The Magazine

The China Trade

Membership in the World Trade Organization won't liberalize Beijing unless America insists on compliance with the rules

Mar 6, 2000, Vol. 5, No. 24 • By GREG MASTEL
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The fight over the permanent extension of most-favored-nation trading status to China is likely to be one of the hardest- fought congressional battles of 2000. Last week, the administration launched a high-profile campaign in favor of MFN for China; labor is vigorously countering. But for all the lofty rhetoric, at its core, the issue is the prosaic one of the merits of the agreement negotiated between Washington and Beijing last November, setting out the terms for China's accession to the World Trade Organization.

If this agreement is sound and enforceable, it is likely to encourage reform in China and vindicate a policy of engagement. If it is faulty or simply unenforceable, it is unlikely to spur positive change. Thus, before election-year bombast swamps the discussion, it is important to reach a sober evaluation of the proposed agreement and of China's record of compliance with recent trade deals.

P The WTO Accession Agreement. Trade agreements are by nature compromises, and this one is no exception. Unquestionably, some provisions could be improved. Chinese tariffs could be lowered beyond the 17 percent Beijing has agreed to. Foreign telecommunications firms and banks could be granted more leeway to operate in China. Subsequent negotiations between China and other WTO members may improve the terms on these and other issues.

On paper, however, the November deal has quite a lot to recommend it. China does agree to significant tariff cuts. It promises substantial new market access for agricultural products. And it assures U.S. banks and insurance firms considerably increased access to Chinese consumers.

Already, however, Chinese press reports indicate that Beijing may not plan to fulfill the agricultural provisions of the agreement. It is a familiar song. An examination of the four recent major trade deals the United States has struck with China shows that compliance is a chronic problem.

P Intellectual Property, 1992. One of the best-known agreements between the United States and China aims to protect patented, copyrighted, and trademarked material. The United States has sought improvement in this area from China for many years. After threatening sanctions, the Bush administration convinced China to undertake a sweeping update of its laws, which brought China's intellectual property protection regime largely into conformity with Western norms.

But these legal changes had little discernible effect. Chinese piracy of music recordings, computer programs, and films grew at an alarming rate at least through the mid-1990s. Movies and computer programs made by Chinese pirates turned up as far away as Canada and Eastern Europe.

After trying to address matters through quiet consultations, the Clinton administration threatened to impose trade sanctions in 1995. As the deadline approached, China agreed to step up enforcement. A year later, however, little had improved. Once again, the Clinton administration threatened sanctions. After much complaint, the Chinese agreed to a far more specific enforcement regime.

Under consistent pressure from the United States, China has regularly produced records of pirate operations it has shut down and invited the press to watch steamrollers crush pirated CDs. Although these actions show some effort to attack piracy, they also prove that it continues. Despite the limited success of American efforts, the affected U.S. industries estimate that their losses to piracy today are greater than they were when the subject of enforcement was raised in 1995.

Two points relating to enforcement warrant further attention.

It is perfectly clear that the families of leading Chinese officials, provincial leaders, and even the Chinese military have been involved in the piracy of intellectual property. Pirates reportedly set up facilities to make illegal CDs, for example, on People's Liberation Army bases, as a means of evading internal security police charged with shutting down pirate operations. The theft of intellectual property, in other words, has not been solely the province of street level criminals. Elements of the Chinese government have participated.

Second, according to firsthand reports, government ministries routinely illegally copy computer software for their use. Chinese officials promised to address this matter in 1995, 1996, and March 1999. The persistence of illegal copying by government ministries calls into question the sincerity of China's commitment to protect intellectual property.