U.S. Tells China to Reduce Trade Piracy--or Else

Firing the first salvo in what could become an all-out trade war, the United States threatened Saturday to slap punitive tariffs on a wide range of Chinese goods unless China does more to prevent commercial piracy of U.S. movies, music and computer software.

U.S. Trade Representative Mickey Kantor said the sanctions, scheduled to take effect Feb. 4, would be imposed on an array of Chinese products shipped to the United States, including athletic shoes, clothing, toys and electronic gear.

Tariffs of up to 100% would be imposed on selected goods from a target list of products that generate an estimated $2.8 billion in annual export revenue for China, Kantor said. A 100% tariff would effectively double the cost of a Chinese product sold in this country, making it unattractive to most potential buyers.

Kantor said the U.S. sanctions will take effect unless the Administration determines that China is making a good-faith effort to enforce restrictions against the piracy of U.S. copyrighted products.

“American companies are suffering tremendous losses annually to piracy in China,” Kantor said. “This cannot continue. It is critical that China demonstrate serious resolve to eradicate rampant piracy.”

The Clinton Administration’s announcement represents the latest and most dramatic step in a six-month effort to narrow America’s widening trade imbalance with China, which totaled $24.6 billion from January through October.

The Chinese government, reacting swiftly to the Administration’s threat, warned that it would have “no choice” but to retaliate by putting its own punitive tariffs on U.S. goods and by suspending negotiations for joint U.S.-Chinese automobile ventures.

The Chinese Ministry of Foreign Trade and Economic Cooperation, in a statement carried by the official New China News Agency, said it already has been toughening the anti-piracy laws that apply to copyrighted products such as computer programs, videotaped movies and music recorded on compact discs and cassette tapes. Nonetheless, the trade ministry said, Washington has “turned a blind eye” to its efforts.

The United States “does not treasure Sino-U.S. trade and economic relations and imposes trade sanctions on China disregarding strong opposition of the Chinese people,” the trade ministry was quoted as saying.

China sent a memorandum to the U.S. Embassy in Beijing opening the door for more negotiations before the February deadline. The memo, Kantor said, “seems to have laid out some criteria for further discussions.”

Kantor said he sent a letter back suggesting a meeting in two weeks.

“We expect that meeting to be held,” Kantor said. But, he added, “We are not sure whether we can make any progress.”

In June, the United States formally notified China that it wanted the Chinese to get serious about stopping illegal piracy of U.S. copyrighted and patented properties. But talks between the two sides broke down acrimoniously last month.

According to several U.S. business organizations, the flagrant copying is significantly hurting American business interests in China and elsewhere. The Administration estimates that it costs American merchants as much as $800 million each year in lost sales.

Ken Wasch, executive director of the Software Publishers Assn., said software piracy “continues unabated in China” because Beijing does nothing to prevent or deter copyright infringement. Even worse, he said, much of the pirated material is shipped to other countries, closing other markets for U.S. business interests.

Even those companies that avoid doing business in China are damaged because “they may find themselves competing with counterfeit copies of software in markets as distant from China as Latin America and Australia,” he said.

“The lack of credible enforcement at China’s borders means that China has reportedly become an exporter of pirated and counterfeit software,” added Wasch, who praised the Administration for getting tough with China.

Jay Berman, chairman and chief executive of the Recording Industry Assn. of America, said the U.S. sound recording business lost about $345 million in 1993 because of “rampant piracy.” He said his organization estimated that millions of pirated compact discs are being sold in China, “and probably even larger quantities are being exported abroad.”

Kantor declined to say how many of the targeted Chinese goods would be subject to the sanctions, but he estimated that the final list easily could affect $1 billion in annual exports.

The Chinese talked equally tough.

If Washington goes ahead with its sanctions, the government warned, China will respond by cutting off talks with U.S. companies for large automobile joint projects and by slapping tariffs of its own on an array of U.S. goods. Affected products would include video game players and game cards as well as sound recordings, cigarettes, alcohol and cosmetics.

In addition, China threatened to stop importing U.S. films, television programs, videotapes and laser discs, and to suspend applications for U.S. chemical and pharmaceutical manufacturers to do business there.

The U.S.-China trade imbalance is becoming a major concern for Administration officials. Through October, China had sent $32.4 billion in goods to the United States in 1994, while U.S. exports to China during the same period totaled only $7.8 billion.

The resulting $24.6-billion trade imbalance is second only to the $53.9-billion surplus that Japan accumulated with the United States during the same period. But, U.S. officials said, China’s advantage was growing twice as fast as Japan’s last year.