MAY 15, 1996
The Clinton Administration has announced it is taking a tough new line in a long-standing dispute with China. At issue is alleged piracy of American intellectual property. The U.S. has targeted $3 billion worth of Chinese goods for retalitory tariffs: $750 million in silk clothing; $1.2 billion in cotton and wool textiles and other clothing; $500 million in consumer electronics; and $500 million in other consumer goods. The Chinese government has countered with a list of American goods on which they will slap protective tariffs. Paul Solman begins the discussion with acting U.S. Trade Representative Charlene Barshefsky, and Charlayne Hunter-Gault gets the Chinese perspective from the Ambassador to the People's Republic of China to Washington.
PAUL SOLMAN: We hear first from the American side. Charlene Barshefsky is the acting U.S. Trade Representative. She's overseen U.S. trade negotiations with China for the past three years. Amb. Barshefsky, welcome. What's the dispute at the moment?
CHARLENE BARSHEFSKY, Acting U.S. Trade Representative: (Washington) The dispute at the moment is the failure by China adequately to enforce the intellectual property rights agreement that we reached with the Chinese government 14 months ago. The agreement calls for very specific actions to be taken on the part of the Chinese with respect to the closure of CD factories that are pirating our books, our software, our music, and our films. The agreement called on China to enforce at the border stringent rules against the exportation of pirated products.
PAUL SOLMAN: From those factories?
MS. BARSHEFSKY: From those factories.
MS. BARSHEFSKY: The agreement called for special enforcement efforts in Kwangtung Province, which is a center of piracy in China, and it called for market access for U.S. companies of legitimate copyrighted product. Those four sets of obligations have not been fully implemented by the Chinese, and that is a reason we have announced a preliminary list that we did today.
PAUL SOLMAN: What exactly do you want the Chinese to do? I mean, what would satisfy you at this point? Would they need to close down these factories. More inspectors in them, what?
MS. BARSHEFSKY: The Chinese need to clean up the piracy. That can involve, for example, legitimizing the factories by entering into joint venture licensing royalty arrangements. It can involve inspectors in the factories who can report to the central government, and to us, that the production in those factories has been properly approved by the copyright holders. It can also include closing the factories that continue to pirate. And by closure, I mean, as specified in the agreement, the revocation of their business licenses so that they can no longer legally operate in China, as well as the destruction of pirated goods and the destruction of the equipment used predominantly to make those pirated goods.
PAUL SOLMAN: Now, the Chinese said today that they are going to clamp down on audio-visual piracy -- that's according to Reuters, at least as I read it. Will that be enough? Have they made the right move now?
MS. BARSHEFSKY: We'll have to see what they mean by "clamp down." The issue here is not promises by the Chinese. We have a very excellent agreement in place, the negotiation of which took almost 18 months. The issue here is action by the Chinese to demonstrate that it will implement the promises that it has made.
PAUL SOLMAN: Now is this a trade war? Commentators are calling it that. You're slapping protective tariffs on, they threaten, or you're threatening to, they threaten to slap protective tariffs on. Is that a trade war, would you say?
MS. BARSHEFSKY: This is not a trade war. This is a situation where the United States's goal is to secure implementation of the agreement that was negotiated. The goal is to see this massive piracy, the export of pirated product, cease from China. That is the goal.
PAUL SOLMAN: But this--
MS. BARSHEFSKY: In the interim, before that goal is reached, we will protect our economic interest. As the President has said many times, the United States will enforce the trade agreements it enters into. This is one such enforcement action, but I don't think it's productive to talk about trade wars. What is productive, what would be productive, is for China to come into compliance with the agreement.
PAUL SOLMAN: Now this is sort of--or at least I've heard commentators say that--this is a sort of a lose- lose situation, i.e., you threaten, they threaten, and eventually you can have tariffs on all kinds of products, retardation, world trade, and so forth. Is it a lose-lose situation? And if so, why this approach? I mean, is it you just have anything else you can really use as sanctions?
MS. BARSHEFSKY: We have been negotiating on intellectual property rights issues with China for over 22 months. We have had 44 separate negotiations and consultations with the Chinese, and since the agreement was signed 14 months ago, we've been to China eight times, and we have had over 30 consultative sessions with China. Piracy is difficult to stamp out. It is a very lucrative business. That's one of the difficulties involved here. A second difficulty involved is that there are indications that there is some government involvement with respect to some of these factories.
PAUL SOLMAN: Government involvement meaning what?
MS. BARSHEFSKY: Chinese government involvement in some of the factories.
PAUL SOLMAN: You mean owning them or--
MS. BARSHEFSKY: Participation. But we also know that when China wants to move to close these factories, it can, and the most pointed example of that was the recent suspension of production at seven CD factories for reasons of hard core pornography. When the Chinese government decides it wants to act, it is fully capable of doing so and can do so expeditiously. This is not a lose-lose situation. It's in China's interest to enforce intellectual property rights. That's why they made this agreement to begin with. It is in the U.S. interest to ensure that its commercial and economic interests are also protected. This is potentially a win-win situation. The issue simply is one of full implementation of its commitments.
PAUL SOLMAN: No. I meant lose-lose if it continues to escalate or actually happens. Is it true that--and it is true, I gather--that American consumers will be hurt by protective tariffs on Chinese goods. I mean, we've got a list here today that imports of audio-visual products--this was Reuters again--such as movies, television programs, videotapes, will be suspended, China said, 100 percent tariffs on vehicles and spare parts, frozen beef ginseng, telecommunications, camera, films, I mean, that will hurt American consumers in terms of higher prices now.
MS. BARSHEFSKY: Uh, the list that China put out today is very much in keeping with lists that it has previously published when we've been in situations such as this. The products are not well defined. The scope of the threatened action is not well-defined, and in addition, as last year and the year before when similar actions took place, there are a number of products on the list that the U.S. does not export to China.
PAUL SOLMAN: But I really misspoke myself, I guess. You're going to put tariffs on their goods, on Chinese goods coming in, and that at the very least will raise prices in America, won't it, and hurt the American consumer?
MS. BARSHEFSKY: We don't, we don't think so. We had two goals in putting together the lists that we did. The first was to create the maximum incentive for China to come in compliance with the agreement. The list is, therefore, heavily weighted toward textiles and apparel, where most of the production is located in Gwandang Province, which is the chief pirater, where China's exports to the U.S. are very critical, and where the U.S. has ample sources of alternative supply. The second goal was, in fact, to minimize the impact on the U.S. economy. Every product on the list, except for silk, is also made in the United States. And every product on the list, even including silk, are available from alternative suppliers worldwide.
PAUL SOLMAN: At higher prices. I mean, presumably we buy from China because the prices are lower, the quality is better, or both, and so therefore we have to be hurt as consumers if you're going to put protective tariffs on them.
MS. BARSHEFSKY: I'll give you an interesting fact, which actually surprised me as well. On average, textile prices per dozen in China are about $55. That's on average excluding silk which, as you know, is quite high priced. On average, textile prices in the Caribbean range from $28 to about $38 per dozen.
PAUL SOLMAN: Per dozen what?
MS. BARSHEFSKY: Per dozen unit of garments.
PAUL SOLMAN: You mean just same basic unit of garment that's used?
MS. BARSHEFSKY: Yeah. Well, I'm using the same measure--
PAUL SOLMAN: Okay.
MS. BARSHEFSKY: For both countries.
PAUL SOLMAN: T-shirts or whatever it is.
MS. BARSHEFSKY: Likewise, per dozen average prices out of Mexico are substantially lower than China. China's textile industry is, in fact, less competitive than the industries in the Caribbean, in Mexico, in other countries, and in parts of the United States. That's--if I may say--that's a function in part of extraordinary inefficiency in the Chinese industry and some very poor state planning positions.
PAUL SOLMAN: Well, we'd have to get into an economics discussion about why we were then buying Chinese products. But let's get to the last question here. I thought the administration wanted to be very careful not to isolate China, they--we want to continue Most Favored Nation status for them, for example. Aren't you afraid that we're doing exactly the opposite of what we as a country seem to want to do economically with respect to China? Well, that's the question.
MS. BARSHEFSKY: All right. The U.S. policy with respect to China is one of full engagement. It is not in the U.S. interest, emphatically not in the U.S. interest, to isolate China and, indeed, it would be completely impossible to do so. Our strategy has been one of engagement. But, our strategy is also that in the text of that engagement. Where there are particular problems, we must act to address those problems, hopefully, as we have tried in this case, in a non-confrontational way, but where necessary-- where necessary--to absolutely protect our economic interests, and as the president said, to protect American jobs. That is what we're doing here. It does not do the U.S. or the world community any good to allow countries to flunk their trade agreements, to not implement their promises. We would lose the constituency for free and open trade in this country if this administration, or any administration, allowed countries to fail to implement the promises they've made to the United States.
PAUL SOLMAN: Okay. Well, thank you very much. Amb. Barshefsky.
MS. BARSHEFSKY: Thank you very much.