Order Code RL31910
Report for Congress
Received through the CRS Web
China: Economic Sanctions
May 5, 2003
Dianne E. Rennack
Specialist in Foreign Policy Legislation
Foreign Affairs, Defense, and Trade Division
Congressional Research Service ˜ The Library of Congress
China: Economic Sanctions
Summary
The United States currently maintains the following economic sanctions against
China:
! limits on U.S. foreign assistance;
! U.S. “No” votes or abstention in the international banks;
! ban on Overseas Private Investment Corporation programs;
! ban on export of defense articles or defense services;
! ban on import of munitions or ammunition;
! denial of Generalized System of Preferences status;
! substantial export controls on dual-use items, particularly satellites,
nuclear technology, and computers; and
! export and licensing restrictions on targeted entities found to have
engaged in proliferation of missiles and weapons of mass destruction
(or related technology).
Human rights conditions in China and the threat of proliferation of weapons of
mass destruction resulting from China’s lack of export controls or lack of cooperation
with international export control standards continue to be the main foreign policy or
national security issues that hold these economic restrictions in place.
The influence of Congress on U.S. policy toward China, once significant
because so much hung on the annual possibility that favorable trade terms could be
suspended, has been diffused. Sanctions that remain in place today can all be
modified, eased, or lifted altogether by the President, without congressional input
(though some changes would require that the President notify Congress). At the
same time, because of the unrelenting tension between the United States and the
Peoples Democratic Republic of Korea over Korea’s interest in going nuclear, and
because of China’s longstanding relation with Korea as a primary trading partner and
benefactor, the United States’ relations with China are crucial.
This paper will be updated as events warrant.
Contents
U.S. Economic Sanctions Currently in Place Against China . . . . . . . . . . . . . 1
Tiananmen Sanctions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Foreign Aid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Arms Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Generalized System of Preferences . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Export Controls Applied to U.S.-China Trade . . . . . . . . . . . . . . . . . . . 6
Proliferation-Related Sanctions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Satellites . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Presidential Prerogative
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
China: Economic Sanctions
U.S. Economic Sanctions Currently in Place Against China
U.S.-China relations, since 1969, when the process of normalization began
under President Nixon, have advanced to a point that relatively few restrictions
remain.1 Today, U.S. economic sanctions against China include:
! limits on U.S. foreign assistance;
! U.S. “No” votes or abstention in the international banks;
! ban on Overseas Private Investment Corporation (OPIC) programs;
! ban on export of defense articles or defense services;
! ban on import of munitions or ammunition;
! denial of Generalized System of Preferences status;
! substantial export controls on dual-use items, particularly satellites,
nuclear technology, and computers; and
! export and licensing restrictions on targeted entities found to have
engaged in proliferation of missiles and weapons of mass destruction
(or related technology).
Many of these sanctions are imposed as a U.S. response to the Chinese
government’s crackdown against a fledgling democracy movement in the spring of
1989. The incidents at Tiananmen Square upended what had been two decades of
cautious but positive steps toward full and unfettered economic relations between the
United States and China.
U.S.-China relations have also been impeded by China’s willingness, some
would say eagerness, to export nuclear materials and goods and technology related
to missile proliferation. The early 1990s can be noted for reports that China assisted
Pakistan, Iran, and North Korea in their pursuit of the acquisition of weapons of mass
destruction.
Tiananmen Sanctions
In 1990, in the wake of the 1989 Tiananmen Square crackdown in China,
Congress passed legislation to reenforce interim economic and diplomatic sanctions
that President George H.W. Bush had implemented earlier to express U.S.
1 For a discussion of U.S. sanctions in place against China from 1949 to 1997, see: Rennack,
Dianne E. China: U.S. Economic Sanctions. CRS Report 96-272 F. October 1, 1997. 51
p.
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disapproval of the Chinese government’s actions. The Tiananmen Square sanctions,
as they are popularly called, included:2
! a continuance of the suspension of Overseas Private Investment
Corporation financing (imposed earlier by the President);
! a continuance of the suspension of Trade and Development Agency
(TDA) financing (imposed earlier by the President);
! a continuance of the suspension of export licensing for defense
articles and defense services on the U.S. Munitions List, including
helicopters and helicopter parts (imposed earlier by the President);
! a continuance of the suspension of export licenses for satellites
contracted to be launched in China (imposed earlier by the
President);
! a suspension of export licenses for crime control and detection
instruments and equipment;
! a denial of export licenses for any goods or technology used in
nuclear production, if the President finds that such products could be
diverted to the research or development of a nuclear explosive
device; and
! U.S. opposition to multilateral efforts to liberalize the application of
export controls that limited goods or technology to China.
The legislation included waiver authority provisions, authorizing the President to end
the sanctions if he determined either that (1) China’s progress in instilling certain
human rights standards warranted a change, or (2) it was in the U.S. national interest
to do so. It should be noted that “national interest” is considered the easiest standard
to meet in legislation that requires or authorizes the imposition of sanctions (by
comparison to what many consider the most rigorous standard, that a sanction not be
waived unless it is “essential to national security interests”). President Bush and his
successors have exercised the waiver on a case-by-case basis, in instances of satellite
exports and items related to counter-terrorism, or wholesale, in the case of restoring
TDA funding, nuclear cooperation, and liberalization of export controls. In 1998,
however, Congress reenforced a portion of the Tiananmen Square sanctions, by
requiring that the President provide a detailed justification before he waived
restrictions on the export of any satellite of U.S. origin or related items.3
Foreign Aid4
While China is not explicitly denied U.S. foreign assistance, the U.S. Agency
for International Development (USAID) — administrator of U.S. foreign aid
programs overseas — does not have a presence in the country. USAID’s most recent
2 Section 902 of the Foreign Relations Authorization Act, Fiscal Years 1990 and 1991 (P.L.
101-246; 22 U.S.C. 2151 note).
3 Section 1515 of P.L. 105-261 (112 Stat. 2177; 22 U.S.C. 2778 note).
4 Not everyone agrees that the withholding of foreign aid is an economic sanction. See, for
example: Helms, Jesse. “What Sanctions Epidemic? U.S. Business’ Curious Crusade.”
Foreign Affairs. January-February 1999.
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budget justification to Congress notes that “[t]he Chinese Government does not share
core American values on human rights, religious freedom, and democracy. The
United States and China also disagree on the best policies for Taiwan and Tibet.”5
Each of these would be grounds for denying U.S. foreign assistance.6 Even where
foreign aid is denied, it should be remembered, aid may be made available for many
reasons, particularly for emergency food aid, child survival and health, or disaster
assistance.
The United States has taken steps to make some aid available to China. In
2000, in the same measure that authorized the extension of normal trade relations,
Congress established the means to provide assistance to support rule of law programs
in China.7 Beginning with the Fiscal Year 2002 foreign aid appropriations measure,
Congress removed China from the list of countries prohibited from receiving U.S.
indirect foreign assistance. China had been prohibited from receiving such funds
since FY 1993, although the prohibition had little effect since the President waived
it each year. In the FY 2002 appropriations measure, Congress also put not less than
$10 million in Economic Support Funds toward “activities to support democracy,
human rights, and the rule of law in the People’s Republic of China,” of which $5
million was specifically earmarked for the State Department’s Human Rights and
Democracy Fund. Of that $5 million, $3 million “may be made available to
nongovernmental organizations located outside the People’s Republic of China to
support activities which preserve cultural traditions and promote sustainable
development and environmental conservation in Tibetan communities in Tibet”.8
5 U.S. Agency for International Development. Fiscal Year 2004 Budget Justification to the
Congress: Annex II — Asia and the Near East. p. 39-44.
6 For example, for human rights, consider secs. 116, 239(i), and 502B of the Foreign
Assistance Act of 1961 (22 U.S.C. 2151n, 2199(i), and 2304, respectively), in which human
rights violations are grounds for denying economic assistance, Overseas Private Investment
Corporation programming, and military assistance, respectively. Sec. 701 of the
International Financial Institutions Act (22 U.S.C. 262d) requires that human rights be taken
into consideration when evaluating multilateral bank loan votes. Sec. 2(b)(1)(B) of the
Export-Import Bank Act of 1945 (12 U.S.C. 635(b)(1)(B)) authorizes the President to deny
Bank support if it is in the U.S. national interest in various areas, including human rights and
child labor. Title IV of the International Religious Freedom Act of 1998 (22 U.S.C. 6441
et seq.) authorizes the President to restrict foreign aid if he finds certain conditions exist.
Other laws provide for foreign aid restrictions if specific aspects of human rights are
substandard. Finally, annual foreign assistance appropriations bills have, for many years,
required international family planning programs to meet stringent conditions relating to
abortion, involuntary sterilization, and coercive family planning in developing countries.
The United Nations Population Fund (UNFPA) lost $34 million in U.S. funding in FY 2002
when the Secretary of State determined that it engaged in coercive family planning in China.
See: CRS Report RL31311, Appropriations for FY2003: Foreign Operations, Export
Financing and Related Programs, by Larry Q. Nowels. 56 p.
7 P.L. 106-286, particularly title V (114 Stat.903; 22 U.S.C. 6961 et seq.).
8 Secs. 523 and 526 of Public Law 107-115 (115 Stat. 2146, 2147). See also sec. 511 of P.L.
106-286 (22 U.S.C. 6981), granting normal trade relations for China, in which the Secretary
of Commerce is authorized to establish a program to conduct rule of law training and
provide technical assistance related to commercial activities, and in which the Secretary of
(continued...)
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Since 1989, the Overseas Private Investment Corporation, an export promotion
program that is considered foreign aid, has not provided coverage or risk insurance
for U.S. investments in China. President George H.W. Bush required OPIC and the
Trade and Development Agency (TDA), which finances feasibility studies of U.S.
overseas investments, to close their China offices and programs after the Tiananmen
Square crackdown. In the waning days of his term, President Clinton notified
Congress that it was in the U.S. national interest to terminate the suspension of TDA
funding to China.9 TDA officials subsequently signed operating framework
agreements with China’s Ministry of Foreign Trade and Economic Cooperation and
several other government offices, and opened its grant assistance program on July 31,
2001.
The United States generally continues to abstain from or vote “No” in the
international financial institutions when loans for projects in China are on the table.
From January 1, 2000, through March 31, 2001, the last period for which data are
available, the World Bank, International Finance Corporation, Asian Development
Bank, and Asian Development Fund considered 41 loan or restructuring requests for
various projects in China, totaling some $2,756.9 million. Of these, the United States
abstained from or voted “No” in 29 instances. The United States gave its support
only where programs would meet basic human needs, or in circumstances where
impact on the human environment was not significantly damaging. Indeed, in the 31
instances where the United States abstained or voted “No” for human rights reasons
globally in this period, 26 of those votes were on loans to China.10 No one country
holds singular power to block a loan once it is brought up for a vote, however.
Arms Sales
The United States government maintains a prohibition on exporting defense
articles and defense services to China under the general authority granted to the
8 (...continued)
State is similarly tasked to create a program aimed at the development of China’s legal
system and civil society. China also hosts Peace Corps volunteers to teach English and
environmental studies in universities (estimated FY2003 request: $1.3 million). Peace
Corps Congressional Presentation for Fiscal Year 2003. p. 58.
9 Compilation of Presidential Documents: Administration of William J. Clinton. “Letter to
Congressional Leaders Transmitting a Report on Funding for the Trade and Development
Agency With Respect to China.” January 15, 2001. p. 128. In fact, many policy analysts
expected President Clinton to resume both OPIC and TDA programs in China prior to his
state visit in mid-1998. Even as the Administration was preparing for the summit, however,
Members of Congress were calling for an investigation of satellite exports to China, and
several departments and agencies within the executive branch began to scrutinize technology
transfers that exceeded licensing limits or took place altogether outside legal bounds. See:
Kan, Shirley A. China: Possible Missile Technology Transfers from U.S. Satellite Export
Policy — Actions and Chronology. CRS Report 98-485 F. 59 p.
10 Department of the Treasury. International Financial Institutions’ Transactions (January
1, 2000 through March 31, 2001, as reported to the Senate Committee on Foreign Relations,
September 17, 2001, in accordance with section 701 of the International Financial
Institutions Act (P.L. 95-118; 22 U.S.C. 262d).
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President and Secretary of State to control the import and export of such goods and
services in the context of U.S. foreign policy, as well as pursuant to the Tiananmen
sanctions.11 The export of defense articles and defense services has been prohibited
or limited to varying degrees as U.S.-China relations have thawed and shifted since
1949.
The United States also prohibits the import of munitions and ammunition from
China. President Clinton announced the sanction on imports in May 1994, along
with the announcement that he would renew Most-Favored-Nation trade status for
China for another year.12
Trade13
Generalized System of Preferences. Imports from China are denied duty-
free treatment afforded to certain imports from other developing countries under the
U.S. Generalized System of Preferences (GSP). The Trade Act of 1974, which
authorizes the GSP, requires a communist country to meet certain conditions before
the President may designate it as a “beneficiary developing country” to become
eligible for preferential trade treatment. The first set of bases for ineligibility are
applicable to communist countries and include ineligibility for normal trade relations
(formerly Most Favored Nation) and nonmembership in the World Trade
Organization (WTO) and International Monetary Fund (IMF). China cleared these
hurdles when China joined the WTO in 2001, the United States granted normal trade
status in 2002, and China has been a member in good standing in the IMF since 1980.
The third condition to be met by communist countries is that the country in question
“is not dominated or controlled by international communism.” Conditions applicable
to communist countries are not waivable. China may be denied for its political
11 Sections 2, 38, 40, 42, and 71 of the Arms Export Control Act (22 U.S.C. 2752, 2778,
2780, 2791, and 2797). Restrictions are stated at 22 CFR 126.1: Department of State:
Prohibited exports and sales to certain countries.
12 In 1993, President Clinton linked the annual renewal of Most-Favored-Nation trade status
for China to improved human rights conditions there. One year later, he de-linked human
rights from trade, but imposed the import restriction as an expression of continuing concerns
over human rights. He also announced increased Radio Free Asia and Voice of America
broadcasts to China, support for nongovernmental organizations working on human rights
in China, and the “development with American business leaders of a voluntary set of
principles for business activity in China.” “The President’s News Conference: May 26,
1994,” in Public Papers of the Presidents of the United States: William J. Clinton. vol. I, p.
991. See munitions import restrictions stated at 27 CFR 47.52, Bureau of Alcohol, Tobacco
and Firearms, Department of Treasury; and arms embargo stated at 22 CFR 126.1,
Department of State.
13 The sanctions discussed here are applied for foreign policy or national security objectives
but affect trade. Trade-related sanctions — including those imposed for intellectual
property rights issues or unfair market practices, for example — draw from a different body
of law and are not addressed in this paper. For trade related issues, see: CRS Report
RS21292, Agriculture: U.S.-China Trade Issues, by Geoffrey S. Becker and Charles E.
Hanrahan; and CRS Issue Brief IB91121, China-U.S. Trade Issues, by Wayne M. Morrison.
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system or for a number of other reasons stated in the law, including intellectual
property rights protection or workers’ rights.14
Export Controls Applied to U.S.-China Trade. Export regulations are
constructed to implement U.S. law and various international control regimes to which
the United States is a party (i.e., the Missile Technology Control Regime, or the
Nuclear Suppliers Group). They generally are not cast as economic sanctions
because their goal is not to change the particular objectionable behavior of a targeted
country but to meet U.S. legal and international obligations. The application of
export controls, however, can have the same appearance and effect as an economic
sanction imposed for foreign policy or national security objectives.
Though several departments and two commissions have export control
responsibilities,15 the lion’s share is assigned to the Department of Commerce’s
Bureau of Industry and Security (BIS). BIS promulgates the Export Administration
Regulations (EAR).16 The EAR include the Commerce Control List, which
categorizes all goods, services, and technology for which export licenses are required
for a range of national security and foreign policy reasons.
An export license is required for commercial goods, services, or technology
intended for China for reasons of: chemical and biological weapons proliferation,
nuclear proliferation, national security, missile technology, regional stability, and
crime control. This means that exporting most items on the Commerce Control List
to China would require a license. For some goods and services, further guidance is
provided in the form of license exceptions. Computer equipment, assemblies and
components, for example, are controlled for national security reasons, but trading
partners are sorted into two groups or tiers. China is listed in the more restricted Tier
3, for which a computer may be sold and shipped if it is a slower processor, if the
end-user is clearly identified, and if the end-use does not pertain to nuclear, chemical,
biological, or missile activities. Each license application is thus scrutinized by the
Department of Commerce.
14 Title V of the Trade Act of 1974 (P.L. 93-618; 19 U.S.C. 2461-2466), particularly sec.
502(b), (c), and (d).
15 As detailed in 15 CFR Part 730, Suppl. No. 3: the State Department oversees defense
articles and defense services. Justice handles most controlled drug issues, including related
chemicals and precursor agents. Health and Human Services (Food and Drug
Administration) manages the export of other drugs, biologics, medical devices, and
investigational drugs. Interior oversees fish and wildlife controls and endangered species.
Treasury (Office of Foreign Assets Control) controls the flow of financial transactions and
foreign access to assets in, or of, the United States. Department of Energy scrutinizes
exports related to gas, electricity, and nuclear technology, technical data for nuclear
weapons and special nuclear materials. Transportation oversees the use of U.S.-flagged
vessels. Two independent commissions, the Nuclear Regulatory Commission and the
Federal Maritime Commission, keep track of nuclear materials and equipment, and ocean
freight forwarders, respectively. In each department or commission, it is possible that
punitive restrictions — sanctions — could be imposed on licensing to further national
security or foreign policy goals.
16 15 CFR Subchapter C (Parts 730-799).
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The United States’ trading partners are also sorted into four country groups.
Country Group A is reserved, mostly, for countries that are participants in the
Nuclear Suppliers Group, the Australia Group, and the Missile Technology Control
Regime. The most restrictive group, Country Group E, is reserved for those
countries identified by the State Department as supporters of international terrorism.
China is in Country Group D for national security and for proliferation of chemical
and biological weapons and missile technology. A Country Group D listing further
limits the likelihood of export licenses being granted for China for most Commerce
Control List items, though for China the general policy is to approve licenses except
in certain, very specific, instances. For example, it is general policy to deny licenses
to any national security-listed country where the export “would make a significant
contribution to the military potential of any other country or combination of countries
that would prove detrimental to the national security of the United States.” In the
case of China, however, only exports that “would make a direct and significant
contribution to electronic and anti-submarine warfare, intelligence gathering, power
projection, and air superiority receive extended review or denial.”17
Proliferation-Related Sanctions.18 China is a signatory of the Nuclear
Nonproliferation Treaty, the Comprehensive Nuclear Test Ban Treaty, and the
Chemical Weapons Convention; is a member of the Zangger Committee (pertaining
to nuclear trade); and has issued export control regulations to demonstrate its
commitment to follow the guidelines of the Missile Technology Control Regime.
Nonetheless, entities and individuals in China have been found to be in violation of
U.S. laws pertaining to proliferation of weapons of mass destruction. China has been
linked to sales or transfers of controlled nuclear and missile technology to Iran, North
Korea, Libya, Syria, and Pakistan. As a result of violating U.S. laws intended to
staunch international proliferation of weapons of mass destruction, the charged
Chinese entities have been denied: U.S. government contracts relating to missile
equipment or technology (unlikely to occur in any event), licenses to transfer
controlled materials (also unlikely in any circumstance), the right to import any
products into the United States, U.S. government sales or transfers of items
controlled on the U.S. Munitions List, and any U.S. (government or commercial)
sales or transfers of dual-use items on the Commerce Control List (for which China
is already heavily restricted).19
17 15 CFR Part 742.4(a) and 742.4(b)(7).
18 For further discussion, see CRS Report RL31555, China and Proliferation of Weapons
of Mass Destruction and Missiles: Policy Issues, by Shirley A. Kan.
19 For missiles: sec. 73 of the Arms Export Control Act (AECA) (P.L. 90-629; 22 U.S.C.
2797b), and sec. 11B of the Export Administration Act of 1979 (EAA) (P.L. 96-72; 50
U.S.C. app. 2410b). Chemical weapons: sec. 81 of the AECA (22 U.S.C. 2798), sec. 11C
of the EAA (50 U.S.C. app. 2410c), and sec. 3 of the Iran Nonproliferation Act of 2000
(P.L. 106-178; 50 U.S.C. 1701 note). For all manner of WMD proliferation: Executive
Order 12938 (November 14, 1994; 50 U.S.C. 1701 note), wherein the President has the
authority to control any relevant item, deny procurement contracts, foreign aid, importation,
support in the international financial institutions, credit in other fora, and landing rights to
an entity or country.
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Satellites.20 President George H.W. Bush suspended export licenses for
satellites contracted to be launched in China after the Tiananmen Square crackdown
in 1989, an action reenforced by Congress a few months later when it enacted the
Tiananmen Square sanctions in 1990. The restriction remains in law but was waived
on a case-by-case basis by Presidents George H.W. Bush and Clinton, who each
found it in the U.S. national interest to do so. Following several controversial
issuances of export licenses for satellites during the Clinton Administration, since
1998, the President has been required to provide a detailed description and
justification of each waiver applicable to satellites or related items. The State
Department suspended the processing of export licenses for satellites to China in
February 2000.
Presidential Prerogative
In 2000, Congress enacted legislation to improve U.S.-China relations, primarily
by setting in motion the means to grant China permanent normal trade relations once
it joined the World Trade Organization.21 Prior to that, human rights conditions in
China had been subject to regular scrutiny by both the Legislative and Executive
Branches, with the two bodies often not in agreement. China continues to be so
scrutinized for human rights, religious freedom, labor rights, use of prison labor, and
proliferation issues. But the power of Congress, once significant because so much
hung on the annual possibility that favorable trade terms could be suspended, has
been diffused. The sanctions that remain in place today can all be modified, eased,
or lifted altogether by the President, without congressional input (though some
changes would require that the President notify Congress).
At the same time, because of the unrelenting tension between the United States
and the Peoples Democratic Republic of Korea over Korea’s interest in going
nuclear, and because of China’s longstanding relation with Korea as a primary
trading partner and benefactor, the United States’ relations with China are crucial.
Proliferation, terrorism, and reconstruction in Iraq are all issues in which the United
States might find itself at odds with China, or might find in China a powerful ally.
20 For further discussion, see CRS Report 98-485, China: Possible Missile Technology
Transfers From U.S. Satellite Export Policy — Actions and Chronology, by Shirley A. Kan.
21 P.L. 106-286 (114 Stat. 880, enacted October 10, 2000).