China’s government says it is acting in the best interests of its citizens. It is regulating the internet in order to protect its people from pornography and other objectionable content. Critics, however, assert that China is guilty of wide-ranging censorship, drastically limiting what mainland residents can see, hear and say online. Moreover, according to a growing chorus, this online censorship violates World Trade Organization rules.

Internet censorship is a trade barrier, the European Parliament declared in 2008, by an overwhelming vote of 571-38. European Commission Vice-President Neelie Kroes publicly declared in May that because China’s so-called “great firewall” prevents the free flow of information, it is a trade barrier “that needs to be tackled within the WTO.”

The United States hasn’t taken a position on this issue yet. The US Trade Representative is studying the matter. But organisations representing free speech advocates and the technology industry are lobbying hard to get the US to file a grievance with the WTO about China’s online censorship. Tech industry heavyweights are backing this effort, with Google being the most prominent.

Despite all this, it is unclear whether the US or the EU will haul China before the WTO over this issue. Doubt remains about whether China’s online censorship violates WTO rules. And even if China is breaking the rules, experts disagree about whether going to the WTO would be the best way to change China’s behaviour.

China has the world’s largest number of internet users, almost 400 million, and that number is growing rapidly. By 2013, 840 million Chinese may be online, according to Emarketer Inc.

But the vast majority of Chinese don’t have access to the full internet. A government-mandated firewall limits mainland residents’ access to internet sites outside China, and a panoply of government rules limits the content that can go through the firewall or be put online in China. Pornography is outlawed, as is information that the government finds politically uncomfortable – including information on the Falun Gong, the Dalai Lama or the Tiananmen Square massacre.

Internet companies that want to do business in China must comply with the government’s restrictions, but many Western firms have had trouble satisfying government censors. For instance, Facebook, YouTube, Twitter, Flickr and other social media popular in the West are blocked by China’s firewall, because the government is concerned these services will allow individuals to freely share information. Once Google stopped censoring its search results in China, the company had to significantly cut back its operations on the mainland and found the government to be intermittently blocking both search results and a variety of Google services.

While Western firms are struggling in China, local online companies are thriving. Baidu, for example, has garnered 64 percent of the search engine market, earning approximately 4.45 billion yuan ($663 million) in 2009. Youki, a local competitor to YouTube, is the largest online video sharing site in China, earning 200 million yuan ($29.3 million) in 2009. It is expected to grow more than 100 percent this year. Tencent Holding Services operates several successful online businesses, including China’s largest IM service, with over 568 million active accounts. The company earned 12.4 billion yuan ($1.83 billion) in 2009.

WTO rules do not forbid censorship per se. On the contrary, the General Agreement on Trade in Services [pdf] provides, in Article XIV, that nothing in the treaty prevents member states from adopting measures “to protect public morals or to maintain public order.”

But, some argue, China’s online censorship goes beyond what is allowed by this exemption. “When China regulates pornography, that clearly falls within the exemption. When it is filtering information on human rights, that’s a lot harder to fit within the exemption,” said Derek Bambauer, who teaches internet law at Brooklyn Law School.

A footnote to GATS Article XIV states, “The public order exception may be invoked only where a genuine and sufficiently serious threat is posed to one of the fundamental interests of society.” Said Bambauer, “It is hard to argue that one-party rule is a fundamental interest of society.”

Even if the exemption covers China’s online censorship, such censorship can still run afoul of WTO rules if it is applied in a way that discriminates against foreign firms. “If you are making the argument that censorship is a trade barrier, you’d have to make the argument that the censorship is being unequally levied,” said Doug Guthrie, incoming dean of the George Washington University School of Business, in Washington, DC.

He claims there is no discrimination. “China’s firewalls are the same for everyone,” he said.

Some disagree. “Theoretically, the firewall is nondiscriminatory, but it creates a discriminatory effect. Its impact is to give an unfair advantage to local businesses and allows them to pick up customers. That’s where it becomes anticompetitive,” said Malcolm S. McNeil, a partner in the law firm of Fox Rothschild LLP.

The censorship rules may be the same for foreign and domestic firms, but it can be hard for foreign firms to find out precisely what those rules are. “There are a host of publicly available regulations, from a dozen different agencies, but many of these regulations are vague,” Bambauer said. “For instance, they require companies to avoid behaviour that endangers state security.” But the regulations don’t define what constitutes a danger to state security. “Government officials decide what fits under these indefinite rubrics,” Bambauer said.

And Chinese officials don’t formulate clear, formal interpretations of the vague standards. “You get a sense in meetings with officials. You get push backs,” McNeil said.

This maze of vague censorship standards favours locals, some experts claim. “It’s easier for Chinese companies to operate, because they know whom to contact in order to get answers [about what is forbidden], while foreign companies don’t know whose door to knock on,” Bambauer said.

Whether China’s online censorship violates WTO rules is a close question, according to most experts. “China’s internet censorship is definitely a trade barrier that hurts Western software and internet companies, but the real issue is whether it is a WTO-illegal trade barrier. The WTO prohibits most, but not all, trade barriers and China’s censorship measures fall into a grey area,” said Warren Maruyama, a partner in the law firm of Hogan Lovells and former general counsel of the US Trade Representative’s office.

If the matter were brought before the WTO, it would take years to get a final ruling. Negotiating with China would be less confrontational and might solve the dispute more quickly.

The US certainly seems to prefer negotiating. US Trade Representative Ron Kirk said in March that trying to resolve the issue bilaterally was “much more preferable than the uncertain path of what can be a two-, three-, four-year legal battle in the WTO.”

Some experts, however, assert that filing a complaint with the WTO is essential to resolving the dispute. “Unless you bring an action at the WTO, high level officials in China will not respond. There will be interminable negotiations,” McNeil said. “That’s why we have to take action [at the WTO]. We need that dynamic in the negotiation process.”