U.S. Plans WTO Case Against China on Movies, Books (Update7)

By Mark Drajem and Li Yanping

April 6 (Bloomberg) -- The U.S. may file a complaint at the World Trade Organization as early as next week over what it calls China's piracy of copyrighted movies and books, according to four people briefed by the Bush administration.

Officials have prepared two cases, one saying China sets too high a value on pirated movie or music disks before prosecuting violators, and another objecting to restrictions on the sale of foreign books and movies in the nation, they said. The people, three industry officials and one lawyer, spoke on condition they not be identified.

China's illegal copying of movies, music and software cost companies $2.2 billion in 2006 sales, according to an estimate by lobby groups representing Microsoft Corp., Walt Disney Co., and Vivendi SA. The WTO complaints are the first by the U.S. against China for breaching intellectual property rights, in a country where copying has extended to bags, golf clubs and even shampoo.

``The U.S. believes that now it's time to put more pressure'' on China, five years after the country became a WTO member, said Standard Chartered Plc's economist Stephen Green in Shanghai. ``The U.S. believes that China has clearly infringed rules that it agreed to play by,'' prompting the action, he said.

China's 2006 trade surplus against the U.S. widened to a record $232.5 billion, prompting U.S. lawmakers including Michigan Democrat Sander Levin and Pennsylvania Republican Phil English to blame the gap on the yuan's value and China's piracy of copyrighted and patented goods.

`Competitive Advantage'

In a letter to President George W. Bush in October, House Speaker Nancy Pelosi and other lawmakers said that ``no country in the world has done more to undermine American intellectual property than China.''

Bush administration officials and industry lobbyists were still debating the specifics of the U.S. complaints case late yesterday. The administration may still adjust or delay the complaints to account for new announcements from China. Twice in the past year, the U.S. was poised to file a complaint only to delay at the last moment.

Wang Xinpei, a spokesman for China's commerce ministry in Beijing, couldn't be reached to comment on the U.S. plan to file the WTO complaint. Sean Spicer, a spokesman for the U.S. Trade Representative's office in Washington D.C., declined to comment.

U.S. complaints were imminent, Trade Representative Susan Schwab said on Feb. 22.

`Run Out of Patience'

``We're all going to run out of patience at some point, and that's going to be sooner rather than later,'' she said.

Last week, the Bush administration decided to levy duties on imports of coated paper from China to compensate for Chinese subsidies to exporters.

Under WTO procedures, the U.S. will formally ask for consultations with China when it files its complaints. Only after 60 days can the U.S. ask for an independent panel to adjudicate the dispute.

``China has continued to demonstrate little success in actually enforcing its laws and regulations in the face of the challenges created by widespread counterfeiting, piracy and other forms of infringement,'' the U.S. trade office said in a report this week. ``One major factor is China's chronic underutilization of deterrent criminal remedies.''

The U.S. plan may not escalate into a formal complaint, said Li Yushi, deputy director of the Chinese commerce ministry's research institute.

Limitations

``This is just another turn of focus by the U.S. government in dealing with its widening trade deficit with China,'' Li said today in Beijing. ``The administration understands that China has made efforts in IPR protection, as well as our limitations in enforcing the effort.''

Pirated DVDs including Time Warner Inc.'s Academy Award- winning movie ``The Departed'' still sell for less than $1 on the streets of Chinese cities including Beijing and Shanghai.

``It's all about the economics of movies,'' said Liu Ping, who sells pirated DVDs including ``The Departed'' and Warner's ``300'' for as little as 5 yuan (65 U.S. cents) at the Wangfujing subway station in Beijing. ``No one wants to pay 60 yuan for a movie when they can watch a DVD for 5 yuan.''

A reason for piracy could be the limits placed on U.S. publishers and movie companies. Overseas publishers are only allowed to sell non-Chinese books, magazines and newspapers through five-star hotels while movie studios can only show a limited number of overseas films every year in China.

`Powerful Tool'

``IPR is critical to the U.S. because it is a tool by which it can control technology and industries around the world,'' said Guan Anping, managing partner of Beijing-based corporate law firm Anping & Partners. ``It's a powerful tool to control nations like China, which are dependent on low-cost manufacturing.''

``I hope the WTO would be objective in reviewing this case,'' Guan said.

China this week announced a crackdown on hawkers of counterfeit goods and halved the criminal thresholds for prosecuting pirates. Possession of 500 pirated DVDs, rather than 1,000, would lead to criminal prosecution, the Supreme People's Court said yesterday, according to a notice issued by the Chinese Embassy in Washington.

People who make more than 2,500 illegal copies of music, movies or software can be jailed for up to seven years under the new rules, the notice said.

``When Chinese film stars see their movies sold for 7 yuan on DVD, they'll appreciate'' the importance of intellectual property rights, said Jing Ulrich, Chairman of China Equities at JPMorgan, at a media forum today in Beijing. ``Chinese companies will be keen to protect intellectual property when they create some of the leading technology themselves.''

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