The United States and China are two nations that share the status of being world leaders. The United States is considered to be a superpower, while China, on the other hand, is an emerging superpower. For example, both are important players in the post-Cold War world and are permanent members of the United Nations Security Council. The U.S. and China are also key players in Asian regional security and stability. China is the most populous nation, possesses the world's largest military, and is an emerging economic power. Therefore, it is in the best interests for both nations to work for a common agenda since both nations could benefit from trade cooperation in addition to regional stability. Although both nations have tried to weaken their adversarial relationship, the U.S. is currently concerned with China's response to several bilateral trade and security issues. On the issue of U.S.-China trade policy, the U.S. is concerned with the PRC's policy of protecting U.S. copyrights.

The Protection of U.S. Intellectual Property Rights (IPRs)

U.S. foreign policy for China includes the protection of U.S. intellectual property rights from Chinese corporate piracy. The main items pirated by underground Chinese firms are American made computer software, music/computer Compact Discs (CDs), laser discs (LDs), CD-ROMs. American made books and movies are also illegally copied by underground Chinese firms. The U.S.-China Intellectual Property Rights Enforcement Agreement, signed in February of 1995, was the first measure taken by the U.S. government to protect U.S. corporate copyrights. By signing this agreement, China agreed to enact domestic policies that would "markedly reduce piracy [by closing underground firms] to improve enforcement at its border [to stop the export of illegal merchandise], and to open its markets for U.S. computer software, sound recordings and movies" (Intellectual Property Rights p.1, 1996). The IPR Agreement additionally requires China to enact the "Special Enforcement Period" which asks China to focus its law enforcement on areas of "rampant piracy" (Chinese Implementation of 1995 IPR 2). The 1995 U.S.-China IPR Agreement also warned China that if it did not comply with the agreement's stated measures, the U.S. would impose a series of economic sanctions by June 17, 1995.

Various Cases of Chinese Piracy of U.S. IPRs

Despite the signing of the 1995 IPR Agreement, China still remains the main pirate of U.S. copyrighted goods (Fact Sheet: Intellectual p.l). Chinese piracy of intellectual property rights (IPR) affects not only U.S. corporate profits but also the growth of the U.S. economy and U.S. jobs. According to a U.S. Department of State fact sheet on IPR:

As a result of continued Chinese production, distribution, and export of pirated products...the US copyright industries estimate that losses amounted to $2.3 billion in 1995. This figure consists of $124 million in losses to the motion picture industry, $300 million in losses due to piracy of sound recordings and musical compositions, $1.3 billion in losses to the entertainment software industry, $488 million in losses due to piracy of business software, and $125 million in losses due to book piracy (Fact Sheet: Intellectual p.3).

An example of a U.S. corporation losing profits due to Chinese piracy can be seen in a bootleg plant in the Chinese province of Guanxi (see Map I). In this underground facility, investigators found 57,000 illegally reproduced Windows CDs (Booth, "Plunder 26). The Guanxi facility had four production lines that allowed the plant to produce about 20,000 discs a day (Booth, "Plunder 26). According to Stephen Booth, "A report to Congress from the U.S. Trade Office cites China as the worst violator of U.S.-copyrighted intellectual property" ("Plunder 26). The U.S. based Microsoft Corporation characterized the Guanxi raid as a matter of luck since "there were no copyright monitors stationed at the factory...nor were the source identifier markings required under Chinese law" (Booth 26). The "source identifier markings" that the Microsoft corporation is referring to are product signature codes or SIDs which identify the various firms that produce CDs. The U.S. Trade Representative's Office has urged China to enact a working SID system to better enforce U.S. IPR protection.

MAP I: PRC. Source: U.S. Dept. of State

Recent Chinese Action Against Piracy

On June 17, 1996, acting U.S. Trade Representative (USTR) Charlene Barshefsky announced in Beijing "that China has reached a critical mass of enforcement actions...with the 1995 IPR Agreement" (Statement by USTR Ambassador Barshefsky 30). The planned U.S. sanctions on China were suspended since China began to take the necessary measures in combating copyright piracy. For example, China has successfully intervened in the protection of U.S. IPRs in the rampant piracy area of the Guangdong province. According to a June 17, 1996 report by the USTR office, "When U.S. authorities were in Guangdong last week, they learned that the Guangdong Provincial authorities have initiated a major enforcement effort" (Chinese Implementation of the 1995 IPR 3). The Chinese Information Office points out that on June 3, 1996, Guangdong provincial leaders met to organize a concentrated IPR enforcement period designed to "crackdown upon the sources of sale and manufacturing of infringing products" (People's Republic of China 6). The USTR has confirmed Chinese cooperation in the closing of several pirate factories in Guangdong. USTR confirms China's closing of 15 illegal factories in the Guandong province (Chinese Implementation 2). The underground factories in the Guangdong province have an estimated illegal CD output of 30-50 million annually (Chinese Implementation 2). The Chinese government emphasized its important contribution to combating illegal commerce by closing down two important Guangdong underground facilities. According to a Chinese Information Office report on the protection of U.S. IPRs, the "Guangdong province closed down Panyu AV market...and the AV product counters of the Xiashan Department Store of Chaoyang City" (People's Republic of China 6-7).

In the area of border enforcement, China has scored several remarkable blows to IPR criminals. For example, Chinese Customs officials have confiscated some 80,000 pirate CDs/VCDs. Most of these seizures took place at the Guangdong/Hong Kong border (see Map I) and at the Beijing Airport (Chinese Implementation 3). Additionally, Chinese Customs have begun to support multilateral cooperation with Hong Kong Customs as well as U.S. Customs in joint seizing efforts. According to the U.S. Department of State's June 17, 1996 fact sheet on the IPR Agreement, "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" (Chinese Implementation 4).

In the area of market access, China has complied with U.S. goals in that U.S. companies will now be permitted to enter into projects with Chinese companies. This significant measure of cooperation by both the U.S. and China will allow U.S. companies to "coproduce motion pictures and --for T.V.--dramas and plays with Chinese firms" (Chinese Implementation 4). U.S. Secretary of Commerce Mickey Kantor states:

On market access, there are market access agreements in the sound recording, motion picture and software area. In motion pictures...for instance...they have taken away all quotas. And they have implemented a new monitoring and verification system...including new SID codes...(The White House: Office of the Press Secretary. 4).

SID codes are a recognition method "that identify which CD press" made a certain CD (Chinese Implementation 5). China's issuance of the "Notice on Implementing SID Codes" will make all CDs sold without a SID code illegal and subject to government confiscation (Chinese Implementation 5).

Related Sources:

Booth, Stephen A. "Plunder Goes High Tech." Popular Science August 1996: 26.

Map I (China). U.S. Department of State. Washington: GPO, 1994-1995.

People's Republic of China. The Information Office of China's State Council. The Latest Progress in China's Protection of Intellectual Property Rights. Beijing: 12 June 1996.

United States. Department of State. Chinese Implementation of the 1995 IPR Agreement: Fact Sheet. Washington: GPO, 1995.

---. Department of State. Intellectual Property Rights Enforcement in China: Fact Sheet. Washington: GPO, 15 May 1996.

---. Office of the U.S. Trade Representative: Executive Office of the President. Statement by USTR Ambassador Charlene Barshefsky. Washington: GPO, 17 June 1996.

White House: Office of the Press Secretary. Press Briefing by National Economic Advisor, Dr. Laura Tyson and Secretary of Commerce Mickey Kantor. Washington: GPO, 17 June 1996.

Relevant Sites:

U.S. Information Agency Homepage on Protecting U.S. Intellectual Property Rights

Software Publisher's Association Homepage on IPR in China

The Patent Office of the People's Republic of China

Intellectual Property Department Hong Kong