WASHINGTON-The Bush administration faces increased pressure to take a tougher stance on trade with China, a development that could lead to strained relations with the Asian giant and possibly complicate the near-term efforts of U.S. mobile phone vendors to compete for more billion-dollar contracts in the world’s biggest wireless market.
A confluence of factors is making it difficult for the White House to continue business as usual with China. The United States’ unprecedented $202 billion trade imbalance with China has become a major concern in Congress. Last week, Republicans and Democrats criticized executives of Google Inc., Yahoo Inc. and Microsoft Corp.-all players to varying degrees in the wireless space-for abiding by Chinese government efforts to impose Internet censorship. Separate from recognizing China as a growing economic juggernaut, Bush defense officials also now regard China as the country’s No. 1 long-term military threat.
The White House has responded by vowing to take stronger trade enforcement action, but skeptics doubt whether China can do much to curb intellectual piracy or refrain from enacting proprietary wireless standards that could lock out U.S. firms and other trading partners.
The administration points out that U.S. exports to China have increased, but it cannot avoid the massive trade deficit staring U.S. officials in the face.
“This disparity is due in part to China’s failure to honor certain commitments, including its failure to enforce intellectual property rights, its protection and support for certain domestic industries, and its refusal to fulfill certain market opening commitments, all of which play a role in the record bilateral trade deficit figures which were released late last week,” said U.S. Trade Representative Rob Portman last week.
The IP piracy problem in China has major implications for the wireless industry, given major investments here and abroad to develop multimedia mobile content for cell phones and other portable mobile devices. Some mobile application vendors are afraid of doing business in China because copyright piracy is so rampant there. But China is not alone.
The Business Software Alliance identified 68 countries that it said are lagging in obligations to provide adequate and effective intellectual property protection and enforcement.
“The software industry has made great strides in its efforts to assist nations working in good faith to update their intellectual property protections for the digital age. However, piracy remains the largest trade barrier for our industry, costing close to … $28 billion a year,” said Robert Holleyman, president of the Business Software Alliance.
While U.S. wireless vendors have made billions of dollars in China-many of the nation’s 1.3 billion inhabitants have little or no basic telephone service-wireless companies here are apt to benefit in the long run from greater Chinese compliance with global trade rules. Indeed, it was Portman just a few months ago who highlighted obstacles limiting the ability of U.S. wireless and telecom firms to compete on a level playing ground.
“If investment limits were raised there would still be joint ventures and there would still be many Chinese learning from foreign experts. In fact, I believe this would spur even more investment,” said Portman in November. “Beyond the limits on investment, there are also increasing numbers of technical barriers to trade that interfere with U.S. companies’ access to the China market. Cumbersome, opaque and unequally applied rules in telecommunications, insurance, financial services and other sectors continue to stymie foreign firms.”
China became a member of the World Trade Organization in 2001.
A group of telecom and tech firms complained to USTR last fall that China’s Ministry of Information Industry “has effectively precluded foreign companies that own essential intellectual property rights for third-generation wireless communications standards from negotiating technology licenses and royalty agreements directly with Chinese companies, which is the customary business practice globally.” They said rather than being denied access to the Chinese market, foreign companies are pressured to enter into negotiations involving royalty rates and other licensing terms with a committee led by the China Academy of Telecommunications Research, a government institution subordinate to MII.
“The telecom law has been in closed-door debate in China for too long and should be aired publicly and rapidly implemented,” U.S. telecom and tech representatives said. “There is substantial data from other liberalized markets that can enable China to rapidly craft and implement an appropriate regime that meets international norms but also embeds appropriate Chinese characteristics.”
China’s Internet censorship campaign has only exacerbated the U.S.-China trade issue. It is a difficult subject for the Bush administration to manage because it cannot count on political cover from fellow Republicans.
“U.S. technology companies today are engaged in a … sickening collaboration, decapitating the voice of the dissidents” in China, said Rep. Chris Smith, whose House international relations subcommittee grilled high-tech moguls on business practices in China.
The administration has responded by creating an Internet freedom task force.
“Internet companies have been caving in to pressure from Beijing in order to further their own financial interests,” said Rep. Tom Lantos (D-Calif.), ranking Democrat on the House International Relations Committee. “If Congress had not brought the issue to light, these companies would have continued their de facto complicity with Chinese censors in the dark. We welcome the interest that the State Department has indicated with its new task force-such support is offered better late than never.”
Lantos and Chris Cox, a former California congressman who now heads the Securities and Exchange Commission, pushed for the creation of such an entity several years ago.
“The hugely successful businesses that come before Congress tomorrow will have to account for their complicity in China’s culture of repression, and to begin to make amends,” Lantos said. “Government can be expected to do only so much. It is up to these wealthy entrepreneurs to help ensure that the free flow of information from which they have profited is offered worldwide.”
