April 21, 2004 3:00 PM PDT

China, U.S. strike trade accord

China is softening efforts to establish its own Wi-Fi security standard and will adopt stringent new piracy prevention policies as part of a broad trade and technology agreement with the United States, the two countries announced Wednesday.

Chinese government officials had set June 1 as a deadline for gear makers to include its Wireless Authentication and Privacy Infrastructure (WAPI) standard into products sold in China. The specification would allow the government to decrypt any communications by its citizens over wireless networks.

WAPI is not compatible with current Wi-Fi security standards. Enforcing the inclusion of WAPI into gear would have limited the number of manufacturers that could sell products in the Asian country, setting the stage for a high-profile technology battle between China and the United States.


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According to sources close to the negotiations, China agreed that it will not implement WAPI by its announced deadline and will indefinitely postpone enforcement of the WAPI directive. In the meantime, the country will work to revise and perfect the standard in collaboration with the international standards group IEEE (Institute of Electrical and Electronics Engineers).

China's WAPI decision is one of several agreements announced Wednesday, after a high-level meeting between U.S. trade officials and China's Vice Premier Wu Yi in Washington, D.C., convened as part of the U.S.-China Joint Commission on Commerce and Trade.

The commission also announced that China has agreed to adopt new copyright policies aimed at curtailing rampant piracy of music, movies and other works, according to the Recording Industry Association of America (RIAA).

As part of the copyright agreement, China will launch a campaign aimed at reducing piracy on CDs and other physical media; bolster efforts to bring criminal charges against accused pirates; and bring China's laws into line with international copyright treaties aimed at preventing pirated works from being copied over the Internet.

The RIAA also called on China to open trade barriers and streamline censorship review to help U.S. artists distribute their works legally in the country.

"China has committed to tangible, specific steps to address the rampant piracy of copyrighted works," RIAA Chief Executive Mitch Bainwol said in a statement. "If fully implemented, this will be a landmark announcement and a real victory for composers, record companies, artists and other copyright owners in China."

Wednesday's agreements could help ease growing trade tensions between the United States and China over technology. WAPI, for example, has been at the center of a simmering trade dispute between China and the United States.

China has maintained that many of its regulations are important to preserve national security. U.S. companies have said that the rules exist mostly to move jobs, and potential access to intellectual property, to China.

Chipmakers decry VAT
Among other disputes, U.S. chipmakers have loudly complained that the value-added tax (VAT) on semiconductors discriminates against companies that do not partly or wholly manufacture chips in China. Chips imported into China face a 17 percent VAT. Chips made in China can face a VAT as low as 3 percent, a difference that leads to lower prices. China also has begun to push its own standard for 3G, or third-generation, cellular networks.

Wi-Fi chip and gear makers had expressed confusion about the Chinese security standard and what its impact would be on product development. Intel chief Craig Barrett said the company would stop selling its Centrino chip packages for notebooks if a compatible solution could not be worked out--a position also adopted by Wi-Fi chipmaker Broadcom. Barrett traveled this month to Asia to carry his company's message directly to Chinese officials.

Still, the motive to cooperate has been high, and sources have said that talks have been progressing behind the scenes to get the WAPI spat resolved. Wednesday's agreement doesn't resolve all of the issues, such as piracy, but it will likely be seen as a good step forward.

U.S. industry groups applauded the agreement.

"With China being the fastest-growing technology market, the commitment of the Chinese government to work on this issue in the international standards community is an important one," Rhett Dawson, CEO of the Information Technology Industry Council, said in a statement. "From the U.S. industry's perspective, we look forward to working with the Chinese government to help make this a reality."

Several Chinese companies have gone public or are planning an initial public offering in the United States, and the trade dispute has hurt them. Semiconductor Manufacturing International Co., a chip foundry that counts Texas Instruments as a customer, held a U.S. public offering the same day President Bush complained about the China trade. The stock declined on the first day of trading and has yet to rise significantly.

Semiconductor equipment manufacturers also have been pushing the U.S. government to relax regulations about selling equipment to Chinese customers. The United States recently relaxed some provisions that will allow these companies, with permission, to sell 130-nanometer equipment in China.

Additionally, trade is booming. China's trade with the United States came to $191.7 billion in 2003 ($28.4 billion in U.S. exports to China and $163.7 billion in Chinese exports to the United States), up 23.2 percent from the year before, according to statistics from the U.S. International Trade Commission. Electronics were the United States' largest export and the second-biggest Chinese export.

Last week, the U.S. Trade Representative opened a separate Office of China Affairs to handle issues with the growing China trade.

 

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