US and China gear up for trade war

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The Independent Online
The United States and China are on the verge of a damaging trade war following the collapse of negotiations in Peking over the protection of intellectual property rights.

The two sides are now positioned for a week of brinkmanship ahead of Saturday's deadline, when the US has said it will impose massive sanctions against China. Peking has promised that it will retaliate in kind.

"Watch our actions," Mickey Kantor, representative for trade negotiations, declared when asked by reporters if the Administration was bluffing. "We are willing to impose sanctions. We want a detailed accord that addresses the problems." He said the Administration would slap tariffs of up to 100 per cent on a range of Chinese exports within days of the 4 February deadline, under the so-called "Super 301" law, permitting retaliatory measures to counter discrimination against US goods abroad.

A Chinese spokesman yesterday reiterated Peking's position. "Any retaliatory trade measures against China will be met by counter-retaliatory ones," he said. Peking has already said this would include breaking off negotiations with US companies seeking toset up car, chemical and pharmaceutical operations in China. In addition, it plans to block imports of American films and television programmes and to impose 100 per cent tariffs on US goods including cigarettes, alcohol and cosmetics.

Washington's grievance is against Chinese pirating and copying of US films, computer software and music, and wholesale phoney labelling of Chinese products as originating in the US, a practice costing US manufacturers $1bn (£640m) a year. China has reportedly refused to shut 29 factories in the south of the country which produce 70 million compact discs and other illegally copied US products. According to Mr Kantor, American negotiators were offered stolen American software packages, worth $10,000, for $100 on the streets of Peking. In the past, Washington has failed to follow through similar threats against China, fearful of being excluded from one of the biggest and fastest-growing markets in the world.

Despite much complaining about Chinese human-rights abuses, President Bill Clinton has twice backed down on threats not to renew Peking's Most Favoured Nation status, partly for the same reason.

But this new breakdown comes when the US trade deficit with China is running at over $25bn a year, second only to the $60bn shortfall with Japan.

China blames Washington for the impasse. "In the talks, the China side exerted its greatest efforts and displayed great flexibility, enabling the talks to make constructive progress," the People's Daily said. "But because the US side put forward one demand after another, raising issues far beyond the scope of the intellectual property rights, the talks were not resolved successfully."

The break-up of the trade talks will further hit regional Asian stock exchanges, already battered by the Kobe earthquake, fears about Deng Xiaoping's health, and worries about US interest rates.

In the past, key US-China trade negotiations have achieved eleventh-hour breakthroughs. This time the situation is complicated by the Chinese New Year holiday, starting tonight, during which the country virtually shuts down for a week. Mr Kantor said he had invited the Chinese delegation to Washington for last-ditch talks before Saturday, but last night it was not known if Peking had accepted, or if negotiations might be resumed at a higher level.

The cost of a trade war would be huge. "If there is no agreement by 4 February, I will authorise publication of a final list of Chinese imports that will be subject to 100-per-cent tariffs, with a value from $1bn to well over $2bn," Mr Kantor said. The tariffs would take effect within days.

The Deng death-watch, page 15

Market nerves, page 24