U.S. gets tough on China

Administration to file 2 trade cases aimed at pirates

Wearying of Beijing's promises to crack down on copyright piracy, the Bush administration plans to file a pair of trade cases with the WTO today that ultimately seek to curb the Chinese appetite for making and selling counterfeit intellectual property and to ease restrictions on the sale of U.S. movies, music and books.

The motion picture and music industries have long pushed the White House to take action against China for the rampant piracy and restrictive trade barriers that effectively limit to 20 the number of films that can be imported there. Both movies and music also face restrictions on the ability to import products or establish business operations in China.

U.S. Trade Representative Susan Schwab announced the actions Monday, saying the U.S. will ask for WTO dispute-settlement consultations with China over deficiencies in China's legal regime for protecting and enforcing copyrights and trademarks on a wide range of products as well as over the trade barriers.

"Piracy and counterfeiting levels in China remain unacceptably high," Schwab said. "Inadequate protection of intellectual property rights in China costs U.S. firms and workers billions of dollars each year, and in the case of many products, it also poses a serious risk of harm to consumers in China, the U.S. and around the world."

A request for consultations is the first step in a WTO dispute. Under WTO rules, if the parties do not resolve a matter within a 60-day consultation period, then the complaining party may refer the matter to a WTO dispute-settlement panel. If a panel is convened, their decision would likely come in May 2008.

The loser can appeal the decision to a WTO court. If the U.S. wins the cases, it would be allowed to impose economic sanctions on Chinese products that equal the amount of damage caused to the affected U.S. industries.

Schwab admitted to a reluctance to take China to the WTO but said the U.S. has little choice in the face of Beijing's continued intransigence on the issue.

"While the U.S. and China have been able to work cooperatively and pragmatically on a range of IPR issues, and China has taken numerous steps to improve its protection and enforcement of intellectual property rights, we have not been able to agree on several important changes to China's legal regime that we believe are required by China's WTO commitments," Schwab said. "Because bilateral dialogue has not resolved our concerns, we are taking the next step by requesting WTO consultations."

Estimated U.S. losses to Chinese copyright piracy range from $2.5 billion-$3.8 billion a year, with piracy rates in that country for entertainment products running about 90%.

China repeatedly has promised to crack down on piracy, but little effective action seems to take place. At this time last year, high-ranking Chinese officials said the government would require that computers there use legal software to step up enforcement of intellectual property rights. They also pledged to close Chinese optical-disc plants that are producing pirated CDs and DVDs. Those promises seemed to do little as piracy appears to continue there unabated.

MPAA chairman and CEO Dan Glickman called Schwab's move a "logical next step in efforts to spur progress in China" and expressed hope that the two countries could make a deal.

"I am optimistic about the potential for a favorable resolution and the resulting benefits for the U.S. motion picture industry," he said. "The Chinese people — like people the world over — love American movies. China is, by virtually any and every measure, the world's largest marketplace for pirate goods. There is much at stake, not only for U.S. copyright industries, but for China's own intellectual property-based sector."

While the copyright industries have been pushing U.S. action, RIAA chairman and CEO Mitch Bainwol said the RIAA isn't popping the champagne corks.

"This development is nothing to celebrate — it is unfortunate that China has not yet decided to embrace its international responsibilities," Bainwol said. "This failure to abide by international standards and obligations is in no one's interest — least of all China's, whose cultural and economic opportunities are completely stifled by the quagmire of piracy."

The two new cases represent the latest effort by the administration to increase pressure on China now that Democrats, many highly critical of China's trade practices, have won control of the House and the Senate.

The U.S. trade deficit set a record for a fifth straight year in 2006 — at $765.3 billion — with the imbalance, with China climbing to $232.5 billion, the highest ever recorded by a single country.

In late March, the administration said that it was imposing penalty tariffs on Chinese glossy paper imports in a case that broke a 23-year precedent that had barred U.S. companies from seeking protection from unfair subsidies provided by the Chinese government.

In February, Schwab said that the administration was bringing a WTO case against China on the government subsidy issue.

All the WTO action indicates an increasing impatience on the part of the Bush administration, said Lyle Vander Schaaf, an intellectual property attorney with Bryan Cave who has experience in WTO dispute-panel proceedings.

"China has improved its enforcement proceedings and cracked down on pirated goods, but the problem has not gotten better. It's gotten worse," Vander Schaaf said. "I think the question just got down to: If not now, when?"
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