U.S. Could File WTO Complaint Against China by Fall, USTR Official Says

China remains on the U.S. Special 301 priority watchlist of economies the U.S. deems to have unacceptable levels of piracy and counterfeiting (WID May 1 p3). The U.S. Chamber says Chinese IPR violations cost the U.S. $250 billion yearly, with infringed works representing 85%-95% of all copyrighted works there, Israel said. Despite “noticeable improvement” to laws and regulations, enforcement is weak, Stratford said.

But administration officials are meeting regularly with Chinese counterparts, including Stratford’s meeting 2 weeks ago in Beijing to discuss next steps in the U.S.-China Joint Committee on Commerce & Trade (JCCT), such as enforcement against optical disk piracy operations and software asset management, Stratford said. China unveiled its 2006 IPR Action Plan this spring. “Our approach yielded measured progress” in anticipation of President Hu Jintao’s U.S. visit, he said. European Union and Japanese trade leaders back the U.S. pressure on China, including EU Trade Comr. Peter Mandelson’s visit to Beijing this week to talk IPR. A DoJ contingent is doing followup on IPR enforcement in Beijing this week too, and a new IPR Working Group in the JCCT is handling software issues, Stratford said.

In recent years the Patent & Trademark Office has trained 300 Chinese officials, and the U.S. is consulting with China on its implementation of the World Intellectual Property Organization Internet treaties, Israel said: “You can see the overall infrastructure that we're trying to build.”

The U.S. is taking a new tack in IPR in China: province-level monitoring, which will be part of its next review, said Stratford. Four provinces are piracy “hot spots,” with local officials clearly letting control slide, Comr. Richard D'Amato said, asking Stratford how to deal with this. The agency will seek comment, then talk to officials in the provinces with the most complaints and “shine a spotlight” there, Stratford said. It’s also important to highlight provinces that take “strong positive action on IPR enforcement,” he said. The U.S. role is to provide better information on IPR-respecting provinces to guide investment, Israel said. Wessel said U.S. companies should reward provinces that “do the right thing” on IPR. In a study, the Chamber found 41% of foreign companies in China believe violations of their IPR rose in 2005.

China’s “chronic overreliance on toothless administrative enforcement” for IPR violations bars criminal cases and police raids in most cases, Stratford said. Last year 99%-plus of copyright and trademark infringement cases went into administrative proceedings. China has given “no sign” it will make good on a promise to shift enforcement toward criminal penalties, Stratford said.

U.S. firms’ main challenge in China is griping about real problems without seeming to harp on lax enforcement, Stratford told Comr. William Reinsch. “If [Chinese] police have the sense that you're going back to the U.S. government [with complaints about local enforcement], they won’t be so open and forthcoming” the next time around, Stratford said. Neither should the U.S. rush to make accusations in China over poor enforcement; businesses should work the chain, getting trade group support, then that of related associations and finally raising the issue with the feds, he said. “We are laying the groundwork for a case” against China, conducting interagency clearance to get trade agencies on the same page and warning Chinese officials of IPR violations they may raise at the WTO, Stratford said.

China’s development of IP and its effect on U.S. IPR is “one of the more central long-term questions to ponder,” said Israel. On an April visit to China, he said, he sat in on govt. seminars on innovation and IPR and saw a desire to emulate U.S. science and technology. Chinese authorities are pushing inventors and firms to seek more patents, and engaging universities, Israel said: “We've moved past the need at the government level to convince the Chinese” to push domestic IP development.

Commissioners seemed less than convinced China is on the right path. “Sometimes I feel on this issue that we're a broken record,” said Vice Chmn. Carolyn Bartholomew, asking for evidence that any U.S. or international agreements with China on IPR have made a difference. “The piracy industry has had a robust growth with everything else,” Stratford said, citing China’s roaring economy. Movie piracy, down noticeably in the 1990s, “slipped out of hand again” late in the decade, a predictable pattern, he said. But a new initiative is on tap at JCCT to create an “international library” of film media that makes an invisible mark in discs from the plant, letting studios trace illicit discs to their source, Stratford said.

It’s a “fantasy” that China wants to police IPR, since 8% and increasingly more of China’s GDP comes from piracy, Comr. Kerri Houston said. Different industries provoke different responses, Stratford said. China has cracked down on drug and automotive IPR violations out of public safety concerns and local outcry, he said. But scarce resources keep national officials from attacking infringement absent public health concerns. Some officials may help local firm steal technology to gain an edge, he said.

China’s efforts to monitor its Internet traffic were cited as evidence of its commitment to enforcement -- just not on IPR. Bartholomew referred to 30,000 workers monitoring communication online, “but unless there’s will coming from the top” to protect IPR, China’s promises won’t matter.