CD Piracy Spurs Tariff Threat on Chinese Imports

Barring a last-minute breakthrough, the White House is poised to begin a process today that will sharply restrict China’s sales of textiles and electronics in the United States in retaliation for its illegal copying of U.S.-made compact discs, Clinton administration officials said Tuesday.

Acting U.S. Trade Representative Charlene Barshefsky is expected to unveil a list of goods on which the United States is prepared to impose 100% tariffs, a move that would effectively double the price U.S. consumers pay for some $2 billion in annual exports of Chinese clothing and appliances.

The measure, certain to escalate the tension in an already-anxious U.S.-Chinese relationship, follows the failure of U.S. officials in Beijing to gain China’s agreement to crack down on unlicensed production of an estimated 200 million compact discs recording of videos, computer programs, music, books and other forms of entertainment.

The International Intellectual Property Assn. estimates the illegal production to be worth $2.3 billion a year.

The decision draws attention to the limited options available to the administration. While the threat of sanctions 15 months ago brought China into an agreement to restrict CD piracy, it has done nothing to force China to adhere strictly to all provisions of the pact.

But the administration has few if any other sticks to use in its effort to prod Beijing--particularly when it is acting under the domestic pressure of the presidential election campaign, which more often rewards specific, forceful action over quieter diplomacy.

Under procedures disclosed by administration officials, Barshefsky will initially list $3 billion worth of goods on which the tariffs, or import taxes, could be applied. That list, in turn, will be whittled down to about $2 billion, nearly equal to the lost value of the pirated discs, over the next 30 days.

The effect of any sanctions on California’s immense apparel industry is expected to be mixed.

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The sanctions could help California-based manufacturers who are now forced to compete with cheap, Chinese-made goods, particularly in the so-called gray market that makes up about 30% of the apparel trade, said Ilse Metchek, executive director of the California Fashion Assn., a trade group.

“The impact of it here will be . . . not as great on the legitimate manufacturers as it will be on those who are counterfeiters and people who sell to swap meets, discount retailers, strip malls,” she said.

But they could hurt locally based companies that rely on imports from China to fill out their lines, and could raise prices for consumers here and across the country.

On Tuesday, in a series of statements that stopped just short of the anticipated announcement, administration officials sought to signal their resolve.

“We have to protect American manufacturers,” said State Department spokesman Nicholas Burns. “We are being ripped off.”

White House Chief of Staff Leon E. Panetta added: “The sanctions will have some bite.”

Administration officials said as early as January that a failure by China to adhere to its agreement to reduce CD piracy would result in $2 billion in sanctions.

But even as talks ended Tuesday in Beijing, the administration continued to hope for a last-minute solution, following a pattern common to high-stakes international trade talks. That remains a possibility even after today, because sanctions would not take effect for at least a month.

At the end of Tuesday’s meetings in Beijing, Lee Sands, the chief U.S. negotiator, reported no apparent progress, officials in Washington said. They said it was uncertain whether he would remain in the Chinese capital, because no subsequent talks have been scheduled.

Chinese officials echoed the Americans’ pessimistic assessment. Without being specific, they have indicated that China would retaliate for U.S. sanctions, raising the possibility of tit-for-tat measures further restricting access to each other’s lucrative markets.

As word of the sanctions circulated in Washington, retailers complained. Their sales of Chinese-made goods are likely to fall as they raise prices to try to recover the higher costs of the tariffs.

Tracy Mullin, president of the National Retail Federation, said that the tariffs, which would take effect over the summer, would be felt most strongly by families shopping for school clothing.

“American families should not have to bear the brunt of these U.S.-imposed tariffs,” she said. “There simply is no easy or cost-effective way to replace the goods on which the U.S. will impose these tariffs.”

Lonnie Kane, president of women’s sportswear maker Karen Kane Inc. in Los Angeles, contracts with Chinese factories to make sweaters, as do many local apparel companies.

Sanctions would force Kane to seek contractors in the United States, raising his costs by about 25%, or in Mexico. For some items, like hand-beaded work, he would not be able to find alternative suppliers at all, he said.

The American Textile Manufacturers Institute, whose members’ products compete with those on which the tariffs would be applied, applauded the anticipated decision. By forcing price increases on imports, it could make it easier for U.S. apparel manufacturers, many of which operate in Southern states that helped elect Clinton four years ago, to boost their sales.

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In California, the sanctions could affect the importation of electric machinery, sound equipment, television parts and the like that make up the largest single category of imports from China flowing into Los Angeles’ regional ports, according to the Massachusetts Institute for Social and Economic Research.

But the impact of the long-running dispute goes beyond political and economic considerations to encompass the broad scope of the U.S.-Chinese relationship. It is entwined with such matters as the likely renewal of China’s overall low-tariff trade status with the United States and U.S. complaints about Beijing’s restriction of human rights and its sale to other nations of components that can be used in nuclear weapons.

While the United States may try to work its way through a delicate trade dispute, said Panetta, “it’s hard to look like Fred Astaire when you’re dancing with a rhinoceros.”

Times staff writers Patrick Lee and Jonathan Peterson contributed to this story.