My interview on the US-China TRIPS case at the Wall Street Journal

U.S. Piracy Case May Raise Trade Tensions With China

Washington - The Bush administration formally took its longstanding spat with China over pirated movies, music and books to the World Trade Organization. The move represents a further increase in trade tensions between the two countries.

U.S. Trade Representative Susan Schwab made the official announcement. "Piracy and counterfeiting levels in China remain unacceptably high," Ms. Schwab said in a prepared statement.

While acknowledging China's leaders have made progress to improve property rights protections for movies, music, books and other goods, she said the U.S. and China haven't been able to agree on legal changes the U.S. believes are needed for China to comply with its commitments as a member of the WTO.

The U.S. plans Tuesday to ask for dispute-settlement consultations from the WTO on two matters: one claiming deficiencies in China's legal structures to protect and enforce copyrights and trademarks; and the other challenging barriers to China's market for books, music, videos and movies.

The Chinese Ministry of Commerce didn't have any immediate comment on the expected move, which was reported in Saturday's editions of The Wall Street Journal and New York Times.

While supported by the U.S. movie and music businesses, the complaints have stirred unease among executives of other U.S. industries, including drug companies and high-tech manufacturers. Many fear that a clash with China over piracy could undermine the increasing cooperation they have won over the past year with local Chinese officials on combating the problem.

Ma Xiushan, deputy general secretary of the China Intellectual Property Society, said the cases will be seen as a negative signal from the U.S. at a time "when China is working very hard to narrow our distance from the U.S. and other developed countries in intellectual property rights protection."

Henry Gao, a former WTO official who teaches at the University of Hong Kong now, said, "I am not sure the U.S. can win this case." He noted that the criminal penalties for piracy in China are, under WTO rules, supposed to be "consistent with the level of penalties applied for crimes of a corresponding gravity." It isn't obvious what crimes are equivalent to being caught with 500 CDs, he said. "This is where the U.S. will have to come up with some really good arguments."

"This will drag the WTO into sensitive political issues and I think the WTO probably will be very cautious here," he added. Yet he noted that in the past China has taken action to defuse WTO complaints before they come to a head.

China has taken a number of steps recently to crack down on piracy, increasing penalties and lowering the thresholds for what constitutes a criminal act. Chinese provincial authorities have worked alongside U.S. industries to carry out a series of raids against factories and warehouses trafficking in counterfeit goods.

"The piracy issue is a world-wide issue," said Chen Zhaokuan, deputy director of the Copyright Society of China. "Many countries are facing the same challenges in their anti-piracy campaigns. For China, we are a later-comer in this area, and it's natural that the sense of copyright protection among the Chinese people is not that strong. Considering how much work we have done to promote the copyrights protection and to fight against piracy in the past 10 years, we already have made many achievements."

U.S. industry groups that aren't expected to support the WTO cases include the Business Software Alliance, whose members include Microsoft Corp. and Apple Inc., and the Pharmaceutical Research and Manufacturers of America, the drug industry's main trade group. Both sectors have made their own market-access and antipiracy advances and don't want to see that work disturbed, administration and industry officials said.

The cases add to a list of U.S. trade actions against China in recent months. The administration in February filed a WTO case alleging that Beijing doled out unfair subsidies to a range of Chinese industries, while last month the Commerce Department broke decades of precedent by opening the way for U.S. companies to seek higher tariffs on some Chinese paper imports found to have benefited from government subsidies.

The first case will make a number of specific complaints against China's enforcement of its own piracy laws. Current Chinese law says that in the case of counterfeit CDs, for instance, one must be caught with at least 500 to be charged with a crime. The U.S. will argue that there should be no such threshold.

The case will also argue that it should be illegal to either distribute or produce counterfeit goods. Chinese law requires one to be caught doing both before being charged.

"This case is going to be very technical, very targeted and very specific," said one industry official with knowledge of the administration's case.

The other complaint will target what the U.S. alleges to be overly restrictive rules on the distribution of foreign CDs, DVDs, books and other media products. The case won't seek to overturn the limit placed by Beijing on foreign films that are allowed to show in Chinese theaters, which is now set at 20 films a year.

DVDs of Hollywood blockbusters and CDs of the latest pop hits are readily available in shops or on streetcorners in Chinese cities. Almost all of them -- 90% or more, according to most industry estimates -- are illegal copies. The problem has also stunted the development of China's own film industry, as pirated DVDs hit the market so quickly that most films can make little money from ticket sales or legitimate DVD sales.

One reason the U.S. is also pushing its complaint about restrictions on distribution of foreign movies is that there is currently little legally available content to compete with pirated versions in China. As previously reported, studios like Fox and Warner have been trying to market legitimate DVD products in China at prices the local market can bear in an effort to wean Chinese consumers off pirated alternatives.