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Taking a Harder Line on Piracy
After Six Years of Talk and Little Action, The U.S. Toughens Its Stance on China

By Lori Montgomery and Ariana Eunjung Cha
Washington Post Staff Writers
Tuesday, April 10, 2007

The Bush administration fired another salvo in its campaign against Chinese trade practices yesterday, announcing suits to force Beijing to crack down on rampant counterfeiting and drop restrictions on the distribution of American music, movies and books.

U.S. Trade Representative Susan C. Schwab said the United States will file two formal complaints today against China at the World Trade Organization in Geneva.

The first accuses China of setting "excessively high thresholds for launching criminal prosecutions" against the makers and distributors of pirated products, such as DVDs of American movies and the humble Zippo lighter.

The second challenges China's insistence that some of the counterfeiters' chief targets -- books, movies, music and computer software -- be handled solely by state-owned importers, a policy that can delay distribution of legitimate material and create an opening for pirates, Schwab said.

"This is more than a handbag here or logo item there; it is often theft on a grand scale," Schwab said. "It is not fair, and we must thwart the pirates and counterfeiters who are responsible."

The new cases mark the third trade action this year by the United States against China, a sign that the Bush administration is getting tough after six years of talk and conciliation, analysts said. Last month, the administration said it would impose tariffs on imports of glossy paper from China to combat Chinese government subsidies. And in February, Schwab announced another WTO case charging China with providing illegal incentives to Chinese manufacturers to export their products.

All three moves follow long-standing frustration with Chinese policies. But analysts said the actions may also be intended to defuse mounting political pressure on Capitol Hill to reverse a growing trade deficit with China, which last year hit a record $232.5 billion, according to U.S. figures. Lawmakers contend that China keeps its currency, the yuan, deliberately undervalued to boost exports. They have also complained about China's widespread piracy of copyrighted U.S. goods and have threatened to slap huge tariffs on Chinese products in an effort to protect American jobs.

"The timing is clearly [designed] to tell the Congress especially, but also to tell the Chinese: 'We're going to thump you as a way of trying to head off congressional legislation. Our cases are reasonable, and you ought to respond to them because, if you don't, you'll make it easier for very strong legislation to pass,' " said Gary Hufbauer, a senior fellow at the Peter G. Peterson Institute for International Economics.

Sen. Charles E. Schumer (D-N.Y.), a leader in the effort to force China to revalue its currency, hailed the WTO cases yesterday. "I hope this is just the beginning of a much stronger administration stance on China's nonstop violation of free-trade rules," he said in a statement.

Sen. Charles E. Grassley of Iowa, the senior Republican on the Finance Committee, also welcomed the news. "When China continues to refuse to play by the rules, then we need to take strong action, like we're doing today," he said in a statement.

Schwab said the cases "should not be viewed as hostile actions against China," adding that they follow lengthy negotiations and represent "the normal way for mature trading partners" to resolve their differences.

"There is no trade war, per se, between China and the United States," she said.

But trade analysts were less sanguine. Reaction from China, where officials yesterday offered no response to the new WTO action, has so far been muted. But Song Hong, head of international trade research at the Chinese Academy of Social Sciences in Beijing, said he worries that a few more jabs from Washington could trigger angry retaliation.

That, he said, "would be a terrible thing. It would not be good for China, not good for the U.S.A., not good for the world economy."

Song noted that the Chinese government has taken several steps to protect intellectual property rights. This month, China's Supreme People's Court introduced harsher penalties for vendors selling pirated DVDs. The new law lowers the threshold for criminal prosecution from 1,000 pirated items to 500. Individuals who make more than 2,500 pirated copies of music, software or movies could face up to seven years in jail.

"I really don't know what more the Chinese government can do," Song said.

Despite repeated crackdowns, pirated movies, music and software are sold openly and widely in China. Leonardo DiCaprio and Matt Damon's "The Departed" goes for about $1, while the Microsoft Office suite can be had for as little as $3. Some items are sold on major streets in ordinary-looking shops bearing big signs that say "DVD," operations so slick they offer receipts. Smaller vendors hawk DVDs out of suitcases or boxes near subway stations and public bathrooms.

The Chinese government has run periodic campaigns to try to halt the trade, which has been going on for decades.

Over the weekend, one of Shanghai's largest vendors of pirated U.S. DVDs cleared out its downtown store and reopened in another neighborhood, advertising legitimate Chinese movies and music.

Through a red door in the back, however, a different set of goods was still available: thousands of pirated American titles.

Ariana Eunjung Cha reported from Shanghai.

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