US and China teeter on edge of trade war

PUBLISHED : Wednesday, 11 April, 2007, 12:00am
UPDATED : Wednesday, 11 April, 2007, 12:00am

Clash over intellectual property rights and limits on market access loom, say analysts

US moves to lodge complaints against China through the World Trade Organisation over piracy and market access marked a worsening of the economic relationship, but the countries still had room to avert a full-blown trade war, analysts said yesterday.

Washington said on Monday that it would seek so-called 'dispute settlement consultations' over violations of intellectual property rights (IPR) and limits on market access for US movies, music and books.

The announcement comes shortly after the US Department of Commerce launched tit-for-tat duties of 10 to 20 per cent against imports of Chinese-coated paper, the first time the US has imposed such taxes on a non-market economy.

Earlier this year, the US trade representative filed a WTO case against China over subsidies, which Washington claims are unfairly supporting industry. Washington is also unhappy over the US trade deficit with China and the slow appreciation of the yuan, which many believe is undervalued.

In China's first public comments on the latest development, a spokesman for the Ministry of Commerce, Wang Xinpei , said: 'It will adversely affect bilateral economic and trade ties.'

Chinese violations of US intellectual property have been an issue for more than a decade, long before China joined the WTO. With entry to the world trade body just over five years ago, however, Beijing agreed to abide by the WTO's Agreement on Trade-Related Aspects of Intellectual Property.

A day after the news, sellers of pirated products on the mainland were oblivious, trailing tourists with fake Rolex watches on display and openly selling pirated DVDs from small stands in downtown Shanghai.

Xiao Lian , director of the Centre for American Economic Studies at the Chinese Academy of Social Sciences, said he still saw room for negotiation.

'I hope the two sides will still try to resolve the issue through talks and I do believe both sides will finally reach a compromise. No one wants to see the result of sanctions,' Dr Xiao said.

'By taking a bilateral trade issue into a multilateral environment, the issue will become complicated, which might take a very long time - such as two to three years - to reach any settlement.'

The Ministry of Commerce said the US had not requested consultations with Beijing, but it would 'deliberate upon and actively respond' to an invitation, Xinhua reported.

The countries have 60 days for consultations before the issue goes to a WTO dispute panel.

Chief economist for Asia at investment bank UBS, Jonathan Anderson, said US action on IPR was not unusual given longstanding dissatisfaction over how China had failed to enforce its existing laws.

'No one can be surprised that the US is fighting on IPR issues,' he said. 'It certainly all looks part and parcel of a worsening of trade relations.'

Mr Anderson earlier said this year marked the beginning of the next US presidential election cycle and the first full year for the new Democratic Party legislative majority, paving the way for both the White House and Congress to appear tough on China.

Additional reporting by Laura Liu

Points of contention

Summary of the US claims

Intellectual property rights

China's thresholds for prosecution of wholesalers and distributors of fakes 'appear to effectively permit large-scale piracy and counterfeiting'

Chinese regulations can require customs officers to auction goods after removing fake labels. While awaiting approval by censors, works are routinely faked with no right of redress for their creators

Foreign media

Foreign entertainment must first be passed by censors, and then can generally only be distributed through stateowned ventures

While awaiting approval by Chinese censors, foreign media works are routinely faked

WTO process

Once the US complaints are lodged with the WTO, the two countries have 60 days to reach agreement. If they do not, Washington can then demand WTO mediation

If the US cases are upheld, Washington could then gain the right to impose duties and tariffs on Chinese imports - but the process is likely to be lengthy and complex

Source: AFP