U.S.-China Economic and Security Review Commission, "Hearing: U.S.-China Trade Impacts on the U.S. Defense Industrial Base," June 23, 2005

June 23, 2005
124 Dirksen Senate Office Building
1st Street and Constitution Avenue, NE
Washington, DC

Co-Chairs: Commissioners Michael Wessel, William Reinsch, and Larry Wortzel

Opening Statement of C. Richard D’Amato, Commission Chairman

Good Morning and welcome. Today’s hearing will address the issue of U.S.-China trade impacts on the U.S. defense industrial base. We are honored to have Congressman Manzullo speaking before us this morning. I want to thank him for taking the time to be here.

This hearing follows two important field hearings the Commission recently held. In April the Commission went to Stanford University, in Palo Alto, CA to hear testimony from former Secretary of Defense William Perry and high-tech industry leaders on the status of U.S. innovation and the impact of China’s high-technology development on the U.S. research and development sector. This was followed by a hearing in May in New York City at the Council on Foreign Relations where the Commission heard from a distinguished group of economists on the effects of globalization on the U.S. economy. Needless-to-say, these issues represent huge impacts on the U.S. economy. And it is the U.S. economy that is the heart of our national security and the U.S. defense sector.

This issue is particularly timely, as Congress has recently reviewed the “Buy American” provisions of our laws. The original “Buy American Act” and Berry Amendment, established certain requirements for government entities, including DoD, to use U.S. sources when possible. The requirement is waived when it is not deemed effective to use a U.S. source. Some legislators believe that the waiver process by which DoD is circumventing the Buy American provision is used arbitrarily. I anticipate Congressman Manzullo will address this issue later today.

The health of the defense industrial base is not only measured by the level of Defense Department reliance on foreign sourcing, but is generally caught in and affected by the process of globalization itself. We will hear views today on the effects of globalization on the U.S. defense industrial base. But regardless of the level of globalization different experts find appropriate, for the defense industrial base to benefit from globalization, there  must  be  a  level  playing  field  for  trade  and  a  protection  from  piracy.  The Commission has found in both its 2002 and 2004 report that China poses challenges on both accounts and it is for that reason that we must examine this issue today.

I look forward to today’s testimony and will now turn to the Commission Vice-Chairman Roger Robinson.

Opening Statement of Roger W. Robinson, Commission Vice-Chairman

I join the Chairman in my appreciation to Congressman Manzullo for taking the time to be here. I also look forward to this morning’s presentations by The Honorable Peter Lichtenbaum and Dr. William Schneider.

We have a lot of ground to cover today, so I’d like to focus on one issue of concern. We are of course discussing U.S.-China trade and the impacts that has on our defense industrial base, but it also seems to me that Chinese investments abroad are a legitimate subject of interest as well. When Chinese companies that are majority owned by the Chinese government acquire companies either in the U.S. or elsewhere in sectors that are critical to the Defense Department or militarily sensitive, that should concern us. It is no secret that China is looking to buy up resources from many quarters, not just oil or natural gas, but also materials such as titanium. The Chinese are no doubt securing these supplies for their own commercial and strategic needs, but what happens to our access to some of these critical resources that China is seeking to, in effect, lock up should there be heightened tensions with Beijing down the road?

Moreover, China also seems interested in U.S. and other global technology companies. It strikes me that acquiring technology companies is a much more efficient means of gaining access to a wealth of technological knowledge and management than the type of technology transfers that China would require from global companies investing in China.

I hope we’ll have an opportunity today to treat these issues. Now let me turn the proceedings over to Commissioner Reinsch.

OPENING STATEMENTS
Opening Statement by Chairman Richard D'Amato [Remarks]
Opening Statement by Vice Chairman Roger W.Robinson, Jr. [Remarks]
Opening Statement by Commissioner Michael Wessel [Remarks]
Opening Statement by Commissioner William Reinsch [Remarks]
Opening Statement by Commissioner Larry Wortzel [Remarks]

Congressional Perspectives
Congressman Donald A. Manzullo (IL) [Testimony]

Administration Views
The Honorable Peter Lichtenbaum, Acting Under Secretary for Industry and Security, U.S. Department of Commerce [Testimony]

The Defense Industrial Base and the 21 st Century Warfighter
Dr. William Schneider, President, International Planning Services, Inc., Washington, DC

The Aerospace, Manufacturing Technology, and Specialty Metals Industrial Base
Mr. Pierre Chao, Director of Defense Industrial Initiatives, Center for Strategic and International Studies, Washington, DC [Testimony]
Dr. Paul Freedenberg, Vice President – Government Relations, Association for Manufacturing Technology, Washington, DC [Testimony]
Dr. Jack Shilling, Executive Vice President, Corporate Development and Chief Technical Officer, Allegheny Technologies, Inc., Pittsburgh, PA [Testimony]

The IT, Semiconductor, and Shipbuilding Industrial Base
Dr. William Howard, Chairman, Defense Science Board Task Force on High Performance Microchip Supply, Defense Department
Dr. James Lewis, Senior Fellow and Director, Technology and Public Policy Program, Center for Strategic and International Studies, Washington, DC [Testimony]
Ms. Amy Praeger, Director of Legislative Programs, American Shipbuilding Association, Washington, DC [Testimony]