U.S., China OK deal to prevent pirating Accord aimed at theft of American-made software, music, films

Sanctions averted

Pact gives Hollywood opportunity to sell Beijing more movies

June 18, 1996|By Ian Johnson | Ian Johnson,SUN FOREIGN STAFF

BEIJING -- Eight hours after the United States and China were to engage in the biggest trade war in their history, they struck a deal yesterday to prevent pirating of American-made software, music and movies.

The agreement also gives Hollywood the chance to sell more movies in China and make co-productions with Chinese studios. Previously, China set a limit of 10 U.S. films it would import each year, but had not allowed co-productions with major U.S. studios.

President Clinton described the pact as a "good agreement" that would protect U.S. intellectual property rights and avert retaliatory trade sanctions that were set to take effect yesterday.

The agreement came 16 months after a similar last-minute deal was struck that also averted a trade war. The earlier agreement was largely ignored by China, leading to the continued theft of U.S. intellectual property rights and sharp limits on U.S. entertainment in China.

U.S. negotiators claimed that this time around their agreement has teeth and that the pirating, which has cost U.S. companies billions of dollars, would decline.

"Three years ago, intellectual property rights was an abstract concept. The 1995 agreement laid the foundation, and this animates that agreement," Acting U.S. Trade Representative Charlene Barshefsky said.

The agreement is remarkable because it spells out in minute detail how China should enforce its own laws, which already protect intellectual property rights, trademarks and copyrights.

Under U.S. pressure, Chinese police closed 15 compact disc factories, which had produced 30 million to 50 million CDs a year. Significantly, 12 of the factories were in the freewheeling southern Guangdong province, where one factory that was closed was previously said to be in such a rough town that it was off-limits to Chinese police. Three of the 15 factories were underground facilities.

In closing the factories, China revoked their business licenses, seized machines and destroyed molds -- all at U.S. request. At least 70 people have been prosecuted, Barshefsky said. Part of the delay in reaching the deal, she said, was verifying the closings.

China also agreed to halt the importation of pressing machines, and Washington has asked European countries to stop exporting such equipment to China.

China said it would set up two-person teams to monitor approved factories 24 hours a day. Audited production records are to be kept that will be open to inspection by U.S. officials.

The deal specifies that some of the enforcement will be given to China's notorious Public Security Bureau, which has broad powers to detain and arrest people. This takes responsibility away from largely powerless culture ministry inspectors, who can fine people but not arrest them.

Border guards are to guarantee that CDs are not exported. China's annual demand for CDs is about 8 million, but its factories produce up to 150 million, so many of the discs end up in other Asian countries, such as Hong Kong, Taiwan, Japan and Thailand, where the standard of living is high enough that consumers might otherwise pay full price.

"To be quite frank, the numbers remain far too small in terms of the problems," Barshefsky said of the 80,000 pirated products seized by Chinese customs agents in recent weeks. But she said the involvement of customs agents was a good sign.

Anti-crime campaign

Another key part of the accord is that China agrees to keep up pressure on pirates at least until August, or until the pirating is significantly reduced. China is in the midst of a massive anti-crime campaign, in which there have been 650 executions, and U.S. officials did not want pressure to ease when that campaign ends.

The new agreement means the United States will not impose $2 billion in sanctions, which China had said it would match tit-for-tat. The result would have meant higher clothes and toy prices for U.S. consumers, and Chinese consumers would have paid more for Kodak film and Motorola cellular phones.

U.S. companies also likely would have been frozen out of Chinese government plans, for example, to build new automobile factories or power plants.

The sanctions were to have gone into effect midnight Sunday, Washington time. The deal was announced at 8 a.m. yesterday Washington time -- eight hours after the deadline -- but the sanctions had not yet been enforced.

China officially welcomed the agreement, saying that it would help modernize the Chinese economy.

Although the focus of the negotiations was on losses suffered by U.S. firms, Chinese companies also are starting to suffer from pirating. Local music band and software producers, for example, regularly see bootleg versions of their products sold.

Agreement reported on TV

Television programming was interrupted last night to bring news of the agreement. China used the occasion to offer a little sermon to the United States, saying that negotiations rather than threats were the way to solve disputes.

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