"The designated companies either compete with U.S. companies involved in WLAN or hope to compete with them. A 'coproduction' arrangement under these circumstances is highly disadvantageous to the foreign side," USITO said.
Foreign companies will not know what technology is being added to their products, raising concerns over liability and appropriate compensation levels for the foreign company and the local partner, USITO said. Additionally, Chinese companies, which have been provided with detailed technical information on WAPI, may refuse to provide or delay providing the security protocol to a foreign company, giving Chinese companies an advantage in the marketplace, it said.
Coproduction partners could also demand detailed technical specifications from foreign companies with the excuse they cannot implement the required security protocols without a full understanding of the foreign technology, it said.
Very little is known about the technical specifics of the security protocol at the heart of the Chinese WLAN standard.
The State Encryption Management Committee (SEMC) and SAC have not provided detailed technical information on WAPI or the ownership of the intellectual property used in WAPI and licensing royalties have not been set, USITO said. However, SEMC and SAC have said only local companies will be allowed to apply for the certifications required to sell networking gear based on the Chinese WLAN standard and foreign vendors will be required to bear the costs for testing and certification, it said.
While groups like Wi-Fi Alliance and USITO have expressed their concerns over China's WLAN standard and the licensing requirements, vendors have been more cautious.
Executives at Cisco Systems Inc. and Netgear Inc. in Beijing would only say they are studying the standard.
On the Chinese side, networking equipment vendor ZTE Corp. and the China Broadband Wireless IP Standard Working Group, a standards body set up by China's Ministry of Information Industry that helped develop the Chinese WLAN standard, declined to comment. SEMC and SAC officials could not be reached for comment.
While detailed technical specifications of WAPI have not been made available, some details have emerged.
WAPI uses a block cipher for encryption and an authentication mechanism that appears to be similar to the IEEE 802.1x standard, which is part of the upcoming IEEE 802.11i security standard, Wi-Fi Alliance's Easton said. A block cipher is a symmetric-key encryption algorithm that transforms a block of unencrypted data into a block of encrypted data with the same length.