Intangible Trade Barriers: China, Facebook and The Question of Market Access

Most trade negotiations focus on tangible products: locomotives, automobiles, handbags and the like. The case of Google in China attracted a lot of attention some time ago, but Facebook, Twitter and other on-line enterprises have also faced market access challenges. Given that much of the world's wealth and an increasing amount of its information and knowledge reside on-line, this will probably become the next front in the eternal battle for commercial advantage. Brendan Greeley and Mark Drajem report in BusinessWeek:

"Since 2009, China has blocked Facebook, the world's largest online social media network. This year, Renren, one of China's largest social networks, plans to raise $500 million on the New York Stock Exchange (NYX). So a Chinese social network can tap U.S. capital markets, but American social networks can't tap Chinese consumer markets. Does that sound fair?

If Facebook grew corn or built cars, the cry would go out that China was putting up barriers to trade. That hasn't happened because U.S. officials and politicians have typically viewed China's Internet censorship as a human rights, not a trade, problem. That's changing—slowly. The Office of the U.S. Trade Representative, which negotiates trade deals, has been reviewing the idea of Internet censorship as a trade barrier at least since 2007. A nonbinding clause protecting "cross-border information flows" is part of the still-unratified Korea-U.S. Free Trade Agreement. And on Mar. 7 the trade office told Bloomberg Businessweek it is "considering proposals" for stricter language in the Trans-Pacific Partnership, an agreement under negotiation with Pacific-Rim countries such as Vietnam, Australia, and Malaysia (not China).

Here's the problem: While the USTR has been quietly inserting language in trade agreements, perhaps to cite as precedent in some future negotiation with China, it's playing a game of inches. China's Internet users, some 400 million-strong, make up the largest Internet market in the world, one U.S. social networks are largely prevented from competing in. But if the U.S. moved more aggressively and brought a trade case before the World Trade Organization, it could alienate China, disrupting trade in other products—and the outcome would be uncertain. "They are definitely trade barriers," says James Bacchus, a lawyer at Greenberg Traurig in Washington and a former WTO apellate judge. "Whether they are illegal under WTO trade laws is another matter."

Andrew McLaughlin, who then directed global policy for Google (GOOG), first presented the argument to the trade rep's office in a 2007 visit. Google, which still operated in China, suspected Chinese users' traffic to foreign websites was being slowed. Chinese university students had to pay a fee to visit foreign sites. The trade office was interested, and asked Google to gather evidence. "My recollection," says McLaughlin, "is that we were not the only people they had heard from."

Two years later, Hosuk Lee-Makiyama, then a trade negotiator for Sweden, wrote a paper suggesting that WTO member states, including China, are legally obliged to allow Internet services to cross borders without restrictions. Since then he says he's fielded requests for clarification from governments "on both sides of the debate." Google approached the trade office again when President Barack Obama began assembling his trade team in 2009. On Mar. 7 the USTR in an e-mail described barriers to trade for social networks as "a complex issue we are beginning to focus on."

As Google has continued to draw attention to the issue, trade officials are still only beginning to focus on it. Google, meanwhile, left the Chinese market in 2009. Twitter and Facebook, which declined to comment, have not complained openly about lack of access. "If you want to work here," says Bill Bishop, an independent analyst based in Beijing, "you don't complain about this stuff." Even Google spokeswoman Niki Fenwick, in an e-mail, says censorship is first a human rights issue, adding: "When a government blocks the Internet, it is the equivalent of a customs official stopping goods at the border."