EU joins U.S. to try to stop China's new technology rules

The Chinese flag is raised in front of the China Pavilion during a flag raising ceremony at the Shanghai World Expo site in Shanghai April 30, 2010.

CREDIT: REUTERS/ALFRED JIN

(Reuters) - The European Union on Thursday sharply criticized China's new cyber security rules, joining a global effort to challenge measures that U.S. and EU companies say could force them out of the Chinese market.

Calling them a "tremendous barrier" for foreign companies competing in the information technology sector, the European Commission said the rules proposed late last year went far beyond other security standards around the world.

"China continues to consider that only Chinese-developed information security technology is regarded as 'safe', and applies a concept of 'national security' far beyond normal international practice," the Commission, the EU executive, said in its annual report on trade barriers.

China's banking regulator has adopted new standards requiring tech products to be "secure and controllable" for use in the financial sector. Those that have not been developed inChina must be registered with the government, putting at risk corporate secrets, secure emails and encrypted data.

The United States has led a global push to pressure Beijing to change course, the latest friction in a difficult trade relationship between the West and the world's no. 2 economy.

"The EU is concerned by the lack of transparency in the development of these measures and by the potential impact on EU companies," EU trade spokesman Daniel Rosario said.

U.S. President Barack Obama told Reuters this month he had raised the issue with Chinese President Xi Jinping, and a senior U.S. trade official spoke again with Chinese officials during a visit to Beijing last week.

Japan is also concerned, while the EU has spoken to Chinese officials and brought up the issue at a special committee at the World Trade Organization.

In response to the U.S.-led push, China's foreign ministry said this week that "China's Internet development must also respect China's own laws and rules."

Many European and U.S. companies worry the requirements would be extended to other industries and limit foreign investment in China's information technology market.

The European Commission's report follows a letter from European and U.S. companies last month to the Commission asking for help to stop the new rules.

In the Feb. 25 letter, companies said the "worrisome" Chinese regulations "could close the door for many foreign IT companies to the Chinese banking IT market".

China is a potentially lucrative retail banking market and European companies hope an investment accord being negotiated between Brussels and Beijing will give them greater access.

"We oppose demands to require source codes, backdoors and localization of intellectual property by the Chinese government," said Christian Borggreen at technology lobbying group Computer & Communications Industry Association, whose members include Googleand Microsoft.