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Mon, Jul 12, 2004 - Page 12 News List

US-China trade battle heats up

THORNY PROBLEMS Although China's decision to scrap preferential taxes for chipmakers was a victory for the US, there are several issues remaining

AFP , BEIJING

TA woman chooses a bottle of Chinese red wine at a store in Beijing on Thursday. As an increasingly prosperous China develops a taste for wine, the local market has turned into a tale of two industries: the import market, in which strict rules apply; and the domestic market, where practically anything goes.

PHOTO: AFP

China's decision to scrap preferential tax treatment for domestic chipmakers has ironed out another crease in the sometimes fractious trading relationship between the US and China.

But analysts caution that while the White House is notching up victories over specific issues on the margins, thornier problems at the heart of the relationship will continue to cause headaches.

They cite intellectual property rights as a key area of antagonism.

"That whole area is a mess as so much of it is about enforcement problems and you're just going to see more of that as the trade relationship deepens," said Larry Sussman, a tax lawyer with O'Melveny and Myers in Beijing.

US Trade Representative Robert Zoellick said that settlement of the chipmaker case -- the first filed with the WTO against China -- marked "real, concrete results."

Analysts said that China had chosen to back down just as the US was poised to begin a second consultation period on the issue next week, the final stage before litigation through the WTO begins.

Although there had been concerns that the Chinese side would have been massively outgunned by the experienced US legal team in Geneva, Washington has made it clear that it prefers settling such issues outside of the courtrooms.

One month later, the success of this strategy was played out when a team of Chinese trade officials led by Vice-Premier Wu Yi (吳儀) reached agreement with the US on a host of issues in Washington as part of the regular meetings of the US-China Joint Commission on Commerce and Trade (JCCT).

These included a pledge by Beijing to scrap its imposition of a homegrown standard for wireless data transfer.

"During the JCCT, there were a number of issues that needed to be resolved and were through frank discussion and there is lot of goodwill right now," said Pat Powers, director of China operations at the US-China Business Council in Beijing.

"Things are getting sorted out on a very pragmatic basis."

But more vexing issues still exist which cannot be solved through the Washington lobbying process, high level government contacts and a push of the button in Beijing.

The issue of Chinese intellectual property rights violations, for example, has been causing significant headaches for US industry, and costs foreign companies billions of dollars in lost revenues every year.

But years of complaints at all levels have resulted in little substantive change on the ground in China.

"There are a number of other problems out there that China has to improve on. Intellectual property rights is one of them and that won't get solved overnight," said Powers.

The Motion Picture Association of America, for example, has been actively and aggressively campaigning for China to take action on optical disk piracy, with chief executive Jack Valenti making frequent trips to Beijing to argue the case for the Hollywood studios.

Despite encouraging words from China's senior leaders, copies of the latest movies remain freely available just a short walk from the US embassy in Beijing for aroundUS$1 a piece.

And it's not just the pirates that US industry has to worry about.

Just a day before the semiconductor announcement, Beijing overturned Pfizer's domestic patent on Viagra, its best-selling erectile dysfunction treatment, after lobbying from Chinese manufacturers of generic products who are eager to get into the game.

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