Intellectual Property Rights (IPR) in China

Negative Effect on Chinese Economy
Top U.S. Government Priority
China Takes Action

The IPR Challenge

• After joining the World Trade Organization, China has made substantial progress in its IPR enforcement efforts in recent years. There remains, however, much room for improvement.
   
• China was the number one source of counterfeit products seized at the United States border last year, according to the U.S. Embassy in Beijing.
   
• The piracy rate in China is among the highest in the world, report embassy officials. These IPR infringements cost U.S. companies more than one billion dollars each year. Some U.S. companies lose 15-20 percent of their total sales in China to counterfeiting.
   
• Knock-off products are readily available in China. In fact, approximately 20 percent of all consumer products in the Chinese market are counterfeit.
   
• What was once a localized industry concentrating on high-end design goods has now become a sophisticated global business involving the production and sale of counterfeit versions of a wide variety of items, including auto parts, medicines and medical devices, software, batteries, movies, videogames and agricultural products, according to the Office of the U.S. Trade Representative (USTR).
   
• Software piracy is a major challenge for economies. According to the Business Software Alliance, fifty-three percent of software used in the Asia/Pacific region is pirated, with dollar losses totaling more than $7.5 billion.
   
• The Entertainment Software Association estimates that 97 percent of all personal computer entertainment software is pirated in China. Additionally, 75 percent of all console products are pirated, as well as 99 percent of all handheld products.
   
• Counterfeiters are generally small and medium-sized enterprises and individuals. A notable trend is the increase in legal enterprises engaging in this activity, according to a "Survey on the Impacts of Counterfeits on National Economy" by Quality Brands Protection Committee. 

Negative Effect on Chinese Economy

• IPR violations are hindering China's economic growth as well. 
   
• Counterfeited goods result in billions of losses in tax revenue for the nation each year.
   
• International investment has been curtailed, because many overseas companies are limiting business until China's IPR enforcement efforts are strengthened.
   
• Legitimate Chinese companies are also being hurt financially. Many Chinese companies are victims of piracy, making it difficult to build national brands or invest in research and development.
   
• In the pharmaceutical and agricultural sectors, IPR infringements are challenging China's ability to self-regulate health and safety products for its people.
   
• Counterfeiters do not comply with basic manufacturing standards for the safety and health of workers, or for product quality and performance.

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Top U.S. Government Priority

• Tackling China's IPR infringements is one of the U.S. government's most important economic priorities.
   
• The USTR has again designated China for "Section 306" monitoring. This means that the USTR can move directly to apply for trade sanctions against China if monitoring shows a slippage in enforcement of bilateral IPR agreements.
   
• As the Center for International Private Enterprise reported: "China's current laws and regulations still have loopholes to be filled, vague expressions to be clarified and outdated stipulations to be amended. A number of administrative officials and judges in the People's Courts lack the expertise and knowledge needed to effectively judge IP problems. The only response is constant professional training and proper supervision of the judicial system."

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China Takes Action

• There has been an increased focus in China on the importance of IPR protection to the nation's economic growth, according to the U.S. Embassy in Beijing. Over the last year, high profile government speeches, books, television talk shows, media articles and academic reports have addressed the topic.
   
• At the April 2004 meeting of the Joint Commission on Commerce and Trade (JCCT), the U.S. secured a commitment from China's Vice Premier We Yi that China will undertake several actions to significantly reduce IPR infringements throughout the country.
   
• In May 2004, the Shanghai Municipal People's Government and Shanghai Intellectual Property Administration signed a seven-year agreement with the American International Education Foundation (AIEF) to strengthen the city's IPR standards. AIEF will facilitate IPR reform in China's largest city by providing integrated education and training programs to Shanghai policy makers, administrators, educators, judges, custom officers, business owners and enforcement agents.
   
• As Shanghai's Vice Mayor Yan Jun Qui explained: "Our objective is to make Shanghai prominently known for its IPR management standards and protection. We recognize that IPR is an essential factor in this knowledge-based economy, and we are pleased to work with AIEF on this important initiative. Advanced training will allow us to quickly establish IPR personnel on the level of other cosmopolitan cities."

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