Apple and peers could lose “when in China” shield

There’s a fine line between appeasement and catering to local tastes in a huge market

  
The Apple Inc. logo is seen hanging at the Apple store on 5th Avenue in Manhattan, New York, U.S., October 16, 2019.

The Apple Inc. logo is seen hanging at the Apple store on 5th Avenue in Manhattan, New York, U.S., October 16, 2019.

Reuters/Mike Segar

(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

SAN FRANCISCO  - “When in China, do as the Chinese government wants you to” has for years been a sound rule for American companies like Apple. Things might be about to change. The iPhone maker is one of many firms that tailors products in a way that appears to suit Beijing’s demands, but the U.S. Department of Justice has suggested that it might start treating companies that get too close to the People’s Republic as “foreign agents.” That would curtail a delicate, and profitable, dance.

In a fiery speech on Thursday, Attorney General William Barr called out American companies from Walt Disney to Alphabet’s Google, for doing China’s bidding in the interest of short-term profits. He criticized Marvel Studios for changing the nationality of a Tibetan character in the movie “Doctor Strange” and Apple’s decision to remove Quartz, a news app, from its app store. Those are two examples, but Silicon Valley and Hollywood offer many others.

There’s a fine line between appeasement and catering to local tastes in a huge market. China accounted for 16% of Apple’s total $58 billion in sales in the quarter that ended in March. The country’s box office is close to becoming the world’s biggest. Shareholders tend to give companies the benefit of the doubt: in February, a shareholder proposal to make Apple disclose more on its freedom of expression policies failed, albeit with a fairly high 41% vote.

Barr’s threat could force the issue. His suggestion is that companies who are being “used” by the Chinese government may fall foul of the Foreign Agents Registration Act, which protects American government agencies and Congress from covert acts of foreign influence. Criminal prosecution can be the result. It’s a stretch, and enforcement of the act has been spotty for decades, but relations between China and the United States have deteriorated enough that it’s also plausible.

The possible outcomes range from the weird – imagine Apple and Disney publicly registering themselves as foreign agents – to the genuinely painful, such as being locked out of the Chinese market altogether. More likely, companies will be less brave about pitching to Chinese customers, and a big growth market will look smaller. Whatever the result, the U.S. government is no longer allowing American companies to have it both ways.

CONTEXT NEWS

- U.S. Attorney General William Barr said on July 16 that U.S. companies should be alert to how they may be “used” by the Chinese government, and to the possibility that their efforts on behalf of foreign entities or governments could make them subject to the Foreign Agents Registration Act.

- The 1938 law requires entities that act on behalf of foreign governments in a political capacity are required to register with the Justice Department.

- Barr sounded the warning in a wide-ranging speech that accused China of wanting to “overthrow the rules-based international system and to make the world safe for dictatorship.” He accused Alphabet’s Google, Microsoft, Yahoo, and Apple of being willing to “collaborate” with country’s ruling Communist Party.

(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

(Editing by John Foley and Amanda Gomez) ((gina.chon@thomsonreuters.com; Reuters Messaging: gina.chon.thomsonreuters.com@reuters.net))

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