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The "Global Online Freedom Act of 2007" was introduced by Republican Chris Smith in the wake of last year's allegations that Yahoo had handed information to the Chinese government which had led to the arrest of two Chinese dissidents, an accusation vehemently denied by the company.

Specifically the bill seeks to "prohibit US internet companies from cooperating with repressive regimes that restrict information about human rights and democracy on the internet and use personally identifiable information to track down and punish democracy activists."

Among the other measures proposed, the bill would also require internet companies to disclose the terms they are asked to filter and the requirements imposed to operate within the country. It also asks for fines of around $2 million for businesses that violate the new laws.

"Dictatorships need two pillars to survive, propaganda and secret police. The internet, if misused, gives them both in spades," said Smith, presenting the bill, which still has a long way to go before reaching the House or Senate where it would be passed into law.

The Chinese market has so far proved a public relations disaster

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for most internet companies, with Google admitting in the past that it "compromised its principles" to operate there, and coming under fire for removing links to politically sensitive pages in its search results.

Microsoft has also struggled with allegations that it censored Chinese blogs at the behest of the government.

The company says it is wary of legislation which will dictate how it operates with China, "We are not advocating for a legislative solution and are instead engaged with the process outlined by Business for Social Responsibility and the Center for Democracy and Technology," Microsoft tells PC Pro in an emailed statement.

"Unilateral action by the United States, particularly if not well coordinated with ongoing international dialogue or adapted to international standards for protection of free expression and privacy, could prompt adverse reaction by other governments, and lead to less internet freedom, not more.

Google says it does not speculate on hypothetical situations and instead pointed us towards its position on China as stated in its blog.

"We are convinced that the Internet, and its continued development through the efforts of companies like Google, will effectively contribute to openness and prosperity in the world. Our continued engagement with China is the best (perhaps only) way for Google to help bring the tremendous benefits of universal information access to all our users there."

Yahoo did not respond to requests for comment.