[A2k] Wall Street Journal: U.S. Leaves Door to China Ajar

[Thiru Balasubramaniam]

U.S. Leaves Door to China Ajar
WTO Complaint Has
Narrow Focus on Media;
Room for Negotiation
By JOHN MCCARY
April 10, 2007; Page A7

WASHINGTON -- In the Bush administration's "good cop-bad cop" approach
to trade relations with the Chinese government, yesterday was a "bad
cop" day.

As expected, the government said it would file a pair of cases in the
World Trade Organization against China aimed at piracy and
counterfeiting of U.S. intellectual property. U.S. Trade Representative
Susan Schwab said piracy and counterfeiting is "unacceptably high" and
action was needed to prevent further losses to U.S. companies and
workers.

She also said, however, the U.S. would "remain open at any time to a
comprehensive settlement" during the WTO arbitration process.

One WTO case accuses China of lax enforcement of copyright violations.
The other challenges barriers to the sale of U.S.-produced movies,
music and books, a complaint that focuses on China's practice of
requiring government middlemen to import such materials, which
officials there say is necessary to ensure its censor process.

The U.S. move, which sets off a lengthy process that could take years
to resolve, was narrowly focused on media and books. Several U.S.
industries, including pharmaceuticals and auto parts, have pressed
similar piracy complaints against China, but they aren't covered in the
action.

For the WTO, the complaints break new ground at least in one regard.
Previous cases have focused on regulatory reform, but no country has
tried to use the WTO as a forum to discuss enforcement efforts, which
are hard to measure.

The merits of the cases remain to be determined, but their intended
effect may be to give Washington more leverage in trade negotiations
with the Chinese. Treasury Secretary Henry Paulson is set to continue
President Bush's economic dialogue with high-ranking Chinese officials
next month.

The move was hailed on Capitol Hill, where lawmakers have long pressed
the administration to get tough on Beijing on a range of issues.

"Litigation isn't always the answer, but when informal negotiations
don't work, we need to stand up for ourselves," said Sen. Chuck
Grassley (R., Iowa), senior Republican on the Senate Finance Committee,
which has oversight on trade issues.

The move against China comes at a time when the Bush administration is
pushing hard to win approval in Congress of a series of regional
free-trade agreements, as well as renewed authority to negotiate a
global trade agreement. Approval of all the trade initiatives are in
doubt since Democrats, who are more skeptical of the gains of free
trade, won a majority in both houses of Congress last year.

"This administration has ignored China's trade violations over the past
six years, at the expense of U.S. businesses and workers," said Sen.
Sherrod Brown (D., Ohio). "While this is a step in the right direction,
the timing of the president's action is certainly suspicious, given
that his blanket authority to make trade deals is about to expire."

The U.S. has tried less adversarial approaches to encouraging Chinese
reform, with some success. Some U.S. pharmaceutical companies have in
the past helped Chinese police identify factories engaged in
counterfeiting, and the U.S. Chamber of Commerce recently hosted an
international conference on intellectual-property reform in Beijing.

In the past, cases taking a harder line have lacked an important
component: witnesses willing to testify their products are being
counterfeited. Now, the movie and music industries are stepping
forward.

Mitch Bainwol, chairman of the Recording Industry Association of
America, said the group welcomed the administration's decision to file
the WTO cases. "The theft of music is pervasive in China and takes
place virtually without meaningful consequence," he said.

But other industries that depend on intellectual-property enforcement
aren't certain litigation helps much. Pharmaceutical companies, for
instance, worry that acknowledging there is widespread counterfeiting
and illegal distribution of their products would damage their
credibility and that of their brands. They also are concerned Beijing
may strike back by shutting down market access to U.S. firms.

"The widespread fear is that if you bring litigation against China,
your companies will lose money, lose contracts and investment will be
slow to come," said Gary Hufbauer, a senior fellow at the Peterson
Institute for International Economics, a private nonprofit research
institution.

--Bruce Orwall and Andrew Batson contributed to this article.

Write to John McCary at john.mcCary@wsj.com1

---------------------------------
Thiru Balasubramaniam
Geneva Representative
Knowledge Ecology International (KEI)
voice +41.22.791.6727
fax +41.22.723.2988
mobile +41 76 508 0997
thiru@keionline.org