On April 10, the United States filed with WTO two complaints against China which can be summarized as follows: the threshold to prosecute pirates for criminal liability is too high, and China sets up barriers to keep foreign books and audiovisual goods from gaining access to China's market. These events marked the first time that the United States filed complaints against China for IP matters since China joined the WTO in 2001.

According to WTO procedures, China and the United States will hold consultations following the filing of the United States' complaint to the WTO. If the two parties can't reach an agreement within the 60-day consultation period, the United States case will be submitted to a WTO dispute resolution panel.

The consultation is to be finalized by June 10 of this year, and thereafter will enter the multilateral consultation stage, if still governed by WTO procedures.

Complaints in Detail

Among the six charges made against China in the complaints, four are contained in the first complaint concerning China's enforcement of anti-piracy laws:

1. China should lower the quantitative requirement for copyright infringement crimes, as the current threshold standard remains too high by requiring the sale of at least 500 pirated CDs or more to constitute a crime. According to Articles 213, 214 and 215 of the Criminal Law, a trademark infringement is not a crime unless "the circumstances are rather serious" or "particularly serious, or it involves "a relatively large amount" or "huge amount"; also according to Articles 217 and 218, for copyright infringement, the standard to justify criminal punishment requires that "the amount of illegal gains is relatively large, or if there are other serious circumstances", "the amount of illegal gains is huge or if there are other especially serious circumstances" or "the amount of illegal gains is huge". Moreover, Article 220 provides that Articles 213~219 are applicable to "units" rather than "persons".

2. China should not allow counterfeit goods into its market by removing infringing logos or other features from such goods. According to Articles 27 and 30 of the Regulations on the Customs Protection for Intellectual Property, the customs may remove the infringing features from infringing goods seized and offer such goods for auction. In this way, infringing goods may reenter the market circulation channel.

3. China should not exclude foreign works from IP protection until they go through the censorship approval process. According to the United States, China's Intellectual Property Law clearly stipulates that such works are not protected until they are approved for distribution or production. However, currently foreign publications are subject to a censorship review before they can enter China.

Consequently, the intellectual property rights for these works are under no protection between the application for the preliminary examination of foreign publications, audiovisual products or performances, and the granting of licenses by Chinese government for their distribution to the public in China.

4. According to the Article 217 of the Criminal Law, penalties may be accorded to pirates "reproducing or distributing a written work, musical work, motion picture, television program or other visual works, computer software or other works without permission of the copyright owner". The United States fears that if pirates directly pirate reproductions or related products, it would be very difficult to subject them to the above article or to prosecute them.

The second complaint says that China has set up accession barriers for foreign books and audiovisual works, for example, by not allowing American companies in China to import American books or audiovisual works, which seriously damages the legitimate interests of American businesses. 

China is Unhappy with US Complaints

Regarding the two complaints, China's Ministry of Commerce responded first. "China takes the decision as a pity and is strongly displeased," said Wang Xinpei, spokesman from the ministry. "Chinese government has always been firm in protecting intellectual property and has attained well-known achievements… [The move of the United States] will seriously undermine the cooperative relations the two nations have established in the field, and will adversely affect bilateral economic and trade ties."

"We do not deny that there is still piracy and counterfeiting in the Chinese market, but it does not justify the United States' charging China at the WTO," explained Wang Ziqiang, spokesman for the National Copyright Administration. "Piracy and counterfeiting are global problems."

Tian Lipu, Director of the State Intellectual Property Office, said to Xinhua News that it was "not sensible or rational" for the United States government to file the complaints. It "ignored the Chinese government's immense efforts and great achievements in strengthening IP protection and tightening enforcement of its copyright laws". Also, he pointed out that a lot of the pirated audiovisual works come from sources in the Untied States. "To crack down on international piracy and counterfeiting requires dialogue and cooperation between the two nations. Accusations alone will not help."

Later, Chinese Vice Premier Wu Yi seemed much tougher in a speech given at the "2007 China High-Level Forum on Intellectual Property Protection". "The United States, regardless of China's enormous progress and in spite of expeditious and effective channels for bilateral communication and consultation, filed IP cases for piracy and market access for publications with the WTO Dispute Settlement Mechanism," Wu said. "Such a move not only runs counter to the consensus between our respective states' leaders to address differences through dialogue, but also is very rare, as it is the first time one WTO member concurrently lodges two complaints against another, which will surely seriously impact bilateral IP cooperation under the JCCT (China-U.S. Joint Commission on Commerce and Trade) framework and damage the already established bilateral cooperative ties on market access for publications. Strongly displeased, China will actively respond to the cases according to relevant WTO rules."

Chinese Public Optimistic Slightly

In an Internet survey by sina.com, Chinese citizens expressed their attitude towards the US WTO complaints. Among the 21,530 people who voted online by June 9, 11,027 or 51.2% voted "Yes" and 9067 or 42.11% voted "No", to the question "do you think the United States complaint is reasonable?" 11,420 or 53.04% voted "Yes" to the question "do you think the complaint will influence Sino-US economic and trade relations?"  To the question "do you think the two US WTO complaints will be successful", 39.56% voted "No", 31.91% voted "Yes", and 28.53% were uncertain.

Chinese media are mostly optimistic about the Sino-US WTO IP dispute, believing that the two nations will find a solution through consultation, and not let the dispute escalate. By introducing expert opinions, they deem it possible that the two countries will reach a consensus on information sharing and China's strengthening its IP protection. By their analysis, they have concluded that the United States' filing the WTO complaints against China is closely related to the more frequent Sino-US trade disputes and the huge trade imbalance in favor of China in recent years. The United States is suspected of using the complaints as a bargaining chip for the new round of talks on the eve of the second Sino-US strategic economic dialogue. As with previous disputes, the current dispute will end up with China making some concessions and with the United States withdrawing its claims. Therefore, the two countries will probably reach a compromise within the 60-day consultation period, not allowing the dispute to enter into litigation nor resulting in trade sanctions being imposed on each country.

As for the threshold to investigate pirates' criminal liability, Jiang Qiping, Secretary General of the Information Research Center of Chinese Academy of Social Sciences, told Beijing Daily that, "it is a copyright infringement crime in China to pirate 500 CDs or above, which is stricter than in the United States." It is "groundless" for the United States to accuse China of insufficient IP protection. He also did a calculation: in the United States, it is an IP crime if the sale of pirated products amounts to US$ 1,000 or above; in China, however, 500 pirated CDs cost only 5,000 yuan or less than US$ 700, at 10 yuan per piece. "This fully demonstrates that China is not inferior to any developed country in terms of its efforts in IP protection."

However, Jiang obviously overlooked a fact – China and the United States have different per capita incomes. In 2006, China's per capita income was US$ 1,740, while America's per capita income was US$ 36,276. His comparison of the two countries situations with respect to IP criminal thresholds is far too simple.

Moreover, consultations were held between China and the United States in Geneva on June 5 ~ 8 on issues involving IP protection and the access of foreign publications into the Chinese market. A Chinese delegation of more than 10 departments participated in the consultation. The Chinese party held that the United States did not correctly understand China's legal system concerning IP protection and related basic concepts, nor did it give China enough time to answer its long list of questions deliberately designed to be time-consuming. However, the consultations will enhance communication and clarification between China and the United States. China wishes that the United States would seriously consider the information provided by China during the consultation and appropriately evaluate China's IP protection laws. No information concerning the outcome of the consultations is available by now.