Washington - Congress's imposition of strict controls on technology exports to China hurts the United States more than the Chinese, Under Secretary of Commerce William Reinsch says.

In a January 14 address to the Silicon Valley Forum of the Commonwealth Club in California, Reinsch said that a strong U.S. defense depends on the health of U.S. high-tech companies, which in turn depend on exports.

"Cripple our companies by denying them the right to sell, and you set back our own military development," Reinsch said.

Shutting off U.S. exports to China will only help the competition in Taiwan, Korea, Japan and Europe, he said.

"And that competition, as we have learned in so many other sectors over the past 20 years, will not stop with China," Reinsch said, "but will move on to compete head to head against us elsewhere."

Blocking exports to technologically capable countries like China and India will only encourage them to build their own development and production capabilities, he added.

Following are excerpts from Reinsch's text:

(Begin excerpts)

Good morning. I appreciate the opportunity to be with you.

This Administration's stewardship of export controls has occurred during a period of unprecedented political and economic transformation. We have worked hard to adapt our policies and procedures to these new realities and have accomplished a great deal over the past five years. Now we are finding, however, that further change is an uphill battle, as we contend with those, within the Congress and without, who do not understand these changes and respond to them by trying to return to the simpler era of the Cold War and a single bipolar adversary. Only this time it is China. A good example of this is the Cox Committee -- whose report will be issued shortly. But before I get to that, let me comment on some of the changes that all of us have to deal with as we head into a new century.

The most important was laid out by President Clinton in his speech commemorating the 50th anniversary of the GATT, when he said, "Economic globalization is not a

policy option; it is a fact." You know this because you live it in your jobs every day. More efficient modes of transportation and communication, the internationalization of capital flows, the development of the information-based economy, all work together to transform the traditional, national economic system into one which is truly global -- where capital, ideas, goods, technology -- and increasingly labor -- all flow across borders, not always freely, but more often than not successfully.

This means that companies have new choices. They can build, manufacture, produce and sell in multiple locations all over the world. They can locate their R&D facilities wherever they wish, often separate from their production facilities. They do so because they have to -- as a condition of doing business somewhere -- or because it is cheaper or more efficient. It is also true that the fact that we no longer face a bloc of adversaries today as we did during the Cold War means that companies have new markets and increased international demand for their products.

Second, countries have choices. With more competition and more sources of products and capital, they can keep companies out or pull them in with inducements or threats, playing one supplicant off against the other.

Third, if ever the U.S. had a monopoly on technology, it is no longer so. The diffusion of technology as well as the rapidly growing cost of state-of-the-art production facilities in a growing number of high-tech sectors means that joint ventures are the economic and political reality of the future. Going it alone is too expensive and too isolating in a global marketplace.

It is the reality of globalization that underlies this Administration's national security export control philosophy. The key element in military superiority is the gap in capabilities between ourselves and our adversaries, and that gap is maintained and enlarged both through policies that retard our adversaries' progress (export controls, arms control agreements, among other things) and through policies that promote the research, development and acquisition of advanced technologies domestically.

This approach is fundamentally different from that of the Cold War, which was based on a broad policy of denial of a wide variety of goods to the Soviet Bloc on the assumption that anything shipped would be diverted to military or proliferation use. Instead, our approach is based on the reality of economic globalization and the realization that, as a result, our national security is a direct function of our economic health and security.

This is so for two reasons:

1) The ubiquity of critical technologies and the ease of their transfer makes export controls much more difficult than 20 or even 10 years ago. Intel, for example, has 50,000 authorized dealers worldwide. Sixty percent of its business is exports. Conversely, roughly two-thirds of the components of one of our leading computer manufacturer's products come from abroad. Microprocessors, which are the key ingredient for High Performance Computers (HPCs) as well as PCs, have become a commodity product widely available throughout the world from numerous sources. Maximizing our technological leadership will inevitably have more to do with making sure we are running faster than our adversaries than it will on trying to hold them back.

2) Our military's transition to Commercial Off the Shelf items (COTS), due to declining defense budgets and the inability of military procurement of specially designed items to keep up with fast changing sectors, particularly electronics, means that the technology driver in our economy is the civilian sector, not the military contractor. That means, in turn, that our military strength is directly tied to the health of the civilian companies that produce the products it buys. So is our economic health. The computer industry, for example, indicates that 45 percent of GDP growth in the past 2-1/2 years came from its products.

A good example is HPCs -- our defense establishment increasingly needs them for weapons' design and test simulation, fluid dynamics analysis, small particle analysis, "smart weapons," command, control and communications functions, etc. The 21st century fighting force will be more reliant on HPCs than any before it, and whoever has an edge in this technology will have an edge on the battlefield, as Desert Storm demonstrated.

The result is that the military relies on a strong high tech sector to continue to develop and manufacture new and better products; yet it does not buy enough by itself to keep them healthy. Instead, in a globalized economy, exports have become the key to growth and good health. In the computer and satellite industries, for example, between 50 and 60 percent of all revenues come from sales outside the U.S. Last year, USA Today reported that one of our companies had to eliminate 300 jobs after suspending work on three Asian satellites due to the flagging Asian economy. A failure to export also means fewer profits being rolled into R&D on next generation technologies and fewer funds available to address particular defense-related concerns.

Thus, the equation is: exports equals healthy high-tech companies equals strong defense. Cripple our companies by denying them the right to sell, and you set back our own military development.

The argument that, even so, we should simply deny them the right to export to China or some other "small" market is likewise fallacious. Leaving aside the fact that China won't stay a small market for long, the more important reason is that if we shut our door to China, in less than a year new competitors in Taiwan, Korea, Japan, and Europe will be walking through theirs. Our lead in many of these sectors, is not based on our monopoly of the technology; rather it is based on our quality and efficiency of production. Close a market and we will create viable competition where there is very little now. And that competition, as we have learned in so many other sectors over the past 20 years, will not stop with China but will move on to compete head to head against us elsewhere.

In other words, the loser in the face of closed markets is not the Chinese but the Pentagon, whose access to cutting edge goods and technologies will be slowed, and the United States, whose technological leadership will face new challenges from new suppliers.

The other reason closing markets like China to HPCs misses the point is the fact that China, as well as India and others, has the capacity to make these machines themselves. While they do not -- and cannot -- manufacture to compete with U.S. companies, they can make machines that will function at performance levels sufficiently high to provide the military capabilities they seek. Denying them U.S. products simply encourages their own development and production -- which is precisely what the Reagan administration's decision to deny India HPCs did.

Although I have used HPCs as an example, the logic is true for other fast moving sectors, including semiconductors, controlled software, and telecommunications. Large capital items, in contrast, are more susceptible to controls, but the implications for our defense of too-broad controls are the same as for HPCs. These include items like machine tools and semiconductor manufacturing equipment, where the U.S. has a minority of global market share and where current foreign availability is a serious issue; and satellites and some aerospace items where the U.S. has a strong global position but is under growing pressure from competent competitors ....

DEFENDING OUR POLICY

Now let me close by explaining what we in the administration are saying in order to deal with the challenges we face from Congress.

The first defense of our policy is to explain it fully. We must do a better job of teaching the public how changing times demand the more sophisticated policy this Administration has adopted and how the world is no longer suited to a Cold War approach. In making that clear, we must also make clear that our policy is the way to better security and a stronger military and intelligence position, not the reverse.

This means we will be making a national security argument rather than a commercial argument. Since this is the basis for our policy anyway, it is not a hard argument to make, but it will take effort to overcome the cynicism of those who incorrectly believe our policy has only a commercial basis. We leave it to industry to explain how globalization has affected you and the extent to which your health increasingly depends on exports.

The second element is to explain our policy of constructive engagement with China and our belief that the quickest way to turn them into a committed adversary is to treat them like one. This does not mean we pursue a policy of leniency. Far from it. We have been outspoken in confronting the Chinese with our differences and in seeking a dialogue to overcome them. And you all know the Chinese do not always make that easy. But it is important that we make very clear that the Congressional approach on export controls would have the effect of destroying our dialogue and pushing the Chinese into an adversarial position.

(End excerpts)