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Chinese Trade Policy Discriminatory, Groups Claim

A new Chinese government procurement policy gives preference to products based on Chinese-owned intellectual property.

Thirty-four trade associations from around the world on Thursday asked the Chinese government in a letter to halt the implementation of a new policy that would effectively shut foreign suppliers out of the government procurement market.

A Chinese government noticed published on November 15, 2009 calls for the implementation of an Indigenous Product Accreditation system. The policy gives preference in government procurement to certified products.

In order to be certified, a product's intellectual property must be developed and owned by a Chinese entity. The product's trademarks must also be originally registered in China.

These requirements, the trade groups say, will deny government business to foreign companies.

"Implementation of this system will restrict China's capacity for innovation, impose onerous and discriminatory requirements on companies seeking to sell into the Chinese government procurement market, and contravene multiple commitments of China's leadership to resist trade and investment protectionism and promote open government procurement policies," the trade groups' letter states.

John Neuffer, VP for global policy the Information Technology Industry Council (ITI), which counts Cisco, HP, IBM, Intel, Microsoft, and Oracle as members and is one of the letter's signatories, said in a phone interview that the intellectual property requirement represents a major problem.

"For most products, intellectual property development is done all over the world, not just in one country," he said. "The workability of this scheme is highly problematic. While we respect and support China's efforts to modernize and innovate, we don't think it should be done in a way that discriminates against foreign players."

Robert W. Holleyman II, president and CEO of Business Software Alliance, a trade group focused on intellectual property protection, also expressed concern and urged China's leadership not to implement the policy.

The policy covers software, computer and application devices, telecommunication products, new energy and equipment, highly energy-efficient products, and modern office equipment.

And the list of affected products could expand. "The risk is that this is just the start and they will expand the product categores to other products manufactured by U.S. and foreign firms," said Neuffer.

At a House subcommittee hearing about intellectual property issues on Wednesday, lawmakers questioned the policy's conformance with treaties and trade commitments and said the issue was being raised by the U.S. Ambassador to China, according to a National Journal report.

Past efforts to alter Chinese trade policy have met with mixed results. The Chinese government did change course when its requirement that all PCs include the Green Dam Web filtering software met with broad internal and external opposition. A plan to require that information security products receive testing and certification through Chinese labs was also limited through trade lobbying. It applies now only to security products bought by the government, Neuffer said.

In other areas, like online gaming and online maps, Chinese rules hinder foreign companies.

Neuffer said the broad effort to convince Chinese authorities to abandon the accreditation policy is in itself remarkable. "We hope that this initial foray will move the needle," he said.

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