2006 SPECIAL 301 REPORT

EXECUTIVE SUMMARY

 

The 2006 “Special 301” annual review examines in detail the adequacy and effectiveness of 

intellectual property rights (IPR) protection in 87 countries. Based on a lengthy process of 

information gathering and analysis, the United States Trade Representative (USTR) has 

identified 48 countries that are designated in the categories of Priority Watch List, Watch List, or 

Section 306 Monitoring. The Special 301 Report reflects the Administration’s resolve to take 

consistently strong actions under the Special 301 provisions of the Trade Act of 1974 (Trade 

Act). 

This Administration is determined to ensure the adequate and effective protection of intellectual 

property and fair and equitable market access for U.S. products. The designations and 

corresponding requisite actions announced today result from close consultations with affected 

industry groups, other private sector representatives, Congressional leaders, foreign 

governments, and numerous agencies within the United States Government, and demonstrate the 

Administration's commitment to use all available methods to resolve IPR issues. 

Addressing weak IPR protection and enforcement, particularly in China and Russia, continues to 

be one of the Administration’s top priorities. Although this year’s Special 301 Report shows 

positive progress in many countries, rampant counterfeiting and piracy problems continue to 

plague both China and Russia, indicating a critical need for stronger intellectual property 

protection in China and Russia. 

With respect to China, this year’s Special 301 Report describes the United States’ plan to 

continue heightened scrutiny of China by maintaining China on the Priority Watch List and 

continuing Section 306 monitoring, as well as stepping up consideration of World Trade 

Organization (WTO) dispute settlement options. In addition, the United States will scrutinize 

IPR protection and enforcement at China’s provincial level through an unprecedented special 

provincial review to be conducted in the coming year. 

With respect to Russia, the Special 301 Report describes the United States’ on-going IPR 

discussions with Russia, outlines the United States’ efforts to bring Russia’s IPR regime in line 

with international standards, notes some progress in Russia’s recent efforts to combat IPR piracy 

and counterfeiting, and announces continued heightened scrutiny of Russia by maintaining 

Russia on the Priority Watch List. The United States will be monitoring closely China’s and 

Russia’s IPR activities throughout the coming year. 

In addition to China and Russia, the Special 301 Report sets out significant concerns with respect 

to such trading partners as Argentina, Belize, Brazil, Egypt, India, Indonesia, Israel, Lebanon, 

Paraguay, Turkey, Ukraine, and Venezuela. In addition, the report notes that the United States 

will consider all options, including, but not limited to, initiation of dispute settlement 

consultations in cases where countries do not appear to have implemented fully their obligations 

under the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS 

Agreement). 
In this year’s review, USTR devotes special attention to the need for significantly improved 

enforcement against counterfeiting and piracy. The United States places particular emphasis on 

the ongoing campaign to reduce production of unauthorized copies of optical media products 

such as compact discs (CDs), video compact discs (VCDs), digital versatile discs (DVDs), and 

compact disc read-only memory (CD-ROMs), as well as reducing the counterfeiting of 

trademarked goods. There are high rates of piracy and counterfeiting in many countries, 

including in China, India, and Russia. In addition, USTR continues to focus on other critically 

important issues, including Internet piracy, counterfeit pharmaceuticals, transshipment of pirated 

and counterfeit goods, requiring authorized use of legal software by government ministries, 

proper implementation of the TRIPS Agreement by developed and developing country WTO 

members, and full implementation of TRIPS Agreement standards by new WTO members at the 

time of their accession. 

Over the past year, many developing countries and newly acceding WTO members have made 

progress toward implementing their TRIPS Agreement obligations. Nevertheless, full 

implementation of TRIPS Agreement obligations has yet to be achieved in certain countries, 

particularly with respect to the TRIPS Agreement’s enforcement provisions. Levels of piracy 

and counterfeiting remain unacceptably high in these countries. The annual Special 301 review 

provides an opportunity to assess these issues, and the Special 301 Report sends a necessary 

message to the governments of countries where serious IPR-related problems exist. 

Positive Progress 

There has been significant positive progress on IPR protection and enforcement in several 

countries this past year. For example, Ukraine passed and implemented legislation to combat 

pirate production in optical media factories. Brazil made significant progress during the past 

year on copyright enforcement, specifically by adopting a National Action Plan to enforce 

copyrights and reduce piracy, drafting IPR legislation, increasing seizures and prosecutions, and 

developing strong public awareness campaigns to fight piracy. Pakistan also made significant 

progress by closing down numerous pirate optical disc production plants, establishing a Pakistan 

Intellectual Property Organization to centralize enforcement, and increasing border enforcement 

efforts, as well as increasing the number of raids, seizures, and arrests of IPR infringers. 

Several other countries in Asia also have made significant progress on IPR issues in the past 

year. For example, 

• Taiwan issued the first conviction to a defendant for copyright infringement over the 

Internet through a peer-to-peer file sharing service. 

• Indonesia has made progress in combating optical disc piracy in retail shops, and has 

begun to increase the numbers of raids against pirate optical media production plants, 

seizures of pirated goods and manufacturing equipment, and arrests of IPR 

infringers. 

• Malaysia took steps to combat pirate optical disc production by increasing the 

numbers of raids against illegal factories, seizing pirated goods and manufacturing 

equipment, and increasing arrests of copyright pirates. 
• The Philippines made progress by taking steps to combat pirate production in plants, 

including increasing the number of raids and enforcement actions. 

• The Republic of Korea established a Copyright Protection Center and increased 

enforcement against institutions using illegal software. 

In addition, USTR is pleased to announce that the following countries are being removed from 

the Watch List because of progress on IPR issues this past year: 

• Azerbaijan was removed from the Watch List due to IPR enforcement progress. 

• Kazakhstan was removed from the Watch List due to progress on copyright 

enforcement. 

• The Slovak Republic was removed from the Watch List due to progress on protection 

against unfair commercial use of undisclosed test and other data submitted by 

pharmaceutical companies seeking marketing approval for their products. 

• Uruguay was removed from the Watch List due to progress on copyright 

enforcement. 

The United States commends this positive progress by our trading partners, and urges each one 

to set a positive example by continuing to take strong IPR enforcement actions to combat piracy 

and counterfeiting. The United States will continue to work with these and other countries to 

achieve further improvements in IPR enforcement during the coming year. 

Free Trade Agreements and Implementation 

The United States is committed to a policy of promoting stronger protection or intellectual 

property rights. In this regard, the United States is advancing the protection of these rights 

through a variety of mechanisms, including the negotiation of free trade agreements (FTAs). 

The intellectual property chapters of U.S. FTAs establish high standards for intellectual property 

protection for copyright works, trademarks, and patents, and additionally provide strong rules for 

enforcement. 

The United States is pleased that recently concluded FTAs, including the Bahrain FTA, Oman 

FTA, the Peru Trade Promotion Agreement, the Colombia Trade Promotion Agreement, and the 

Central America-Dominican Republic Free Trade Agreement (CAFTA-DR) (with Costa Rica, El 

Salvador, Guatemala, Honduras, Nicaragua, and the Dominican Republic), will strengthen the 

protection of IPR in those countries. The United States also is seeking high levels of IPR 

protection and enforcement in the FTAs that are currently under negotiation with Panama, 

Thailand, the Southern Africa Customs Union, Ecuador, the United Arab Emirates, and in the 

ongoing negotiation of a Free Trade Area of the Americas. The United States will also seek 

strong IPR protection and enforcement in the recently announced FTA negotiations with the 

Republic of Korea and Malaysia. Another opportunity the United States uses to strengthen the 

protection and enforcement of intellectual property is the increasing number of trade and 

investment framework agreement (TIFA) negotiations with several countries in regions such as 

the Middle East and Asia. 

In addition, once an FTA is concluded, the United States works closely with our trading partners 

to achieve appropriate implementation of FTA obligations in domestic law. The United States 
engaged in this process over the past year with Australia, Singapore, Morocco, CAFTA-DR 

parties, Bahrain, and Oman. For example, in 2005 Morocco completed the implementation of its 

IPR obligations in the United States-Morocco FTA, and as a result, Morocco has comprehensive 

IPR legislation which provides a high standard of IPR protection. 

Generalized System of Preferences (GSP) reviews 

USTR will continue to use all statutory tools, as appropriate, to improve intellectual property 

protection in countries where it is inadequate. For example, USTR examines IPR practices in 

connection with its implementation of trade preference programs, such as the ongoing 

Generalized System of Preferences (GSP) reviews of countries. This year, because of significant 

progress in improving enforcement, USTR was pleased to announce the conclusion of the GSP 

reviews of Brazil, Kazakhstan and Pakistan. In addition, in January 2006, USTR restored GSP 

benefits to Ukraine because of progress in combating illegal optical disc production, including 

the passage of new legislation. USTR will continue to review the IPR practices of Russia, 

Lebanon and Uzbekistan under the ongoing GSP reviews of those countries. 

STOP! Initiative 

USTR is actively engaged in implementing the Administration’s Strategy Targeting Organized 

Piracy (STOP!) initiative. Announced in October 2004, STOP! brings together all the major 

players – the federal government, private sector and trade partners – to take concerted action in 

cracking down on piracy and counterfeiting. The initiative is part of an effort to enhance 

coordination among all relevant U.S. Government agencies and U.S. trading partners to tackle 

this global problem. As part of STOP!, USTR is advocating adoption of best practices 

guidelines for enforcement. In 2005, USTR led interagency teams to meet with a number of key 

trading partners, including Japan, Korea, Hong Kong, Singapore, UK, France, Germany, and the 

European Union, to establish greater cooperation on IPR enforcement. This year, USTR will 

continue these efforts to strengthen IPR laws and enforcement and create an international 

alliance against counterfeiting and piracy. 

As part of this effort, USTR, in coordination with other agencies, is introducing new initiatives in 

multilateral fora to improve the global intellectual property environment that will aid in 

disrupting the operations of pirates and counterfeiters. Key initiatives have gained endorsement 

and are undergoing implementation in the G-8, the US-EU Summit, the Organization for 

Economic Cooperation and Development (OECD), and the Asia-Pacific Economic Cooperation 

(APEC) forum. 

At the November APEC Ministerial, APEC Leaders adopted best practices guidelines to improve 

border enforcement, protect digital copies and combat internet piracy. USTR is spearheading an 

effort to have APEC leaders endorse additional IPR guidelines that would keep supply chains 

free of pirated and counterfeit goods and improve IPR public awareness campaigns throughout 

the Asia-Pacific region. 
Global Scope of Counterfeiting and Piracy 

Global IPR theft and trade in fakes and pirated materials have continued to grow, threatening 

innovative and creative economies around the world. Counterfeiting has developed from a 

localized industry concentrated on the copying of high-end designer goods into a massive, 

sophisticated global business involving the manufacturing and sale of counterfeit versions of a 

vast array of products, including soaps, shampoos, razors, batteries, cigarettes, alcoholic 

beverages, golf clubs, automobile parts, motorcycles, medicines, and health care products, to 

name a few. Counterfeiting of such a broad range of products on a global scale affects more than 

just the companies that produce legitimate products. While it has a direct impact on the sales and 

profits of those companies, counterfeits also hurt the consumers who waste their money and 

sometimes put themselves at risk by purchasing fake goods. It also hurts the countries concerned 

by decreasing tax revenues and deterring investments. Counterfeiters generally pay neither taxes 

nor duties, and counterfeiters often do not comply with basic manufacturing standards for the 

health and safety of workers or product quality and performance. Piracy of copyright products in 

digital, print (e.g., books, journals, and other printed materials), and other analog formats 

(including movies, music, business software, entertainment software, and books), as well as 

counterfeiting of all types of trademarked products, have grown rapidly because these illegal 

activities offer enormous profits and little risk for the criminal element of society. Criminals can 

enter into the counterfeiting and pirating business with little capital investment, and even if 

caught and charged with a crime, the penalties actually imposed in many countries are so low 

that they offer no deterrent. 

Counterfeit Pharmaceuticals 

The manufacture and distribution of counterfeit pharmaceuticals is an increasing problem that 

poses special concerns because of its health and safety risks. The United States notes its concern 

with the proliferation of counterfeit pharmaceutical manufacturing in China and Russia, and the 

sale and distribution of counterfeit pharmaceuticals in many countries. 

The global scope of piracy and counterfeiting requires stronger and more effective border 

enforcement to stop the import, export, and transit of pirated and counterfeit goods. Through 

bilateral consultations and our FTAs, USTR works to maximize the deterrent effect of remedies, 

including requirements that pirated and counterfeit products, as well as the equipment used to 

make them, are seized and destroyed. The economic damage caused by counterfeiting to the 

legitimate companies whose products are counterfeited is enormous. 

Notorious Markets 

Global piracy and counterfeiting thrive in part due to large marketplaces that deal in infringing 

goods. Information reviewed in this year’s Special 301 process points to the following virtual 

and physical markets as examples of marketplaces that have been the subject of enforcement 

action, or may merit further investigation for possible IPR infringements, or both. The list 

represents a selective summary of information reviewed during the Special 301 process; it is not 

a finding of violations of law. 
Virtual Markets 

www.allofmp3.com (Russia). Industry reports that allofmp3.com is the world’s largest serverbased pirate music website. Allofmp3.com is currently under criminal investigation by Russian 

authorities. Efforts to shut down the site have so far been unsuccessful. 

Baidu (China). Industry has identified Baidu as the largest of an estimated seven or more 

China-based “MP3 search engines” offering deep links to song files for downloads or streaming. 

Baidu has been the target of infringement actions. Notably, in September 2005 the People’s 

Court of Haidian District in Beijing reportedly ordered Baidu to pay RMB 68,000 ($8,400) to a 

music company for unauthorized downloads. Baidu has reportedly appealed. 

Kuro (Taiwan). In September 2005, managers of Kuro, a peer-to-peer service, were found 

guilty along with a subscriber of criminal copyright infringement and sentenced to prison terms. 

In the 2005 Special 301 Report, the United States encouraged Taiwan to improve efforts toward 

effectively combating increasing levels of Internet piracy. 

Physical Markets 

Xiangyang Market (Shanghai, China). In early 2006, the Shanghai Municipal Government 

said it would close this market on grounds of rampant sale of counterfeit fashion and apparel 

products. More recently, authorities pushed the closure date back to June 30, 2006. The United 

States welcomes commitments to close Xiangyang Market, and will monitor their 

implementation. Authorities must remain alert to the possibility that vendors of infringing 

products may seek to migrate their operations to other Shanghai markets, or to the Internet. 

Silk Street Market (Beijing, China). Industry has cited Beijing’s Silk Street Market as 

“perhaps the single biggest symbol of China’s IP enforcement problems.” In 2005, authorities 

began to pressure the landlords of Silk Street Market and other major retail and wholesale 

markets in Beijing to improve IPR compliance. In contrast to Shanghai’s Xiangyang Market, 

however, authorities have not said they would close down the Silk Street Market. Trademark 

owners filed civil claims in mid-2005 against the landlord, Beijing Xiushui Haosen Clothing Co. 

Ltd. In December 2005, the Beijing No. 2 Intermediate Court’s IP Tribunal decided five cases in 

favor of the right holders, imposing liability on the landlords for failing to halt infringements; 

Beijing’s High Court recently upheld that decision. 

Yiwu Wholesale Market (Yiwu, China). Yiwu Wholesale Market reportedly sells 

approximately 410,000 different items, mostly consisting of bulk sales of small consumer goods. 

Market officials recently estimated receiving approximately 400 complaints of IPR violations 

from buyers in 2005. Local officials have acknowledged certain problems and stressed their 

commitment to IPR enforcement. 

Gorbushka, Rubin Trade Center, Tsaritsino, and Mitino (Moscow, Russia). In November 

2005, a large Ministry of Interior operation reportedly resulted in police raids at numerous 

markets, including Gorbushka and Mitino. Industry previously reported that a closure of the 
Gorbushka market resulted in migration of vendors to the nearby Rubin Trade Center. Industry 

reports infringement problems at newer markets on the outskirts of Moscow, including 

Tsaritsinio and Mitino. A raid against the Tsaritsinio market in January 2005 reportedly resulted 

in the commencement of five criminal investigations. 

Tri-Border Region (Paraguay, Argentina, and Brazil). The Tri-Border Region of Paraguay, 

Argentina, and Brazil has a longstanding reputation as a hotbed of piracy and counterfeiting of 

all kinds of products. The U.S. Government is funding a training project through which U.S. 

Department of Justice and U.S. Department of Homeland Security officials will train 

prosecutors, police, and customs officials from the Tri-Border Region to combat intellectual 

property crime. 

Stand Center, “25 de Marco” Shopping Center, and Promocenters (Sao Paulo, Brazil). In 

late 2005, over 1,500 Brazilian police and other law enforcement personnel reportedly raided 

these huge, well-known markets. Acknowledging that the effect on sales of pirated and 

counterfeit products from such raids is temporary, local enforcement and fiscal officials have 

pledged continued actions. 

Tepito, Plaza Meave, Eje Central, Lomas Verdes, and Pericoapa Bazaar (Mexico City), 

CAPFU (Puebla, Mexico), and San Juan de Dios (Guadalajara, Mexico). An estimated 

50,000 vendors sell IPR products in Mexico’s ubiquitous, unregulated street markets. Past police 

raids on such markets have sometimes been met with violent resistance, requiring large 

contingents of security personnel. Video game right holders reported raids on Pericoapa Bazaar 

in May and December 2005, as well as a raid at Plaza Meave near Mexico City in December. 

Transshipment and Transiting of Goods 

“Transshipment” and “in transit goods” pose growing IPR problems. Transshipped goods and in 

transit goods enter the customs territory of a country intended to be sent to another destination; 

such goods are sometimes “diverted” for consumption in the customs territory through which 

they are shipped. Transshipped and in transit goods pose a high risk for counterfeiting and 

piracy because customs procedures may be used to disguise the true country of origin of the 

goods or to enter goods into customs territories where border enforcement for transshipped or in 

transit goods is known to be weak. Transshipment or in transit goods are significant problems in 

Belize, Canada, Latvia, Lithuania, Paraguay, Ukraine and United Arab Emirates, among others. 

The United States urges these countries to provide stronger border enforcement of intellectual 

property rights. The United States pledges to work together with these countries to improve their 

IPR border enforcement systems. 

Controlling Optical Media Production 

Over the past year, some trading partners, such as Ukraine, Brazil, Pakistan, and the Philippines 

have taken important steps toward implementing much-needed controls on optical media 

production in order to address and prevent future pirate activity. However, other countries 

urgently need to implement controls or improve existing inadequate measures. Such countries 

include India, Thailand, and Russia, which have not made sufficient progress in this regard. In 
contrast, Indonesia has begun to improve enforcement efforts, and Malaysia steadily continues to 

improve its enforcement efforts. Vietnam has agreed that optical disc regulation and its 

enforcement is an important method of attacking the problem there. The United States continues 

to urge its trading partners facing pirate optical media production within their borders to adopt 

similar controls or aggressively enforce existing regulations in the coming year. 

Internet Piracy and the WIPO Internet Treaties 

The Internet has undergone explosive growth and, coupled with the increased availability of 

broadband connections, serves as an extremely efficient global distribution network for pirated 

products. The explosive growth of copyright piracy on the Internet is a serious problem. The 

Administration is continuing to work with other governments, and to consult with U.S. industry, 

to develop the best strategy to address Internet piracy. An important first step in the fight against 

Internet piracy was achieved at the World Intellectual Property Organization (WIPO) when it 

concluded two copyright treaties in 1996: the WIPO Copyright Treaty (WCT) and the WIPO 

Performances and Phonograms Treaty (WPPT) (collectively, the “WIPO Internet Treaties”). 

The WIPO Internet Treaties help to raise the minimum standards of intellectual property 

protection around the world, particularly with respect to Internet-based delivery of copyrighted 

works. They clarify exclusive rights in the on-line environment and specifically prohibit the 

devices and services intended to circumvent technological protection measures for copyrighted 

works. Both treaties entered into force in 2002. 

In order to realize the enormous potential of the Internet, a growing number of countries are 

implementing the WIPO Internet Treaties and creating a legal environment conducive to 

investment and growth in Internet-related businesses and technologies. As of April 28, 2006, 

there are 58 members of the WCT and 57 members of the WPPT; this number will rise 

significantly when the EU Member States join. Other countries have implemented key 

provisions of the treaties in their national laws, without having yet formally ratified them. The 

WIPO Internet Treaties are now part of the international IPR legal regime and represent a 

majority world community view that the vital framework of protection under existing 

agreements, including the TRIPS Agreement, should be supplemented to eliminate any 

remaining gaps in copyright protection on the Internet that could impede the development of 

electronic commerce. The United States urges other governments to ratify and implement the 

two WIPO Internet Treaties. 

 Other Initiatives Regarding Internet Piracy 

The United States is strengthening the standards of protection for intellectual property by 

incorporating standards of the WIPO Internet Treaties as substantive obligations in the bilateral 

and regional trade agreements that the United States negotiates, as well as by seeking accession 

to those treaties as a substantive obligation. Moreover, the United States’ proposals in its FTA 

negotiations will continue to include up-to-date copyright and enforcement obligations to reflect 

contemporary technological challenges. 
Government Use of Software 

In October 1998, the United States announced an Executive Order directing United States 

Government agencies to maintain appropriate and effective procedures to ensure authorized use 

of legitimate software. In addition, USTR was directed to undertake an initiative to work with 

other governments, particularly those in need of modernizing their software management 

systems or about which concerns have been expressed, regarding unauthorized use of software 

and use of illegal software. 

The United States has achieved considerable progress under this initiative. Most recently, the 

United States welcomed the April 22, 2006 announcement by China that it will require 

computers to be pre-installed with licensed operating system software and government agencies 

to purchase only such computers. A number of countries and territories have issued decrees and 

other measures mandating the authorized use of only legitimate software by government 

ministries, some of which have yet to be fully implemented. Such countries include Bolivia, 

Chile, China, Colombia, Costa Rica, the Czech Republic, France, Greece, Hong Kong, Hungary, 

Ireland, Israel, Jordan, Korea, Lebanon, Macau, Paraguay, Peru, the Philippines, Spain, Taiwan, 

Thailand, Turkey, and the United Kingdom. The United States is pleased that these governments 

have recognized the importance of setting an example in this area and expects that these 

measures will be fully implemented. The United States looks forward to the adoption of similar 

decrees, with effective and transparent procedures that ensure legitimate use of software, by 

additional governments in the coming year. 

Implementation of the WTO TRIPS Agreement 

The TRIPS Agreement, which requires all WTO members to provide certain minimum standards 

of intellectual property protection, as well as effective IPR enforcement, was one of the most 

significant achievements of the Uruguay Round. The TRIPS Agreement is the first broadlysubscribed multilateral intellectual property agreement that is subject to mandatory dispute 

settlement provisions. 

Developed country members were required to implement the TRIPS Agreement fully as of 

January 1, 1996. Developing countries were given a transition period for many obligations until 

January 1, 2000. On November 29, 2005, the United States joined other WTO members in 

deciding to extend the deadline for least developed country members to comply with most 

remaining TRIPS provisions from January 2006 until July 2013. Recognizing the challenges 

faced by these countries, the United States worked closely with them and other WTO members 

to extend this date. The least developed country members in turn pledged to preserve the 

progress that some have already made toward TRIPS compliance. In addition, the least 

developed country members have until 2016 to implement their TRIPS obligations for patent and 

data protection for pharmaceutical products, as proposed by the United States at the Doha 

Ministerial. The United States looks forward to the successful completion of this transition. 

Developing country members continue to make progress toward full implementation of their 

TRIPS obligations. Nevertheless, certain members are still in the process of finalizing 
implementing legislation and many are still engaged in establishing adequate IPR enforcement 

mechanisms. Every year, the U.S. Government provides extensive technical assistance and 

training on the implementation of the TRIPS Agreement to a large number of U.S. trading 

partners. Such assistance is provided by a number of U.S. Government agencies, including the 

U.S. Patent and Trademark Office, the U.S. Copyright Office, the Department of State, the U.S. 

Agency for International Development, U.S. Customs and Border Protection, the Department of 

Justice, and the Department of Commerce. This assistance is provided on a country-by-country 

basis, as well as in group seminars, including those co-sponsored with the WIPO and the WTO. 

In addition, U.S. industry is actively involved in providing specific enforcement-oriented training 

in key markets around the world. Technical assistance involves the review of, and drafting 

assistance on, laws concerning intellectual property and enforcement. Training programs usually 

cover the substantive provisions of the TRIPS Agreement as well as the enforcement provisions. 

The United States will continue to work with WTO members and expects further progress in the 

near term to complete the TRIPS implementation process. However, in those instances in which 

additional progress is not achieved, the United States will consider other means of encouraging 

implementation, including the possibility of dispute settlement consultations. 

The United States urges all WTO members to swiftly complete their TRIPS implementation 

process, as it believes that compliance with the minimum standards set forth in the TRIPS 

Agreement is important for ensuring social and economic development. 

Intellectual Property and Health Policy 

The Administration is dedicated to addressing the serious health problems, such as HIV/AIDS, 

afflicting least-developed countries in Africa and elsewhere. The United States is firmly of the 

conviction that intellectual property protection, including for pharmaceutical patents, is critical to 

the long term viability of a health care system capable of developing new and innovative 

lifesaving medicines. Intellectual property rights are necessary to encourage rapid innovation, 

development, and commercialization of effective and safe drug therapies. Financial incentives 

are needed to develop new medications; no one benefits if research on such products is 

discouraged. 

At the same time, the United States is also firmly of the view that international obligations such 

as those in the TRIPS Agreement have sufficient flexibility to allow countries, particularly 

developing and least-developed countries, to address the serious public health problems that they 

face. 

At the WTO Doha Ministerial in November 2001, WTO Ministers issued a separate Declaration 

on the TRIPS Agreement and Public Health, acknowledging the serious public health problems 

afflicting African and other developing and least-developed country members, especially those 

resulting from HIV/AIDS, malaria, tuberculosis, and other epidemics. Ministers agreed that 

intellectual property rules contain flexibilities to meet the dual objectives of, on the one hand, 

meeting the needs of poor countries without the resources to pay for cutting edge 

pharmaceuticals and, on the other hand, ensuring that the patent rights system continues to 

promote the development and creation of new lifesaving drugs. 
At Doha, the United States proposed, and all WTO Members agreed, that the Doha Declaration 

should provide an additional ten-year transition period (until 2016) for least-developed country 

members to implement the pharmaceutical-related provisions of the TRIPS Agreement. This 

extended transition period balances the interests of intellectual property rights holders and the 

needs of the least-developed country members. 

In addition, in paragraph 6 of the Declaration, Ministers recognized that WTO Members with 

“insufficient or no manufacturing capacities in the pharmaceutical sector” could have difficulty 

using the compulsory licensing provisions of the TRIPS Agreement and directed the TRIPS 

Council to find an expeditious solution to this problem. In December 2002, the United States 

announced a framework to ease these WTO rules for countries in need to import life-saving 

drugs. 

On August 30, 2003, the WTO General Council adopted the “TRIPS/health solution,” which is 

comprised of a Decision and an accompanying Chairman’s Statement that sets out the shared 

understandings of WTO members on how the Decision should be interpreted and applied. Under 

the TRIPS/health solution, Members are permitted, in accordance with specified procedures, to 

issue compulsory licenses to export pharmaceutical products to countries that cannot produce 

drugs for themselves. 

On December 6, 2005, the WTO General Council agreed on an amendment to make the 

TRIPS/health solution reached in August 2003 a permanent part of the TRIPS Agreement. U.S. 

efforts in working with African nations and other developing country Members were 

instrumental to reaching this agreement. On December 16, 2005, the United States became the 

first WTO Member to formally notify the WTO that it had accepted the amendment. Other 

WTO Members now have until December 1, 2007 to accept the amendment. It will go into 

effect, for those Members that accept it, once two-thirds of the membership has accepted it. The 

August 2003 waiver will remain in place and available until the amendment is in force. 

The TRIPS/health solution is a demonstration of how the WTO can work to address the needs of 

poor countries. The United States strongly supports effective and appropriate use of the 

TRIPS/health solution to facilitate access to life-saving medicines by countries in need. The 

United States would be willing to discuss the need to provide technical assistance if some 

Members encounter difficulties in implementing or utilizing the solution. In fact, the United 

States has already taken steps to ensure that the solution can be implemented. For example, in 

July 2004, the United States reached an agreement with Canada to ensure that the provisions of 

the North American Free Trade Agreement (NAFTA) will not impede implementation of the 

TRIPS/health solution. 

In recent free trade agreements with the parties to CAFTA-DR, Morocco, Bahrain, Oman, Peru 

and Colombia, the United States has clarified that the intellectual property provisions in the 

agreements do not stand in the way of measures necessary to protect public health. Specifically, 

the United States has confirmed that the intellectual property chapters of the FTAs do not affect 

the ability of the United States or our FTA partners to take necessary measures to protect public 

health by promoting access to medicines for all, in particular concerning cases such as 

HIV/AIDS, tuberculosis, malaria, and other epidemics as well as circumstances of extreme 
urgency or national emergency. The United States has also made clear that the intellectual 

property chapter of the FTAs will not prevent effective utilization of the TRIPS/health solution. 

Supporting Pharmaceutical Innovation 

USTR has sought to eliminate market access barriers faced by U.S. pharmaceutical companies in 

many countries and to both provide for affordable health care today and support the innovation 

that assures improved health care tomorrow. In addition to direct and indirect government 

funding, a strong and effective intellectual property system is crucial to achieving these goals as 

are other policies that encourage innovation in the health technology sector. 

In the United States, government action has focused on creating an environment that best 

encourages further innovation and yields a constant flow of new and innovative medicines to the 

market. The goal has been to ensure that consumers benefit from both technological 

breakthroughs as well as the competition that further innovation generates. The United States 

also relies on a strong generic pharmaceutical industry to increase competitive pressure to lower 

drug prices. 

Historically, the Special 301 process has focused on the strength of intellectual property 

protection and enforcement by our trading partners. However, even where a country’s IPR 

regime is adequate, price controls and regulatory and other market access barriers can serve to 

discourage the development of new drugs. These barriers can arise in a variety of contexts, 

including reference pricing, approval delays and procedural barriers to approvals, restrictions on 

dispensing and prescribing, and unfair reimbursement policies. Such measures have the potential 

to be nontransparent, as the criteria and rationale for certain pharmaceutical prices or 

reimbursement amounts are often not fully disclosed even to the pharmaceutical companies 

seeking to market their drugs. A 2004 U.S. Government study, led by the Department of 

Commerce, found that price controls and regulatory and other barriers diminish returns on 

pharmaceutical products, and reduce the amount of global pharmaceutical research and 

development below what it would otherwise be under market conditions, inhibiting the 

development of the next generation of life-saving drugs. 

To address these issues, USTR and the Departments of Health and Human Services, Commerce, 

and State, formed a task force. This task force is working to engage our OECD trading partners 

on the most effective way to promote continued innovation in the pharmaceutical sector and 

enhanced access to innovative pharmaceuticals now and in the future. This task force is working 

to achieve these goals through FTA negotiations and the establishment of bilateral dialogues 

with key countries. 

The United States addressed transparency and accountability of the Australian pharmaceutical 

reimbursement system in the Australia FTA, which went into effect in 2005. The FTA also 

created a United States-Australia Medicines Working Group for continued discussion of 

emerging bilateral concerns and health policy issues. The United States held the first meeting of 

this Working Group in January to review implementation of the pharmaceutical provisions of the 

FTA and to discuss ongoing issues of mutual concern 
In February 2006, the United States and the Republic of Korea (Korea) announced their intent to 

launch FTA negotiations. The Administration has had a longstanding dialogue with Korea on 

pharmaceutical issues and, as a result, has seen considerable improvement over the past decade 

in U.S. pharmaceutical companies’ access to the Korean market. In 2005, for example, Korea's 

Health Insurance Reimbursement Agency began providing written justifications for new drug 

pricing and listing decisions. The United States Government will seek additional progress on 

priority issues, including ensuring competition, supporting innovation, and addressing market 

access and transparency issues, in the FTA negotiations, which the Administration is seeking to 

conclude by the end of the year. 

The United States also is seeking to establish or continue dialogues with OECD and other 

countries to address concerns and encourage a common understanding between developed 

countries on questions related to innovation in the pharmaceutical sector. The United States 

already has had such dialogues with Japan and Germany, and is seeking to establish ones with 

other countries. It also has established a dialogue on pharmaceutical issues with China.

With respect to Japan, pharmaceutical and medical device issues are an integral part of the 

Administration’s regulatory reform work. The United States has made steady progress in 

improving transparency in this sector, ensuring that foreign pharmaceutical and medical device 

manufacturers have meaningful opportunities to provide input into important regulatory matters, 

and facilitating the introduction of innovative new pharmaceuticals and medical devices into 

Japan’s market. 

The United States also has established a constructive dialogue with Germany on policy goals and 

concerns related to health care. During these discussions, the two sides have exchanged views 

on how best to deal with challenges of balancing health care spending with other priorities and of 

providing affordable health care today with supporting the innovation that assures improved 

health care is available in the future. The United States also raised specific concerns related to 

Germany’s reference pricing system for determining product reimbursement and the 

transparency of the German Government’s decision-making process regarding pharmaceutical 

pricing. The two governments plan to continue this dialogue as the German Government 

considers future healthcare reform. 

The United States continues to urge China to price drugs in a manner that appropriately values 

innovations and to add new drugs to its national formulary, which controls access to medicines 

for China. The Administration also is pressing China to address the production and export of 

counterfeit pharmaceuticals, which endanger lives.

During the coming year, the U.S. Government is seeking to establish similar dialogues with 

Poland, Italy, France, Canada, and other countries. The United States shares policy goals and 

concerns related to health care with these countries, including aging populations and rising health 

care costs. The United States also shares the objective of continued improvement in the health 

and quality of life of its citizens and delivering care in the most efficient and responsive way 

possible. The United States hopes these dialogues will help address specific concerns related to 

price controls, and regulatory and transparency issues as well as develop a constructive dialogue 

with these countries on health policy issues of mutual concern. 
WTO Dispute Settlement 

Dispute settlement efforts this year continue to focus on resolving disputes that were announced 

through previous Special 301 reviews and determinations, using the full range of tools available. 

These tools include informal consultations and settlement, which can be more efficient and are 

therefore the preferred manner of resolving disputes, or where those are unsuccessful, full 

utilization of the dispute settlement process. 

At the conclusion of the 1999 Special 301 review, the United States initiated dispute settlement 

consultations concerning the European Union’s (EU) regulation on food-related geographical 

indications (GIs), based on concerns that the regulation was inconsistent with the EU’s TRIPS 

Agreement obligations. These consultations resulted from the United States’ long-standing 

complaint that the EU GI system discriminates against foreign products and persons – notably by 

requiring that EU trading partners adopt an “EU-style” system of GI protection – and provides 

insufficient protections to trademark owners. Because those consultations failed to resolve the 

matter, on August 18, 2003, the United States requested the establishment of a panel, and 

panelists were appointed on February 23, 2004. 

 

On April 20, 2005, the WTO Dispute Settlement Body (“DSB”) adopted a panel report ruling in 

favor of the United States that the EU GI regulation is inconsistent with the EU’s obligations 

under the TRIPS Agreement and the General Agreement on Tariffs and Trade 1994. In the panel 

report adopted by the DSB, the panel agreed that the EU’s GI regulation impermissibly 

discriminates against non-EU products and persons. The panel also agreed with the United 

States that Europe could not, consistent with WTO rules, deny U.S. trademark owners their 

rights; it found that, under the regulation, any exceptions to trademark rights for the use of 

registered GIs were narrow, and limited to the actual GI name as registered. The DSB 

recommended that the EU amend its GI regulation to come into compliance with its WTO 

obligations, and the EC was given until April 3, 2006 to do so. On March 31, 2006, the EC 

published a revised GI Regulation that is intended to comply with the DSB recommendations 

and rulings. There remain some concerns with respect to this revised GI Regulation, however, 

which the United States has asked the EC to address, and the United States intends to continue 

monitoring this situation. 

 

The United States, in cooperation with other WTO members, has also made innovative use of 

WTO tools other than dispute settlement. For instance, in October 2005, the United States, 

Japan, and Switzerland made simultaneous transparency requests to China under Article 63.3 of 

the TRIPS Agreement. 
BACKGROUND ON SPECIAL 301

Pursuant to Section 182 of the Trade Act of 1974, as amended by the Omnibus Trade and 

Competitiveness Act of 1988 and the Uruguay Round Agreements Act (enacted in 1994) 

(“Special 301”), under Special 301 provisions, USTR must identify those countries that deny 

adequate and effective protection for IPR or deny fair and equitable market access for persons 

that rely on intellectual property protection. Countries that have the most onerous or egregious 

acts, policies, or practices and whose acts, policies, or practices have the greatest adverse impact 

(actual or potential) on the relevant U.S. products must be designated as “Priority Foreign 

Countries.” 

Priority Foreign Countries are potentially subject to an investigation under the Section 301 

provisions of the Trade Act of 1974. USTR may not designate a country as a Priority Foreign 

Country if it is entering into good faith negotiations or making significant progress in bilateral or 

multilateral negotiations to provide adequate and effective protection of IPR. 

USTR must decide whether to identify countries within 30 days after issuance of the annual 

National Trade Estimate Report. In addition, USTR may identify a trading partner as a Priority 

Foreign Country or remove such identification whenever warranted. 

USTR has created a “Priority Watch List” and “Watch List” under Special 301 provisions. 

Placement of a trading partner on the Priority Watch List or Watch List indicates that particular 

problems exist in that country with respect to IPR protection, enforcement, or market access for 

persons relying on intellectual property. Countries placed on the Priority Watch List are the 

focus of increased bilateral attention concerning the problem areas. 

Additionally, under Section 306, USTR monitors a country’s compliance with bilateral 

intellectual property agreements that are the basis for resolving an investigation under Section 

301. USTR may apply sanctions if a country fails to satisfactorily implement an agreement. 

The interagency Trade Policy Staff Committee, in advising USTR on the implementation of 

Special 301, obtains information from and holds consultations with the private sector, U.S. 

embassies, the United States' trading partners, the U.S. Congress, and the National Trade 

Estimates report, among other sources. 

 
PRIORITY WATCH LIST

CHINA 

China does not provide American copyright materials, inventions, brands, and trade secrets the 

intellectual property protection and enforcement to which they are entitled. China therefore 

remains a top intellectual property enforcement priority. China will remain on the Priority 

Watch List, and remain subject to Section 306 monitoring. Faced with only limited progress by 

China in addressing certain deficiencies in IPR protection and enforcement, the United States 

will step up consideration of its WTO dispute settlement options. 

In addition, the United States will conduct a special provincial review in the coming year to 

examine the adequacy and effectiveness of IPR protection and enforcement at the provincial 

level. The goal of this review will be to spotlight strengths, weaknesses, and inconsistencies in 

and among specific jurisdictions, and to inform next year’s Special 301 review of China as a 

whole. USTR expects to seek public comments in connection with the special provincial review. 

The United States is using this year’s Special 301 Report to examine four “hot spots” – 

Guangdong Province, Beijing City, Zhejiang Province, and Fujian Province – where, it appears, 

there is an acute need for authorities to more effectively establish and sustain proactive, deterrent 

IPR enforcement. 

The United States recognizes and appreciates the efforts of the many officials in China, led by 

President Hu Jintao and Vice Premier Wu Yi, who continue to give voice to China’s 

commitment to protecting intellectual property rights and work hard to make it a reality. In spite 

of these efforts, the reality of IPR enforcement in China continues to lag far behind the 

commitment made by China’s government at the Joint Commission on Commerce and Trade in 

2004, and renewed in 2005 and 2006, to achieve a significant reduction in IPR infringement 

throughout China. 

China has made welcome progress in some areas. Consistent with the plan laid out in last year’s 

Special 301 Report, the United States has used the JCCT, including the IPR Working Group, to 

secure new, specific IPR commitments, and in a few instances, specific actions to implement 

existing commitments. Some of the key IPR results included: 

• enforcement actions by China against plants that produce pirated optical discs; 

• new rules that require computers to be pre-installed with licensed operating system 

software; 

• an agreement to work on cooperation to combat pirated goods displayed at trade fairs in 

China; 

• a commitment to intensify efforts to eliminate infringing products at major consumer 

markets in China, such as Silk Street Market in Beijing; and 
• a commitment to ensure the legalization of software used in Chinese enterprises and to 

take up issues of government and enterprise software asset management in the JCCT IPR 

Working Group. 

The two governments also agreed to step up cooperation on IPR law enforcement efforts, 

increase customs cooperation, and provide China with additional technical assistance to fully 

implement the WIPO Internet Treaties. Together with Japan and Switzerland, the United States 

has also used WTO tools in new ways to start an ongoing process of making China’s whole IPR 

regime more transparent. 

Apart from longstanding concerns over IPR enforcement, the United States is alert to U.S. 

industry concerns about the possibility that laws or policies in a variety of fields might be 

misused to favor domestic over foreign IPR. Such concerns are especially relevant in light of 

recently issued Chinese government policies establishing a procurement preference for 

domestically innovated products, statements and consideration of legal changes regarding such 

areas as compulsory licensing and the use of IPR in setting standards, and other emerging legal 

and policy developments that have the potential to affect IPR protection and market access for 

IPR-bearing goods and services. The United States will monitor these developments closely to 

ensure fair treatment for U.S. rights holders. 

Infringement Levels Remain Unacceptably High

Despite anti-piracy campaigns in China and an increasing number of IPR cases in Chinese 

courts, overall piracy and counterfeiting levels in China remained unacceptably high in 2005. 

IPR infringement continued to affect products, brands and technologies from a wide range of 

industries, including films, music and sound recordings, publishing, business and entertainment 

software, pharmaceuticals, chemicals, information technology, apparel, athletic footwear, textile 

fabrics and floor coverings, consumer goods, electrical equipment, automotive parts and 

industrial products, among many others. 

Industry sources in 2005 continued to estimate that levels of piracy in China across all lines of 

copyright business are 85 to 93 percent, indicating little to no improvement. For example, 

estimated business software losses fell to $1.27 billion in 2005 from $1.48 billion in 2004. 

However, the software industry reports that the level of government purchases does not support 

the conclusion that all software in government offices has been legalized, and notes that software 

end-user piracy outside the government remains rampant. Internet piracy is increasing and enduser piracy of business software and other copyright materials, such as books and journals, 

remains a key concern. The share of IPR infringing product seizures of Chinese origin at the U.S. 

border increased to 69 percent in 2005 from 63 percent in 2004, while the total value of the IPR 

infringing goods from China decreased to $63.9 million in 2005 from $87.2 million in 2004. 

China’s share of infringing goods seized at the border is more than ten times greater than that of 

any other U.S. trading partner. 

China’s counterfeits include many products that pose a direct threat to the health and safety of 

consumers in the United States, China and elsewhere, such as pharmaceuticals, batteries, auto 

parts, industrial equipment, toys, and many other products. The harm from counterfeiting is not 
limited to consumers and right holders; China has estimated its own tax losses due to 

counterfeiting at $3.2-4 billion in 2002. 

Some Progress, but Overall Enforcement Remains Inadequate

Inadequate IPR enforcement is one of China’s greatest shortcomings as a trading partner. Rights 

holders report that enforcement efforts, particularly at the local level, are hampered by poor 

coordination among Chinese Government ministries and agencies, local protectionism and 

corruption, high thresholds for initiating investigations and prosecuting criminal cases, lack of 

training, and inadequate and non-transparent processes. 

Most of all, China suffers from chronic over-reliance on toothless administrative enforcement 

and underutilization of criminal remedies. China’s own 2004 data showed that it channeled 

more than 99 percent of copyright and trademark cases into its administrative systems and turned 

less than one percent of cases over to the police. The trademark and copyright industries 

continue to point out that administrative fines are too low to provide a deterrent, and as a result, 

infringers continue to consider administrative seizures and fines as a cost of doing business. 

In 2005, the United States pressed China to address its over-reliance on administrative 

enforcement. At the 2005 JCCT, China agreed to increase the number of criminal prosecutions 

for IPR violations relative to the total number of IPR administrative cases. 

Unfortunately, there has been no sign yet of a significant shift in emphasis toward criminal 

enforcement. China’s reported absolute numbers of criminal cases have risen,1

 but China has 

not publicized corresponding administrative statistics that would reveal a shift. On the contrary, 

according to a trademark industry submission, officials of China’s State Administration for 

Industry and Commerce recently indicated that the number of trademark cases transferred to the 

police during 2005 was expected to be less than 0.3% of the total. Right holders continued to 

express dissatisfaction with the number and substance of investigations, prosecutions, and 

convictions last year by local police. 

In the 2005 Special 301 Report, the United States pledged to examine closely whether China’s 

implementation of a December 2004 Judicial Interpretation on thresholds for criminal liability 

would address underlying deficiencies and actually deter counterfeiting and piracy. Following 

careful examination of available information, the United States has concluded that China’s high 

thresholds for criminal liability (i.e., the minimum values or volumes required to initiate criminal 

prosecution) continue to be a major reason for the lack of an effective criminal deterrent. The 

partial reforms reflected in the December 2004 measure did not go far enough; the mandated 

thresholds remain so high that they make it impossible as a matter of law to prosecute many 

commercial infringers, especially at the retail level. The problem is made worse by China’s 

 

1

 According to Chinese data provided in response to U.S. requests, China initiated no copyright retail cases under 

Article 218 of its Criminal Law in 2004 and six cases in 2005. Under Article 217 of the same law, covering 

copyright reproduction and distribution, the number of cases initiated rose from 13 to 28. China’s self-reported 

numbers of trademark counterfeiting cases initiated also rose from 53 to 98 under Article 215 (sale of counterfeit 

trademark goods); from 163 to 221 under Article 213 (manufacture of counterfeit trademark goods), and from 100 to 

134 under Article 215 (manufacture of counterfeit trademark labels). 
reliance on values of infringing products, rather than genuine products, as the default rule for 

determining whether threshold values are met. China has thus maintained a legal “safe harbor” 

that protects a large group of commercial infringers and operates to deprive the criminal 

enforcement authorities of needed information regarding the sources of counterfeit and pirated 

goods. 

Right holders have pointed to a number of other deficiencies that collectively highlight the need 

for China to reform its criminal IPR laws, which were not revised at the time of WTO accession. 

In addition to the thresholds, notable problems include the profit motive requirement in copyright 

cases; the requirement of identical trademarks in counterfeiting cases; the lack of criminal 

liability for certain acts of copyright infringement; and the need to establish minimum, 

proportional sentences and clear standards for initiation of police investigations in cases where 

there is a reasonable suspicion of criminal activity. The United States calls on China to address 

these issues by announcing an initiative to reform its criminal IPR laws and related criminal 

measures. 

Trade in pirated optical discs continues to thrive, supplied by smugglers and by both licensed and 

unlicensed factories. Small retail shops continue to be the major commercial outlets for pirated 

movies and music, and roaming vendors offering cheap pirated discs continue to be very visible 

in major cities across China. China made a 2005 JCCT commitment to take aggressive action 

against movie piracy, including enhanced enforcement for titles not yet authorized for 

distribution. Right holders have monitored China’s efforts and report little meaningful 

improvement in piracy of pre-release titles. Right holder surveys showed progress in a limited 

number of retail outlets in Shanghai, one of four selected cities, but right holders reported that 

surveys of the three other major cities yielded disappointing results. 

Piracy and counterfeiting are partly products of China’s market access restrictions, which 

artificially limit the availability of foreign content and thus lead consumers to the black market. 

Various U.S. right holders continue to be adversely impacted by restrictions on imports, 

including having to go through import monopolies, restrictions on foreign investment in 

distribution, and delays in regulatory approval. Examples include restrictions on the import and 

distribution of legitimate foreign movies and delays created by the censorship process. Efforts to 

speed up content review for entertainment software have also been unavailing. 

There have been a few bright spots in the areas of enforcement. Industry has confirmed that 

some of China’s special campaigns, such as the continuing “Mountain Eagle” campaign against 

trademark infringement crimes, have in fact resulted in increased arrests and seizures of 

infringing materials, although the disposition of seized goods and the outcomes of cases remain 

largely obscured by lack of transparency. 

China has announced a 2006 Action Plan on IPR Protection, including “special crackdown 

efforts” with respect to various IPR infringement problems. The United States looks to China to 

achieve real and transparent results for U.S. right holders through implementation of the Action 

Plan. In addition to stepping up action against trademark counterfeiting, the United States calls 

on China to launch and publicize significant criminal enforcement actions against optical media 

piracy, Internet piracy, and other forms of piracy afflicting U.S. copyright owners. 
The United States is encouraged by China’s recent adoption of amended rules governing transfer 

of administrative and customs cases to criminal authorities. These rules are not a complete 

solution and do not address the problem of thresholds, but they show a desire to address the issue 

and could help to overcome a certain amount of bureaucratic inertia and other institutional 

barriers to increasing criminal enforcement. The United States is also encouraged that 

administrative authorities in a few parts of China, notably Shanghai, appeared to show greater 

willingness to take ex officio enforcement action on behalf of U.S. right holders without the need 

for a complaint. The United States would welcome more such action, combined with higher, 

deterrent fines. 

The United States is also encouraged that authorities in China started to take enforcement actions 

against Internet piracy in 2005, following China’s 2005 JCCT commitment to carry out a 

“nationwide crack-down on Internet piracy, including through enforcement at Internet cafes.” 

This included a temporary campaign from October 2005 through February 2006, the concrete 

results of which remain unclear. So far, enforcement against Internet piracy has largely been a 

localized, administrative enforcement effort in a few cities. The problems of Internet piracy call 

for a coordinated, national effort backed by appropriate resources. 

The United States also hopes that China will use its implementation of the 2006 Action Plan as 

an opportunity to examine a variety of structural reforms that would contribute to improving IPR 

enforcement. In addition to reforming China’s criminal laws as discussed above, other areas that 

China should explore include the positive results that could be achieved through specialized 

national IPR courts and prosecutors, providing faster trademark examination, and ensuring that 

the resources available to local administrative, police, and judicial authorities charged with 

protecting and enforcing IPR are adequate to the task. 

Customs Enforcement: The export of infringing products from China is of grave concern 

worldwide. The statistics on seizures of Chinese-origin goods at the U.S. border, cited above, 

speak for themselves. China’s infringing products dominate the black markets of the world, and 

the reputation of China’s industry has suffered as a result. China is not doing enough to stop the 

outbound infringing products at its borders. Now that China has put rules in place for transfer of 

customs cases to criminal authorities, the United States calls on China to begin an aggressive 

campaign to prosecute exporters of infringing products. 

The United States also remains concerned about various aspects of China’s 2004 customs 

regulations and implementing rules, which were intended to strengthen border enforcement and 

to make it easier for rights holders to secure effective enforcement at the border. For example, 

these rules impose a deadline of only three days for a right holder to apply for seizure of 

suspected infringing goods held by Chinese customs. In addition, disposal of confiscated goods 

remains a problem under the implementing rules, which appear to mandate auction, rather than 

destruction, of infringing goods not purchased by the right holder or used for public welfare. 

Civil Enforcement: In part because of the ineffectiveness of the administrative and criminal 

enforcement systems in China, there has been an increase in the number of civil actions seeking 

monetary damages or injunctive relief. Most of these actions have been brought by Chinese 
rights holders, although foreign rights holders are increasingly turning to the civil system for 

redress. While seeing some success, the United States continues to hear complaints of a lack of 

consistent, uniform and fair enforcement of China’s IPR laws and regulations in the civil courts. 

Litigants have found that most judges lack necessary technical training, court rules regarding 

evidence, expert witnesses, and protection of confidential information are vague or ineffective, 

and the costs of investigation and bringing cases are prohibitively high. In the patent area, where 

civil enforcement is of particular importance, the process is inefficient and unpredictable. A 

single case can take four to seven years to complete. 

Key “Hot Spots” Require Increased Attention and Resources

Enforcement of intellectual property rights is inconsistent across China. Many locations in 

China require increased attention and resources to improve weak criminal, administrative, and/or 

civil enforcement for various forms of IPR. Some areas appear to have become focal points for 

IPR problems with respect to particular products. The recently increased attention to “hot spots” 

by national and local authorities in China is a welcome development if such efforts are sustained 

over time to deter infringing activity. 

Based on information reviewed for this year’s Special 301 Report, the U.S. government looks to 

China to take action in the following national “hot spots” where there appears to be an acute 

need to more effectively establish and sustain proactive, deterrent IPR enforcement: 

Guangdong Province is the center of large-scale counterfeit and pirate manufacturing in China 

for a variety of goods, ranging from low-cost consumer goods, such as household items, clothing 

and optical media, to high-technology products, such as computer equipment, video game 

consoles (and game discs/cartridges), and other electronics. Guangdong’s role as an export 

engine creates a need for more deterrent customs remedies. Availability of criminal remedies is 

also a problem; a notable example is the need for prosecutions to address optical media piracy. 

Localities and markets identified as problem areas by IPR owners include Guangzhou, Shenzhen, 

Shantou, Chaoyang, and Jieyang, as well as several markets in Baiyun District, Luowu Market at 

the border between Shenzhen and Hong Kong, and numerous other markets. 

Beijing City is both the nation’s capital and one of its most visible centers for retail 

counterfeiting and piracy. Rights holders report that protection varies in different parts of the 

city. Problem areas include major markets, such as the infamous Silk Street Market located near 

the U.S. Embassy; numerous CD/DVD shops operating with official permission in the Chaoyang 

District and elsewhere in the city (some of which have been the subject of raids); and several 

markets that reportedly permit consumers to order infringing software loaded onto computers. 

Efforts by copyright authorities to crack down on retail outlets have to date had very limited 

success. Beijing trademark officials have become increasingly active in addressing retail 

counterfeiting issues, but these efforts have been incomplete. For example, Beijing has a special 

list of protected brands that appears to include primarily European brands. Beijing’s university 

campuses have also been cited by right holders as magnets for textbook piracy, and they offer a 

broadband environment that can support copyright infringement. 
Zhejiang Province in eastern China has been identified over the years by right holders as a 

major distribution center for infringing goods. Right holders have repeatedly drawn attention to 

the City of Yiwu as an important distribution center for small commercial goods, including, for 

example, suspected counterfeit lighter fluid and yellow wristbands suspected of infringing the 

LIVESTRONG trademark of the Lance Armstrong Foundation. Many shipments of counterfeit 

goods to the developing world are suspected of having originated in Yiwu. Recent visits by U.S. 

officials indicated that enforcement efforts there have increased in recent years. For example, 

criminal trademark enforcement increased during the Mountain Eagle campaign. Other localities 

identified as problem areas by IPR owners include Ningbo, Cixi, Taizhou and Wenzhou. 

Fujian Province is home to large-scale manufacturing, including athletic footwear companies in 

Jinjiang and Putian that have been the target of infringement allegations in long-running legal 

actions by U.S. trademark owners New Balance, Reebok, and Nike. The lack of prompt and 

complete action in these cases has allowed uninterrupted, long-term manufacturing of the subject 

goods. Other localities identified as problem areas by U.S. IPR owners include Quanzhou. 

Progress Made – More Needed

Joint Commission on Commerce and Trade

On April 11, 2006, the third “elevated” meeting of the Joint Commission on Commerce and 

Trade (JCCT) was held in Washington, D.C. between U.S. Trade Representative Rob Portman, 

Secretary of Commerce Carlos Gutierrez and Chinese Vice Premier Wu Yi. Measured progress 

was made toward stepping up IPR enforcement efforts in China. The United States made clear 

that while China has made progress, the United States does not consider that China has met its 

2004 JCCT commitment to significantly reduce IPR infringement levels. 

Some of the key 2006 JCCT IPR results include actions by China against plants that produce 

pirated optical discs (however no plant operators have so far been criminally prosecuted); 

agreement to consider law enforcement cooperation to combat optical disc piracy; new rules 

issued by the Chinese government requiring computers to be pre-installed with licensed 

operating system software and government agencies to purchase only such computers; efforts to 

combat counterfeit and pirated goods displayed at trade fairs in China; ensure vigorous pursuit of 

individual IPR cases raised by the United States Government through the formal bilateral referral 

mechanism; and a commitment to intensify efforts to eliminate infringing products at major 

consumer markets in China, such as Silk Street Market in Beijing. The Chinese government 

further agreed to discuss Chinese production of active pharmaceutical ingredients (also known as 

bulk chemicals). U.S. industry is concerned that the uneven application of Chinese regulatory 

requirements can facilitate the production of counterfeit pharmaceutical products. 

China has also made progress in implementing a number of IPR-related commitments made at 

the 2004 and 2005 JCCT meetings. At the 2006 JCCT China reaffirmed its commitment, made 

at previous JCCT meetings, to continue efforts to ensure use of legalized software at all levels of 

government, and to adopt procedures to ensure that enterprises use legal software, beginning 

with large enterprises and state-owned enterprises. As noted above, China recently fulfilled a 

2005 JCCT commitment by adopting amended rules governing the transfer of administrative and 
customs cases to criminal authorities, and has taken some steps to pursue administrative actions 

against end-user software piracy. China recently posted an IPR ombudsman to its Embassy in 

Washington, who has facilitated contacts between U.S. government officials and their 

counterparts in Beijing, and been a source of information for U.S. businesses, including small 

and medium-size companies. 

China has also sought to expand enforcement cooperation as agreed at the 2004 and 2005 JCCT 

meetings. In response to a proposal from China’s General Administration of Customs (GAC), 

U.S. Customs and Border Protection (CBP) is developing a plan under which CBP will cooperate 

with GAC to affect a four-part customs cooperation program aimed at improving administrative 

IPR border enforcement in both countries. A key element of the proposal is a possible data 

exchange process through which, on an initial trial basis, CBP and GAC will share information 

permissible by law, e.g., names of manufacturers, addresses, and descriptions of the goods 

relating to suspected violators. In addition, CBP and GAC plan to exchange statistical 

information on IPR border seizures within each country. Each country will appoint a contact to 

receive and act on information provided regarding IPR-infringing goods. CBP and GAC will 

also work to conduct technical exchanges on topics such as legislative/regulatory improvements, 

risk modeling and IPR recordation administration. U.S. Immigration and Customs Enforcement 

is also working to increase cooperation with China’s Ministry of Public Security through the 

Joint Liaison Group. 

 

China is also taking steps to meet its 2005 JCCT commitment to submit a legislative package to 

the National People’s Congress in June 2006 for China to join the WIPO Internet Treaties. 

However, the U.S. government has numerous, serious concerns regarding the current draft 

regulations which would govern aspects of copyright protection over the Internet. For example: 

• The draft only provides legal protections and remedies relating to technological protection 

measures (TPMs) that prevent or restrict the making available to the public of a work (e.g., 

passwords). It provides neither legal protections nor remedies to prevent circumvention of 

copy-control TPMs. Its exception to protection against circumvention remains overbroad. 

Without such protections and remedies, the United States is concerned that China will not 

provide effective protection against copyright infringement on the Internet. 

• The United States has concerns about several broad limitations on rights. These provisions 

should be reconsidered in the light of the tests for limitations and exceptions to copyright 

prescribed by the WIPO Internet Treaties and TRIPS. 

• The notice and take down measures for a copyright holder appear overly burdensome and 

rigid. As the Internet becomes a more popular means for distributing copyrighted material 

such as music, it is critical that these regulations include effective and efficient means of 

notifying Internet service providers and taking down infringing material. 

China needs to address these concerns before finalizing its implementing measures. The United 

States is pleased that at the 2006 JCCT, China requested a strengthening of communication and 

cooperation on domestic measures that will enable China to join the WIPO Internet Treaties. 
The U.S. government looks forward to providing further assistance to China, and believes that 

such cooperation is critical for China’s full implementation of the treaties. 

JCCT IPR Working Group

The JCCT IPR Working Group is an important vice-ministerial level vehicle to discuss IPR 

issues and problems, including those that are discussed at the JCCT. Since its creation in 2004, 

the group has met three times, and the United States is working toward holding a fourth meeting 

in upcoming months. In addition to vice-ministerial discussions, the group devotes a great deal 

of time to detailed expert-to-expert discussion of issues that impact IPR enforcement efforts 

within China, such as the clarifying the meaning and reviewing the application of China’s 

various measures governing its administrative, criminal, and customs enforcement actions. 

Expert discussions have produced concrete outcomes. For example, after such expert 

discussions, China agreed at the 2005 JCCT – and the Supreme People’s Court subsequently 

confirmed – that China would apply its 2004 judicial interpretation on criminal IPR 

infringements to sound recordings. 

Transparency

Article 63 of the WTO TRIPS Agreement requires laws, regulations and final judicial decisions 

and administrative rulings of general application pertaining to IPR infringement be made 

publicly available to rights holders. Despite this requirement, lack of transparent information on 

IPR infringement levels and enforcement activities in China continues to be a problem. 

In October 2005, the United States, along with Japan and Switzerland, requested that China 

provide additional IPR enforcement data pursuant to Article 63.3 of the TRIPS Agreement. 

After initial resistance, China invited the United States to Beijing in March 2006 for a full day of 

constructive discussions on improving transparency in the field of IPR enforcement. China 

provided previously unavailable IPR criminal prosecution data, and the two governments 

identified specific areas in which China will work toward greater transparency on IPR 

enforcement matters. China also stated that it would make a database of IPR enforcement 

statistics available to the public on the Internet in both Chinese and English to consolidate 

diverse IPR statistics and provide a consistent view for both governments and right holders. On 

the whole the two governments achieved progress, and the United States hopes to achieve further 

progress in obtaining information in such areas as criminal copyright cases, cases involving U.S. 

right holders, and cases involving exports. The United States does not consider, however, that 

China has provided a full response to the October 2005 Article 63.3 request. The United States 

continues to look forward to China’s full response. The United States also continues to welcome 

and encourage increased efforts by U.S. industry to enhance transparency through monitoring of 

IPR enforcement in China and its results in the Chinese market. 

Transparency in rulemaking is also a continuing problem. Government entities responsible for 

drafting rules often refuse to make drafts widely available for public comment, and instead limit 

their “consultations” to pre-selected industry and trade associations. The United States 

welcomed opportunities to comment on some administrative rules adopted by China in 2005 and 

2006. For example, the United States provided comments to China on its draft measures on IPR 
protection at trade fairs, and its draft rules to transfer cases from administrative to criminal 

authorities. U.S. industry commented extensively on China’s draft regulations for the protection 

of copyrights on information networks. However, the United States also notes that China 

provided no opportunity to comment on, e.g., the customs transfer rules or the rules to strengthen 

crackdowns on trademark infringement crimes. 

The United States has been urging China to adopt and regularize transparency requirements 

across all government agencies, including a mandatory public notice and comment requirement 

and a requirement that all trade-related measures be published in a single official journal. At the 

April 11, 2006 JCCT meeting, China announced that the General Office of the State Council had 

issued a notice requiring that all laws, regulations and other measures of all government 

ministries and agencies at all levels pertaining to or affecting trade in goods, services, TRIPS or 

the control of foreign exchange shall be published in a single official journal, i.e., the China 

Foreign Trade and Economic Cooperation Gazette, issued by the Ministry of Commerce. The 

United States welcomes this announcement and looks forward to its strict implementation. In 

light of its WTO obligations, it is still important for China to allow public notice and a 

reasonable opportunity for comment before implementing any trade-related measure. 

Patent and Data Protection Developments

While China's patent laws are largely compliant with the TRIPS Agreement, right holders have 

noted that the narrow scope of patentable subject matter under Chinese law makes patents for 

transgenic plants and animals virtually unobtainable. A lack of clarity in laws involving generic 

drug patent infringement is contributing to the continued growth of counterfeit drugs, with 

corresponding health and safety problems. 

In addition, the United States has concerns about the extent to which China provides meaningful 

protection against unfair commercial use of undisclosed test and other data submitted by 

pharmaceutical companies seeking marketing approval for their products. 
RUSSIA 

Russia will remain on the Priority Watch List in 2006. Despite some improvements in IPR 

enforcement this year, the United States continues to have serious concerns about the continued 

increase in optical disc pirate production in Russian plants and the growth of Internet piracy on 

Russian websites such as www.allofmp3.com. The United States is particularly concerned about 

piracy in optical disc factories located on government-owned facilities. In addition, the current 

draft of the proposed Part IV of the Civil Code, which would replace existing IPR laws, raises 

questions about its compliance with international norms and the possible adverse effect it could 

have, if passed, on IPR protection and enforcement in Russia. The Administration, U.S. 

industry, and the U.S. Congress share these concerns. The United States urges Russia to address 

these issues and to provide stronger IPR protection and enforcement—objectives which Russia’s 

top leaders have identified as a priority. 

Russia has made progress in some areas during the past year, such as increasing the number of 

raids on pirate optical disc facilities, including those located in government-controlled areas. 

Seizures of pirated goods and the equipment used to manufacture them have increased. Russia 

has also taken some steps, although unsuccessfully so far, to shut down the pirate website 

www.allofmp3.com. In addition, in the context of WTO accession negotiations, the United 

States expects Russia to commit to provide protection against unfair commercial use of 

undisclosed test and other data submitted by pharmaceutical and agricultural chemical 

companies seeking marketing approval for their products. The United States and Russia are 

consulting on other changes to Russia’s laws and regulations that are necessary for purposes of 

TRIPS compliance, concerning, for example, well-known marks, geographical indications, and 

other issues. 

The United States urges Russia to take immediate and effective steps to properly inspect all 

optical media plants, to shut down illegal plants and counterfeit product manufacturers; seize and 

destroy equipment used to make pirate and counterfeit goods; close illicit Internet sites; 

prosecute those responsible for piracy and counterfeiting, impose deterrent penalties on 

convicted infringers; strengthen border enforcement; ensure that any additions to the current 

Civil Code reinforce Russia’s existing IPR regime and are TRIPS consistent; and address 

deficiencies in its IPR laws. The United States will continue to monitor closely Russia’s 

progress in bringing its IPR regime in line with international standards through the ongoing 

review of whether to remove Russia’s benefits under the Generalized System of Preferences 

(GSP) due to inadequate copyright enforcement, WTO accession discussions, and the United 

States-Russia Bilateral IPR Working Group.

ARGENTINA 

Argentina will remain on the Priority Watch List in 2006. The United States notes that 

Argentina made some improvements in intellectual property protection throughout the past year, 

including recently implemented fast-track procedures for consideration of patent applications and 

the hiring of a significant number of patent examiners. However, despite these improvements, 

relatively few patents were granted in 2005 for commercially significant inventions. Further, 

Argentina still does not provide adequate protection against unfair commercial use of 

undisclosed test and other data submitted by pharmaceutical companies seeking marketing 

approval for their products. This important issue was not fully resolved in 2005. The United 
States urges Argentina to implement an effective coordination system between its health and 

patent authorities to prevent the issuance of marketing approvals for unauthorized patentinfringing copies of pharmaceutical products, as well as to address problems that rights holders 

encounter in attempting to obtain effective injunctions to stop such unfair commercial use. 

Copyright piracy also remains a significant problem in Argentina, with the U.S. copyright 

industry reporting that music piracy worsened in 2005, mainly in the areas of physical piracy 

(burned CD-Rs) and Internet piracy. Copyright piracy also continues in the areas of 

entertainment and business software and book publishing. Although the Argentine Government 

took some IPR enforcement actions during 2005, the United States encourages stronger IPR 

enforcement actions to combat the widespread availability of pirated and counterfeit products. 

The United States will continue to monitor Argentina’s efforts to address these concerns. 

BELIZE 

Belize will be elevated from the Watch List to the Priority Watch List in 2006. Piracy and 

counterfeiting are widespread in Belize, and improvements need to be made by Belize’s 

Government to strengthen IPR enforcement. Although cooperation between rights holders and 

government entities has improved in the past year, concerns remain about the ability and 

willingness of authorities to conduct inspections, seize counterfeit and pirated goods, complete 

prosecutions, and issue deterrent sentences. A continuing concern is the lack of IPR enforcement 

in Belize’s Corozal Commercial Free Trade Zone, through which infringing products are 

transshipped from Mexico to the United States and elsewhere. The United States urges Belize to 

improve IPR enforcement efforts by: revising necessary laws and regulations to facilitate 

inspections, seizures, criminal investigations, and destruction of infringing products; increasing 

resources devoted to border enforcement and the number of investigations of counterfeiting and 

piracy; prosecuting and issuing deterrent sentences to counterfeiters and pirates; and 

implementing strong IPR enforcement actions in the Corozal Commercial Free Trade Zone. 

BRAZIL 

Brazil will remain on the Priority Watch List in 2006. The United States commends Brazil’s 

progress on copyright enforcement this past year, including the formation of a public-private 

National Anti-Piracy Council, development of a national action plan by Brazil’s National 

Council to combat piracy and IP crimes, and increased police actions. In January 2006, in 

recognition of these improvements, USTR terminated a review of whether to remove Brazil’s 

benefits under GSP because of inadequate enforcement of copyright. Despite these 

improvements, however, high levels of piracy and counterfeiting still exist and criminal 

prosecutions remain minimal. The United States will continue to engage with Brazil on 

improving copyright enforcement. Unfortunately, commensurate progress has not been made in 

other areas. The United States is concerned about Brazil’s lack of protection against unfair 

commercial use of undisclosed test and other data submitted by pharmaceutical companies 

seeking marketing approval for their products. In addition, concerns remain that Brazil has not 

significantly reduced its backlog of pending patent applications, due in part to a requirement that 

the health regulatory agency issue its approval before pharmaceutical patents are granted by the 

Brazilian patent office. The United States will continue to work with Brazil to address these 

important IPR issues. 
EGYPT 

Egypt will remain on the Priority Watch List in 2006. The United States is concerned about 

continuing deficiencies in Egypt’s IPR enforcement regime, problems with its judicial system, 

the lack of protection against unfair commercial use of undisclosed test and other data submitted 

by pharmaceutical companies seeking marketing approval for their products, and Egypt’s lack of 

an effective coordination system between its health and patent authorities to prevent the issuance 

of marketing approvals for unauthorized patent-infringing copies of pharmaceutical products. 

Further, although in 2005 Egypt introduced implementing regulations for its copyright law and a 

customs regulation, deficiencies remain that need to be addressed. The United States encourages 

Egypt to accede to and implement the WIPO Internet Treaties. Improvements in IPR 

enforcement are needed, particularly in the areas of fighting copyright piracy for book 

publishing, entertainment software, and business software. In addition, the Egyptian court 

system continues to operate inefficiently, resulting in a lack of satisfactory resolutions of 

copyright and trademark cases, difficulty obtaining deterrent sentences, and a lack of 

transparency. The United States hopes to see improvements in Egypt’s IPR regime that will 

significantly strengthen trade and investment ties between the two countries. 

INDIA 

India will remain on the Priority Watch List in 2006. India made some improvements to its IPR 

regime during the past year, but IPR protection concerns remain due to inadequate laws and 

ineffective enforcement. The United States urges India to improve its IPR regime by providing 

stronger protection for copyrights, trademarks, and patents, as well as protection against unfair 

commercial use of undisclosed test and other data submitted by pharmaceutical companies 

seeking marketing approval for their products. The United States also encourages India to join 

and implement the WIPO Internet Treaties. India improved its patent protection regime when it 

passed legislation in early 2005 to provide for product patents for pharmaceuticals and 

agricultural chemicals. While this was a positive step, the new legislation has important 

omissions that detract from India’s patent regime. Additionally, India’s copyright laws and 

enforcement system are weak. Piracy of copyrighted works remains rampant, particularly for 

software, films, popular fiction works, textbooks, and cable signals. Although the Government 

of India has pledged to improve its trademark regime, foreign trademark owners experience 

difficulties due to procedural barriers and delays. India’s criminal IPR enforcement regime 

remains weak, with improvements most needed in the areas of border enforcement against 

counterfeit and pirated goods, police action against pirates and counterfeiters, judicial 

dispositions resulting in convictions for copyright and trademark infringement, and imposition of 

deterrent sentences. The United States urges India to address these issues during the coming 

year and thereby strengthen its IPR regime. To that end, the United States welcomes deeper 

cooperation with India, as envisioned in statements issued by our leaders to “work together to 

promote innovation, creativity and technological advancement by providing a vibrant intellectual 

property rights regime, and to cooperate in the field of intellectual property rights to include 

capacity building activities, human resource development and public awareness programs.” 

INDONESIA 

Indonesia will remain on the Priority Watch List in 2006, but the United States will conduct an 

Out-of-Cycle Review to monitor Indonesia’s progress on IPR issues. The United States 

commends Indonesia for its progress in strengthening its IPR enforcement regime in 2005, 
particularly with respect to fighting retail piracy and taking steps to implement its optical disc 

regulations to combat pirate production in optical disc factories. The United States also 

commends Indonesia for the re-establishment earlier this year of a Ministerial-level National IP 

Task Force as a focal point for future work to coordinate protection and enforcement of IPR. 

The United States urges Indonesia to build on this momentum by enforcing its IPR laws 

effectively and in a deterrent manner against piracy and counterfeiting, including through raids 

on pirate optical disc factories; by conducting seizures of pirated goods and the machinery used 

to make them; by arresting and prosecuting IPR infringers; and by ensuring that courts impose 

jail sentences for IPR crimes and that offenders actually serve such sentences. The United States 

will assess Indonesia’s progress on these issues during the Out-of-Cycle Review. In addition, the 

United States will continue to use the bilateral Trade and Investment Framework Agreement 

process to work with Indonesia to improve its IPR enforcement regime. 

ISRAEL 

Israel will remain on the Priority Watch List in 2006. In March 2005, Israel passed legislation 

that weakened protection against unfair commercial use of undisclosed test and other data 

submitted by pharmaceutical companies seeking marketing approval for their products, despite 

extensive efforts between the United States Government and the Israeli Government to bridge 

differences on this issue. Intensifying concerns of the United States, the Israeli Government 

passed legislation in December 2005 that significantly reduced the term of pharmaceutical patent 

extension granted to compensate for delays in obtaining regulatory approval of a drug. The 

United States is also monitoring the status of copyright legislation that would weaken protections 

for U.S. rights holders of sound recordings; the United States urges Israel to provide national 

treatment for U.S. rights holders in accordance with its international obligations, including those 

under the 1950 United States-Israel Bilateral Copyright Agreement. In addition, the United 

States continues to urge Israel to strengthen its data protection regime in order to promote 

increased bilateral trade and investment in the field of pharmaceuticals and other knowledgebased sectors. 

LEBANON 

Lebanon will remain on the Priority Watch List in 2006. Although the Lebanese Government 

issued some high-level statements in 2005 reflecting its commitment to fighting piracy and 

protecting IPR, there have been few concrete improvements in IPR protection and enforcement. 

Particular concern remains in the area of cable piracy, because according to the U.S. copyright 

industry, well over 80 percent of Lebanon’s cable subscribers view pirated content, one of the 

highest rates in the world. Additional concerns exist with respect to copyright piracy, 

particularly on the Internet. The United States urges the Lebanese Government to continue its 

efforts to address these problems and to ratify and implement the WIPO Internet Treaties. With 

respect to enforcement activities, the United States recognizes Lebanon’s establishment of a 

specialized IPR police unit which is authorized to take ex officio action against piracy and 

counterfeiting, and encourages further development of this new initiative. The United States also 

urges Lebanon to ensure that prosecutors and judges issue convictions and impose deterrent 

sentences for criminal IPR infringers, as well as strengthen its patent laws, provide protection 

against unfair commercial use of undisclosed test and other data submitted by pharmaceutical 

companies seeking marketing approval for their products, and provide an effective coordination 

system between its health and patent authorities to prevent the issuance of marketing approvals 
for unauthorized patent-infringing copies of pharmaceutical products. The United States will 

monitor the IPR situation in Lebanon closely, particularly under the GSP petition for inadequate 

copyright protection. 

TURKEY 

Turkey will remain on the Priority Watch List in 2006. Turkey made some progress on 

copyright enforcement during 2005, including an increased number of raids against copyright 

pirates and seizures of pirated goods, as well as increased impositions of deterrent penalties by 

the courts. The United States encourages Turkey to build upon this progress and to address the 

following IPR concerns: continuing enforcement against book, retail, and optical disc piracy; 

increasing judicial efficiency and reducing backlogs of court cases; addressing the growing 

problem of Internet piracy; increasing customs’ ex officio inspections and seizures of pirated and 

counterfeit goods; and ensuring the seizure and destruction at pirate optical disc plants of pirated 

goods and the equipment used to produce them. The United States also encourages Turkey to 

further strengthen data protection against unfair commercial use of undisclosed test and other 

data submitted by pharmaceutical companies seeking marketing approval for their products, 

particularly with respect to the start date of the period of protection and the inappropriate linkage 

of the term of data protection to the length of the patent term. The United States encourages 

Turkey to implement a system of coordination between its health and patent authorities to 

prevent the issuance of marketing approvals for unauthorized patent-infringing copies of 

pharmaceutical products. The United States hopes to see Turkey’s continued progress on these 

issues during the coming year, and will continue to monitor Turkey’s progress in strengthening 

its IPR regime. 

 

UKRAINE 

Ukraine will remain on the Priority Watch List. At the conclusion of an Out-of-Cycle Review in 

January 2006, the United States lowered Ukraine from the Priority Foreign Country list to the 

Priority Watch List and reinstated Ukraine’s benefits under the GSP program based on Ukraine’s 

implementation of its new OD amendments and improved enforcement efforts. The Government 

of Ukraine also agreed to establish a bi-monthly Enforcement Cooperation Group with the U.S. 

Embassy in Ukraine and U.S. industry representatives. 

In March 2001, the United States designated Ukraine as a Priority Foreign Country and initiated 

a Section 301 investigation. The United States withdrew Ukraine’s GSP benefits in August 2001 

and imposed sanctions on Ukrainian imports worth $75 million in January 2002. In August 

2005, in response to Ukraine’s passage of important amendments to its Laser-readable Disc Law 

(“OD amendments”) to combat optical disc pirate production, the United States terminated the 

$75 million trade sanctions. 

The United States will continue to monitor Ukraine’s progress on IPR enforcement through the 

Enforcement Cooperation Group and the Section 306 monitoring process. Although Ukraine is 

no longer a major producer of pirated optical discs, it remains a transshipment point and storage 

location for illegal optical media produced in Russia and elsewhere. The United States 

encourages Ukraine to further improve border enforcement efforts and to impose deterrent 

criminal penalties for unauthorized production and export of pirated products. In addition, as 

part of its bilateral negotiations with the United States for membership in the WTO, Ukraine has 
agreed to provide protection from unfair commercial use for undisclosed test data submitted to 

obtain marketing approval for pharmaceutical and agricultural chemical products. Although the 

United States recognizes Ukraine’s marked improvements in IPR protection, it will continue to 

monitor closely Ukraine’s further progress on IPR protection and enforcement. 

 

VENEZUELA 

Venezuela will remain on the Priority Watch List in 2006. Venezuela made minimal progress in 

strengthening its weak IPR regime this past year. High levels of copyright piracy continue to 

rise, while proposed copyright legislation under consideration would severely undercut the 

existing Venezuelan copyright law, as well as bilateral and international standards of IP 

protection. Venezuela does not provide protection against unfair commercial use of undisclosed 

test and other data submitted by pharmaceutical companies seeking marketing approval for their 

products. Furthermore, Venezuela lacks a coordinated system between its health and patent 

authorities to prevent the issuance of marketing approvals for unauthorized patent-infringing 

copies of pharmaceutical products. The only progress on IPR issues came from the Customs and 

Tax Agency, which enacted a regulation to allow ex officio seizures of pirated and counterfeit 

goods. The United States urges the Venezuelan government to take immediate action to improve 

IPR protection, particularly by protecting undisclosed test data against unfair commercial use, 

addressing copyright piracy, amending inadequate legislative proposals, fighting trademark 

counterfeiting, and improving IPR enforcement. 

 
WATCH LIST

BAHAMAS 

The Bahamas will remain on the Watch List in 2006. The United States remains concerned over 

the Bahamas’ failure to implement an amendment to the Copyright Act enacted by the Bahamian 

Government in 2004. The amendment narrowed the scope of the compulsory licensing regime 

for the reception and transmission of copyright works broadcast free over the air. Although last 

year’s Special 301 Report noted that the copyright amendment reflected a positive step towards 

compliance with commitments under an agreement reached between the Bahamas and the United 

States in 2000, the amendment has not yet been implemented. In the absence of such 

implementation, the compulsory licensing plan contains provisions that allow Bahamian cable 

operators to retransmit any copyrighted television programming, including for-pay 

programming, whether or not transmitted from the Bahamas or outside of the Bahamas and 

whether or not encrypted. Moreover, until existing regulations are changed, the remuneration 

system for copyrighted works under the compulsory licensing program includes less than fair 

market value rates for hotels and other commercial enterprises. The United States also urges all 

interested parties, including U.S. cable operators and copyrights holders, to seek commercial 

solutions that would facilitate the legal transmission of cable programming by cable operators in 

the Bahamas. 

BELARUS 

Belarus will remain on the Watch List in 2006. Concerns continue about overdue 

implementation of Belarus’ intellectual property regime, including adherence to commitments 

under the U.S.-Belarus Trade Agreement. Belarus made no significant progress during 2005 on 

needed legislative reforms or enforcement efforts. The United States is concerned that IPR 

enforcement in Belarus remains weak, that piracy levels remain high, and that Belarus needs to 

take strong enforcement action against optical media plants that are producing pirated goods. 

The Belarus copyright law needs to be amended to provide adequate protection for sound 

recordings and pre-existing works, as well as to implement the WIPO Internet Treaties, which 

Belarus joined in 1998. Despite amendments to its Criminal Code to adopt deterrent penalties 

for IPR violations, the Criminal Code still does not provide ex officio authority to allow police 

officials to initiate criminal copyright cases or for customs officials to seize illegal products at 

the border. Furthermore, Belarus’ law does not provide for civil ex parte search procedures 

necessary to protect against end-user software piracy. The United States encourages Belarus to 

improve its IPR regime and to enforce its IPR laws more aggressively. In addition, the United 

States urges Belarus to fulfill its obligations under the United States-Belarus Trade Agreement 

and will continue to monitor its progress in strengthening its IPR regime, especially in the 

context of Belarus’ bid for accession to the WTO. 

BOLIVIA 

Bolivia will remain on the Watch List in 2006. Despite an increase in public education on IPR 

and ongoing efforts to institutionalize the National Intellectual Property Rights Service, there 

were no notable improvements to Bolivia’s IPR regime. Under the TRIPS Agreement and the 

WIPO Internet Treaties, the latter of which were signed but have not yet been ratified, Bolivia 

should have increased its level of IPR protection years ago. Bolivia has inadequate copyright 

laws, significant copyright piracy and trademark counterfeiting, and weak overall IPR 
enforcement. The United States encourages Bolivia to strengthen its copyright laws and ratify 

and implement the WIPO Internet Treaties. The United States also urges Bolivia to increase its 

IPR enforcement efforts, including providing for civil ex parte searches, preventing unwarranted 

delays in civil enforcement, providing adequate civil and criminal damages in copyright cases, 

and strengthening border measures. The U.S. copyright industry continues to report that music 

piracy in Bolivia is so rampant that all international recording companies have closed their 

offices in Bolivia. Other copyright problems include commercial photocopying of books, 

unauthorized translations of books, video piracy, and entertainment software piracy. The United 

States encourages Bolivia to improve its IPR legislative regime in 2006, as well as increase its 

IPR enforcement efforts to combat piracy and counterfeiting. 

BULGARIA 

Bulgaria will remain on the Watch List in 2006. The United States notes that Bulgaria has made 

some improvements this past year in improving IPR legislation, coordinating among 

intergovernmental agencies, strengthening enforcement measures against optical disc piracy, and 

raising public awareness of IPR. For example, in February 2006, the newly formed interagency 

Council of Intellectual Property Protection approved amendments to the penal code criminalizing 

the possession of counterfeit products. The United States encourages Bulgaria’s Government to 

make further IPR improvements by engaging in sustained and consistent enforcement activities, 

devoting sufficient resources to combat piracy and counterfeiting, improving IPR legislation, and 

attacking the growing problem of Internet piracy. In particular, Bulgaria’s Government should 

make judicial enforcement in the courts a priority, including providing IPR training to 

prosecutors and judges, urging courts and prosecutors to make IPR infringement a priority, 

encouraging the completion of prosecutions and civil court cases on a timely basis, and seeking 

deterrent penalties for IPR violations. The United States also remains concerned with patent 

issues, namely the apparent lack of injunctive relief in patent infringement cases, and the 

requirement of a valid patent as a prerequisite for receiving protection against unfair commercial 

use of undisclosed test and other data submitted by pharmaceutical companies seeking marketing 

approval for their products. There also remain trademark infringement problems in Bulgaria, 

including continuing problems with counterfeit distilled spirits. The United States hopes that 

Bulgaria will continue its efforts to combat piracy and counterfeiting and to improve its overall 

IPR regime. 

CANADA 

Canada is being retained on the Watch List in 2006, and the United States will conduct an Outof-Cycle Review to monitor Canada’s progress on IPR issues under the leadership of its new 

government. Due to the dissolution of Canada’s Parliament in late 2005 and elections in early 

2006, Canada’s legislative progress on IP issues in 2005 was interrupted. The United States 

looks to the new government to make progress on IPR issues a priority in the coming year. Key 

areas for action include the ratification and implementation of the WIPO Internet Treaties, 

amendment of the copyright law to provide adequate and effective protection of copyrighted 

works in the digital environment, and the enactment of legislation to protect against unfair 

commercial use of undisclosed test and other data submitted by pharmaceutical companies 

seeking marketing approval for their products. The United States also calls on Canada to 

improve its IPR enforcement system so that it can take effective action against the trade in 

counterfeit and pirated products within Canada, as well as curb the amount of infringing products 
transshipped and transiting through Canada. Canada’s weak border measures continue to be a 

serious concern for IP owners. The United States notes the progress made by Canadian 

authorities this past year in IPR enforcement, particularly with respect to engaging with the 

United States and its industry on several IPR initiatives, including active participation in 

Operation Site Down, an international cooperative law enforcement effort to suppress online 

piracy. Canada needs to implement legislative changes to provide a stronger border enforcement 

system by giving its customs officers the authority to seize products suspected of being pirated or 

counterfeit without the need of a court order. Greater cooperation between Canadian Customs 

and the Royal Canadian Mounted Police would enhance enforcement, as would the provision of 

additional resources and training to its customs officers and domestic law enforcement 

personnel. The United States will use the Out-of-Cycle review to monitor Canada’s progress in 

providing an adequate and effective IPR protection regime that is consistent with its international 

obligations and its advanced level of economic development, including improved border 

enforcement, ratification and implementation of the WIPO Internet Treaties, and strong data 

protection. 

CHILE 

Chile will remain on the Watch List, and the United States will conduct an Out-of-Cycle Review 

to monitor progress on IPR issues. Issues of substantial concern include the inadequate 

protection against unfair commercial use of undisclosed test and other data submitted by 

pharmaceutical companies seeking marketing approval for their products, insufficient 

coordination between its health and patent authorities to prevent the issuance of marketing 

approvals for unauthorized patent-infringing copies of pharmaceutical products, continuing 

copyright piracy and trademark counterfeiting, and the need for greater efforts to meet standards 

set in the TRIPS Agreement, the United States-Chile Free Trade Agreement (FTA) and other 

international agreements. The United States notes in particular that Chile has not fully 

implemented legislation to comply with FTA obligations where the transition periods expired as 

of January 1, 2006, such as patent term adjustment. The United States is very concerned that 

Chile continues to grant marketing approval via sanitary approvals to unauthorized copies of 

patent-infringing pharmaceutical products. In addition, copyright and trademark enforcement 

must be improved, including the imposition of deterrent penalties in criminal IPR cases. The 

copyright piracy situation in Chile has not improved since last year, and digital piracy is a 

growing problem. Significant amendments to Chile’s IPR legislation are needed to bring Chile’s 

IPR regime in line with its international and bilateral commitments. The United States will 

continue to work with Chile, with the expectation of rapid progress on these pressing IPR issues 

through the implementation of its IPR commitments in the FTA, and will monitor Chile's 

progress in meeting its commitments through the Out-of-Cycle Review. 

COLOMBIA 

Colombia will remain on the Watch List in 2006. The United States notes some progress made 

by Colombia toward strengthening its IPR regime, but Colombia still needs to make further 

improvements by addressing copyright piracy, conducting effective prosecutions, imposing 

deterrent sentences by courts, and completing other IPR enforcement initiatives. Copyright 

piracy remains high, with problems reported by the U.S. copyright industry in the areas of optical 

disc piracy (both CD-R and DVD-R), illegal photocopying of academic textbooks, business 

software piracy, and entertainment software piracy. Efforts to combat piracy through raids and 
other enforcement measures are hampered by a judicial system that fails to prosecute cases 

actively or to issue deterrent criminal sentences. Border enforcement continues to be weak, and 

administrative enforcement against signal theft piracy needs improvement. The United States 

will work with Colombia to make progress on these pressing IPR issues through the 

implementation of its IPR commitments in the United States-Colombia Trade Promotion 

Agreement, which was concluded in February 2006, and the United States expects to see 

continued progress from Colombia in the near term. 

COSTA RICA 

Costa Rica will remain on the Watch List in 2006. Concerns include problems with its IPR 

legislation and enforcement, particularly with respect to copyright piracy and trademark 

counterfeiting. The United States encourages the Government of Costa Rica to take immediate 

action in 2006 to improve the shortcomings in its IPR enforcement system by assigning high 

priority and resources to enforcement efforts against piracy and counterfeiting. Costa Rica 

signed the United States-Dominican Republic-Central American Free Trade Agreement 

(CAFTA-DR) in 2004, and is the only partner which has not yet ratified it. The United States 

urges Costa Rica to ratify CAFTA-DR – and to do so in the near term. Areas of concern include 

the inadequate protection against unfair commercial use of undisclosed test and other data 

submitted by pharmaceutical companies seeking marketing approval for their products, patents, 

copyrights, trademarks, criminal and civil enforcement; and border enforcement. The United 

States will work with Costa Rica to make progress on these pressing IPR issues through the 

implementation of its IPR obligations under CAFTA-DR, and the United States hopes to see 

continued progress from the Government of Costa Rica in the near term. 

CROATIA 

Croatia will remain on the Watch List in 2006 due to limited progress on IPR issues. The United 

States is concerned about difficulties with obtaining injunctive relief and expeditious resolutions 

in patent cases. As reported in the 2005 Special 301 Report, Croatia passed legislation in 

December 2004 that provided protection against unfair commercial use of undisclosed test and 

other data submitted by pharmaceutical companies seeking marketing approval for their 

products, but Croatia fails to provide coordination between its national patent authority and its 

central health regulatory authority to prevent marketing registrations for patent-infringing 

pharmaceutical products. As a result, the U.S. pharmaceutical industry reports that companies 

are easily able to register patent-infringing pharmaceuticals in Croatia. Inadequate border 

enforcement also contributes to the growing importation of pirated goods into Croatia. The 

United States will continue to monitor Croatia’s progress on these issues in 2006. 

DOMINICAN REPUBLIC 

The Dominican Republic will remain on the Watch List in 2006, due to slow progress on a range 

of IPR issues. The United States encourages the Dominican Republic to focus its efforts on 

combating broadcast piracy, deterring copyright and trademark infringement, and ensuring an 

expeditious resolution of pending civil and criminal IPR cases. The United States also is 

concerned about reported deficiencies in the protection against unfair commercial use of 

undisclosed test and other data submitted by pharmaceutical companies seeking marketing 

approval for their products. On the positive side, the Dominican Republic took steps in January 

2006 to ratify the WIPO Internet Treaties and has taken some IPR enforcement actions, 
including the confiscation and destruction of pirated goods. In September 2005, the Dominican 

Republic ratified the U.S.-Dominican Republic-Central America Free Trade Agreement 

(CAFTA-DR), which requires the Dominican Republic to strengthen IPR protection, including 

enforcement. The United States will continue to work with the Dominican Republic on the 

implementation of its IPR obligations to ensure that it meets its international and CAFTA-DR 

commitments. 

ECUADOR 

Ecuador will remain on the Watch List in 2006. Despite some enforcement activities to seize 

pirated CDs and DVDs, overall enforcement of IPR remains problematic, resulting in high piracy 

levels for the business software and recording industries. Music piracy has become so severe in 

Ecuador that the majority of international record companies have closed their local offices. 

Ecuador has not yet established a specialized IP court, as it was required to do under its 1998 

intellectual property law, and many Ecuadorian courts appear unwilling to enforce the IP law. 

Concerns also remain over Ecuador’s lack of effective protection against unfair commercial use 

of undisclosed test and other data submitted by pharmaceutical companies seeking marketing 

approval for their products, as well as reports that Ecuador lacks an effective coordination 

system between its health and patent authorities to prevent the issuance of marketing approvals 

for unauthorized patent-infringing copies of pharmaceutical products. The United States urges 

Ecuador to strengthen IPR enforcement and will closely monitor Ecuador’s efforts to address 

IPR concerns, particularly through the U.S.-Andean Trade Promotion Agreement negotiations. 

EUROPEAN UNION 

The European Union (EU) will remain on the Watch List in 2006 because of concerns over EU 

rules concerning geographical indications (GIs). For instance, following an adverse ruling by the 

WTO Dispute Settlement Body in April 2005, the EU published a new regulation concerning GIs 

on March 31, 2006, and claimed full compliance with the WTO recommendations and rulings. 

But concerns remain with respect to this new regulation’s impact on the rights of trademark 

owners, which the United States continues to analyze; the United States looks forward to 

continued cooperation with the EU on this and other intellectual property matters. 

GUATEMALA 

Guatemala will remain on the Watch List in 2006, although the United States notes that 

Guatemala has been working closely together with it to implement the IPR obligations under the 

U.S.-Dominican Republic-Central America Free Trade Agreement (CAFTA-DR), which 

requires Guatemala to strengthen IPR protection. The United States hopes that the continuing 

implementation of CAFTA-DR will result in a stronger IPR legislative regime in Guatemala, an 

effective enforcement system, and a significant reduction of piracy and counterfeiting. In 

addition, the United States hopes to see increased protection against unfair commercial use of 

undisclosed test and other data submitted by pharmaceutical and agricultural chemical 

companies seeking marketing approval for their products. The United States will continue to 

work with Guatemala to ensure that its IPR legal regime implements the TRIPS Agreement and 

CAFTA-DR. 
HUNGARY 

Hungary will remain on the Watch List in 2006. Hungary has improved its IPR regime over the 

past several years, including the recent passage of IPR enforcement legislation, but additional 

improvements are necessary. The United States notes, however, that copyright piracy in 

Hungary continues to grow, due in large part to copyright piracy on the Internet. Enforcement 

deficiencies include prosecutorial delays, judicial imposition of low fines or weak sentences, and 

weak border enforcement. Hungary does not provide an effective coordination system between 

its health and patent authorities to prevent the issuance of marketing approvals for unauthorized 

patent-infringing copies of pharmaceutical products. The United States urges the Hungarian 

Government to address these issues and to continue to improve its IPR enforcement efforts. 

ITALY 

Italy will remain on the Watch List for 2006. Despite Italy’s passage of strong copyright laws, 

increased enforcement actions, and the decline of piracy rates in the sectors of business software, 

music, and entertainment software, U.S. industry reports that Italy continues to possess one of 

the highest overall piracy rates in Western Europe and chronic problems with copyright piracy 

on the Internet. Although Italy has made some progress through increased raids, seizures, and 

arrests of IPR infringers, there is inadequate judicial enforcement and a lack of judicial 

imposition of deterrent fines and jail sentences for criminal copyright and trademark infringers. 

The United States continues to observe wide variations in the effectiveness of IPR enforcement 

activities within Italy. The United States will continue to work with Italy to improve its IPR 

awareness and to improve IPR protection and enforcement. 

JAMAICA 

Jamaica will remain on the Watch List in 2006. The United States remains concerned over 

Jamaica’s continued delay in enacting the Patents and Designs Act, which is intended to 

implement Jamaica’s obligations under the TRIPS Agreement and to comply with the United 

States-Jamaica bilateral Intellectual Property Agreement. The United States urges the 

Government of Jamaica to reform its patent law as soon as possible to comply fully with 

international standards for patent protection. 

KUWAIT 

Kuwait will be downgraded from the Priority Watch List to the Watch List due to significant 

improvements in its IPR regime this past year, particularly in the area of IPR enforcement 

actions. This year, Kuwaiti Customs and the Ministry of Commerce and Industry improved their 

IPR enforcement efforts. A new IPR committee was formed that includes the Ministries of 

Justice, Interior, Information, and Commerce and Industry, and Kuwait is in the process of 

establishing a new IPR court. The Ministry of Education initiated a program to combat book 

piracy, and the Ministry of Information conducted numerous raids on pirates and counterfeiters. 

The United States hopes that Kuwait will continue to improve its IPR regime by ensuring, for 

example, that law enforcement officials are engaged in combating piracy and counterfeiting, that 

judicial authorities impose deterrent penalties for IPR violations, and that necessary legislation is 

passed to strengthen its IPR regime. The United States is concerned that several key pieces of 

IPR legislation (including amendments in the areas of copyrights, trademarks, geographical 

indications, patents, data protection, and enforcement) have been pending for many years, and 

hopes that Kuwait will expeditiously enact and implement such legislation in the near term. The 
U.S. copyright industry reports that Kuwait continues to have high levels of retail optical disc 

piracy, as well as problems with business software piracy, cable piracy, and Internet piracy. The 

United States hopes that key ministries with IPR enforcement responsibilities will continue to 

build upon the progress of 2005, in order to reduce piracy and counterfeiting rates. The United 

States will continue to address these issues under the United States-Kuwait Trade and Investment 

Framework Agreement signed in February 2004. 

LATVIA 

Latvia will remain on the Watch List in 2006, and the United States will conduct an Out-ofCycle Review to monitor further progress on Latvia’s enforcement activities. Latvia has 

improved IPR enforcement during the past year by promoting coordination among ministries 

responsible for IPR enforcement, increasing resources to combat IPR piracy and counterfeiting, 

forming a high-level IPR working groups to focus on enforcement, and adopting a new criminal 

procedure code on IPR enforcement issues, among other initiatives. In addition, the Ministry of 

Interior established an IPR crime unit that has conducted numerous raids, seized infringing 

products, and referred cases for prosecution. There has been an increase in the number of IPR 

infringers who have been prosecuted and sentenced, although the United States encourages 

Latvia to ensure that its courts issue stronger penalties for IPR infringers that include deterrent 

fines and jail sentences. However, some key IPR issues remain in need of attention, including 

copyright piracy, especially on the Internet, and the lack of effective border enforcement. The 

United States encourages Latvian customs officials to take increased action to inspect and seize 

transshipped pirated and counterfeit goods coming into Latvia from Russia and exported to 

Lithuania, Poland, and other EU countries. The United States notes that Latvian Customs 

officials have increasingly used their ex officio authority this past year to combat the flow of 

pirated and counterfeit goods into Latvia. Through the Out-of-Cycle Review, the United States 

will work together with Latvia to build upon its recent progress to improve its IPR regime. 

LITHUANIA 

Lithuania will remain on the Watch List in 2006. Despite some IPR improvements this past 

year, numerous IPR issues remain, including copyright piracy on the Internet and transshipment 

of pirated optical media through Lithuania. The United States encourages Lithuania to 

implement optical media rules that effectively regulate the production, distribution, and export of 

optical media, particularly as border enforcement remains a serious problem, with Lithuania 

serving as a central transshipment point in the Baltic region for mostly Russian-produced optical 

media to the rest of Europe. The United States urges Lithuanian customs officials to make more 

frequent use of their ex officio authority to inspect and seize infringing goods at the border. The 

United States also encourages Lithuania to direct its attention and resources to increasing its antipiracy and anti-counterfeiting efforts by coordinating IPR enforcement efforts among relevant 

government ministries, police, and customs officials. 

MALAYSIA 

Malaysia will remain on the Watch List in 2006 to monitor its efforts to improve its IPR regime. 

Malaysia made some significant improvements in IPR protection and enforcement this past year, 

but still has some serious deficiencies. IPR enforcement improvements during the past year have 

included: conducting raids against pirate optical disc production facilities; seizing pirate goods 

and machinery used to produce pirate materials; arresting IPR infringers; and revoking or 
declining to renew licenses for pirate optical disc facilities. The United States appreciates these 

steps as well as the Government’s statements that it is in the process of establishing a specialized 

IP court to more effectively handle civil and criminal copyright cases. The United States urges 

Malaysia to continue its enforcement efforts, particularly with respect to closing licensed and 

unlicensed optical disc plants that are producing pirated products, stopping the export of pirated 

goods, and combating the growing problem of piracy and counterfeiting on the Internet. In 

addition, the United States notes that Malaysia should address several deficiencies in its 

copyright law to fully implement the WIPO Internet Treaties, and should join the WCT and 

WPPT. Trademark counterfeiting, including of pharmaceuticals that pose a health and safety 

risk to the public, is rampant in Malaysia due to poor enforcement. The United States is also 

concerned that Malaysia has enacted neither protection against unfair commercial use of 

undisclosed test and other data submitted by pharmaceutical companies seeking marketing 

approval for their products, nor a coordination mechanism between the health authorities and 

patent office to prevent the registration of unauthorized copies of patent-infringing products. 

The United States will work with Malaysia to make progress on these pressing IPR issues 

through the upcoming U.S.-Malaysia Free Trade Agreement negotiations. 

MEXICO 

Mexico will remain on the Watch List in 2006. The last year has seen some improvements in 

IPR enforcement, including the formation of a specialized IPR customs unit, as well as increased 

raids and seizures of counterfeit and pirated goods. However, significant problems remain. 

Although the IP unit of the Prosecutor General’s Office (PGR) has again increased the number 

and scope of raids against sellers of counterfeit and pirate goods, convictions and terms of 

incarceration for the pirates and counterfeiters have not kept pace. The United States encourages 

Mexico to follow its commendable raids with aggressive prosecutions and deterrent penalties, to 

improve domestic cooperation efforts on enforcement, and also to encourage cooperation 

between Mexican Customs and the PGR to stem the flow of infringing items before they reach 

the markets. The United States notes that Mexico made progress by drafting IPR legislation this 

past year, including efforts to criminalize the circumvention of technological protection 

measures, to give ex officio authority to the police, and to subject businesses engaged in 

counterfeiting to administrative sanctions and to closure. The United States encourages Mexico 

to enact and implement these laws, as well as strengthen other IPR laws, including amending the 

copyright law to implement fully the WIPO Internet Treaties. The United States encourages 

Mexico to make further efforts to provide protections for patents and against unfair commercial 

use of undisclosed test and other data submitted by pharmaceutical companies seeking marketing 

approval for their products, and notes concern over the lack of an effective coordination system 

between its health and patent authorities to prevent the issuance of marketing approvals for 

patent-infringing copies of pharmaceutical products. The United States will continue to work 

with Mexico to address and resolve these IPR concerns in an effective manner. 

PAKISTAN 

Pakistan will be lowered to the Watch List in 2006. Pakistan made notable progress on IPR 

issues during the past year, particularly with respect to the closure of numerous pirate optical 

disc factories and improved enforcement efforts, including the establishment of the Intellectual 

Property Organization of Pakistan (IPOP) to centralize and coordinate IPR enforcement. In 

January 2006, in recognition of these improvements, USTR terminated a review in which the 
United States Government was considering whether to remove Pakistan’s benefits under the 

Generalized System of Preferences because of inadequate enforcement of copyright laws. 

Despite improvements, piracy rates remain a concern. The United States is encouraged that 

Pakistan has established in practice a system to avoid granting marketing approvals to 

unauthorized copies of drugs protected by a patent. The United States is also encouraged that 

Pakistan has committed to move forward with implementing protection to effectively protect 

test and other data submitted by pharmaceutical companies seeking marketing approval for their 

products against unfair commercial use. The United States will monitor the situation closely as it 

develops, and will work together with Pakistan to achieve further improvements in its IPR 

protection and enforcement regimes. 

PERU 

Peru will remain on the Watch List in 2006. Despite high-profile raids and a public anti-piracy 

campaign, Peru still has numerous IPR problems. Peru’s Government took some steps toward 

improving copyright enforcement through its “Anti-Piracy Crusade” initiated in 2002. The U.S. 

industry reports that copyright piracy remains high in the sectors of sound recordings and 

business software. The United States encourages the Government of Peru to continue its efforts 

to combat IPR piracy by coordinating with the private sector, conducting an increased number of 

raids and seizures, ensuring that arrests of IPR infringers result in convictions and the imposition 

of deterrent sentences that include imprisonment, and giving increasing attention to IPR 

enforcement measures at its borders. The United States is pleased at the signing on April 12, 

2006 of the United States-Peru Trade Promotion Agreement (PTPA) and looks forward to 

stronger IPR protection and enforcement in Peru. Under the PTPA, Peru has committed itself to 

effective protection of copyrights, trademarks, and patents; enforcement against piracy and 

counterfeiting; and effective protection against unfair commercial use of undisclosed test and 

other data submitted by pharmaceutical and agricultural chemical companies seeking marketing 

approval for their products, among other obligations. The United States also is concerned over 

reports that Peru lacks an effective coordination system between its health and patent authorities 

to prevent the issuance of marketing approvals for unauthorized patent-infringing copies of 

pharmaceutical products. The United States will continue to work with Peru to strengthen IPR 

protection and enforcement and to ensure that Peru implements its IPR obligations to meet its 

international and PTPA commitments. 

PHILIPPINES 

The Philippines was lowered from the Priority Watch List to the Watch List at the conclusion of 

an Out-of-Cycle review in February 2006, due to substantial improvements in IPR protection. 

The Philippines remains on the Watch List in this Report. Throughout 2005, the Philippines 

took steps to bolster implementation of its Optical Media Act, including increasing the number 

of raids against pirate optical disc production facilities and retail establishments. The 

Philippines’ Intellectual Property Office coordinated among IPR enforcement agencies, which 

resulted in an increased number of raids and enforcement actions. While recognizing these 

improvements, the United States strongly urges the Philippines to sustain and broaden progress 

on IPR issues in order to avoid a potential return to the Priority Watch List in the future. 

Remaining IPR issues include: enforcing the Optical Media Act through continued inspections 

and raids of optical disc plants; increasing the number of seizures of pirate and counterfeit 

products and the machinery used to produce such infringing products; increasing the numbers of 
arrests and convictions of pirates and counterfeiters arising out of the optical disc plant 

inspections, to achieve deterrence and avoid recidivism; imposing deterrent sentences against 

criminal IPR infringers (i.e. significant fines or prison sentences that are actually served); 

ensuring destruction of pirate and counterfeit goods and equipment used to make them; 

addressing the problem of illegal copying of textbooks; improving customs enforcement; taking 

actions against television signal theft by pirate cable TV operators; addressing the growing 

problem of counterfeit pharmaceuticals; bringing domestic IPR laws in line with the Philippines’ 

commitment to implement the WIPO Internet Treaties, including addressing Internet piracy; and 

increasing the capacity of courts to address IPR cases effectively. The United States will use the 

bilateral Trade and Investment Framework Agreement to engage the Government of Philippines 

on strengthening its IPR regime. The United States commends the Philippines for its progress to 

date and hopes to see continued improvement on these important IPR issues in the future. 

POLAND 

Poland will remain on the Watch List in 2006. Despite some progress on IPR protection this past 

year, including an increased number of raids and seizures of pirated goods at retail 

establishments and improved coordination with private industry, IPR enforcement problems still 

exist. For example, concerns exist regarding a lack of judicially imposed deterrent sentences for 

criminal IPR infringers that include imprisonment, continued sale and distribution of pirated 

products in and around the Warsaw Stadium, and weak border enforcement, among other IPR 

issues. The United States encourages Poland to strengthen enforcement measures to combat IPR 

piracy and counterfeiting. In addition, Internet piracy presents a growing problem in Poland. 

There also remain deficiencies in the protection against unfair commercial use of undisclosed 

test and other data submitted by pharmaceutical companies seeking marketing approval for their 

products. The United States commends Poland for its heightened efforts over the past year to 

improve its IPR regime, and the United States encourages Poland to continue this progress by 

committing its resources and attention to IPR enforcement, combating piracy and counterfeiting, 

and issues related to pharmaceuticals as outlined above. 

REPUBLIC OF KOREA 

The Republic of Korea (Korea) will remain on the Watch List in 2006. The United States is 

pleased that Korea established the Copyright Protection Center and increased enforcement 

against institutions using illegal software by establishing a Standing Inspection Team. The 

United States hopes to see further efforts to update Korea’s IPR regime to keep pace with the 

digitization of Korea’s economy and prevent the proliferation of unauthorized copying of 

copyrighted material, especially on the Internet. The United States looks to Korea to extend the 

exclusive reproduction right to cover temporary copies, such as those made in the temporary 

memory of a computer. Korea’s National Assembly is considering legislation that would 

enhance protection for sound recordings transmitted over the Internet. The United States calls on 

Korea to further strengthen the relevant provisions of its Copyright Act and Computer Programs 

Protection Act related to technological protection measures and Internet Service Provider 

liability, to clarify the scope of the private copy exception and of the rights of sound recording 

producers over digital dissemination of recordings, and to extend the term of copyright 

protection for works and sound recordings. Although there has been some progress on IPR 

enforcement, including a series of court decisions against businesses that facilitate illegal filesharing, the United States urges Korea to accelerate its efforts to combat piracy of DVDs, 
computer software, and books, as well as to decrease street vendor sales of pirated and 

counterfeit goods and infringing activities on university campuses. The United States 

encourages Korea to address its lack of an effective coordination system between its health and 

patent authorities to prevent the issuance of marketing approvals for unauthorized patentinfringing copies of pharmaceutical products. The United States will work with Korea to make 

progress on these and other IPR issues through the upcoming Free Trade Agreement 

negotiations. 

ROMANIA 

Romania will remain on the Watch List in 2006. The United States will continue to monitor 

further progress on IPR enforcement, including high piracy rates in the sectors of business 

software, music, and entertainment software, due to weak enforcement and deficiencies in the 

judicial system. Some IPR improvements were made by Romania this year, including the 

designation of the General Prosecutor’s Office of the Supreme Court as the national coordinator 

for IPR enforcement, the provision of ex officio authority to law enforcement authorities, the 

requirement of Source Identification Codes for optical disc manufacturing, and increased 

dedication of resources for IPR enforcement. Despite these positive steps, however, copyright 

piracy continues to thrive, including on the Internet. In addition, law enforcement agencies and 

the judiciary continue to place a low priority on IPR enforcement. For example, prosecutors are 

reluctant to prosecute criminal IPR cases, courts are reluctant to convict and issue deterrent 

sentences against IPR infringers, and the Romanian judiciary has dismissed a large number of 

cases on the grounds that there is a “lack of social harm.” The United States urges Romania to 

improve its IPR enforcement activities in order to combat piracy effectively. 

SAUDI ARABIA 

Saudi Arabia will remain on the Watch List in 2006, and the United States will conduct an Outof-Cycle review to monitor Saudi Arabia’s continued progress on IPR issues. The United States 

recognizes that Saudi Arabia has improved its IPR regime as part of its becoming a WTO 

member in 2005. Progress has been notable in several areas, including an increased number of 

raids and seizures of pirated and counterfeit goods, positive legislative amendments to strengthen 

IPR protection, and increased cooperation with private industry. The United States commends 

Saudi Arabia for these improvements and encourages further progress on a number of IPR 

issues. To build on the positive cooperation established between Saudi Arabia and the U.S. 

copyright industry, the United States looks to Saudi Arabia to complete recent IPR actions that it 

has initiated. For example, the United States looks to Saudi Arabia to increase transparency of 

its IPR enforcement regime, continue sustained raids and inspections to combat piracy and 

counterfeiting, ensure transparency in the judicial system and imposition of deterrent sentences 

(including jail terms for serious offenses) against criminal IPR infringers, and improve border 

enforcement measures, among other IPR issues. The United States will work together with 

Saudi Arabia on a specific plan of action, and the United States encourages Saudi Arabia to 

continue with its already strong efforts to improve its IPR regime. The United States will 

continue our IPR discussions with Saudi Arabia through the Trade and Investment Agreement 

and the Out-of-Cycle review. 
TAIWAN 

Taiwan will remain on the Watch List in 2006. The United States recognizes Taiwan’s efforts to 

improve its IPR regime, including increasing the number of raids and seizures of pirated optical 

media, counterfeit pharmaceuticals, and counterfeit luxury goods. The United States notes the 

successful prosecution of the peer-to-peer Internet service Kuro and commends Taiwan for its 

passage in 2005 of amendments to its pharmaceutical law to provide a five-year term of 

protection against unfair commercial use of undisclosed test and other data submitted by 

pharmaceutical companies seeking marketing approval for their products. The United States 

recognizes the efforts of Taiwan’s Department of Health to consult with private industry 

concerning draft data protection implementing regulations, which are expected to be finalized by 

June 2006. The United States looks to Taiwan to sustain the current level of commitment to 

making progress on IPR issues, and will continue to monitor further improvements, including 

Taiwan’s efforts to combat the production of pirated optical media and proliferation of Internet 

piracy, to deal more effectively with unauthorized use of copyright materials on government and 

university computer networks, strengthen IPR enforcement actions against piracy and 

counterfeiting, to establish a specialized IP court, and to devote more resources and coordinated 

high-level government attention to combating IPR infringement. The United States also calls on 

Taiwan to strengthen border enforcement against transshipment of pirated and counterfeit goods, 

consider legislative amendments to address ISP liability, implement stronger criminal penalties 

for IPR infringement, and extend the term of copyright protection for works and sound 

recordings. The United States continues to look to Taiwan to address these remaining IPR 

concerns and the United States will work together with Taiwan to achieve further progress. 

TAJIKISTAN 

Tajikistan will remain on the Watch List in 2006. The United States remains concerned that 

Tajikistan has not yet fulfilled its IPR obligations under the U.S.-Tajikistan Bilateral Agreement, 

and encourages Tajikistan to take necessary steps to bring its IPR regime into conformity with 

the TRIPS Agreement as part of its ongoing efforts to join the WTO. In addition, Tajikistan has 

a weak enforcement regime that lacks criminal penalties for IPR violations, ex officio authority 

to commence criminal cases, and civil ex parte search procedures necessary for effective 

enforcement against end-user pirates, among other important enforcement measures. The Tajik 

Customs Code also fails to provide customs officials with ex officio authority to suspend the 

release of suspected infringing materials at the border. Legal reforms are needed, for example, in 

Tajikistan’s copyright law, which does not provide protection for sound recordings or preexisting works, despite its obligation to do so under the Berne Convention. The United States 

also encourages Tajikistan to join and implement the WIPO Internet Treaties. The United States 

will work with Tajikistan through the Trade and Investment Framework Agreement signed in 

2004 and the ongoing WTO accession negotiations to address deficiencies in its IPR laws and 

strengthen IPR protection and enforcement. 

THAILAND 

Thailand will remain on the Watch List in 2006. Thailand made some progress in strengthening 

its IPR regime during 2005, including some enforcement efforts to combat piracy and 

counterfeiting. Despite these encouraging signs, however, piracy and counterfeiting rates remain 

high and enforcement actions need to be further strengthened and sustained. The U.S. 

Government remains concerned about the proliferation of optical disc pirate production at plants 
in Thailand, especially in light of comparatively weak optical disc legislation that Thailand 

passed in 2005. Piracy is also widespread in the areas of photocopying of books, cable signals, 

entertainment and business software, and music on the Internet. The production, distribution, 

sale, and export or transshipment of pirated and counterfeit products continues to be a serious 

concern. The United States also is concerned about the weak protection against unfair 

commercial use of undisclosed test and other data submitted by pharmaceutical and agricultural 

chemical companies seeking marketing approval for their products, as well as delays in 

pharmaceutical patent approvals by the Thai Department of Intellectual Property. The United 

States will continue to work with Thailand to address these significant concerns regarding its 

intellectual property laws and enforcement. 

TURKMENISTAN 

Turkmenistan will remain on the Watch List in 2006. The United States is concerned about 

Turkmenistan’s lack of progress on IPR issues during the past year and its lack of fulfillment of 

its IPR obligations under the United States-Turkmenistan Trade Agreement. For example, 

Turkmenistan has not joined the Berne Convention, the Geneva Phonograms Convention, or the 

WIPO Internet Treaties. Turkmenistan does not have a separate copyright law and does not 

provide clear criminal procedures or penalties for IPR infringement as required by the U.S.-

Turkmenistan Trade Agreement. Its Customs Code does not provide ex officio authority to seize 

suspected infringing material at the border, and there are no known civil ex parte search 

procedures. The United States urges Turkmenistan to adopt the legal reforms that will bring 

Turkmenistan into compliance with its obligations under the bilateral United StatesTurkmenistan Trade Agreement and to undertake enforcement activities that will help to 

strengthen its IPR regime. 

UZBEKISTAN 

Uzbekistan will remain on the Watch List in 2006. The United States is concerned about the 

lack of significant progress on IPR issues this past year. For example, Uzbekistan did not move 

forward with several IPR-related amendments that had been contemplated. While Uzbekistan 

recently joined the Berne Convention, the United States notes with concern Uzbekistan’s 

reservation to Article 18, which provides protection for pre-existing works. Furthermore, 

Uzbekistan appears to be out of compliance with its intellectual property commitments under the 

United States-Uzbekistan Trade Agreement, particularly with respect to copyright protection and 

enforcement. Uzbekistan does not provide protection for sound recordings or pre-existing 

works, and is not a member of the Geneva Phonograms Convention or the WIPO Internet 

Treaties. In addition, IPR enforcement in Uzbekistan remains weak due to a lack of ex officio

authority that would allow customs officials to seize infringing materials at the border, a lack of 

civil ex parte search procedures, and inadequate criminal penalties for IPR violations. The 

United States urges Uzbekistan to address these deficiencies in its IPR laws and to take 

immediate and effective measures to improve IPR enforcement. The United States will continue 

to work together with Uzbekistan on these outstanding IPR issues through discussions related to 

Uzbekistan’s bid for WTO accession. 

VIETNAM 

Vietnam will remain on the Watch List in 2006. The United States commends Vietnam for its 

improvements in IPR protection, including Vietnam’s passage of a comprehensive IPR law in 
November 2005, but notes some remaining deficiencies and ambiguities. The United States 

looks forward to seeing regulations that provide clear, strong guidance for implementation in 

accordance with the United States-Vietnam Bilateral Trade Agreement (BTA) and the TRIPS 

Agreement. The United States encourages further progress on IPR enforcement initiatives and 

continued implementation of the intellectual property provisions of the BTA, under which 

Vietnam agreed to provide high standards of IPR protection. Despite these improvements, 

however, IPR infringement remains rampant in Vietnam, with reports from the U.S. copyright 

industry that in some cities, 100 percent of the CDs, VCDs, and DVDs sold are pirated. 

Responsible authorities have considerable work to do with respect to IPR enforcement. The 

United States looks to Vietnam to continue to build upon its public commitment to IPR 

protection by successful implementation of the new IPR law, including measures that result in 

the imposition of deterrent penalties for criminal IPR infringement and the seizure and 

destruction of infringing goods and the equipment and materials used to make them. Vietnam 

also passed new legislation to provide protection against unfair commercial use of undisclosed 

test and other data submitted by pharmaceutical companies seeking marketing approval for their 

products, and the United States looks forward to seeing this new law implemented successfully. 

The United States and Vietnam have been working together to address IPR issues during WTO 

accession discussions, and continued progress is anticipated this year. 
SECTION 306

PARAGUAY 

In 2006 the United States will continue to monitor Paraguay under Section 306. USTR identified 

Paraguay as a Priority Foreign Country in January 1998 as part of a Special 301 Out-of-Cycle 

Review. The subsequent Special 301 investigation terminated with the signing of a 

comprehensive Memorandum of Understanding (MOU) on the protection of intellectual property 

in 1998. Paraguay has been under Section 306 monitoring since the signing of the MOU, and the 

United States and Paraguay currently are negotiating an extension of the MOU. The United 

States notes that Paraguay has made efforts to improve the protection of intellectual property, 

particularly by increasing the number of raids and seizures of pirated and counterfeit goods. 

Paraguay continues, however, to have problems providing effective IPR protection due to porous 

borders, ineffective prosecutions for IPR infringements, and the lack of consistent deterrent 

sentences, including imprisonment, in court cases. The United States also has concerns about the 

inadequate protection against unfair commercial use of undisclosed pharmaceutical test and other 

data submitted by pharmaceutical companies seeking marketing approval for their products, as 

well as the passage in 2005 of a bill that weakens the patent law. The United States will continue 

to work with Paraguay to address these IPR concerns during the coming year. 
WIPO Internet Treaties: 

WIPO Performance and Phonograms Treaty (WPPT) 

and the WIPO Copyright Treaty (WCT) 

The following eight countries became parties to the World Intellectual Property Organization 

(WIPO) Performances and Phonograms Treaties (WPPT) during May 2005-April 2006. The 

WPPT entered into force on May 20, 2002, and now has 57 contracting parties. 

Country Date of Entry Into Force

Azerbaijan April 11, 2006 

Bahrain December 15, 2005 

Benin April 16, 2006 

Cyprus December 2, 2005 

Dominican Republic January 10, 2006 

Oman September 20, 2005 

Qatar October 28, 2005 

United Arab Emirates June 9, 2005 

The following seven countries became parties to the World Intellectual Property Organization 

(WIPO) Copyright Treaty (WCT) during May 2005-April 2006. The WCT entered into effect on 

March 6, 2002, and now has 58 contracting parties. 

Country Date of Entry Into Force

Albania August 6, 2005 

Azerbaijan April 11, 2006 

Bahrain December 15, 2005 

Benin April 16, 2006 

Dominican Republic January 10, 2006 

Oman September 20, 2005 

Qatar October 28, 2005