WORLD

TRADE WAR

ANDREW BILSKI February 20 1995
WORLD

TRADE WAR

ANDREW BILSKI February 20 1995

TRADE WAR

WORLD

Like Dr. Richard Kimble, the character played by Harrison Ford in the 1993 blockbuster The Fugitive, Chinese officials claim they are falsely accused. Yes, they acknowledge, at least three state-run cable television systems in southern China recently broadcast the Hollywood film without permission. What is more, the videos likely came from one of the 29 Chinese factories that are producing illegal copies of U.S. products—everything from com flakes to computer software and compact discs. But the state import monopoly ChinaFilm says it did not confer duplication, distribution or broadcast rights of The Fugitive to any company or individual. And it promptly denounced what it called “serious violations” of the movie’s copyright and offered “great rewards” to anyone reporting similar acts of piracy. ChinaFilm spokesman Song Jie claimed that some cable operators are confused about intellectual property rights—a relatively new concept in China—and do not realize they are breaking the law. Still, he called for tough action against Chinese bootleggers who are flooding Asia with copies of Western products. Said Song: “The government is going to have to strike decisively and with great force against counterfeiters.”

That is exactly what U.S. Trade Representative Mickey Kantor has been pressuring Beijing to do.

Unsatisfied with Chinese measures against the proliferating theft of U.S. copyrights, trademarks and

patents—intellectual property, in _

the jargon of international trade—

on Feb. 4, Kantor threatened to slap Beijing with the largest trade sanctions in U.S. history: 100-per-cent tariffs on $1.42 billion worth of Chinese exports of cellular telephones, sporting goods and plastic products. Chinese officials promptly retaliated. They announced similar tariffs on U.S. exports of CDs, video games and movies—ironically, many of the same products Washington has accused China of pirating—and threatened to suspend talks with U.S. auto giants over possible joint ventures. That set the scene for a bruising trade war—one that could have far-reaching implications for the Chinese leadership.

Given the high stakes—China’s trade surplus with the United States last year was nearly $42 billion, and Beijing is anxious to join the

Chinese piracy puts President Jiang Zemin in the hot seat

new World Trade Organization— experts predicted a quick end to the dispute. Indeed, less than 24 hours after Kantor’s tariff announcement, Madam Wu Yi, China’s trade minister, extended an invitation to resume negotiations in Beijing this week. But the flap over piracy is just the latest in a series of SinoAmerican irritants that some observers blame squarely on President Jiang Zemin, 68, the designated heir to China’s ailing “paramount leader,” 90-year-old Deng Xiaoping. Analysts say that Jiang’s foreign policy stumbles could leave him open to rivals’ challenges after Deng, in his own words, “goes to meet Marx.” Indeed, former U.S. ambassador to China James Lilley said that he had heard whispers among officials in Beijing that even Deng is dissatisfied with Jiang’s handling of the crucial American relationship.

Jiang’s main miscalculation, critics say, is his apparent assumption that Washington would be willing to overlook contentious trade practices and human rights violations for the sake of “strategic engagement” with China, a superpower with one of the fastest-growing economies in the world. Last May, President Bill Clinton lowered tariffs on Chinese products and granted the country “most favored nation” (MFN) trade privileges, reversing a five-year policy that tied trade concessions to progress on human rights. But China has not I returned the favor: the Beijing gov§ ernment continues to crack down I on political dissidents, pointedly I telling Westerners to mind their I own business. Critics also point to " China’s misguided policy of insist-

ing that Washington make a political, rather than economic, decision to support its entry into the World Trade Organization, the international body that has replaced the General Agreement on Tariffs and Trade. The pressure tactics backfired. The United States and other Western countries are basing China’s entry into the trade body on major economic reforms, mainly its lowering of extensive trade barriers.

The latest misstep occurred in December, after the last round of trade talks collapsed. A Chinese negotiator blamed the breakdown on senior U.S. trade official Lee Sands, calling him “arbitrary, freewheeling and meddling.” The tactic backfired: offended by the personal attack, many American industrial leaders rallied around Clinton’s call for tough, retaliatory measures against piracy. “The Chinese after the MFN decision overestimated their leverage,” said Michel Oksenberg, a presidential assistant on China in the Carter administration. “There has been a hubris in China growing out of their very rapid economic growth, plus an element of nationalism and a belief that their market is so attractive that they can really influence the domestic politics of other countries.”

A foreign observer in Beijing, who is close to the intellectual property-rights negotiations, agrees. “The Chinese probably thought that when the U.S. de-linked human rights and trade, there was no need to make gestures on the human rights front any longer,” he said. “That was a mistake.”

But some analysts argue that Jiang cannot be held personally responsible for all the Sino-American tensions. They point out that many of China’s pirate factories are operated by officials with connections to the powerful military or to relatives of the country’s political elite, who are keen to protect their vested interests. “There is very little centralized trade policymaking in China,” said one foreign observer in Beijing. “Each department represents its own interests and has its own agenda. Jiang may lack the political will to enforce a solution on these various Chinese lobbies.”

Some Western diplomats who are veterans of the Chinese political scene say that it is domestic, rather than foreign, issues that will decide Jiang’s future. “Issues such as inflation, corruption, crime and unemployment have more of a bearing on his position than foreign policy,” said one diplomat.

“Jiang’s handling or mishandling of those domestic issues is what will determine his hold over the party leadership.”

If Jiang’s mercurial rise to the top is any indication, he will likely survive any challenge to his authority.

Known as “the weather vane” for his ability to read China’s swirling political winds correctly, he is the consummate apparatchik.

Bom in central Jiangsu Province in 1926, Jiang studied electrical engineering at Shanghai’s University of Communications and joined the Communist party three years before the 1949 revolution. In 1955, he was sent for training at the Stalin Automobile Factory in Moscow, where future prime minister Li Peng was also studying. After his return to China, Jiang advanced steadily in the machine and electronics industries until Mao Tse-Tung’s Cultural Revolution temporarily sidelined his career. Rehabilitated, he resumed his climb up the industrial ladder. In 1982, Jiang won election to the party’s Central Committee, going on to become Shanghai’s mayor in 1985, when Deng turned to the technocrat

to help develop the bustling city into a major industrial centre.

During his three years as mayor, Jiang’s unswerving orthodoxy and pragmatism won him praise from his superiors in Beijing, but not from his constituents in Shanghai, who complained of his mediocre administrative skills. Jiang went on to become Shanghai party chief in 1988, and took a hard line against intellectuals during the city’s short-lived democracy movement.

As the aging Deng continued to shed his most powerful posts, Jiang emerged as an urbane, sophisticated contender—he speaks English, Russian and Romanian and reads Japanese and French— who could carry on the paramount leader’s economic reforms and lift

the party’s image abroad. Jiang succeeded Zhao Ziyang as the party’s general secretary in June, 1989, just three weeks after soldiers and tanks crushed pro-democracy demonstrators in Tiananmen Square. (It was Jiang who launched a successful propaganda campaign to convince many Chinese that no massacre had occurred at Tiananmen.) In November of that year, he succeeded Deng as chairman of the all-powerful Central Military Commission. Jiang added his third major post, the presidency, in March, 1993.

Clearly, the most powerful man in China, Jiang nevertheless has detractors in the Politburo. Said one foreign diplomat in Beijing: “There are rumblings that by bringing many of his Shanghai cronies into the central government, Jiang is alienating other provinces that feel Shanghai is being given too much, say, in national affairs, at the expense of other regions.” Jiang must also tread a careful path between hardliners, who advocate a tough stand against foreign “meddling” in Chinese affairs, and reformers, who want to accelerate China’s transformation to a free-market economy.

While Jiang, at least publicly, still enjoys Deng’s support, the fate of two of his predecessors as party general secretary, Zhao Ziyang and Hu Yaobang, provides a cautionary tale. Both men had been touted as Deng’s heirs apparent before falling from grace for espousing political change and failing to contain Western capitalist influences. Said one American executive of a major multinational firm who has closely observed the twists and turns of Chinese politics for more than 10 years: “No one really knows what’s going to happen. Even the principals involved in the leadership succession don’t know what’s going to happen after Deng dies.”

ANDREW BILSKI with ALISON NANKIVELL in Beijing