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US to take WTO action against China

A Chinese police officer examines pirated CDs near machines used to produce the discs after raiding an illegal facility in Chongqing, China, on March 7. China has extended criminal penalties for music and movie piracy to people caught with smaller quantities of CDs or DVDs, the state news agency said yesterday. PHOTO: AP

The US could file a complaint at the WTO as early as next week over what it calls China's piracy of copyrighted movies and books, four people briefed by the Bush administration said.

Officials have prepared two cases, one saying China sets too high a value on pirated movie or music disks before prosecuting violators, and another objecting to restrictions on the sale of foreign books and movies in the country, they said. The people -- three industry officials and one lawyer -- spoke on condition they not be identified.

Lobbying groups representing Microsoft Corp, Walt Disney Co, and Vivendi SA estimate that the illegal copying of movies, music, software and books in China cost companies more than US$2.2 billion last year. The WTO complaints would be the first filed by the US against China for intellectual property rights breaches.

The Bush administration reversed two decades of practice last week by levying new duties on some imports from China.

US lawmakers such as Democrat Sander Levin and Republican Phil English blamed what they call China's deliberate undervaluation of its currency and the piracy of patented and copyrighted goods for the record US$232.5 billion trade gap between the two countries.

In a letter to President George W. Bush in October, House Speaker Nancy Pelosi and other lawmakers said that "no country in the world has done more to undermine American intellectual property than China."

US Trade Representative Susan Schwab said on Feb. 22 that US complaints were imminent.

"We are all going to run out of patience at some point and that is going to be sooner rather than later," she said.

Last week, the administration decided to levy duties on imports of coated paper from China to compensate for Chinese subsidies to exporters.

"The US has the right to come back to press China on IPR protection again, as it is one of the areas that US companies enjoy competitive advantages in," said Li Yushi (李雨時), deputy director of the Chinese commerce ministry's research institute.

Yet he saw little possibility the US will file a formal complaint.

"This is just another turn of focus by the US government in dealing with its widening trade deficit with China. The administration understands well that China has made efforts in IPR protection, as well as our limitation in reinforcing the effort due to the imbalanced market structure," he said.

China announced this week a new crackdown on hawkers of counterfeit goods and cut in half the criminal thresholds for prosecuting pirates. The Supreme People's Court said on Thursday that possession of 500 pirated disks, rather than 1,000, would justify criminal prosecution, a notice issued by the Chinese embassy in Washington said.

People who make more than 2,500 illegal copies of music, movies or software can be jailed for up to seven years under the new rules, the notice said. Nine of 10 DVDs sold in China are pirated, the Motion Picture Association of America said.

Bush administration officials and industry lobbyists were still debating the specifics of the US complaints case late on Thursday. The administration may still adjust or delay the complaints to account for new announcements from China. Twice in the past year, the US was poised to file a complaint only to delay at the last moment.

Under the procedures of the WTO, the US will formally ask for consultations with China when it files its complaints. Only after a 60-day period can the US ask for an independent panel to adjudicate the dispute.

"China has continued to demonstrate little success in actually enforcing its laws and regulations in the face of the challenges created by widespread counterfeiting, piracy and other forms of infringement," the US trade office said in a report released this week. "One major factor is China's chronic underutilization of deterrent criminal remedies," the trade office said.

"This WTO action would be big news indeed," said Guan Anping (關安平), managing partner of the Beijing-based corporate law firm Anping & Partners and a former legal adviser to vice premier Wu Yi (吳儀) when she was trade minister in the 1990s.

"The IPR issue is critical to the US because it is a tool by which it can control technology and industries around the world," Guan said.

"It is a powerful tool to control nations like China, which are dependent on low-cost manufacturing," Guan added.

US publishers and movie companies say restrictions on their ability to sell in China result in more piracy. US movie producers face a cap on the number of movies they can show in China each year and book publishers say they haven't been given the ability to sell their books there even if they comply with censorship requirements.
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