Secretary's Speech

U.S. Commerce Secretary Carlos M. Gutierrez Remarks to IPR Roundtable
Beijing, China

Thank you, Mr. Ambassador, for that kind introduction. I also want to thank you for hosting the IPR Roundtables and for your leadership on this important issue. We greatly appreciate your vision and your service to our country.

I'm delighted to be back in Beijing. In my corporate life, I made many trips to China. This is my fourth visit since taking office in February 2005.

I'm looking forward to coming back next month with my colleague, Treasury Secretary Hank Paulson to participate in the new U.S.-China Strategic Economic Dialogue.

I'm especially pleased to be here today with representatives of 25 U.S. companies that want to do more business in China.

These are experienced executives. They come from a cross section of industries and services that range from heavy equipment to home care products.

They offer some of the finest goods and services in the world. They'd like to offer them to the citizens of China, just as Chinese manufacturers offer their products to citizens of the United States.

China has recently undergone a truly historic economic transformation. Its growth has been unparalleled. You know the statistics:

• Over the past 20 years, China's economy has grown by nearly 10% a year, growing in real GDP by over 500 percent.
• Since China joined the WTO in December 2001, U.S. exports to China have been growing by over 20% a year.
• China is now America's third-largest trading partner and our fourth-largest export market.

The members of this business delegation believe they can add to this growth through a mutually beneficial trading relationship.

How does this tie in to the subject of this roundtable?

I believe that a mutually beneficial trading relationship depends on a number of factors. High among these are market access, transparency and intellectual property protection.

The United States strongly supported China's membership in the WTO. As a beneficiary of the global trading system, it's in China's own best interest to be a responsible stakeholder, to have open markets and fair and effective rules, and to push for further global reforms through the Doha trade talks.

As you know, we've been working closely with China through bilateral dialogues such as the Joint Commission on Commerce and Trade.

Our goal is to reduce obstacles to a strong and growing U.S.-China commercial relationship. Intellectual property protection is a key JCCT issue we've been addressing.

Importance of IP Protection
Protection of intellectual property rights is a top priority for global businesses and the international trading community.

An estimated 75 percent of the value of publicly traded U.S. companies --some $5 trillion--comes from "intangible" assets such as brands, copyrights and patents.

But the National Chamber Foundation reports that piracy and counterfeiting are costing the United States $200 to $250 billion a year.

Global IP theft costs more than money. It's costing jobs. It's threatening innovation. And it's jeopardizing the health and safety of consumers when fake and unsafe products masquerade as the real deal.

And let me be frank. Another victim of widespread IP theft in China is American support for expanding our trade relationship.

Those who espouse protectionism as a legitimate economic policy have a loud voice. They cite specific imbalances.

And they point to the lack of robust IP protection in China as a top reason why we should put protectionist policies in place.

This would be the wrong course. However, we can't disprove the critics with rhetoric. We need results.

At the April JCCT meeting, China made additional commitments to strengthen IPR enforcement.

IPR Progress
The Chinese have moved forward in a number of areas:

• There's been more cooperation between Chinese and U.S. law enforcement, including a major pharmaceutical raid and a case involving counterfeit Tamiflu with worldwide implications.
• Chinese courts have protected trademarks or patents in major cases for companies such as Pfizer, GM, Starbucks and Kodak.
• The first enforcement actions for textbook piracy on college campuses have taken place; and
• China has reported the revocation of over 360 business licenses for audiovisual products since July because of piracy.

Additionally, the Chinese government issued a notice requiring the pre-loading of legal operating system software on all computers produced or imported into China. This has led to a noticeable drop in software piracy.

The first criminal Internet cases have been filed here; an anti-piracy campaign on Internet issues has been launched; and Internet regulations published. This is significant.

A recent report estimates that China now has 150 million Internet users and may even surpass the United States in the number of users this year.

We applaud all of these accomplishments. They are important steps in an on-going journey. However, challenges remain.

The United States is very concerned about strengthening IP protections in China. Last month, we added a second IPR attaché in Beijing. We expect to add a third in Guangzhou early next year. And we will be intensifying our dialogue and consultations.

Areas for Improvement
Today I want to target three specific IPR challenges that can and should be addressed in the very near term.

• One, China should lower its criminal thresholds for prosecuting those involved in commercial piracy and counterfeiting. Allowing criminal operations to exist safe from prosecution because of unreasonable legal thresholds does not fulfill China's WTO commitment. It does not provide real remedies and meaningful deterrents to IP theft.
• Two, China should allow greater market access for audiovisual products. The current barriers to entry for legitimate goods in the Chinese market create a haven for pirates.
• Three, China should join those countries that share their factories' optical disc exemplars with the international laboratories that trace pirated discs to their source. This will greatly enhance the ability of forensic examiners, rights holders, and law enforcement to eliminate piracy at its source.

Let me be very clear: We recognize and support the efforts of President Hu, Premier Wen, and Vice Premier Wu Yi, in addressing IP protection, and we understand the challenges China's growing economy faces.

We all agree that there is a significant need to show results on disputes that we have. It's time for us to demonstrate that the real strength of our relationship is our ability to solve difficult problems and create even more opportunity for growth and innovation within our economies.

We need to do more together and internationally so we can stop the people operating as pirates and counterfeiters.

For example, allowing companies greater access to legally sell or distribute their movies, music and other copyright materials could serve two important goals our countries share:

• One, it could cut the piracy rate that is costing the U.S. copyright industry an estimated $2.3 billion.
• Two, as President Hu has called for, it could help close the trade gap between our countries.

IP theft is a crime affecting industries and economies here, in America, and throughout the world.

Cracking Down on the Counterfeit Industry
I believe we must increasingly turn our focus and resolve to the root cause--the pirates and counterfeiters operating large criminal organizations in the shadows. Counterfeits in nearly every product category from snow shoes to computer routers are finding their way into global supply chains.

I'm pleased to report today that focused efforts to keep these products out of U.S. markets are working.

According to newly-tabulated preliminary data from U.S. Customs, over the past year there's been a dramatic increase in the seizures of fake and counterfeit goods coming to the United States.

In 2005, there were 8,000 seizures valued at $93 million. This year, Customs has made over 14,000 seizures, valued at more than $156 million.

Again, however, there are more infringing goods from China than from all other countries combined.

To confront this, our law enforcement officials are working together and our customs agencies are expanding cooperation.

U.S. companies are using very sophisticated enforcement tactics. They report good cooperation from Chinese authorities.

But the reality is, we are still behind the criminals and pirates. We must continue to attack the production and global distribution of illicit goods with every tool at our disposal.

The organizations that copy and market others' creative works or produce fake brake pads or medicines or baby formula are not concerned "entrepreneurs" trying to benefit society or give someone a good deal.

Consumers must be educated. Businesses must aggressively protect their IP and supply chains. Notorious violations cannot be tolerated.

All of us must treat IP theft as the global economic, health and safety threat that it is and continue to work together to eliminate it.

Thank you for participating in this important discussion.

Let me close by saying again how pleased I am to be here with this outstanding business delegation--and to be working with all of you and with the Chinese government to strengthen our friendship, our mutual prosperity and the world's global trading system.

Thank you.