China and US avert sanctions over pirating

China and the United States last night backed away again from damaging tit-for-tat trade sanctions with an eleventh hour deal in which Peking repeated earlier promises to do more to enforce intellectual property rights (IPR) protection on the mainland.

Charlene Barshefsky, acting US Trade Representative, said the US$2bn of tariff hikes that were due to take effect yesterday would not be implemented because China had taken "serious and important steps" in recent weeks.

The threat of sanctions was again used to encourage China to enforce the IPR agreement that Ms Barshefsky secured in brinkmanship negotiations in February last year, also under the threat of a tariff war. Sixteen months ago, when China agreed to factory closures and crackdowns, Ms Barshefsky warned that "enforcement" was the crux. Yesterday, after outlining Peking's new commitments, she added: "Over the long term, the real test of the agreement lies in the strength of the underlying enforcement regime."

As Ms Barshefsky said last night, IPR protection is a complex and long- term process. Although few analysts believe China will stick to the letter of all its latest commitments, each stand-off with the Americans is seen as producing incremental gains. Ms Barshefsky described her meetings yesterday with President Jiang Zemin and vice prime minister, Li Lanqing, as "constructive and positive in tone".

Among measures taken in recent weeks, or agreed during the past few days of negotiations, China has closed 15 factories producing pirated CDs, including 12 in the southern province of Guangdong, where most of the pirated goods are produced. For the first time, the factories' business licences were revoked and production line equipment removed and CD moulds destroyed.

New Chinese regulations have now banned the establishment of any new CD plants, and prohibited the import of CD presses into the mainland. Six "notorious" CD distrubtion markets in Guangdong have been closed, and more than 5,000 "laser disc showing rooms" had been shut down, said Ms Barshefsky.

The US copyright industries claim that pirating of CDs, CD-Roms, computer software and laser discs cost them US$2.3bn last year in lost sales. In total more than 30 factories, many with local government backing, have been churning out tens of millions of pirated CD units, despite last year's IPR pact. Ms Barshefsky said it had only been in the past three or four months that the US had learned of an unknown number of "underground" factories also producing pirated goods.

Better verification and monitoring procedures were now in place, including "an extraordinary web of people on the ground", said Ms Barshefsky, when asked why she expected this year's closures to be any more permanent than last year's. Several big offending enterprises were closed down in February 1995, only to re-open a few months later still producing pirated goods.

China has now promised to station inspectors in all the Guangdong factories 24 hours a day. Any CDs without identifying codes will be deemed illegal, and the inspectors will have to check that there is permission to produce the CDs.