China, in Bid to Head Off Trade War, Shuts Three More Factories

In an effort to avert a multibillion-dollar trade war, China on Wednesday shut down three more rogue factories, even as Washington’s top trade official was to board a plane to Beijing today for last-minute talks on copyright piracy.

Days before a Sunday deadline to show “concrete progress” on halting the illegal copying of U.S. music, software and films, Chinese officials revoked the licenses of two factories in Guangdong province as trade negotiator Lee Sands met with authorities there.

Chinese authorities also closed production lines at a factory in Guilin province that had been producing Russian versions of Microsoft Corp.’s Windows 95 software for export.

In Washington, trade officials said they see the closures as a good sign but that they were looking for more before they would call off sanctions on up to $2 billion in goods due to take effect at midnight Sunday.

In a Wednesday meeting with Li Daoyu, China’s ambassador to the United States, Charlene Barshefsky, acting U.S. trade representative, was said to have told the ambassador that clear progress had been made but that it was insufficient.

In Beijing, a source close to the talks in progress said the two sides are “within striking distance” of an agreement.

China is trying to make a last-minute demonstration of goodwill with the crackdown on factories in Guangdong, which have been protected by well-connected local officials and gangsters, officials here say. The two shuttered companies have been fined $24,000 each, and 17 stores in the freewheeling border town of Shenzhen have been sealed.

“The move again shows the Chinese government’s firm stand of protection of intellectual property rights and fighting copyright piracy,” said a spokesman with China’s Press and Publication Administration.

The Clinton administration has said it will impose 100% tariffs on $2 billion worth of Chinese goods sold in the U.S. if the Beijing government does not live up to the terms of an agreement reached 15 months ago to crack down on illegal copying and distribution of U.S. recordings, films, books, computer software and other products characterized as intellectual property.

The issue has become a sensitive one for the administration.

Its effort to fight the illegal copying and sale of American popular and classical music and movies has been applauded by the entertainment industry, which President Clinton has courted for political support.

But the tariffs, if they are imposed, could produce steep price increases on a range of consumer goods made in China and sold in the United States--a disparate group that ranges from silk shirts to surfboards--risking an outcry from retailers and shoppers.

One buyer from a large American department store said he is reducing his orders in anticipation of sanctions, but he said he is worried about clothes shipments en route to America that could end up be stuck in warehouses until the dispute is resolved.

China has threatened swift retaliation against U.S. companies trying to gain a foothold in the potentially huge Chinese market, which are already facing competition from Asian and European rivals. American business people in Shanghai and Beijing said Chinese officials have quietly told them that pending applications for permits and business licenses will be held until after the Sunday deadline.

China has canceled fruit orders from Washington state to avoid having shipments rotting on the docks should sanctions be imposed.

The progress reported recently by U.S. officials goes to the heart of the dispute. The officials were encouraged, too, by China’s stated determination to ban the import of presses used to make compact discs and to impose “extremely severe penalties” on violators.

“There’s no question they want to get out of this,” a U.S. official said, but the U.S. insisted that only specific, confirmed action--action that makes clear that China is finally living up to the 1995 agreement--would avert the sanctions.

Three major questions remain in the way of a settlement: the duration of the crackdown; customs enforcement at the Chinese border, where U.S. officials hope Chinese officials will seize any goods still being produced; and greater access by U.S. companies to the Chinese market.

Farley reported from Shanghai and Gerstenzang from Washington.