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Wednesday, September 29, 2010

China and Proliferation of Weapons of Mass Destruction and Missiles: Policy Issues


Shirley A. Kan
Specialist in Asian Security Affairs

Congress has long been concerned about whether U.S. policy advances the national interest in reducing the role of the People’s Republic of China (PRC) in the proliferation of weapons of mass destruction (WMD) and missiles that could deliver them. Recipients of China’s technology reportedly include Pakistan and countries that the State Department says support terrorism, such as Iran and North Korea. This CRS Report, updated as warranted, discusses the security problem of China’s role in weapons proliferation and issues related to the U.S. policy response since the mid-1990s. China has taken some steps to mollify U.S. and other foreign concerns about its role in weapons proliferation. Nonetheless, supplies from China have aggravated trends that result in ambiguous technical aid, more indigenous capabilities, longer-range missiles, and secondary (retransferred) proliferation. According to unclassified intelligence reports submitted as required to Congress, China has been a “key supplier” of technology, particularly PRC entities providing nuclear and missile-related technology to Pakistan and missile-related technology to Iran.

Policy issues in seeking PRC cooperation have concerned summits, sanctions, and satellite exports. On November 21, 2000, the Clinton Administration agreed to waive missile proliferation sanctions, resume processing licenses to export satellites to China, and discuss an extension of the bilateral space launch agreement, in return for another PRC promise on missile nonproliferation. However, PRC proliferation activities have continued to raise questions about China’s commitment to nonproliferation and the need for U.S. sanctions. The Bush Administration imposed sanctions on 20 occasions on various PRC “entities” (including state-owned entities) for troublesome transfers related to missiles and chemical weapons to Pakistan, Iran, or perhaps another country, including repeated sanctions on some “serial proliferators.” Among those sanctions, in September 2001, the Administration imposed missile proliferation sanctions that effectively denied satellite exports, after a PRC company transferred technology to Pakistan, despite the promise of 2000. In September 2003, the State Department imposed additional sanctions on NORINCO, a defense industrial entity, effectively denying satellite exports to China. However, for six times, the State Department waived this sanction for the ban on imports of other PRC government products related to missiles, space systems, electronics, and military aircraft, and issued a permanent waiver in 2007. Since 2009, the Obama Administration has imposed sanctions on four occasions on PRC entities for missile or other weapon proliferation.

Skeptics question whether China’s cooperation in weapons nonproliferation warrants the U.S. pursuit of closer ties, even as sanctions were required against PRC technology transfers. Some criticize the imposition of U.S. sanctions targeting PRC “entities” but not the government. Others doubt the effectiveness of any stress on sanctions over diplomacy. Meanwhile, in 2002-2008, the U.S. approach relied on China’s influence on North Korea to dismantle its nuclear weapons. Beijing hosted the “Six-Party Talks” (last held in December 2008) with limited results, while the United States resumed bilateral talks with North Korea. China’s approach evolved to vote for some U.N. Security Council (UNSC) sanctions against nuclear proliferation in North Korea and Iran. Some still called for engaging more with Beijing to use its leverage against Pyongyang and Tehran. However, North Korea’s second nuclear test in May 2009 and sinking of South Korea’s naval ship Cheonan in March 2010 prompted greater debate about the value of China’s roles. After much diplomacy, the PRC voted in June 2009 for UNSC Resolution 1874 to expand sanctions previously imposed under Resolution 1718 in 2006 against North Korea and voted in June 2010 for UNSC Resolution 1929 to impose the fourth set of sanctions against Iran. Also, concerns increased that China could capitalize in oil deals as others enforce sanctions and that China could fall under U.S. sanctions against Iran under P.L. 111-195 enacted on July 1, 2010.



Date of Report: September 13, 2010
Number of Pages: 72
Order Number: RL31555
Price: $29.95

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Thursday, September 23, 2010

China’s Steel Industry and Its Impact on the United States: Issues for Congress

Rachel Tang
Analyst in Industrial Organization and Business

China’s steel industry has grown significantly since the mid 1990s. China is now the world’s largest steelmaker and steel consumer. In 2009, China produced over 567 million tons of crude steel, nearly half of the world’s steel. That was 10 times the U.S. production.

The majority of Chinese steel has been used to meet domestic demand in China. However, as its steel production continues to grow, overcapacity is becoming a major concern to Chinese industrial policy makers, as well as steelmakers outside China. Although industry statistics indicate that the Chinese steel industry is not export-oriented, its consistently high output keeps U.S. steelmakers concerned that excess Chinese steel might overwhelm the global market once domestic demand is adequately met. These concerns become increasingly acute as the United States and the rest of the world are in the middle of a slow recovery from the economic recession started in December 2007.

The Chinese steel industry is highly fragmented, with more than a thousand steel producers, which makes the domestic market highly competitive and difficult to control. Its growth also faces constraints such as dependence on imported iron ore and high energy consumption. The Chinese government has shown interest in stepping up its efforts to rein in steel overcapacity and to consolidate and restructure the steel industry. However, it remains to be seen if the government’s efforts and measures are to produce sufficient or meaningful results.

The possibility of surplus steel from Chinese steel producers, their alleged questionable, if not illegal, trade practices, and the possibility of Chinese direct investment in the U.S. steel sector are all of major concern to the steelmakers in the United States.

Steelmakers in the United States believe that China’s government subsidization of its steel (in the form of an undervalued currency, export rebates and/or quotas, subsidized financing, relatively weak environmental, labor, and safety regulations, etc.) is one of the key issues affecting the health of the U.S. steel sector. There have been multiple anti-dumping and countervailing cases in the United States against certain Chinese steel products, which suggests that U.S. steel producers and trade officials are increasingly using trade remedies to enforce international trade laws.

The rise of China’s steel sector, along with other manufacturing industries, presents issues beyond trade law enforcement. China’s quest for industrial raw materials is having considerable effect on global demand and supply, and as a result, the prices and availability of such inputs. China’s restrictions on exports of some raw materials, allegedly, lower the cost of such raw materials in the home economy, while increasing global prices of these products (or diminishing global supply), thereby gaining an unfair advantage in some manufacturing industries.

Amid the rising trade cases against various Chinese steel imports, Congress became increasingly concerned over alleged unfair trade competition from China. In August 2010, legislative measures were introduced in the Senate (S. 3725), while a set of measures focusing on illegal import practices were proposed by the U.S. Commerce Department, both aiming to continue the rigorous and more effective enforcement of U.S. trade laws.

This report provides an overview of China’s steel industry and discusses the issues and implications with regard to the U.S. steel sector.



Date of Report: September 21, 2010
Number of Pages: 32
Order Number: R41421
Price: $29.95

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Monday, September 20, 2010

Taiwan: Major U.S. Arms Sales Since 1990

Shirley A. Kan Specialist in Asian Security Affairs

This report, updated as warranted, discusses U.S. security assistance to Taiwan, or Republic of China (ROC), including policy issues for Congress and legislation. Congress has oversight of the Taiwan Relations Act (TRA), P.L. 96-8, which has governed arms sales to Taiwan since 1979, when the United States recognized the People's Republic of China (PRC) instead of the ROC. Two other relevant parts of the "one China" policy are the August 17, 1982, U.S.-PRC Joint Communique and the "Six Assurances" to Taiwan. U.S. arms sales to Taiwan have been significant. The United States also expanded military ties with Taiwan after the PRC's missile firings in 1995-1996. However, the U.S.-ROC Mutual Defense Treaty terminated in 1979.

At the last U.S.-Taiwan annual arms sales talks on April 24, 2001, President George W. Bush approved for possible sale diesel-electric submarines, P-3 anti-submarine warfare (ASW) aircraft (linked to the submarine sale), four decommissioned U.S. Kidd-class destroyers, and other items. Bush also deferred decisions on Aegis-equipped destroyers and other items, while denying other requests. Afterward, attention turned to Taiwan, where the military, civilian officials, and legislators from competing political parties debated contentious issues about how much to spend on defense and which U.S. weapons to acquire, despite the increasing threat (including a missile buildup) from the People's Liberation Army (PLA). In 2003, the Bush Administration pointed Taiwan to three priorities for defense: command and control, missile defense, and ASW. The Pentagon also has broadened its concern from Taiwan's arms purchases to its defense spending, seriousness in self-defense and protection of secrets, joint capabilities, operational readiness, critical infrastructure protection, and asymmetrical advantages. Blocked by the Kuomintang (KMT) party in the Legislative Yuan (LY) that opposed the Democratic Progressive Party (DPP)'s president (2000-2008), the Special Budget (not passed) for submarines, P-3C ASW aircraft, and PAC-3 missile defense systems was cut from $18 billion in 2004 to $9 billion (for submarines only) in 2005. In March 2006, Taiwan's defense minister requested a 2006 Supplemental Defense Budget (not passed) in part for submarine procurement, P-3Cs, and PAC-2 upgrades (not new PAC-3 missiles). In June 2007, the LY passed Taiwan's 2007 defense budget with funds for P-3C planes, PAC-2 upgrades, and F-16C/D fighters. In December 2007, the LY approved $62 million to start the sub design phase. After the KMT's Ma Ying-jeou became President in May 2008, he resumed cross-strait talks while retaining the arms requests. But he has cut the defense budget.

Attention also turned to U.S. decisions on pending arms sales. In 2008, congressional concerns mounted about a suspected "freeze" in President Bush's notifications to Congress on arms sales. On October 3, 2008, Bush finally notified Congress. However, he submitted six of the eight pending programs (not a "package") for a combined value of $6.5 billion. Despite the concerns in 2008, President Obama repeated that cycle to wait to decide on submissions for congressional review all at one time (on January 29, 2010) five programs with a total value of $6.4 billion. Like Bush, President Obama did not notify the submarine design program (the only one pending from decisions in 2001) and has not accepted Taiwan's formal request for F-16C/D fighters (pending since 2006). Legislation in the 111th Congress include: National Defense Authorization Act (NDAA) for FY2010, P.L. 111-84; H.Res. 733 (Gingrey); H.Con.Res. 200 (Andrews); H.R. 4102 (Ros-Lehtinen); and H.Res. 927 (Barton). Moreover, Senators Cornyn, Inhofe, and Lieberman stressed to Defense Secretary Robert Gates the NDAA's directive for an assessment of Taiwan's air defense forces, including its F-16 fighters. Submitted in February, the assessment found that Taiwan has diminished ability to deny the PRC air superiority. On May 12, 136 Representatives sent President Obama a letter to urge a sale of more F-16 fighters to Taiwan. The Defense Secretary reported to Congress in August that the PLA's build-up opposite Taiwan continued.


Date of Report: August 31, 2010
Number of Pages: 69
Order Number: RL30957
 Price: $29.95

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Document available via e-mail as a pdf file or in paper form.
To order, e-mail Penny Hill Press or call us at 301-253-0881. Provide a Visa, MasterCard, American Express, or Discover card number, expiration date, and name on the card. Indicate whether you want e-mail or postal delivery. Phone orders are preferred and receive priority processing.

Wednesday, September 8, 2010

China and Proliferation of Weapons of Mass Destruction and Missiles: Policy Issues

Shirley A. Kan
Specialist in Asian Security Affairs


Congress has long been concerned about whether U.S. policy advances the national interest in reducing the role of the People's Republic of China (PRC) in the proliferation of weapons of mass destruction (WMD) and missiles that could deliver them. Recipients of China's technology reportedly include Pakistan and countries that the State Department says support terrorism, such as Iran and North Korea. This CRS Report, updated as warranted, discusses the security problem of China's role in weapons proliferation and issues related to the U.S. policy response since the mid-1990s. China has taken some steps to mollify U.S. and other foreign concerns about its role in weapons proliferation. Nonetheless, supplies from China have aggravated trends that result in ambiguous technical aid, more indigenous capabilities, longer-range missiles, and secondary (retransferred) proliferation. According to unclassified intelligence reports submitted as required to Congress, China has been a "key supplier" of technology, particularly PRC entities providing nuclear and missile-related technology to Pakistan and missile-related technology to Iran. 

Policy issues in seeking PRC cooperation have concerned summits, sanctions, and satellite exports. On November 21, 2000, the Clinton Administration agreed to waive missile proliferation sanctions, resume processing licenses to export satellites to China, and discuss an extension of the bilateral space launch agreement, in return for another PRC promise on missile nonproliferation. However, PRC proliferation activities have continued to raise questions about China's commitment to nonproliferation and the need for U.S. sanctions. The Bush Administration imposed sanctions on 20 occasions on various PRC "entities" (including state-owned entities) for troublesome transfers related to missiles and chemical weapons to Pakistan, Iran, or perhaps another country, including repeated sanctions on some "serial proliferators." Among those sanctions, in September 2001, the Administration imposed missile proliferation sanctions that effectively denied satellite exports, after a PRC company transferred technology to Pakistan, despite the promise of 2000. In September 2003, the State Department imposed additional sanctions on NORINCO, a defense industrial entity, effectively denying satellite exports to China. However, for six times, the State Department waived this sanction for the ban on imports of other PRC government products related to missiles, space systems, electronics, and military aircraft, and issued a permanent waiver in 2007. Since 2009, the Obama Administration has imposed sanctions on four occasions on PRC entities for missile or other weapon proliferation. 

Skeptics question whether China's cooperation in weapons nonproliferation warrants the U.S. pursuit of closer ties, even as sanctions were required against PRC technology transfers. Some criticize the imposition of U.S. sanctions targeting PRC "entities" but not the government. Others doubt the effectiveness of any stress on sanctions over diplomacy. Meanwhile, since 2002, the U.S. approach has relied on China's influence on North Korea to dismantle its nuclear weapons. Beijing hosted the "Six-Party Talks" (last held in December 2008) with limited results, while the United States resumed bilateral talks with North Korea. China's approach evolved to vote for some U.N. Security Council (UNSC) sanctions against nuclear proliferation in North Korea and Iran. Some have called for engaging more with Beijing to use effectively its leverage against Pyongyang and Tehran. However, North Korea's second nuclear test in May 2009 prompted greater debate about the value of China's cooperation. After much diplomacy, the PRC voted in June 2009 for UNSC Resolution 1874 to expand sanctions previously imposed under Resolution 1718 in 2006 against North Korea and voted in June 2010 for UNSC Resolution 1929 to impose the fourth set of sanctions against Iran. However, China also has maintained balanced positions that include support for North Korea and Iran, including questionable enforcement of sanctions and business as usual (especially energy deals) that undermine international pressure.



Date of Report: August 16, 2010
Number of Pages: 71
Order Number: RL31555
Price: $29.95

Follow us on TWITTER at http://www.twitter.com/alertsPHP or #CRSreports

Document available via e-mail as a pdf file or in paper form.
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Wednesday, September 1, 2010

East Asia’s Foreign Exchange Rate Policies

Michael F. Martin
Specialist in Asian Affairs


Financial authorities in East Asia have adopted a variety of foreign exchange rate policies, ranging from Hong Kong's currency board system which links the Hong Kong dollar to the U.S. dollar, to the "independently floating" exchange rates of Japan, the Philippines, and South Korea. Most Asian monetary authorities have adopted "managed floats" that allow their local currency to fluctuate within a limited range over time as part of a larger economic policy. A "crawling peg" is a special type of managed float in which a nation allows its currency to gradually appreciate or depreciate over time. China adopted a "crawling peg" policy from July 2005 to July 2008. 

U.S. policy has generally supported the adoption of "free float" exchange rate policies. Legislation has been introduced during the 111th Congress designed to pressure nations seen as "currency manipulators" to allow their currencies to appreciate against the U.S. dollar. However, most East Asian monetary authorities consider a "managed float" exchange rate policy more conducive to their economic goals and objectives. A "managed float" can reduce exchange rate risks, which can stimulate international trade, foster domestic economic growth and lower inflationary pressures. However, it can also lead to serious macroeconomic imbalances if the currency is severely over or under valued. In either case, a managed float usually means that the nation has to impose restrictions on the flow of financial capital or lose some autonomy in its monetary policy. 

Over the last five years, the value of the U.S. dollar has generally declined against most major currencies, although the U.S. dollar has partially rebounded against several major currencies since the beginning of 2010. The governments of East Asia have differed in their response to the fluctuations in the value of the U.S. dollar. Some have allowed their local currency to appreciate against the U.S. dollar; others have held the value of their currency against the U.S. dollar relatively unchanged. A few have seen their currencies depreciate in value relative to the U.S. dollar despite the weakness of the U.S. currency. 

Some Members of Congress and analysts maintain that the exchange rate policies of some nations are keeping the prices of their exports artificially low and the cost of U.S. exports artificially high, leading to a U.S. trade deficits with those nations. However, it is uncertain if the adoption of "free float" exchange rate policies in East Asia would necessarily lead to a major decline in the U.S. trade deficit with East Asia. Some studies have predicted significant trade effects from the appreciation of certain East Asian currencies; others show little or no impact. Recent trends in trade with China, Japan, and South Korea seem to indicate that exchange rates are not the pivotal factor determining bilateral trade balances.



Date of Report: August 16, 2010
Number of Pages: 12
Order Number: RS22860
Price: $29.95

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Document available via e-mail as a pdf file or in paper form.
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