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2004 Special 301 Report Section 306 |
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05/03/2004 |
SECTION 306
CHINA
Addressing weak IPR
protection and enforcement in China is one of the Administration's top
priorities. At the April meeting of the Joint Commission on Commerce and Trade
(JCCT), the United States secured a commitment from China's Vice Premier Wu Yi
that China will undertake a series of actions to significantly reduce IPR
infringements throughout the country. These actions are critical in light of the
rampant counterfeit and piracy problems that plague China's domestic market, and
because China has become a leading exporter of counterfeit and pirated goods to
the world.
Prior to the JCCT, China
issued several rules and other measures concerning IPR protection and
enforcement. These include: Rules on the Determination and Protection of
Well-Known Trademarks, Measures on the Implementation of the Madrid Agreement on
Trademark International Registration, Measures on the Registration and
Administration of Collective Trademarks and Certification Marks, Measures on the
Implementation of Administrative Penalties in Copyright Cases, and Regulations
on the Customs Protection of IPR. The new measures are generally positive
developments. Further, China announced last fall the formation of a "Leading
Group" on IPR to better coordinate policy and enforce IPRs across China. The
Group, headed by Vice Premier Wu Yi, functions under the State Council and is
composed of officials from 36 departments.
China made many commitments
at the recent JCCT meetings intended to address our underlying concerns on IPR.
Vice Premier Wu announced that China would undertake a series of near-term
actions with the objective of significantly reducing IPR infringement levels. In
particular, China will:
- Promulgate a judicial
interpretation before the end of the year from the Supreme People's Court and
the Supreme People's Procuratorate that:
- appropriately lowers
thresholds for applying criminal sanctions for acts of IPR infringement;
and
- stipulates guidelines for
applying criminal sanctions for the import, export, storage, and transport of
counterfeit and pirated products and for online piracy.
The new judicial
interpretation is an attempt to remedy China's failure to make effective use of
its criminal enforcement regime to address IPR issues. Administrative
authorities routinely fail to refer cases involving commercial-scale IPR
infringements for criminal investigation and prosecution. The number of criminal
cases for counterfeit trademarks, while growing, remains inadequate, and the
Government initiates very few criminal actions against copyright piracy. When
such actions do result in convictions, the penalties applied are insufficient to
deter further IPR infringement. We have noted a number of significant
deficiencies in China's application and interpretation of its Criminal Code.
First, monetary value thresholds must be met before prosecutors will initiate a
criminal investigation. These thresholds are too high, resulting in the failure
of the Government to pursue criminal action against all commercial-scale
infringements. Second, criminal prosecutors and/or courts impose, in some
instances, extraneous proof-of-sale requirements. Third, criminal sanctions are
seldom applied for cases involving import/export, transport, storage, and
distribution of infringing goods. The problem of monetary value thresholds is
exacerbated by the fact that valuation calculations are not usually done using
the price of the legitimate good. We expect the new judicial interpretations to
address all of these issues and generate stronger criminal sanctions against
commercial-scale counterfeiters and pirates.
- Continue and intensify a
national campaign against IPR infringing activities including:
- a crackdown on counterfeit
trademarks, pirated audio-visual and software products, patent infringements,
and other violations of IPRs;
- investigation and issuance
of criminal sanctions in a number of cases;
- raids on the retailers of
pirated CDs and DVDs;
- closure of production
enterprises engaged in counterfeiting and piracy; and
- increased inspections of
exports.
Retail sale and export of pirated and counterfeit products remains a
significant problem in China. We expect this national campaign to bring about an
immediate and noticeable improvement, and will monitor its implementation to
determine whether it meets that expectation. In recent years, China has
conducted large numbers of raids on suspected counterfeiters and pirates, but
the penalties applied following such raids have not deterred infringement. We
expect the new campaign to generate stronger administrative penalties and an
increased number of referrals for criminal investigation and prosecution. These
steps are needed if the intensified campaign is to have the desired effect of
deterring future infringements.
- Implement new customs
regulations, increasing customs authorities' criminal enforcement actions
against IPR-infringing imports and exports, and relax surety
requirements.
New
customs regulations came into effect on April 1, 2004, and we expect China to
immediately take action to halt the growing stream of counterfeit and pirated
goods being exported from China. In 2003 China accounted for 66 percent of all
U.S. Customs and Border Protection seizures of IPR-infringing goods. China is
also a major source of counterfeit and pirated exports to Japan, the EU, and
other third-country markets. China fails to refer a sufficient number of cases
involving export to criminal investigation and prosecution and also fails to
pursue investigations to capture the producers of the counterfeit and pirated
goods. We expect the new regulations to remedy this situation. Chinese Customs
is also relaxing its surety requirements; this move will facilitate the pursuit
of investigations and judicial action. The Administration will monitor China's
implementation of the new customs regulations and continue to work actively to
clamp down on counterfeit and pirated Chinese exports at U.S. borders.
- Accelerate efforts to
ratify and join the WIPO Internet treaties.
Enacting legislation to
implement these treaties would greatly improve the legal basis for enforcement
against Internet piracy. China has a rapidly growing number of Internet users
(believed to be the second or third highest in the world). China needs to
strengthen the available tools for rights holders and enforcement authorities to
combat an emerging frontier for IPR piracy.
- Continue audits to
implement the use of legitimate software, including extension of such efforts to
include local urban governments.
We remain concerned that many Chinese
enterprises, institutions, and other entities fail to use software in accordance
with the terms of their license. Government institutions, at all levels, should
set a positive example. This effort, by drawing in local urban governments,
represents a further step to ensure that this is the case. While there were a
small number of positive court rulings involving end-user piracy in 2003,
significant problems remain. We urge China to accelerate its efforts to
undertake criminal investigations and prosecutions to address such
problems.
- Conduct public education
campaigns on the importance of IPR.
China will further intensify its
efforts to increase awareness among Chinese consumers of the economic harm and
potential health and safety risks that result from purchasing counterfeit and
pirated products. IPR infringements hurt Chinese and foreign rights holders and
damage the reputation of the "Made in China" brand. Fake Chinese-made automotive
parts, pharmaceuticals, infant formula, and other counterfeit products have
harmed consumers both in China and throughout the world.
Lastly, the JCCT established
an IPR Working Group to discuss IPR issues, including monitoring the
implementation of the commitments stated above.
We will also continue to press China
to increase purchases of legitimate goods, both through its own government
procurement and through a lowering of market access barriers.
The United States will
continue to monitor China's actions to implement effectively its JCCT
commitments, its WTO commitments, and the 1995 bilateral IP agreement with the
United States (including additional commitments made in 1996). We will be
conducting an out-of-cycle review in early 2005 to evaluate whether China is
implementing its commitments and whether the actions undertaken are bringing
forth substantial progress toward China's objective of significantly reducing
its level of IPR infringement.
PARAGUAY
Paraguay continues to have
problems in providing protection to copyrights and trademarks, both with respect
to poor internal enforcement and weak border enforcement. The USTR identified
Paraguay as a Priority Foreign Country in January 1998 as part of a Special 301
out-of-cycle review. The subsequent 301 investigation terminated with the
signing of a comprehensive Memorandum of Understanding (MOU) on the protection
of intellectual property in 1998. That MOU expired and the U.S. and Paraguay
negotiated a new MOU in December 2003. We remain concerned over several issues,
including: the involvement of organized crime in piracy and counterfeiting
operations; the relatively few resources provided for criminal investigations
and raids, and the attendant lack of those activities; and the lack of
willingness on the part of the judiciary to impose deterrent sentences. We are
encouraged by signs that the Duarte Administration, which took office in August
2003, has made IPR protection and enforcement a priority. The Government has
taken some positive steps with regard to enforcement, but a great deal of
improvement still needs to be made.
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