USTR partially successful in WTO complaints against China

United States of America

The Bush administration has reported that the US Trade Representative (USTR) has been partially successful in complaints filed in April 2007 with the World Trade Organization (WTO) against the People's Republic of China for failure to comply with the rules of the Agreement on Trade-Related Intellectual Property Rights (TRIPs).

One USTR complaint alleged that China’s high-value thresholds (which must first be met before criminal proceedings are instituted by the Chinese authorities against trademark counterfeiters and copyright pirates) appeared to be inconsistent with China's obligations under Articles 41(1) and 61 of the TRIPs Agreement. Those articles require WTO members to enforce criminal penalties for trademark counterfeiting and copyright piracy that are on a commercial scale. It has been reported that China’s threshold values used for triggering action against the sale of counterfeit branded goods are:
  • “illegal business volumes” exceeding Rmb50,000 (approximately $7,400); or
  • “illegal gains” exceeding Rmb30,000 (approximately $4,500).  
For criminal prosecution of copyright infringement, the three threshold values used by China are:
  • 500 copies of the infringing article (eg, book, music or film);
  • “illegal gains” exceeding Rmb30,000; or
  • “illegal business volume” exceeding Rmb50,000. 
The WTO dispute panel found that the USTR had failed to show that smaller volume sales of counterfeit goods or infringing articles qualified as “commercial scale piracy” under the WTO rules. 
Another USTR complaint alleged that China's customs rules - which permit seized counterfeit Chinese goods to be sold to the trademark or brand holder, transferred to public welfare organizations or auctioned off after removal of the infringing brand - were inconsistent with China's obligations under Articles 46 and 59 of the TRIPs Agreement. The WTO dispute panel agreed with the USTR. It found that Chinese customs practices failed to ensure that counterfeit brands were always removed from the seized counterfeit goods and that the disposal practice of auctioning off counterfeit goods was not restricted to “exceptional” cases.
Another USTR complaint alleged that China’s denial of copyright and related rights protection and enforcement to creative works of authorship, sound recordings and performances that have not first been authorized for publication or distribution within China appeared to be inconsistent with China's obligations under Article 9(1) of the TRIPs Agreement. The WTO dispute panel agreed with the USTR that the provision in China’s copyright law that prohibits copyright protection prior to censorship review and other pre-distribution approval was contrary to Article 9(1).
The WTO's initial ruling of October 9 2008 and final ruling of November 13 2008 remain confidential and will not be published until January 2009 (thereafter, both parties may file an appeal). However, it is hoped by many that these WTO dispute panel rulings will encourage China to fulfil the obligations that it assumed when it became a WTO member.
Brian E Banner, Rothwell Figg Ernst & Manbeck PC, Washington DC

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