Congress's dilemma: When Yahoo in China's not Yahoo

Wednesday, American companies at the vanguard of the information future are likely to get grilled about practices reminiscent of the 20th century - such as censorship and aiding political repression.

A US House of Representatives panel will look into high-profile cases where Microsoft, Google, and Yahoo worked with China to restrict access to material or reveal the identity of users with dissident postings. Cisco is also implicated. But lawmakers eager to end such cooperation may find it hard to do so, at least in Yahoo's case.

A deal in October may insulate the Internet giant. Because it gave up a majority stake of its China service to a Chinese company, Yahoo argues that decisions about cooperating with Chinese officials lie with that company, which has obligations to obey Beijing, not Washington.

That move has human rights activists fuming, especially after last week, when Paris-based watchdog group Reporters Without Borders (RWB) charged Yahoo with helping authorities in 2003 to capture Li Zhi, an anticorruption reformer now serving an eight-year prison term. Yahoo says the case is under investigation and declined further comment.

Some in Congress are fuming about the practice. "It's like turning Anne Frank over to the Nazis," says Rep. Christopher Smith (R) of New Jersey, chairman of the House Subcommittee on Africa, Global Human Rights and International Operations, one of two subcommittees jointly holding Wednesday's hearings. One of his suggestions: Require companies to locate e-mail servers outside countries deemed repressive by the State Department.

It's unclear what jurisdiction Congress would have over Yahoo, he adds. "That's part of what the hearings ... and our probe will seek to uncover."

In Yahoo's opinion, server placement is a decision for Alibaba. com, its strategic partner based in Shanghai, China. Alibaba.com is a privately held company of Jack Ma, known as the grandfather of the Internet in China. Yahoo retains a 40 percent interest in the company.

"If you're talking about forward-looking decisions to be made on the Yahoo China business, it's an important point to make that this is under Alibaba's discretion," says Yahoo spokeswoman Mary Osako.

For its part, Alibaba.com suggests Beijing policy would trump laws that Congress might pass. "Our overall position is that it is the responsibility of every business to follow the local laws of the countries in which they operate," says company spokesperson Porter Erisman.

Yahoo is no newcomer to controversy regarding China. In 2002, the company began drawing criticism for agreeing to limit search results when Chinese users punched in "Taiwan independence" and other terms deemed sensitive by Chinese regulators. Last year, Yahoo admitted that its China division had supplied information about Shi Tao, a journalist serving 10 years for disclosing state secrets. Last week's revelations about Mr. Li are the second such case.

RWB says unless Internet technology firms can agree on a common action plan to resist Beijing's pressures, Congress should impose a code to prevent them from assisting repressive regimes. But the group fears the legislative approach might ultimately be ineffective in Yahoo's case unless the company restructures its strategic partnership agreement.

"Yahoo is trying to use Alibaba as a screen, trying to hide behind Alibaba ... and say, 'Sorry, we can't do anything about this.' " says Lucie Morillon, RWB's representative in Washington, D.C. "If Yahoo succeeds in not being under US jurisdiction anymore and then is able to do whatever it wants, then it sets an example for other companies that want to free themselves from the Western countries they are based in. It looks like a legal trick, but it does not change the issue."

Experts agree that Yahoo's partnership with Alibaba.com seems to throw a roadblock in the path of American regulation.

"It's much harder [to enforce codes of conduct] when the operations of our companies are carried out in other countries by subsidiaries or companies in which they've invested that are chartered in those countries," says John Palfrey, executive director of the Berkman Center for Internet & Society at Harvard Law School. "It's not that there's nothing Congress can do, it's just that it takes more political will."

Some activists say Yahoo could still have to answer for Alibaba.com's actions, perhaps along the lines of antibribery laws that hold parent companies accountable for the actions of their subsidiaries.

Yet because Yahoo only owns a minority stake, Congress would need to raise the bar, experts say. It would have to codify the duties of minority stakeholders in foreign companies. So, as shareholders or board members, Yahoo would need to steer a foreign firm away from assisting governments with practices that constitute human rights violations - or else sell their shares.

"These would be the fundamental rules of engagement: If you [at Alibaba.com] are knowingly giving information that gets a political dissident in trouble, then we [Yahoo] have to walk out," says T. Kumar of Amnesty International in Washington. "If there is a law to that effect, then Yahoo will be held accountable.... They couldn't hide behind Alibaba anymore."

In a statement Monday, Yahoo called for more government involvement. "We believe continued government-to-government dialogue is vital to achieve progress on these complex political issues."