China’s ‘Great Firewall’ is yet another trade barrier

 29 Mar 2017 - 16:35

The San Francisco-based photo-sharing site Pinterest would seem to rank low on the list of potential threats to China. Beloved by fashion designers, photographers, cooks and hobbyists, the seven-year-old website is a global hub for the sharing of images, trends and ideas on topics ranging from living-room design to what to cook at your Saturday barbecue.

Unfortunately, Pinterest’s innocuousness couldn’t save it from the same fate as other foreign internet companies in China, including Facebook and Alphabet (formerly known as Google). Earlier this month, the Chinese government blocked Chinese internet users from accessing the site. And that should make Pinterest of interest to the Trump administration, as well as China.

Pinterest’s troubles aren’t unique. Last year, China excluded thousands of US websites from China, including eight of the 25 most-trafficked global sites. Yet, so far at least, there’s been hardly a word of protest out of Washington against these systematic denials of market access. Similar restrictions against US automakers, say, would almost certainly have prompted complaints to the World Trade Organisation.

The costs imposed by this policy are adding up. In 2015, the global value of international data flows came to $2.8 trillion, exceeding the global flow of merchandise for the first time. The US economy has benefited more than most from that trade. In 2014, the US exported nearly $400 billion in digital services, accounting for more than half of all US services exports and generating a $159 billion trade surplus in the sector.

Though it’s impossible to calculate what Facebook, Google and Twitter might’ve earned in China’s booming Internet sector had they been allowed to compete, there’s little question that they would have added measurably to that surplus. For example, the New York Times Co., a tiny digital business compared to Facebook, claims to have lost at least $3 million due to the blocking of its website in 2012.

The Chinese government is doubtless aware of the opportunities that online protectionism creates for domestic companies. In June 2009, China blocked Twitter; two months later, Sina Corp. launched a wildly successful knock-off microblog, Weibo, that has thrived for years in the absence of foreign competition. 

Likewise, when Google announced in May 2010 that it was contemplating the total shutdown of its Chinese offices, the stock of Baidu Inc. — its leading Chinese competitor and a keen observer and imitator of Google’s business — rallied 16.6 percent in a single day, while smaller rivals enjoyed similar bumps.

Meanwhile, local Chinese versions of Pinterest have flooded China’s market since 2012 with middling success. If the recent ban holds, at least one of those companies may enjoy a highly lucrative opportunity to become “China’s Pinterest.”

Pinterest’s options, on the other hand, are limited. The Chinese government is notoriously opaque about why it blocks sites, and there are no formal procedures for appeal. (Mark Zuckerberg’s years-long lobbying effort to push Facebook back into China might qualify as the informal process.) That’s not just unfair. It’s also a likely violation of China’s treaty obligations under the World Trade Organisation, which requires transparency, due process and non-discrimination in government decisions affecting companies.

The idea of dragging China before the WTO to argue that “Great Firewall” represents a trade barrier isn’t a new idea. The European Union has contemplated such an approach since at least the late 2000s. And late last year, in a move that could lay the groundwork for a case, the Obama administration argued that China’s worsening censorship posed a “significant burden” on foreign internet service providers. The next step, though — a formal complaint and case before the WTO — is up to the Trump administration.

Such a case wouldn’t be a slam dunk. China has long cited WTO clauses that give countries room to impose measures to protect public morality and order. Even if it lost the WTO case, the Chinese government would be highly unlikely to abide by the decision in full.

But the WTO recently ruled against a Chinese attempt to invoke public morality as an excuse to restrict the import and distribution of American books, magazines, films and other published material. And any Chinese attempt to ignore WTO rulings would undermine its recent posturing as a champion of free trade. 
A negotiated settlement — perhaps integrated into a long-delayed US-China investment treaty — that opens China to US internet companies while acknowledging China’s right to censor selectively (not wholesale) for morality and public order, might be the best outcome for all sides.

The writer is a Bloomberg view columnist. He is the author of “Junkyard Planet: Travels in the Billion-Dollar Trash Trade.”