U.S. Takes Piracy Pushback to WTO

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Cross-Border Traffic

"It's an international problem, so we need to work not just on the producers and exporters in China, but also on the importers and buyers outside China," says Jack Chang, Shanghai-based chairman of the Quality Brands Protection Committee, a grouping of 170 companies pressing for greater intellectual-property protections in China.

In fact, the counterfeit goods trade is increasingly cross-border, just like the drug trade. An executive in charge of investigations at a major cigarette manufacturer—who requested anonymity—notes that as Beijing has ratcheted up penalties and enforcement, Chinese pirates have started to move offshore to safer havens in Burma, Cambodia, and Indonesia.

North Korea, meanwhile, has long been a center for state-sanctioned counterfeiting, while Russia and India are also emerging as new production centers. What's needed, says the cigarette company official, is greater coordination between countries' police and customs departments. "Nobody is going after the transnational syndicates," he says.

No More Distractions

One worrying trend is that almost no product is immune to copycats these days. In a recent raid on a printing factory in the southern Chinese province of Guangdong, police seized bogus packaging and labels for Coca-Cola (KO) bottles, Wrigley's (WWY) chewing gum, Trix (GIS) breakfast cereal, and Purina cat food. And it's not just unsuspecting consumers who are at risk. Executives on the ground in China say counterfeiters are moving up the value chain, turning out sophisticated electrical components and machinery aimed at industrial users.

Whether the U.S. and China find a way to fight this problem together in the name of better trade relations remains to be seen. Last year Beijing announced a multibillion-dollar deal to purchase Boeing (BA) aircraft, and there are reports out now that China will make $12.5 billion worth of additional purchases of U.S. soybeans, cotton, machinery, and electronics this year. Still, it looks as if the U.S. won't be bought off so easily this time around.

Balfour is Asia Correspondent for BusinessWeek based in Hong Kong.

With Dexter Roberts in Beijing.