Fair Trade Suffers When China Censors The Internet. It's Not Just A Human Rights Issue.

We are accustomed to thinking of censorship purely as a human rights issue, but for information providers and technology companies, censorship acts as a trade barrier.
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To: President Elect Barack Obama
Hilary Clinton, U.S. Secretary of State nominee
Ron Kirk, U.S. Trade Representative nominee
Julius Genachowski, Obama Transition Team - Technology

From: Michael A. Santoro and Wendy Goldberg

Re:Chinese Internet Censorship: It's About Fair Trade, Not Just Human Rights

Almost all discussion of the harm done by China's strict censorship of the Internet focuses around its human rights implications. However, by restraining the ability of U.S. companies to fairly compete in the world's largest market, serious damage is also being done to America's free trade interests by its largest trading partner. The list of companies caught in this dilemma will continue to grow. Today, these include companies like Google, Microsoft and Yahoo!; tomorrow China's censorship policies will affect the growth of social networking companies like Facebook and MySpace.

The Obama Administration needs to reconfigure the relationship between the government and the companies providing what is now one of our most significant national products.

One key to the recovery of the American economy will be a focus on America's core strength in information services and technology. This is an area in which our country has had a significant global comparative advantage -- but today we are in danger of losing that advantage, in large part because of trade restrictions imposed by China, our largest trading partner. We are accustomed to thinking of censorship purely as a human rights issue, but for information providers and technology companies, censorship acts as a trade barrier, and China's current censorship of the Internet imposes restrictions on the ability of innovative companies like Google, Yahoo! and Microsoft to compete fairly and provide their best product.

You can see the damaging effects of censorship on competition in the Internet industry if you look at the dramatic shift in market leadership. In 2002, when the Internet market was in its infancy, Google had a 24% share of the Chinese search market as compared with then-upstart Baidu, which had a mere 3% share. By August 2008, Google, which has a dominant share of the U.S. market, had been reduced to just 19% of the Chinese search market while Baidu had 65%. This certainly wasn't a result of Baidu delivering a superior product -- rather, Chinese government censors forced Google to provide an inferior product with a much less robust search engine. Search "Tiananmen Square" and you get pictures of happy Chinese tourists flying kites. Type in "Falun Gong,"and on Google.cn and you will get a message saying "These search results are not complete, in accordance with Chinese law" -- and possibly a visit from your local Internet watchdog. Try to start a blog discussing democracy or human rights and you can go to jail.

Censorship gives an unfair market advantage to Chinese internet providers like Baidu, which doesn't need to present a superior product to lead the market - it needs simply to offer operational and editorial compliance with what the government wants, or what Baidu thinks it wants. Baidu, by the way, is the company that sold its censorship services for the equivalent of a $250,000 payment from Sanlu, a large milk producing company, to block search results related to the melamine contamination of milk products that sickened tens of thousands of Chinese children.

The U.S. government has so far refrained from supporting the interests of the U.S. information industry in China, with Congress in particular opting to use Chinese censorship as an opportunity to criticize Internet executives in a public forum rather than as an opening to assist America's Internet sector. To date, the government's approach has taken the form of Kabuki theatre, as outraged Congressional representatives questioned representatives of Google, Yahoo! and MSN about their companies' commitment to upholding human rights in their drive for profits. To be fair to the politicians, they are not entirely wrong; in 2005, Chinese journalist Shi Tao was sentenced to ten years in prison after Yahoo identified him to Chinese authorities as the owner of a specific e-mail account. Shi Tao was accused by the government of leaking "state secrets" to a pro-democracy website. (This "state secret"? A memo that the state propaganda machine had sent out to Chinese journalists containing instructions on how they should suppress press coverage of an upcoming anniversary of the 1989 Tiananmen Square uprising.)

While U.S. technology companies have not been entirely without blame, they most recently worked with NGOs and human rights activists to adopt a set of voluntary guidelines for operating in China and other countries that censor the Internet. However, these voluntary efforts won't amount to much without the support of their home government -- and the U.S. Congress has not done anything to improve the situation. Western Internet companies are as much the victims as the perpetrators of Internet censorship in China; as they struggle alone with the difficult task of reconciling their human rights duties with their duties to shareholders, they have little chance of effecting any meaningful change in China. The United States government needs to stop playing the blame game and start figuring out ways to help American companies combat censorship.

The United States, Canada, and the European Union recently won an important WTO-based concession from China which may have a positive effect in moving this issue forward. In November 2008, a formal complaint based on China's WTO obligations was settled by agreeing to allow financial information providers, including Thomson Reuters, Dow Jones and Bloomberg, to distribute financial news independently of the Chinese-controlled Xinhua news agency. These news organizations will now be able to set up shop independently of Xinhua and establish direct commercial relationships with Chinese subscribers -- and make it much harder for the Chinese government to censor news about the country's economy. While the issues are more complex in the case of broad Internet services, the idea that censorship and control of information violates fundamental trade principles has now been firmly established.

The U.S. government has to date declined to make Internet censorship into a WTO issue. However, the European Parliament, by a margin of 571-38, passed a proposal that, if approved by the European Council, would require the European Union to classify Internet censorship as a barrier to trade. The one piece of legislation introduced in Congress took a very different approach from the European legislation (and was never even close to coming up for a vote). Instead of making Internet censorship into a trade issue, H.R. 275, the Global Online Freedom Act, proposed to punish U.S. Internet providers by subjecting them to financial liability for engaging in certain acts of censorship on foreign soil. The contrast between truly the constructive action of the European Parliament and the purely political reaction of the U.S. Congress highlights the general lack of leadership and decisive action from the U.S. government on the Internet and trade policy and its impact on human rights in China.

Recommendation: It's time to incorporate Internet companies into a modern calculation of American economic interests. While we aren't used to thinking of Internet companies as drivers of American economic prosperity, a precedent exists - during the first Clinton Administration it took a leap of imagination to understand that intellectual property represented America's most important economic interest and needed to be protected as such, a fact which has now been well established. Now we require a similar leap of imagination to protect America's 21st Century economic interests. Start with a high-level dialogue to give your government a better understanding of the Internet business paradigm (hint: it's not a series of tubes), how Internet companies operate, and how censorship prevents them from providing their best and most competitive product. Listen to the problems that Internet companies face in China rather than preach at them. Then you can better judge if it makes sense to start a new trade action against China or join the European Union's effort.

There is an additional benefit to this approach. Using well-established trade principles to address human rights conditions in China is a measured and potentially effective way to influence positive social and political change in the coming decade.

Michael A. Santoro is an Associate Professor of Business Ethics (with tenure) at the Rutgers Business School. He holds a Ph.D. in Public Policy from Harvard University, a J.D. from New York University, and an A.B. from Oberlin College. His book, China 2020: How Western Business Can--and Should--Influence Social and Political Change in the Coming Decade will be published by Cornell University Press in May 2009. Prof. Santoro's first book Profits and Principles: Global Capitalism and Human Rights in China was widely praised, and in April 2000 Prof. Santoro testified before the United States Senate Finance Committee on the human rights implications of China's entry into the World Trade Organization.

Wendy Goldberg is an Internet industry communications and policy strategist based in New York City. During President Bill Clinton's first term, Goldberg served in the Small Business Administration, which was at that time a Cabinet-level agency. She has a Masters Degree in Public Administration from the Harvard Kennedy School.

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