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Japan, US and Europe push back on China's data controls

Japan, the US and Europe are increasingly challenging a wave of protectionist measures in China that could disrupt the global flow of data and threaten corporate supply chains in Asia, though Beijing shows little sign of backing down.

Hiroshige Seko, Japan's minister of economy, trade and industry, U.S. Trade Representative Robert Lighthizer and the European Union's trade commissioner, Cecilia Malmstrom, met Tuesday in Argentina on the sidelines of the World Trade Organization conference. They agreed to work together to combat China's industrial policy and internet regulations.

Beijing's rules on commercial data are one of their biggest concerns. In a trip to China in late November, the Japan Business Federation, or Keidanren, and other Japanese business representatives expressed concerns that such measures pose a barrier to entering the Chinese market and hinder competition.

China put a cybersecurity law into effect in June that requires internet-related products and services to comply with Chinese standards. It also forces companies to seek government approval before moving data collected within China and to set up servers inside the country.

The law was intended to prevent the internet from undermining social stability. But many developed countries worry that it could impede business in China.

Manufacturers need to manage their overseas facilities from a centralized location at home to ensure their supply chain is operating as efficiently as possible. "We have to accumulate the manufacturing data gained at our Chinese plants to use at our other facilities abroad," said Asahi Glass Chairman Kazuhiko Ishimura.

And for companies looking to develop products and services based on consumer trends, access to data can be a matter of life and death.

In response to the new law, Apple announced in July that it will spend $1 billion to build its first data center in China. The tech giant's swift decision, effectively bowing to Chinese wishes, sent ripples throughout developed nations.

The law is China's first comprehensive legislation regarding cyberspace. It will have far-reaching consequences, and much of the language is vague. "Most Japanese companies are waiting to see how the authorities enforce the new law," said a lawyer who specializes in the information technology sector.

Those corporations deemed part of the "critical information infrastructure," such as telecommunications, energy and financial companies, are subject to especially strict regulations on data management. Violators could even have their operations suspended, which has put these sectors on edge. Some foreign companies have already been fined for shortcomings in reporting cyberattacks to the authorities, and in storing the user history of their services.

China is also considering a new law on export controls, which is another cause for concern. The Keidanren, Japan Foreign Trade Council and six other business groups submitted a written opinion against the legislation to the Chinese Ministry of Commerce on Dec. 4.

According to the current draft, the law will require that the Chinese government first authorize any exports from a third country that contain above a set percentage of certain Chinese-made materials.

It is unclear which specific materials would be covered by the law. But Japanese players expect rare-earth metals, which are used in hybrid vehicles among other things, to be one of them. "Based on how the law plays out, we can face a major roadblock in trade with China," a Keidanren official said.

The U.S. decision to enact Section 301 of the Trade Act of 1974 over alleged intellectual property theft by China is probably also a violation of the WTO. But Washington appears to have reached common ground with Tokyo and Brussels regarding unfair trade practices in China.

Japan, the U.S. and Europe are most concerned that China's trade restrictions would spread to other emerging economies in Asia. Vietnam and other Southeast Asian nations are looking into similar cybersecurity legislation of their own.
 


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