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Ambassador Barshefsy: U.S.-China Relationship

Ambassador Charlene Barshefsky, U.S. Trade Representative, USTR
Testimony before the House Ways and Means Trade Subcommittee
June 11, 1996.

Released on the Web by the Bureau of Public Affairs
June 12, 1996

Mr. Chairman, it is a pleasure to appear before the Subcommittee today to discuss the U.S.-China relationship and the question of intellectual property rights enforcement.

It is an understatement to say that the U.S.-China relationship is complex and multifaceted. America has a range of issues with China that go far beyond trade. We have a deep and abiding interest in human rights, and are critical when basic international norms are not met. We have continuing concerns in areas ranging from non-proliferation to environmental protection. And increasingly, trade plays a central role in our relationship.

Make no mistake about it. Americans have a commercial stake in China. At least 160,000 Americans owe their jobs to U.S. exports to China. Just as we should not make apologies for China, we should not apologize for our economic interest n China.

China is the world's fastest growing major economy, with annual growth rates of more than 10% for each of the past four years - and average growth rates of greater than 7% for each of the past fourteen years. Already possessing the world's largest population, by early in the next century, China may have the world's largest economy.

On May 31, the President sent to Congress the formal waiver recommending extension of unconditional MFN to China for another year. The United States' interests in China are best promoted if we maintain MFN as the foundation for our trade relationship.

Mr. Chairman, we will never achieve China' s full integration into the international community by building walls that divide us. The most repressive periods in modern Chinese history did not occur in times of open exchange--they occurred in times of isolation. President Clinton believes we must remain engaged with China.

But let me be clear about what we mean by engagement. President Clinton came to office with the strong view that engagement with China does not mean ignoring our differences. It means we actively engage China to resolve our differences and it means protecting our interests when consultations are not fruitful.

When the President decided to delink human rights and MFN two years ago, he said that we were prepared to use a whole array of legislative and administrative methods to address specific issues with China. With respect to trade, as the President has repeatedly said, we welcome foreign products, but insist that our products be treated fairly overseas. When other countries do not live up to their obligations, we will take action. More than three years ago the President affirmed that, "We must enforce our trade laws and our trade agreements with all the tools and energy at our disposal." We have used all of the tools at our disposal to open China's market.

One area of immediate difficulty, of course, is China's lack of satisfactory implementation of the 1995 Intellectual Property Rights Enforcement Agreement.

Mr. Chairman, as you are well aware, last month the United States announced the publication of a $3 billion preliminary retaliation list targeting Chinese exports to the United States. This action set in motion a 30 day clock before final action occurs. Last week, USTR held public hearings on the retaliation list, and we appreciated the range of comments from individuals and companies that we received. We are currently preparing a final list with a value of approximately $2 billion--a figure commensurate with the damage inflicted on U.S. industries. Barring satisfactory implementation of the IPR Enforcement Agreement by China, the final list will go into effect on June 17.

We do not take the move toward retaliation lightly. China has taken certain actions to improve IPR protection, particularly in the retail sector. Over the past year, China has carried out more than 4000 raids and destroyed approximately 2 million pirated CDs, and hundreds of thousands of pirated books, audio cassettes, and trademarks. Some IPR court cases involving foreign rightholders have also been resolved successfully over the past year.

China has also established a nationwide IPR enforcement structure as required under the Agreement--a system of more than 30 provincial and municipal level task forces comprised of enforcement agencies and the police. The system--designed to target piracy, levy stiff fines, and remand infringers for criminal prosecution--is working in some localities. In Shanghai, for example, officials have made IPR protection a priority and have taken effective action to clean-up the city's markets. Clearly, where Chinese officials have demonstrated resolve, they have shown that piracy can be brought under control.

Despite these measures, China has not enforced key areas of the agreement, including halting piracy at its source. As a result, important American industries and broader American and international interests are getting hurt. Last year, China exported approximately 50 million pirated CDs, CD ROMS, VCDs, and LDs to the world. Today in Hong Kong and elsewhere, $10,000 software packages can be purchased for as little as $5. Pirate versions of Microsoft's Windows 95 were on sale in China before it was officially introduced. Motion pictures are often pirated and available on VCD disks before they are released in the United States.

The affect of this activity on the U.S. economy is clear. U.S. copyright industries alone represent more than 5% of the U.S. work force--roughly equal to the U.S. auto industry, and are growing three times as fast as the rest of the economy. The copyright industries contribute more than $350 billion a year to the U.S. economy, accounting for more than 6% of GDP. The U.S. computer software industry alone maintains a 75% market share worldwide and created almost 60,000 jobs last year. When China pirates American products, it denies the ideas, the enterprise, and the jobs of these American companies and the workers they represent.

China must take four key actions to remedy the current IPR situation and implement the IPR Agreement:

Finally, permit market access for U.S. computer software, sound recording and motion picture products and companies. China has not yet fulfilled any of the major elements of the market access commitments that it undertook in the IPR Enforcement Agreement. Although China has entered into some revenue-sharing arrangements, U.S. filmmakers still face de facto quotas in China' markets. China has yet to issue regulations allowing the establishment of joint ventures for production of audiovisual products, including the signing and promotion of local artists, as well as other market access steps.

Actions in these areas, all required by last year's agreement, will establish the foundation for bringing the rampant piracy under control. China knows exactly what it must do to get back on the compliance track. The issue now is for China to take concrete and verifiable action to reduce piracy at its source and at its borders.

Let me make two final points on this issue. First, the United States has gone the extra mile to help solve this problem. Since the signing of the agreement last year, we have sent eight delegations to China and its provinces and conducted more than thirty senior level meetings. At the request of the Chinese government, we have a team in China this week for consultations. The United Sates has also provided technical assistance in support of this effort. Key U.S. law enforcement agencies have provided assistance to the Chinese including the Department of Justice, the FBI, the Customs Service, the Patent and Trademark Office, the U.S Information Agency, and USTR. Additionally, the U.S. private sector has hosted literally dozens of training seminars throughout China. In fact, our companies have gone so far as to donate computer equipment and software to the Chinese customs service.

Second, the IPR issue has significance beyond bilateral relations between the United States and China. As the world's fastest growing market, whether China enforces its trade obligations matters for everyone. We are not the only nation for which the protection of intellectual property rights is imprint and this is well known to China. We have not asked China to do anything more than what other Asian nations are already doing--indeed what China has already agreed to do. The vitality and success of the global trading system depends on everyone living up to their obligations.

We urge China to take the concrete actions necessary to demonstrate its firm commitment to the Agreement and ensure its implementation. There is time for this to happen before sanctions go into effect. We are prepared to work with the Chinese toward that end. But it is decisive action against piracy that China must now take.

Mr. Chairman, the U.S.-China relationship is as important as any bilateral relationship in the world. But the opportunities in our relationship with China must run in both directions. For China, the potential of the U.S. market is matched by a tangible reality. Roughly one third of China's exports go to the United States, including tens of billions of dollars worth of electronic machinery, textiles, footwear and an ever increasing volume of higher value added products. In addition, Chinese companies--like all foreign companies--are allowed to establish freely in the United States. No one restricts their right to do business with American customers.

For the United States, it is certainly true that China offers unmatched potential. Unfortunately, while progress has been made, for the United States, the potential of the China market remains unfulfilled in many respects. While the United States accepts one third of China's exports, China accounts for less than 2% of U.S. exports and maintains highly restrictive import policies. China must further open its markets. The first step is to ensure compliance with commitments already made.

We have an opportunity to bridge important gaps in our relationship, so that benefits travel in both directions. To make this potential a reality, the United States stands ready to do its share. Renewing MFN, along with a broader engagement strategy, is critical to building a long term, stable relationship with China. But China, too, must bear its share. It must respect international norms, open its markets, and fulfill the commitments it makes. Mutual prosperity depends on this.

[end of document]

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Last Updated: June 12, 1996