China, U.S. to hold high-level trade meeting

Several simmering trade issues between the U.S. and China, including the latter's plans to adopt a proprietary national standard for wireless LANs, are up for discussion this week at a bilateral high-level government meeting due to begin on Wednesday in Washington, D.C.

The 2004 U.S.-China Joint Commission on Commerce and Trade (JCCT) will be chaired by U.S. Secretary of Commerce Donald Evans, U.S. Trade Representative (USTR) Robert Zoellick and Chinese Vice Premier Wu Yi. A spectrum of issues are likely to be covered at the talks and the U.S. Department of Commerce has signalled that issues will include intellectual property rights, trade expansion initiatives and export controls.

More specifically, the USTR said in a recently published annual report on trade barriers in telecommunications, that it intends to bring up China's national wireless LAN standard.

The standard, called WAPI (Wireless LAN Authentication and Privacy Infrastructure), is very similar to the Institute of Electrical and Electronics Engineers Inc.'s (IEEE) 802.11 standard except that it uses a different security protocol. It was officially adopted on Dec. 1 last year and the government has said that all wireless LAN products sold in China from June 1 must support WAPI.

This has caused concern at international electronics companies because details of the standard have only been shared with a handful of Chinese equipment makers leaving foreign companies the option of licensing the technology though a coproduction agreement or staying out of the Chinese market. They are worried both that WAPI could fracture the WLAN equipment market and also that any co-production agreement could lead to the loss of proprietary technology.

"There's some concern over WAPI and the sort of interaction that the Chinese were suggesting (that) we needed to bring our intellectual property to the table to play in the marketplace," said Craig Barrett, CEO of Intel Corp. said recently in Taipei. Intel has said that it won't be able to meet China's compliance deadline.

In its telecommunication trade report the USTR said WAPI, "appears to be an example of mandating a locally developed standard for protectionist purposes."

The Washington meeting won't be the first time that Wu has heard from Evans and Zoellick on WAPI. The two, along with U.S. Secretary of State Colin Powell, sent a letter to Wu and Vice Premier Zeng Peiyan earlier this year regarding their concerns with WAPI and the USTR says the issue has been raised at different levels at least a dozen times since late 2003.

Another issue that is expected to come up for discussion is the taxation of semiconductors in China. A value-added tax (VAT) of 17 percent is levied on sales of all semiconductors in China but Chinese policy gives a rebate of the VAT in excess of 3 percent for certain chips that are manufactured in China. The resulting effect is a 17 percent tax on imported semiconductors and a 3 percent tax on domestically made chips.

The U.S. has filed a complaint with the World Trade Organization (WTO) regarding the issue. The USTR said, "China's current VAT rebate policy not only discriminates against U.S. products directly, but also distorts international investment in the integrated circuit sector."