US FILES WTO COMPLAINTS AGAINST CHINA OVER COUNTERFEITING, TRADE BARRIERS

The US on 10 April filed two new WTO complaints against China, charging that Beijing is tolerating intellectual property rights violations and maintaining trade barriers against books, music, and other copyrighted goods. The Chinese government has expressed 'great regret' about the decision, warning that it could harm bilateral relations and trade.

Washington's request for separate WTO consultations on both issues follows a similar move in February over a raft of alleged subsidies to Chinese industry (see BRIDGES Weekly, 28 March 2007). Earlier this month, the US introduced high countervailing tariffs on Chinese glossy paper.

Going to the WTO represents a significant shift from the US' past policy of trying to resolve such issues through high-level bilateral dialogue. The change may be motivated in part by the Republican Bush administration's attempts to win support for its trade agenda from the Democratic majority in Congress, which as been pushing for more pressure on China as a means to reduce the trade deficit.

If unable to resolve its differences with China in the 60 days after the start of consultations, the US will be able to ask for the establishment of formal panels to rule on the two disputes (although it could elect to wait longer to do so).

US: China not enforcing copyrights adequately

In its first set of allegations, the US claimed that China was doing too little to enforce copyright and trademark protection on a wide range of goods such as books, CDs, and DVDs. Washington argues that Beijing sets an unacceptably high bar for punishing copyright infringements with criminal prosecution, allowing large-scale commerce to take place in pirated movies and music with the threat of little more than an administrative fine. US Trade Representative Susan Schwab on 9 April said that under Chinese law, police raiding a business would have to find at least 500 "infringing works" - say, pirated DVDs - in order to launch a criminal prosecution. "The thresholds create a safe harbour for the pirates, and the pirates are only too willing to take shelter there," she said, explaining that businesses dealing in pirated goods take care to remain just short of the threshold level, and thus avoid serious punishment.

Schwab also claimed that Chinese customs authorities dealt with seized counterfeit goods by removing the infringing logos and auctioning them to the highest bidder. Describing the practice as "fundamentally unfair," she said that it appeared to be contrary to WTO rules.

The US complaint also targets China's practice of withholding copyright approval to works until they go through the country's censorship approval process. "Pirates, of course, don't wait for approval," Schwab said, adding that the delay "creates a hot market for pirates in China… leaving only the leftovers for the legitimate property rights owner."

In addition, Washington wants China to clarify whether its laws do not treat the unauthorised reproduction of copyrighted works (such as DVDs) as a criminal offence unless it is accompanied by distribution of them.

Trading rights blocking market access

The US' second complaint focused on the Chinese government's requirement for books, journals, movies and music to be imported by state-approved or state-run companies. Washington claimed that this impedes the ability of US companies to determine how their products enter China, in contravention of WTO services rules and Beijing's own accession commitments.

According to Washington, China's restrictions on trading rights slow or block the access of foreign publications and videos, and in doing so increase incentives for counterfeiting.

Washington explains change in course

The US trade representative's office said that it had decided to pursue WTO dispute settlement because its various platforms for bilateral dialogue with China on trade issues had failed to solve the specific problems. Since 2004, the US has resolved a dispute with China over semi-conductors after filing for WTO consultations, and settled another over a paper product called 'kraft linerboard' after merely threatening WTO action.

Political pressure may also have been behind the move. Since taking power in January, Democratic lawmakers have stepped up calls for the enforcement of trade agreements, mainly targeting China. They have urged action -- including more active use of WTO dispute settlement -- to address what they view as Chinese subsidies and intellectual property rights violations (see BRIDGES Weekly, 28 March 2007). Without their support, it will be impossible for the Bush administration to win Congressional support for its trade policy.

Beijing unhappy with complaints

The Chinese government criticised the US' decision to file complaints at the WTO. "The decision runs contrary to the consensus between the leaders of the two nations about strengthening bilateral trade ties and properly solving trade disputes," said Ministry of Commerce spokesperson Wang Xinpei, according to a report in the official China Daily. "It will seriously undermine the cooperative relations the two nations have established and will adversely affect bilateral trade."

In a strongly-worded statement, Beijing said that Washington had gone against the "consensus reached between leaders of the two countries to resolve contradictions through dialogue." "China strongly requires the US side to reconsider the decision and make prompt changes," it added.

The EU, for its part, may have decided not to join the US' counterfeiting case. "At the moment, I have decided that the European Union should be an observer of the case rather than a party to it," EU Trade Commissioner Peter Mandelson told a 16 April luncheon hosted by China's delegation to the EU, reports Xinhua news agency. However, he did not rule out the possibility of reversing this decision.

ICTSD reporting; "EU not to join US in WTO case against China," CHINA DAILY, 17 April 2007; "U.S. Toughens Its Position on China Trade," NEW YORK TIMES, 10 April 2007; "China blasts US over WTO piracy complaint," CHINA DAILY, 11 April 2007.