WASHINGTON, D.C. – The Office of the U.S. Trade Representative announced today that the United States has requested the World Trade Organization (WTO) to establish a dispute settlement panel, the next step in its WTO case challenging deficiencies in China’s legal regime for protecting and enforcing copyrights and trademarks on a wide range of products.

“The United States and China have tried, through formal consultations over the last three months, to resolve differences arising from U.S. concerns about inadequate protection of intellectual property rights in China.  That dialogue has not generated solutions to the issues we have raised, so we are asking the WTO to form a panel to settle this dispute,” said USTR spokesman Sean Spicer.  “It is in the best interest of all nations, including China, to protect intellectual property rights.  Over the past several years China has taken tangible steps to improve IPR protection and enforcement. However, we still see important gaps that need to be addressed.  We will pursue this legal dispute in the WTO and will continue to work with China bilaterally on other important IPR issues.”

In pursuing this action, the United States is seeking to eliminate significant structural deficiencies that give pirates and counterfeiters in China a safe harbor to avoid criminal liability.  The United States is also seeking to improve enforcement procedures at China’s border, and to give copyright owners more tools to prevent the production of unauthorized copies in China.  The United States requested WTO dispute settlement consultations with China over these issues in April.  The United States and China held consultations in early June.  China has not, however, taken any steps that address these U.S. concerns during this period.

The U.S. panel request will be considered by the WTO Dispute Settlement Body at its next meeting, which is scheduled for August 31.

Background

The United States initiated dispute settlement proceedings over deficiencies in China’s legal regime for protecting and enforcing copyrights and trademarks by requesting consultations with China on April 10, 2007.  Consultations were held on June 7-8, 2007.  Under WTO rules, the WTO Dispute Settlement Body (DSB) will consider the U.S. request for establishment of a panel at its next meeting, which is scheduled for August 31, 2007. 

The U.S. panel request alleges violations of various provisions of the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (the TRIPS Agreement) related to three aspects of China’s IPR regime.  First, the request challenges quantitative thresholds in China’s criminal law that must be met in order to start criminal prosecutions or obtain criminal convictions for copyright piracy and trademark counterfeiting.  Wholesalers and distributors are able to operate below these high thresholds without fear of criminal liability, so these thresholds effectively permit piracy and counterfeiting on a commercial scale.

Second, the panel request addresses the rules for disposal of IPR-infringing goods seized by Chinese customs authorities.  Those rules appear to permit goods to be released into commerce following the removal of fake labels or other infringing features, when WTO rules dictate that these goods normally should be kept out of the marketplace altogether. 

Third, the panel request addresses the apparent denial of copyright protection for works poised to enter the market but awaiting Chinese censorship approval.  It appears that Chinese copyright law provides the copyright holder with no right to complain about copyright infringement (including illegal/infringing copies and unauthorized translations) before censorship approval is granted.  Immediate availability of copyright protection is critical to protect new products from pirates, who – unlike legitimate producers – do not wait for the Chinese content review process to be completed.

This is one of five WTO cases the United States has brought against China and the third case against China where the United States has requested a WTO dispute settlement panel.  The United States requested a panel in September 2006 to examine China’s regulations imposing local content requirements in the auto sector through discriminatory charges on imported auto parts; panel proceedings in that dispute are underway.  In July 2007, the United States requested a panel regarding several subsidy programs the United States believes are prohibited under WTO rules; the panel request in that dispute is pending before the DSB.   In the market access dispute , which concerns Chinese market access barriers affecting copyright intensive industries (movies, music, home entertainment videos, publications), the United States has just completed  supplemental consultations with China and is considering next steps.  China settled the fifth case, concerning discriminatory taxes on semiconductors, during WTO consultations in 2004.