumn and winter of 1995-96 tempers cooled, and itlooked as though exchanges were back on track—including visits toChina by the under secretary of defense, two assistant secretaries, thechief of Naval Operations, a series of NDU delegations, and a port call bythe USS Fort McHenry. The PLA sent the Guangzhou military regioncommander to Hawaii for the 50th anniversary of the Japanese surrenderand end of World War II in the Pacific, and a General LogisticsDepartment delegation toured the U.S. But then the PLA undertook itssecond round of provocative missile “tests” and live-fire exercises nearTaiwan in March 1996 (the first round took place in July 1995). This


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round was meant to intimidate Taiwanese as they went to the polls fortheir first-ever direct presidential election. This time the United Statesreacted by curtailing defense exchanges. Secretary of Defense WilliamPerry was incensed enough with the provocative Chinese behavior that,on instructions from the president, he ordered two aircraft carrier battlegroups into the waters off Taiwan as a demonstration of U.S. resolve. Forthe U.S., China’s promise to “peacefully resolve” the Taiwan issue hasalways been a core condition for the joint management of the Taiwanquestion; the missile firings within thirty miles of Taiwan’s two principalports and large-scale air, naval and amphibious exercises in the straitmandated a firm American response. Although there was no real threat ofChinese military action against the island, and the USS Nimitz andIndependence operated well away from the Taiwan Strait, this “crisis”brought tensions to their highest since the late 1950s.

The resulting slowdown in military exchanges did permit thecontinuation of defense educational delegations, but high-levelexchanges were limited to Under Secretary Walter Slocombe’s visit inJune 1996. Both sides did not wish to completely cease or suspendexchanges, but both decided to reduce their quantity and quality toexpress displeasure. Beginning in the fall of 1996, though, exchangespicked up again. New CINCPAC Admiral Joseph Prueher paid animportant visit to China in September, followed by the director of theDefense Intelligence Agency and other Defense department officials.

New momentum was added in December 1996 with long-postponedvisit to the United States by Chinese Defense Minister Chi Haotian.General Chi and outgoing Secretary of Defense Perry held extensivetalks, while counterpart talks were held with other members of Chi’sdelegation. Chi was given red-carpet treatment in Washington (includinga meeting with the president) and a top-flight itinerary throughout thecountry, meant to simultaneously impress him with American strengthand transparency.

Sino-American military exchanges have expanded rapidly sinceChi’s visit. This is to be welcomed—both as a vital component of theoverall bilateral relationship, as well as being a significant stabilizingfactor in Asia-Pacific regional security. Since their resumption, quite alot has been accomplished in a relatively short period of time. A plethora


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of exchanges has occurred. They tend to fall into four broad categories:high-level visits; functional exchanges; military educational exchanges;and port calls and familiarization exchanges.

A variety of important visits have taken place in each category.Notable accomplishments include: visits to Beijing by Secretary ofDefense Cohen, Under Secretary Slocombe, Assistant SecretaryKramer, and Deputy Assistant Secretary Campbell; visits by theCINCPAC and Army and Air Force Chiefs of Staff; visits by PLA Chiefof Staff Fu Quanyou and Logistics chief Wang Ke; the inauguration ofannual Defense Consultation Talks at the Under Secretary/DeputyChief-of-Staff level; the agreement of a Military Maritime Accord toavoid “incidents at sea”; a nuclear weapons non-targeting agreement;consultations on humanitarian relief; and the first-ever visit by PLAnaval vessels to the continental United States. In addition to these officialexchanges, a variety of “Track II” exchanges between officials in theirprivate capacities and security specialists in the NGO community havetaken place,3 weapons development and defense research laboratoriespersonnel (e.g., Sandia and Lawrence Livermore on the American side)meet with their counterparts; and American and Chinese officersregularly meet in multilateral settings in third countries.

As a result of the reciprocal presidential summits in 1997 and 1998,military exchanges are due to be deepened and broadened over the nextyear. They are expected to include:

High-Level Visits. To China: CINCPAC Admiral Prueher in August;Under Secretary Slocombe in October for the second round ofDefense Consultative Talks; Secretary Cohen in late-1998; and JCSChairman Shelton in early-1999. To America: Deputy Chief-of-StaffChen Xugeng in July; Central Military Commission Vice-ChairmanZhang Wannian in September; and likely visits by the commandersof the PLA Navy and Air Force.

Confidence Building Measures. PLA field-grade officers to observeRIMPAC and Cope Thunder exercises, first round of MilitaryMaritime Consultative Agreement talks, first round of environmen-tal security consultations; disaster relief “sandtable” exercise, U.S.


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Navy ships to visit Qingdao and Zhanjiang, with possible return visitof PLAN vessels, possible visit of PLA delegation to SandiaLaboratories Cooperative Monitoring Center.

Functional Exchanges. To China: National Defense UniversityPresident General Chilcoat; NDU faculty exchange and first meetingof annual NDU bilateral strategic dialogue; NDU CAPSTONEdelegation; Air War College, Army War College, and IndustrialCollege of the Armed Forces delegations; U.S. Army military historydelegation; and an “ammunition demilitarization” delegation. ToAmerica: First PLA NDU CAPSTONE and PLA Air Force Academydelegations; Academy of Military Science Commandant General LiuJingsong; delegations to study ROTC system, quartermaster system,and air traffic control.

Thus, a flurry of exchanges can be expected in coming months. Whilethe U.S. side seems content with the quantity of these planned exchanges,there is a desire to improve their quality in several potential areas:4

• Intensification of high-level strategic dialogue and expansion todifferent levels of the military and civilian national securitybureaucracies.

• Expansion of regional security discussions to include Japanese,South Korean and Russian armed forces.

• Initiation of functional exchanges in the areas of militarymedicine, environmental security and humanitarian relief.

• Training of military personnel in each country’s militaryeducational institutions (as distinct from exchanging delega-tions).

• Joint exercises—beginning in the area of disaster relief andleading to naval, air and ground maneuvers.


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• Familiarization briefings to encourage mutual transparency—on topics such as doctrine, force structure, threat perception,national security decisionmaking; defense expenditure, defenseconversion and civil-military relations.

• New confidence building measures—more agreements toprevent accidental military confrontations, such as the MilitaryMaritime Accord, as well as establishing secure communicationslinks, and possible notification of major weapons tests andexercises.

• Dialogue, exchanges and site visits on nuclear weapons safety,security, command, and control.

• Joint activity in combating non-conventional and transnationalsecurity threats—such as terrorism, organized crime, aliensmuggling, and narcotics trafficking.

• Possible coordination of export control measures and closerconsultation on implementing arms control accords.

This is more a “wish list” than a blueprint for how the Pentagonwould like to develop Sino-American military relations in the next fewyears. To be sure, the PLA will have difficulty responding to several ofthese American desires: triangular meetings with Japanese Self-DefenseForce (JSDF) personnel or multilateral meetings with Japanese, Russianand South Korean military personnel; participation in joint exercises (thePLA has refused to enter joint exercises as a matter of principle andpolicy since 1949); joint humanitarian relief (although there may beroom for “parallel” action); accepting U.S. military personnel fortraining in Chinese military institutions; exchanges involving nuclearweapons; and expanded transparency (see discussion below).


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OBJECTIVES OF SINO-AMERICAN MILITARYEXCHANGES: SLEEPING IN THE SAME BED, DREAMING

DIFFERENT DREAMS

To some extent the U.S. and Chinese military establishments share amutual desire to enhance ties and to exploit complimentary interests. Butit is also evident that the two approach the military relationship withdiffering priorities and considerable “baggage” from the past, whichserve to restrict the fuller development of ties.

In recent years the initiative to develop and expand military-to-military relations has largely come from Washington. For the most part,the PLA has been a passive and often reluctant partner in the exchanges.Chinese reluctance derives from a variety of factors:

• continuing ill-will from the suspension of exchanges after 1989;

• continuing U.S. sanctions prohibiting weapons sales, defenseand dual-use technology transfers, and spare parts for previouslysold systems;

• latent suspicions of an American “containment” policy thatdefines China as a strategic adversary;

• anger and frustration over escalating U.S. arms sales to Taiwan;

• ambivalence about U.S. alliances and forward-based forces inthe Asia-Pacific region;

• the redefinition of the U.S.-Japan Mutual Security Treaty andDefense Guidelines, and its potential application to Taiwan;

• inexperience in broad-gauged bilateral and multilateral defenserelationships; and

• the insular and sometimes xenophobic “institutional culture” ofthe Chinese military establishment.


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In each of these categories, the PLA has substantial concerns andfears (this is not to say that they are justified). In particular, the PLAbelieves it has been unfairly singled out for punitive sanctions, whileother sectors of Chinese government and society enjoy relativelyunfettered access to American trade, technology and exchanges. Theyare still stinging over the termination of military assistance programs(notably the “Peace Pearl” program to upgrade avionics in the F8-IIfighter) and sanctions implemented after 1989. Some in the PLA arguethat these terminated programs and the refusal of the U.S. to relaxsanctions (in particular to release spare parts for the Sikorsky Blackhawkhelicopters and General Electric LM-2500 gas turbine engines) is proofpositive of American attempts to “contain” China and retard its militarymodernization. Said one PLA Senior Colonel: “Your government saysthat you want China to be ‘strong, secure, and prosperous’ but yourpolicies suggest the opposite.”5 Some in the PLA even argue that it willbe impossible to sustain a long-term military exchange program as longas defense technologies and weapons are embargoed, and they explicitlysuggest that the PLA is prepared to slow down the bilateral militaryrelationship if these sanctions are not lifted. As a carrot, they intimate thatthe PLA would be interested in buying helicopters, aircraft and shipengines, transport aircraft, AWAC aircraft, radars, avionics, and surfaceto air missiles.6 Further, they bluntly warn that continued American salesof high-tech weaponry to Taiwan will impede the further development ofbilateral military ties. PLA (as well as civilian) personnel also point to theU.S.-Japan Defense Guidelines as another substantial irritant cloudingdefense ties, and they remain convinced that the strengthened treaty isboth directed against China and covers Taiwan.7

Above all, in these exchanges, the PLA seeks to learn about the U.S.military—both its intentions and capabilities vis-à-vis China, but also asa model for the PLA’s own development. The U.S. military is more thanhappy to impress upon their Chinese counterparts their strengths andcapabilities, but are naturally reticent to build up a “peer competitor.” Forall of these reasons, PLA personnel evince suspicions of the UnitedStates, warn that bilateral military ties may be impeded, and call for theU.S. to address their concerns. At the same time, both high-ranking andsenior officials in the PLA express satisfaction with the progress in


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development of defense ties over the past eighteen months since GeneralChi’s visit to the United States and resumption of bilateral defense ties.This ambivalent view that military ties are simultaneously progressingwell and that substantial impediments exist is mirrored on the Americanside.

What does the U.S. want out of the relationship? Officially, theDepartment of Defense lists six “broad objectives” that guide its contactswith the Chinese military:8

• To engage the PLA, a critical actor in the PRC’s nationalsecurity community, on a range of global and Asia-Pacificregional security issues.• To increase Chinese defense transparency.• To establish confidence building measures (CBMs) designed toreduce the possibility of accidents or miscalculations betweenU.S. and Chinese operational forces.• To conduct professional exchanges that are of mutual benefit.• To encourage PLA participation in appropriate multinationalmilitary activities.• To support the United States government’s overall policy ofengagement with China through selected functional programs.

These are worthy and appropriate policy objectives and goals, butuneven progress has been made to date. Of particular concern is thecontinuing lack of PLA transparency and reciprocity in access to militaryfacilities. The steps taken have included: an exchange of “transparencybriefings” between Gen. Xiong Guangkai and DoD counterparts in April1995 (Gen. Xiong presented very superficial boilerplate explanations ofPLA expenditure and activities); the publication of a White Paper onArms Control in 1996 (a long-rumored follow-up has yet to appear,although some PLA sources indicate that one may be forthcoming soon);and permitting visits by some high-ranking U.S. military personnel topreviously unseen PLA installations. For example, Admiral Pruehervisited the PLAN South Sea Fleet in Zhanjiang; Secretary of DefenseCohen and Assistant Secretary Kramer were shown the Beijing AirDefense Command Center; former JCS Chairman Shalikashvili was


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given a demonstration by rapid reaction units (kuaisu fanying budui) ofthe 15th Airborne Division in Wuhan; and Air Force Chief of Staff Ryanwas permitted to visit several air bases, shown the F8-IIM fighter, andwas allowed to pilot a training fighter.

These steps do represent some progress, and the PLA should be socredited, but it is minimal and marginal when compared either with thelevels of transparency among other Asia-Pacific militaries (to saynothing of U.S. military transparency) or what the U.S. has requested tosee. American requests for visits to bases and installations continue to beroutinely rebuffed by the Chinese side. In addition to exchanges noted inthe “wish list” above, the U.S. seeks increased transparency in thefollowing areas:

• detailed and realistic estimates of PLA defense expenditure(including for R, D. T. & E);

• detailed discussions of Chinese defense doctrine and militaryplanning;

• in-depth assessments of regional and global security issues;

• joint contingency planning for various scenarios in NorthKorea;

• discussions of the purposes and progress in PLA forcerestructuring and modernization; and

• access to a wide range of ground force, air force, naval, nuclear,and command installations across China.

In seeking such transparency, the U.S. proceeds from a simplepremise: openness breeds trust, while secretiveness breeds distrust.Certainly, all militaries must safeguard their national security secrets—but this can be done while, at the same time, reducing misperceptions andsuspicions through adhering to international norms of transparency. Thisincludes, for example, full compliance with the UN Arms Register, full


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disclosure with the Defense White Paper template adopted by theASEAN Regional Forum;9 and the publication of annual strategicassessments modeled on the International Institute of Strategic Studies(IISS) Military Balance and Strategic Survey.10

Despite limited progress on the Chinese side, there is little doubt thatthe Defense department is not satisfied with the absence of candor and“depth” in the “strategic dialogue,” and the Pentagon is growingincreasingly frustrated with the lack of transparency and access toChinese military installations. As former JCS Chairman JohnShalikashvili noted in his speech at the PLA National DefenseUniversity:

We should not fool ourselves. Improving military-to-militarycontacts will not be easy. And in order to earn big dividends, wemust make a big investment. If we listen to the suspicious side ofour military minds, if we do not pursue exchanges on a fair andequitable basis, if we lack openness, transparency, or reciprocity,or if we hold back even routine information on our militaryforces, then we will fail.11

While there is frustration among many on the American side, someclosely involved in the exchanges believe that the U.S. has expected toomuch, too fast and has “set the bar too high” by unrealistically expectingthe PLA to reciprocate at the same level of information openness andaccess to military facilities provided to Chinese (and other) foreignmilitary visitors. This argument coincides with the PLA’s explanationsthat there is great disparity between American and Chinese forces (andthe U.S. can therefore afford to be more open), that the PLA has adifferent history and culture concerning transparency, and thattransparency must be increased incrementally in tandem with the overalldevelopment of political and military relations. There is some truth inthese Chinese arguments, but they nonetheless mask fundamentalChinese reticence to open up their military establishment to foreignscrutiny. Such reluctance breeds suspicions. Sometimes this penchantreaches unreasonable and infuriating lengths when the PLA denies thevery existence of well known facts and repeatedly rebuffs U.S. requests


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for visits to various installations. What the Chinese side does not realizeis the extent to which foreign analysts already know a considerableamount about Chinese military doctrine, capabilities, expenditure, anddeployments—and this is the case in the private and scholarly sectors, tosay nothing of U.S. government intelligence agencies. For example, thePLA would have a much clearer sense of the level of public knowledgeabroad if the June 1996 special issue of The China Quarterly or otherrecently published books were translated into Chinese.12 This, in turn,would hopefully make the PLA realize the futility of trying to hide basicdata that is already well-known.

A further problem in the area of transparency lies on the Americanside. That is, the PLA is actually considerably transparent about a widerange of subjects through their publications in Chinese. This includeshundreds of books and dozens of periodicals published in China androutinely available to Americans (or any other foreigners) for purchase.13

The problem lies in the fact that precious few American analysts andscholars of the PLA buy and use these materials in their research, and—worse yet—there is no attempt by the U.S. government to collect andtranslate these materials into English. A modest investment of $500,000by DoD or the Foreign Broadcast Information Service would go a verylong way towards increasing PLA transparency and foreign awareness ofdeveloping trends.

OUTLOOK

This brief paper has attempted to trace the development of bilateralmilitary ties over the past several years, to elucidate the potential“roadmap” for their development in the near and medium-term future,and to identify the impediments to future growth and development. Thereare certainly other constricting variables at play, such as the perceptionsof the new Chinese military leadership,14 cultural factors, strategicperspectives, national security concerns, and differences in levels ofdevelopment and political systems.

Despite these impediments, the Sino-American military relationshiphas developed surprisingly rapidly and fruitfully. This is testimony tothose working hard on both sides to advance it, as well as the recognition


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by the civilian leaders of both countries that solid military ties are a keycomponent of the overall bilateral relationship which also contributesignificantly to stabilizing regional and global security.


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ENDNOTES

1. CAPSTONE delegations from the U.S. National Defense University were never

formally suspended, and resumed quarterly visits in 1991.2. While in office, and subsequently, Perry displayed unusual personal commitment to

advancing the U.S.-China defense relationship.3. Track II initiatives have included the Stanford-Harvard Preventive Defense Project,three delegations sponsored by the National Committee on U.S.-China Relations, eachlead by a former secretary of defense (Robert McNamara, James Schlesinger, WilliamPerry), and joint initiative by The Sigur Center for Asian Studies at George WashingtonUniversity U.S.-China Policy Foundation. The Preventive Defense Project report iscited below, while the National Committee delegations have each published reports. SeeRobert S. McNamara et al, Sino-American Military Relations: Mutual Responsibilitiesin the Post-Cold War Era (1994); James Schlesinger et al, Toward StrategicUnderstanding Between America and China(1996); and William J. Perry et al, SecurityStudies Issues Delegation to the People’s Republic of China, Hong Kong SAR, andTaiwan (1998).4. This list draws from various discussions with U.S. military personnel involved inmanaging the exchanges and, in part, on Ashton B. Carter and William J. Perry, TheContent of U.S. Engagement with China (Stanford-Harvard Preventive Defense Project,1998).5. Interview with PLA personnel, May 12, 1998, Beijing. Since the Carteradministration, the U.S. Government has used the terms “strong” and “secure” eithertogether or separately, in conjunction with other adjectives, when referring to the kindof China the U.S. desires, i.e., “An open, prosperous, stable, strong, and secure China.”These terms have been quietly dropped from the official U.S. lexicon in recent years.6. Interviews with PLA personnel, May 12-15, 1998, Beijing.7. See Xu Heming, The Redefinition of the U.S.-Japan Security Alliance and ItsImplications for China (Washington, D.C.: The Sigur Center for Asian Studies AsiaPapers, No. 3, 1998).8. Report to Congress on Department of Defense Activities with China (H.R. 104-563),

February 28, 1997.9. See CSCAP Working Group, Promoting Regional Transparency: Defense PolicyPapers and the UN Register of Conventional Arms (Honolulu: Pacific Forum CSIS,1996).10. Indeed, the PLA National Defense University has recently done so for the first time.See Pan Xiangting (ed.), Shijie Junshi Xingshi [World Military Situation], 1997-1998(Beijing: Guofang Daxue Chubanshe, 1998). This volume also contains a briefdiscussion of China military expenditure, security environment, and defense policy (pp.268-72); as well as a discussion of U.S.-China military exchanges (pp. 279-81).


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11. General John M. Shalikashvili, “U.S.-China Engagement: The Role of Military-to-

Military Contacts,” speech at PLA National Defense University, May 14, 1997.12. When I broached this possibility with a leading PLA publisher, I was told that sucha translation would have to be restricted to “internal” channels and not be made availableto the general Chinese public.13. To be sure, a number of publications are classified various levels of neibu [internal]

circulation, but there is still a wealth of non-classified publications available.14. See, for example, my “China’s Post-Deng Military Leadership: New Faces, NewTrends,” Stanford University Asia/Pacific Research Center Occasional Paper, June1998.


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CONFERENCE AGENDA

Managing Conflict, Building Consensus:Germany, the United States and The People’s Republic of China

15-16 June 1998

Monday, June 15

Opening LunchThe Honorable Volker Hermann Schlegel,Minister-Counselor of the Embassy of the Federal Republic of Germany

IntroductionDavid Shambaugh, The George Washington University, Washington

“Military and Security Ties: Common Interests, Diverging Strategies”David Shambaugh, The George Washington University, WashingtonKay Möller, Foundation for Science and Politics (SWP), Ebenhhausen

“Human Rights: Agreeing to Disagree?”Moderator: Jackson Janes, Executive Director, AICGSLotte Leitch, Human Rights Watch, BrusselsKlaus Rupprecht, German Foreign Office, Bonn

Conference DinnerIntroduction: Jackson JanesKeynote Speaker:Ambassador Richard SolomonPresident, U.S. Institute for Peace

Tuesday, June 16

“The Debate over China’s WTO Membership and the Balance ofTrade”

Moderator: Jackson JanesNicholas Lardy, The Brookings Institution, WashingtonMargot Schüller, Institute of Asian Affairs, Hamburg


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“Corporate Strategies and Realities: Doing Business in China”Moderator: Barry Eichengreen, International Monetary FundLisa Barry, The Boeing Company, WashingtonNorbert Graeber, Daimler-Benz AG, Beijing

“Technology Transfer: The Limits and Options for Control”Martha Caldwell Harris, Independent Consultant/former DeputyAssistant Secretary of State, Washington


65

American Institute for Contemporary German StudiesAICGS Conference Reports

Gibowski, Wolfgang, Dieter Roth, and Hans Herbert von Arnim. WhoseParty is This? Transitions in the German Political Party System.Washington, D.C.: AICGS, November 1996.

Janes, Jackson and Charles C. Loveridge. The Future of Telecommunica-tions: A German-American Dialogue. Washington, D.C.: The Center forStrategic and International Studies and AICGS, November 1996.

Culpepper, Pepper. Skills for the 21st Century. Washington, D.C.:AICGS, January 1997.

Westin, Alan. Data Protection in a Global Society. Washington, D.C.:AICGS, May 1997.

Cowles, Maria Green. The Limits of Liberalization: RegulatoryCooperation and the New Transatlantic Agenda. Washington, D.C.:AICGS, July 1997.

Rahr, Alexander, Sherman Garnett and Zbigniew Brzezinski. The Futureof Ukraine: Challenges to German and American Foreign Policy.Washington, D.C.: AICGS, July 1997.

Rudolf, Peter and Geoffrey Kemp. The Iranian Dilemma: Challenges toGerman and American Foreign Policy. Washington, D.C.: AICGS, July1997.

Gibowski, Wolfgang, Josef Joffe and Dieter Roth. The Road toGermany’s National Elections. Washington, D.C.: AICGS, February1998.

The Parameters of Partnership: Germany, the U.S. and Turkey.Challenges for German and American Foreign Policy. Washington,D.C.: AICGS, April 1998.


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Pavliuk, Oleksandr, Alexander Rahr and John Tedstrom. Ukraine inTransition and Western Strategy: Challenges to German and AmericanForeign Policy. Washington, D.C.: AICGS, August 1998.

MacDonald, Duncan. Protecting Privacy: The Transatlantic DebateOver Data Protection. Washington, D.C.: AICGS, September 1998.

Harris, Martha Caldwell, Kay Möller, Margot Schüller, and DavidShambaugh. Managing Conflict, Building Consensus: Germany, theUnited States and the People’s Republic of China. Washington, D.C.:AICGS, November 1998.

American Institute for Contemporary German Studies 1400 16th Street, N.W. Suite 420 Washington, D.C. 20036-2217 Tel: 202.332.9312 Fax: 202.265.9531

ISBN 0-941441-36-9

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