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China Closing the Door to New Technologies

2013 may be a promising year for global trade in technology with the kick-off of the International Technology Agreement expansion discussions, the Trans-Atlantic Trade and Investment Partnership, and as the Trade in Services Agreement gets going. But China calls its own tune, and is now threatening to restrict its market for Internet-enabled technologies through a clever device that could cost its trading partners billions.

Be Careful What You Update

Do details matter? China’s Ministry of Industry and Information Technology (MIIT) has issued a draft update to its “Telecommunications Services Catalog,” a list of all telecommunications services that require licenses to operate in China. There have been changes to the industry since the catalog’s last update in 2003, to be sure, and it has often been unclear how the old licensing standards applied to new products. The objective of this update, though, is plainly to extend licensing requirements to as many services as possible, not to bring clarity to the Chinese business environment.

Pay Toll(s)

Among other changes, the draft catalog can now include social networking and information security services, classifies cloud computing and content distribution networks as Value Added Telecommunication Services, and includes sweeping coverage of other, unspecified services. The effects of these changes could be devastating to foreign companies already operating in China: placing a service on this list means a company must apply for and obtain a BTS or VATS license to remain in operation—licenses that have been historically difficult for foreign companies to obtain even when the stringent capital requirements are met.

And a Cunning New Hurdle

Compounding these challenges, the updated Telecom Services Catalog follows MIIT’s introduction of a new “Telecom Trial Services” program covering any services that use an Internet connection and are not included in the current version of the catalog. In order for a company to apply for this pilot program, it has to obtain approval from Chinese telecom operators in addition to acquiring the same BTS or VATS license required of any services under the catalog. So the program confers a semi-official regulatory function on private companies which presumably can take the time they need to engage. This innovative process puts new technologies and businesses at a possibly endless disadvantage in China, and threatens to limit citizens’ access to beneficial applications used elsewhere around the world.

WTO Who?

If basic telecommunications services have always been heavily regulated, there’s an equally broad international consensus that computing and Internet services require freedom to evolve rapidly and without retardant rules or licensing requirements. Classifying services such as cloud computing as Value Added Telecommunications Services appears to be an attempt on China’s part to avoid their WTO accession commitment not to impede market access to foreign suppliers of computers and related services, most of which are now captured by the revised catalog. As Europe and the US get into the substance of their new trade commitments, they can at least be clear about how rules may be cunningly circumvented with the application of a few novel pilots and administrative updates.

By Molly McPherson, International Public Policy Analyst at Access Partnership

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