International Business : Trade Tussle Is Killing Toy Makers’ Fun : Commerce: U.S.-China battle over piracy hurts Hong Kong wholesalers. But they doubt validity of threats.

HONG KONG —  Toys are Alex Fung’s business, but like many others at last week’s annual toy fair here, he says he’s concerned about becoming a pawn in a political game.

As yet another American buyer walked away from his display of mountain bikes without placing an order--afraid that a looming U.S.-China trade war would double their price--he shook his head.

“It’s terrible. Maybe we will have to forget about the U.S. market for a while,” Fung said.

The United States and China are in the middle of another trade wrangle, this time over piracy of U.S. copyrights, which American businesses say cost them $827 million in lost sales each year. Unless China clamps down on trademark pirates immediately, Washington says, the U.S. government will slap stiff tariffs Feb. 4 on up to $2.8 billion of imports from China.

Intellectual property rights are a pet cause of some who gathered in the bustling convention center, which resonated with electronic beeps and explosions from this year’s new games. Every year, toy spies roam the corridors looking for hot products to copy.

“They can ask for a sample, knock it off and have it on a boat to the States in a matter of weeks, “ said Webb Nelson of Seattle-based Playvisions, who had just chased away a sample-seeking knockoff artist from a booth promoting popular squishy insects.

The manufacturers, who are often victims themselves, are anxious to see a stop put to illegal copying, but the prospect of higher tariffs on some of their products has them grumbling that they’ll be doubly victimized. The U.S. hit list of products seems randomly selected, they say, ranging from bicycles to brine-packed mushrooms.

Out of optimism or cynicism, most folks at the trade show from China and Hong Kong said they doubt Washington will make good on its threats.

“Last year it was human rights; this year it’s copyrights,” said C.Y. Lee, managing director of Lovable Products, whose factory in China makes dinosaurs and realistic-looking insects for the Smithsonian Institution’s gift shop. “America always caves in at the last minute.”

Lee was referring to the drawn-out struggle over China’s most-favored-nation status, which guarantees low tariffs and access to the United States’ large consumer market. In past years, China’s MFN status had been linked to its human rights performance.

Even though China’s reportedly worsening treatment of political dissidents should have meant losing their trade privileges, President Clinton extended China’s MFN status, then de-linked trade and human rights.

It was a move welcomed by U.S. and Hong Kong businesses, who would have been hurt by the resulting loss of trade--but analysts said they feared it would mark Washington as a paper tiger in future negotiations.

One U.S. official privately concedes that the handling of MFN “has presented us with a credibility gap.” As negotiations continue, China has yet to offer significant concessions, instead threatening a tit-for-tat trade war if Washington imposes sanctions.

The perception that China can outstare Washington in the trade showdown has become widespread.

“We think China is too important to the U.S.A. for (the United States) to risk a trade war,” said Ruth Tsang, a Taiwanese maker of in-line skates and skateboards, which are also on the list of threatened products. “We saw what happened with MFN. Nothing will happen this time, either.”

Meanwhile, the director of the Taiwanese company is enjoying the benefits of some companies hedging their bets and sourcing their products outside China.

“We’ve had these rumblings almost every year now as far as I can remember,” said Jacob Miles of Cultural Toys. His multiethnic dolls are not on the hit list, but Miles decided anyway to have his products made outside China. “I don’t want to have to worry about politics all the time,” he said. “That’s why we source items in Thailand.”