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U.S trade negotiators take aim at China's Cybersecurity Law

The Wall Street Journal
2019-04-02 15:57

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U.S. and Chinese trade negotiators haggled over how to get Beijing to walk back China’s tough cybersecurity law as both sides push to resolve deep-seated irritants and settle a yearlong tariff fight.

During discussions Friday, issues related to Chinese regulations of information security and cross-border data flows, as well as high-tech sectors such as cloud computing, crowded the negotiation agenda, said people briefed on the matter. The Trump administration has been pressing China to loosen restrictions that U.S. companies, especially large technology firms, say unfairly disadvantage them in the world’s second-largest economy.

The cybersecurity law presents a significant challenge for U.S. businesses operating in China, Washington officials have said, as it requires them to store sensitive data in China and to favor Chinese network equipment over foreign ones.

In recent weeks, Chinese officials have shown a willingness to discuss those issues, which they previously viewed as off-limits for negotiation, said the people briefed on the matter as well as others with knowledge of the process, to try to clear remaining stumbling blocks to reaching a trade agreement.

The U.S. and China are nearing the finish line of a trade dispute that has hurt the world’s two largest economies. WSJ takes a look at what the trade pact could look like and whether the two sides can overcome their biggest hurdles. 

So far, the two sides have made what both governments have called meaningful progress toward a deal, with China agreeing to substantially increase its purchases of American goods and services, to open Chinese markets wider for U.S. companies and to better protect U.S. intellectual property rights.

The White House said both sides on Friday “continued to make progress during candid and constructive discussions on the negotiations and important next steps.” A statement by China’s official Xinhua News Agency said the two sides had discussed the text of an agreement and made “new progress.”

For now, Washington negotiators, led by U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin, and their Chinese counterparts led by Vice Premier Liu He, are shooting to close a deal by the end of April, officials on both sides say. Mr. Liu is scheduled to arrive in Washington on Wednesday to continue the negotiations.

Obstacles persist, including how to enforce an agreement, the pace at which the U.S. and China will roll back the tariffs on hundreds of billions of dollars in goods imposed in the past year, and the technology-related matters. These issues are taking up more time as negotiators grind toward the finish.

A central issue in the latest round of talks between Messrs. Lighthizer, Mnuchin and Li at the Diaoyutai State Guesthouse on Friday was China’s sweeping cybersecurity law, the people briefed on the matter said.

Enacted in mid-2017, the law is part of President Xi Jinping’s plan to build China into a global power in cyberspace and to strengthen the government’s control over information. Since the enactment of the law, Chinese authorities have put in place hundreds of rules and standards governing products ranging from software to routers, switches and firewalls, making it increasingly challenging for multinational firms to operate in the country.

Of particular concern for foreign businesses is a requirement for operators of “critical information infrastructure” to undergo stringent security reviews to ensure that data systems are “secure and controllable.” So far, Beijing hasn’t identified those operators, but has broadly defined them as companies with data which, if compromised, would pose a threat to national security and the public interest.

As a result, U.S. firms operating in China, be they American technology firms, banks or energy firms, have to keep their networks’ data in China and in many cases have to source servers, routers and other equipment and products from Chinese suppliers. Companies found in violation could have their business permits and licenses revoked.

U.S. negotiators have been pressing Beijing to clearly define which companies count as operators of “critical information infrastructure,” according to the people briefed on the matter. In recent discussions, Chinese officials have floated an idea of defining such operators based on their market share in China, according to the people with knowledge of China’s plans. If a U.S. firm with operations in China only accounts for a small fraction of the industry it is in, it wouldn’t be subject to the data-localization requirement under the law.

Another offer Chinese negotiators made involves better access to the country’s rapidly growing cloud-computing industry. Under the plan, China would allow trial operations for foreign cloud-service providers in a free-trade zone, possibly in the southern city of Guiyang, which is a center for big data.

The cloud proposal, reported by The Wall Street Journal on Thursday, is being met with skepticism in the U.S., with some tech executives characterizing it as a limited step that could end up benefiting only one or two U.S. firms.

Beijing’s cloud proposal would also require a relaxation of the cybersecurity law to allow U.S. providers of cloud services to connect their data centers in China to their global networks.

In a separate market-opening gesture Friday, China’s securities regulator approved applications by JPMorgan Chase & Co. and Nomura Holdings Inc. to set up majority-owned brokerage joint ventures. The approvals make good on a pledge made in November 2017 to allow foreign investment banks to own majority stakes in their Chinese ventures, lifting their equity cap on foreign ownership to 51% from 49%.

Source: The Wall Street Journal
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