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U.S. and China Avert Trade War Over Copyrights : Diplomacy: Under the new agreement, China promises to provide legal protections for American patents.


WASHINGTON — The United States and China settled an eight-month dispute Thursday night over the pirating of American copyrights and patents, thereby averting what had threatened to become an all-out trade war.

Under the agreement, which will be signed today by U.S. Trade Representative Carla Anderson Hills, China promised to provide new legal protection for American computer software, drug and chemical patents and sound recordings.

In addition, in a significant concession, China agreed not only to provide protection for newly patented products but also to recognize existing patents on drug and agricultural chemical products. And Chinese officials promised to make sure that its new copyright and patent rules would be enforced, both inside China and at its borders.

Until now, China has provided virtually no protection in these areas. U.S. businesses have estimated that they lose more than $400 million annually to Chinese copyright violations.

Joseph Massey, the assistant U.S. trade representative for Japan and China, who led the U.S. negotiating team, told Congress that the Chinese are the world's "principal laggards and principal (patent) pirates, particularly of computer software, pharmaceuticals and chemicals."

Some industry spokesmen quickly praised the new pact.

"The path is now cleared for the development of the software industry in the People's Republic of China," said Robert Holleyman, director of the Business Software Alliance, a computer-industry trade group.

The Bush Administration threatened last November to impose new tariffs of up to 100% on goods from China in retaliation for their refusal to honor and enforce patent rights.

The sanctions would have meant higher prices--and probably, as a result, reduced sales--for about $1.5 billion worth of Chinese products sold in this country. Among the products that could have been affected were Tsingtao beer and Chinese-made shoes, clothes, jewelry and electronics.

However, some U.S. companies--particularly retail stores that sell low-cost Chinese goods and manufacturers that rely heavily on components made in China--might have lost money if the Bush Administration had imposed trade sanctions against Beijing.

Chinese authorities had warned last week that if the United States went forward with these trade sanctions, China might retaliate by hiking the tariffs on American planes, corn, steel and other products that are exported to China.

Bush Administration officials insisted that any Chinese retaliation would be counterproductive, since the United States could respond with additional duties of its own. China has a trade surplus of about $13 billion a year with the United States, larger than any other country except Japan.

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