U.S., China Reach Last-Minute Deal to Avert Trade War : Commerce: Accord on intellectual property issues ends two years of wrangling. Move comes after Beijing shuts two notorious factories making bootleg products.
U.S. and Chinese trade negotiators reached a last-minute settlement today of a bitter dispute centered on the mass production of bootleg compact discs and laser videodiscs by Chinese factories that threatened to lock the two countries in a costly trade war.
The eleventh-hour breakthrough on a wide range of intellectual property rights was sparked by China’s announcement this morning that it had ordered the closure of two of the most notorious pirate disc factories in the South China cities of Shenzhen and Zuhai.
The Clinton Administration had insisted that the plants be closed or it would impose more than $1 billion in trade sanctions against Chinese imports beginning at 12:01 a.m. today Washington time (9:01 p.m. Saturday PST).
China had threatened to retaliate with its own sanctions against U.S. companies and cancel billions of dollars in airplane purchases if the U.S. sanctions were implemented.
Charlene Barshefsky, deputy U.S. trade representative and the chief U.S. negotiator, described the agreement as the most detailed intellectual property rights accord the United States has ever concluded.
While the pact had yet to be signed, Barshefsky said, “We have concluded pending final verification of the texts an extremely comprehensive agreement with respect to the protection of U.S. intellectual property rights and with respect to market access for U.S. entities.”
Among its provisions, the 22-page agreement sets out a six-month “intensive enforecement” period in which Chinese officials have pledged to raid pirate disc factories and confiscate their products.
The agreement concluded more than two years of U.S.-China wrangling over intellectual property issues involving copyrights, patents and trademarks.
In recent years, China has emerged as a major violator of foreign copyrights, producing bootleg products that, according to officials in U.S. industry, cost about $1 billion in lost revenue annually.
Only hours before the deadline set by U.S. Trade Representative Mickey Kantor, Chinese officials said they had ordered the closing of the two factories, identified by U.S. trade investigators as the largest producers of pirated compact discs and laser videodiscs.
The announcement by the Chinese Press and Publication Administration that it had closed the Shenfei Laser and Optical System Co. and the Zuhai Special Economic Zone Audio-Video Publishing House for “violation of copyrights” was a significant victory for U.S. trade negotiators.
The People’s Liberation Army reportedly carried out the raid that closed down the Shenfei plant.
The two plants were the most sophisticated and notorious of the 29 plants the United States had claimed were producing pirate discs. But until today’s announcement, China had not shown the willingness or the ability to take action against them.
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, near Hong Kong, 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 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.”
Earlier in the week, the trade talks had appeared to take a positive turn with the arrival of Barshefsky on Tuesday. Both sides had talked of progress, and an agreement appeared in the offing.
However, as late as Saturday, Barshefsky said differences still existed. Tension mounted as talks ended Saturday night with no settlement, with the deadline near for the imposition of punitive 100% tariffs on more than $1 billion worth of Chinese imports.
In her last statement Saturday, Barshefsky said “significant progress” still remained to be made to avoid sanctions.
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 and to gain greater access to Chinese courts for U.S. companies in order to challenge theft of copyrighted material.
Despite the seriousness of the threatened U.S. sanctions and Chinese counter-sanctions, the targeted goods represented only a small percentage of overall U.S.-China trade. However, with other disputes brewing over U.S. criticism of Chinese human rights violations, a failure in the trade talks would have added greatly to worsening relations between the two countries.
An example of the breadth and complexity of the U.S.-China trading relationship came this 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 with their Chinese counterparts hoping to avert a trade war, O’Leary announced 26 new U.S.-China joint ventures that 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 counties,” O’Leary said.
But the presence in the same city of trade negotiators talking tough and threatening trade war in one meeting and senior officials and energy executives proclaiming new frontiers in U.S.-Chinese cooperation in other meetings presented a contrasting image that spoke of one of the world’s most complex relationships.
