European Union's Arms Embargo on China: Implications and Options for U.S. Policy
Released: 2006-01-26T00:00:00

Background: Policy Dilemmas

Over the last two years, the European Union (EU) has been considering lifting its armsembargo on the People's Republic of China (PRC), imposed after the June 1989 Tiananmen Squarecrackdown. (1) Manycountries imposed sanctions on China, after Deng Xiaoping and other PRC rulers ordered themilitary, the People's Liberation Army (PLA), to violently suppress peaceful demonstrators inBeijing on June 4, 1989. (Although the killing of demonstrators took place beyond the TiananmenSquare in the capital of Beijing, the crackdown is commonly called the Tiananmen Crackdown inreference to the square that was the focal point of the nation-wide pro-democracy movement.)

The Bush Administration opposes an end to the EU's arms embargo on China, seeing it asa relaxation in the EU's human rights and arms export policies toward China, and out of step withU.S. sanctions on arms sales to China that have remained since 1989. Overall, there are two sets ofquestions for Congress in examining U.S. policy toward this question. What are the implicationsfor U.S. political and security interests concerning Europe and China? If U.S. interests are adverselyaffected, what are some options for Congress to discourage the EU from lifting its arms embargo onChina and, if it is lifted, to protect U.S. national security interests? The purpose of this CRS Reportis to discuss U.S. concerns and implications for U.S. interests, as the EU considers the future of thearms embargo, as well as options for U.S. policy.

Given strenuous U.S. objections, there are concerns that a decision made by the EU to expandengagement with China by lifting the arms embargo would negatively impact the trans-Atlanticalliance (if there is a division in U.S. and European approaches toward China) and defensecooperation (if the United States responds by restricting technology transfers to Europe or defenseprocurement from Europe). At the same time, the current disagreement presents an opportunity forcloser coordination of U.S.-European policies, including controls over military-related exports andstrategy towards China. The United States has important interests in maintaining strong allianceswith common approaches toward a rising China.

Like Europe, Washington increasingly has engaged Beijing on the economic, political, andmilitary fronts. A fundamental issue, then, has been how engagement is pursued and whether itcontributes to a more responsible China in domestic and international affairs or aggravatesdevelopments in China with adverse implications. For decades, U.S.-PRC relations have expandedwith trade and cooperation on international issues. There remain Western concerns, however, aboutrestrictions on human rights and democracy in China, and about the impact of China's weaponsproliferation practices and military buildup on peace and stability in Asia and other regions aroundthe world.

Because some European companies have transferred defense-related systems to China underthe arms embargo that is not legally binding, the United States has called for the EU to maintain theembargo and strengthen export controls. There are fears that any acceleration of China's militarymodernization with European defense technology would result in instability in the Taiwan Strait,which could involve U.S. military intervention. This concern stems from one dilemma for U.S.policy: adherence to the "one China" policy since the Nixon Administration started secret talks withthe PRC in 1971 while maintaining diplomatic relations with the Republic of China (commonlycalled Taiwan) until 1979 and unofficial relations since then.

Taiwan remains the major U.S.-PRC issue that could bring the countries into conflict. The1979 Taiwan Relations Act (TRA), P.L. 96-8 , governs U.S. policy toward Taiwan, including offeringarms to assist its self-defense. The TRA did not commit the President and Congress to determineany decision to intervene in the event of threats to Taiwan, other than to consider any non-peacefulefforts to determine Taiwan's future "of grave concern to the United States." Nonetheless, amongthe stipulations of U.S. policy, the TRA declared that it is U.S. policy "to maintain the capacity ofthe United States to resist any resort to force or other forms of coercion that would jeopardize thesecurity, or the social or economic system, of the people on Taiwan." (2) Thus, in addition to issuesabout arms sales to Taiwan and the extent of any U.S. commitment to help defend Taiwan, onequestion is whether the U.S. forces have the capability to deter or defeat the PLA, not only in theevent of a use of force but also coercion against Taiwan. Maintenance of cross-strait stability hasrequired a careful balance of ties with both the PRC and Taiwan. There have been periodicallyheightened tensions between the PRC and Taiwan since the Taiwan Strait Crisis of 1995-1996,sensitive assertions of a separate national identity in Taiwan since 1999, and President Bush'sarticulation of stronger U.S. support for Taiwan's self-defense in 2001, later qualified by criticismof Taiwan's president in 2003 for perceived attempts to change the cross-strait status quo.

Congressional Concerns

Congress exercises oversight of the effectiveness of the Bush Administration's diplomacytoward Europe. Since 2004, U.S. officials have pressured EU member states not to lift the armsembargo. Congress has supported this stance.

Congress also has expressed concerns about policy toward China, including promotion ofhuman rights. Moreover, Congress has expressed increasing concerns about the PLA'smodernization, particularly following the military exercises and missile launches targeted againstTaiwan in 1995-1996. Because many EU member states have narrowly interpreted the armsembargo as banning only lethal weapons, some EU countries have sold defense-related technologyto China. There is concern that without the arms embargo, EU countries might sell additionaldual-use technology and/or weapons systems to China. The PLA could then employ Europeantechnology and weapons against U.S. forces and friends, in the event of a conflict with China. Moreover, there is concern about the potential for EU companies involved in U.S.-European defensecooperation to transfer U.S. defense technology to China, undermining U.S. export controls andsanctions on arms sales to China.

In May 2004, the House passed its version of the National Defense Authorization Act forFY2005 ( H.R. 4200 ), reported out of the House Armed Services Committee, whichincluded a provision to impose procurement sanctions against any foreign person that transferscertain military items to China. (Also see section on Legislation below.)

In early 2005, Senator Richard Lugar warned that "the technology the U.S. shares withEuropean allies could be in jeopardy if allies were sharing that through these commercial sales withthe Chinese." (3) SenatorJoseph Biden said that lifting the embargo is "a non-starter with Congress." (4) In the House, RepresentativeHenry Hyde wrote that "the choice for Europe could not be clearer: it is between policies thatpromote the development of democracy in China or those that support China's military buildup andthreaten U.S. security interests." (5)

At a hearing of the Senate Foreign Relations Committee on March 16, 2005, Senator Lugarcautioned that if European military-related transfers to China rises markedly, "we should reassesssales to Europe of our most critical military technology." Referring to China's adoption two daysearlier of its "Anti-secession Law" threatening the use of force against Taiwan and raising cross-straittensions, Senator Lugar counseled that "this is no time to be taking steps that might either help Chinaachieve a decisive military advantage over Taiwan or send the wrong political signal." Likewise,Senator Biden urged the Europeans to maintain the embargo as well as strengthen the Code ofConduct on arms sales, particularly given the timing when the Bush Administration "has reached outto try to begin to mend our frayed relationships with our European allies...." (6)

Convening a joint hearing in April 2005, Representatives Duncan Hunter, Ike Skelton, HenryHyde, and Tom Lantos, the Chairs and Ranking Members of the House Armed Services andInternational Relations Committees expressed their opposition to an end to the EU's armsembargo. (7)

Decisions on Arms Sanctions

U.S. Sanctions on Arms Sales to China

Between 1985 and 1987, the United States had agreed to extend to China four programs ofForeign Military Sales (FMS): modernization of artillery ammunition production facilities;modernization of avionics in F-8 fighters (called the "Peace Pearl" program); sale of four Mark-46anti-submarine torpedoes; and sale of four AN/TPQ-37 artillery-locating radars. (8) However, in response to theTiananmen Crackdown, the United States suspended military-to-military contacts and arms sales. First imposed by President George H.W. Bush on June 5, 1989, the ban on arms sales was latercodified among sanctions passed in Section 902 of the Foreign Relations Authorization Act for FYs1990 and 1991 ( P.L. 101-246 ), approved in February 1990. Faced with the sanctions, in April 1990,China canceled the "Peace Pearl" program to upgrade the avionics of the F-8 fighters. (9) In December 1992, PresidentBush decided to close out the four suspended FMS programs, returning PRC equipment, reimbursingunused funds, and delivering sold items without support. (10)

Congress has oversight of these sanctions that continue to prohibit the issuance of licensesunder the Arms Export Control Act to export Munitions List items to China, explicitly includinghelicopters and helicopter parts; crime control and detection equipment; as well as satellites exportedfor PRC launch. In certain cases, Presidents have exercised the waiver authority "in the nationalinterest" to export sanctioned items to China. Presidents Bush and Clinton issued 13 waivers for 20satellite projects from 1989 to 1998. (11) In January 2002, President George W. Bush issued two waiversof the Tiananmen sanctions to export a bomb containment and disposal unit for the Shanghai firedepartment to prevent terrorist bombings and to export equipment to clean up chemical weapons leftin China by Japan in World War II. (12) In September 2003, President Bush issued a waiver of thesanctions to allow the export to China of QRS-11 sensors that serve as components of inertialmeasurement units (IMU) used in Boeing commercial aircraft, with export approvals that raisedconcerns with the Chairman and Ranking Member of the House International RelationsCommittee. (13)

The EU's Arms Embargo on China

European countries took action that corresponded to steps taken by the United States in June1989 to respond to the Tiananmen Crackdown. The EU arms embargo on China is based on onesentence in a political declaration issued on June 27, 1989, by the then-12 member EuropeanCommunity, the EU's precursor. The declaration condemns the "brutal repression" taking place inChina, requests that the Chinese authorities cease executions and respect human rights, and containsmeasures agreed by the member states. These include the suspension of military cooperation andhigh-level contacts, reduction of cultural, scientific and technical cooperation programs, and theprolongation of visas to Chinese students. The specific wording of the arms restrictions on Chinacalls for "interruption by the member states of the Community of military cooperation and anembargo on trade in arms with China." (14)

While the EU's June 1989 declaration on China is not legally binding, it represents a politicalcommitment that all EU members are supposed to uphold and enforce. (15) Each EU member,however, defines and implements the arms embargo differently; this has allowed some EU countriesto continue to export certain types of military equipment to China despite the embargo. Accordingto the EU, the embargo does not cover a large proportion of "sensitive items," which are covered byother EU legal mechanisms. (16) These on-going sales to China have raised questions about theeffectiveness of the EU's arms embargo on China and the EU's wider defense export control policies.

Current Status: PRC Pressure on the EU to End Embargo

Since 2003, China has been increasing pressure on the EU to end the embargo. In October2003, China issued its "Policy Paper on the EU," urging the EU to lift its arms embargo in order to"remove barriers to greater bilateral cooperation in defense industries and technology." (17) The EU beganreexamining the arms embargo in early 2004. (18) France and Germany were key drivers of this review process.

The EU-China summit on December 8, 2004, came three days before crucial elections inTaiwan, for which its president campaigned (unsuccessfully) to win a majority for his coalition inthe legislature that some feared would lead to constitutional changes considered by Beijing toprovocatively push for de jure independence. The EU decided to maintain the embargo at thatsensitive time, although it asserted its "political intention to continue to work towards lifting theembargo." China welcomed this "positive signal" for development of the "comprehensive strategicpartnership" with the EU. (19)

The decision to end the EU arms embargo rests with the member states of the Union andrequires unanimity. In other words, all member states of the now-25 member EU must agree beforethe arms embargo can be lifted. At the December 16-17, 2004 meeting of EU heads of state andgovernment in Brussels, EU leaders "reaffirmed the political will to continue to work toward liftingthe arms embargo." (20) The EU did not state a firm date for ending the embargo, but statements by EU officials stronglysuggested that the embargo would be lifted in the spring of 2005.

France and Germany, under the previous leadership of German Chancellor GerhardSchroeder, have been key proponents of ending the EU arms embargo on China. Other memberstates have been more hesitant. The United Kingdom (U.K.) and the Netherlands have shared U.S.concerns about the strategic implications of an end to the embargo, while some of the Scandinaviancountries and other smaller states with strong human rights advocacy policies have also been lessenthusiastic. But by early 2005, sufficient consensus appeared to have been built up among EUmembers to lift the embargo in May or June 2005. The willingness of the U.K. and others tooverturn the embargo appeared based on their view that the embargo itself was largely ineffectiveand that it would only be lifted if a stronger EU export control regime was put in place at the sametime. Some observers also suggest that London was eager to burnish its European credentials andkeen to avoid another fight with Paris and Berlin so soon after their rift over the war in Iraq.

However, the EU did not move ahead with lifting the embargo in the spring of 2005. EUofficials attribute the delay largely to the PRC's "Anti-Secession Law," warning of the use of forceagainst perceived efforts at establishing Taiwan's independence. On March 14, 2005, China adoptedits "Anti-Secession Law," declaring in Article 8 that:

If the separatist forces of "Taiwan independence" useany name or any means to cause the fact of Taiwan's separation from China, or a major incidentoccurs that would lead to Taiwan's separation from China, or the possibilities of peaceful unificationare completely exhausted, the country may adopt non-peaceful means and other necessary measuresto safeguard national sovereignty and territorial integrity. (21)

The European Union quickly criticized this "Anti-Secession Law," stating that the EU opposes anyuse of force and asks all parties to "avoid any unilateral action which might rekindle tensions." (22)

U.K. Foreign Secretary Jack Straw stated that the new PRC law "created quite a difficultpolitical environment." (23) The PRC move appeared to strengthen U.S. arguments thatlifting the embargo could send the wrong signal to Beijing, and that a PLA possibly equipped withimproved EU-provided defense technologies could pose a threat to Taiwan and U.S. forces in Asia. A high-level EU delegation to Washington in mid-March 2005 failed to convince U.S. officials andMembers of Congress that existing EU plans for tighter export controls would sufficiently constrainarms sales to China. Strong U.S. opposition and lingering human rights concerns about China alsocaused some EU members to consider postponing the decision on the arms embargo. (24)

As a result, ending the arms embargo on China does not appear to be high on the EU's agendafor the near to medium term. The new German government of Chancellor Angela Merkel, whichassumed office in November 2005, is perceived as being much less enthusiastic about lifting theembargo, especially without U.S. consent, than the previous Schroeder government. The UnitedStates and the EU have also begun a "strategic dialogue" on China and other Asian security issues. However, many analysts point out that the EU remains politically committed to lifting the embargo,and believe that its end may ultimately be only a matter of time. China continues to maintain thatthe EU's arms ban is outdated and should be lifted. EU officials stress that if and when the embargois lifted, its end would be accompanied by the simultaneous introduction of a package of measures,including an enhanced EU Code of Conduct on Arms Exports, to curtail more effectively Europeanarms sales to China (and elsewhere), and to address U.S. concerns. (25)

Administration's Position on the Embargo

The Bush Administration has opposed an end to the EU's arms embargo on China based ontwo major points. The first argument is that China's human rights violations that formed the basisfor the embargo still exist. The second is that any expanded EU defense sales to China woulddamage U.S. security interests. The U.S. national interests threatened by a lifting of the armsembargo deal with security and value-projection -- especially human rights and democracy. Whetherthe EU's arms embargo is significant or symbolic, lifting it would reduce the leverage of the UnitedStates and Europe on China to improve its human rights situation. From the viewpoint of U.S.concerns, a relaxation would send a signal to China that it can continue to violate internationalstandards of human rights and that the United States, rather than China, is increasingly isolated inits views. The pressure would also lessen on the rulers in Beijing to reexamine the TiananmenCrackdown. Since the late 1990s, the United States has urged China to "ratify and adhere to theInternational Covenant on Civil and Political Rights." (26) On the eve of the EU-China summit in December 2004, Chinaacknowledged that it was still studying how to ratify the covenant. (27)

On January 28, 2004, a State Department spokesman acknowledged that the United Stateshad held "senior-level" discussions with France and other EU countries about the issue of whetherto lift the embargo on arms sales to China. He said, "certainly for the United States, our statutes andregulations prohibit sales of defense items to China. We believe that others should maintain theircurrent arms embargoes as well. We believe that the U.S. and European prohibitions on arms salesare complementary, were imposed for the same reasons, specifically serious human rights abuses,and that those reasons remain valid today." (28) The Bush Administration reportedly also lodged diplomaticprotests with EU members. (29)

At a hearing of the House International Relations Committee in February 2004,Representative Steve Chabot asked Secretary of State Colin Powell about the EU's reconsiderationof the arms embargo against China, as supported by France. Powell responded that he raised thisissue with the foreign ministers of France, Ireland, United Kingdom, and Germany, and expressedopposition to a change in the EU's policy at that time in light of the PLA's missiles arrayed againstTaiwan, the referendums on sensitive political issues then planned in Taiwan, and China's humanrights conditions. (30)

A State Department spokesman argued on January 25, 2005, that the United States wouldcontinue to champion human rights in countries whether they are small or big, and that China'shuman rights situation not only has not improved, but has suffered "some negativedevelopments." (31) OnFebruary 28, 2005, the State Department issued its report on human rights in 2004. It reported thatChina's human rights record "remained poor," and the Government continued to commit "numerousand serious abuses," although it amended the constitution to mention human rights for the first time. Moreover, "authorities were quick to suppress religious, political, and social groups that theyperceived as threatening to government authority or national stability, especially before sensitivedates such as the 15th anniversary of the 1989 Tiananmen massacre and other significant political andreligious occasions." The PRC government also used the international war on terrorism "as a pretextfor cracking down harshly on suspected Uighur separatists expressing peaceful political dissent andon independent Muslim religious leaders." (32)

However, there is an apparent inconsistency in the Administration's claim that the EU is nottaking into adequate consideration China's human rights conditions. On March 17, 2005, Chinareleased a Uighur woman named Rebiya Kadeer whom China arrested in 1999 in Xinjiang, and onthe same day, the State Department announced that the Administration decided not to introduce aresolution on China's human rights abuses at the Human Rights Commission in Geneva, citing "somesignificant steps" on human rights. The State Department acknowledged that Kadeer's impendingrelease was "a factor" in the decision. The decision raised a question about whether it underminedthe U.S. position that the EU should not end the arms embargo because of human rights concerns. The State Department responded that the embargo was imposed because of the TiananmenCrackdown, "and there are hundreds of demonstrators that remain imprisoned and there is a completeunwillingness to revisit or examine that incident in a critical light. So with regard to the conditionsleading to the embargo, those have not changed at all, period." (33)

Regarding this U.S. argument, China's government remains unmoved in its position that itwas justified in using military force in the Tiananmen Crackdown. The State Department's reporton human rights noted that the PRC government "outlawed public commemoration of the 1989Tiananmen massacre." Zhao Ziyang, the PRC premier at the time of the Tiananmen Crackdown whowas put under house arrest afterwards for not supporting the use of force, died on January 17, 2005. PRC rulers allowed his family to hold only a simple funeral on January 29, kept victims in housearrest, and deployed internal security forces to suppress voices of dissent calling for a reassessmentof the brutal repression. (34) On March 22, 2005, hundreds of the former leaders of the 1989pro-democracy movement, relatives of victims of the crackdown, and other activists wrote a letterto Secretary-General of the Council of the European Union and the President of the EuropeanCommission contending that "the human rights situation in China has not undergone anyfundamental change since 1989." Moreover, they warned that "doing away with this sanctionwithout corresponding improvements in human rights would send the wrong signal to the Chinesepeople, including especially those of us who lost loved ones, who are persecuted, and for all Chinesewho continue to struggle for the ideal that inspired the 1989 movement." (35)

In early February 2005, newly-appointed Secretary of State Condoleezza Rice visitedBrussels and expressed opposition to lifting the arms embargo on China and optimism that "theEuropeans are listening to our concerns." She cited concerns about human rights and the militarybalance with China in Asia, namely, "the transfer of technology that might endanger in some waythe very delicate military balance," while there are still American forces in the region. (36) Later that month, theAdministration carried out diplomacy at the highest level with European allies. President Bushvisited Brussels and cautioned that European defense-related transfers "would change the balanceof relations between China and Taiwan." (37)

During Rice's first visit to Asia in March 2005 since becoming Secretary of State, shepublicly warned that because the U.S. maintains a military presence in the Pacific region to supporta stable environment for economic growth and democratic development, "anything that would appearto try and alter that balance would be of concern to us." She expressed concerns about the rise ofChina's military spending and potential military power with its "increasing sophistication." Ricestated that "the European Union should do nothing to contribute to a circumstance in which Chinesemilitary modernization draws on European technology or even the political decision to suggest thatit could draw on European technology when, in fact, it is the United States -- not Europe -- that hasdefended the Pacific." (38)

Nonetheless, there are questions about the effectiveness of U.S. leverage and diplomacy, inpart because of perceived mixed messages in the policy of engagement toward China, including thedecision not to introduce a resolution at the Human Rights Commission. Also, while the UnitedStates has provided support to Taiwan's self-defense, it has adhered to the "one China" policy ofworking with the PRC on a range of international issues (with North Korean nuclear weaponsfrequently cited as a common problem). The United States also pursues Permanent Normal TradeRelations and significant trade with China, now ranked as the third largest U.S. trading partner (butwith a 2005 U.S. trade deficit of $203 billion in China's favor). (39) There are questions aboutwhether U.S. policy actually has promoted cross-strait stability, democracy, and human rights inChina. (40) The tone inpolicy toward Taiwan changed from President Bush's declaration in April 2001 that the United Stateswould do "whatever it took to help Taiwan defend herself" to his criticism in December 2003 (statednext to the visiting PRC premier) of Taiwan's leader for attempting to change the status quo. Somesay the Administration has paid greater attention to arms sales to Taiwan than promotion ofcross-strait dialogue. (41) U.S. criticism of European defense trade with China has been publicly harsher than that of Russianor Israeli sales to China. Successive Presidents have issued waivers of U.S. arms sanctions, asdiscussed above. Still, the Administration argues that U.S. engagement with China does notcontribute dangerously to the PLA's buildup.

China's Accelerated Military Buildup

On the eve of the EU-China summit in December 2004, China's Foreign Ministry assertedthat the EU's arms embargo should be ended, because it represented "political discrimination" againstChina. China argued that its demand on the EU to lift the arms embargo had nothing to do withbuying "massive weapons from the EU," since China has "neither the capacity nor the intention todo so." (42)

Nonetheless, if the EU lifts its arms embargo on China, there are U.S. concerns that this stepcould:

increase China's leverage if there are more competingbidders

increase China's acquisitions of arms and militarytechnology

improve China's domestic defense industries

strengthen China's ability to threaten or use force against Taiwan, U.S. allies,or U.S. forces

increase China's weapons proliferation to unstable areas (in the Mideast, Asia,and Africa)

increase China's rising influence regionally as well asglobally.

One of China's major objectives has been faster military modernization, particularly inbuilding up offensive capabilities for use against Taiwan and possible intervening U.S. forces andallies. In 1995 and 1996, the PLA conducted provocative military exercises and launches ofshort-range ballistic missiles into waters near Taiwan. To underscore serious U.S. concerns aboutChina's willingness to use or threaten force, President Clinton deployed two aircraft carrier battlegroups near Taiwan in March 1996. The United States is especially concerned that PLAmodernization has accelerated after the 1995-1996 Taiwan Strait Crisis. The Pentagon's report toCongress warned in May 2004 that "after close to 20 years of spectacular economic growth in China,Beijing's diplomatic successes, and steady improvement in the PLA's military capabilities, thecross-strait balance of power is steadily shifting in China's favor." (43) On February 16, 2005, theDirector of Central Intelligence (DCI) Porter Goss testified that Beijing's military modernization andmilitary buildup are tilting the balance of power in the Taiwan Strait and that improved PLAcapabilities threaten U.S. forces in the region. (44) In particular, the PLA has engaged in a missile buildup,increasing its offensive, mobile short-range ballistic missiles, according to the Pentagon. In 2005,the PLA was estimated to have deployed 650-730 such missiles targeted at Taiwan, with thesemissiles increasing at about 100 per year. (45) The United States also has been concerned that the PLA couldattack U.S. forces based in Okinawa.

Rising Military Budgets

China's rising military budgets have contributed to the accelerated military modernization. Assessing that the PRC's public military budget understates actual defense-related expenditures(excluding categories such as weapons research and foreign arms purchases), the Pentagon's 2005report to Congress on PRC military power estimated that China's total defense spending for 2005was up to $90 billion. (46) At that level, China had the third highest level of defense spending in the world (after the UnitedStates and Russia) and the highest level of defense spending in Asia (followed by Japan).

Even China's claimed defense budgets have indicated a priority in military upgrades. China'sopenly announced military budget projected for 2004 was about US$25 billion, a doubling of theofficial budget of about US$12.6 billion in 1999. On March 5, 2005, China announced a projecteddefense budget for 2005 of almost US$30 billion. (The chart shows the growth in billions ofrenminbi (RMB) of China's publicly announced -- projected, not actual -- military budgets from 1991to 2005.) U.S. experts on the PLA do not consider China's publicly announced budget to be the fullamount of resources given to the PLA. As one indicator of the priority placed on militarymodernization, China's publicly announced military budget has increased by double-digitpercentages in nominal terms every year since 1989. In real terms (adjusted for inflation), China'smilitary budget has increased every year since 1997 (after the Taiwan Strait crisis of 1995-1996), andincreased by double-digit percentages in consecutive years since 1998.

Figure 1. China's Announced Military Budget

Military-Related Transfers to China

Greater resources allocated to defense also have allowed China to increase foreign armspurchases. After the United States, the EU, and other countries imposed arms sanctions on Chinain response to the crackdown on demonstrators in June 1989, Beijing turned to Moscow foradvanced arms. (47) Since1990, China has acquired significant advanced weaponry from the Soviet Union/Russia, its primarysupplier, and has done so at an increased rate since 1999. The Pentagon's report on PRC militarypower informed Congress in 2004 that China purchased weapons from Russia valued at about $1.2billion a year during the 1990s, but such procurement increased to an annual average of twice thatmuch since 1999. In 2004, sales to China accounted for 40-45 percent of Russia's total arms exportsvalued at $5.7 billion. (48) Thus, Russian arms sales to China were worth about $2.3-2.6billion.

Since 1990, China's major arms purchases have included:

402 Russian Su-27 and Su-30 fighters (including 78 Su-27 fighters andtrainers; 200 Su-27 fighters being co-produced in China; 76 Su-30MKK fighters; and 48 Su-30MK2naval strike fighters for the PLA Navy)

12 Russian Kilo-class diesel-electric submarines

4 Russian Sovremenny-class destroyers

Russian SA-10 and SA-15 air defense missile systems.

From a secondary supplier, Israel, China has ordered the Phalcon early warning radar (a saleIsrael canceled in 2000 under U.S. opposition) and acquired Harpy anti-radiation attack drones. Moreover, Russian sources report that Beijing has pressured Moscow to shift from sales of weaponssystems to transfers of new technology. (49)

With foreign arms sales and assistance, China has developed its domestic defense industries. New weapons programs in China include:

Co-production of Su-27 (called J-11) fighters in China

airborne warning and control system (AWACS) aircraft

Luyang-class destroyers

Type-054 frigates

Song-class diesel-electric submarines

Yuan-class diesel-electric submarines (unveiled in July2004)

Type-093 nuclear-powered attack submarines

satellites and space launch vehicles.

The United States also is concerned about China's development of ballistic missiles, land-attackcruise missiles (LACMs), and anti-satellite (ASAT) weapons.

Meanwhile, European defense-related sales to China have increased. The EU reported thatits total defense exports to China doubled from 210 million euros (about US$275 million) in 2002to 416 million euros (about US$545 million) in 2003. (50) The value of such sales in 2003 was eight times that of sales in2001 (worth 54 million euros). (51)

Since the 1990s, European military-related sales to or cooperation with China have involvedsuch items as: howitzers, helicopters, fire control radars, jet engines, avionics, diesel engines fornaval ships and submarines, and satellites. For example, the U.K.'s Racal Electronics reportedly solda Searchwater maritime reconnaissance radar for the PLA Navy's Y-8 airborne early warning aircraft,based on a 1996 contract for 6-8 radars. Rolls-Royce of the U.K. reportedly sold Spey engines forChina's JH-7 naval strike fighters. Germany's MTU reportedly sold diesel engines for the PLANavy's Luhai-class destroyer and Song-class submarines. Italy's Finmeccanica reportedly sold Grifoair combat radars for China's F-7 fighter that was also developed for Pakistan. France's S.E.M.T.Pielstick sold diesel engines for the PLA Navy's Type 054-class frigates, with a licence forco-production. Alcatel of France sold China the Chinasat-9 communications satellite, and SurreySatellite Technology of the U.K. agreed to work on micro-satellites for China. (See Tables 1 and2 at the end of this report.)

Nicholas Burns, Under Secretary of State for Political Affairs, testified to Congress on April14, 2005, that the Bush Administration has concerns about approvals for "current EU sales ofmilitary equipment to China," including fire control radars, aircraft engines, submarine technology,and maritime search radars. He characterized approvals for these items as "inconsistent" with theEU's Code of Conduct on military sales. Burns also expressed the American disagreement withEuropean assurances that these transfers involved "non-lethal" items. (52)

Potential Benefits for China

In part because of European defense-related sales to China under the arms embargo thus far,there are concerns about potential gains for China if the embargo is lifted. China expressed itsintention to gain military benefits from a removal of the EU's arms embargo. The PRC's own "PolicyPaper on the EU" issued in October 2003 stated that the EU should lift its ban on arms sales to Chinaat an early date so as to remove barriers to greater bilateral cooperation concerning defense industriesand technology. The policy paper also called for high-level military exchanges; strategicconsultation; exchanges of specialized military delegations; and exchanges in military training andeducation. (53)

Some reports have speculated that China would attempt to purchase such weapon systemsas airborne warning and control systems, jet engines, French Mirage fighters, and Germansubmarines. (54) Othersargue that China is unlikely to buy complete French fighters or German submarines, given thatRussian platforms purchased since 1990 complement PLA weapons based on Soviet or Russiandesigns. European companies could sell more components and subsystems, particularly forcommand, control, and communications, and sensors, as they have under the embargo. (55) Former CIA DirectorJames Woolsey judged that China does not need platforms from Europe but rather "command andcontrol and reconnaissance to build systems of systems." (56) Such technologies could enhance the integration of weapons.

China's Leverage. Without the political restraintof the arms embargo, a U.S. official has argued that the scale and sophistication of systems sold toChina could significantly increase, and even non-lethal items, such as communication and commandtechnologies, could raise the PLA's fighting power. (57) In any case, real or potential competition from Europeancompanies could provide China with stronger leverage to negotiate favorable deals for platforms andtechnology-transfers among Russian, Israeli, European, or other bidders for China's rising defensespending, especially absent strict European export controls. Russian President Vladimir Putinacknowledged this concern about the EU's lifting its arms embargo, saying "we sell a lot of arms toChina. The less competitors on the Chinese market, the better." He also suggested futureRussian-European cooperation in high-tech projects for China. (58)

Technology-Transfers. A 2004 article in a HongKong journal with close ties to the PLA expressed some PRC aspirations for gaining access to "someof the world's best technological products" through Britain, Germany, and France. It said, "eventhough China is a major nuclear power, the many weaknesses of its conventional weaponry areprecisely the ones that can be remedied through introducing new products from the EU." Nonetheless, the article judged that China is unlikely to engage in the great expense of replacing itsdomestic and Russian fighters and naval vessels with platforms up to Western standards nor makesmall deals that have little impact on warfighting capabilities. Rather, China is likely to seektechnology-transfers and co-development and co-production. In particular, the article pointed toChina's need for French missile technology, German submarine technology, British enginetechnology, advanced electronics and information technology, precision-guidance for missiles,sensors, lasers, radars, Galileo satellite navigational system, and stealth technology. Beyond foreignpurchases, the article also stated that "China's main objective in importing advanced equipment isto enhance the research and development capabilities of its own national defense industry." (59)

The European Aeronautics Defense and Space Company (EADS) and Thales of Francereportedly expressed interest in whether the arms embargo will be lifted, and Surrey SatelliteTechnology Ltd. of Britain argued that its satellite sales have no significant military utility, butspeculated that the export licensing process could be faster without the embargo. (60) Companies in theaerospace industry (Airbus, Eurocopter, and Alcatel in particular) have forged increased businessties with China's aerospace defense industry. (61) Moreover, experts are watchful for the PLA Navy's acquisitionof air-independent propulsion (AIP) technology for its new submarines and a radar system similarto the U.S. Aegis combat system on new destroyers. (62)

At the same time, European defense firms might decide against the potential costs ofexpanding defense business with China. For example, the head of the U.K.'s BAE Systems, MikeTurner, has stressed that his company would not jeopardize its lucrative business with the U.S.Defense Department because of possible sales in China. (63) While EADS might be interested in defense sales to China,Co-president Rainer Hertrich said that the company would not jeopardize its business in the UnitedStates by selling military equipment to China, conceding that "we have to take the United States intoaccount in matters regarding China and Taiwan." (64) As China develops its defense or dual-use industries, there areadditional concerns that it would copy Western technology and be a competitor in the long run. China has been a major arms supplier, particularly to the Mideast. In the aerospace sector, forexample, even as China is seeking participation in Europe's Galileo satellite navigation project, anofficial of the China Aerospace Science and Technology Corporation said in November 2004 thatChina's intention is to establish its own global satellite navigation and positioning system. (65)

Pentagon's Warnings. The Defense Department's2004 report to Congress on PRC military power added a warning against an end to the EU armsembargo. The report expressed concerns that lifting the embargo will provide China will "additionalopportunities to acquire specific technologies from Western suppliers." According to the Pentagon,Russia would remain the PLA's primary supplier in the near-term, with Europe acting as "anemerging supplier." (66)

In the 2005 report on PRC military power, Secretary of Defense Donald Rumsfeld furtherstressed the implications of an end of the EU's arms embargo. The report cautioned that theconsequences would be "serious and numerous." China would be able to improve current weaponsystems and indigenous industrial capabilities for future advanced weapons. The PLA would havegreater interactions with European militaries and access to military "software" (e.g., operationaldoctrine, training, logistics). China would seek joint ventures with European companies to acquireexpertise and technology. Acquisition of European defense technology would "significantlyimprove" PLA capabilities in the medium to long term. China would seek to acquire advanced spacetechnology, radar systems, early warning aircraft, submarine technology, and advanced electroniccomponents for precision-guided weapons. The PRC would have greater leverage over Russia andIsrael. The Pentagon warned that "such an acceleration of China's military modernization wouldhave direct implications for stability in the Taiwan Strait and the safety of U.S. personnel; it wouldalso accelerate a shift in the regional balance of power, affecting the security of manycountries." (67)

EU Perspectives

Both political and economic considerations have been driving EU proclivities toward liftingthe arms embargo on China. However, EU policymakers argue that the current EU arms embargoon China is largely symbolic and weak. Its end, they assert, will pave the way for a strengthened EUarms export control regime -- including a revised and enhanced EU Code of Conduct on ArmsExports -- that will be more effective in controlling arms sales not only to China, but also globally.

Political Motivations(68)

The EU is seeking to develop a "strategic partnership" with China. The EU views China asa rising political and economic power whose policies will have implications for global challengesranging from weapons proliferation to environmental degradation. The EU believes that engagementwith China on such issues would be mutually beneficial and hopes to further entrench China in theinternational system. This is as true for the U.K. and other EU member states that have been morehesitant about lifting the arms embargo on China as it is for France, Germany, and others that aremore supportive. Some European leaders seem convinced that China shares their desires for a strongUnited Nations and a world governed by multilateral rules and institutions.

U.S. critics contend that a few EU members, such as France, are eager to engage morerobustly with China in order to promote their vision of a multipolar world. Observers point out thatChina has made a concerted attempt to talk to the EU as an entity in recent years, and that this effortcontrasts sharply with the perception of U.S. ambivalence toward further European integration andan enhanced EU role in international affairs. Most European officials reject the notion that the EUis seeking to counterbalance the United States. However, the EU views forging externalrelationships with other major powers, such as China, as a key part of building its Common Foreignand Security Policy (CFSP) and boosting the EU's role as an actor on the world stage. (69)

Many European policymakers perceive the arms embargo on China as a hindrance todeveloping closer EU-China ties. They concede that ending the embargo is the price demanded byChina in order to deepen EU-China relations. But many agree with the Chinese position that thearms embargo lumps China in with other nations such as Burma and Zimbabwe, which are alsosubject to EU arms embargoes, and thus sends a negative signal about the state of EU-Chinarelations. EU leaders argue that lifting the embargo on China would be a politically symbolic act,and that it would remove a psychological barrier to improved relations with China. They stressrepeatedly that their intention in lifting the embargo is not to sell more arms to China. In January2005, Javier Solana, the EU's High Representative for CFSP, stated that lifting the arms embargoon China will be "more a political decision than a military one ... it simply involves putting a stopto a political decision made at a specific time in the history of China, rather than a modification ofmilitary relations between the EU and China. It does not mean increasing arms exports." (70)

China's human rights record remains a concern for many EU member states, but others arguethat China has evolved since 1989 and that the EU has engaged China in a meaningful human rightsdialogue since 1996. They point out that the generation of leaders that ordered the Tiananmencrackdown is no longer in power, and they doubt that the EU arms embargo on China has made adifference on human rights conditions in China. The European Parliament opposes lifting the armsembargo on human rights grounds also, but the Parliament has no role in the decision, which restssolely with the member states. (71) The EU asserts that it will continue to pressure China to improverespect for human rights and the rule of law, despite any eventual end to the embargo.

Commercial Interests

EU commercial interests are also at play. Some U.S. officials believe that France andGermany, among other member states, have been pushing to lift the arms ban chiefly to increasedefense sales to China. As noted previously, total EU arms licensed for export to China haveincreased in recent years. Given that European defense companies are more dependent on armsexports than their U.S. counterparts, many analysts believe that some European leaders are eagerto gain greater access to China's growing defense market. Some observers suggest that Europeanfrustration with what they view as limited opportunities in the U.S. defense market is fuelingEuropean interest in the Chinese defense market. French officials argue that European sales ofweapons technologies to China could slow Beijing's efforts to develop its own capabilities. (72) On the other hand, somedefense experts point out that EU companies and countries will have to weigh the benefits of sellingarms to China against possible losses in the U.S. defense market, especially if Congress were toimpose restrictions on U.S. procurement efforts from EU member states as a result. (73) (Also see the section on Transatlantic Relations below.)

Some Europeans bristle at U.S. concerns regarding their potential arms sales to China. Theypoint out that Washington is far less critical of Russian or Israeli arms exports to the PRC. They alsonote that Australia lifted its arms embargo on China in 1992, and Canada never imposed onefollowing the Tiananmen Crackdown, but U.S. policymakers have not taken these countries to task.

Many observers assert that non-military economic objectives -- such as deepening the EU'sforeign investment profile and closing the EU's trade deficit with China -- are also key motivatingfactors for several EU member states. They hope that lifting the embargo will encourage favorableprocurement decisions by PRC authorities in areas such as commercial aircraft, automotives, civilengineering, and transportation infrastructure. For example, analysts point out that China's ordersare crucial to the success of European-owned Airbus' A380 civilian jumbo jet, and PRC leaders havereportedly linked more orders for the A380 to an end to the arms ban. At the same time, someEuropeans suspect that U.S. economic interests and concerns about growing European competition-- especially in the commercial aircraft sector -- might be motivating some U.S. opposition to anend to the EU's arms embargo on China. (74)

A Symbolic Embargo?

In any case, EU officials argue that the EU's current arms embargo on China is far fromwater-tight, and many view it as largely worthless. They point out that the language in the EU's 1989political declaration calling for the embargo is extremely vague and each member state defines andimplements it differently. Many countries, including the U.K. and France, have interpreted theembargo narrowly to cover lethal military items, but have continued to supply avionics, radar, andother military-related equipment. Nor does the embargo apply to dual-use items that can be used forboth civil and military purposes. (75)

Nevertheless, some defense experts and U.S. officials claim that the embargo has exerted arestraining influence on many member states and thus, has prevented sales to China of weaponssystems, such as fighters and submarines. European officials claim that they have no intention ofselling their "next generation" weapons systems to China even if the embargo is lifted. FrenchDefense Minister Michele Alliot-Marie has asserted that "we don't sell our state-of-the-arttechnologies to just anyone." (76) Some defense analysts, however, believe that an end to the EUembargo could cause a "ripple effect;" in this view, other countries already selling to China -- suchas Israel -- may be compelled to sell even more advanced or high-tech items to China in order toremain competitive with European sellers. (77)

The EU's Code of Conduct and Arms Export Control Regime(78)

EU officials also stress that the arms embargo is neither the only nor the principal mechanismgoverning member states' military exports to China. Member states maintain their own nationalexport controls, and in 1998, they agreed on the EU Code of Conduct on Arms Exports. (79) The Code sets out eightcriteria for EU members to utilize when reviewing license requests and making decisions on whether or not to make an arms export. These can be summarized as follows:

(1) Consistency of export with international commitments arising from U.N., EU, or theOrganization for Security and Cooperation in Europe (OSCE) arms embargoes;

(2) Risk that export would be used for internal repression or where the recipient country has engagedin serious violations of human rights;

(3) Risk that export would provoke or prolong armed conflicts;

(4) Risk of recipient using export to undermine regional peace and security;

(5) Effect of export on defense and national security interests of friends, allies, and other EU memberstates;

(6) Commitment of purchaser to fight terrorism and uphold international law;

(7) Risk of diversion to third parties or to a terrorist organization;

(8) Risk that export would undermine the sustainable development of the recipient country.

In June 2000, the EU adopted a Common List of Military Equipment covered by the EUCode in an effort to encourage standardization across the Union. (80) The EU asserts that theCode is intended to complement national arms export control legislation adopted by member states. Some EU members, such as Germany, have also reportedly translated the Code into their nationallegislation.

The Code also applies to dual-use goods if the end-user may be the recipient country's policeor military forces. In addition, EU member states' exports of dual-use items are governed by an EUregulation that is directly applicable in EU member states; it establishes requirements that must bemet and procedures to be followed for granting export licenses for dual-use goods. In June 2003,EU members also established common rules to control arms brokering to prevent circumvention ofU.N., EU, or OSCE embargoes on arms exports and the criteria established in the EU Code. It callson member states to put in place legal norms for lawful brokering activities, including obtainingwritten authorization prior to engaging in arms brokering and to keep records for a least 10years. (81)

Many Europeans argue that the 1998 Code of Conduct has been much more instrumental inblocking arms sales to China, including high-tech and dual-use exports, than has the 1989 armsembargo, because the Code spells out specific criteria and sets up a denial notification andconsultation mechanism, and other arms sales reporting requirements. These measures, they claim,exert considerable peer pressure on the member states to abide by the Code. For example, under thedenial notification procedure, member states are required to transmit through diplomatic channelsinformation on licenses refused and reasons for the denial. Before a member state authorizes alicense for the same transaction that has already been refused by another member state, it must firstconsult the member state that rejected the license. If a member state decides to issue the license, itmust inform the state that refused to grant authorization.

Nevertheless, numerous analysts have criticized the Code for containing several weaknessesand loopholes that militate against the Code being a strong regime in its current form. For example,some point out that although the Code sets up a denial notification procedure, there is no requirementfor notification of licenses granted. Many also say that the Code's general reporting requirementsdo not provide sufficient transparency or accountability. The Code calls on each member state toprepare a confidential annual report, which is to be circulated by each member to the other EU states,on its defense exports and implementation of the Code. A consolidated public report is subsequentlyproduced based on the submissions of individual EU members. However, the complete details ofactual arms exports made by EU states are not set out in this public document, although it doesprovide values of arms export licenses issued and values of deliveries made, if available, by theexporting country. A supplier list is also provided, giving a total of sales denials made, but not whatspecific weapon sale was denied, nor to whom. Consequently, some analysts say that the Code'sreporting requirements do not provide a full or clear picture of all EU arms exports; this, in turn,fuels suspicions that some EU member states may be understating the extent of defense deals alreadytaking place with China.

Furthermore, critics argue that individual states have different arms trade licensing, datacollecting and reporting practices, so there is often a lack of uniformity in reporting across themembership of the EU. For example, the EU's 2003 public report on the Code's implementationbreaks down the export data by EU Common Military List category. For those states whoselicensing systems categorize their arms export licenses in detail, it is possible to get a sense of whatgeneral types of military equipment are being licensed. However, the U.K. provides no detailedbreakdown of its licenses because the way its standard export licenses are valued in its nationallicensing system currently preclude this. The same is true for Italy and the Czech Republic. Franceand Germany are able to break down the categories of their licenses for purposes of the EUreport. (82)

Another complaint that some U.S. critics level against the Code is that it is neither legallybinding nor enforceable. They are skeptical of EU arguments that the Code represents an effectivepolitically binding commitment or that its reporting requirements dissuade member states fromfinancially profitable arms exports. As evidence, they point to the increase in EU arms sales licensesto China over the last few years. EU officials maintain that although the Code is not legally binding,it is not voluntary either; all member states have agreed and are expected to implement the commonforeign policy goals and moral imperative embodied in the Code.

Some analysts suggest that the Code should be transformed into an EU Common Positionin the context of the EU's Common Foreign and Security Policy. The Treaty on European Union (theMaastricht Treaty) states that "member states shall ensure that their national policies conform to thecommon positions." (83) They believe this would lend added credibility to the Code and would effectively require itsenforcement in national legislation. Others point out that enforcement would still be up to thecompetent authorities in the EU's member states, which could leave some differences in terms ofimplementation across the Union. More importantly, the decision to grant or deny any arms exportwould likely remain at the national discretion of each member, as the current Code states. For theforeseeable future, no member state would be willing to cede sovereignty over its national exportcontrol policies to the Union, or to agree to a sanctions scheme if one or more members were foundnon-compliant with the Code. In other situations in which EU members have agreed to enactpenalties on their partners if they do not live up to their commitments -- as with the financialrequirements set out in the EU's Stability and Growth Pact for the EU's single currency -- memberstates have been reluctant to actually impose such penalties for political reasons. However, the EUis working to revise and strengthen the Code to make it a more effective arms export control toolwith better built-in peer pressure mechanisms (see below). (84)

EU Plans and Other Options

As noted previously, the United States opposes an end to the EU's arms embargo on Chinaand continues to urge the EU to maintain its embargo and strengthen export controls. In the eventthat the EU opts to overturn the embargo, EU officials insist that it will not lead to more arms salesto China. They point out that at the EU's December 2004 summit, the EU pledged that any eventualEU decision to end the arms embargo on China should not result in "an increase of arms exportsfrom EU member states to China, neither in quantitative nor qualitative terms." This pledge has beendubbed the "standstill clause." In addition, the EU announced plans to adopt a revised Code ofConduct and a new "toolbox" -- i.e., measures that will pertain to arms exports for countries, likeChina, that are emerging from an EU arms embargo. Both the revised Code and the "toolbox" seekto improve consultation, transparency, and accountability among member states. The UnitedKingdom and some smaller member states with human rights concerns about China have been keydrivers behind these efforts aimed at strengthening the Code. They claim that the EU arms embargoon China will not be lifted until there is agreement on a more robust Code and on the "toolbox." (85)

The strengthened Code and the "toolbox" have reportedly been finalized at the technicallevel, but await political approval from EU leaders. (86) Publicly available details of the contents of both documents,however, are currently sketchy. Press reports and discussions with European officials suggest thatprovisions in the revised Code will seek to tighten requirements for technology transfers and theexport of dual-use goods, and to clarify the Code's annual reporting requirements for member states. The "toolbox" is expected to call on member states to inform one another of defense export licensesgranted as well as those denied to post-embargo countries (the current Code only requiresnotification of denials). To establish a baseline to judge whether some member states are violatingthe EU's "standstill clause" on China, the "toolbox" will also require EU member states to exchangeinformation on all licenses approved and denied for the last five and three years respectively.

Many observers, however, doubt the credibility of the EU's "standstill clause" given whatthey view as strong European commercial interests in increasing arms sales to China. They questionhow compliance with the "standstill clause" or even a strengthened Code of Conduct will bemeasured or enforced. They also remain skeptical that EU member states possess the political willto significantly improve the Code or to increase information-sharing among themselves about theirarms exports. Some member states have been resistant to sharing detailed information about licensesgranted, arguing that company confidentiality must be respected. Furthermore, it is unclear how longthe "toolbox" will apply. Some member states reportedly want its provisions requiringinformation-sharing on new licenses granted to be applicable for only a few years -- perhaps three-- while other members have advocated that the "toolbox" should remain in place for a decade atleast. (87)

EU officials hope that their efforts to strengthen their arms export control regime will addressU.S. concerns about lifting the arms embargo on China. Additional options the EU might considerto ameliorate U.S. concerns include:

Seek explicit commitments from China on human rights. The EU claims it hasbeen pressing China to ratify the U.N.'s 1976 International Covenant on Civil and Political Rightsand for the release of Chinese political prisoners. Press reports suggest that the EU may ask Chinafor a "significant gesture" on human rights as a condition for lifting the embargo. (88)

Seek commitments from China on nonproliferation of weapons of massdestruction and an agreement from China that it will refrain from re-exporting conventional armsand weapons systems obtained from EU member states.

Establish a "no sell" list with the United States that would set out specificweapons and advanced technologies that neither side would export to China. This might be donein the context of establishing a regular U.S.-EU technical consultative mechanism to discuss militaryand dual-use technology exports to China. European officials maintain that such a dialogue wouldhave to be a two-way exchange of information. (89)

Ensure that equipment would not be sold directly or indirectly to China'sinternal security forces, including the Ministry of Public Security and the paramilitary People'sArmed Police (PAP), that could be used for repression of dissent and for crackdowns on Muslimpopulations (in the northwestern Xinjiang region) or Tibetans.

Deepen involvement in the dispute across the Taiwan Strait to promote apeaceful resolution. In January 2004, German Foreign Minister Joschka Fischer acknowledged toreporters that Germany "sees a need for further discussion [with China] on human rights and onTaiwan." (90)

In his testimony to Congress on April 14, 2005, Under Secretary of State Nicholas Burns reportedthat the Administration would soon begin a "strategic dialogue" with the EU on the arms embargoon China and other Asian security issues. However, he stressed that the talks would not be anegotiation over terms for lifting the embargo.

Implications for U.S. Interests

Transatlantic Relations

Both U.S. and European officials believe that the EU's lifting of its arms embargo on Chinacould torpedo recent U.S.-European efforts to revitalize the transatlantic relationship. If the EU endsthe embargo and U.S. policymakers remain unconvinced that the EU's strengthened export controlregime will sufficiently constrain European arms sales to China, some in Washington may take it asa sign that the EU cannot be trusted to be a responsible security partner. Given that 19 EU memberstates are also NATO allies, this could worsen U.S.-European tensions within the alliance. Amidtransatlantic divisions over the war with Iraq and other foreign policy disputes, a number of U.S.officials and experts question the extent to which the European allies share U.S. interests and threatperceptions. A decision by 19 NATO allies to lift the EU's arms embargo on China in the absenceof a stronger EU arms export control regime may further erode Washington's confidence in NATO'svalue or the allies' willingness to join with the United States in sharing the security burden not onlywithin, but also outside of Europe. On the other hand, if the EU succeeds in creating a more robustarms export control regime with greater accountability and transparency that is more effective thanthe current embargo in curtailing arms sales to China, this may help to better protect U.S. interestsin the region and demonstrate to U.S. skeptics that the European allies are committed to beingcredible and reliable security partners.

Lifting the embargo in order to pave the way for closer EU-China ties may also heighten U.S.concerns that the EU is seeking to create a multipolar world to constrain U.S. influence. EUmembers argue that they are not trying to strengthen China in order to balance or rival the UnitedStates. European policymakers admit that they did not adequately anticipate U.S. strategic concernsabout ending the embargo, but that they are now trying to address U.S. worries. At the same time,some Europeans bristle at such vocal U.S. opposition because in their view, the Bush Administrationhas appeared uninterested until recently in consulting with or listening to its long-time allies on arange of international issues, from Iraq to climate change. They also worry that Washington'sattempts to encourage one or more EU member states to veto ending the arms embargo on Chinamay hinder EU efforts to develop a more common foreign policy.

Some U.S. and European officials and defense companies are concerned that if the EU movesahead with ending the arms ban on China, this could impede U.S.-European defense cooperation onweapons systems and technology transfers. Over the years, the United States has developed defensearrangements with individual EU members states, either by the direct sales of U.S. defense articles,defense services, and military technology to them, or by engaging in joint cooperative ventures inthe defense area. Overturning the EU embargo on China would probably increase U.S. fears thatmilitary equipment or sensitive weapons technologies sold to or shared with European countriesmight be re-exported to China.

Consequently, should the United States decide to impose severe restrictions on current orfuture sales or on defense cooperation, due to concerns raised by the lifting of the EU arms embargoon China, the effect on U.S.-EU defense industrial cooperation, and the quality and quantity ofdefense items sold to or purchased from EU countries could be significant. These potential effectsare illustrated by the following:

American sales of defense articles, services, and technology to individual statesof the European Union have been notable. From 2000-2003, the United States concludedgovernment-to-government arms sale agreements with Poland for $3.7 billion, with Greece for $3.3billion, with the United Kingdom for $1.8 billion, and with Italy for $1.3 billion. (91) Regarding potential futuresales as an example, the Defense Ministry of the United Kingdom has estimated that in coming yearsthe value of new business in the U.K. for American defense contractors could approach $13 billion. This would be in addition to the defense supplies or programs for which American firms currentlyhold contracts. (92) U.S.defense industries have expressed concerns about the implications for their business prospects shouldthe U.S. place significant restrictions on their exports to EU nations. (93)

Between 2000 and 2004, the United States has imported from a single memberof the EU, the United Kingdom, approximately $6 billion in defense products. (94)

Various EU member states are suppliers of defense articles to the United Statesfor incorporation into U.S. weapons systems. The supply of these defense articles could be curtailedor ended should given EU states choose to do so in a retaliatory response to U.S. restrictions onmilitary sales to them. (See the text box below for examples of such weapons systems and the EUmembers that supply these defense articles to the United States). Although the United States couldgenerally find domestic sources for defense components currently received from EU member states,this would require delays in production of given weapons systems and would increase costs untilviable alternate U.S. domestic sources were identified and qualified, manufacturing facilities werecreated and placed under contract, and production to existing quality standards wasinitiated.

In addition, if the EU were to end its arms ban on China, most observers believe that neitherthe Bush Administration nor Congress would be likely to support exempting the U.K. or other EUmember states from existing U.S. arms export controls. For several years efforts have beenunderway to exempt, in particular, the United Kingdom from the requirements of Section 38(j) ofthe U.S. Arms Export Control Act (AECA). This has generally been referred to as seeking a waiverfrom the International Traffic in Arms Regulations (ITAR). (95) Under such an exemption,unclassified defense items (equipment and intellectual materials) could be exported without the needfor a U.S. export license. The rationale for such an exemption has been that certain allied countrieswith proven records of strict arms export controls, and common concerns about weaponsproliferation, should be permitted to obtain U.S. defense articles and services with a minimum ofregulatory review. Prior to the recent controversy over the EU embargo on China, the U.K. had notyet fully overcome Congressional concerns about the nature of U.K. export controls, includingconcerns about re-transfer controls. In October 2004, Congress passed a provision in the Ronald W.Reagan National Defense Authorization Act for FY2005 ( P.L. 108-375 ) that directs expeditedprocessing of U.K. requests for the purchase of U.S. defense articles or services, but does not providefor waiver of their review under U.S. law and regulations. (See the Legislation section below fordetails.)

Some speculate that European frustration with existing U.S. export controls on sensitiveweapons technologies may play a role in the EU decision to lift or maintain the embargo. Theysuggest that some European defense policymakers are doubtful that they would ever obtain ITARwaivers. As a result, such European officials might feel that they have little to lose in this regard byagreeing to lift the EU arms embargo on China. (96)

Supporters of a strong transatlantic partnership caution that both the United States and its European allies must not allow the EU arms embargo issue to drive a wedge in the U.S.-Europeanrelationship. Some say this would fulfill what many China-watchers believe to be a PRC goal, i.e.,to separate the United States from its traditional allies and increase U.S. isolation. Atlanticists arguethat the United States and Europe stand a much better chance of addressing the challenges posed byChina's rise if they work together rather than at cross purposes. Many suggest that despite thetensions surrounding the arms embargo issue, it has created an opportunity to establish aU.S.-European dialogue on security challenges in East Asia and their implications for U.S. and alliedinterests. On the other hand, they believe that if the United States sanctions European companiesor restricts U.S.-European defense industrial cooperation in response to an end to the EU armsembargo on China, this would severely sour transatlantic relations. A significant transatlantic riftover the EU arms embargo on China could also hinder Washington's ability to gain allied supportand cooperation on other global concerns ranging from countering terrorism to promoting peace inthe Middle East to making the world trading system more open and efficient.

U.S. Policy Toward China

If the EU ended its arms embargo on China, particularly without a correspondingimprovement in the U.S.-European dialogue, one implication might be a reduction in coordinatedWestern leverage on China to improve its human rights practices. Moreover, there might be lesspressure on China's rulers to reexamine the Tiananmen Crackdown, a reexamination that wouldundermine China's justification for a possible military crackdown on pro-democracy demonstratorsin the future. U.S. policy-makers might also review the priority placed on improving human rightsconditions in China in the broader approach towards China.

On the security side, since the Nixon Administration in the early 1970s, the United States haspromoted a policy of peaceful engagement with China, including vast economic ties, but remainedvigilant to destabilizing moves by China. In the current Bush Administration, the U.S. NationalSecurity Strategy stated that "we welcome the emergence of a strong, peaceful, and prosperousChina." At the same time, there are concerns. The same strategy also warned that "in pursuingadvanced military capabilities that can threaten its neighbors in the Asia-Pacific region, China isfollowing an outdated path that, in the end, will hamper its own pursuit of national greatness." (98)

Despite the engagement policy, there are concerns about China's rising economic, political,and military power, because of what some perceive as conflicting U.S.-China strategic interests formaintenance of global peace and stability. The Bush Administration's Quadrennial Defense Review(QDR) of 2001 declared that one U.S. security objective is to preclude hostile domination of criticalareas, particularly Europe, Northeast Asia, the East Asian littoral, and the Middle East and SouthwestAsia. Issued after the EP-3 aircraft collision crisis with China in April 2001, (99) the QDR cautioned that"although the United States will not face a peer competitor in the near future, the potential exists forregional powers to develop sufficient capabilities to threaten stability in regions critical to U.S.interests. In particular, Asia is gradually emerging as a region susceptible to large-scale militarycompetition." While China is not named explicitly, the report points out that "the possibility existsthat a military competitor with a formidable resource base will emerge in the region." Moreover, thereport noted one particular area of concern: the "East Asia littoral" is defined as the region stretchingfrom south of Japan through Australia and into the Bay of Bengal. (100)

Security implications would not be confined to the Asian region or the United States. TheEU also has recognized that weapons nonproliferation is an issue with China. At the EU-Chinasummit on December 8, 2004, they issued a "Joint Declaration on Nonproliferation and ArmsControl." There is concern that foreign cooperation with PRC defense-industrial corporations benefitand subsidize some that have engaged in weapons proliferation, including to unstable areas such asthe Middle East. Moreover, as China obtains more advanced technology, it can sell its olderequipment to poorer countries or those with problematic human rights records.

The United States has imposed sanctions on PRC entities, including some in the defenseindustries, with multiple sanctions imposed in certain cases on the same "serial proliferators." European companies have cooperated with some PRC organizations of concern for weaponsproliferation. For example, Eurocopter signed an agreement with the Hafei Aviation IndustryCompany and China Aero-Technology Import-Export Corporation (CATIC) to assemble HC120helicopters. (101) TheState Department imposed sanctions for weapons proliferation on CATIC in May 2002 andDecember 2004. Italy's Iveco company has cooperated with North China Industries Corporation(NORINCO) to produce an anti-tank weapon. A defense-industrial organization, NORINCO hasbeen a subject of U.S. sanctions on six occasions. U.S. sanctions also have been imposed on PRCentities in the shipbuilding and space launch industries. Alcatel's sale of the Chinasat-9communication satellite undercuts U.S. sanctions for PRC weapons proliferation, which haveprohibited the export of U.S. satellites to China. (102)

Furthermore, the EU's consideration of an end to its arms embargo on China has raised U.S.concerns about the EU's support for U.S. efforts to discourage an aggressive PRC posture in theTaiwan Strait and elsewhere in Asia. U.S. efforts to uphold Asian stability has fostered conditionsbenefitting U.S., European, Asian, and other economies. In particular, U.S. efforts have intensifiedsince the summer of 2004 to focus on a resumption of cross-strait dialogue. Washington worriesthat, in ending the arms embargo, the EU could inadvertently send a different message from that ofU.S. policy, which denies Beijing's claim to any justification to use force against Taiwan. Accordingto this view, such a move would also undermine the EU's stated policy of supporting a peacefulresolution of the Taiwan question.

The attention on the EU's arms embargo could also lead to a review of whether U.S. armssanctions on China should be maintained, eased, or tightened. A periodic issue concerns whetherto issue further waivers of the sanctions imposed for the Tiananmen Crackdown, including forsatellite exports (as discussed above in U.S. Sanctions on Arms Sales to China ). In 2002, the StateDepartment considered Boeing's request to export Chinook heavy-lift helicopters to China. (103) China's organizers andAmerican exporters could urge transfers of U.S. equipment related to security surrounding theOlympics to be held in Beijing in 2008, equipment that also could be used for internal security.

There is increasing concern in the U.S. government that China's military modernization isaccelerated, offensive, and destabilizing, threatening U.S. forces and allies. Among U.S. allies,Japan, in particular, has increased concerns about the PLA's buildup. Japanese officials publiclyhave expressed opposition to the EU lifting its arms embargo, particularly after incidents that raisedtensions. On November 10, 2004, a PLA Han-class submarine intruded into Japanese territorialwaters, and Japan's Maritime Self-Defense Force deployed anti-submarine aircraft and destroyersto track the submarine. On January 22, 2005, Japan's Maritime Self-defense Forces tracked the PLANavy's two Sovremenny-class destroyers in waters under Japanese surveillance. (104) Japanese ForeignMinister Nobutaka Machimura told the EU's top foreign policy official, Javier Solana, on February8 that Japan opposes the lifting of the arms embargo, because that would have "a negative effect onsecurity not only in Japan, but also in East Asia." (105) The United States and Japan issued a Joint Statement onFebruary 19, 2005, which explicitly declared that they seek the common strategic objectives ofencouraging China to "play a responsible and constructive role regionally as well as globally" andencouraging "the peaceful resolution of issues concerning the Taiwan Strait through dialogue." (106) In September 2005,the PLA Navy deployed five ships, including a Sovremenny destroyer, to disputed waters betweenChina and Japan with conflicting claims to gas and oil drilling rights. Thus, the impact of U.S.diplomacy with the EU would affect U.S. security interests as well as those of allies, such as Japan(especially given the new level of U.S.-Japan allied coordination on security concerns).

Attention on the EU's arms embargo also raises questions about broader concerns over therange of arms suppliers to the PLA, including Russia, Europe, and Israel. (See Tables 1 and 2 atthe end of this report.) In response to the National Defense Authorization Act for FY2000, P.L.106-65 (enacted on October 5, 1999), the Pentagon has submitted annual reports to Congress on PRCmilitary power. In the National Defense Authorization Act for FY2002, P.L. 107-107 (enacted onDecember 28, 2001), Congress added a new requirement for the report to include a section onsignificant sales and transfers of military hardware, expertise, and technology to China. Congressdid not limit the scope of this reporting requirement to transfers from Russia or other former Sovietstates, as in the original language passed by the House. However, the new section of the reportsubmitted in 2002, "Cooperation Between the Former Soviet Union and China," only discussed armssales by former Soviet states, excluding Israel and other countries. The report submitted to Congressin 2003 did not have this section. The report in 2004 included a sub-section on "[Former SovietUnion] Arms Sales and Technology Transfers to China Since 1991," again excluding Israel. Thisreport briefly raised concerns about an end to the EU's arms ban.

Options for U.S. Policy

Continue to Urge the EU to Maintain its Arms Embargo

Conveying specific U.S. concerns about China's ongoing human rights abuses to EUinterlocutors may heighten concerns that lifting the embargo could increase internal repression inChina. This argument may be especially cogent for member states such as Sweden, the Netherlands,and Ireland, which have strong human rights advocacy traditions. Some of the new EU membersfrom Central and Eastern Europe may be more receptive to U.S. arguments that lifting the EUembargo could also damage U.S.-European relations in NATO. If the U.S. strategy, however, isperceived as trying to divide and weaken the EU, it could backfire and increase transatlantic tensions. Washington might also more systematically and publicly raise concerns about Russian and Israeliarms sales to China in order to deflect European complaints that EU members are being singled outfor criticism.

Encourage the EU to Strengthen its Code of Conduct

The United States could encourage a significant strengthening of the European Union's Codeof Conduct to enhance its transparency and provide EU member states with near-real-time notice of prospective arms sales to China prior to issuance of an export license. In this way, those EUmembers concerned about the negative implications of such a sale could bring peer pressure to bearwithin the EU arms control context sufficient to dissuade the prospective seller from agreeing to sucha sale. Urging the EU to make the EU Code of Conduct, in its strengthened form, a CommonPosition, could also enhance its credibility as an instrument of arms exports control. The UnitedStates could also encourage the EU to incorporate into its own Military Control List the munitionslists of all major international arrangements, including the Wassenaar Arrangement Military Controllists. Fully encompassing all weapons lists in one place would further enhance the credibility of theEU's Code as the principal vehicle for EU arms exports control.

Promote a Cooperative U.S.-EU Strategy

The United States could promote a cooperative strategy toward China and possibly on EastAsia more broadly. The United States, the EU, and Japan have begun a strategic dialogue on EastAsia. Many Europeans say they were surprised by the strength of U.S. opposition to ending the EUban because they did not view it as posing a threat to U.S. interests in the region. A sustained,institutionalized dialogue on East Asia may also enable Washington to draw its European allies andfriends into deeper engagement on the question of Taiwan. Greater intelligence-sharing might bepursued.

Within this broad strategic dialogue, the United States could promote regular consultativemeetings on potential U.S. and EU arms sales to the region. The United States could in this wayexpress to the EU what its greatest concerns may be regarding specific types of arms transfers toChina. Such a vehicle would not intrude on the sovereignty of the EU member states by mandatinga prohibited arms sales list for China, but would provide the EU, the United States, and possiblyJapan, with a clear picture of what arms sales may be in prospect, and afford a private opportunityfor the United States, in advance of any sale to China, to explain in detail its concerns about sucha sale. In this way, it is possible that controversies over potentially problematic sales to China couldbe minimized or avoided.

Pursue Robust Bilateral Efforts on European Arms Exports

The United States could seek bilateral agreements with individual EU member states toconstrain arms sales to China, and possibly to ban the transfer of sensitive U.S. weapons ortechnology to China. This might help ensure that U.S. interests are taken into consideration by eachEU member state, given that national sovereignty concerns still limit the coordination of arms exportcontrol policies at the EU level. Such arrangements would also protect U.S. defense cooperationwith those EU member states that have agreed with U.S. conditions. However, it is unclear whetherEU member states would be receptive to such bilateral arrangements. Some may prefer an EU-wideagreement in order to bolster harmonization of export controls throughout the Union. Some memberstates might demand ITAR waivers or greater access to the U.S. defense market as the price of suchbilateral agreements.

Engage with the European Parliament

Members of Congress could seek to play a role in shaping the transatlantic debate on EastAsia by engaging in discussions with counterparts in the European Parliament through the existingTransatlantic Legislator's Dialogue. The European Parliament has passed several resolutions urgingthe EU to maintain the arms embargo. Although the Parliament does not have a formal role in thedecision to maintain or lift the embargo, some analysts believe the Parliament has become animportant forum for foreign policy debates in the EU. Members of Congress could encouragecontinued Parliamentarian vigilance of the status of the EU arms embargo on China, and ofEU-China relations more broadly.

Retaliate to Protect U.S. National Security

Impose Restrictions on Sales of Defense Articles and Technologyto EU Member States. If the EU lifts its arms embargo on China, many Membersof Congress have asserted that they would be prepared to restrict U.S. sales of defense articles andtechnology to EU member states that sell certain defense items to China. This would help ensurethat U.S. defense exports and advanced military technology are not re-directed to China. Suchrestrictions could be imposed by placing specific conditions, beyond those required by current U.S.law in the contracts for sale, by specifically stating that the contract would be null and void, shouldthe buying company's nation make specific classes of arms sales or technology transfers to China. This could be done by a specific amendment to the Arms Export Control Act, by a free-standing bill,or through an amendment to an available legislative vehicle.

Impose Restrictions on U.S. Military Procurement from EUStates. The United States could place restrictions on defense industrial cooperationwith EU states that make weapons sales to China the United States determines to be problematic. This could include suspension of cooperation with EU states currently participating in joint defenseprojects with the United States, such as the Joint Strike Fighter (JSF) program. It could also includetermination of defense article purchases from EU states that are currently procured for integrationinto weapons systems produced by the United States, with the U.S. replacing the foreign defensearticle with one domestically produced.

Legislation

ITAR Waivers. On June 22, 2004, the Senateapproved an amendment ( S.Amdt. 3429 ) to the National Defense Authorization Act forFY2005 ( S. 2400 ) that would have waived Section 38(j) of the Arms Export ControlAct for the U.K. (and Australia). Section 38(j) requires that for a foreign country to become exemptfrom U.S. defense export licensing requirements it must have first concluded a "binding bilateralagreement" with the United States which obligates the foreign country to have or to establish adomestic defense export control regime consistent with the detailed guidelines set out in Sections38(j) (1) and (2) of the Arms Export Control Act. In order to permit an export licensing exemptionfor the U.K., given the differences of its national export control system from that of the UnitedStates, Congress must waive Section 38(j). On October 9, 2004, the House and Senate approved aconference report on a bill that removed the Senate provision waiving Section 38(j), replacing it witha new provision (Section 1225 of H.R. 4200 ) which requires expedited processing ofdefense export licenses for the U.K. (and Australia), but does not exempt them from review. H.R.4200 was signed into law ( P.L. 108-375 ) on October 28, 2004.

Resolutions Urging the EU to Keep the Embargo. On February 2, 2005, the House passed H.Res. 57 to urge the EU to maintain its armsembargo on China. On March 17, 2005, the Senate passed S.Res. 91 , urging the EUto maintain its arms embargo on China.

Defense Procurement Sanctions. In May 2004,the House passed its version of the Ronald W. Reagan National Defense Authorization Act forFY2005 ( H.R. 4200 ), which included a provision to impose procurement sanctionsagainst any foreign person that transfers certain military items to China. The Senate's bill did nothave similar language, and the section was dropped in conference.

On May 25, 2005, the House passed H.R. 1815 , the National DefenseAuthorization Act for FY2006 (H.R. 1815) with a provision (section 1212) that, among other things,would forbid the Secretary of Defense from procuring "by contract or otherwise, any goods orservices" from "any foreign person" the Secretary determines has "exported, transferred or otherwiseprovided to governmental or nongovernmental entities of the People's Republic of China any itemor class of items on the United States Munitions List." Foreign persons determined by the Secretaryof Defense to have engaged in any of the forbidden transactions with the PRC would not bepermitted to engage in procurement transactions with the Defense Department for five years. Duringconference, the House receded on its language. The bill became P.L. 109-163 on January 6, 2006.

East Asia Security Act. On June 29, 2005,Representative Henry Hyde, Chairman of the House International Relations Committee, introducedH.R. 3100, the East Asia Security Act of 2005, to deter arms transfers by foreign countries to thePRC. Among the measures, the bill sought to require Presidential reports on European or otherforeign countries that export to China military or dual-use items on the Wassenaar Munitions Listand those that have defense cooperative projects with the United States. The bill also sought to addlicensing requirements and to give the President discretionary authority to impose sanctions (denialof security assistance, U.S. weapons research, etc.) to countries reported to have engaged in defenseexports to China. During an extended floor vote on July 14, 2005, Representative Donald Manzulloled opposition to the bill, so that an original count of 342 favorable votes changed to the final voteof 215-203 (less than two-thirds support) to defeat the bill. (107)

Then, on July 19, 2005, Representative Hyde introduced language for the East Asia SecurityAct to amend H.R. 2601, the Foreign Relations Authorization Act for FYs 2006 and 2007. TheHouse agreed by voice vote to the amendment, after Representative Hyde lamented that the failureof H.R. 3100 to pass was "the wrong outcome for U.S. national security" and obtained the supportof Representative Manzullo, since changes were made to clarify that the legislation would apply tointernational transfers of weapons and related technology, and not to civilian, commercial trade. Manzullo said that the amendment "makes sure that the Chinese army does not receive sensitiveinformation from our allies and, at the same time, it does not hinder the export of our valuablemanufacturing." (108) The House passed H.R. 2601 on July 20, 2005, and it was placed on the Senate's calendar two dayslater.

Appendix: Non-Russian Military-Related Transfers to China

The following tables present information from unclassified reports on non-Russianmilitary-related (including dual-use) transfers to China from European countries, Israel, and othersecondary sources of supplies. Table 1 reports on non-Russian systems that have been transferredor are under contracts. Table 2 reports on non-Russian systems that have been reported asnegotiated (not those in which China has shown interest), but contracts or transfers are not as evidentas those in Table 1 . The information should not be considered exhaustive, since commercialcontracts for defense-related trade are closely guarded. CRS makes no claims as to whether suchreported transfers violated any policies or contributed to the PLA's capabilities to threaten securityinterests of the United States or other countries.

Table 1. China's Acquisitions under Reported Contracts forMilitary-Related Systems from Europe (Excluding Russia), Israel, and Others Since the1990s

Table 2. China's Reported Negotiations for Military-RelatedSystems from Non-Russian Sources Since the 1990s

Sources (to supplement the citations above): These tables were compiled by Shirley Kan,Specialist in National Security Policy.

Department of Defense (DOD), "Report to Congress on PRC Military Power," July 2003 and May2004.

Fisher, Richard, "Zhuhai Airshow, November 3-8, 2002," Center for Security Policy, 2002.

Fisher, Richard, "Known and Projected PRC Weapons Acquisitions," table in a report for theU.S.-China Economic and Security Review Commission, January 2004.

Goldstein, Lyle and William Murray, "China Emerges as a Maritime Power," Jane's IntelligenceReview , October 1, 2004.

Office of Naval Intelligence (ONI), "Worldwide Challenges to Naval Strike Warfare," 1996