Office of the United States Trade Representative


2004 Special 301 Report Section 306


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:

  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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.
  6. 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 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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