US and China Brandish Swords Over Piracy of CDs and Videos

SANCTIONS AHEAD?

The United States and China are gearing up for economic warfare in the latest skirmish over Chinese bootlegs of compact discs, videos, and computer software.

On Wednesday, the US released a $3 billion preliminary list of Chinese imports targeted for big tariffs. The list will be whittled down to about $2 billion and put in place on June 17 unless the trade dispute is resolved.

The scenario is familiar: Over the years, US firms have lost billions of dollars in revenue to unauthorized copying of "intellectual property." The US government threatens tariffs on Chinese imports, China threatens to retaliate in kind, and a last-minute agreement averts a major trade war. But the core problem - piracy of US products - has never been solved.

This year, the domestic political stakes - both in the US and in China - are higher. And some US-China analysts warn sanctions may be harder to avoid than last year, when an eleventh-hour settlement was reached.

"Both sides are more constrained by domestic politics," says David Lampton, president of the National Committee on US-China Relations in New York.

In a US election year, President Clinton wants to show that he can play hardball with the Chinese, especially after two conciliatory moves: last week's decision not to punish China for selling nuclear weapons-related equipment to Pakistan; and the decision to continue separation of human rights concerns from most-favored-nation trade status.

Mr. Clinton may also be looking at the electoral map. Big producers of intellectual property - such as Hollywood and major software firms - are based in vote-rich California; some are also key donors. In addition, his threat to slap tariffs on Chinese imports of cheap clothing may be a nod to Southern-based clothing manufacturers, who could benefit in the short run.

In China, the leadership succession looms, and no one wants to be seen caving in to the US. In retaliation to the US move, China yesterday announced its own sanctions.

"Any Chinese will say that US relations are the most important to them, bar none, but the relationship can't be built on the basis of Chinese capitulation," says Mr. Lampton. "They want 'face' and dignity for their leadership."

Western and Chinese officials in Beijing say that intellectual property theft is difficult to curb because many Chinese pirate factories are either run by the military or enjoy the patronage of powerful local officials. Erosion of central government control over the provinces has also hurt enforcement efforts.

China maintains that it has managed a successful crackdown on piracy and carefully monitors its 22 registered compact disc and CD-ROM factories. The National Copyright Administration says seven registered plants were closed this year after piracy was discovered.

US officials counter with reams of evidence that piracy is still rampant in China. But some experts on US-China relations question whether the US has approached the problem in the most effective manner.

"It's been reduced to a bargaining game, and meanwhile there's a genuine problem that's only going to get worse," says Michel Oksenberg, a China specialist at Stanford University. He suggests the US needs to focus more on its overall dialogue with China, starting with a full-blown leadership summit. On a recent trip to Asia, Clinton avoided China.

The US also needs to focus more on helping the Chinese understand the Western concept of respect for intellectual property. There's a Chinese proverb that says "to steal a book is an elegant offense," notes Harvard University professor William Alford, who used the saying in the title of his book on the subject.

In Beijing, Chinese and Western analysts and businessmen discount the likelihood that a full-blown trade war will develop. Any sanctions would not take effect until mid-June, giving both sides time to work out an agreement. "China is very astute at doing what is necessary at the last minute to placate the United States," says an Asian diplomat in Beijing. "It will be a replay of last year."

If a full-blown trade war does break out, possible targets for Chinese retaliation include motion picture imports; telecommunication services, a lucrative sector for American business in China; and a delayed opening of the Chinese market to insurance firms and banks.

Chinese economists discount that China would be hard hit by the sanctions. The $3 billion list would account for about 9 percent of Chinese exports to the US and about 4 percent total of Chinese exports, says an economist at a government research institute.

"The impact will be limited because the US market has grown too much," he says. "China has too many other markets overseas for this to derail the economy."

*Staff writer Sheila Tefft contributed to this report from Beijing.