Chines Implementation of
the 1995 Enforcement Agreement June 17, 1996
U.S.
discussions with the Chinese over the last two weeks in Beijing have
confirmed that the Chinese have taken actions as follows:
CD
Factories
For many
Americans, pirate CD factories have become the symbol of China's failure
to protect intellectual property rights. USTR has confirmed that China
has closed 15 of these factories, including 12 factories in Guangdong.
These factories have an estimated production capacity of between 30 - 50
million units a year.
The 1995
Agreement outlines the specific manner in which factories must be
closed. We have verified that China has followed these steps in closing
the 15 factories, including:
--revoking audiovisual
permits and local business licenses;
--seizing and
confiscating materials and machinery used to manufacture pirated
products, including destruction of the CD molds and liquidation of
other equipment;
--investigating and
prosecuting those accused of criminal activity in connection with the
plants, including at least 70 people in Guangdong Province alone.
In a
significant new initiative aimed at the problem of so-called "underground"
CD plants, China issued regulatory guidance directing seven enforcement
agencies to undertake an intensive search for such factories and close
them immediately whenever they are found. These factories are per se
illegal. Three of the recent factory closures are underground
facilities.
In another
major enforcement action, China on June 12 announced a current
prohibition on the establishment of any new CD plants, and has
prohibited the importation of CD presses for any plants, including
action against factories using presses whose importations were not
authorized. These steps will help limit the universe and production
capacity of potential pirates in China.
Special
Enforcement Period
The United
States asked China for a second major step -- reinstatement of the "Special
Enforcement Period" provided for in the Agreement. A Special
Enforcement Period is a focused enforcement effort on regions of rampant
piracy. In April, Ambassador Barshefsky was very clear with Chinese
officials that the United States did not care what the renewed effort is
called, but we needed to see concentrated and sustained action.
When U.S.
officials were in Guangdong last week, they learned that Guangdong
Provincial authorities have initiated a major enforcement effort. The
Guangdong program includes a sustained crack-down on producers,
wholesalers, distributors, retailers, transporters, underground
factories and laser disc theaters. It also focuses on major cases and on
expeditious completion of ongoing criminal investigations into piracy,
including severe punishment for infringers.
Our U.S.
government officials and U.S. industry officials came away from
Guangdong Province impressed with a new sense of commitment to
enforcement in Guangdong. Concerted action is also being taken at the
national level. On May 23, the Ministry of Public Security announced
that it would make IPR crimes a part of a newly announced national "Campaign
Against Crime." This effort has added tens of thousands of
enforcement officials to the anti-piracy effort, and has established an
important national symbol of China's commitment to crack down on piracy.
Effective
June 1, China's Ministry of Culture -- with the assistance of Chinese
Public Security and other enforcement officials -- initiated a
nationwide "Concentrated Enforcement Period." The focus of
this effort is wholesale and retail markets, as well as transporters of
pirated goods. This enforcement period will be in force at least until
August, or as long as piracy remains serious.
China's
crack-down has gone beyond factories. In addition to the factory
closures, for example, Chinese officials have shut down six notorious CD
distribution markets in Guangdong, including the largest -- the Yifa
Market.
In another
important step, over 5,000 so-called "laser disc showing rooms"
have been shut. These mini-theaters have been a major source of
infringement activity.
Border
Enforcement
The third
area in which the United States asked China for improved enforcement of
the 1995 Agreement is border enforcement. The export of pirated IPR
products has seriously hurt U.S. industries in third-country markets.
And the import of unlicensed manufacturing equipment has contributed to
the problem of underground factories.
In
particular, the U.S. asked China to focus on exports of major cargo
shipments and the import of the presses used to manufacture CDs. This is
an area in which China Customs has not been active in the past.
Chinese
Customs officials have scored several important successes in the area of
large scale seizures, including the seizure of 20,000 pirate CDs and
VCDs at Beijing Airport; 19,000 VCDs seized by Guangdong Customs
officials; and a joint Guangdong/Hong Kong Enforcement Action seizing
16,000 CDs on the Guangdong/Hona Kong border. Since the beginning of
1996, China Customs has seized 80,000 pirated CDs, VCDs and LDs. These
are only initial efforts by Chinese Customs. They are significant, and
we expect more as Customs gains expertise in this area. Chinese
Customs officials also have undertaken a special effort against the
import of illegal CD presses. On June 12, China issued a directive that
forbids the importation of equipment used in CD production lines --
unless expressly approved. Equipment without required documentation is
subject to immediate seizure.
The
international aspect of the problem of CD presses is an issue of which
we are aware. In Washington last week, Ambassador Barshefsky called in
the Ambassadors from Germany, Switzerland, the Netherlands and Sweden to
discuss their cooperation in preventing the shipment of presses in
violation of Chinese law.
As part of
a continuing border enforcement effort, China Customs will be
cooperating with its regional and international counterparts, including
Hong Kong Customs and U.S. Customs.
Market
Access
The final
area of U.S. focus has been market access for legitimate US audiovisual
and computer software products and companies. As was expected, this
issue has been the single most difficult one to address. That said, we
made significant progress this week in securing new opportunities in
China for American IPR industries --including computer software, sound
recordings and motion pictures.
A key goal
of our record companies was to enter into cooperative relationships with
Chinese publishing houses to sign artists, produce them and ultimately
-- through those publishing houses -- to sell, produce display and
perform. These are new opportunities created by the past week's work.
A key goal
of our film companies is the right to the unlimited import of films on a
revenue sharing basis. In addition, U.S. film companies will be able to
enter into projects with Chinese companies to coproduce motion pictures
and -- for TV -- dramas, plays and motion pictures. This creates new
market opportunities for these companies. The Chinese Government will
also no longer maintain quotas on the import of motion pictures.
On
software, the Chinese have reaffirmed that public and private sector
entities will use only legitimate software. As a commercial matter,
entities from both the United States and China have been invited to
discuss legitimate purchases at the Joint Commission on Commerce and
Trade hosted by Secretary Kantor this summer with Minister Wu Yi.
Monitoring
and Verification
The
actions described here are important indicators of China's willingness
to live up to the terms of the 1995 IPR Agreement. Over the long term,
however, the real test of the Agreement lies in the strength of the
underlying system the Agreement establishes. Over the past weeks and
months, we have focused considerable attention on the monitoring and
verification systems that make the IPR protection system effective over
time. China will undertake a major effort to improve the functioning of
several aspects of the Agreement, including SID codes, title
verification and inspections.
One of the
key aspects of our verification system is to ensure that CD factories
and Chinese publishing houses must demonstrate that the titles that they
wish to produce are properly licensed. The
Chinese will correct flaws in the current title verification system and
have guaranteed that the validity of the license for each foreign title
brought to any CD factory or publishing house will be checked with the
appropriate U.S. trade association before production can begin. Strictly
applied, this system -- which our industries use in many other countries
of the world -- will prevent piracy at its source.
SID codes
are the "signatures" that identify which CD press produced a
particular CD. At a glance, they allow an inspector to determine what
factory manufactured a given CD. As you might imagine, pirates don't use
them -- making any CD without an SID code an obvious infringing good.
Thus, a working SID system is a key foundation of China's IPR
enforcement system.
In another
key action, the PPA recently issued a new "Notice on Implementing
SID Codes." Under this notice, any CD sold on the market without an
SID code will be deemed per se illegal and subject to immediate seizure.
This is an important, practical step that will greatly facilitate
enforcement of the Agreement.
China has
also acted to station inspectors in all CD factories during all shifts,
24 hours a day. The inspectors will be responsible for checking title
verification and the presence of SID codes on molds, ensuring that there
are not off-hours, illegal runs of pirated CDs and other illegal
activities.The inspectors will also keep audits of CD press runs and
ensure that the factories keep accurate records. Inspectors are assigned
for three month periods by Copyright and Press and Publications Bureaus
and act as an in-house enforcement arm of the Chinese Government.
Conclusion
The 1995
IPR Agreement has resulted in fundamental change in China in the area of
IPR enforcement. Three years ago, intellectual property enforcement was
an abstract concept. Last year, our IPR Agreement established the
parameters of an enforcement system. Since April, China's actions have
animated this system through concrete, tangible actions.
As I said
earlier, China's system of IPR enforcement must become self-sustaining.
We're not there yet. But the actions taken thus far are an important
beginning. With this or any trade agreement, the ultimate test is
implementation. China has begun to demonstrate its vigilance through the
actions of the past two months. For our part, the United States will
continue aggressively to work with China, monitor the situation, and
ensure that our economic interests are protected. American jobs depend
on it.
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