Industries Applaud U.S.-China Trade Pact : Dispute: California software, entertainment firms expect big money in resolution of piracy issue.

HONG KONG —  Action!

After teetering for weeks on the brink of a trade war, the United States and China have resolved a dispute over piracy of U.S. movies and music in a way that could mean big money for California’s entertainment and software industries.

China has agreed to shut down factories that illicitly copy U.S.-made compact discs, laser videodiscs and software and to open up markets to legitimate products. The government also said it will stop government agencies from using pirated software and provide funds to purchase legitimate replacements.

Industry representatives estimate that U.S. manufacturers lost more than $1 billion in sales last year to pirates.

“It’s a very big step for China, a very difficult step for China,” U.S. trade negotiator Charlene Barshefsky said in Beijing. Market access could have been “a deal breaker” in the drawn-out talks, she said, because Beijing was resisting opening its doors to strong foreign competition.

California--home to many of the nation’s leading entertainment, video and high-technology companies--has been at the forefront of this battle to prevent the further erosion of U.S. markets abroad.

“Intellectual property is the present and future of California’s economy,” said Ira Goldman, the trade representative for Gov. Pete Wilson. “If it can’t be protected, then our economic growth is going to be stifled.”

U.S. business leaders stressed that enforcement is critical to the success of the agreement, which calls for improvements in China’s criminal justice system, courts and customs.

“We think we’re going to be tested, but the important thing is that the administrative framework and regulatory framework is here now,” said Bill Baker, president of the Motion Picture Assn. of America.

The most likely beneficiaries include California companies such as Autodesk Inc., the country’s sixth-largest PC software company, according to Robert Holleyman, president of the Business Software Alliance, a Washington D.C.-based group. The Sausalito firm produces the computer-aided-design software widely used--in pirated form--by companies involved in China’s construction boom.

“They’ll actually start selling products in China rather than watching it be pirated in the marketplace,” Holleyman said.

The protection of intellectual property rights around the world has become a front-burner issue. Last week, the Software Publishers Assn. reported that worldwide piracy of business application software cost the industry $8.08 billion in 1994. In China, 98% of software sold was pirated, followed by Russia at 95% and Thailand with 92%.

Hollywood has also fared badly in China. The only first-run U.S. movie officially allowed in China, “The Fugitive,” set box-office records until it was pulled prematurely from Beijing’s screens because of profit-sharing squabbles. The debut of another hit film, “True Lies,” has been hanging in the balance of the trade talks.

“The agreement sounds very encouraging,” said Steve Ashmore, vice president of sales at United International Pictures in Hong Kong, which will distribute “True Lies” and other films for Universal Pictures, Paramount and MGM/UIE. “It’s a positive step toward making a legitimate market.”

The MPAA has received permission from the Chinese government to open an office in Beijing to verify the authenticity of title registration documents. False documents are commonly used in exporting pirated products from China.

Sunday’s agreement also provides for U.S. joint ventures in production, distribution and sales of American films, music and software. Previously, quotas and licensing restrictions blocked U.S. products at the border and created a demand for bootlegged goods.

“There are no more quotas, starting now,” Barshefsky said Sunday night shortly after signing the final agreement. She said joint ventures will be permitted first in the major cities of Shanghai and Guanzhou, then gradually be extended to 13 cities by the year 2000.

Just hours before the midnight Sunday deadline for U.S.-imposed 100% tariffs on Chinese goods, Beijing signaled its readiness to settle the piracy issue with a dramatic raid on the country’s best-known rogue factory. The Shenfei Laser & Optical System Co. plant produced illicit copies of Walt Disney Co.’s “The Lion King” before its release in the United States on video. The company store boasted of versions of “RoboCop” and “The Land Before Time,” with all the dialogue--and the FBI copyright protection warning--dubbed into Chinese.

U.S trade officials had targeted the Shenfei plant in southern China as a test of China’s will to punish pirates. The raid by the People’s Liberation Army--which also partly owns the factory--shut it down.

Negotiators emphasized the pact’s advantages for China as well.

“There is no question it is also a win for China,” Barshefsky said. “Our audiovisual makers want to be in China, invest in China and produce movies in China. There is a lot of money to be made here for U.S. producers.”

The agreement details revenue-sharing arrangements for films, allowing U.S. studios to receive a percentage of gross revenues rather than a flat fee for their products. Censorship rules--another stumbling block for filmmakers, who often don’t know what is considered off-limits in China--will become more transparent, officials say.

Times staff writers Evelyn Iritani in Los Angeles and Rone Tempest in Beijing contributed to this report.

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