Google pullout threat intensifies U.S.-China tensions on trade

Google’s faltering relationship with China is the latest sign of growing tensions over trade agreements between the U.S. and China.

China joined the World Trade Organization nine years ago, with the full backing of many U.S. industry groups. Commerce between the two countries has taken off since then, with China becoming the U.S.'s second-largest trading partner after Canada.

But frustrations are brewing.

"It is increasingly apparent that censorship is a barrier to trade, and that China cannot limit the free flow of information and still comply with its international trade obligations," said Ed Black, president of the Computer and Communications Industry Association.

In June, U.S. officials pressured the Chinese government to shelve a rule that would require computers shipped in China to be equipped with Web-filtering software.

China said the "Green Dam" software was meant to block pornographic content, but it was discovered that it also filtered political content. U.S. Trade Representative Ron Kirk sent a letter to Chinese officials saying the software was "inappropriate."

Google has long framed censorship as a trade issue. In testimony to Congress in 2007, when it and other companies including Yahoo came under fire for cooperating with Chinese censorship, Google said, "the U.S. should treat censorship as a barrier to trade, and raise that issue in appropriate fora."

Industry groups in the U.S. have complained in recent months about Chinese policies, such as a proposal to limit government contracts to companies that develop their technology in China, Bloomberg reports.

John Neuffer, vice president of the Information Technology Industry Council, which represents Microsoft, Intel and other tech firms, told Bloomberg, "There is a growing frustration among companies about doing business in China. It's still a profitable market, but it's become more difficult to do business there."

U.S. business groups and members of Congress also are worried about China's effort to protect strategic sectors that the Chinese government is in the process of defining.

"A big concern of mine is the Chinese government's effort to define strategic sectors that it will protect contrary to its commitments to allow foreign direct investment," Rep. Rick Larsen (D-Wash.) told The Hill this week in an e-mail. Larsen is the co-chairman of the U.S.-China working group.

"This effort opens China up to further criticism about its own brand of protectionist policies. We must all resist temptations to put up barriers to investment that can help our economies," he said.