Multinationals say 'war' impact would be minor

PUBLISHED : Wednesday, 08 February, 1995, 12:00am
UPDATED : Wednesday, 08 February, 1995, 12:00am

MULTINATIONAL companies are playing down the impact of the US-China dispute over copyright protection.

Lured by China's fast development and immense potential market, many corporations view the confrontation as just another bump in the road, with few, if any, deciding to forgo China altogether.

'You now have a significant proportion of multinationals making a long-term commitment to China, said Tom Gorman, chairman of the American Chamber of Commerce in Hong Kong.

'They have factored in the political risk, the periodic trade frictions and the uncertain investment climate. They will be there come what may.' He said short-term difficulties caused by a trade war probably would hit small and medium-sized companies hardest.

Nevertheless, he said that membership in the Beijing and Shanghai branches of the American Chamber of Commerce had doubled in 12 months. Hong Kong branch had experienced a 15 per cent annual growth rate for the past five successive years.

The US dispute over intellectual property rights protection threatened to escalate into a trade war last weekend when US Trade Representative Mickey Kantor announced US$1.08 billion in sanctions, effective from February 26.

China retaliated by publishing a list of US imports scheduled for 100 per cent tariffs or suspension.

But Ford Motor Company, which stands to have its application for a large joint-venture vehicle project in Shanghai suspended, said a trade war would have negligible impact on its development plans, though it could delay negotiations.

'I think that if things are resolved in a matter of months, it won't really have any affect at all,' said Jim Paulsen, president of Ford (China).

RJ Reynolds Tobacco International, which exports cigarettes to the mainland and runs a domestic manufacturing joint venture, said additional tariffs of 100 per cent on cigarettes would not seriously affect its sales because tobacco products already faced import duties of over 100 per cent.

'When the government raises taxes on our products, all it does is to create an opportunity for smugglers,' said Bruce Ventura, vice-president for legal and external affairs for RJR Nabisco.

T C Chu, a consultant at McKinsey and Co, estimated that almost 100 per cent of imported cigarettes and at least 75 per cent of imported film - two products which would be taxed heavily under China's sanctions - are smuggled into the mainland.

'Even if the multinationals wanted to control this, they don't know what the sources of the products are,' Mr Chu said.

Imported American cosmetics also would be hit by 100 per cent tariffs, but again the impact of sanctions would be minimal because companies usually imported raw materials into China for manufacture there, said Mr Chu.

'Lots of multinationals go to China to tap the domestic market, not to export. They have enough capacity elsewhere to supply the rest of Asia,' he said.