US Commerce Secretary Carlos Gutierrez called on China to crack down harder on copyright piracy and open its markets further to U.S. products or risk a protectionist backlash that would hurt both economies.

U.S. Commerce Secretary Carlos Gutierrez (L) is greeted by Chinese Vice Premier Wu Yi in Beijing March 28, 2006. Gutierrez held talks on Tuesday with Chinese officials. [Reuters]

"There is a real protectionist and isolationist sentiment creeping up in our country," Gutierrez told U.S. business executives in Beijing today. "An erosion of trade between our countries would have a negative impact on the U.S. economy and have even greater consequences for progress in China."

The surging U.S. trade deficit with China, the world's third-largest exporter, has prompted lawmakers in Washington to propose curbs on Chinese imports. The two leaders of the U.S. Senate committee that oversees trade yesterday put forward a measure to increase pressure on China by imposing new penalties on countries that have a "currency imbalance" with the U.S.

The U.S. bought almost $244 billion worth of goods from China last year, while it sold $42 billion to the Asian nation. The $202 billion deficit accounted for more than a quarter of the U.S.' overall trade gap and was the largest with any individual country.

Gutierrez said that China's failure to open up its markets and curb counterfeiting to help make trade more balanced could jeopardize two-way trade worth $250 billion last year and harm the global economy.

"Think about what that would do to China's economy if China's number one customer all of a sudden decided to be protectionist," he said. "It would be devastating for China's economy and the impact on China's economy would hurt the whole world."

Rampant Piracy

Companies such as Microsoft Corp., the world's largest software maker, have said rampant piracy in China is causing them lost sales. Makers of auto parts, pharmaceuticals, computer software as well as music and movies say they are losing $250 billion a year, and point to China as the main culprit.

Gutierrez said China's industrial policies, technical standards, government procurement policies and weak enforcement of intellectual property rights are blocking U.S. companies' access to China's markets. A fair playing field would help boost exports to the Asian economy.

"If we sell $55 billion to Japan, I don't think it's unrealistic to assume we can do that and more to China if we have market access, IPR protection and clarity in the laws," Gutierrez said.

China's abuse of intellectual property rights is a much greater threat to the competitiveness of U.S. companies than the value of the yuan, said Stephen Green, senior economist with Standard Chartered Bank in Shanghai, who briefed visiting U.S. senators Charles Schumer and Lindsey Graham on China's currency reforms last week.

Vote Delayed

The yuan "is a distraction," said Green. "The American administration, the Congress and the Senate should really focus their energies on helping China to improve enforcement of IPR abuses."

Schumer and Graham yesterday delayed a vote on their legislation to levy tariffs on imports from China, citing progress in making the Chinese currency more flexible.

At the same time, Senate Finance Committee Chairman Charles Grassley and the committee's ranking Democrat Max Baucus proposed legislation that could cut off of U.S. government loan guarantees for exports and require the U.S. Treasury to oppose lending from development banks.

Gutierrez said he hadn't seen the details of the proposed bill. "However, we believe that the way to address issues, to address any conflicts that we have with our trading partners is through negotiation" not legislation.

Fighting Piracy

Gutierrez yesterday met with Wu Yi, China's vice premier responsible for intellectual property and lead negotiator with the U.S. on the issue. He also met Premier Wen Jiabao and Commerce Minister Bo Xilai.

"We believe that they are serious about tackling the intellectual property rights problem, but clearly there is a long way to go," Gutierrez said.

In response to U.S. pressure, the nation's copyright enforcement agency said this week China is requiring computer makers to install only licensed software and will crack down on all large companies found to use pirated software.

"The issues Secretary Gutierrez is concerned with are issues we also are concerned with," said Yan Xiaohong, deputy commissioner of the National Copyright Administration, at a briefing in Beijing. "This year, we will work with the ministries of information industry and commerce to increase the usage of legal software among Chinese enterprises."

Firmer Stance

A firmer stance on piracy would benefit China's economy, Gutierrez said today.

"If China cuts software piracy from 90 percent to 80 percent, it would generate $6.5 billion of tax revenue and create 2.6 million jobs in China," he said.

U.S. Trade Representative Rob Portman yesterday named Stephen Kho and Terry McCartin as co-chairmen of the China Enforcement Task Force, which will oversee China's trading practices, including piracy.

"China is now a mature trading partner, and must live up to its obligations, particularly in the areas of market access and intellectual property rights enforcement," Portman said on his office's Web site.