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China's WTO Compliance Gets Mixed Reviews


When China joined the World Trade Organization four years ago, Beijing promised to open its markets to foreign competition and remove barriers to trade. Since then, the Chinese government has reduced tariffs and welcomed billions of dollars in investments. However, critics say China needs better -especially when it comes to protecting intellectual property rights - to meet its WTO commitments.

International economists and trade experts say that in general China is doing a good job of implementing the commitments it made when it joined the World Trade Organization. Most tariffs have been reduced to less than 10 percent, foreign investors and companies are welcomed into the country, and Beijing has passed hundreds of laws and regulations aimed at creating a fairer, freer marketplace.

However, critics say China still falls short in areas where foreign companies have a competitive advantage - such as intellectual property rights. This has raised concerns about Beijing's political will to lower barriers to trade in areas where the benefits to China are not immediately visible.

U.S. Trade Representative Rob Portman says in China there are increasing numbers of technical barriers and opaque and unequally applied rules that obstruct foreign companies.

"One of the WTO commitments is to permit direct sales. This is an area where the United States has a dominant market share globally," said Mr. Portman. "Here in China direct sales companies have not been allowed to operate with the same business model they use all around the world."

The Chinese government says it is doing all it can to reach its WTO commitments and in fact on December 1 did loosened rules on direct sales.

China's Minister of Commerce Bo Xilai says China has already opened more than half its service industries under the WTO and says other sectors such as banking are opening on schedule. Mr. Bo says critics need to understand China's unique challenges.

"China is a big trading country in terms of quantity, but it is far from being a strong trading country. Take China's exports for example. In fact, half of China's exports are from foreign-funded companies," he said. "So, China's trading structure is very different from developed countries. As for trading volume per capita, it is even lower."

WTO compliance could be a factor in negotiations at the organization's ministerial conference in Hong Kong. From December 13 to 18, trade negotiators from around the world will gather to try to reach new agreements on liberalizing global commerce. Those countries that are seen as being out of compliance may find themselves under new pressure to follow the rules.

Pressure is growing on China to better protect intellectual property rights - in other words, copyrighted products such as movies, books and software. U.S. trade officials say Chinese copyright violations cost U.S. companies nearly four billion dollars every year. Two-thirds of the pirated goods seized by U.S. Customs come from China - including name-brand clothing, cosmetics, pharmaceuticals, and auto parts.

Charles Martin is president of the American Chamber of Commerce in China. He says the problem is some local officials protect and profit from counterfeiting.

"Over the years China has built up a fairly sizable industry around counterfeit. And, some localities are highly dependent for their employment on counterfeiting foreign goods, selling them in China and exporting. So, certainly there is a lot of pressure at the local level to keep these operations going to keep people employed," said Mr. Martin. "In other cases the enterprises doing the counterfeiting are actually owned by the local government. So, it is an official type of counterfeiting."

Beijing says it is taking the issue of pirated goods seriously. Since last year, China has increased prison sentences for copyright violations for up to seven years, arrested more than five thousand suspects and captured 12 production lines making illegal video disks. However, distribution of pirated products is still widespread and illegal disks are easily found in China.

At a store just a few blocks from the State Intellectual Property Office, thousands of pirated digital video and compact disks are on sale for about one dollar each.

When asked about the latest releases, the saleswoman pulls out a cardboard box filled with hundreds of illegal copies of Hollywood's latest films. The woman says she cannot openly display recent films or authorities will confiscate them.

But Chinese authorities rarely take action against the country's many retail stores selling fake goods.

Experts say one reason is the difficulty in prosecuting offenses.

Zhang Naigen is a professor of law at Fudan University. He says proving damages for copyright infringement is difficult. "So far we have no such kind of clear rules regarding such kind of procedures," he said. "We should make procedure law in detail, not just in judicial interpretation."

U.S. officials say China has pledged to make the legal changes needed to protect copyright goods. On a recent visit to Beijing, U.S. Secretary of State Condoleezza Rice said she has seen a significant change in attitude about intellectual property.

"They went to great lengths to talk about prosecutions, about some potential organization changes that they might make inside the country to make it easier to prosecute cases of piracy," said Ms. Rice.

Secretary Rice, and many trade experts say that Chinese officials realize that protecting copyrights will be good for their economy. As China grows, the experts say, its entrepreneurs and designers will start to compete internationally, and they will want to make sure their products are not illegally copied.

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