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4 March 2004

The New York Times, March 4, 2004

## U.S. Pressing China to Yield on Wireless Encryption

By STEVE LOHR

The Bush administration stepped up its pressure on China this week to back off its plan to impose a software encryption standard for wireless computers that American technology companies regard as an unfair trade barrier.

In a joint letter, Secretary of Commerce Donald L. Evans, Secretary of State Colin L. Powell and the White House trade representative, Robert B. Zoellick, expressed their concern about the Chinese plan and urged China to work with the United States to resolve the issue. The letter was addressed to Deputy Prime Ministers Wu Yi and Zeng Peiyan, and delivered in Beijing on Tuesday.

The unusual appeal by three cabinet-level officers is an attempt to defuse the first of a handful of potential conflicts between China and the United States in high-technology trade. The wireless encryption issue, analysts say, points to what may be a trend of China setting its own exclusive standards, including formats for future generations of cellphones and DVD players.

American industry executives and trade officials express fear that the Chinese approach could fragment global markets in high-technology products in a misguided protectionist attempt to give Chinese producers an edge.

But some industry analysts note that powerful nations over the years - Britain and the United States, for example - have exercised that kind of power by setting technical standards. With its huge population and fast-growing economy, China, they say, is merely trying to take its turn as a standard-setter.

This week's letter refers only to the Chinese software standard for short-range wireless networks, known as Wi-Fi. In December, China announced that foreign computer and chip makers that want to sell Wi-Fi devices in the country would have to use Chinese encryption software and co-produce their goods with Chinese companies on a designated list. Foreign computer makers, led by Americans, have protested the plan.

In addition to having to use a separate standard, the foreign companies worry about the loss of intellectual property if they are forced to work with Chinese companies who might become competitors. The Chinese plan, unless modified, will take effect on June 1.

Industry representatives praised the effort by the Bush administration to resolve the issue. In recent months, administration officials have raised the wireless security standard with the Chinese. "But this will broaden and escalate the discussion," said Rhett Dawson, president of the Information Technology Industry Council, a trade group. "This makes it clear on a high-level, government-to-government basis that this is an important issue."

The cabinet letter is "unusual and significant," said Bruce Mehlman, a former Bush administration official who is executive director of the Computer Systems Policy Project, an industry group. "It speaks to the importance of the issue and the precedent of using technology standards as a nontariff barrier to restrict access to the Chinese market."

The administration has not released the letter. But an official confirmed that it focused on the wireless dispute and also expressed the broader concern about use of a technical standard as a trade barrier.

An economic counselor at the Chinese Embassy in Washington could not be reached for comment yesterday. But in recent months, Chinese officials have reiterated their commitment to free trade and said short-term conflicts could be negotiated.