Same Old Same Old

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The White House official was jubilant: “The Chinese have promised to close down all the counterfeit DVD factories. And this time they really mean it!” I was chatting with the official in Hong Kong where she had landed on her way back to Washington from talks in Beijing. She was convinced that after years of foot dragging and bureaucratic obfuscation, China would finally act to stop rampant pirating of Hollywood movies that the industry said (with Hollywood styler hyperbole assuming that Chinese would buy the same number of DVDs if the price was $20 instead of $1) was costing it hundreds of millions of dollars a year. I was skeptical, to put it mildly, having seen the Chinese make such promises numerous times before.

On balance, I think it’s fair to say I was right. That conversation took place in the spring of 1997 and a decade later nothing much seems to have changed. On April 9th, the United States filed two suits against China in the World Trade Organization seeking redress from the world trade dispute arbiter for what Washington says are rampant copyright violations. The U.S. also alleged that Beijing’s requirement that books, videos and music must be imported through government middlemen is a barrier to entry.

A lot of journalists and commentators have painted the move as the opening salvo in a potential trade war, particularly considering that the WTO cases follow the announcement on March 30 that the U.S. intended to impose penalty tariffs on some Chinese paper products which it said were subsidized. I may be jaundiced by having watched this shadow play for too long, but I think that’s nonsense. In reality, this move is yet another tactical gambit in an relationship grown so large –two way trade will approach $300 billion this year– and so complex that a certain amount of bickering is inevitable—even expected. The U.S. action had been anticipated for so long in Beijing, after all, that China made its counter move before the U.S. decision was made public, pointedly announcing the previous week that it was tightening rules governing prosecution of counterfeiting cases and increasing penalties for convicted violators to up to seven years in prison.

Domestic political concerns –rather than the good of U.S. corporations operating in China– also appear to have played an important role in the decision to act. The filing of the WTO cases was announced by President George W. Bush’s chief trade negotiator Susan Schwab just as the Democratic controlled congress was due to consider whether to extend the President’s so-called “fast track” authority, which grants the executive the right to negotiate trade deals with minimal interference from the legislative branch. Faced by growing protectionist sentiment in Congress, the White House needed to be seen to be doing something about
the country with which it ran a trade deficit of some $232 billion last year—even though the move doesn’t have full agreement of those American corporations affected by it. Companies producing digital entertainment such as movies, music and games back the decision. But others in areas less directly affected by counterfeiting such as human resources software, databases, supply chain management and the like fear that the White House move could risk a push back by China.

The U.S., Europe, Canada all sue each other in the WTO over trade infringements. China may not like the process but will have to get used to it. As the eminently reasonable Bob Poole of the U.S. China Business Council points out, that’s what the WTO is there for, a unbiased, non-political place to settle dispute when dialogue fails. “We have had lots of uncomfortable trade disputes over the last 20 years,” Bob adds. “But American consumers are still buying, the Chinese are still selling and U.S. companies are still manufacturing here. It’s very tough to start a trade war when so many interests on both sides of the relationship are benefiting.”

That’s not to say it could never happen: given domestic politics anything is possible. But not this time.