Cyber security rules raise fears of digital protectionism

Computer board with chips and components

Talk of protectionism once meant bemoaning barriers being erected in far-off lands for offcuts of beef or steel rods, but in Washington these days the protectionism fears have gone digital.

Mindful of the world-leading position of domestic technology companies like Google and Microsoft and eager to maintain their competitiveness in the face of new challengers, the US is increasingly pushing back against what it sees as a rising tide of protectionism aimed at the US tech sector in China, Europe and elsewhere.

 the latest example, President Barack Obama has led US complaints over new Chinese cyber security rules for the banking industry that tech companies complain would in effect shut them out of an important market.

The president said this week that he had raised American concerns over the new rules with his Chinese counterpart, Xi Jinping. “We have made it very clear to them that this is something they are going to have to change if they are to do business with the United States,” he told Reuters on Monday.

Senior US officials including Jack Lew, the Treasury secretary, and John Kerry, secretary of state, have also raised “serious concerns” about the regulations. “The rules are not about security. They are about protectionism and favouring Chinese companies,” said Mike Froman, the US trade representative.

Mr Froman raised the possibility that China might be violating its commitments under bilateral and multilateral trade agreements if it implemented the new rules for the banking sector as planned this month. Other US officials have said Washington is examining whether it could take China to the World Trade Organisation over them in what could become a landmark case at the trade body.

But the concerns being expressed in the US capital about digital protectionism go beyond the new Chinese rules. Mr Obama last month accused European officials of disguising protectionism behind “high-minded” security and privacy concerns. They have also become a growing part of the conversation technology executives have with political leaders when they visit the US capital.

“We’re focused on the situation around the world,” Brad Smith, Microsoft’s general counsel, said after a day of meetings with members of Congress this week. “China is an important market. Other countries are obviously important as well. There are aspects of protectionism that we have to worry about in many countries.”

The perceived pushback against US tech companies is partly the result of concerns triggered by the revelations of whistleblower Edward Snowden about US cyber-snooping around the world. US officials and executives, however, argue that the response in places like Europe and China now appears targeted more at keeping US businesses out of competitive markets than protecting citizens from privacy concerns.

“We also have to get the balance right between privacy and security. There are trade aspects but there are other aspects as well,” Mr Smith said.

“The short story is that these issues are of growing importance and have a broadening impact. We’re seeing more countries consider them and it is going to require a thoughtful dialogue among a number of governments to sort this out.”

US policy makers and experts are also beginning to fret about the US’s competitive advantage in the trade in all things digital.

To many, the future of globalisation is overwhelmingly digital with emails and 3D printing threatening to replace container ships, and services increasingly delivered online and across borders.

In that context, online barriers such as the “Great Firewall” of China erected to keep out content Beijing objects to, look like impediments to free trade as much as to free speech.

Before the recent controversy over China’s new rules, the US was focusing its energies on making sure that new trade agreements — such as the vast, 12-country Trans-Pacific Partnership now nearing conclusion — limit the restrictions that can be put on the flow of data across borders.

The US has also been pushing for a new agreement on services it is negotiating in Geneva with the EU and more than 20 other countries to guarantee the free flow of data across borders. China has sought to join those negotiations but has been blocked from joining by the US.