Longtime readers of this blog will recall I have devoted extensive time to the various woes of foreign (read: American) Internet companies in China, covering both their business and political woes. (Recap of previous posts here.)

Now we've reached the next stage in this story. Rebecca MacKinnon has written about the recent announcement that several technology firms and NGOs are cooperating to develop a set of "guiding principles" that "aims to produce a set of principles guiding company behavior when faced with laws, regulations and policies that interfere with the achievement of human rights".

In other words, guidelines for what kinds of legal regimes are tolerable and what kinds aren't.

In her post Rebecca writes:
I won't stop being critical when and where deserved, but I do believe that Google, Yahoo!, and Microsoft are to be commended for taking all the criticism directed at them seriously enough to send representatives to discussions where human rights groups and socially responsible investment funds have been asking Internet and telecoms companies to set ethical standards and draw "red lines" that their global operations would not be permitted to cross.

This is not only the right thing to do, but these three U.S.-based firms plus the European Vodaphone (sic) all recognize that in the long run ethical business is smart business: if your users can't trust you to do all you can to uphold their interests and rights, you will be hard-pressed to retain customers globally. When a company is known to be colluding with state censorship in one country, that tarnishes its credibility in other markets. And when another firm hands political dissidents over to the police in one jurisdiction, its users elsewhere will think twice about using its services.
She also notes that Cisco, one of the four companies grilled in last year's congressional hearings, has not signed onto the process, which looks like a potential PR problem for them.

While the guidelines aren't being created specifically for China (there are plenty of nastier counties), it is rather the elephant in the room due to its growing global importance and huge technology market.

In general I'm a supporter of foreign Internet and telecommunications companies being in China. However that support is not unqualified. I think it's a good thing that companies like Microsoft, Google, Yahoo and Vodaphone Vodafone are having this discussion because it addresses one of the main criticisms I made when these issues first started to emerge: none of the companies was willing to say where it's ethical horizon was, and what kinds of government censorship or surveillance demands with regard to its users would be considered unacceptable.

It will be even better if the details of the discussion become public and we can see where the lines are being drawn.

But these are early days. For all the kudos the companies are earning for engaging in this discussion along with some fairly stern critics of their past behavior, they're only talking now. No code has been finalized, let alone published. But even getting that far won't be the real test. That will only come when one of these companies has its "guiding principles" tested by a government in a market it considers important. Say that Google, Yahoo and the others do publicly adopt a code like this. What happens the next time the Chinese government makes a request incompatible with those principles? That could pose a pretty stark choice: Abandon the Chinese market or accept legal penalties in China, or try to find a way to weasel around the legally non-binding principles.

That "non-binding" part is the thing to look for. Remember that US Rep. Chris Smith, who was the driving force behind last year's hearings, has reintroduced his "Global Online Freedom Act", which would be legally binding. Proposing a voluntary code is a favorite lobbying and PR tactic of companies that are facing unpleasant regulation. "Look! We're taking care of this ourselves! No need for legislation!"

Rep. Smith's bill is a long way from being law, but it's a factor here.

Another thing to watch for is how the Chinese government --among others-- reacts to this code of conduct as it moves through its development process and generates more public attention. If this thing looks like becoming real then you can expect some feverish, pre-emptive, behind-the-scenes government work from these companies to convince the Chinese authorities that it is not specifically directed at them, even as politicians and NGOs likely say that it is. That will be a communications headache for someone (although not for me unless my client roster changes significantly).

This is a good step, but make no mistake. This story isn't over yet. There are interesting times still ahead.

Cross-posted on CNET Asia.

Disclosure: Imagethief does not represent any companies involved in the development of the principles.