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Emerging Giant - Reemerging Issue

China

A major trade dispute erupted between the United States and China in 2004 over a wireless standard, and then dropped out of sight. Is it about to reemerge?

A major international standards dispute that most have forgotten may be beginning to rumble again. That issue is the effort by China to promote its own wireless standard in preference to the globally IEEE 802.11 family of Wi-Fi wireless standards that is in use in most parts of the world, and that is vigorously promoted by Western chip makers such as Intel and Texas Instruments.

The Chinese specification at issue is a wireless local area network (WLAN) security standard called BWIPS (broadband wireless Internet protocol standard), and the rationale given by the Chinese government for developing this alternative was that the Wi-Fi standard provided inadequate security ? a contention that had some validity several years ago, when the Chinese standard was created.

But the Chinese government had announced in 2003 not only that use of its own standard would become compulsory at the end of that year, but also that only a limited number of licenses would be granted to build products implementing that standard. Foreign vendors would be free to contract with the domestic suppliers that had been granted these licenses. But unlike the Chinese companies, Western companies would be charged far more for the right to sell products supporting the standard than would the Chinese vendors (the differential arose from the fact that domestic companies would receive a rebate of most of the license fees on the units manufactured).

The result was a trade dispute that escalated to the highest levels of government, and ultimately resulted in a postponement ? but not a revocation - of the effective date of the Chinese standard deadline. The intention was to permit a cooling off period during which the Chinese could participate in IEEE activities, as well as argue the case for their own standard before ISO, in hopes that a universally accepted global standard would eventually emerge.

One of the principal levers used by the United States in the dispute is the Act on Technical Barriers to Trade (TTA), under the World Trade Organization (WTO), which prohibits the use of standards purely for the purpose of favoring domestic goods over those imported from other countries. The full story can be read in much greater detail in the April 2005 issue of the Consortium Standards Bulletin, which was dedicated to the emerging standards might of China in general, and to this dispute in particular.

Now the issue is emerging again, as reported over the weekend in China Daily, which state in part as follows, in an article titled "Network products receive lift":

 

Products that comply with the Chinese security standard for wireless networks will get a boost from the central government in the form of a recommendation for procurement.

According to a circular published on the website of the National Development and Reform Commission on Thursday, organizations using the State budgets to procure computers, telecommunication equipment, printers, copies and projectors should give preference to the recommended products from next month.

The joint circular by the commission, the Ministry of Finance and the Ministry of Information Industry said those organizations, which have special requirements on information security, must buy recommended products.

The circular says the main purposes are to protect national information security, safeguard the interests of the nation and society, and promote the national economy and the use of information technology.

The article goes on to relate the past history of the standards dispute from the Chinese perspective, noting in part as follows:

The standard claims to ensure higher security on information transmission in a WLAN network, which became a hot issue because of aggressive pushes from international giants, especially Intel. One of the biggest features of Intel's Centrino notebook processors is its WLAN capability.

However, the WLAN network is also known for its lower security control, which can lead to information leakage, so some Chinese researchers decided to start to develop a solution. The result is BWIPS, which became the national compulsory standard in 2003.

The Chinese standard required all players in the WLAN industry to make their products comply with the BWIPS standard and co-operate with some Chinese partners.

That aroused complaints from companies such as Intel and WLAN chipmaker Broadcom, which finally became a focal point of a trade dispute between China and the United States.

In 2004, the two countries reached an agreement, and China promised to postpone the implementation of the standard indefinitely.

 

While the story does not indicate that the postponement is being lifted, it does appear to signal that the Chinese government is testing the limits of how much preference it can still give to its home grown standard while not violating the prohibitions of the TTA, and invoking a protest within the WTO. The article is sensitive to this possibility, and includes the following:

 

A member of the BWIPS working group, who declined to be named, said yesterday that the circular is just a confirmation of the Chinese Government's emphasis on information security and encouragement on technological innovation.

"It is a question of national security, so the top officials in the government are also very attentive to that, meaning that State agencies should act first," he said in a telephone interview.

Intel, a strong opponent of that standard, declined to comment, saying it should evaluate the policy first.

Li Ke, a senior semiconductor analyst with the domestic research house CCID Consulting, said that the circular shows the government's concern about information security and its intention to encourage the use of the domestic technology.

"Although the implementation of BWIPS was postponed, it is still an effective national standard, so it is not surprising that products based on the standard become recommended products" he said.

He added that since the circular addresses only government procurement and every country has the right to give preferences to domestic products and services, that move does not violate the principles of the World Trade Organization.

 

It remains to be seen, on the one hand, whether China will expand the policy further, and on the other hand, how Intel, Texas Instruments, and the Department of Commerce will react to the announcement, particularly since improvements in security have been made in the Wi-Fi standard since the dispute originally heated up. If the Chinese circular is just the beginning of a new effort to push the Chinese standard in the home market or that parity has been reached on security, it may be that these companies will once again contend that China is pushing the envelope of its obligations under the TTA.

 

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