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U.S.: China Has High Rate of Intellectual Property Infringement

Ukraine remains only "priority foreign country" subject to trade sanctions

The United States has placed China on its "priority watch list" of countries failing to give adequate protection to intellectual property rights (IPR) such as trademarks and patents and has warned of possible U.S. action against China in the World Trade Organization (WTO).

In an April 29 news release, the Office of the U.S. Trade Representative (USTR) announced publication of its annual review of countries' IPR practices and concluded that infringement levels "remain unacceptably high throughout China, in spite of Beijing's efforts to reduce them."

The Special 301 Report is required by U.S. trade law. As in 2004, USTR's 2005 report lists a total of 52 countries or economies for IPR-related problems.  Ukraine was again the only country designated a "priority foreign country" and remains subject to trade sanctions of $75 million a year, USTR said.

USTR said it would continue to monitor Paraguay's implementation of its bilateral IPR agreement with the United States.

Fourteen U.S. trading partners are on the 2005 "priority watch list" meriting close attention to IPR problems: Argentina, Brazil, China, Egypt, India, Indonesia, Israel, Kuwait, Lebanon, Pakistan, the Philippines, Russia, Turkey and Venezuela.

On Russia, USTR cited concerns over high levels of piracy of CDs (compact discs) and DVDs (digital versatile discs) and Internet piracy of copyrighted works. USTR announced it would conduct a separate "out-of-cycle" review (OCR) of Russia in 2005 to monitor progress on IPR issues in the context of the country's WTO accession process.

Another 36 trading partners are on USTR's "watch list" meriting bilateral attention to underlying IPR problems.  These countries or economies are: Azerbaijan, Bahamas, Belarus, Belize, Bolivia, Bulgaria, Canada, Chile, Colombia, Costa Rica, Croatia, Dominican Republic, Ecuador, European Union, Guatemala, Hungary, Italy, Jamaica, Kazakhstan, Korea, Latvia, Lithuania, Malaysia, Mexico, Peru, Poland, Romania, Saudi Arabia, Slovakia, Taiwan, Tajikistan, Thailand, Turkmenistan, Uruguay, Uzbekistan and Vietnam.

The 2005 listings reflect some movement between categories.  The Bahamas, European Union, Poland, Taiwan and Korea were taken off the priority list and placed on the watch list.  Three countries -- China, Israel and Venezuela -- were elevated to the priority list for 2005.

Of the countries elevated to the priority list, USTR gave the most attention to China and released the results of its 2005 out-of-cycle review of China's IPR practices in conjunction with the Special 301 report. USTR may conduct such reviews at any time to evaluate changes or developments in particular countries. The review concludes that China's "inadequate" IPR enforcement is resulting in infringement levels at 90 percent or above for "virtually every form of intellectual property."

The administration "will use WTO instruments whenever appropriate" to address U.S. concerns regarding counterfeiting and piracy and China and will invoke transparency provisions in the WTO Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPs) to ask China for more documentation on its IPR practices, USTR said.

The United States will also continue to work with China through the Joint Commission on Commerce and Trade (JCCT) and IPR working groups to secure "new, more specific commitments" from China on steps to improve its IPR protections, according to the report.

USTR noted that this marks the first time that China has been elevated to the priority watch list on the basis of TRIPs or JCCT-related concerns.  Press reports suggested that USTR's mention of possible WTO action signals growing U.S. impatience with China's IPR violations.

The text of USTR's 2005 Special 301 Report is available here

Following is the text of the USTR news release:

The Office of the United States Trade Representative
April 29, 2005

Special 301 Report Finds Progress and Need for Significant Improvements
Results of China OCR Released, China Elevated to Priority Watch List

WASHINGTON --- The Office of the U.S. Trade Representative today released its annual "Special 301" report on the adequacy and effectiveness of intellectual property rights (IPR) protection around the world. Despite progress by some countries, the report finds that weak IPR protection continues to be a serious problem and calls for tough actions to combat global piracy and counterfeiting. The report presents the results of USTR's special Out-of-Cycle Review of China's intellectual property regime, and concludes that infringement levels remain unacceptably high throughout China, in spite of Beijing's efforts to reduce them.

"Strong intellectual property rights protections and enforcement at home and abroad are critical for the success of America's innovative economy and are top priorities for this Administration," said Acting U.S. Trade Representative Peter Allgeier. "We are committed to vigilantly enforcing U.S. intellectual property laws and procedures and to working with our trading partners around the world to effectively protect the ideas, brands and inventions of our businesses and entrepreneurs."

"This year, we are elevating China to the Priority Watch List for failure to effectively protect intellectual property rights and to meet its commitment to significantly reduce infringement levels, despite efforts by China's senior leadership to do so," Allgeier added. "China must take action to address rampant piracy and counterfeiting, including increasing the number of criminal IPR cases and further opening its market to legitimate copyright and other goods. We will work closely with U.S. industry and other stakeholders, with an eye toward utilizing WTO procedures to bring China into compliance with its trade obligations."

The Administration is working globally, regionally and bilaterally, using all available tools, to establish strong legal protections for intellectual property, promote effective enforcement, and solve problems identified in this year's Special 301 Report -- including piracy of copyrighted works in Ukraine, China, Paraguay, Brazil, Russia, India, Thailand, Bulgaria, Pakistan and other markets and inadequate protection against unfair commercial use for test data submitted by drug companies to health authorities in Israel, Turkey and elsewhere.

These efforts are delivering real results. The Special 301 Report notes the improvements and progress that several countries have made in addressing IPR-related concerns identified in previous Special 301 Reports. For example, Indonesia and the Philippines have recently passed optical disc legislation that will help combat optical media piracy, Malaysia and Taiwan have begun to take more enforcement actions, and India passed a new ordinance to improve patent protection. A list of positive developments for IPR protection over the past year is attached to the report.

"India took a significant step to improve its patent protection regime this year with passage of a new Patent Amendment," Allgeier said. "We will closely monitor implementation of the amendment, and we are considering actions that would acknowledge progress in this area."

China Out-of-Cycle Review

The People's Republic of China was designated a Priority Foreign Country (PFC) in 1994, and has subsequently remained subject to monitoring under Section 306 of the Trade Act. Section 306 monitoring indicates that a country previously listed as a PFC was removed from the Special 301 list on the basis of an agreement with the United States, and the U.S. is monitoring its commitment to that agreement. In China's case, we are monitoring its implementation of 1992 and 1995 bilateral agreements with the United States.

In its 2004 Special 301 report, USTR announced that it would conduct an Out-of-Cycle Review (OCR) in early 2005 to evaluate China's implementation of its commitments to significantly reduce IPR infringement levels. These commitments were made at the 15th annual meeting of the Joint Commission on Commerce and Trade (JCCT) in April 2004, in addition to China's WTO commitments, and the commitments made in the 1992 and 1995 bilateral agreements with the United States. During the OCR process, USTR requested detailed information on the prevalence of IPR infringement in China and the strengths and weaknesses of China's IPR protection and enforcement regimes. USTR also engaged with dozens of right holders, interested members of the public and with the U.S. Congress. The OCR found that piracy and counterfeiting rates remain at extremely high levels due to China's inadequate and non-deterrent enforcement system, despite efforts made by Beijing.

As a result of the OCR, USTR has elevated China to the Priority Watch List because of serious concerns about China's compliance with its obligations under the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) and its JCCT commitments. USTR will work with U.S. industry and other stakeholders with an eye toward utilizing WTO procedures to bring China into compliance with its TRIPS obligations, invoke TRIPS transparency provisions to obtain detailed documentation on certain aspects of China's IPR enforcement regime, and seek additional aggressive actions by China at the 2005 JCCT aimed at significantly reducing IPR infringement levels.

Russia

In addition, the Special 301 Report notes that Russia remains on the Priority Watch List this year due to continuing problems with Russia's IPR regime, including weak IPR enforcement and lack of data protection. It appears that Russia's current IPR regime is inconsistent with Russia's bilateral trade obligations and may not conform to obligations which Russia needs to fulfill in order to join the WTO. In particular, we remain concerned about high levels of piracy of optical media (CDs and DVDs) and a growing problem with Internet piracy of copyrighted works. In addition to maintaining Russia on the Priority Watch List, USTR is announcing that we will conduct an OCR in 2005 to monitor progress by Russia and to evaluate whether actions undertaken are resulting in substantial reductions in the levels of piracy and counterfeiting. We will continue to monitor Russia's progress in bringing its IPR regime in line with international standards through the OCR, the ongoing review of Russia's eligibility under the GSP program, bilateral IPR working group discussion, and WTO accession process.

Background

The Trade Act of 1974 instructed the Office of the U.S. Trade Representative to identify annually those countries that deny adequate and effective protection for IPR or deny fair and equitable market access for persons that rely on intellectual property protection. Section 182 is commonly referred to as the "Special 301" provision of the Trade Act. Countries are placed into a hierarchy of categories, with the ranking of Priority Foreign Country reserved for the worst situations: (1) Priority Foreign Country; (2) Priority Watch List; or (3) Watch List.

Placement of a trading partner on the Priority Watch List or Watch List indicates that particular problems exist in that country with respect to IPR protection, enforcement, or market access for persons relying on intellectual property. The Special 301 review occurs annually each April, but OCRs may be conducted at any time to evaluate changes and developments in particular countries. This year's Special 301 Report lists 52 countries or economies as Priority Foreign Countries, Priority Watch List, Watch List or Section 306 monitoring.

Countries identified as Priority Foreign Countries can be subjected to a Section 301 investigation and face the possible threat of trade sanctions. These are countries that fail to enter into good faith negotiations or make significant progress in bilateral or multilateral negotiations to provide adequate and effective protection of IPR. Currently, one country (Ukraine) is designated to be in this category and remains subject to $75 million in sanctions.

Paraguay's implementation of its bilateral agreements with the United States will continue to be monitored under Section 306, and we will address specific problems raised in earlier reports. USTR will also continue to monitor China's implementation of its 1992 and 1995 bilateral agreements with the United States under Section 306.

This year's report lists fourteen trading partners on the Priority Watch List. These countries are: Argentina, Brazil, China, Egypt, India, Indonesia, Israel, Kuwait, Lebanon, Pakistan, the Philippines, Russia, Turkey, and Venezuela.

Thirty-six trading partners are placed on the Watch List, meriting bilateral attention to address the underlying IPR problems. These countries or economies are: Azerbaijan, Bahamas, Belarus, Belize, Bolivia, Bulgaria, Canada, Chile, Colombia, Costa Rica, Croatia, Dominican Republic, Ecuador, European Union, Guatemala, Hungary, Italy, Jamaica, Kazakhstan, Korea, Latvia, Lithuania, Malaysia, Mexico, Peru, Poland, Romania, Saudi Arabia, Slovakia, Taiwan, Tajikistan, Thailand, Turkmenistan, Uruguay, Uzbekistan, and Vietnam.

This year's Special 301 Report also announced OCRs for the following seven countries: Ukraine, Russia, Philippines, Indonesia, Canada, the European Union and Saudi Arabia.