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Lawyers for American businesses are in the midst of intense negotiations to settle trade differences with China in advance of a high-stakes meeting between top U.S. and Chinese trade officials later this month. The meeting, to be held April 21 in Washington, D.C., could prevent a battle at the World Trade Organization from escalating, and comes at a time when trade relations between the two countries appear to be fraying. China — the third largest and fastest-growing U.S. trading partner — entered the WTO in 2001, and has enjoyed an unofficial grace period to bring its trade policies in line with the organization’s rules. But the grace period is apparently over. In the last month, the United States filed the first-ever case against China at the WTO to protest the country’s tax policies for the semiconductor industry. American labor unions filed a complaint with the Bush administration over human rights issues in China, and are finalizing another over China’s currency policies. Federal officials also are expressing growing impatience with Chinese trade barriers at a time when the U.S. trade deficit with the country has ballooned to $294 billion. And all of this comes during an election year when the economy and trade policy are major campaign issues. The cast of officials scheduled to preside over the meeting — officially dubbed the Joint Commission for Commerce and Trade — shows just how serious matters have become. The meeting is held annually, but is usually presided over by lower-ranking trade negotiators. This year, Commerce Secretary Donald Evans, U.S. Trade Representative Robert Zoellick, and China’s Vice Premier Wu Yi will be at the table. The meeting is for a single day — which means that much of the negotiating is taking place now. Lawyers are working particularly hard to get their clients’ issues on the meeting agenda. While U.S. companies have a multitude of concerns, only a few are going to make it to the table. Warren Maruyama, a Hogan & Hartson partner, says that not discussing an issue at the meeting sends the message to China that a company’s issues may not be important to the United States. That’s why lawyers such as Robert Novick, an international trade partner at Wilmer Cutler Pickering, have been traveling to China. Novick was in Beijing last week representing three U.S. clients working on potential topics for the meeting. People are working day and night to resolve issues, Novick says. “This is a very important meeting that will demonstrate the extent to which the two sides will resolve their important economic differences,” says Novick, a former general counsel to the Office of the U.S. Trade Representative. Novick declines to specifically identify which clients he is representing in the China negotiations, to guard against potential harmful reactions by the governments, which may not want the issues discussed publicly, he says. The U.S. Chamber of Commerce in February sent a group to China that included representatives of about 15 companies to discuss their concerns, says Leslie Griffin, the Chamber’s managing director for Asian affairs. While the Chamber has submitted a summary to officials highlighting areas of interest it wants addressed — including intellectual property, technology standards, and government procurement — the organization’s expectations are conservative. “We’re realistic,” Griffin says. “We’re not going to get everything done in a one-day meeting.” In fact, some trade lawyers aren’t sure the meeting will succeed. Greg Mastel, an international trade partner at Miller & Chevalier, says he “would be surprised if there are a lot of breakthroughs.” For its part, China says it is open to the upcoming talks. “China is always willing to further expand trade, and we welcome U.S. enterprises in the Chinese market,” says Sun Weide, press counselor at the Chinese Embassy in Washington. At the same time, like the United States, China intends to air its grievances at the meeting as well, Weide says. For example, China wants the Americans to lift restrictions on high-tech exports. ISSUE NO. 1: IP VIOLATIONS U.S. companies, however, allege a host of unfair trade practices by China; at the top of the list are intellectual property violations. China has a 95 percent piracy rate, says Eric Smith, president of the International Intellectual Property Alliance, which represents the entire copyright community, including the software, movie, book, and music industries. That means at least nine out of every 10 copyrighted products used in China are pirated. According to an IIPA report, domestic piracy in China led to an estimated $286 million in losses for the sound recording/music industry in 2003. The industries also are hoping for significantly more market access in China, Smith says, citing restrictions on product distribution and limits on the number of products in the market. Because IP protection reportedly tops the U.S. agenda, Smith is confident his issue will be on the table. He remains hopeful but not optimistic about the meeting’s outcome. The Chinese government should bring both “actions and commitments” to the meeting, he says. “They have to bring with them practical, effective measures.” The U.S. government’s WTO case is also likely being discussed in the remaining days before the meeting. According to the USTR, U.S. exports of integrated circuits are charged a 17 percent value-added tax, but China’s domestic producers are offered a partial refund on the tax, which the United States concludes is discriminatory. Other large semiconductor markets, Japan and the European Union, have expressed support for the complaint. A WTO ruling could give the United States the right to impose economic sanctions against China. NEW WIRELESS STANDARDS The semiconductor industry is also troubled by proposed standards on wireless technology set to take effect in June, says John Greenagel, spokesman for the Semiconductor Industry Association. But some U.S. companies, such as chipmaker Intel, say they cannot meet the specifications. The wireless standard “will not only be a restriction on trade but a complete embargo,” says Alan Wolff, international trade chief at Dewey Ballantine and counsel to the SIA. The new regulations would also require a transfer of technology from U.S. to Chinese companies, says Wolff, who is confident the wireless standards will be a major topic at the meeting. Intel says it will no longer sell its products in China if the new standards go into effect. The company has told its Chinese customers that the company will not be able to meet the June 1 deadline, says corporate spokesman Chuck Mulloy. “We can’t match the quality of the product by using the new standard,” Mulloy says. Corporate interests aren’t the only ones urging change in China. Labor union AFL-CIO has already registered a formal complaint against China, and is gearing up for another. The organization filed a petition with the U.S. Trade Representative under Section 301 of U.S. trade law, accusing China of unfair trade practices, particularly worker rights violations, and requesting that the government impose trade tariffs on China. The Bush administration must decide whether to accept or reject the union’s claim by April 30. But some disagree with the AFL-CIO’s move. The U.S.-China Business Council and other trade associations sent a letter to the White House opposing the union’s action, says the council’s lawyer Andrew Shoyer, a trade partner at Sidley Austin Brown & Wood. The letter argues that the requested remedies would set back U.S.-China relations. The AFL-CIO is taking even further action, this time with additional support. The union, the National Association of Manufacturers, and about 40 other labor and manufacturing groups have joined under the umbrella of the Fair Currency Alliance and are finalizing another petition against China for currency manipulation, says Bob Baugh, executive director of the AFL-CIO’s Industrial Union Council. The petition will charge that China has created a trade advantage by undervaluing its currency and keeping it at a fixed rate against the American dollar, Baugh says. Despite the groups’ actions and the government’s WTO complaint, many say they want to avoid a fistfight with China because that could encourage the government to close markets and retaliate against individual American companies. To prevent that, companies and industry groups have tried to insulate themselves by creating broad coalitions to avoid possible individual sanctions, says Smith of the IIPA. For example, the IIPA represents six trade associations, which in turn represent more than 1,300 companies, Smith says. For all the challenges, Wilmer’s Novick says the United States and China take their economic relationship seriously enough to attach real importance to the meeting. The relationship is too important not to try to work out issues, he says. “The consequences … are too great.”

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