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By Root 5536 0

1989, a basic GATT accession agreement for China was nearing completion. Since China’s economy was still very undeveloped by world standards, China was set to enter GATT on the cheap, without having to open its markets widely or offer stringent protections for intellectual property rights (IPR). The Tiananmen Square massacre torpedoed that effort, but by 1991 the U.S. and Chinese negotiators were back at the table talking about opening China’s markets and protecting intellectual property. The negotiations marked a turning point for China. For the first time Chinese officials seemed to realize that to do business with the rest of the world, they would have to reform their own commercial system and open their markets to foreigners. But the real power of the Chinese economy still was in the hands of the industrial ministries and state trading companies, which opposed making concessions to the United States or other trading nations. The talks genuinely rekindled memories of gunboat diplomacy and the treaty ports. Everything was viewed as political rather than commercial. To make matters worse in the eyes of Chinese bureaucrats, the United States began to employ serious threats using Section 301 of a 1974 trade law, under which the United States could impose trade sanctions against countries treating U.S. goods unfairly.

Chinese negotiators were in a bind. Entrenched bureaucrats had no desire to relinquish their power to please foreigners, but the negotiators also knew that China’s economic growth was critically dependent on the one-third of Chinese exports that the United States purchased each year. Ultimately, it came down to personal power. Chinese negotiators were only able to beat back tremendous resistance from powerful ministries and state enterprises because Premier Li Peng actively pushed for the agreements. Premier Li, the belligerent face of the government during the Tiananmen Massacre, was widely despised both inside and outside of China. Many in the West considered him little more than a conservative troglodyte. They did not realize that Li played a vital role in pushing the agreement, motivated by a deep desire to be seen by history as a reformer.

The U.S. threat of sanctions, coupled with Li Peng’s power, won the day. In 1992, China signed market access and intellectual property protection agreements. For conservative Chinese officials who lived by the mantra of keeping foreigners out of China’s internal affairs, these new agreements were very frightening. Under its Soviet-inspired command economy, China had no need for commercial law. Central planners decided the allocation of raw materials and the volume and variety of products that factories would produce. The new agreements with the United States required China to enact new laws and build legal enforcement structures. China had five years to eliminate all the tariffs, quotas, import controls, and standards it had been using to block imports. All trade and commercial laws would be published openly. China would create a copyright law and would meet specific deadlines to join international agreements and organizations governing intellectual property protection. A timetable would be established for China’s legislature to modify the country’s laws to be compatible with these international conventions.

The “Win-Win” Iron Lady

That China signed open market and intellectual property agreements with the United States in 1992 was a step forward, but getting the Chinese to live up to the letter of their agreements was another matter. Charlene Barshefsky, a tough-talking lawyer, was just the person for the job. When U.S. Trade Representative Mickey Kantor was interviewing her for a post as a deputy in his department, she confided to him her ambitious goal: “I want to get China and Russia into the GATT.”

Barshefsky knew China wasn’t living up to the 1992 agreements. Chinese entrepreneurs were blatantly copying American software, movies, and music and making counterfeit U.S.-branded consumer products. Increasingly the illegal products were entering world commerce,