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NEWS ANALYSIS : China Pact Leaves Many Questions : Trade: Accord gives U.S. new assurances on access to a huge market. Clinton aides confident Beijing will adhere to terms, but lessons of past cast a shadow.

February 27, 1995|JAMES GERSTENZANG and RONE TEMPEST | TIMES STAFF WRITERS

WASHINGTON — With a last-minute agreement averting a potentially disastrous trade war with China, U.S. industries hoping to stem Chinese piracy happily faced the prospect Sunday of diving into a growing and hungry market with new assurances that they will not be ripped off.

Instead of slapping $1 billion in trade sanctions on Chinese products sold in this country, the United States will try to make billions of dollars by turning the 1.2 billion Chinese into customers for properly licensed compact discs, videos, computer software and pharmaceuticals--in short, the gamut of American inventiveness and creativity.

But even as President Clinton saluted the trade pact Sunday and his aides expressed confidence that China will adhere to its terms, the hard-learned lessons of the U.S. trade experience in Asia cast an ominous shadow.

"This is not the end. It is a beginning. Much still needs to be done," said Jack Valenti, who as president of the Motion Picture Assn. of America is a veteran of often-disappointing attempts to open foreign markets to the fruits of Hollywood. But, he said later, "I'm very confident the pledges will be fulfilled."

Greg Mastel, a trade expert at the Economic Strategy Institute in Washington, summed up the agreement this way: "It's a pretty big deal--assuming it works."

For now, the pact, which was signed in Beijing on Sunday evening, leaves many questions unanswered.

Will China continue the course it began in the final hours before the accord was reached, when it closed a massive plant in the southern city of Shenzhen that had been illegally manufacturing compact discs without paying royalties? Or will it immediately begin dragging its feet, as Japan frequently has done?

Will China punish the pirates, who are often well-connected? Will authorities in Beijing exert full control over provincial figures and powerful army officers tied to local industries making handsome profits without paying licensing fees? And will the Chinese government give U.S. entertainment companies, computer software makers and the producers of ubiquitous video games free access to its burgeoning marketplace?

Finally, what role will be played by the Chinese courts, made up of political appointees who defer to government bureaucrats? "If you pin your hopes on the judiciary as the bulwark against counterfeiting, you have chosen the weakest link," said Frankie Fook-lun Leung, a Los Angeles attorney who practiced law in Hong Kong for nine years.

"The problem isn't that the laws aren't severe enough or there aren't stiff enough penalties," said law professor William Alford, director of East Asian legal studies at Harvard University. "The problem is that the courts and judges are not well enough trained and the courts are not independent enough."

The agreement ended the threat of 100% U.S. tariffs on $1 billion worth of products China sells each year to the United States. Last year, Chinese exports to the United States totaled $37 billion.

Mastel said China's compliance with the accord will be apparent only after a considerable period of time.

"We're revolutionizing a system, and you can't do that in 90 days," he said. "We'll be able to get a fix in five years. . . . The Chinese have seen that the Japanese strategy works. I hope the United States has seen that and is prepared to prevent others from following that path."

The heart of the dispute was not whether China would offer new legal protection to the U.S. companies trying to sell their products in the emerging marketplace as Communist authorities move from central control to a market-based economy. It was whether China would enforce protections already on the books.

In recent years, Chinese government ministries began using illegally copied software in their computers. Compact discs of popular American recording artists were run off by the millions in Chinese factories and were sold on street corners for about $1 each, with no royalties for the performers or writers. Even knockoff cornflakes were sold illegally while authorities looked the other way.

One industry, the highly competitive computer-programming business, reported that 98% of the software sold in China was pirated. All told, the piracy of so-called intellectual property rights was costing American companies about $1 billion a year, the U.S. government estimated.

Under the agreement, as presented by U.S. Trade Representative Mickey Kantor, China will take new steps to enforce existing laws; monitor its borders, with the technical assistance of the U.S. Customs Service, for illegal exports; allow U.S. companies to open entertainment production facilities in the cities of Shanghai, Guangzhou and elsewhere; eliminate quota and licensing requirements; stop government ministries from using pirated computer software, and pursue trademark protections.

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