U.S., China Seek to Halt Trade Rift : Asia: Beijing orders two producers of bootleg discs shut down as sanctions loom. Move boosts chances for last-minute settlement that would avert tariff war.

Only hours before the deadline for the imposition of U.S. trade sanctions against China, officials here said today that they have ordered the closing of two South China factories identified by American trade investigators as the largest producers of pirated compact discs and laser videodiscs.

The announcement by the Chinese Press and Publication Administration was a significant victory for U.S. trade negotiators pushing for stricter enforcement of laws protecting copyrights, trademarks and patents. It came as U.S. and Chinese negotiators continued last-minute talks this morning in Beijing under a deadline set by the Clinton Administration for more than $1 billion in trade sanctions against Chinese products if an agreement is not reached.

Failure to reach an agreement could trigger a trade war between China and its largest market, the United States, which last year imported more than $37 billion worth of Chinese-made goods.

But the possibility of a settlement was enhanced today by the eleventh-hour announcement by Chinese officials that they have closed the Shenfei Laser & Optical System Co. and the Zuhai Special Economic Zone Audio-Video Publishing House, both in South China near Hong Kong, for “violation of copyrights.”

Both factories had been singled out by the United States as major producers of bootleg music CDs and laser videodiscs for sale in China and, increasingly, other countries. The Shenfei plant in particular had become a cause celebre for U.S. trade officials and industry representatives.

Located in the border manufacturing city of Shenzhen, the plant produced sophisticated laser discs of American films and distributed them through Hong Kong, often before the products were available in the United States.

“The Shenfei factory is like a giant elephant hunkered down in the middle of a highway. If you go to Shenzhen you can’t miss it,” said Jack Valenti, president of the Motion Picture Assn. of America who led a delegation of industry representatives to Beijing last month in support of the U.S. negotiating team.

In announcing the closing, Chinese officials confirmed the worst of the U.S. allegations about the plant.

The official New China News Agency reported today that “investigations have found that the Shenfei plant made illegal videodiscs of ‘Jurassic Park’ and other laser products for certain foreign businessmen. Its products were found not only to be available on the Chinese market but also in some overseas markets.”

The agreement appeared to pave the way for a last-minute settlement as today’s 1 p.m. (9 p.m. Saturday PST) deadline approached for the imposition of punitive 100% tariffs on more than $1 billion worth of Chinese products imported into the United States. In her last statement Saturday, U.S. trade negotiator Charlene Barchefsky said “significant progress” still remained to be made to avoid implementation of the sanctions.

Chinese officials had threatened to retaliate with sanctions of their own against American products. Moreover, they warned that the imposition of the sanctions could result in the cancellation of other lucrative business deals, including the sale of more than $2 billion worth of aircraft by Boeing Co. to Chinese airlines.

There had been nine rounds of negotiations over a two-year period leading up to today’s deadline. U.S. officials said their main objectives in the talks were to win China’s agreement to crack down on pirating, which U.S. industry representatives claim costs more than $800 million in lost revenue, and to gain greater access to Chinese courts for U.S. companies.

Despite the seriousness of the threatened U.S. sanctions and Chinese counter-sanctions, the targeted goods represent only a small percentage of overall U.S.-Chinese trade.

An example of the breadth and complexity of the U.S.-Chinese trading relationship came last week as U.S. Energy Secretary Hazel O’Leary visited China with a delegation of 75 business executives.

As U.S. trade negotiators were locked in tense meetings all week with their Chinese counterparts hoping to avert a trade war, O’Leary announced 26 new U.S.-Chinese joint ventures that on paper total more than $6 billion in energy contracts for American business.

“President Clinton sent this delegation to China to forge stronger bonds of friendship between the U.S. and China and produce economic and environmental benefits to both our countries,” O’Leary said.

But the presence in the same city of trade negotiators talking tough and threatening trade war in one meeting with Chinese officials and senior officials and energy executives proclaiming new frontiers in U.S.-Chinese cooperation presented a contrasting image that spoke of one of the world’s most complex relationships.