The US as widely predicted by the US national media, including the New York Times, filed two complaints against China with the World Trade Organization this week. The gist of them is that China is failing to crack down on pirates of movies, music, games, books and software and even of drugs.
All last week US sources said that officials were planning to act against China on the subject of video and software piracy, and would file at least one action with the US dominated World Trade Organization.
It appears that the deal that China cut in December with the Motion Picture Association of America, the Business Software Alliance and US and British publishers through the China’s National Copyright Administration, is already in tatters.
At the time there was optimism that this meant that China would become more active in tracking down suspected online piracy and bootlegging.
China said it would swap information with overseas copyright owners after agreeing terms with US Treasury officials.
But the New York Times article says that pirated DVDs and CDs are traded openly in the main streets and that Chinese police officials do nothing about it, except prosecute one or two small bootleggers. If the US does not get China onside with bootlegging in the next few years, it will be fighting a losing battle.
Researcher Screen Digest says that there are DVD players in 25 million Chinese homes and that this will rise to 35 million by 2010. Add to that the fact that the Chinese cinema industry has box office revenues already at $336 million in 2006 and that this is scheduled to reach $720 million by 2010, and it is beginning to take on a significant size in entertainment consumption, although it will still be dwarfed by the US for some time.
However with the creation of a solid home base and the fact that Chinese production standards are coming close to US film production standards in their own nascent film industry, along with a natural preference to view home produced films, China will shortly become an exporter of note for video and DVDs.
As China begins to suffer from other countries abusing its own content industry’s copyright, of course it may become more comfortable with policing piracy in its back yard, but then again China has a huge problem in dealing with the layer upon layer of bribery and corruption that has been going on for years within its borders. It’s tough for a police chief to pick up a street trader if said trader has been bribing the police chief for 10 years.
But the bigger issue is exactly what stick does the World Trade Organization beat the Chinese government with.
If China agrees to any change in policy that raises costs significantly in China, it’s ability to import US goods goes down, and its ability to keep its wage bills low and therefore manufacture cheap goods gets impaired.
In fact if any sanctions were ever imposed on China at this stage of integration with the world’s economy, then the entire US (and everyone else’s) technology manufacturing capabilities could be suddenly impounded, taxed, closed or prevented from export.
The same DVD manufacturing plants that the US would have closed down for piracy may well be the same Chinese manufacturing plants that are making content cheap for US buyers.
Take ALL cheap Chinese imports out of the US, and it would likely trigger a full blown recession in the US. And yet the US officials seem to want the best of both worlds, low prices due to Chinese manufacturing through their own companies, and dumping duties when Chinese companies sell their own goods in the US.
Our point is that very soon it will be the Chinese tail, wagging the US dog and that a Chinese dominated world trade organization is one day a reality, which suggests that all US interests should be thinking outside the square on this one, and trying to turn such negotiations into a win-win situation.
The worst thing that could happen to the US is that the Chinese economic revolution goes into reverse like the big Japanese miracles of the 60s and 70s, with the result being so much more damaging.
With that set of cards in your hand, how welcome would you make President Bush’s administration when it verbally smacks the collective Chinese wrist citing copyright and patent infringements in everything from pharmaceuticals, books, music, film, software and underlying wireless network technology, to name but a few? Chances are you would tell him that he was mistaken and that China’s cheap manufacturing revolution was all there was between him and US economic collapse.
The New York times said that Susan Schwab, the United States trade representative announced the two legal complaints basically dealing with this policing issue, plus the issue of opening Chinese markets to US goods. (Ironically US goods would have to be made in China for the Chinese to afford them).
Already the American trade deficit with China is at an all time high of $232.5 billion. No economy can survive that over a sustained period so we understand the US concern.
The idea of reaching for the World Trade Organization to intervene could be seen merely as political capital internally in the US to say ‘Hey we’re doing something about it, look,’ as the legal machinations will last well into the next US administration and then it’s their problem.