March 10, 2004 1:50 PM PST

Intel, others to stop shipping Wi-Fi to China

Intel and Broadcom will stop selling Wi-Fi chips in China at the end of May because of an encryption standard being imposed by the Chinese government, as trade tensions between the United States and China heat up.

The Chinese government has passed a law stating that, starting June 1, all Wi-Fi chips sold must comply with the Wired Authentication and Privacy Infrastructure (WAPI) standard. The encryption algorithm was developed in China and is controlled by local Chinese companies.


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Intel spokesman Chuck Mulloy said Wednesday that while his company and others have looked at the technology, the Santa Clara, Calif., chipmaking giant has not figured out a satisfactory way to incorporate the standard into its existing line of Wi-Fi chips. As a result, Intel will stop offering its Wi-Fi chips in China after the beginning of June, because selling them would be illegal, he said.

The company is continuing to work with local PC manufacturers and the government on the issue, but it does not have enough information about WAPI at present to understand when or whether it will be able to ship chips that conform to the standard.

"There are real concerns about whether we can deliver a product with the quality our customers will require," Mulloy said. "We made a commitment to tell our customers in March, and we concluded that from a technical perspective, we weren't going to hit the June 1 deadline."

Broadcom, one of the larger Wi-Fi chipmakers, also plans to stop shipping chips to China, but it said it is trying to resolve the issue.

"We intend to comply with the law," a Broadcom representative said. "We don't have enough information to do (WAPI) right now." Other U.S. and European manufacturers plan to follow suit, the representative added.

The WAPI issue has become a flash point in Chinese-U.S. trade relations. Under Chinese regulations, established chipmakers have to license or partner with local companies, such as Lenovo, to legally obtain WAPI technology. In turn, this has provoked concern that the regulation exists as a way to jump-start the country's local Wi-Fi industry.

Earlier this month, U.S. Secretary of Commerce Donald Evans, Secretary of State Colin Powell and U.S. Trade representative Robert Zoellick sent a letter to Chinese Vice Premier Wu Yi and others to reconsider the law.

"We are particularly concerned that the new rules would require foreign suppliers to enter into joint ventures with Chinese companies and transfer technology to them," the letter stated. "Such compelled investment would appear to be inconsistent with China's WTO (World Trade Organization) commitments."

While local industries typically benefit from these types of regulations, other motives are usually present, said Lawrence J. Lau, Kwoh-Ting Li professor of economic development at Stanford University.

"I believe there are genuine security concerns on China's part, although the domestic industry is also likely to benefit," he stated in an e-mail. "However, most of the time these technology standards are intended to provide protection for domestic industry against foreign imports."

Lau further added that these types of regulations often do not have their intended effect.

"Our cell phones do not work in Japan, so the Japanese manufacturers and distributors have a lock in their home market," he said. "However, that did not exactly help Japan. Today none of the leading cell phone companies are Japanese. By setting a different standard, Japan has actually limited the growth of its own cell phone companies."

China also is pushing domestically developed technical standards on a wide range of technologies, from DVDs to third-generation mobile phones.

The Semiconductor Industry Association has been urging the U.S. government to force China to reform its value-added tax (VAT) regulations. Chips imported into China face a 17 percent VAT. Whereas, chips made in the country face only a 3 percent VAT. Consequently, Chinese manufacturers or multinational manufacturers that have built Chinese plants have an unfair advantage, according to the organization.

Conversely, other organizations are seeking greater cooperation. The U.S. semiconductor equipment manufacturing industry is trying to push the United States into greater cooperation with China. Under current regulations, U.S. equipment makers can't easily ship high-end equipment to China. As a result, U.S. manufacturers are losing out on sales to European and Asian competitors, according to the Semiconductor Equipment and Materials Institute and others.

A relaxation of the regulations is expected sometime this month, according to a recent report from the U.S. Taiwan Business Council.

 

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