Office of the United States Trade Representative


2002 Special 301 Report Section 306


The United States and China concluded bilateral agreements in 1992 and 1995 that were the basis for resolving two investigations under Section 301. The U.S. Government has been monitoring China's implementation of these agreements since they were concluded. In addition, China became a member of the World Trade Organization (WTO) in December 2001 and agreed that it would fully implement its WTO TRIPS obligations from the date it became a WTO member.

China has made progress in some aspects of intellectual property rights protection since our agreements in 1992 and 1995. In connection with its accession to the WTO, China strengthened its legal framework considerably, amending its patent law in 2000 and its trademark and copyright laws in 2001, as well as issuing judicial interpretations and other administrative regulations to make them more compliant with the TRIPS Agreement and international standards. While some implementing regulations for these laws have been issued, China needs to issue all necessary regulations. The United States has continuing concerns about the consistency of some provisions of the copyright law and current regulations with international standards. For instance, while we welcome China's efforts to address some of the issues in the WIPO Copyright Treaty and the WIPO Performances and Phonograms Treaty, the U.S. Government concerned that these efforts are not yet complete.

The United States recognizes the enforcement efforts that China has made to date, but the continuing unacceptably high levels of piracy and counterfeiting require more effective and coordinated action. While export of pirated copyrighted products has largely subsided, such products are still being produced locally and imports of pirated products from other countries continue to flood the Chinese market. The levels of optical media piracy (CDs, VCDs and DVDs) in China remain at extremely high levels in the domestic market, and China remains a center for entertainment software piracy and the production of pirated cartridge-based video game products. In particular, end-user piracy of business software within the government remains largely unabated despite issuance of decrees instructing government ministries to use only legitimate software. In addition, the piracy of journals and books is a significant problem that has only now begun to show some improvement. The counterfeiting of goods bearing American trademarks, including well-known marks, by Chinese companies remains a major problem. Despite some enforcement efforts against such activities, large volumes of counterfeit goods, often of well-known products, continue to be produced and sold in China and to be exported to many other countries.

While industries report improved cooperation with administrative enforcement agencies in regard to raids, administrative penalties have failed to deter further infringements. Criminal investigations and sanctions are rare (i.e., administrative fines imposed are nominal), and very few cases are referred to criminal prosecution. The thresholds for initiating criminal cases for IPR infringements remain very high. The United States urges China to ensure that U.S. trademark and copyright holders can enforce their rights through criminal prosecutions and to ensure that the Supreme People's Court amend its interpretations of China's Criminal Code to allow more effective prosecution of cases and the imposition of deterrent sentences. In addition, the United States has concerns over China's lack of protection of foreign well-known marks in a manner that is consistent with international standards.

Certain U.S. pharmaceutical companies in China continue to experience difficulties in obtaining administrative protection for their products. The United States will be monitoring closely China's implementation of its WTO commitments, including its commitments relating to the protection of data submitted to obtain regulatory approval of pharmaceuticals and agricultural chemicals. The United States also urges China to improve communication and coordination between its patent office and agencies with responsibility for granting marketing approvals so that patent-infringing products cannot be marketed.


The U.S. Government identified Paraguay as a Priority Foreign Country in January 1998. The subsequent Section 301 investigation terminated with the signing of a comprehensive Memorandum of Understanding (MOU) on the protection of intellectual property rights in Paraguay. Paraguayan implementation of the MOU has been uneven. Despite some progress, such as the appointment of special prosecutors dedicated to IPR cases, Paraguay remains a key entry and distribution point for pirated goods destined for the Latin American market. The United States is heartened by the seizure and destruction of millions of blank and pirated CDs, the closure of several multi-million dollar high-tech pirate CD factories, and a concerted effort in the latter part of 2001 to conduct frequent and repeated raids in Ciudad del Este and other centers of counterfeiting. However, the U.S. Government is troubled to learn that pirate optical media production has been dispersed to smaller enterprises, in order to evade law enforcement efforts. Moreover, the United States is discouraged by the lack of initiative by the Customs Authorities to implement vigorous border enforcement measures, as agreed to in the MOU. The U.S. Government intends to hold consultations with Paraguay in the coming year to discuss plans for improving implementation of the MOU. The U.S. Government will use these meetings to formulate our positions on the future of the MOU, which comes up for renewal in January 2003.

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