Trade War Looms for China, US Who Defines World Trade Rules? China Wants to Bend GATT Rules for Its Peculiar Economy. the US Says No. with a Dec. 30 Deadline Looming, Two Giants Face Off

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WASHINGTON and Beijing are staring each other down in a high-stakes, year-end battle over trade.

Last week, the United States toughened its line on demands for better patent and copyright protection in China. US negotiators broke off talks with Beijing and threatened to impose sanctions after Dec. 30 if China did not improve its enforcement of laws on intellectual property rights.

Growing US frustration over rampant copyright piracy parallels China's own impatience with US objections to the Chinese bid to rejoin the world trade mainstream by early 1995.

Earlier this month, China threatened to close its market to the West if the US continued to block its bid for reentry into the General Agreement on Tariffs and Trade (GATT) and to become a founding member of the new World Trade Organization (WTO) to be set up in January. China, which has been waging an aggressive campaign to rejoin GATT, has not been a member since the Communist victory in 1949.

But, unlike earlier this year when China used threats of cutting off access to its booming economy to turn American government policy its way, the US is not budging. In May, President Clinton reversed US policy linking low-tariff trade privileges with improvements in human rights but has so far withstood Chinese demands for quick action on GATT.

Nor does China appear ready to clamp down on rampant piracy of films, videos, compact discs, and computer software to satisfy US demands. At the end of the month, the US could either extend the Dec. 30 deadline by three months if the sides are close to a resolution or im-pose sanctions on $800 million of Chinese goods, the estimate placed on piracy losses by US companies yearly. Washington began an investigation into intellectual property-rights infringement in June.

But a compromise appears unattainable before the deadline, since US officials contend that piracy has worsened during the 18-month-long negotiations on intellectual property rights. "The Chinese did not make serious offers," said a senior US negotiator in Hong Kong on Friday, announcing a suspension of talks.

"The day when the US produces its list for retaliation will be the day when China produces hers," Chinese trade minister Wu Yi was quoted as saying in People's Daily, the official party newspaper.

The low ebb in commercial relations between Beijing and Washington contrast sharply with the mood this summer after Clinton renewed China's preferential trade privileges known as most-favored-nation (MFN) status. In August, Commerce Secretary Ron Brown led a corps of US business executives to China, trumpeting warming economic ties between the frequent adversaries and securing Chinese pledges of lucrative business deals.

But US insistence that China open its markets and honor international trade principles of publishing quotas and other trade restrictions, ending discrimination favoring Chinese companies and protecting foreign intellectual property, has soured Beijing. …