Trade Issues Strain US-China Ties

RETALIATION THREATENED

THE United States trade deficit with China has grown sharply, intensifying commercial disputes between the two nations. US officials say Beijing's highly centralized trading system could, like its human rights abuses, provoke Congress into curbing China's lucrative exports to the US.

In the most recent sign of stress, a US trade official accused Beijing of erecting barriers to imports and dramatically worsening the trade deficit with the US. The US deficit in trade with China last year was $10.4 billion, 71 percent higher than in 1989, US officials say. One estimate puts the deficit this year at $15 billion, second in size only to that of Japan.

"The tremendous growth in the trade deficit, and the proliferation of Chinese measures to restrict access to the market for imports, taken together constitute a meaningful, significant trade problem," Assistant US Trade Representative Joseph Massey said March 1.

Mr. Massey raised the stakes of the trade dispute by threatening to retaliate if Beijing fails to safeguard the copyrights for US-made software and other "intellectual property."

Massey also chided Beijing for enacting licensing requirements and other administrative measures to block foreign imports since 1989.

Beijing issued a quick retort, warning that the US would harm itself by punishing China for its trade policies.

A punitive trade measure "is like a two-edged sword: If wielded, both parties will be hurt," Zheng Hongye, president of the Council for the Promotion of International Trade, told the official newspaper People's Daily.

Mr. Zheng apparently sought to blunt a long-running movement in the US Congress to revoke China's preferential trade rights.

Without most favored nation (MFN) trade status entitling it to low tariffs, China would see its $15.2 billion in exports to the US wither. Hard currency garnered from trade is crucial to China as it tries to pay off a large foreign debt and solve huge problems associated with its inefficient, command economy, according to foreign economists.

Since the 1989 crackdown on pro-democracy activists, human rights activists and members of the Congress have called for a revocation of MFN unless China recognizes basic standards for individual rights. The House of Representatives last October voted to withhold the trade privilege, but it lacked sufficient votes to override a veto by President Bush.

In recent months, complaints over China's trading practices have given ammunition to lawmakers opposed to special trade treatment for China.

The textile industry and US officials have alleged that China has violated quotas on textile exports by disguising the goods as products from other countries. Textile shipments account for about 20 percent of China's trade surplus with the US.

In an apparent response to US complaints, China announced that it had outlawed the export of textiles through third countries. It also banned exporters from fraudulently indicating that textiles made in China are produced in a third country.

Textile traders used the ruse last year to exceed China's export quota by $50 million, according to US customs officials.

US companies have also accused China of dumping products and failing to honor US copyrights. During his three-day visit, Massey sought primarily to ensure that China would enforce strict laws on copyright protection for foreign products.

The losses to US companies from copyright infringement in China are higher than in any other country. Among US firms, makers of computer software were most affected, with $400 million in lost sales in China each year, Massey says. Companies involved in publishing, industrial design, entertainment, and high-tech engineering also see their products copied in China without compensation.

China's trade officials "know what we're talking about," Massey said. "If the protections aren't there, ultimately they could be smacked with tariffs that will knock them out of the water in terms of trade."

Beijing passed a law on copyright protection last year that is scheduled to take effect on June 1. However, it has not yet implemented measures for enforcement of the law.

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