High-Tech Exports to China Still Being Delayed, Despite Eased Rules, U.S. Firms Finding

By Jeremy Mark, Staff Reporter
The Wall Street Journal

January 3, 1985

NEW YORK -- For Altos Computer Systems, it made sense to pursue trade with China. The Chinese were desperate for computers, and the Reagan administration was loosening restrictions on high-technology sales to Peking.

So in 1983 the San Jose, Calif., computer maker began courting Chinese customers and by June last year had received several for medium-sized computers. With contracts in hand, the company applied for export licenses -- and waited. Six months later, Altos still is waiting.

Altos isn't alone. Many U.S. companies are discovering that technology exports to China still face heavy obstacles. Although U.S. high-technology sales to China have more than doubled -- to $2.8 billion in the first 11 months of 1984 from $1.1 billion for all of 1983, according to the U.S. Commerce Department -- many business executives complain that they still encounter long bureaucratic delays.

"We've hired assistants, lobbyists and lawyers in Washington, and it just doesn't seem to be helping," says Harold Nevin, Altos's regional sales manager for Asia. "We're going to potentially lose millions of dollars in business if our people can't break the logjam." He says that one of Altos's Chinese clients is threatening to cancel a $2 million order because of lengthy delays.

Such frustration was echoed recently by China's ambassador to the U.S., Zhang Wenjin, in a New York speech. "While welcoming the more-relaxed U.S. policy on technology transfers to China, we know that a lot depends on the actual implementation of this policy," the ambassador said. "And the process is slow with a number of holdups."

In past years, U.S. businessmen encountered a bureaucratic maze in China. But Peking, they say, has streamlined some trade procedures in its eagerness to obtain foreign technology. The business executives contend that the main roadblocks now are in Washington, where red tape and interagency disputes often combine to snarl transactions.

Many U.S. exporters also are encountering delays in Paris, headquarters of the Coordinating Committee for Multilateral Export Controls, or Cocom, which represents 15 Western governments and screens Western high-technology exports to communist countries. Cocom's primary purpose is to prevent sales of sophisticated products with possible military use.

U.S. computer maker Gould Inc., for example, was able to wade through Washington's licensing process with little trouble. But, according to Richard Iverson, a Gould vice president, the company's licenses have been in limbo with Cocom for months while the organization's member governments scrutinize the proposed sales. "They don't disapprove them," he says, "they just stall them."

High-tech sales to China became a major stumbling block in Sino-American relations in early 1983. China hoped to bolster its industrialization effort by purchasing U.S. technology, which American companies were eager to provide. But most contracts became entangled in the export-licensing process in Washington, largely because different branches of the U.S. government couldn't agree on what goods should be sold to China. The U.S. Defense Department, in particular, feared China would divert technology for military purposes.

In the face of Chinese complaints that the U.S. wasn't committed to improving bilateral trade, the Reagan administration in May 1983 announced that it would take steps to ease its export-licensing process. The administration placed China in a special trade category that distinguishes it from most other communist countries.

Indeed, for some U.S. companies, the new policy has been a major improvement. "Although we experience some delays, we are now getting approvals of applications that we believe would have been denied earlier," says a spokesman for International Business Machines Corp. "Delays are fewer and generally shorter."

The Commerce Department points to the increase in approved sales during 1984 as a sign of improvement: Through the end of November, 4,097 of 8,869 applications for export licenses had been approved, compared with 3,314 of 4,295 in all of 1983. Commerce and State Department officials say the increase in applications in 1984 was a response to the loosening of controls and helps to explain the backlog that developed.

Many companies, however, complain that matters haven't improved. "I've had an application in (for a minicomputer sale) since April," says an executive with Honeywell Information Systems Inc. "It isn't approved yet, and I can't even find out where it is. Commerce says it's in Defense . . . the people I contacted in Defense say they don't know where it is. It seems to have been lost since August."

Commerce Department officials acknowledge that delays continue to plague the export-licensing process, but they say the system has improved. "We're pleased with the progress in opening up our technology -- transfer policies with China," says Olin Wethington, the department's deputy undersecretary for international trade.

U.S. companies face a different set of problems at Cocom. American officials acknowledge that Cocom is backlogged with applications for exports to Peking. "There are more China cases than all others put together," says the State Department official.

The primary obstacle, says Stephen Bryen, deputy assistant secretary of defense, is that cases must be channeled to every member government for approval. Each government is supposed to respond within two months, though responses often take much longer, Mr. Bryen says. Cocom members, he says, are considering setting up a "fast track" for treating cases affecting China.

Cocom has delayed applications for export licenses for a variety of reasons, U.S. business executives say. Some companies suggest, for example, that France has stalled American sales to China because the U.S. has been cautious on French sales to the Soviet Union. Other business officials contend that U.S. contracts have been delayed to give commercial advantage to companies from competing countries.

While no company can cite a sale that they have lost because of another government's intentional delays, some do say that they have lost Chinese sales to competitors while their contracts languished before Cocom.

Minnesota Mining & Manufacturing Co. says a contract to export floppy disks to China was held up in Cocom for 10 months during 1983 and 1984. According to T.D. Kluznik, the company's government-relations manager for export operations, the Chinese customer canceled the order and subsequently purchased a similar product from a West German competitor.

According to Mr. Bryen, losses such as this could be prevented by encouraging greater communication between American businessmen and the U.S. government and by setting up a larger U.S. staff at Cocom. "The best approach is an aggressive effort to defend our companies within Cocom," he says.

Copyright (c) 1985, Dow Jones & Co., Inc.