Will China kick the habit?

The federal government's activities may soon start shrinking, but you wouldn't know it from all the human and material resources that Washington is pouring into the promotion of American business interests in foreign lands. Nowhere is there so much at stake, commercially and otherwise, as in the People's Republic of China. There the most high-profile and onerous task of the administration's whole campaign, dubbed as one of "commercial engagement," is to break China of a lucrative bad habit: massively exploiting copyrights, patents, and other intellectual property without reimbursing the owners, who are largely Americans.

Over the years, Washington has repeatedly denounced China's "rampant piracy." It estimated the costs to American intellectual property owners in 1993 at more than $1 billion in lost sales and revenue, about two-thirds in software products, the rest in movies, books, and miscellaneous knockoffs ranging from Gillette blades to Chrysler Jeeps. Most of this output is exported to East Asia, where properly licensed work from the United States or Japan must compete at a price disadvantage.

Private investigators of the victimized U.S. industries, banded together in the Washington-based International Intellectual Property Alliance, focused on the largest center for counterfeit production, Southern China, widely hailed as the country's model for modernization. There they found twenty-nine factories, at least a few owned by military or civilian government agencies, running a booming industry using stolen masters to copy compact and laser disks on a mass basis, estimated at 75 million copies last year.

A visit to Beijing in mid-January by seven heavyweights from the U.S. movie, music, and software industries, including Jack Valenti of the Motion Picture Association of America, turned into an unusual sight for the capital of the world's largest Communist country: private business executives publicly lobbying the Chinese government and feeding the media with criticism and incriminating information. Reuters reported from Beijing that the group called China "the world's worst pirate nation."

The showdown over piracy was--and is--a highly sensitive subject for U.S.-China relations, because the finger of guilt clearly points not just to bands of rogue operators but to various arms of the government itself. After years of talking with Beijing about the issue, most recently in nine rounds of negotiation stretching over twenty months, Washington finally flexed its muscles. With ample forewarning, on February 4, U.S. Trade Representative Mickey Kantor announced plans to impose the largest trade sanctions in U.S. history--to go into effect in three weeks. The threat of huge sanctions, credible because U.S. industry supported them, focused the minds of senior officials in Beijing. After further intensive negotiations, the two sides endorsed a twenty-page, single-spaced agreement on February 26, just at or a little after the U.S. deadline.

Among Beijing's commitments were to launch an intensive campaign against piracy and to give market access to legitimate U.S. products to replace counterfeit goods. As a sign of good faith, Beijing forced the closure of several Southern Chinese factories notorious for piracy, including one that churned out movie hits like The Lion King and Jurassic Park before they were available on the U.S. market.

Will Beijing carry out these commitments? Consider the precedents. After all, the United States went toe-to-toe with Beijing this time only because of China's failure to enforce the copyright and patent laws that it adopted after signing a "memorandum of understanding" with the United States more than three years ago. Besides, two formal U.S.-China agreements in 1992 and 1994 have failed to staunch the flow of exports made with prison labor, according to the Laogai Research Foundation, which with tiny resources monitors this violation of U.S. law more closely than does the U.S. government.

The problem lies much deeper than getting China to halt illegal activities. It lies in the nature of China's system. Despite a drive toward modernization, China remains "sometimes totalitarian, sometimes authoritarian, always unpredictable," as the Far Eastern Economic Review put it last year. The recurrent dream of doing land-office business with a country of so many potential customers--now 1.2 billion--blinds many foreigners to the reality that China's people are twice poor: among the poorest people in the world and also deprived of the rule of law. Instead, the rule of the Communist party reaches everywhere, even into factories of the numerous new joint ventures, where party functionaries look over the shoulders of managers.

A wide implementation of the promised reforms called for in the February agreement would involve a step toward the rule of law, and therefore a whittling away at the monopoly power of the party. But no bureaucracy willingly surrenders the power it has won. The ability of China's party to avoid that fate is enhanced by the absence of three preconditions for the rule of law: an independent judiciary, an independent press, and a network of organizations independent of government, such as a group representing the rights of China's own authors, inventors, and other intellectual property owners. Fundamentally, then, what is at stake in this struggle is not just the rights of U.S. property owners, mostly quite rich, but also the rights of the Chinese people, mostly very poor.

"What U.S. media moguls [potentially the major beneficiaries of the new agreement] should have the courage to say is that there is virtually no way to have a legal system that respects property rights and simultaneously ignores the civil rights of individuals," Michael Scrage, research associate at the Massachusetts Institute of Technology, recently wrote in his business column (Washington Post, February 10). In the same vein, Thomas Friedman wrote in the New York Times (January 8): "China's trade abuses and human rights abuses are just flip sides of the same coin--the absence of the rule of law."

Friedman found some sympathy for that position among some U.S. business executives he met in Hong Kong and Beijing, but so far it has little support from the leaders of organized business in the United States. In May of 1994, when President Bill Clinton delinked human rights from China's entitlement to trade privileges as a "Most Favored Nation" (MFN), he announced a "new and vigorous American program" to promote human rights in China, including "the development, with American business leaders, of a voluntary set of principles for business activity in China." Such a code would, for example, rule out contracting for goods made by prison or child labor, and require recognition of the right to unionize.

Currently the dominant thinking within the administration is that a code should apply worldwide rather than singling out China. Whatever its geographical scope, the challenge is to make it more than a public relations exercise. Yet in China, and under similar but smaller regimes, the code does pose a special problem. If it omits a commitment to respecting freedom of association for workers, it would be devoid of a fundamental principle. If (as seems likely) that commitment is included, employers who conscientiously implement the code might find some of their workers landing in jail. Such are the dilemmas of doing business in China.

The vast U.S. public and private "engagement" with a Communist superpower, half totalitarian, half authoritarian, is a pioneering journey through uncharted waters. China's most famous human rights advocate, Wei Jingschen, has publicly alerted the United States to the risks posed by navigating without a human-rights compass. In an article published in English and Chinese in Hong Kong last year, before Beijing ordered his rearrest in March, Wei criticized China's policy of allowing foreigners many rights not accorded to Chinese citizens and warned that it could cause a backlash ("a deep popular emotion of revenge") against foreigners, including business people.

Under its traditional ideology, Beijing insists on the principle of national sovereignty as an argument against any outside intervention in its "internal affairs." Most American economists and business people, under their own traditional ideologies, usually appeal to the principle of free trade as an argument against any governmental intervention in the international marketplace. In confronting Beijing on China's piracy, however, U.S. government and business leaders recognized that, because of new concerns posed by the new global economy, the U.S. should not be a prisoner of principles held inviolable in another age. Human-rights concerns deserve the same recognition. They belong high on the agenda of the trade policies that the U.S. pursues bilaterally with China and multilaterally within the powerful World Trade Organization, reborn early this year in Geneva.

There's one good way to test whether China is significantly evolving toward the rule of law. It is not so much whether Barbra Streisand and Bill Gates get paid their royalties, but whether Bejing starts treating Nobel Prize nominee Wei Jingsheng as a citizen of China, having at least as many rights as Jack Valenti and other visiting American business leaders.