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Trade war? Not yet

But tension between the U.S. and China may finally push Beijing to live up to its WTO commitments.

April 18, 2007

CHINA'S FITFUL transition from communism to something approaching a market economy presents unique challenges to both the Chinese and their trading partners. When U.S.-China tensions flare -- as they have recently -- Washington and Beijing should keep their eyes on the long-term prize: lower trade barriers and a mutual adherence to international rules.

The U.S. has filed three complaints about China in recent months with the World Trade Organization -- two on intellectual property rights and one on export subsidies. They're not the first since China gained admission to the WTO in 2001, but they're the most serious. The U.S. has also slapped punitive tariffs on Chinese coated paper.

These moves needn't start a trade war, if handled sensitively. But they are giving urgency to discussions that have dragged on for years and may push Beijing to fulfill commitments it made when joining the WTO.

The volley started in February, when the U.S. trade representative made a formal complaint about Chinese tax breaks that effectively subsidize exports and encourage locals to buy domestic goods. Such finger-on-the-scales tactics are forbidden by global trade treaties.

Then, on April 9, the U.S. brought two intellectual property rights cases to the WTO. One dealt with limits China places on copyrighted works from the U.S., including books, music and movies; the other concerned its ineffective enforcement of anti-piracy laws. Despite some progress, pirated goods overwhelm legitimate ones in China because the government makes it hard for authorized U.S. content to reach the market while making it easy for pirates to stay in business.

Better enforcement of intellectual property rights and liberalized foreign investment rules for copyright-intensive ventures would do more than aid U.S. firms. As Chinese manufacturers shift from mimicking to innovating, they need protection for their own creations too.

The future is in projects like Intel Corp.'s plan to build a $2.5-billion chip-making plant in northeast China. This is a huge win for China, given the number and quality of jobs, and for Intel, which lowers costs and gains presence in a major market.

The movie, music and publishing industries would like to start their own Chinese manufacturing and distribution businesses too, but they've been held at bay by Beijing. China's policies haven't stopped its citizens from consuming American movies and music, they've just diverted the revenue from the studios to pirates.

The ultimate losers aren't just U.S. companies but Chinese citizens and their government. Chinese officials have to start living up to their commitments under the WTO.

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