US aims to bring down China's regulatory wall

Differing opinions
One of the chief problems with the regulations, US executives maintain, is that they seem to operate like jobs programs for China. Under the WAPI law, foreign companies effectively have to share revenue with local companies and risk transferring technology to potential future competitors.

"It is negative in a number of respects. It makes it more difficult to do business in China, and it also makes it more difficult for Chinese companies to export abroad," said Hatano.

For their part, local officials and organisations, such as the China Broadband Wireless IP Standards Group, which supports WAPI, assert that the policies are legitimate in that they will help China meet internal security goals and compete with and decrease dependence on foreign companies.

The EVD situation presents the converse problem. The Chinese invented the standard as a way to avoid paying royalties to the DVD consortium. Chinese manufacturers have to pay about $13.8 for every player manufactured, according to the People's Daily. In other words, the regulations mean Western companies lose out on royalties.

Then there is the compatibility problem. If the standards aren't required elsewhere in the world, manufacturers have to design and/or test products specifically for China, which drives up costs. Additionally, Chinese consumers will inevitably buy DVD discs that are incompatible with EVD players or try to log on to hot spots that got installed before WAPI came about and are thus incompatible.

Besides the obvious effect of nationalism, trade disputes can be aggravated by the fact that national governments are given fairly wide discretion in many trade agreements.

WTO bylaws, for instance, do not allow countries to establish discriminatory import tariffs that allow local products to be sold for less.

On the other hand, the WTO permits countries to give businesses tax holidays. In China, foreign manufacturers can escape income tax for up to five years, and pay income tax at reduced rates for another five, by meeting certain requirements.

Sorting out legitimate versus illegitimate policies can be the subject of lengthy negotiations. US manufacturers, naturally, follow their own interests in these matters. While the Semiconductor Industry Association roundly criticises China's VAT, it holds up the tax policy as an example for government in action.

Another problem with the current wave of Chinese regulations is that they can be vague. When it first emerged, WAPI involved adding additional security software and removing existing software, said Thermond. Later, the government said that, at some point in time to be determined later, the software functionality would have to be integrated into a hardware module in the chip.

Some in the United States have said that co-manufacturing with Chinese companies is required, while others have said that foreigners only have to pay a licensing fee.

"There are a lot of different people with a lot of different opinions inside China," said Thermond.

Nonetheless, progress may be taking place.

"A lot may be happening behind closed doors," said Hatano.