Google Has Its Rosa Parks Moment

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Includes: F, GOOG
by: Howard Richman

On Martin Luther King’s birthday we should also remember Rosa Parks who started it all. She got on a public bus in Montgomery Alabama and refused to move to the back of the bus, where blacks were supposed to sit. Then Martin Luther King organized the bus boycott that changed history.

Similarly, American corporations have been forced to sit in the back of the bus in China. Google (NASDAQ:GOOG) was being forced to censor democratic opinion in order to do business in China. But Google had its last straw when the Chinese government hacked its website in order to read the gmail e-mails of Chinese dissidents. Here’s a selection from the official Google blog posting about it:

These attacks and the surveillance they have uncovered--combined with the attempts over the past year to further limit free speech on the web--have led us to conclude that we should review the feasibility of our business operations in China. We have decided we are no longer willing to continue censoring our results on Google.cn, and so over the next few weeks we will be discussing with the Chinese government the basis on which we could operate an unfiltered search engine within the law, if at all. We recognize that this may well mean having to shut down Google.cn, and potentially our offices in China.

The decision to review our business operations in China has been incredibly hard, and we know that it will have potentially far-reaching consequences. We want to make clear that this move was driven by our executives in the United States, without the knowledge or involvement of our employees in China who have worked incredibly hard to make Google.cn the success it is today. We are committed to working responsibly to resolve the very difficult issues raised.

Google just had its Rosa Parks moment. It is refusing to sit in the back of the bus, where American businesses are being forced to sit if they want to do business in China, even though China’s discriminatory policies violate WTO rules.

American automakers can’t produce vehicles in the United States and sell to China because of China’s 25% official tariff plus a 25% hidden (currency-manipulation) tariff on American vehicles. So GM and Ford (NYSE:F) have built factories in China where they were forced to take on Chinese partners and give their partners their intellectual property, all in contravention to WTO rules.

Or take America’s banks. When China joined the World Trade Organization, it agreed to let foreign banks come into China and issue credit cards. They were supposed to be allowed to operate in China starting on Dec. 11, 2006. But just before the deadline, China made up new rules that prevented foreign banks from coming in. China’s policy is to suppress Chinese consumption of foreign-made products, and they didn’t want American banks interfering.

Or take American game-producing companies. Their games are quite popular in China, though they seldom get to make any profit because the Chinese government freely allows the piracy of their products while delaying import licenses for the legitimate products. When they export in ways that can’t be pirated, the Chinese government throws up hurdles, such as content reviews, to prevent them holding onto their market share.

Google has provided the Rosa Parks moment, but we haven’t yet organized our bus boycott. WTO rules give any trade-deficit country the power it needs to balance trade. This particular remedy in the WTO rules states:

(A)ny contracting party, in order to safeguard its external financial position and its balance of payments, may restrict the quantity or value of merchandise permitted to be imported.

Just the threat of such action would likely get China to take down their many, many barriers to American goods. American manufacturers could keep their intellectual property to themselves by building their new factories in the United States and selling final products to the growing Chinese market.

Google is our Rosa Parks. But we have not yet found our Martin Luther King. President Obama could play that role, or we might have to wait for his successor.

Disclosure: No positions

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