By Liza Porteus Viana for Intellectual Property Watch
China and the United States last week held high-level discussions on a host of topics including intellectual property rights, reaching agreements to cooperate on IP rights protection, stopping counterfeit medicines and devices, reducing copying of patented biotechnology, and sharing innovation.

The 18th US-China Joint Commission on China and Trade (JCCT) and third China-US Strategic Economic Dialogue (SED) were held in Beijing on 11 December and Grand Epoch City on 12-13 December, respectively.

US Trade Representative Susan Schwab, Commerce Secretary Carlos Gutierrez and Treasury Secretary Henry Paulson met with Chinese Vice Premier Wu Yi and other government officials at a time when the trade relationship between the two countries is strained.

”Whereas trade was once largely a source of stability in US-China relations, it has recently become a source of tension, and not only because of safety concerns,” Paulson said on 11 December. “Worries about the effects of foreign competition - through trade or through foreign investment - have led to a rise in economic nationalism and protectionist sentiments in both our nations.”

”Neither China nor the United States can protect our way to further prosperity,” he said. “We must resist attempts to reduce transparency or increase regulatory obstacles in order to protect domestic industries.”

USTR said China has made some progress since the 2006 JCCT meeting. Beijing has, for example, acceded to the World Intellectual Property Organization “Internet treaties” (on protection of copyrights and performances), cracked down on the sale of some computers not pre-loaded with legitimate software, increased policing of counterfeit textbooks and teaching materials, and aided the US Federal Bureau of Investigation in enforcement raids. But it needs to do more to enforce anti-counterfeiting and anti-piracy laws, USTR said.

During this year’s JCCT summit, the two countries agreed to exchange information on customs seizures and counterfeit goods originating from Chinese companies, and Beijing agreed to strengthen enforcement of laws against company name misuse. Some Chinese companies have registered legitimate US trademarks and trade names without permission. The two sides also agreed to cooperate on case-by-case enforcement against such company name misuse, according to the USTR.

In agriculture, USTR said “China agreed to eliminate the requirement to submit viable biotech seeds for testing, which will reduce the possibility of illegal copying of patented agricultural materials.” On pharmaceuticals, the two sides signed a memorandum of understanding on active pharmaceutical ingredients, and China agreed to expand regulations on control of bulk ingredients used in counterfeit drugs, USTR said.

In April, Sotheby’s sued three Hong Kong-registered companies that used the name “Su Fu Bi,” written with the same Chinese characters the auction house uses to write its name in Chinese. And in September, Italian fashion company Gucci sued two Chinese companies for trademark infringement of its logo on women’s shoes.

The United States has filed two dispute settlement cases against China’s treatment of IP rights with the World Trade Organization, one over what it views as deficiencies in China’s legal regime for protecting and enforcing copyrights and trademarks on products, and the other over China’s barriers to trade in books, music, videos and movies. China only allows a certain number of foreign films to be shows in the country’s theatres each year, which US officials say fuels piracy. At the time of the meeting, the Motion Picture Association of America announced that China had blocked imports of US films.

Schwab, speaking to reporters at Thursday’s SED meeting, said the US delegation has raised the film issue with China’s Ministry of Commerce and directly with Wu. “It will be raised with anyone and everyone we see in the course of the day,” Schwab said, according to Agence France-Presse.

Wu voiced her displeasure to US officials over the WTO complaints, saying that move, along with what China views as protectionist measures being debated in the US Congress, could further strain trade ties.

”China is a responsible developing nation, not only in terms of the protection of intellectual property rights, but also improving product quality and balancing foreign trade. Our attitudes are clear-cut and our actions are resolute,” she said, according to China’s official Xinhua news agency.

During her opening remarks at the SED Wednesday, Wu said if any of 50 or so ‘protectionist’ bills pass the US Congress, “they will severely undermine US business ties with China. I have noticed that the American business community and public figures with vision have seen the grave consequences of protectionism.”

During the JCCT, the US and China signed several memoranda of understanding on issues such as high technology and strategic trade development, safety of drugs, medical devices, food and feed, biofuels, science and technology protocols, and expansion of US exports to China.

During the SED, 31 agreements were reached in financial services, food and product safety, energy and the environment, investments, China’s currency and other topics.

The next SED meeting will be held in June 2008 in Washington.

USTR Annual Report to Congress on China

Separately, in an annual USTR report [.pdf] to the US Congress on China’s WTO compliance delivered on 11 December, Schwab noted that Beijing has overhauled its legal regime and has put into place more laws regarding intellectual property rights and piracy. But, it said, China “has continued to demonstrate little success in actually enforcing its laws and regulations in the face of the challenges created by widespread counterfeiting, piracy and other forms of infringement.”

Contributing to Beijing’s poor enforcement record, according to the report, are weaknesses in the enforcement system, such as underutilisation of strong criminal penalties. China offers a type of “safe harbour” for copyright infringers by having such a high threshold for criminal investigations. This is raising concerns that China may not be complying with its obligations under the TRIPS agreement, the report said.

Among other things, the TRIPS agreement requires countries to enforce penalties against copyright and intellectual property infringers.

”Although the central government displayed strong leadership in modifying the full range of China’s IPR laws and regulations in an effort to bring them into line with China’s WTO commitments, effective IPR enforcement has not been achieved, and IPR infringement remains a serious problem throughout China,” the report stated.

As stated in its WTO complaint, the US charges that China continues to maintain import and distribution restrictions on legitimate items such as DVDs, books, and music, which fuels the pirated goods market. The report also claimed China has hampered US attempts to evaluate whether it is working hard enough to address the widespread IP infringement occurring in the country, and that while it has made some progress in ensuring software used in government computers is legal, that progress has been slow.

China also needs to improve its measures for copyright protection on the Internet after it signed WIPO’s Copyright Treaty and Performance and Phonograms Treaty, the so-called Internet treaties, the report said. But it did note China has been moving forward on proposed legal measures affecting the intellectual property rights of foreign rights holders, such as its Anti-Monopoly Law issued in August.

In October, officials from the US Government Accountability Office testified before Congress on the risks to intellectual property rights, particularly as an increasing amount of manufacturing is taking place in Asian countries. They noted that technological advances have spurred the illegal reproduction and distribution of some products.

”The severity of these risks has been intensified by weak enforcement in some countries, particularly China, whose enforcement challenges have persisted despite US efforts,” officials concluded in their testimony.

US lawmakers such as Senator Carl Levin (D-Michigan) have criticised the pace at which the US insists its trading partners abide by WTO IP enforcement rules and China’s reluctance to abide by them.

Senate Finance Committee leaders sent a letter to Schwab and other US officials two weeks ago to press Chinese officials to meet their commitments on intellectual property rights, trade, currency and other issues, including moves to join the WTO’s Government Procurement Agreement.

”We recognise the progress that China has made in certain areas,” the senators wrote. “However, we remain deeply concerned that many of these promises remain unfulfilled.”

William New contributed to this report.

Liza Porteus Viana may be reached at info@ip-watch.ch.