The US' dispute with China over its movie piracy and other copyright infringement may escalate into litigation as early as this month unless Chinese leaders offer an acceptable solution during summits with the US that start next week, people briefed on the matter said.
The US is preparing to file a lawsuit with the WTO alleging Chinese intellectual property laws fall short of the global requirements China agreed to when it joined the WTO in 2001, the people said. The administration has been discussing the legal strategy with the film, music and software industries and congressional staff members, they said.
Administration officials have said in those strategy meetings that they intend to file the suit if the summits in Washington fail to resolve the issue, the people said.
The preparation of a suit reflects frustration in Washington that promises China made to curb the illegal manufacturing of US goods haven't led to a decline in lost revenue from piracy. US companies say those losses total US$250 billion annually.
"There is still a lack of a meeting of the minds" over how China is dealing with the issue, said James Jochum, a former US Commerce Department official who now works on China issues at the law firm of Mayer, Brown, Rowe & Maw LLP in Washington.
"The US thinks it is going poorly, and the Chinese think it is going well. There is an incredible disconnect," he said.
Yan Xiaohong, the deputy commissioner of China's National Copyright Administration, and other Chinese officials say they are making progress to stem piracy. They point to recent mandates for businesses to buy legal software and new measures that transfer more copyright violation cases to criminal courts.
The decision to base a complaint on allegations that China fails to fulfill WTO standards requiring criminal prosecutions and transparency of rules represents a new US approach. Previously, US officials had discussed basing a suit on data showing the volume of illegal merchandise. That data has proven difficult to obtain, the people involved in the matter said.
The lawsuit would be one of the most complex cases in the 11-year history of the WTO, which oversees rules of international commerce for 149 member nations.
The US has made the protection of intellectual property the centerpiece of its trade agenda. It sees China as the center of global production for illegal copies of a wide variety of items including Harry Potter books, Microsoft software, Louis Vuitton handbags, automotive parts, and pharmaceutical medicine.
"China is manufacturing 80 percent of the pirated goods" out there, said Gregory Rutchik, a senior counsel at the law firm of Liner Yankelevitz Sunshine & Regenstreif LLP in San Francisco. "We are talking about a multi-billion dollar industry. The scope is just staggering."
US and Chinese trade officials are scheduled to meet on Tuesday for an annual policy meeting in Washington that is intended to produce pledges on how the two nations conduct business with each other. In each of the last two meetings, China pledged new crackdowns on intellectual property rights violations, promises the US says haven't been fulfilled.
Chinese President Hu Jintao (胡錦濤) is scheduled to meet with President George W. Bush in Washington on April 20 to talk abut a broad range of issues, including trade relations.
In addition to illegal goods being made in China for sale in China, pirated goods are now being exported to the US in record numbers, according to US officials.
"The results aren't there yet, and what we've told the Chinese government officials is that we applaud the efforts, but we want results," US Commerce Secretary Carlos Gutierrez said on Friday.
In recent discussions with industry representatives, the US trade office complained that it hasn't been getting the data it needs from them to bring a case that would argue systematic piracy in China is a violation of WTO provisions.
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