*EPF206 05/01/01
Excerpts: USTR "Special 301" Annual Report for 2001
(Priority Watch List has five from Asia-Pacific region) (2720)

United States Trade Representative (USTR) Robert Zoellick announced the results of the 2001 "Special 301" annual review April 30. The review examines "in detail the adequacy and effectiveness of intellectual property protection" of approximately 80 trading partners of the United States.

While the Ukraine was singled out as a country where failure to address the problem of the pirating of intellectual property could lead to an investigation under Section 301 of the Trade Act of 1974, which in turn could lead to the imposition of trade sanctions, Asian trading partners also received scrutiny in the report.

In the 2001 review, the USTR said it devoted special attention "to reducing production of unauthorized copies of "optical media" products such as CDs, VCDs, DVDs, and CD-ROMs in Ukraine, Malaysia and Taiwan in particular.

The report said the United States "is committed to a policy of promoting intellectual property protection."

In a description by trading partner of existing situations and measures taken, the USTR gave mixed grades to such large U.S. trading partners as China and Korea, while also taking time to note the high level of piracy of intellectual property in Vietnam and the weak enforcement of copyright provisions in the Philippines.

Following are excerpts from the USTR 2001 Special 301 report issued April 30 by the United States Trade Representative:

(begin excerpts)

DESCRIPTION BY COUNTRY OF EXISTING SITUATION AND MEASURES TAKEN

PRIORITY FOREIGN COUNTRY

UKRAINE

On March 12, 2001, Ukraine was designated as a "Priority Foreign Country" (PFC) for persistent failure to take effective action against significant levels of optical media piracy and to implement intellectual property laws that provide adequate and effective protection. According to industry, Ukraine is the largest producer and exporter of pirated optical disks in Europe. Ukraine's exports of pirated compact discs (CDs) are disrupting markets throughout the region and beyond. For more than two years, the U.S. Government has been urging the Ukrainian Government to close down the pirates' CD production facilities and enact legislation to adequately protect copyrights. Despite many promises, including high-level commitments made in June 2000, the Ukrainian Government has been unwilling or unable to curtail the activities of these pirates. As a result of the PFC designation, USTR also initiated an investigation of Ukraine's practices under Section 301 of the Trade Act of 1974. As part of this process, USTR conducted consultations with the Government of Ukraine in early April to discuss the above concerns. Failure by the Government to address these concerns within three months of initiating the investigation could lead to the imposition of trade sanctions. Further, this failure to protect intellectual property rights could jeopardize Ukraine's efforts to join the WTO and undermine its efforts to attract trade and investment. The U.S. Government will remain actively engaged with Ukraine, to help and encourage the nation to combat piracy and to enact the intellectual property rights legislation required by both the 1992 bilateral Trade Relations Agreement and the TRIPS Agreement.

SECTION 306 MONITORING

CHINA

Although lack of enforcement of intellectual property rights remains a significant problem in China, particularly for trademarked products and copyrighted works, China's officials recognize the need for more effective action to address this continuing problem. Nevertheless, despite intensive enforcement campaigns and senior level attention to the problem, trademark counterfeiting remains widespread, with large-scale production of fake products running the gamut from pharmaceuticals to shampoo to batteries. Unauthorized production and sale of copyrighted products remain widespread. A new and disturbing phenomenon is the increased production of pirated optical media products by licensed plants that had previously only manufactured legitimate products. In addition, piracy of U.S. books continues unabated. The effectiveness of enforcement efforts varies from region to region, and is hobbled by lack of transparency and poor coordination among responsible police and government agencies. Criminal actions are rarely filed, the legal thresholds for prosecutions are too high, and administrative penalties are too low to deter further piracy.

China is now undertaking a comprehensive review and revision of its intellectual property rights laws in preparation for accession to WTO. In that connection, China has agreed to implement its obligations under the TRIPS Agreement as of the date of its accession to the WTO. China's revised patent law will take affect in July 2001 and amendments to its copyright law and trademark law are currently under final review. Current drafts take steps to improve enforcement authority, including providing for more effective provisional relief.

China's courts have issued some significant decisions on enforcement of copyright, in particular rights in works transmitted over the internet. That said, the underlying problem of obtaining effective enforcement remains. We will be monitoring China's actions to address these problems to ensure that the laws as enacted are consistent with China's WTO obligations and that China applies its laws to provide more effective protection of intellectual property rights. We will continue our active program of bilateral consultations and work through the WTO and WIPO as well....

PRIORITY WATCH LIST ...

INDONESIA

Indonesia has yet to pass TRIPS-consistent copyright, trademark, and patent laws. We look forward to prompt legislative action to bring Indonesia into full compliance with its TRIPS obligations. Piracy levels in Indonesia's enormous market for copyright and trademark goods are among the highest in the world. Industry estimates the levels of music and business software piracy at 87%, motion picture piracy at 90%, and game software piracy at 99%. Optical media production capacity expanded alarmingly during the past year, from fewer than a dozen illicit production lines a year ago to at least 70 today. This capacity is far in excess of Indonesia's domestic demand. It is becoming increasingly apparent that, as other countries in the region intensify their fight against copyright infringement, audio and video pirates are finding refuge in Indonesia. Trademark infringement is a growing problem, with famous U.S. trademarks appearing on products ranging from televisions to blue jeans, which is detrimental to U.S. mark owners. The Indonesian judicial system remains an ineffective mechanism for enforcing intellectual properly rights. The United States presented the Indonesian Government in January 2001 with an action plan for intellectual property protection on which we expect to work with Government of Indonesia in the coming months....

KOREA

In February, Korean President Kim announced a stepped-up copyright enforcement program, with special enforcement periods set for March-April and September-October, including investigations of government agencies, universities, and corporations for unauthorized use of copyrighted software. The Korean Government also announced that it will establish a standing organization to enforce intellectual property rights, particularly copyright piracy, on an on-going basis. The United States welcomes these positive developments. Unfortunately, it is too soon to judge their effectiveness. The first special enforcement period is still underway and questions remain about whether the enforcement program is transparent and non-discriminatory, as well as whether the stepped-up enforcement effort will be sustained. We also look to the Government of Korea to effectively address the widespread piracy of U.S. trade and educational books.

In January 2001, the Korean Government enacted amendments to strengthen its patent and trademark laws. While this is encouraging, there remain a number of weaknesses in Korea's intellectual property legislation, particularly in the copyright area. For example, Korea still apparently fails to provide full protection to works created after 1950, as required by the TRIPS Agreement. In December 2000, the Korean National Assembly passed welcome amendments to the Computer Programs Protection Act (CPPA), but these fail to provide explicit protection for temporary copies, as required by the TRIPS Agreement. We look to the Korean Government to make the necessary improvements to its copyright regime in the coming year. It also remains unclear whether Korean law protects against the unfair commercial use of confidential test data as mandated by TRIPS.

The United States will continue its detailed dialogue with the Korean Government on intellectual property issues and will periodically review Korea's progress on both legislative and enforcement issues. The U.S. Government hopes that continued progress in these areas will result in a substantial reduction in software piracy and other tangible improvements, which would lead to a favorable review of Korea's Special 301 status later this year....

MALAYSIA

During the past year, Malaysia passed a number of new laws meant to strengthen the protection of intellectual property and bring the country into compliance with its obligations under the TRIPS Agreement. These include amendments to the copyright, patent, and trademarks laws as well as new laws on protection of integrated circuits and geographical indications. A particularly positive development over the past year was the enactment of the Optical Disc Act, which when fully implemented should prove to be an effective tool to fight copyright piracy. However, so far Malaysia has only begun to take the steps necessary to enforce these new laws, particularly the optical media licensing law. While the Malaysian Government has launched thousands of raids and plant inspections over the past two years, virtually no criminal prosecutions for piracy have yet been completed. Nonetheless, we remain encouraged by the enactment of these new laws and the important first steps that have been taken since March 15, 2001, to implement the Optical Disc Act. The United States will conduct an out-of-cycle review in the fall to assess Malaysia's enforcement efforts, particularly its full implementation of the Optical Disc Act by September 15, 2001.

THE PHILIPPINES

The Philippines' copyright enforcement is weak and we are concerned that the Philippines has the potential of becoming a center of pirate optical media production in Asia. The number of production lines for compact discs and other optical media has doubled during the past year. Like Indonesia, the Philippines is apparently becoming a destination for pirate producers forced out of Asian countries that have more vigorous enforcement regimes. Legislation to control pirated optical media production is urgently needed. Cable piracy is also widespread. A large number of cable systems retransmit new and recent films without authorization from right- holders. Despite the Government's recent elimination of its reprint licensing scheme, we are concerned that piracy of U.S. textbooks remains rampant in the Philippines. Resources for enforcement are inadequate, customs efforts at the border are sporadic and the judicial process is so slow that it is virtually ineffective. While the Philippines has designated dozens of Special Intellectual Property Rights Courts, such designation has not improved the handling of IP cases. Moreover, a recent court decision suggests that the Philippines does not provide for civil ex-parte search remedies, in apparent violation of the TRIPS Agreement. We are, however, heartened by comments suggesting that the new government of President Macapagal-Arroyo will take the Philippines' IP problems more seriously. We look forward to a productive dialogue and concrete progress on intellectual property issues with the new Philippines' Government....

TAIWAN

The U.S. copyright industries contend that Taiwan is one of the largest producers of pirated optical media products in the world. Dozens of optical media plants operate in Taiwan, with a total production capacity that far exceeds Taiwan's domestic demand. Despite this problem, Taiwan has declined to enact the kind of strong optical media licensing legislation that has been effective in countering piracy elsewhere in the region. It has also failed to shut down known pirate operations.

Some aspects of Taiwan's copyright and patent laws appear out of compliance with the TRIPS Agreement, which Taiwan has agreed to implement fully as of the date of its accession to the WTO. Although Taiwan's current patent law provides a 20-year term of protection from the date of application, this TRIPS-consistent term is only provided to patents that were applied for after January 23, 1994. Patents with applications prior to this date receive only a 15-year term of protection from the date of publication of the application, with a maximum of 18 years from the date of actual application. The copyright law also needs strengthening in a number of areas including protection for temporary copies. Trademark owners also experience significant levels of counterfeiting in Taiwan, particularly of auto spare parts.

Enforcement of intellectual property rights improved somewhat over the past year, with increased raids against and prosecutions of IPR infringers, as well as efforts to ensure the use of only licensed software in government offices. However, without adequate legislation and sustained enforcement efforts, Taiwan remains a haven for pirates. U.S. trade officials have visited Taiwan twice in recent months to discuss with Taiwan authorities about how Taiwan can strengthen its IPR protection, and we understand that legislation that is intended to address our concerns regarding patent term was introduced in April. Specifically, we look to Taiwan to enact an effective optical media licensing law and complete the process of amending its copyright law in the coming months, and to enact a TRIPS-consistent patent law that would be effective upon accession to the WTO....

WATCH LIST ...

MACAU

In December 2000, USTR conducted an out-of-cycle review of Macau and decided to keep Macau on the Watch List. Since that time, Macau has made some progress in enhancing its intellectual property regime, but Macau's failure to convict and sentence manufacturers of infringing intellectual property products remains a serious concern. Macau has demonstrated its willingness to improve intellectual property protections by signing a contract for the implementation of Source Identification (SID) codes to be embossed on all optical disks produced in Macau. Also, a new licensing requirement for the raw materials used in optical media production led to the reduction of manufacturing lines from 38 in mid-1999 to 10 in early 2001. Despite these improvements, a major manufacturer of pirated CDs, who was eventually convicted by Macau's Court of Final Appeal, received only an eight month suspended sentence and a fine of $15,000 as penalty for his crime. This case is significant because it was the first intellectual property case to exhaust appeals, and yet the courts ordered the forfeiture of production equipment without sentencing the accused to any jail time. As such, we continue to urge Macau to improve intellectual property protection and to vigorously prosecute and punish those responsible for piracy.

NEW ZEALAND

In 1999, the Government of New Zealand pledged to introduce legislation imposing bans on parallel imports of newly-released copyrighted products (e.g., music, films, software and books) for up to two years. By the end of 2000, however, the government had not introduced this legislation. The continuation of New Zealand's policy regarding parallel imports erodes the value of copyright protection and threatens to stimulate black market trade in copyrighted goods throughout the region. We urge the Government of New Zealand to introduce this promised legislation as soon as possible and to follow through on separate plans to strengthen other laws on copyrights and trademark protection....

THAILAND

Despite the passage of significant intellectual property rights legislation, substantial improvements in the court system, and a good working relationship between foreign business entities and Thai enforcement authorities, copyright piracy rates continue to be high. Thailand's remaining two pieces of TRIPS-related legislation -- a Trade Secrets Act and a Geographic Indications Act -- were introduced into the legislature in 2000 but have yet to be passed. Thailand has also indicated it plans to address significant concerns regarding data protection. We remain concerned over the increasing in the illicit use of business software and rate of optical media piracy. In particular, we look to the new Thai Government to move draft optical media legislation forward that will enhance the authority and capabilities of the police to act against the unauthorized producers of optical media products....

VIETNAM

Piracy rates for all forms of intellectual property, in particular copyright, remain very high in Vietnam. Vietnam has pledged to improve this situation, most importantly by agreeing to provide comprehensive intellectual property protection consistent with international standards in the U.S.-Vietnam bilateral trade agreement, concluded in July 2000. The agreement needs to be approved by the legislatures of both countries in order for it to enter into force. Vietnam's efforts to modernize its legal regime for all forms of intellectual property represent an important step forward. Effective implementation and enforcement of new laws and regulations will be critical for reducing the pervasive piracy that now exists.

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(Distributed by the Office of International Information Programs, U.S. Department of State. Web site: http://usinfo.state.gov)

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