China sets new trade curbs

BEIJING | China has ordered its banks and other major companies to limit use of foreign computer-security technology, setting up a possible trade clash with the United States and Europe while adding to strains over high-tech secrecy as some nations threaten to curtail BlackBerry service.

Beijing’s restrictions cite security concerns, but are also consistent with its efforts to build up Chinese technology industries by shielding them from competition and pressing global rivals to hand over know-how.

The United States and the European Union have raised questions in the World Trade Organization about the rules. An American industry group is criticizing them as an attempt to shut competitors out of a promising market. Authorities are inspecting companies to enforce the restrictions, and some have been told to replace foreign technology.

“These are legitimate security concerns, but the Chinese are going way too far,” said Steven Kho, a trade lawyer for the law firm Akin Gump in Washington. “You cannot say from the outset, ‘All foreign products are a security risk.’ “

Washington and Europe, which hope technology sales to China will help drive their economic recovery, want Beijing to scale back plans to enforce the rules on a wide range of industries, including oil and gas, banking, utilities and telecommunications.

The rules, dubbed the Multi-Level Protection Scheme, or MLPS, come as Beijing tries to protect its fledgling technology companies by favoring them in procurement, promoting Chinese standards for mobile phones and prodding foreign competitors to disclose encryption technology.

The restrictions add to pressure on foreign companies that accuse Beijing of squeezing them out of key industries in violation of its free-trade pledges.

They cover products such as network firewalls and digital identity systems - a market dominated by Western companies such as Cisco Systems Inc. and Juniper Networks Inc. and Taiwan’s Trend Micro Inc.

Beijing announced plans for the curbs in 2007, and authorities and government-licensed private inspectors began visiting companies last year to enforce them.

A manager of an inspection company said 10 percent to 20 percent of enterprises that its technicians looked at in higher-security tiers used technology from Cisco and other foreign providers. He said they were told to switch to or add Chinese-made firewalls or other technology.

“We asked clients to make changes and warned them they would fail to pass the inspection if they don’t,” said the manager at Guangdong Southern Information Security Industrial Base Co. He would give only his surname, Chen.

Mr. Chen said entities inspected by his company included financial institutions and other state-owned companies. He declined to say which companies had to make changes or how extensive changes from foreign to Chinese technology were.

Use of foreign security technology already was declining owing to a 2008 government directive that was not publicly released, according a manager at another inspection company, Guangzhou Zhongbang Information Engineering Co. He would give only his surname, Ma.

“The government had unpublished policies that the information-security products for classified information systems needed to be domestically made or purchasing priority should be given to domestically made products,” Mr. Ma said.

The effect on sales so far is unclear. A Cisco spokesman in Beijing declined to comment and spokesmen for Juniper Networks and Trend Micro did not respond to inquiries.

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