US, China Go to Mat In Battle Over Piracy

Three-dozen shadowy Chinese factories counterfeiting American music, films, and software are once again the vortex of a new trade storm between the United States and China.

Tucked away in back alleys of boomtowns in southern China, many purported to have links to the military or high-ranking Chinese officials, the plants are flooding world markets with illicit compact and laser discs and undermining lucrative American exports, US officials and businessmen say.

Renewing demands that the pirates be stopped, the US has plunged into a new trade confrontation with China. American officials say that copyright and patent theft has actually worsened since a February 1995 agreement to step up intellectual-property protection in China.

On Wednesday, the two rivals exchanged reciprocal threats to target their $40 billion annual trade with 100 percent punitive duties on selected Chinese imports if negotiations don't succeed soon.

Washington unveiled a preliminary list of $3 billion in Chinese textiles, electronics, and other imports that could be hit. About $2 billion of that - the amount American businesses lose every year to piracy - would be selected for high tariffs by the June 17 deadline.

No more 'Baywatch'

Insisting it has implemented the 1995 accord, China countered with its own list of American imports that would be subjected to punitive tariffs.

The list ranges from meat to car parts to telecommunications. Also singled out for possible retaliation were American films and TV programs and licenses for pharmaceutical and chemical ventures.

"Confrontation will lead absolutely nowhere," Chinese Foreign Ministry spokesman Cui Tiankai said Thursday in a press conference. The United States should compromise, "to repair the damage already brought to Sino-US relations."

"So long as the [US] proceeds from the overall interests of its relations with China and conducts negotiations and talks with the Chinese side on an equal footing, I believe this question will be settled properly," he said.

During an American presidential election year when President Clinton is under conservative pressure to be tough on China, relations between Beijing and Washington already bear the strains of differences over human rights, nuclear-weapons proliferation, renewal of most-favored-nation trade privileges, and Chinese belligerence toward Taiwan.

The Clinton administration is also under pressure to reduce America's record $33.8 billion trade deficit with China in 1995. That was second only to the US trade gap with Japan.

In a replay of the 1995 confrontation that narrowly averted a multibillion-dollar trade war with an 11th-hour agreement, China and the US are expected to again go down to the wire. This year, though, the rivals have upped the ante in their selection of goods to be targeted, Western and Chinese analysts say.

By targeting textiles and electronics, the US has singled out southern Guangdong province, home not only of China's textile and electronics industries but also of most of the pirate compact- and laser-disc factories.

US officials have identified 29 plants, up from 15 just two years ago, that produce more than 75 million discs a year. Since the Chinese market consumes just 5 million annually, that means most are exported. During the last year, industry experts estimate that China's capacity to copy the discs has tripled.

"Guangdong is the obvious target of the United States," says an American textile manufacturer in the provincial capital of Guangzhou. China could lose $2 billion in textile exports yearly if the sanctions stick, he estimates. "This is a powerful province with a lot of influence on Beijing. The US is trying to make a point."

China says the US is ignoring its efforts to protect intellectual property rights.

Beijing maintains there are 22 registered plants producing compact and laser discs that are under close surveillance for any piracy violations.

But the US says China has yet to move decisively against the Guangdong factories.

China has refused to follow American-set numerical targets and deadlines for closing the controversial plants, saying that it will deal with the piracy issue on its own terms.

"This issue cannot be resolved until there is action against these producers," says a Western diplomat.

With an eye toward placating the US, China announced Thursday that it was cracking down on piracy of films and other audio-visual tapes.

The New China News Agency said the showing of pirated films in public theaters would be banned, and projections rooms would be required to have government licenses.

More is needed, some say

Still, industry businessmen say the effort is not enough.

"The United States has been forced to threaten China with a trade war in order to capture Beijing's attention," says a spokesman for the Business Software Alliance in Hong Kong.