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CHINA: Headed for Trade Wars With US

Antoaneta Bezlova

BEIJING, Apr 27 2007 (IPS) - Intensifying trade tensions between China and the United States are becoming increasingly politically charged, officials and businessmen here say, raising fears that the two countries may be heading towards a trade war.

The escalation comes at a time when both China and the U.S. are preoccupied with domestic concerns which limit their potential to manoeuvre and compromise.

Absorbed with preparations for the five-yearly Communist Party congress this fall and the 2008 Olympic games, Chinese leaders are averse to adopting any drastic economic measures that could jeopardise social stability. For the U.S., the administration of President George W. Bush is seen as losing ground in containing rising protectionist sentiments in the Congress with the approach of the next presidential elections.

Responding to political pressure from the now Democrat-dominated Congress, the administration has recently hardened its posture towards China on trade, filing formal complaints with the World Trade Organisation (WTO) on copyright violations and market restrictions, as well as imposing steep penalty tariffs on some Chinese exports.

Beijing has responded by warning the U.S. that the adverse impact of these actions on bilateral ties could be huge. This week, Chinese Vice-Premier Wu Yi, China’s top envoy on trade talks with the U.S., vowed Beijing would contest the WTO cases and “fight to the last minute.”

While this is not the first time Washington has zoomed in on what it believes is China’s lack of compliance with the WTO rules, this time around there are differences in the nature of complaints and the way they are being dealt with.

On Apr. 9, U.S. Trade Representative Susan Schwab requested that the WTO consider “China’s inadequate protection of copyrights and trademarks” and asked for the WTO to examine the “serious market barriers” to the sale of U.S. movies, music and publications in China. The complaints represent the first time that the U.S. has tried to use the global trade body as a forum to discuss enforcement measures rather than regulatory reform.

Similarly, the ruling by a U.S. federal court on Mar. 30 suggesting that the commerce department has the legal authority to impose penalty tariffs on glossy paper made in China is groundbreaking because it endorses “countervailing duties” on a nation regarded as non-market economy. If upheld, the decision could open the door to such penalties in a variety of industries, which have been hurt by trade with China.

Protectionist U.S. legislators have been clamouring for tougher measures to reduce the huge U.S. trade deficit with China, which reached 233 billion US dollars in 2006, by redressing what are perceived as China’s unfair trade advantages.

These voices allege that China’s massive trade surplus with the U.S. is partly the result of an undervalued Chinese currency, unfair government subsidisation of export-oriented companies and weak Intellectual Property Right (IPR) protection.

The issue of lax copyright protection has become a sore point between the two sides. The Motion Pictures Association of America , an industry group, estimates piracy in China cost the U.S. movie industry more than 2.5 billion dollars in 2005, compared with just 5.7 billion yuan (740 million dollars) in box office revenues in China that year.

U.S. companies argue that this situation stems from China’s weak enforcement of anti-piracy laws and from the country’s excessive restrictions on the supply of legal goods. More than 90 percent of DVDs and CDs in China are believed to be pirated.

The view that law enforcement in China’s anti-piracy system is too lax is shared by the International Intellectual Property Alliance. According to its latest report: “China is one of the only countries in the world that requires proof that the act in question was undertaken with the purpose of reaping profits.”

In China, counterfeiters must be caught with at least 500 pirated discs in order to face criminal charges, and in reality they are too often simply fined instead of prosecuted.

Chinese leaders are now unaware of the problems in the system. “China still has a long way to go on its IPR protection journey,” Wu Yi admitted this week. She revealed Beijing is planning to pass more laws on copyright protection this year and launch several publicity campaigns to educate the public about the dangers of buying illegally copied goods.

“The Chinese government will be more resolute, adopt more measures and step up IPR protection,” she promised. But she also complained that by filing formal complaints with the WTO, Washington has breached a mutual understanding to settle such disputes through dialogue.

Representatives of U.S. business in China have also warned that adopting a tough approach towards Beijing at this particular moment, such as imposing steep tariffs on Chinese goods, would generate negative results.

“Politically charged legislative approaches to deal with the trade relationship have the potential to undermine the international trade regime, derail constructive dialogue, and ultimately weaken the competitive position of U.S. businesses and the overall economy without advancing commercial interest,” the American Chamber of Commerce said in its White Paper released Thursday.

With Chinese communist leaders already engrossed in the politics of the upcoming 17th party congress in November, the chance that they may risk their grip on social stability by responding to foreign demands to slow export growth or adjust the currency value is remote.

Already some government officials like vice-minister of commerce Yi Xiaozhun have warned about the danger of “abusing IPR” in relation to China. With domestic political considerations high on Beijing agenda, the danger for trade conflict between the U.S. and China is growing too.