By Cassie Duong
Washington File Staff Writer

Washington - Although China has made some progress in its efforts to enforce intellectual property rights (IPR), the country still has "a long way to go," U.S. officials said at a June 7 hearing of the U.S.-China Economic and Security Review Commission (USCC).

Chris Israel, the U.S. coordinator for international intellectual property enforcement in the Department of Commerce, said the Chinese government is setting up 50 reporting centers for IPR violations throughout the country.

"[W]e hope that these centers can be effective," he said.

Israel cited several court cases won by IPR holders, including a December 2005 case involving fake luxury handbags in which the Chinese court ordered the owner of Beijing's Silk Street Market - rather than the vendors of the counterfeit goods - to pay damages.

"This is an important ruling because the Chinese courts are finally holding landlords responsible for the illegal activities of their tenants," he said.

Israel also cited two cases in January. The Starbucks coffee chain successfully sued a Chinese company that had adopted Starbucks' Chinese name and a similar logo, and chocolate company Ferrero Rocher won a suit against a company that was manufacturing a counterfeit version of one of its products.

"Though these are good examples, the problems in China run deep, and we continue to work extensively with the Chinese government on the issues of counterfeiting and piracy," Israel said.

MORE REGIONAL AND LOCAL IPR ENFORCEMENT NEEDED

According to the U.S. Trade Representative (USTR) 2006 Special 301 report, China's IPR enforcement efforts at the regional and local levels are inadequate.  The document, released annually in April, reports on implementation of a section of U.S. trade law called Special 301 under which USTR must designate each year priority foreign countries for investigation of IPR practices.  (See related article.)

Timothy Stratford, assistant U.S. trade representative for China, said the report emphasizes "the need for authorities at the subnational level in China to more effectively establish and sustain proactive, deterrent IPR enforcement."

"Rights holders report that enforcements efforts, particularly at the local level, are hampered by poor coordination among Chinese Government ministries and agencies, local protectionism and corruption, high thresholds for initiating investigations and prosecuting criminal cases, lack of training, and inadequate and non-transparent processes," he said.

Stratford added that USTR would be conducting an unprecedented special review in the coming year to examine China's IPR protection and enforcement at the provincial level.

COUNTERFEITS HURT BUSINESSES, THREATEN PUBLIC SAFETY

Stratford said the report also identifies weak IPR enforcement as one of China’s "greatest shortcomings as a trading partner."

In 2005, the United States ranked China as its third largest global trading partner, while China ranked the United States second, according to the U.S. Chamber of Commerce.  China was the United States' fourth-largest export market in 2005.

At the same time, China was the Number 1 source of counterfeit products seized at the U.S. border, accounting for 68 percent of all seizures in 2005, the U.S. Chamber of Commerce reported.

Stratford said the counterfeits include many products that "pose a direct threat to the health and safety of consumers in the United States, China and elsewhere, such as pharmaceuticals, batteries, auto parts, industrial equipment, and toys." (See related article.)

Israel said the "rising tide of counterfeiting and piracy in China has created enormous challenges for U.S. businesses."

"Our industry reports that infringement levels in China range from 85 to 95 percent for all copyright works, and in 2005 the value of the copyrighted works that were pirated exceeded $2.3 billion," he said.

UNITED STATES WORKING WITH CHINA ON IPR PROTECTION

Stratford said the Bush administration is using both dialogue and enforcement mechanisms to ensure China becomes "a 'responsible stakeholder' in the international economic community commensurate with its economic weight."

According to Stratford, the Bush administration’s strategy regarding intellectual property rights in China rests on four pillars:

• Working with the U.S.-China Joint Commission on Commerce and Trade to secure commitments on intellectual property;

• Effectively using all trade tools, including USTR’s top-to-bottom review, the annual Special 301 report, and World Trade Organization mechanisms;

• Expanding law enforcement cooperation between U.S. and Chinese agencies; and

• Increasing private-sector cooperation in China.

According to Israel, the administration has established an interagency process to coordinate and implement its Strategy Targeting Organized Piracy (STOP) initiative, launched in October 2004, which is "an attempt to play offense in the global fight against piracy and counterfeiting."  Agencies involved in STOP include the White House, USTR and the departments of Commerce, Justice, Homeland Security and State.

"STOP is the most comprehensive initiative ever advanced to fight global piracy where it starts, block bogus goods at America's borders and help American businesses secure and enforce their rights around the world," he said.

For more information on U.S. policies, see Protecting Intellectual Property Rights and The United and China.

The full text of prepared remarks by Chris Israel (PDF, 15 pages) and Timothy Stratford (PDF, 5 pages) are available at the USCC Web site.

More information on STOP is available at an interagency Web site.