FOCUS : Limits by Chinese Strain Sino-American Trade

There are signs that U.S.-China trade relations, strained after events earlier this month, will become even more tense over the next four weeks.

Sino-American trade affairs took a distinct dip three weeks ago when the Bush Administration announced the launching of an investigation into Chinese trade practices under Section 301 of the 1974 Trade Act.

The action means that the United States will formally probe the extent to which authorities in Beijing limit American exports in the Chinese market. If China does not take substantial action to remove trade barriers by October, 1992, the U.S. government is expected to retaliate by imposing punitive tariffs that would raise prices on some Chinese exports to this country.

Assistant U.S. Trade Representative Joseph Massey last week concluded four days of talks on the market-access issue with government officials in Beijing. Massey also participated in talks on an issue that will likely create even more trade friction in the coming weeks--China’s failure to adopt laws and internationally recognized standards that protect intellectual property rights.

American threats of retaliatory trade actions have caught the attention of Chinese leaders but so far have brought an insufficient Chinese response, Massey said at the conclusion of the talks Friday.

The negotiations were completed in a “frank and friendly” atmosphere, he said, but China yielded little new ground.

The United States blames a late-1989 toughening of Chinese import barriers for a $1-billion drop in U.S. exports to China in 1990, to $4.8 billion. According to American government calculations, China ran a $10.4-billion surplus in its U.S. trade last year and is heading toward a $12-billion surplus this year.

“There’s concern that if we allow another Asian country to achieve a huge trade advantage, it will drain the United States,” Kim Woodard, director of Chinese affairs at A. T. Kearney, the Chicago-based international management consultant, said in explaining reasons for the government’s hard line.

Since the dramatics assault on communism in the Soviet Union and the rest of the world, the U.S. has little need to court China to keep it from moving closer to the Soviets, said Nicholas Lardy, a University of Washington professor and expert on the Chinese economy. “There’s been a dramatic decline in China’s strategic importance, and it’s now more difficult to overlook the trading inequities,” he added.

Massey expressed satisfaction over the market-access talks, saying that “we now have a process under way of negotiation and consultation, with a view toward . . . securing the elimination or substantial reduction of Chinese market barriers.”

He warned, however, that if China does not quickly take additional steps to end the piracy of sound and video recordings and computer software, the Bush Administration will retaliate with high tariffs specifically targeted at selected products of China’s state-owned industries.

He expressed pleasure that China now recognizes the intellectual property negotiations as a “central” issue in Sino-U.S. relations and has appointed Cabinet-level officials to deal directly with such problems. A Chinese negotiating team will fly to Washington next month in an attempt to reach agreement on intellectual property issues before the Nov. 26 deadline, he said.

Massey quoted industry estimates that computer software piracy in China costs U.S. firms $300 million a year in lost sales and that the annual loss for sound and video piracy runs at $118 million. He stressed that these are industry figures and that the U.S. government has not yet made its own official estimate.

The Bush Administration on April 26 gave China a six-month deadline to enact laws and join international conventions that prohibit the infringement of patents and piracy of copyrighted items such as software, music, films and books. The deadline is about four weeks away, but Beijing’s Communist government has not yet met those standards.

China passed a copyright law in June, but it is considered too weak to meet international standards, and Washington does not believe that it adequately protects software or chemical patents. With so little time left, the smart money is betting that China will feel the bite of some American sanctions before strengthening its intellectual property rights provisions, said Donald Anderson, president of the Washington-based U.S.-China Business Council, a trade group that represents American firms with operations in China.

“Our (member) businesses are trying to promote U.S.-China trade, but on intellectual property rights--I feel the Chinese need to take further action,” Anderson said.

“Their law is full of holes,” Woodard said. “Massey’s hard line on this seems to indicate that he expect sanctions on intellectual property rights. . . . The sanctions may be mild at first. The (U.S. government’s) criteria is to minimize damage to U.S. consumers.”

Woodard, who is based in Alexandria, Va., said the U.S. government is more likely to impose retaliatory tariffs on less-important Chinese exports--items such as machine tools or electronic components. The Bush Administration, he said, will probably not target China’s leading exports to the United States--shoes, clothing and toys.

In the market-access talks, the United States is demanding that China end the use of secret trade regulations, among other measures that it claims serve as trade barriers.

It is not uncommon for U.S. businessmen in China to be told that certain deals are impossible because of confidential trade rules, which foreigners are not allowed to see. Such hidden rules violate standard international practice.

“What we want from them is a commitment that no unpublished regulations will be enforced or (be) enforceable,” Massey said.

The Chinese have not agreed to that demand, he said. But the U.S. complaint, he said, at least “has sparked (a) rush” to publish formerly secret rules.

White reported from Los Angeles and Holley from Beijing.

U.S. Trade Grievances Against China

The United States has recently stepped up pressure on China to rectify what it views as unfair trade practices. U.S. grievances include issues of improving U.S. access to the Chinese market, protection of copyrights and allegations of efforts to circumvent U. S. and international export rules.

Market Access * Unfair bans on importation of certain products from the United States. * Limiting imports of U.S. goods through licensing requirements and requiring goods to meet certain technical standards. * Failure to disseminate information on laws and regulations relating to trade restrictions or prohibitions.

Intellectual Property Rights * Failure to enact laws protecting patents on pharmaceuticals and other chemicals * Failure to join international copyright conventions that protect copyrighted material such as books, films, music and computer software.

Shipping Improprieties Under Investigation * Secretely shipping goods through third countries to circumvent international trade quotas on items such as apparel. * Understating the value of goods shipped to the United States. * Shipping tools that may have been assembled by prison workers.