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Techies Cautiously Praise China's About-face
by William New
The technology industry last week warmly greeted the news that China has agreed to delay an exclusive wireless encryption standard and to cooperate on verifications of the ultimate use of sensitive goods exported from the United States. But the greeting was a little like that reserved for a family troublemaker who has broken trust before and can be expected to do so again.
"We avoided the train wreck" on the wireless standard and export controls, a U.S. industry source said. "But I don't think it's clear sailing from here on out."
Still, the Office of the U.S. Trade Representative on Friday noted how far high-tech issues have moved to the center of the at-times delicate relationship between the China and the United States. "This week marks a number of key trade successes for the United States high-tech industry," U.S. Trade Representative Robert Zoellick said in a release that, among other things, noted the outcome of a U.S.-China Joint Commission on Commerce and Trade meeting where China agreed to delay the encryption standard.
"U.S. trade, investment and technology flows have been a critical factor in China's rise as an economic power," the U.S.-China Economic and Security Review Commission told the Senate Foreign Relations Committee on Thursday. "We need to use the substantial leverage this provides us to develop an architecture that advances both countries' long-term interests."
Industry Wary Of Wireless Plans
At last week's joint commission meeting, China agreed to indefinitely suspend and revise a unique encryption standard for wireless communication, considering international standards in the revision. One U.S. industry source said afterward that the issue was a test of whether China could flout global standards. "They got the message we're not going to lie down for that," he said.
China also agreed to an "action plan" that includes "significantly" reducing infringement of intellectual property rights and increasing penalties for violations. By the end of 2004, China must apply criminal sanctions to the import, export, storage and distribution of pirated and counterfeit goods, and apply criminal sanctions to online piracy. The nation also agreed to bolster enforcement actions.
"I think China's signaling that they want to play in the international arena," said Alan Miller of the Information Technology Association of America. "Before this meeting there were questions in a lot of our minds that they were going to go their own way."
But Miller said he does not think China is abandoning the wireless standard, which was supposed to take effect June 1. "They are giving the message that they want to deal ... with international standards-setting bodies," he said.
The Chinese government also reportedly downplayed the agreement afterward. AP reported from Shanghai on Thursday that Chinese officials would not discuss details of the wireless agreement and that Chinese Vice Premier Wu Yi, the chief negotiator in Washington last week, indicated that the standards still would be adopted. She did not say when that would happen.
One source said it might be difficult to use World Trade Organization rules to prevent China from dodging internationally recognized standards. The source added that some countries appear to resent that U.S. companies have set many of the international standards.
Two Takes On Export Controls
After the meeting, furthermore, apparent differences arose in the Chinese and U.S. interpretations of an agreement on U.S. controls of exports for "dual use" products that could have both commercial and military purposes.
During the meeting, Kenneth Juster, head of the U.S. Bureau of Industry and Security (BIS), and Ma Xiuhong, China's vice minister of commerce, exchanged letters on verifications of U.S. exports to China. The bureau issued a statement explaining that the two governments agreed to procedures to strengthen Chinese cooperation on visits by U.S. officials to verify how dual-use products are being used in China.
"This new ... understanding specifies procedures for conducting end-use visits while also providing a mechanism for consultations on other end-use visit issues that may arise," BIS said. "We hope that this understanding will enable increased U.S. exports to China of high-technology items."
But several major English-language newspapers reported that the agreement would ease the export controls, coverage that reflected a different spin by the Chinese.
A U.S. Commerce Department official said on Friday that U.S. officials did not agree to ease export controls. He said officials hope that the agreement on spot checks -- just one tool in the U.S. arsenal for ensuring that sensitive goods and technologies are used properly -- will help streamline the existing licensing process. Improved cooperation on verifications will boost confidence and efficiency, he said.
"We accomplished an understanding that will better ensure that U.S. exports of dual-use goods and technologies to China are used by the intended recipients and for the intended purposes," Mark Foulon, deputy undersecretary of Commerce for industry and security, said.
An industry source added that the deal also might affect policy decisions on export controls.
The Industry View: Pleased But Cautious
U.S. industry leaders lauded the accomplishments, unanimous in the assessment that China's abdication to several U.S. wishes is positive for the relationship. But most also favor more monitoring of compliance. In addition, some industry sources expressed misgivings about assigning too much weight to the outcome. "It sets a positive tone or precedent, but I wouldn't be surprised if two months from now we are talking about a new issue," one source said.
Several problems were not resolved in the meeting. For instance, the United States has challenged at the WTO a Chinese tax break for semiconductors manufactured in China. China also is threatening to restrict government procurement of software, a move that would hurt U.S. industry. And the position China took at the U.N. World Summit on the Information Society in December was "very troubling" to U.S. industry, as one industry source put it, because China joined other developing countries in seeking more government control of the Internet.
China's implementation of the commitments it made upon joining the WTO more than two years ago already has drawn careful inspection by U.S. industries hurt by significant levels of piracy and closed markets there.
Jack Valenti, chairman and CEO of the Motion Picture Association, said last week's agreement is expected to have a "significant impact" on piracy in China, which his organization will monitor. Entertainment Software Association President Doug Lowenstein said the more than 95 percent piracy rate his industry faces in China would be "significantly" reduced by implementation of the commitments.
Pat Schroeder, president and CEO of the Association of American Publishers, said the commitments, would "bring China a few steps closer to fulfillment of its obligations under international law." And Bill Primosch, director of international business policy for the National Association of Manufacturers, urged "careful monitoring to ensure the Chinese deliver on what they've promised."
"The meeting is not an end in itself," Myron Brilliant, vice president for Asia at the Chamber of Commerce, said in a statement. "If carried out effectively, with a serious commitment of resources at all levels of the Chinese government, we could see long-overdue progress in intellectual property rights protections."
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