Is U. S.-China Trade Unravelling?

The Chinese have pretty good reason for feeling picked on by the United States these days. There are hints that the U. S. may move to crack down on intellectual property piracy by the Chinese:

WASHINGTON, April 6 — After months of prodding China to crack down on pirated copies of American movies, music and software, the Bush administration appears ready to escalate the dispute into a legal confrontation.

In recent weeks, administration officials have strongly hinted that they are close to filing a formal trade complaint against China at the World Trade Organization, saying that China has failed to prosecute all but a small fraction of the ubiquitous and visible street trade in bootlegged American entertainment.

“The United States has made it clear that formal W.T.O. consultations will be necessary without concrete actions by China in this area,” the office of the United States trade representative warned this week in its annual trade report to Congress.

The administration went on to complain about “inadequate” enforcement of intellectual property rights — copyrights, patents and trademarks — in movies, music, books, pharmaceuticals, software and many other areas.

The China Copyright Alliance, an industry coalition that includes Hollywood studios, independent movie and television producers and the recording industry, has been pushing the administration for months to file a formal legal complaint. Administration officials have made it clear they are preparing to do so.

“We’re all going to run out of patience at some point, and that’s going to be sooner rather than later,” said Susan C. Schwab, the United States trade representative, in a speech on Feb. 22.

Movies, music, and software aren’t the only IP piracy issues at stake although they’re the ones that make the most noise. Chip design and pharmaceuticals are also among the bones of contention. This isn’t small potatoes. As I’ve mentioned before Chinese theft of U. S. intellectual property may be as large as the total trade deficit (in favor of the Chinese) between the two countries.

This isn’t an isolated issue. Not long ago the U. S. imposed a duty on Chinese paper products on the grounds that these products were being subsidized by China:

>NEW YORK ( — The U.S. Commerce Department announced Friday that it will reverse its decades-long policy and begin to impose trade tariffs on some subsidized imports from China.

The first duties will be applied to imported “coated-free” paper from China, U.S. Commerce Secretary Carlos Gutierrez announced during a press conference in Washington.

The news spooked Wall Street. U.S. stocks reversed course and headed lower following the announcement. The dollar weakened against both the euro and the yen.

“As global barriers come down, it’s critical for our companies and workers to have a level playing field,” Gutierrez said in a press conference call.

According to the U.S.-China Business Council, the Commerce Department has followed a two-decades long practice of not applying countervailing duties to offset government subsidies in non-market economies like China and Vietnam.

U.S. manufacturers, hit hard by a record $763.6 billion trade deficit which continues to displace domestic production and jobs, have long opposed that policy and are lobbying Congress for tougher fair trade measures.

Gutierrez said his agency felt the need to revisit the policy in response to the changing global political and economic landscape.

“In the 1980s and 1990s, we found that communist economies did not change their behavior when they received subsidies. But now they do change their behavior. The China of today is not the China of years ago. China is no longer part of the Soviet bloc.”

Gutierrez said the trigger for the major policy shift was a petition from a U.S. paper manufacturer, Dayton, Ohio, based NewPage (Charts) Corp., that has been asking for tariffs to be imposed on paper imports from China. Those imports are valued at $224 million.

Gutierrez said the U.S. would set a preliminary countervailing duty level of 10.9 to 20.35 percent on the value of coated paper imports from China.

The complaint made by the U. S against China before the WTO was the largest ever made by one member against another.

Then, too, there’s the ban of Chinese-supplied wheat gluten in response to the recall of pet foods made with Chinese wheat gluten that has been found to have been contaminated. I’ve posted on this extensively. It’s no wonder the Chinese responded rather defensively to the news.

Frankly, I think the Administration is whistling past a graveyard on trade policy with respect to China. China doesn’t have the social or legal infrastructure necessary to enforce intellectual property rights. The very notion doesn’t have a great deal of meaning in a Chinese context.

And I’m not really certain how one would go about determining the level and type of state subsidies in an economy like China’s with layer after layer of interlocking companies, some state-owned some, ostensibly, not. Production of basic foodstuffs e.g. wheat is unabashedly subsidized.

The U. S. has good reasons for going after the Chinese.  Roughly a third of our total trade deficit is with China and it’s actually rising relative to Chinese GDP.  Fasten your seatbelts.  We’re in for a bumpy ride.

1 comment… add one
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