- The Washington Times - Wednesday, September 27, 2006

U.S. businesses continue to face troubling policies and practices in China, including weak protection of intellectual property rights, government policies aimed at strengthening domestic industries and investment barriers, a U.S. Chamber of Commerce report said yesterday.

The report was released a day before the Office of the U.S. Trade Representative hosts a hearing on China’s compliance with its World Trade Organization obligations.

Intellectual property protection is the top issue in the U.S.-China economic relationship, the report said, adding that despite some steps by Beijing, “the scale and scope of piracy and counterfeiting remains overwhelming, and the reforms being implemented by the government” under a March plan “seem insufficient to address the problem.”

The report particularly cited the absence of plans to substantially boost police manpower to crack down on piracy and to change the country’s criminal code.

“They are still going after street vendors and not owners, and while they can tout some progress, we continue to feel that more progress is needed and that this is needed in short order,” said Myron A. Brilliant, chamber vice president for Asia.

“We are losing hundreds of billions of dollars a year in counterfeiting and piracy, and China is probably 60 to 65 percent of the problem in terms of value,” Mr. Brilliant said.

The report said penalties for intellectual property theft in China are mainly administrative fines. Until enforcement is tightened, those penalties will be regarded as only a cost of doing business “and the problems will remain grave,” the chamber said.

The report also cited an increase in government policies aimed at stimulating domestic industries through market intervention.

It called the use of such policies “puzzling,” given the link between China’s economic successes in the past 25 years and the embrace of market principles.

The chamber said several of such policies were “the latest examples of a resurgent Chinese economic nationalism that bodes ill for both China’s own economic growth and for China’s integration with the global business community.”

Investment was among other areas highlighted. The report said China seems to be accelerating the institution of barriers to foreign investments.

The chamber expressed concern that such restrictions will be seen as protectionist actions to shield domestic enterprises.

China may see some sectors as sensitive, but “the broad application of investment barriers under such auspices — including increasing restrictions on foreign acquisitions of Chinese companies — is a deeply worrisome trend and stands counter to the market-oriented principles that have been the basis for much of China’s economic success over the past few decades,” the report said.

The report recommended, among other actions, that China increase police resources and training to enforce intellectual property laws, provide more detailed information to the World Trade Organization on its use of subsidies and exercise caution on new investment restrictions. It also suggested steps in automotive, energy and other industrial sectors.

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