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### Viewing cable 07GUANGZHOU376, USTR's Second IPR Provincial Review to South China

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
07GUANGZHOU376 | 2007-03-23 08:44 | 2011-08-23 00:00 | UNCLASSIFIED//FOR OFFICIAL USE ONLY | Consulate Guangzhou

`

    VZCZCXRO3358
    RR RUEHCN RUEHGH RUEHVC
    DE RUEHGZ #0376/01 0820844
    ZNR UUUUU ZZH
    R 230844Z MAR 07
    FM AMCONSUL GUANGZHOU
    TO RUEHC/SECSTATE WASHDC 5916
    INFO RUEHOO/CHINA POSTS COLLECTIVE
    RUCPDOC/USDOC WASHDC
    RUEAIIA/CIA WASHDC
    RUEKJCS/DIA WASHDC
    RHHMUNA/HQ USPACOM HONOLULU HI

` `

    UNCLAS SECTION 01 OF 04 GUANGZHOU 000376

    SIPDIS

    USDOC FOR 4420/ITA/MAC/MCQUEEN, DAS LEVINE, RIGOLI
    STATE FOR EB/TPP MASSINGA, FELSING
    STATE PASS COPYRIGHT FOR TEPP
    STATE PASS USPTO FOR DUDAS, BROWNING, ANTHONY, THURWACHTER, COHEN,
    WONG
    STATE PASS USTR FOR ESPINEL, READE, MCCOY, WINTER, CELICO
    USDOJ FOR SUSSMAN
    DHS/CPP FOR PIZZECK
    USPACOM FOR FPA

    SENSITIVE
    SIPDIS

    E.O. 12958: N/A
    TAGS: KIPR ECON ETRD WTRO CH
    SUBJECT: USTR's Second IPR Provincial Review to South China
    Highlights Regional Differences

    REFERENCE: A) Guangzhou 51; B) 06 Guangzhou 32379; C) 06 Guangzhou
    29875

    (U) This document is sensitive but unclassified.  Please protect
    accordingly.

    ¶1. (SBU) SUMMARY: A USTR-led delegation traveled to four cities in
    Fujian and Guangdong provinces March 12-15 to engage local leaders
    on IPR issues and raise specific areas of concern. Provincial and
    municipal-level officials seemed engaged in IPR issues and often
    said the right things, but their commitment to enforcement and
    transparency varies significantly. Copyright enforcement -- in
    CDs/DVDs, software, textbooks, and the internet -- is a priority for
    provincial officials but also presents the biggest challenges. In
    Xiamen, home of one of China's largest ports, Customs enforcement is
    a top concern for the local government. In Putian, the center of
    China's shoe manufacturing industry, local protectionism continues
    to stand in the way of real enforcement. USTR urged local officials
    to improve transparency, transfer more cases to the police, target
    internet piracy, and assist foreign SMEs. The visits are part of
    USTR's provincial review of China, announced in the Special 301
    Report issued in April 2006, and follow a similar trip in August
    ¶2006.  END SUMMARY.

    Background on the Provincial Review
    -----------------------------------

    ¶2. (SBU) In an effort to pinpoint the problems in China's IPR
    enforcement system and develop more effective solutions, USTR has
    focused on regional IPR enforcement. The 2006 Special 301 Report
    names Guangdong as the center of large-scale counterfeiting in China
    for goods ranging from low-cost consumer items to electronics. In
    Fujian, the report highlights widespread production of counterfeit
    athletic shoes, among other products. In August 2006, USTR led an
    interagency delegation to Guangzhou, Dongguan, and Shenzhen in
    Guangdong Province and Fuzhou in Fujian Province (ref C). USTR's
    planned second trip to Guangdong and Fujian in December 2006 was
    canceled at the last moment because provincial authorities, under
    order from the central government, denied all of the meetings.

    ¶3. (SBU) This time the USTR-led delegation visited Xiamen, Putian,
    and Fuzhou in Fujian Province and Guangzhou in Guangdong Province.
    Chinese authorities approved the meetings only days before the trip
    began and downgraded the official level of most of the meetings by
    two grades. The ranking official at the August 2006 meetings was the
    deputy secretary general; in this instance it was deputy division
    chief except in Guangdong, where the head of the provincial
    Intellectual Property Office chaired the first part of the meeting.
    Attending the meetings on the Chinese side were the Intellectual
    Property Office (IPO), Copyright Bureau, Culture Bureau,
    Administration of Industry and Commerce (AIC), and Foreign Affairs
    Office (FAO). In addition, a Customs official attended the Xiamen
    meeting, a Public Security Bureau (PSB) official attended the Putian
    and Fuzhou meetings, and a PSB and Technical Supervision Bureau
    (TSB) official attended the Guangdong meeting. On the U.S. side was
    Stanford McCoy, USTR's Chief Negotiator on IPR, Todd Thurwachter, an
    IPR Attache in Embassy Beijing, and Conrad Wong, USPTO Attorney
    Advisor and future IPR Attache in Consulate Guangzhou.  Econoff and
    Econ Assistant accompanied.

    Guangdong: Medicines, Internet, and Landlord Liability
    -----------------------------------------

    ¶4. (SBU) McCoy opened the meeting with Guangdong Province officials
    by highlighting some of the positive developments in Guangdong since
    his August 2006 visit: a successful campaign against stores selling
    fake drugs, including Lipitor and Viagra; AIC's apparent interest in
    using landlord liability laws to clean up local markets; the opening
    of IPR complaint service centers; and enforcement actions by
    Copyright to shut down websites that provide pirated textbooks. He
    also noted continuing areas of concern: 81 percent of counterfeit
    goods seized by U.S. Customs in 2006 originated in China -- with
    Shenzhen's Yantian and Shekou among the top five ports of lading;
    the mechanics of both administrative and criminal enforcement
    continue to lack transparency; increasing numbers of internet sites
    sell fake products; a need for enforcement actions at universities
    to coincide with the beginning of school terms; and infringers use

    GUANGZHOU 00000376  002 OF 004

    express mail carriers to ship goods abroad.

    ¶5. (SBU) Guangdong PSB'S Li Shanxiong stated that the PSB focused on
    important industries such as pharmaceuticals and textiles, and noted
    cooperation with U.S. comapanies such as Pfizer and Proctor &
    Gamble. (McCoy acknowledged that both companies had complimented
    these efforts.) Guangdong AIC's Wu Lichao did not elaborate on plans
    to use landlord liability laws to clean up markets, but said his
    agency will follow the precedent established in Beijing's Silk
    Street case. Copyright's Guo Xiuwen said her office is currently
    implementing a program which verifies that large-scale enterprises
    use legitimate software, and will target SMEs during the next phase.
    Through its actions, Copyright closed seven pirate music websites in
    2005 and has convinced many popular websites to stop providing
    illegal music and software and many have established copyright
    protection divisions as a result. Illegal internet gaming sites will
    be the target of the next campaign.  On textbook piracy, she
    referred to a past campaign in 2003. Culture's Chen Ang said
    Guangdong has China's largest volume of A/V products and noted that
    his agency has increased its staff from 400 to 1,300 to improve IPR
    enforcement. He cited close cooperation with MPA and IFPI and said
    local offices are encouraged to transfer cases to the PSB. McCoy
    encouraged Guangdong officials to target counterfeit CD/DVD
    manufacturers for criminal enforcement in the future. Culture stated
    that it was considering intensifying work on criminal transfers,
    which were already emphasized.

    ¶6. (SBU) IPO's Zhu Wanchang said Guangdong has eight municipal-level
    courts that accept IPR cases. IPR protection at trade fairs is a
    priority for his office. (According to David Buxbaum, head of
    AmCham-South China's IPR Committee, China's trade fair regulations
    do not state clearly how companies can pursue infringement cases
    outside of fairs -- an important avenue for rights holders.) TSB's
    Liang Lixin said the TSB Guangzhou special investigation office,
    which handles IPR cases, has gone from a staff of 30 to 130 in
    recent years. TSB has seen a double-digit increase in case transfers
    to the PSB, in part because local offices receive monetary awards of
    RMB 2 million (USD 260,000) for doing so. MORO's Zhou Lijun said
    Guangdong has established IPR complaint centers in Guangzhou,
    Shenzhen, Zhanjiang, and Shantou. Rights holders can also lodge IPR
    complaints on MORO's website, which MORO is then required to refer
    to relevant agencies in a timely manner.

    Fujian: Footwear and Copyright
    ------------------------------

    ¶7. (SBU) McCoy opened the meeting with Fujian Province officials by
    commending recent positive steps: a criminal case in Xiamen
    involving internet sales of infringing music and movies; a
    successful campaign against counterfeit medicines in Fuzhou and
    Xiamen; national-level regulations governing case transfers between
    Customs and PSB authorities; and the decision by central authorities
    to make permanent the 100 Day Campaign against pirated A/V products.
    He also noted continuing areas of concern in Fujian: Xiamen is among
    the top five ports of lading for counterfeit goods seized by U.S.
    Customs; Putian is a major source of counterfeit footwear; Xiamen
    PSB has shown a lack of initiative in investigating retail copyright
    criminal cases; and university campuses remain a center of textbook
    piracy. McCoy also encouraged Fujian officials to be sensitive to
    the complaints of small foreign companies. As an example, he noted
    that U.S. art printing companies have identified Fuzhou's Minhou
    County as home to a large number of infringing printers.

    ¶8. (SBU) IPO's Lin Jinyuan welcomed more data from the U.S.
    government regarding IPR infringement in Fujian. He said Fujian IPR
    agencies have improved interagency coordination and are transferring
    more cases to the PSB. He also touted Fujian's recently established
    IPR complaint centers and noted that the Fujian high court and six
    cities have IPR tribunals. A Copyright official said all municipal
    and county government offices now use legitimate software.
    Copyright verifies that computer manufacturers install legitimate
    software, and will inspect large enterprises this year to confirm
    they use legitimate software.  He stated that enterprises that fail
    future inspections will be placed on a public blacklist, and
    end-user piracy cases will be transferrred to criminal authorities
    if criminal thresholds are met. Copyright is also planning a special
    campaign against textbook infringement in 2007 to coincide with the

    GUANGZHOU 00000376  003 OF 004

    beginnings of the spring and fall semesters. With respect to poster
    production in Minhou County, Copyright has not received complaints
    from right holders.  PSB's Zhu Guichang said the Economic Crimes
    Investigative Division has a special team devoted to IPR crimes and
    has seen good cooperation with administrative bureaus. McCoy praised
    the provincial PSB for pushing local PSB offices to conduct raids,
    citing Nike's experience in Putian as an example.  Fujian officials
    also stated that they send IPR officials to major Guangdong trade
    fairs, providing a possible avenue for right holder complaints.

    Xiamen: Customs Enforcement
    ---------------------------

    ¶9. (SBU) Xiamen Customs has jurisdiction over approximately half of
    Fujian province, including the port cities of Quanzhou and
    Zhangzhou, and has a special division that handles IPR enforcement.
    According to Xiamen Customs' Zhang Wei, the International Customs
    Association presented awards to two Xiamen Customs officials in
    ¶2006. He said Xiamen Customs believed that transfer to criminal
    authorities was one of the most effective means of addressing
    copyright infringements, and that integration of civil, criminal,
    and administrative remedies was critical to fighting copyright
    infringements. Wei added that his office has worked closely with
    foreign rights-holders such as Nike, Microsoft, QBPC, and the
    International Olympic Committee. Though Xiamen Customs does not
    always have sufficient staffing, he said training is always
    provided. McCoy praised the close cooperation between U.S. companies
    and Customs officials and encouraged Xiamen Customs to fully exploit
    China's 2006 regulations on the transfer of cases from Customs to
    PSB. In response, Zhang said his office has already transferred
    cases, including one involving Nike. (Nike's Wei confirmed this and
    said it is an encouraging step. However, he commented that the time
    delay between seizure and investigation gives counterfeiters time to
    disappear.)

    ¶10. (SBU) McCoy also highlighted the importance of internet piracy
    enforcement, and noted a 2006 case in Xiamen's Huli district in
    which two men who operated a website providing illegal music
    downloads were sentenced to prison. Xiamen Copyright's Wang Weihua
    said his office has a working group that deals exclusively with
    internet piracy and operates a telephone hotline for tips on
    internet piracy cases. Xiamen Copyright sends representatives to an
    annual summit of China's internet search engine companies, which has
    been held in Xiamen in recent years. Culture's Lei Longtong said his
    office transfers cases involving over 1,000 infringing CD/DVDs to
    the PSB. McCoy encouraged authorities to step up enforcement on
    university campuses, particularly during the beginning of semesters.
     McCoy also noted that the local PSB had declined to pursue industry
    complaints against large-scale retailers of pirated optical media on
    grounds that such cases should be raised with Culture authorities.

    Putian: Shoes and More Shoes, but Little Action
    ---------------------------------------

    ¶11. (SBU) McCoy opened the meeting with Putian officials by saying
    that almost half of U.S. Customs seizures of counterfeit products
    are of footwear, noting that Putian is a center of China's footwear
    industry. Putian IPO's Chen Kaiping cited a 2006 campaign against
    fake shoes and added that infringing factories in Putian are
    small-scale, rural "workshop" operations and thus difficult to
    track. He noted that local government had an interest in pursuing
    illegitimate enterprises because they did not follow labor laws.
    Putian's IPR enforcement officials have three areas of focus:
    verifying that OEMs produce legitimate brands, confirming that
    trademarks are legal, and monitoring import/export channels. PSB's
    Wu Jiangshan said the Mountain Eagle campaign remains a focus and
    his office publicizes big cases. When McCoy asked him to provide
    information on some of these cases to Consulate Guangzhou, he was
    noncommittal.  He stated that local authorities received good
    cooperation from foreign right holdrs such as Nike, Adidas, and
    Puma.   McCoy also raised a case involving Anheuser-Busch, in which
    an unlicensed bottler (Jinshi) is allegedly using Budweiser's
    Chinese name and visual elements confusingly similar to
    Anheuser-Busch trademarks on its labels. The officials promised to
    raise the issue with the Putian AIC, which was not present.

    ¶12. (SBU) Following the meeting, Nike representatives led the

    GUANGZHOU 00000376  004 OF 004

    delegation on a tour of Putian and pointed out several large
    factories that had been the subject of local enforcement actions led
    by provincial officials, contradicting local officials' assertions
    that the problem was mainly in small worksops. A large factory with
    apparently modern facilities, Rino, is currently the defendant in a
    civil case brought by Nike in the Fujian High Court. In preparing
    for that case, Nike successfully requested two separate preliminary
    injunctions from the Fujian high court: one for search and seizure
    and the other for cease and desist. (AmCham-South China's Buxbaum
    commented to the delegation that court injunctions in IPR cases are
    extremely useful and foreign rights-holders do not use them enough.)

    ¶13. (SBU) The Nike reps pointed out other factories that produced
    fake Nike shoes in nighttime shifts, when authorities were least
    likely to inspect. They suspected Nike factory staff have cooperated
    with some of the infringers. Because Putian officials are
    notoriously corrupt, Nike always contacts provincial authorities
    first, who then typically work with Fuzhou City officials to conduct
    raids. (In 2005, a Putian PSB official allegedly asked the Nike reps
    for a RMB 100,000 payment (USD 13,000) for each infringer shut
    down.) Enforcement authorities still do not provide Nike with lists
    of seized goods after raids done in Putian.  Nevertheless, they said
    administrative fines -- which typically range between RMB 200,000
    and 500,000 (USD 26,000 and 65,000) -- have a deterrent effect on
    infringers.

    Comment: Local Enforcement is a Mixed Bag
    -----------------------------------------

    ¶14. (SBU) Though government officials largely stuck to their talking
    points during the meetings, they also provided valuable insights
    into their priorities and recent actions. Guangdong and Fujian
    province officials are targeting copyright infringement and are
    adding resources to relevant offices. Nevertheless, it seems
    unlikely that local officials have the training and initiative to
    tackle large-scale counterfeit rings, particularly those operating
    over the internet and in multiple jurisdictions. On the municipal
    level, Xiamen has a proactive Customs office and U.S. companies have
    told us they are cooperative. Nevertheless, street-level counterfeit
    markets, though not as prevalent as in Guangzhou, continue to exist:
    we visited a street of well-marked shops selling golf equipment that
    they readily admitted was counterfeit. Putian authorities, on the
    other hand, provided almost no useful information and seemed
    entirely uninterested in a future dialogue. Industry complaints of
    severe local protectionism in Putian seem to be justified.

    ¶15. (SBU) The meetings were also an excellent venue for us to state
    clearly for the Chinese side our areas of concern, building upon
    information gathered from industry and the August 2006 provincial
    review, and laying down markers for future interactions with key
    local governments. In these large meetings with numerous agency
    representatives, it is crucial to step in early to make these points
    -- before the Chinese side has a chance to launch into long,
    sometimes uninformative presentations. By clearly stating areas of
    concern early, as well as praising recent successes, the Chinese
    side was more likely to tailor their remarks to our interests.

    ¶16. (U) USTR has cleared this cable.

    ROCK

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